Category Archives: Fed

Trade, Atlanta Fed, Redbook sales

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Trade deficit a bit higher but looks to me like more to come, including revisions. The petroleum gap is set to widen as US production begins to decline and is replaced by imports. And to my prior point, auto imports were up. And further note that global reductions in trade are associated with recessions:

International Trade
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Highlights
The nation’s trade gap came in near expectations in May at $41.9 billion, wider than April’s revised gap of $40.7 billion. The goods gap rose by a net $1.2 billion to $61.5 billion, offset in part by a fractionally wider services surplus of $19.6 billion. The petroleum gap narrowed $1.0 billion to $5.8 billion which, reflecting rising domestic oil output together with rising exports of refined products, is the lowest since February 2002.

Exports, which have been pressured by strength in the dollar, fell $1.5 billion to $188.6 billion in May reflecting a $2.4 billion downswing for capital goods and, within this reading, a $1.2 billion downswing in aircraft exports. Exports of nonmonetary gold fell $0.5 billion in the month.

Imports were also down, $0.3 billion lower to $230.5 billion including a $0.8 billion decline in capital goods. Imports of industrial supplies fell $0.6 billion within which imports of crude oil fell $0.4 billion. The decline in crude imports comes despite a more than $4 rise in prices to $50.76 per barrel. Imports of autos rose $0.9 billion in the month.

By country, the gap with China rose $4.0 billion to $30.5 billion with the EU gap down $0.8 billion to $12.5 billion. The gap with Japan narrowed $1.8 billion to $5.2 billion while the gap with Mexico widened slightly to $4.6 billion in the month. And for the first time since 1990, the nation posted a monthly surplus with Canada, at $0.6 billion.

The decline in goods exports is a major concern for the manufacturing sector which is struggling right now with weak foreign demand. The May gap is in line with trend and is not likely to affect GDP estimates.
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An uptick to 2.3% based on today’s trade report for May. The first Q2 GDP estimate will be out later this month, and will include an estimate for June trade which won’t come out until the first revision for Q2 GDP comes out:
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This minor indicator remains depressed, as do other retail sales indicators:

Redbook
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Highlights
Hot weather triggered demand for seasonal goods in the July 4 week, helping to boost Redbook’s same-store year-on-year sales index by 3 tenths to plus 2.0 percent. But the reading is still soft and does not point to strength for the government’s core retail sales reading (ex-auto ex-gas). May was a very strong month for retail sales which, however, appear to have edged lower since.
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Durables charts, new home sales,FHFA House Price Index, Japan PMI, GDP, Atlanta Fed, Mtg. purch apps, oil comment

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Longer term year over year view not looking so good:
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The cheer leading continues, and sales in the Northeast up 87% looks a bit unsustainable?

New Home Sales
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Highlights
The lift off for housing is appearing more and more like it’s straight up. New home sales rose 2.2 percent in May to an annual rate of 546,000 which is 6,000 above the high end Econoday forecast. Add to this is a 27,000 upward revision to the two prior months with April now standing at 534,000 for a big 8.1 percent monthly gain.

The surge in sales is making for a strong seller’s market with supply relative to sales down to a very thin 4.5 months vs 4.6 months in April. Total new homes on the market stand unchanged at 206,000. The lack of supply risks becoming acute and will doubtlessly speed up construction activity led by permits which, in data posted last week, have been jumping.

Lack of supply will prove to be a positive for sales prices, which however, are down in the latest report, 2.9 percent lower to a median $282,800. Year-on-year, the median price is down 1.0 percent vs the year-on-year sales gain of 19.5 percent in a mismatch that points to price acceleration ahead.

Regional sales data show a strong 13.1 percent rise in the West where year-on-year sales are up 25.5 percent. The South, which is larger than all the other regions combined in this report, has the strongest year-on-year rate at 33.3 percent though monthly sales in May dipped 4.3 percent. Sales have been soft in both the Northeast and Midwest where year-on-year rates are in the negative column though the Northeast is showing monthly strength in this report.

Yesterday’s existing home sales report was very positive as is today’s report, both of which add to other data that put housing at the top economy right now for a sector that can offset stubborn weakness in the manufacturing economy.
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Seems like a stretch to call this ‘lift off’???
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And price gains have at least moderated?
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Another PMI goes negative. And note that exports are up, in contrast to the US:

Japan : PMI Manufacturing Index Flash
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Highlights
The flash manufacturing PMI for June indicated a slight deterioration in operating conditions at Japanese manufacturers. Production growth slowed to a fractional pace, while new orders contracted for the third time this year so far. Subsequently, employment growth was subdued, while buying activity declined. The flash manufacturing reading was 49.9, down from the May final of 50.9. Output increased, though at a slower rate. Employment increased but at a slower rate. Both output and input prices increased at a faster rate.

While new orders changed direction and decreased, export orders increased at a faster rate. Reports of a favorable exchange rate and an increase in foreign demand led to a further rise in new export orders in June. Moreover, the latest expansion was the second-fastest since January and quicker than the series average.

As expected, still negative, still only a minor weather bounce to Q2 so far:

GDP
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Highlights
The second revision to first-quarter GDP came in as expected, at minus 0.2 percent. Exports were near the top of the negative side, reflecting the strong dollar’s negative effect on foreign demand. A rise in imports was the quarter’s biggest negative.

The heavy weather of the quarter contributed to an outright contraction in business spending (nonresidential fixed investment) and an abrupt slowing in consumer spending (personal consumption expenditures).

Despite PCE slowing, spending on services, that included an upward revision for restaurants, was the strongest component in the first quarter. Also adding to GDP was an inventory build, one however that was largely unwanted and tied to the quarter’s severe weather and port slowdown. Residential investment was also a positive. The GDP price index was unchanged in the quarter.

First-quarter 2015 wasn’t as badly hit as first-quarter 2014 when GDP sank 2.1 percent, a dip that was then reversed by a 4.6 percent bounce back in second-quarter 2014. Estimates for this second quarter’s GDP growth are settling into the 2 to 3 percent range. We’ll get yet another look at the first quarter with annual revisions on July 30.

I’m sure the Fed sees this:
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Marginally better:
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Now 18% over last year. Better, but bank credit numbers don’t show an increase and all cash purchases are down as a % of purchases:

MBA Mortgage Applications
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Highlights
After swinging up-and-down the past few weeks, mortgage applications inched higher in the June 19 week. Purchase applications rose 1.0 percent with refinancing applications up 2.0 percent. Year-on-year, purchase applications are up a very strong 18.0 percent. Mortgage rates dipped in the week with the average for conforming loan balances ($417,000 or less) down 3 basis points to 4.19 percent.

More signs that US production has peaked and maybe starting to decline, which will mean increased petroleum imports and a higher trade deficit:
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EU Industrial Production, Credit Check, Atlanta Fed

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Even with increasing net exports, over all GDP isn’t benefiting all that much, as fiscal policy and structural reforms that assist exports do so by restricting incomes and domestic demand to achieve ‘competitiveness’. Additionally, negative rates and QE remove some interest income from the economy, which also restricts domestic demand to some degree. And, ironically, the subsequent current account surplus puts upward pressure on the euro until there are no net exports, obviating the efforts and sacrifices that went into achieving the competitiveness. Further note that a Greek default, for example, fundamentally removes net euro financial assets from the economy, further tightening the euro, as Greek debt is nothing more than bank deposits in the ECB system:

European Union : Industrial Production
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Highlights
The goods producing sector began the second quarter on a surprisingly soft note. A 0.1 percent monthly rise in production (ex-construction) was comfortably short of expectations and followed a steeper revised 0.4 percent decline in March. As a result, annual workday adjusted output growth dropped from 2.1 percent to 0.8 percent, its slowest pace since January.

However, April’s minimal monthly rebound would have been rather more impressive but for a 1.6 percent slide in energy. Elsewhere there were gains in intermediates (0.3 percent), capital goods (0.7 percent) and consumer durables (1.0 percent). Non-durable consumer goods were down 0.8 percent but, apart from this category, all sectors reported increases versus a year ago.

Amongst the larger member states output rose a solid 0.8 percent on the month in Germany but there were falls in France (1.0 percent), Italy (0.3 percent) and Spain (0.1 percent). Elsewhere Finland, already technically in recession, only saw output stagnate following a cumulative 2.4 percent loss since the end of last year while Greece (also back in recession) posted a hefty 2.3 percent reversal.

April’s advance leaves Eurozone industrial production just 0.1 percent above its average level in the first quarter when it increased fully 0.9 percent versus October-December. This provides early warning of a probable smaller contribution from the sector to real GDP this quarter and so underscores the need for the ECB to see out its QE programme in full.
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Portfolio selling from blind fear of QE and negative rates and Greece, etc. drove down the euro, but fundamentally inflation was falling and ‘competitiveness’ increasing so the trade surplus was pushed higher by the lower levels of the currency. Now it looks like the increasing trade flows are ‘winning’ and beginning drive the euro higher, with portfolios ‘sold out’ of euro, all of which should continue until the trade flows subside:
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Back to the US:

I see no sign of whatsoever of accelerating credit growth:
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This got some attention when the growth rate was increasing, but not anymore since it rolled over and remains well below prior cycles:
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They make point of potential growth every time one of the little wiggles bends up, but just look at how low the growth rate actually is, especially compared to prior cycles:
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Nothing happening with consumer lending:
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This shows how competitive banking is as banks compete by narrowing their spreads over their cost of funds:
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The Atlanta Fed forecast ticked up with the latest retail releases, but still remains well below mainstream forecasts and is also indicating what would be a very weak ‘bounce’ from the negative Q1 print, as the implied first half GDP growth rate would only be around .6%- very close to an ‘official’ recession. And as you’ve seen from the charts, those same releases indicated continued year over year deceleration of growth (including autos and retail sales) as well as elevated inventories, which doesn’t bode well for Q3 and Q4:
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payrolls, rail traffic

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Most notable is the market reaction- rates up, stocks down, as markets discount higher odds of a Fed rate hike into what markets think is a relatively weak economy, and I tend to agree.

Employment Situation
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Highlights
The hawks definitely have some ammunition for the June 16-17 FOMC meeting as the May employment report proved very strong led by payroll growth and, very importantly, an uptick in wage pressures. Non-farm payrolls rose 280,000, well above the Econoday consensus for 220,000 and near the top-end forecast of 289,000. Revisions added a net 32,000 to the two prior months.

Average hourly earnings came in at the high end of expectations, up 1 tenth to plus 0.3 percent. Year-on-year earnings are up 2.3 percent, a rate only matched twice during the recovery, the last time back in August 2013. Pressure here will be the focus of the hawks’ arguments.

Another sign of strength includes the labor participation rate, up 1 tenth to 62.9 percent. The unemployment rate did tick 1 tenth higher to 5.5 percent which is unexpected but the gain reflects a solid gain in the labor force for both those who found a job and especially those who are now looking for a job.

Private payrolls are up 262,000 vs expectations for 215,000 and also near the high-end forecast. By industry, professional business services once again leads the list, up 63,000 following a 66,000 gain in April. Within this industry, the closely watched temporary help services sub-component is up 20,000 after two prior gains of 16,000. The rise in temporary hiring points to permanent hiring in the months ahead. Trade & transportation is up 50,000 followed by retail trade at a solid 31,000. Construction is up 17,000 but follows a 35,000 surge in April. Manufacturing, where exports are hurting, continues to lag, up only 7,000. And mining, which is being clobbered by contraction in the energy sector, is down 17,000 to extend a long run of declines.

Today’s results probably aren’t enough to raise expectations for a rate hike at this month’s FOMC but will be enough to raise talk for a hike at the September meeting. The approach of a rate hike is a wildcard for the financial markets, likely raising volatility including for the Treasury market where turbulence has been very heavy the last month.

Can be said to be a minor rebound from the March dip when you average the last three months, and certainly not a sign of ‘acceleration’:
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Not a lot of change, but the 6 month average is still bending down some:
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These are still telling me there is still a very large amount of slack in the ‘labor market’ and the gains all along have been relatively small:
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If you think of the recessions of ‘digging a hole’ that was subsequently ‘filled in’ you can see the magnitude of the hole dug in the last recession and how it remains ‘unfilled in’, as per the participation rates:
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When you look at this age group in isolation, the decline is all about aggregate demand, and not about aging:
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This doesn’t look so good when you take it back a few years, and considering this is not adjusted for inflation and there’s been a 0 rate policy for 7 years and $3.5 trillion of QE ;)
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Rail Week Ending 30 May 2015: Contraction Further Worsens On Rolling Averages. May 2015 Month Totals Show Contraction Year-over-Year.

(Econintersect) — Week 21 of 2015 shows same week total rail traffic (from same week one year ago) declined according to the Association of American Railroads (AAR) traffic data. Intermodal traffic improved year-over-year, which accounts for half of movements – but weekly railcar counts continues deep into contraction. A quote from the AAR data release:

The degree to which coal carloads have fallen has been a surprise, and the relative weakness in other carload categories is a sign that the economy is probably not yet in bounce-back mode after a dismal first quarter.

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Fed’s Beige Book

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The sharp reduction in oil capex that was driving the economy has predictably shown up first in the oil states like Texas, Oklahoma, North Dakota, etc. Just as these states led on the way up, they are leading on the way down as well, with that weakness working its way to the other regions as the US continues to suffer from a general lack of aggregate demand. Though to a lesser degree, this is similar to the sub prime episode, where that housing expansion led the recovery, driving down the Federal deficit via the automatic fiscal stabilizers (tax revenues and transfer payments) as private sector deficit spending increased and did the heaving lifting. Then when that private sector deficit spending came to an end, sales and jobs collapsed, as the recession unfolded. Same for the .com era expansion and the S and L driven expansion prior to that, etc. Once the deficit spending falls short of the demand leakages the cycle ends.

Yes, debt levels are low enough for a consumer debt led rebound, but the private sector tends to be pro cyclical, and we see this happen only on the way up, pro cyclically, and not counter cyclically to rescue a slowdown already in progress.

Also, seems much like they did a few years ago, the Fed has engineered a spike in mortgage rates just as housing was beginning to show some signs of life, though admittedly not much. Traditionally housing has been the source of private sector deficit spending- borrowing to buy houses- but seems this time it isn’t going to happen. Nor are a few car loans going to move the needle, and in any case overall consumer spending growth seems to be fading.

Beige Book

Highlights
The second to last risk for a June rate hike has passed as the Beige Book, prepared by the Fed for its June 16-17 policy meeting, downgrades the strength of the economy slightly. Four of the Fed’s 12 districts are reporting slowing growth from the prior Beige Book, especially Dallas which is being hit hard by the energy sector.

Nevertheless, total employment is up slightly as are wages, but only slightly. Retail sales are also up as are residential and commercial construction. Manufacturing is described as steady with the exception, again, of Dallas and also Kansas City. The service sector is described as growing.

The pace of the nation’s economy is somewhere between moderate and modest with no signs of over heating. The only chance left now for a rate hike at the June meeting is Friday’s employment report which would not only have to show huge gains for May but also major upward revisions for April. The economy is not getting the big second-quarter boost that the hawks expected.

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macro update

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At the beginning of 2013 the US let the FICA tax reduction and some of the Bush tax cuts expire and then in April the sequesters kicked totally some $250 billion of proactive deficit reduction. This cut 2013 growth from what might have been 4% to just over half that, peaking in Q3 and then declining to negative growth in Q1, due to the extremely cold winter. Forecasts were for higher growth in 2014 as the ‘fiscal headwinds’ subsided. GDP did resume after the weather improved, though not enough for 2014 to look much different from 2013. And with the fall in the price of oil in Q4 2014, forecasts for Q1 2015 were raised to about 4% based on the ‘boost to consumers’ from the lower oil prices. Instead, Q1 GDP was -.7%. The winter was on the cold side and the consumer had been saving instead of spending the savings from lower gas prices. And the forecasts for Q2 were for about 4% growth based on a bounce back and consumers now spending their gas savings. Most recently Q2 forecasts have been reduced with the release of Q2 data.

My narrative is that we learned the extent of capex chasing $90 in Q4 after the price fell in half. It seemed to me then that it had been that capex that kept 2013 growth as high as it was and was responsible for the bounce from Q1 2014 as well as the continued positive growth during 2014 up to the time the price of oil dropped and the high priced oil related capex came to a sudden end.

By identity if any agent spend less than his income another must have spent more than his income or the output would not have been sold. So for 2012 the output was sold with govt deficit spending where it had been, and when it was cut by some $250 billion in 2013 some other agent had to increase it’s ‘deficit spending’ (which can be via new debt or via depleting savings) or the output would have been reduced by that amount. Turns out the increase in oil capex was maybe $150 billion for 2013 and again in 2014, best I can tell, and this was sufficient to keep the modest growth going while it lasted. And when it ended in Q4 that spending (plus multipliers) ended as well, as evidenced by the sudden decline in GDP growth. And so far the Q2 numbers don’t look like they’ve increased much, if any, since Q1. And to do so will take an increase in ‘borrowing to spend’ that I can’t detect. Of course, I missed the surge in oil capex last year, so there could be something this year I’m missing as well.

When oil prices dropped I pointed out three things-

1. Income saved by buyers of oil equaled income lost by sellers, so the benefit to total spending was likely to be small and could be negative, depending on propensities to save and to spend on imports. And yes, some of the sellers of oil were ‘non residents’, but that was likely to reduce US exports, and cuts in global capex could reduce US exports as well.

2. Lost capex was a direct loss of GDP, plus multipliers, both domestically and globally.

3. Deflation in general is highly problematic for lenders, and tends to reduce private sector credit expansion in general.

To me this meant the drop in oil prices was an unambiguous negative. And in the face of universal expectations (including the Fed) that it was a positive, which can be further problematic.

Euro Zone

Forecasts are for modestly improving growth largely due to the weak euro driving exports. However, the euro is down from massive foreign CB selling, probably due to fears of ECB policy and the Greek saga. This technical selling drove the euro down and the euro area 19 member current account surplus up, absorbing the euro the portfolios were selling. Once the portfolio selling subsides- which it will as euro reserves are depleted and short positions reach maximums- the trade flows continue, which then drives the euro up until those trade flows reverse. In other words, the euro appreciates until net exports decline and the anticipated GDP growth fades. And there is nothing the ECB can do to stop it, as rate cuts and QE works only to the extent it frightens portfolio managers into selling, etc.

Also, ironically, a Greek default would fundamentally strengthen the euro as Greek bonds are nothing more than euro balances in the ECB system, and a default is a de facto ‘tax’ that reduces the holdings of euro net financial assets in the economy, making euro that much ‘harder to get’ etc.

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Comments on transport weakness, Draghi comments, Japan exports to US, new home sales,PMI and Fed indexes chart, Dallas Fed, Richmond Fed, Consumer confidence

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Transport Is Saying Consumer Spending Should Slow Further

By Steven Hansen

When one analyzes the economy, there are always some sections which do better than others. When the economic growth is weak (like currently), several segments can be in contraction while others are expanding.

Everything but the needed fiscal relaxation:

ECB’s Draghi urges euro zone to unite for economic reform

May 23 (Reuters) — “The current situation in the euro area demonstrates that this delay could be dangerous,” ECB President Mario Draghi said while acknowledging progress had been made, for example with banking union. But private risks need to be shared within the euro zone, with financial integration improving access to credit for companies and leading to a complete capital markets union, Draghi said. Countries should observe common standards when implementing structural reforms but also take a country-specific approach, as part of a process of “convergence in the capacity of our economies to resist shocks and grow together”.

Looks like our trade deficit is still on the rise:

“Exports to the United States rose 21.4 percent in the year to April, keeping the pace of gains in the previous month with brisk shipments of cars and vehicle engines.”

Chart not looking so good:

United States : Durable Goods Orders
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Up a bit after a dip in March but not much different from the Q1 average so hard to say Q2 is doing better than Q1 from this report:

United States : New Home Sales
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Highlights
New home sales bounced back solidly in April, up 6.8 percent to a 517,000 annual rate that is on the high side of Econoday expectations. Strength is centered in the South which is the largest and important housing region and where sales rose 5.8 percent, this however fails to reverse the region’s 11.8 percent drop in the prior month.

Supply rose slightly in the month, to 205,000 new homes on the market, but supply relative to sales fell to 4.8 months from 5.1 month. Low supply should encourage builders to bring more homes on the market but at the same time low supply hurts current sales. Price readings are mostly favorable led by a 4.1 percent rise in the median price to $297,300 for a strong 8.3 percent year-on-year gain.

Readings in this report are always volatile month-to-month but the gains for April underscore the recent surge in housing starts & permits and help offset last week’s disappointing weakness in existing home sales. The housing sector is still trying to get off the ground but indications, taken together, are improving.
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Again, doesn’t look like Q2 is doing any better than Q1 here either:

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This is notable as my narrative is about the end of the energy capex that was chasing $100 oil that had been keeping total US GDP positive in 2014. This key indicator of that energy investment is showing the deep cuts have not stabilized but are continuing to take their toll, and the drop in total spending and income necessarily ripples out to the rest of the US and global economies. And note the continuing reports of weakness in exports, as the foreign sector drop in oil capex reduces their ability to import:

United States : Dallas Fed Mfg Survey
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Highlights
Contraction in the energy sector continues to pull the Dallas Fed report into deeply negative ground, to a headline minus 20.8 vs minus 16.0 and minus 17.4 in the prior two months. Production shows a turn for the worse, at minus 13.5 vs April’s minus 4.7, as does employment, at minus 8.2 vs plus 1.8. New orders remain deeply negative, at minus 14.1 vs minus 14.0. Prices paid also fell further though the decline is easing, to minus 1.7 from minus 11.2.

The regional Fed reports all point to another slow month for the manufacturing sector which is struggling with energy contraction, especially evident in this report, as well as weakness in exports.

Dallas Fed: Texas Manufacturing Activity Contracts Further

Texas factory activity declined again in May, according to business executives responding to the Texas Manufacturing Outlook Survey. … The general business activity index fell to -20.8 in May, its lowest reading since June 2009.

Labor market indicators reflected employment declines and shorter workweeks. The May employment index declined 10 points to -8.2, after rebounding slightly above zero last month. Twelve percent of firms reported net hiring, compared with 21 percent reporting net layoffs. The hours worked index fell from -5 to -11.6.

United States : Richmond Fed Manufacturing Index
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Highlights
Regional Fed reports on the manufacturing sector continue to be soft with Richmond’s at only plus 1 for May following two prior months of declines. New orders, after three straight declines, did rise but only to plus 2. Backlog orders, however, remain deep in the negative column at minus 10.

Employment growth is down while shipments are in contraction for a 4th month. Price readings are flat except for wages which show a big 11-point gain to 20. Wage pressures are a trigger for an FOMC rate hike and this reading, though isolated, will get the attention of the hawks at the Fed.

First it was Empire State, then the Philly Fed, then Kansas City, all showing weakness this month and now including Richmond. Data from the Dallas Fed, also released this morning, is especially weak. The manufacturing sector is having a tough time gaining momentum, held down by weak exports and contraction in the energy sector.

This is one man one vote, not one dollar one vote, and is another indicator where Q2 isn’t doing as well as Q1:
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seasonal adjustments, export reports, Atlanta Fed, Chicago Fed, PMI manufacturing, Philadelphia Fed Survey, Existing home sales, KC Fed

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Note that if/when the adjustments are changed it looks like they make Q4 and Q1 a bit higher and Q2 and Q3 a bit lower. The net adjustments are 0 for the year.

Nicole Mayerhauser, chief of BEA’s national income and wealth division, which oversees the GDP report, said in the statement that the agency has identified several sources of trouble in the data, including federal defense service spending. Mayerhauser said initial research has shown this category of spending to be generally lower in the first and the fourth quarters. The BEA will also be adjusting “certain inventory investment series” that have not previously been seasonally adjusted. In addition, the agency will provide more intensive seasonal adjustment quarterly service spending data.

My narrative goes something like this: The CB euro selling drives the price down to the point where the euro zone net exports increase sufficiently to absorb the cb selling, at which point the euro reverses as the trade flows overwhelm the selling from those portfolios and the euro then continues to rise until the current account surplus goes away:

Job creation at four-year high despite slower pace of economic growth

May 21 (Markit) — Eurozone PMI Composite Output Index at 53.4 (53.9 in April), Services PMI Activity Index at 53.3 (54.1 in April), Manufacturing PMI at 52.3 (52.0 in April), and Manufacturing PMI Output Index at 53.5 (53.4 in April). Faster growth in manufacturing was offset by a slowdown in services, though the pace in the latter merely eased slightly further from March’s eight-month high to suggest a broad-based upturn remains in place. Weaker order book growth was centred on the service sector, with manufacturing reporting the strongest inflows of new orders for just over a year, linked to improved export performance.


PMI data signals further slowing of private sector output growth

May 21 (Markit) — PMI data signals further slowing of private sector output growth () Germany Composite Output Index at 52.8 (54.1 in April), Services Activity Index at 52.9 (54.0 in April), Manufacturing PMI at 51.4 (52.1 in April), and Manufacturing Output Index at 52.7 (54.3 in April). Mirroring the trend for output, German private sector companies also signalled a weaker rise in new business. While a pick-up in construction activity and rising domestic demand were reasons behind the overall increase, some survey participants linked the slowing in the rate of growth to economic uncertainties. Meanwhile, manufacturers reported a fourth successive monthly rise in new export orders.

Recent data leaves their forecast unchanged:
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Negative and looking weak:
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Weaker here too:

PMI Manufacturing Index Flash
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Highlights
Markit’s US manufacturing sample had been far stronger than other readings on the sputtering sector but is a little less so with the May report where the index slipped slightly to a 16-month low of 53.8, 8 tenths below the Econoday consensus.

Slowing growth in new orders, including weakness in export orders tied directly to strength in the dollar, held down the May index. Another area of weakness remains the energy sector where business spending is down. Shipment growth slowed to its slowest rate so far this year.

Strength in the report is centered in employment, but this won’t last if orders continue to slow. Deliveries continue to be delayed in part by persistent bottlenecks tied to the long since resolved port strike. Costs are up but inflation remains marginal.

The manufacturing sector is having a tough spring following six prior months of slowing. Watch for the Philly Fed report coming up this morning at 10:00 a.m. ET.

Less than expected and weak:
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Less than expected and weak:

Existing Home Sales
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Highlights
Existing homes sales are not living up to springtime expectations, down 3.3 percent in April to a 5.04 million annual rate which is just below the low-end Econoday forecast. Three of 4 regions show contraction in April with the sharpest decline, minus 6.8 percent, in the South, which is by far the largest housing region. Year-on-year, total sales are still up a respectable 6.1 percent.

Another positive is a rise in supply with 2.21 million used homes on the market vs 2.01 million in March. This rise, together with the drop in sales, raises supply relative to sales to 5.3 months from 4.6 months. And another positive is a 4.1 percent rise in the median price to $219,400 which is up 8.9 percent year-on-year.

But this report in sum is a disappointment, failing to point to any building momentum. Strength in the housing sector may be switching, from existing home sales to new home sales at least based on this report compared to the historic surge earlier this week in housing starts & permits. But housing data month-to-month are always volatile and, on net, it’s too soon to decipher how strong the spring housing season is right now.
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And one last negative for today:

Kansas City Fed Manufacturing Index
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Highlights
The early indications on May’s manufacturing activity have been slightly positive, that is until the Kansas City Fed report where the composite index is in deeply negative ground at minus 13. This is the weakest of the recovery for this reading and follows an already weak minus 7 in April.

New orders this month are deeply negative, at minus 19, as are backlog orders at minus 21. These readings, reflecting contraction for export orders and trouble in the energy sector, point to significant trouble for the region’s manufacturing activity in the months ahead.

Shipments are already in contraction, at minus 9, as is employment, at a deeply negative minus 17 that contrasts with mostly positive employment indications in other reports.

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NFIB chart, NY Fed debt chart, April tax collections

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Small increase and still down from year end levels, still very low historically, real sales- what matters most- were down:

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Small Business Optimism Rises, But Future Sales Cloud Outlook

The Small Business Optimism Index increased 1.7 points from March to 96.9, this in spite of a quarter of virtually no economic growth. Unfortunately, the Index remained below the January reading. Nine of the 10 Index components gained, only real sales expectations were weaker. But this still leaves the Index below its historical average, oscillating between 95 and 98 but never breaking out except for December, when the Index just tipped past 100, only to fall again.

Debt balances not growing:

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Delinquencies, Foreclosures and Bankruptcies Improve as Household Debt Stays Flat

The Federal Reserve Bank of New York’s Household Debt and Credit Report revealed that aggregate household debt balances were largely flat in the first quarter of 2015. As of the end of March, total household indebtedness was $11.85 trillion, a $24 billion, or 0.2 percent, increase during the first quarter of this year. The report is based on data from the New York Fed’s Consumer Credit Panel, a nationally representative sample drawn from anonymized Equifax credit data.

The slowdown in growth can be attributed to a negligible uptick in mortgage balances, which are the largest component of household debt. Mortgage balances stood at $8.17 trillion in the first quarter. Additionally, balances on home equity lines of credit (HELOC), which were $510 billion at the end of fourth quarter, 2014, were unchanged in the first quarter of this year.

Non-housing debt balances increased by 0.7 percent from the end of last year, largely due to increases in student loans ($32 billion) and auto loans ($13 billion). These gains were partially offset by a $16 billion decline in credit card balances.

I seem to recall something going very wrong after this happened in 2008?

The U.S. budget surplus in April rose to the highest level since 2008 on record revenue as hiring improved during a month when Americans file tax returns.

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global glympse

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Germany : Retail Sales
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Highlights
Retail sales followed a smaller revised 0.1 percent dip in February with a surprisingly hefty 2.3 percent monthly slump in March. The drop was the steepest since December 2013 but friendly base effects were enough to ensure that the first back-to-back decline since April/May 2014 still boosted unadjusted annual growth from 2.5 percent to 3.2 percent. Nonetheless, the level of sales at quarter-end was the weakest since last October.

March’s setback means that first quarter purchases were up only 0.5 percent versus the fourth quarter when they rose a solid 1.2 percent. This looks odd in the context of a raft of strong consumer surveys. In particular, at 53.0 the retail sector PMI last month posted its highest reading since last June.

France : Consumer Mfgd Goods Consumption
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Japan : Industrial Production
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Highlights
March industrial production dropped a much less than anticipated 0.3 percent on the month – analysts were expecting a drop of 2.2 percent. It was the second consecutive decline. On the year, output was down 2.9 percent. The monthly reading showed great fluctuations, but Thursday’s reading means it has been in negative territory for seven of the previous twelve months.

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Exactly as I’ve discussed. Q1 was positive only because of the inventory build, which is likely normalize in Q2:

WSJ’s Hilsenrath says the sharp slowdown in Q1 growth has clouded the timing for rate liftoff. The piece argues the dollar’s strength, cautious consumer spending and a downturn in oil-related investment may limit the extent of a rebound in growth.

Highlighting a pattern of weak Q1 growth, the article notes that since 2010 first-quarter GDP growth has averaged 0.6%, compared to average growth of 2.9% in other quarters. It adds that the uneven nature of growth could mean the Fed takes a longer time to assess whether the economy is on track before raising rates.

The paper cites analysts who now anticipate liftoff in September or later. In offering a more guarded economic outlook, the article notes the job market hasn’t improved since the last Fed meeting and that after providing a 74 bp tailwind to Q1 growth, an inventory run down in Q2 could act as a new drag on growth.

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