The Center of the Universe

Year over year:

Monthly:

So far, not seasonally adjusted first 5 months this year down about 8.4% from first 5 months last year.

No mention yet of the deficit being too small…

At sub 3% we comply with the Maastricht limits.
Maybe the plan is to join the euro?
Why else would we allow this?
;)

Big snap back in second quarter growth less likely

By Patti Domm

(CNBC) — After a shocking contraction in first quarter GDP, economists on Thursday pared back growth forecasts for the second quarter due to weaker consumer spending.

Consumer spending in May rose just 0.2 percent, half of what was expected, after being flat in April. Spending by consumers accounts for more than two-thirds of U.S. economic activity, and the lowered growth forecasts now raise concerns that the economy will not be able to rebound to the more than a 3 percent growth rate widely expected for the balance of the year.

Goldman Sachs economists trimmed second quarter tracking GDP to 3.5 percent from 4.1 percent, and Barclays economists said tracking GDP for the second quarter fell to 2.9 percent from 4 percent. At a pace below 3 percent, the economy could show contraction for the first half due to the steep first quarter decline of 2.9 percent.

The median estimate for second quarter GDP fell by a half percent to 3 percent, according to the CNBC Rapid Update of economists forecasts.

The Commerce Department said consumer spending increased 0.2 percent after being flat in April. Spending, which accounts for more than two-thirds of U.S. economic activity, had been forecast rising 0.4 percent after a previously reported 0.1 percent dip in April.

When adjusted for inflation, consumer spending fell for a second straight month, suggesting spending this quarter could struggle to regain momentum after growing at its slowest pace in nearly five years in the first quarter.

Spending in May was probably constrained by weak healthcare spending as outlays on services barely rose for a second month.

While reports ranging from employment to manufacturing and the services industries suggest the economy has rebounded after sinking in the January-March period, the consumer spending data indicated that growth would probably fall short of the 4.0 percent annual pace that some economists are expecting in the second quarter.

Personal Income and Outlays

From Calculated Risk

Real PCE — PCE adjusted to remove price changes — decreased 0.1 percent in May, compared with a decrease of 0.2 percent in April. … The price index for PCE increased 0.2 percent in May, the same increase as in April. The PCE price index, excluding food and energy, increased 0.2 percent in May, the same increase as in April. … The May price index for PCE increased 1.8 percent from May a year ago. The May PCE price index, excluding food and energy, increased 1.5 percent from May a year ago.

Note: Usually the two-month and mid-month methods can be used to estimate PCE growth for the quarter (using the first two months and mid-month of the quarter). However this isn’t very effective if there was an “event”, and in Q1 PCE was especially weak in January and February – and then surged in March.

Still, using the two-month method to estimate Q2 PCE growth, PCE was increasing at a 2.3% annual rate in Q2 2014 (using the mid-month method, PCE was increasing less than 1.5%). Since the comparison to March will be difficult, it appears PCE growth will be below 2% in Q2 (another weak quarter).

Note the now familiar down into winter, up some, and then settling down again pattern:

>   
>   On Wed, Jun 25, 2014 at 8:52 AM, Sheraz wrote:
>   
>   Very weak US numbers
>   

And not one ‘nice call’ email!!!

And yesterday’s stock market action suggests a possible data leak???
:(

US 1Q GDP has been revised lower by far than expected. After having initially been reported as a 0.1% rise, then a 1% contraction, the third release shows that GDP growth is now reported as -2.9 QoQ% annualised, which leaves annual growth at just 1.5%YoY.

The consensus expectation was for a -1.8% reading. The damage was largely done through the private consumption component, which is now reported as rising just 1% versus 3.1% previously.

Also ‘smoothing’ from numbers that looked high to me in H2 and an adjustment to ACA related healthcare expenses previously booked as PCE:

Gross private investment remained an 11.7% contraction

Maybe after a Q4 surge due to expiring tax credits?

while government consumption was left at -0.8%. However, exports were revised down and imports revised up meaning that the contribution from net trade is to subtract 1.5% from GDP growth rather than 0.95% as previously announced.

Reversing a similar, prior blip up, as previously discussed:

Nonetheless, reaction should be fairly muted given widespread expectations of a sharp bounceback in 2Q14 and the fact that the weather had such a damaging impact on 1Q activity. Indeed, we suspect that we could see GDP rise by more than 5% annualised in 2Q.

And if so, H1 would be +1% :(

High frequency numbers for the quarter have looked good while inventories should also make a significantly positive contribution after having been run down sharply.

After having been run up in H2. We’ll see where they go from here.

And, as previously discussed after the jump up in Q3, inventory accumulation seldom leads a boom:

Mortgage purchase apps still dismal:

According to the MBA, the unadjusted purchase index is down about 18% from a year ago.

Full size image

And May durables not so good either:

Highlights
Durables orders were much weaker than expected for May. Durables orders fell 1.0 percent in May after rising 0.8 percent in April. Analysts forecast 0.4 percent. Excluding transportation, orders slipped 0.1 percent, following a 0.4 percent gain in April. Market expectations were for 0.3 percent.

Transportation fell 3.0 percent after a 1.7 percent rise in April. The latest dip was from weakness in nondefense aircraft. Motor vehicles and defense aircraft orders rose.

Outside of transportation, gains were seen in primary metals, fabricated metals, and “other.” Declines were posted for machinery, computers & electronics, and electrical equipment.

On a positive note, there was improvement in equipment investment. Nondefense capital goods orders excluding aircraft rebounded 0.7 percent in May after decreasing 1.1 percent the month before. Shipments of this series rebounded 0.4 percent after a 0.4 percent dip in April.

The good news is this series is muddling along ok:

The latest durables report is in contrast to recently positive regional manufacturing surveys and also the sharp jump in manufacturing production worker hours of 0.8 percent for May. But durables data are very volatile and we likely need a couple of more months of data before taking a negative tone on this sector.

The next leg to fall may be employment, as the 1.2 million people who lost long term benefits at year end may have been taking menial jobs at the rate of maybe 75,000/month or more for 6 months or so, which may have front loaded the monthly jobs numbers. If so, monthly job gains may fall into the 100,000 range soon.

So in general it was down for the winter, back up some, and we’ll see what happens next.

The ‘survey’ numbers and professional forecasts look promising, however it still looks to me like we are under the macro constraint of a too low govt deficit that’s struggling to keep up with the unspent income/demand leakages, with scant evidence of help from growth in private credit expansion.

And I tend to agree with Fed Chair Yellen here, which would tend to keep rates lower/longer if she gets her way. However I don’t agree that low rates somehow support aggregate demand, so I don’t see the likelihood of any call from the Fed or other forecasters for the fiscal relaxation I’ve been proposing.

Yellen may be poised to rewrite Fed’s rule book on wages, inflation

June 25 (Reuters) — “My own expectation is that, as the labor market begins to tighten, we will see wage growth pick up some to the point where … nominal wages are rising more rapidly than inflation, so households are getting a real increase in their take home pay,” Federal Reserve Chair Janet Yellen said last week, adding: “If we were to fail to see that, frankly, I would worry about downside risk to consumer spending.” Over the last year Fed staff changed their main model for forecasting wage and price inflation to reflect evidence that companies were adjusting prices more slowly than in prior years.

My immediate proposals remain 1) A full FICA suspension, which raises take home pay by 7.6%, and, for businesses that are competitive, lowers prices as well, restoring sales/output/employment in short order 2) A $10/hr federally funded transition job for anyone willing and able to work to promote the transition from unemployment to private sector employment 3) A permanent 0 rate policy with Tsy issuance limited to 3 mo bills. 4) Unrestricted campaign contributions, however, say, 40% of any contribution goes to the opposition…

U.S. business borrowing for equipment falls 8 percent in May: ELFA

By Abinaya Vijayaraghavan

June 23 (Reuters) — U.S. companies’ borrowing to spend on capital investment fell in May, the Equipment Leasing and Finance Association (ELFA) said.

Companies signed up for $6.9 billion in new loans, leases and lines of credit last month, down 8 percent from a year earlier. Their borrowing fell 14 percent from April.

“The small decline in new business volume makes the case for a slow recovery in certain sectors of the economy in which equipment financing plays an important role,” ELFA Chief Executive William Sutton said in a statement.

Washington-based ELFA, a trade association that reports economic activity for the $827 billion equipment finance sector, said credit approvals totaled 76.1 percent in May, down from 77.4 percent in April.

ELFA’s leasing and finance index measures the volume of commercial equipment financed in the United States. It is designed to complement the U.S. Commerce Department’s durable goods orders report, which it typically precedes by a day.

ELFA’s index is based on a survey of 25 members that include Bank of America Corp(BAC.N), BB&T Corp (BBT.N), CIT Group Inc (CIT.N) and the financing affiliates or subsidiaries of Caterpillar Inc (CAT.N), Deere & Co (DE.N), Verizon Communications Inc(VZ.N), Siemens AG (SIEGn.DE), Canon Inc (7751.T) and Volvo AB (VOLVb.ST).

The Equipment Leasing & Finance Foundation, ELFA’s non-profit affiliate, said its confidence index fell to 61.4 in June from 65.4 in May.

A reading of above 50 indicates a positive outlook.

More evidence home price increases have slowed, as ‘liquidation supply shock’ that began in 2009 winds down:

Also this morning the Census Bureau reported that new home sales were at a seasonally adjusted annual rate (SAAR) of 504 thousand in May. That is the highest level since May 2008. As usual, I don’t read too much into any one report. In fact, through May this year, sales were 196,000, Not seasonally adjusted (NSA) – only up 2% compared to the same period in 2013 – not much of an increase.

Richmond Fed Manufacturing Index

Highlights
Activity may be slowing this month in the Richmond Fed’s manufacturing district but not new orders. The headline index slowed 4 points to a reading of 3 with shipments and employment both slowing significantly. But the pace of new orders actually improved slightly, up 1 point to 4. The Richmond Fed has been showing less of a post-winter bounce than other regional reports, especially Empire State and Philly Fed.

New home sales up more than expected, but the 3 month average looks tame and in any case if they continue to drift higher at this the pace of the last couple of years it will only take another 15 or 20 years or so to get back to prior cycle levels. When we had a lot fewer people. And, like last month, revised down, it will be revised next month:

Redbook Sales monthly Y/Y:

For what it’s worth- disputes latest ‘credit boom’ narrative

Evidence Shows Media Reports of Credit Card Spending Growth are Overhyped and Wrong

Consumer revolving credit has been in the news recently as the Fed’s data on consumer credit for April reportedly showed a record surge. However, we have more current data and it clearly shows that these reports are another case of hysterical media over reaction.

Warren Mosler on the Fed

Nelson Ledges Ohio victory 20 years ago- June 18, 1994, 3rd year of coming in 1st got my cars banned from further competition in this event.

Same pattern- down some for the winter, up some, then backing off some.

If this is in fact what’s happening, Q2 GDP could be up less than 3%, and 2014 sub 2%, or even sub 0, if the demand leakages are allowed to keep the upper hand and a fiscal adjustment isn’t made.

“The Business Roundtable survey showed chief executives forecast GDP growth of 2.3 percent in 2014, down from last quarter’s estimate of 2.4 percent for the year.”

“Federal Reserve Chair Janet Yellen said last month there was a risk a protracted housing slowdown could undermine the economy.”

Housing Starts

Highlights
Housing took a step back in May. Starts fell a monthly 6.5 percent but followed a strong 12.7 percent spike in April. The 1.001 million unit pace was up 9.4 percent on a year-ago basis and fell short of expected 1.036 million units.

Single-family starts dropped 5.9 percent after a 4.6 percent rise. Multifamily starts declined 7.6 percent, following a 29.2 percent spike in April.

Building permits followed a similar pattern, suggesting some moderation in construction. Permits fell 6.4 percent after a 5.9 percent rise in April. Permits posted at 0.991 million units and were down 1.9 percent on a year-ago basis. Analysts forecast 1.062 million units.

Builder was up some, but has remained below 50 for 5 months, and by historical standards remains dismal:

Industrial production/manufacturing was up some yesterday, but it’s a relatively small part of the economy and seems to chug along at 3-4% annual growth rates.

“The core CPI was lifted by a 0.3 percent rise in rent. There were also increases in medical care costs, apparel, new cars prices and airline fares.”

This doesn’t read to me like an ‘excessive demand problem’ that higher rates would reverse. But that’s just me. I agree the Fed may think otherwise!

looks like late cycle action?

This could be technical or a sign of trouble for the macro economy:

Size of income tax drop surprises U.S. states

June 12 (Reuters) — Personal income tax revenues in April were 15.8 percent, or $7.9 billion, below the same month in 2013, according to preliminary estimates from Rockefeller, a public policy research group at the State University of New York. From January through April income tax collections fell 7.1 percent from the same period in 2013, Rockefeller found. Out of the 38 states for which data is available 33 registered declines. Altogether 41 states collect personal income taxes. “While many states tried to be cautious in their forecasts, early figures indicate that income tax collections are below the forecasts in many states,” Rockefeller found.

I’m starting to believe my own narrative…
;)

Soft for the winter, up some, then moderating again.

All under the ongoing macro constraint of aggressive automatic stabilizers that brought the deficit down even with a negative GDP quarter, and some degree of path dependency with weakness taking something away from subsequent periods.

Not to mention the story about 1.2 million who lost benefits at year end taking menial jobs, boosting headline employment, not adding to personal income as their pay was about the same as the lost benefits, and front loading job growth as ultimately more headcount isn’t a function of benefits lost. We’ll see.

And a world getting tougher to export to. Weaker CNY isn’t helping, for example.

First, another firm revises Q1 down further, and Q2 up some as well:

GOLDMAN: “… we are taking our tracking estimate for Q1 [GDP] down to -1.9% [and] raising our tracking estimate for Q2 by 0.3pp to 3.8%”

If these turn out to be correct, it implies H1 GDP will come in under 1%, and also implies 2014 somewhere around 2% of H2 can print over 3%.

The fiscal noose tightens. If the deficit is going to average 2.8% of GDP for the year and started higher than that and has been coming down, it means it’s running lower than that ‘instantaneously’- maybe around 2% of GDP or so:

Treasury: Budget Deficit declined in May 2014 compared to May 2013

By Bill McBride

June 11 (Calculated Risk) — The Treasury released the May Monthly Treasury Statement today. The Treasury reported a $130 billion deficit in May 2014, down from $138 billion in May 2013. For fiscal year 2014 through May, the deficit was $436 billion compared to $626 billion for the same period in fiscal 2013.

In April, the Congressional Budget Office (CBO) released their new Updated Budget Projections: 2014 to 2024. The projected budget deficits were reduced for each of the next ten years, and the projected deficit for 2014 was revised down from 3.0% to 2.8%. Based on the Treasury release today, I expect the deficit for fiscal 2014 to be lower than the current CBO projection.

Retail sales showing the down for the winter, up, then lower growth pattern, in the context of the longer term drift lower in growth:

The retail sales ‘control group’ (ex food, autos, building materials, and gas stations) shows the same pattern even more clearly:

Lastly, keep an eye on crude prices. Looked to me like the spike in 2008 might have been the catalyst for the collapse in demand…

And the risk is we may be more path dependent than most realize with the deficit this low. That is, for example, if income dips due to ‘weakness’ such as weather, there is then that much less income to spend in the next period.

>   
>   (email exchange)
>   
>   In the race to see who can revise their Q1 estimates the lowest, I think Nomura is in the
>   lead so far at -2.4%…
>   

Nomura Economists revise down First Quarter US GDP to -2.4%

Incorporating relevant information from Quarterly Service Survey which was released today, we revised down our Q1 GDP tracking estimate by a full percentage point to -2.4% from -1.4%. Personal consumption on services was much weaker than BEA has assumed. We haven’t revised Q2 GDP tracking estimate because we don’t know how the montyly profile of personal consumption for Q1 will be revised in reaction to QSS. That being said, the fact that personal consumption lost some traction in Q1 appears to be negative.

FYI
who would have thought?
;)

U.S. Economy’s First-Quarter Contraction Could Be Even Worse Than You Thought

By Ben Leubsdorf

June 11 (WSJ) — The U.S. economy may have contracted more than previously thought during the first three months of 2014, private economists said Wednesday based on new health care-sector data from the government.

One analyst said economic output may have contracted at a 2% pace in the first quarter. That would be its worst performance since the recession.

The Commerce Department’s latest estimate of gross domestic product, the broadest measure of output across the economy, said GDP shrank at a seasonally adjusted annual rate of 1% in the first quarter. A revised estimate will be released June 25, and it could show an even larger contraction.

That’s based on the Commerce Department’s Quarterly Estimates for Selected Service Industries report for the first quarter, released Wednesday. It showed that revenue in the U.S. health-care and social-assistance sector fell 2% in the first quarter from the fourth quarter of 2013, not adjusted for seasonal variations or price changes. Hospital revenue fell a seasonally adjusted 1.3% from the prior quarter.

The Commerce Department’s last GDP report, though, said inflation-adjusted spending on health-care services surged to a seasonally adjusted annual level of $1.848 trillion in the first quarter from $1.808 trillion in the fourth quarter of 2013. That estimate for spending on health care boosted overall GDP growth by 1.01 percentage point, keeping the 1% contraction from being even worse.

J.P. Morgan Chase economist Daniel Silver and Pierpont Securities economist Stephen Stanley both cautioned that it’s not clear exactly how the Commerce Department will adjust GDP to account for the new data.

But they both downgraded their estimates for the first quarter based on the new survey, as well as other recently released data. Mr. Silver predicted GDP declined at a 1.6% pace in the first three months of the year, and Mr. Stanley predicted contraction at a 2% pace.

“Ouch,” Mr. Stanley said in a note to clients.

Up 9% for the week!

Over 500% annualized!!!!

;)

(And now only down 13% yoy)

Highlights

Demand for both purchase and refinancing applications, which had been soft in prior weeks, surged in the June 6 week, up 9.0 percent and 11.0 percent respectively. The average 30-year rate for conforming loan balances ($417,500 or higher) moved up from recent lows, jumping 8 basis points in the week to 4.34 percent.

Couple of lesser indicators showing a familiar pattern- lower growth for the winter then higher growth then growth slowing some.

Goldman ICSC chain store sales index:

Redbook retail sales, monthly, yoy:

And looks like a spike up in wholesale sales causes recessions?
;)

Small biz optimism now back up to prior recession lows!!!
Time to tighten up quick before the hyper inflation takes hold!!!
;)