Author Archives: WARREN MOSLER

Existing home sales, Philadelphia Fed survey, Nat gas

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More existing home are turning over, however look at the downward revisions in the last chart. And while prices may be up, they still haven’t reached replacement value as evidenced by the lack of new construction and most recently the sharp decline in permits after the run up in front of NY’s tax break that expired June 15. It is also likely some buying has been accelerated out of fear of rates going higher:

Existing Home Sales
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Highlights
There’s plenty of life in the housing sector with existing home sales up a stronger-than-expected 2.0 percent in July to a 5.59 million annual rate. And demand is well ahead of supply which is very thin, at 4.8 months at the current sales rate vs 4.9 and 5.1 in the two prior months and 5.6 months in July last year. Sales are up 10.3 percent year-on-year, well ahead of the median price which, at $234,000, is up 5.6 percent. This mismatch, especially with thin supply, hints at pricing power ahead.

Single-family homes lead the report, up 2.7 percent in the month at a 4.960 million annual rate. Condos, where demand on the new home side is soaring, actually fell 3.1 percent in the month to a 630,000 rate. Year-on-year, sales of single-family homes are up 11.0 percent with condos at plus 5.0 percent.

By region, July’s strength is centered in the South with a gain of 4.1 percent. The West follows at plus 3.2 percent with the Midwest unchanged and the Northeast down 2.8 percent. Year-on-year, sales are very evenly balanced with all right at the 10 percent mark.

The balance of this report is impressive, pointing to a rising tide of strength across housing which, given spotty performances by the factory and consumer sectors, looks to be the leading driver for the second-half economy.
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Philadelphia Fed survey remains low:

Philadelphia Fed Business Outlook Survey
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Highlights
That sigh you hear is one of relief, that Monday’s historic plunge in the Empire State report is probably a fluke. The Philly Fed’s index, which is very closely watched, posted a gain for August and not a huge plunge. The general business conditions index came in at a stronger-than-expected 8.3 vs July’s 5.7. Shipments lead the report at a very strong plus 16.7. Order data show less strength, with new orders at 5.8 in August vs 7.1 in July and with unfilled orders showing a slight month-to-month decline at minus 1.0. A positive in the report is a respectable monthly gain for employment to 5.3 vs July’s contraction of minus 0.4. The 6-month outlook is also a plus, up 1.6 points to a solid 43.1. The early view on the August factory is thankfully mixed. Watch tomorrow for the manufacturing PMI flash.
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The natural gas inventory build was less than expected, perhaps indicating a fall off in production as maybe 30% of new gas production was a by product of shale oil production, which has begun to fall off after the drilling rigs in service fell off over 50% due to price declines.
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Oil and Gas

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With prices down, drilling is down over 50%, and production is beginning to fall as well. At the same time, gasoline consumption and miles driven are both up. Therefore, some of the money saved due to lower prices is being spent to buy more gasoline, which, with domestic production falling, means more imported oil and gasoline, which does nothing for the economy. And works to weaken the $US.

EIA Petroleum Status Report
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Highlights
Oil is moving lower following a 2.6 million barrel build in weekly oil inventories to 456.2 million barrels. A rise in imports fed the build. Demand readings are very strong in this report with gasoline up very sharply, at 6.5 percent year-on-year. Refineries increased production of gasoline where inventories nevertheless fell 2.7 million barrels. The decline in prices is boosting fuel demand. WTI is down 75 cents and is below $42.
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At the same time, since natural gas is a by product of shale oil drilling, with drilling down natural gas production is that much lower than otherwise, even as demand continue to grow.

And unlike oil, natural gas is very expensive to import as it must first be liquified, so as demand increases and supply fades, the price is likely to go up to the point where imports make sense, or where utilities and others substitute other fuels for natural gas. However for the most part that would mean coal which is becoming more and more politically incorrect.

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Posted in Oil

euro area trade, housing comments, consumer prices

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Continues very strong. This is for member using the euro:
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Size of New Homes in U.S. Shrinks by One Closet

By Kris Hudson

Aug 18 (WSJ) — Of the 206,000 homes that went under construction in the second quarter, the median size was 2,479 square feet. That was 40 square feet smaller—or about the size of a walk-in closet—than the high set in the first quarter. The National Association of Home Builders estimates that first-time buyers, who tend to purchase entry-level homes, will account for 18% of new-home sales this year. That is up from 16% last year but still well short of their share of 25% to 27% from 2001 to 2005. Then, quarterly median sizes for new homes ranged from 2,051 to 2,263 square feet.

Maybe reduced value conflicts between boomers and their kids vs boomers and their parents are contributing to keeping kids at home?

No improvement in purchase apps here. Been largely flat for the last several months now:

MBA Mortgage Applications
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Consumer Price Index
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Highlights
Inflation wasn’t brewing in July and with oil prices moving lower, inflation may not be showing much pressure in August either. The consumer price index rose only 0.1 percent in July as did the core, both under expectations. Year-on-year rates show slightly more pressure. Overall inflation is up 0.2 percent, which is very low but up from 0.1 percent in the prior month and the second positive reading of the year. The core is steady at plus 1.8 percent which is just under the Fed’s 2 percent target.

Gasoline moved sharply higher in July, up 0.9 percent following outsized gains of 3.4 percent and 10.4 percent in the prior two months. But with gas prices moving steadily lower this month, the upward effects of gasoline will be turning downward in August. Another major component showing upward pressure in July is apparel which rose 0.3 percent following, however, a long string of declines. Owners equivalent rent continues to show pressure, up 0.3 percent on top of June’s outsized gain of 0.4 percent.

Elsewhere, however, pressures are hard to find with electricity down 0.4 percent, used vehicles down 0.6 percent, new vehicles down 0.2 percent, and airfares down 5.6 percent. Medical, drugs, and education all rose only 0.1 percent.

There may be some upward creep in the headline year-on-year rates but, given the ongoing decline in oil, this report won’t be pushing the Fed for a September rate hike.

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Rents have been moving up some, though still at a modest rate. Seems to me as per the depressed housing starts prices haven’t yet gotten close enough to replacement costs. Once they do get to replacement cost, market forces work to increase supply as ‘demanded’ without further ‘catch up’ price increases. At that point price increases come from increases in costs.

Also, lower utility costs for the landlord that aren’t passed through to the renter ‘count’ as higher rents, which means the drop in fuel and utility costs translate to increased rents when, for example, the actual payment remains the same:
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Remember a few years back when the mainstream was sounding the alarm over this?
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And this about a year ago?
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Fed white paper, building permits, transport charts, Japan trade

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So someone on high sees it much like I do…

;)

In a white paper dissecting the U.S. central bank’s actions to stem the financial crisis in 2008 and 2009, Stephen D. Williamson, vice president of the St. Louis Fed, finds fault with three key policy tenets.

Specifically, he believes the zero interest rates in place since 2008 that were designed to spark good inflation actually have resulted in just the opposite. And he believes the “forward guidance” the Fed has used to communicate its intentions has instead been a muddle of broken vows that has served only to confuse investors. Finally, he asserts thatquantitative easing, or the monthly debt purchases that swelled the central bank’s balance sheet past the $4.5 trillion mark, have at best a tenuous link to actual economic improvements.

Remember last month cautioning about how a spike up in building permits has sometimes been followed by recession?
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And the NY benefits that expired June 15 were supporting the total numbers and are likely to be followed by much lower numbers:
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Once again Varoufakis reconfirms he’s clueless with regard to public finance:

Varoufakis Proposal for Eurozone Sovereign Debt

August 18 (Econintersect) — Former Greek finance minister Yanis Varoufakis has proposed a debt restructuring process for over-indebted Eurozone countries that does not involve writing down debt or bailing out insolvent countries. It is based on an idea proposed by Varoufakis with Stuart Holland and James K. Galbraith (link below).

The proposal is for a complex and costly process functionally identical to a simple, no cost, ECB guarantee.

DB Charts:

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Exports growing though at a slower rate, imports declining at a faster rate:

Japan : Merchandise Trade
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housing starts, redbook retail sales

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Permits always lead, as there are no starts without permits. And in NY it was the rush to get multi family permits in before June 15 when a tax break expired is what caused the prior surge in permits and some starts as well and is now reversing:

Housing Starts
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Highlights
Building permits slid sharply in July but reflect in part a plunge in the Northeast where a change in New York City real estate law pulled permits into June at the expense of July. Permits fell 16 percent in July to a 1.119 million annual rate with the Northeast down 60 percent. But permits also fell in the other three regions including a steep 9.9 percent decline in the West. Turning now to starts, they inched 0.2 percent higher to a 1.206 million rate. But the decline in permits, though skewed by the Northeast, points to less strength than expected for the new home market in the months ahead.

A relative positive in the report is less weakness in permits for single-family homes which fell only 1.9 percent. Permits for multi-family homes, which are smaller in size and provide less of a boost to GDP, fell 32 percent. Housing completions came in at a 987,000 pace in the month, up 2.4 percent from June in a positive start for the third quarter.

In sum, this report is on the soft side and doesn’t increase the chances for a September rate hike from the Fed. Initial reaction in the markets is mixed with the resilience in starts offering some offset to the plunge in permits.

None of the retail sales indicators seems to be showing improvement:

Redbook
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Highlights
Redbook’s sample continues to report soft rates of same-store sales growth, at only 1.6 percent year-on-year in the August 15 week. Sales received some boost from the tail end of tax holidays in a number of states. Despite the soft rate of growth, the month-to-month comparison with Redbook’s sample in July is favorable and hints at incremental strength for core retail sales in August.
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Empire manufacturing, housing market index, EU merchandise trade

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The lack of support from the lost oil capex continues to ripple out:

United States : Empire State Mfg Survey
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Highlights
Out of the blue, the Empire State index has plunged deeply into negative column this month, to minus 14.92 in August vs plus 3.86 in July. This is by far the weakest reading of the recovery, since April 2009. New orders, which had already been weak in this report, fell from July’s minus 3.50 to minus 15.70 for the weakest reading since November 2010. Backlog orders, which had also been weak, came in at minus 4.55 from minus 7.45. Shipments, in the weakest reading since March 2009, fell to minus 13.79 from positive 7.99.

Last week’s industrial production report, boosted by the auto sector, offered hope but today’s report is a reminder that weak exports and weakness in the energy sector are stubborn negatives for the factory sector. Today’s results scramble the outlook for Thursday’s Philly Fed report which was expected to show moderate strength.
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Home builders remain optimistic:

United States : Housing Market Index
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Highlights
The new home sector is increasingly a central source of strength for the economy and builders are increasingly optimistic. The housing market index rose 1 point to a very strong 61 in August with the future sales component leading the way at 70. Current sales are at 66 with traffic continuing to lag but less so, at 45 for a 2 point gain in the month. By region, the South and West show the greatest composite strength at 63 each followed by the Midwest at 58 and the Northeast, which is the smallest region for new homes, still showing contraction at a sub-50 reading of 46.

Strength in the labor market is the driving force behind strength for new homes where lack of supply continues to motivate builders. Today’s report points to another strong housing starts report for tomorrow.

Never yet seen a positive trade balance and a weak currency, without an inflation problem. The euro is down only because of portfolio shifting, particularly CB’s, which may have run its course, and the general outlook remains deflationary. While this includes the (minority) non euro members, the trend is the same for just the ‘euro area’ which is also reported separately:

European Union : Merchandise Trade
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Highlights
The seasonally adjusted trade balance was E21.9 billion, up from a revised E21.3 billion in May. Exports of goods to the rest of the world were €182.7 billion, an increase of 12 percent from a year ago. Imports from the rest of the world were E156.4 billion, 7 percent higher from a year ago. Intra-euro area trade rose to E151.2 billion in June 2015, up 10 percent compared with June 2014.

For the six months to June 2015, euro area exports of goods to the rest of the world rose 6 percent compared with January to June 2014), while imports were up 3 percent compared with the year earlier period.

Apart from the weakness of the oil market, the current soft level of the euro should help to ensure continued strong trade data over the rest of 2015.
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Producer Prices, Industrial Production, Rail Traffic, Container Exports

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This is not a reason to hike rates, but the Fed has other reasons beginning with their mistaken belief that the current policy is ‘highly accommodative’ and potentially inflationary, etc. etc. etc. when the opposite is the actual case:

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Up a bit more than expected, but all due to auto production, and yesterday’s wholesale trade report told us it all went to building (unsold) inventory, with sales of domestic cars relatively flat, so look for a reversal over the next few months. And note the reference to weak exports:

Industrial Production
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Highlights
A 10.6 percent surge in motor vehicle production gave a very significant lift to industrial production which rose 0.6 percent in July. The manufacturing component, which has been flat all year, jumped 0.8 percent. Excluding vehicles, however, manufacturing rose only 0.1 percent. The lack of strength here is the result of business equipment which edged only 0.1 percent higher after declining 0.2 percent in June.

The rise in production drove capacity utilization up 3 tenths to 78.0 percent which is where it was back in April. Capacity utilization for manufacturing rose 5 tenths to 76.2 percent.

The two non-manufacturing components are mixed. Production at utilities, due to July’s cool weather, fell 1.0 percent with capacity utilization down 8 tenths to 79.1 percent, while mining production rose 0.2 percent with capacity utilization down 1 tenth to 84.4 percent.

Weak foreign demand and weakness in the energy sector may be hurting much of the industrial sector but these factors are not at play in the domestic auto industry. The readings in today’s report are mixed but the headline gain, driven by the convincing strength for autos, is an eye catcher and will certainly be ammunition for the hawks at next month’s FOMC meeting.

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Weaker than expected and continuing to fade some (in line with stocks…), and note that it peaked with the fall in oil prices:

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Rail Week Ending 08 August 2015: Continued Decline of One Year Rolling Average

By Steven Hansen
August 13 (Econintersect)

Econintersect: Week 31 of 2015 shows same week total rail traffic (from same week one year ago) contracted according to the Association of American Railroads (AAR) traffic data. Intermodal traffic expanded year-over-year, which accounts for approximately half of movements. and weekly railcar counts continued in contraction.

U.S. Containerized Exports Fall Off the Chart

By Wolf Richter
August 13 (Wolf Street)

“Many of our major trading partners are experiencing stalled or slowing economies, and the strength of the US Dollar versus other currencies is making US goods more expensive in the export market.” That’s how the Cass/INTTRA Ocean Freight Index report explained the phenomenon.

What happened is this: The volume of US exports shipped by container carrier in July plunged 5.8% from an already dismal level in June, and by 29% from July a year ago. The index is barely above fiasco-month March, which had been the lowest in the history of the index going back to the Financial Crisis.

The index tracks export activity in terms of the numbers of containers shipped from the US. It doesn’t include commodities such as petroleum products that are shipped by specialized carriers. It doesn’t include exports shipped by rail, truck, or pipeline to Mexico and Canada. And it doesn’t include air freight, a tiny percentage of total freight. But it’s a measure of export activity of manufactured and agricultural products shipped by container carrier.

Overall exports have been weak. But the surge in exports of petroleum products and some agricultural products have obscured the collapse in exports of manufactured goods

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Retail Sales, Jobless Claims, Import Export Prices, Business Inventories, Japan Machine Orders, Freight Transportation, Gas Prices

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This is being touted as a strong report, but, again, looks to me like it’s dropped since year end and at best is moving sideways from there, and not to forget that a large share of auto sales are imports.

But I do agree the Fed is heck bent on raising rates in Sept, even without ‘some’ improvement, and will do so unless there’s a stock market decline severe enough to hold them back. So far that’s not happening.

Retail Sales
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Highlights
Big upward revisions underscore a very solid and very important retail sales report. Retail sales rose 0.6 percent in July with June revised to unchanged from an initial reading of minus 0.3 percent and with May revised to a jump of 1.2 percent from 1.0 percent. The revisions to June and May point to an upward revision for second-quarter GDP.

Vehicle sales, as expected, were the standout in July, jumping 1.4 percent to nearly reverse June’s 1.5 percent slide and nearly matching May’s historic 1.9 percent surge. But even outside vehicles, retail sales were strong with the ex-auto reading rising a solid 0.4 percent. Restaurants, in another strong signal of consumer strength, rose an outsized 0.7 percent following June’s 0.5 percent gain. These are very strong gains for this component. Excluding both vehicles and gasoline, retail sales rose 0.4 percent, again another solid reading.

Strength in both vehicles and restaurants point to the health of the US consumer and will likely give the hawks the courage, despite all the troubles in China, to push for a rate increase at the September FOMC.

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Tough times for department store sales continue, which explains some of the weakness in construction:

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‘Some’ deterioration:

Jobless Claims
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‘Some’ deterioration for Fed hopes of higher inflation. It’s been failing to hit its target for longer than I can remember…

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Excess inventory building in June helps Q2 GDP but the likely subsequent production cuts will hurt Q3. The now persistently too high inventory to sales ratio is overdue for a correction:

United States : Business Inventories
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Highlights
Inventories rose relative to sales in June but the news isn’t that bad given that the build was centered in autos. Business inventories rose 0.8 percent in June which was well ahead of a 0.2 percent rise in sales. The mismatch lifts the inventory-to-sales ratio to 1.37 from 1.36.

But retail inventories at auto dealers were to blame, up 1.4 percent in June and contributing to a 0.7 percent rise for the retail component. Inventories at manufacturers and wholesalers, the two other components of the business inventory report, also rose, up 0.6 and 0.9 percent respectively.

Inventories are on the heavy side but the concentration in autos is welcome given how strong sales are, evidenced by the 1.4 percent surge for the motor vehicle component of the July retail sales report released earlier this morning. Note that this report, along with the retail sales report, are likely to lift revision estimates for second-quarter GDP.

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Global weakness continues:

Japan : Machine Orders
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Highlights
June seasonally adjusted machine orders (excluding volatile items) declined for the first time since February. They dropped a larger than anticipated 7.9 percent on the month and were up 14.7 percent on the year. Core orders were up 16.6 percent based on the original series. This was in contrast to expectations of a 17.5 percent increase.

Core machine orders are considered a proxy for private capital expenditures. The downward move followed a 0.6 percent gain a month before. The government repeated its assessment that machine orders would advance in the third quarter.

Nonmanufacturing orders excluding volatile items were up 5.0 percent while manufacturing orders dropped 14.0 percent. All orders including volatile items dropped 6.2 percent on the month. Manufacturing orders likely softened on continued weaker export demand while the sluggish domestic economy weighs on nonmanufacturers.”

Another weak looking index:

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And I’d call this ‘some’ deterioration in the ‘labor market’. Looks like it was weakening before the 2014 oil capex boom supported it, and then has fallen off since the oil price collapse:

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This is to the point I’ve been making that surveys are one man one vote, not one dollar one vote, so optimism remained high even as retail sales, for example, were fading. Yes, a lot more people saved $10 per week on gas but an equal amount of income was reduced for sellers of oil, including those earning royalties and holding leases, and investors of all sorts, and seems the spending cuts on domestic product by that group outweighed the additional spending from pump savings.

Fueled by low pump prices, U.S. motorists to drive more in August – survey

By Jarrett Renshaw

August 11 (Reuters)

U.S. motorists are paying an average of $2.58 per gallon, nearly a dollar less than a year ago, according to AAA, the nation’s largest motorist advocacy group. And a quarter of respondents expected prices to continue to decline, up from 10 percent a month ago.

The survey found that nearly 80 percent of people say gas prices influence how they feel about the economy. And with gas prices down nearly $1 from a year ago, U.S. motorists are feeling positive about the direction of the economy, the survey found.

“There is good news for retailers as consumer optimism picks up during peak vacation season,” said NACS Vice President of Strategic Industry Initiatives Jeff Lenard.

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MTG Purchase Apps, EU Industrial Production, China Industrial Production, JOLTS

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Yes, purchase apps are up 20% vs last year, but you can see from the chart the
number of applications has leveled off and declined a bit more recently this year, and remains
at depressed levels:

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The slump in industrial production is global:

European Union : Industrial Production
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Highlights
Industrial production declined more than expected in June. Following a decline of 0.2 percent on the month, output excluding construction dropped 0.4 percent. Annual workday adjusted growth was 1.2 percent, down from 1.6 percent last time.

Durable consumer goods led the monthly declines, falling by2.0 percent from the previous month, followed by capital goods (down 1.8 percent) and intermediate goods (down 0.5 percent). Energy production (up 3.2 percent) was the sole sub-category to record a monthly advance.

Regionally, the biggest declines were seen in Portugal (down 2.1 percent) and Ireland (down 2.0 percent) while the Netherlands (up 3.9 percent) and Slovakia (up 1.4 percent) led to the upside. In the larger countries, Germany’s industrial output contracted 1.4 percent on the month while output in France also weakened 0.1 percent.

The disappointing figures will likely impact analysts’ expectations for Eurostat’s flash estimate of second quarter Eurozone GDP, which is scheduled for Friday.

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And the latest from China was below expectations as the downtrend continues:

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This turned a bit lower which ordinarily doesn’t mean much, but when the Fed is looking for ‘some’ improvement this is not that:

United States : JOLTS
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Highlights
Job openings contracted in June to 5.249 million from 5.357 million in May. The decline likely reflects, at least in part, new hiring as the hiring rate rose 1 tenth to 3.7 percent. But layoffs point to weakness in labor demand with the layoff rate up 1 tenth to 1.3 percent. The quits rate was unchanged at 1.9 percent. Job growth has been no better than moderate this year and this report, which is mixed, doesn’t point to acceleration.

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