Category Archives: Economic Releases

ADP, Chicago PMI, Buy backs, Domestic product sales

Posted on by

Rolling over:

Highlights

ADP estimates that private payroll growth in Friday’s employment report for July will rise 156,000. Econoday’s consensus for this estimate was 155,000 and forecasters see actual private payrolls coming in at 160,000 in Friday’s report vs 191,000 in June.

Highlights

In the lowest reading in 4-1/2 years, the Chicago PMI fell 5.3 points in July to 44.4. New orders sank deeper into contraction with employment falling into contraction for the first time in nearly two years and to its deepest level of contraction in nearly 10 years. Production is also at a 10-year low and given the indications on new orders, may weaken further in the reports to come. This sample was flying high as recently as February this year, holding for a year-and-a-half in the mid-60s area. Though conclusions are difficult to draw based on uncertainties over the make-up and size of Chicago’s sample, the drop in this report could reflect trade-tension issues.

Companies are ramping up share buybacks, and they’re increasingly using debt to do so

  • Share buybacks are expected to approach $1 trillion this year, according to Goldman Sachs.
  • Funding is coming from a record drawdown in cash as well as a rise in gross debt and leverage.
  • Buybacks have exceded free cash flow for the first time since the financial crisis.

    • U.S. companies are on pace to break another record for share repurchases in 2019, using a combination of cash and debt to push the total to close to $1 trillion.

    For the first time since the financial crisis, companies have given back more to shareholders than they are making in cash net of capital expenditures and interest payments, or free cash flow, according to Goldman Sachs calculations.

    The level of buybacks to free cash flow hit 104% for the 12 months ending in the first quarter of 2019, the first time that number has topped 100% during…

    Some of the GDP charts the Fed is looking at:


    The red line is an approximation for stall speed:

    Share

    Personal income and consumption, Home prices, Pending home sales, Oil capex, Euro area

    Posted on by

    Income and consumption is growing at lower but moderate pace, but has been decelerating since the tariffs started to bite and global trade began its collapse:

    Highlights

    The month-to-month breakdown of consumer spending shows slowing in what will offer support for those on the FOMC who want to cut interest rates this week. Despite the strength of June retail sales, total consumer spending in the month rose only 0.3 percent following gains of 0.5 percent in May and 0.6 percent in April. Spending on both goods and also services shows this similar pattern.

    Monthly data on income and also core inflation are steady in the monthly sequences, at 0.4 percent for April through June on income and at 0.2 percent each month for core PCE inflation (ex-food ex-energy). The year-on-year rate for the core did tick 1 tenth higher in June to 1.6 percent in a gain that moves the curve in the right direction and incrementally toward the Fed’s 2 percent target but one that follows a 1 tenth downward revision to May which is now 1.5 percent.

    Turning back to income, the wages & salaries component jumped 0.5 percent in June but follows very low monthly gains in May and April of 0.2 and 0.1 percent. Yet the consumer’s finances look solid with the savings rate up 1 tenth to 8.1 percent.

    The Fed’s assessment of the consumer has to remain very favorable given the strength of income and spending though the slowing for the latter in June will give policy makers some cover for a rate cut. Providing the most cover, however, is core inflation which is under target and which suggests that an increase in demand would be sustainable. But there is a little gem for the hawks and that’s the monthly gain for the core which, at an unrounded 0.247 percent, just missed coming in at 0.3 percent.


    This kind of weakness and deceleration is not a good sign for the economy:


    Gone negative:

    Looks like the price of oil hasn’t been high enough for capex to grow:

    The BEA has released the underlying details for the Q2 initial GDP report.
    The BEA reported that investment in non-residential structures decreased at a 10.6% annual pace in Q2.
    Investment in petroleum and natural gas exploration decreased in Q2 compared to Q2, and was down 8% year-over-year, but has increased substantially over the last two years.

    Share

    GDI, Productivity, China pmi, Dallas Fed

    Posted on by

    Gross domestic income was just revised higher. The blue bars are the previously reported levels and the red bars are the revised levels. This further meant that the savings rate unspent income) was higher as previously discussed. And an increasing savings rate generally reflects a deceleration in borrowing:


    Lack of aggregate demand- desires to not spend income not being sufficiently ‘offset’ by’ private or public sector net (deficit) spending:


    I see deceleration in both, just less so in services:

    Highlights

    Texas manufacturing activity bounced back but not as much expected in July, with the general business activity index rebounding by 5.8 points from June’s three-year low though remaining in contraction at minus 6.3. The production index also improved slightly, rising 0.4 points to 9.3, indicating factory output growth at roughly the same pace as in June.

    The survey’s demand indicators were mixed but mostly stronger, however. Showing acceleration were new orders, which rose 1.8 points to 5.5 in an extension of June’s improvement, and moving out of contraction the growth rate of orders rose 8 points to 2.7. Shipments rebounded strongly by 8.5 points to 10.2, and capacity utilization rose to 1.6 points to 11.2. But unfilled orders did fall 6.2 points to minus 2.8 and delivery times fell 4.3 points to minus 4.8. Inventories of finished goods fell another 4.5 points to minus 10.6.

    employment measures bounced back strongly after slipping previously, with the employment index rising 7.2 points to 16.0, well above the long-term average. Hours worked rose 1.9 points to 6.6, while wages slightly dipped by 1.6 points to a still strong 20.1.

    Also pointing to strength ahead, capital expenditures rose sharply after falling to two-year lows previously, rising 8.3 points to 15.2.

    On the inflation front, manufacturers saw upward pressures remaining about the same for raw materials input costs, with the index edging up 0.6 points 17.0, much stronger than for prices received, where price growth was down 2.9 points to minus 1.7.

    Expectations for future business conditions improved, though remaining well below average, with expected general activity returning into positive territory by rising 8.7 points to 6.0 and the company outlook rising 5.5 points to 9.1.

    Today’s report shows Texas manufacturing recovering in July from June’s slide more strongly than the headline suggests, and will probably not strengthen the case for more accommodation by the Fed.

    Dallas Fed: “Texas Manufacturing Continues Moderate Expansion”

    The general business activity index rose six points but remained in negative territory for a third month in a row, coming in at -6.3. The company outlook index rose five points to -0.9, with the near-zero reading indicating that the share of firms noting a worsened outlook roughly equaled the share noting an improved outlook. The index measuring uncertainty regarding companies’ outlooks retreated 12 points from its June peak, coming in at 9.7.

    This is what the Fed is looking at- a steep deceleration after tariffs were announced:

    Share

    Durable goods, KC Fed, Mtg purchase apps, New home sales, US and euro area PMI’s, Trump quote

    Posted on by

    Year over year in contraction. And the chart is not adjusted for inflation:

    Negative:


    Lower rates don’t seem to be helping:

    Highlights

    The purchase index continues to pull back in what is an unfavorable indication for underlying home sales. After falling 4.0 percent in the prior week, the index fell 2.0 percent in the July 19 week to pull down year-on-year growth to 6.0 percent. Refinancing activity has also been coming down, 2.0 percent lower in the week. Rates fell back in the week, down 4 basis points to 4.08 percent for conventional 30-year loans.

    Still rolling over from what are already historically depressed levels, with tariffs now widely mentioned:

    Highlights

    The housing trend is visibly fading at the half-way point, opening the year on a solid rise before flattening out and slowing in May and June. This is true of existing home sales which were reported yesterday and is especially true with today’s report on new home sales which came in at a lower-than-expected 646,000 annual rate. The 3-month average is at 636,000 which compares unfavorably against a 673,000 peak in April.

    The median price firmed in June to $310,400 but is no better than dead flat versus June last year. Supply edged higher to 338,000 new homes on the market and on a sales basis is at an ample 6.3 months. Sales jumped in the West, edged higher in the South, and slipped in the South and Northeast.

    Market fundamentals should be pointing to better results for new home sales: there’s plenty of homes on the market, prices are soft, employment is strong, and mortgage rates have come down sharply. Yet today’s report is consistent with anecdotal reports that foreign buyers, due to trade tensions, have been scaling back US home buying. In any case, these results do fit in with arguments for a rate cut, a cut that would likely pull mortgage rates even lower in what couldn’t but help housing.


    US industry continues its deceleration into contraction, like most of the rest of the world:

    US Factory Activity Stalls in July

    The IHS Markit US Manufacturing PMI fell to 50.0 in July 2019, the lowest since September 2009 and below market expectations of 51.0, a preliminary estimate showed. Output contracted the most since August 2009 and new work from abroad declined at the fastest pace since April 2016 while employment dropped for the first time in six years.

    ***President Donald Trump asked teenagers at the Turning Point USA conference Tuesday to “imagine” a world without “fake news” media in which he would have “100 percent” approval ratings.

    Share

    Mtg purchase apps, New home sales, US and euro area PMI’s, Trump quote

    Posted on by

    Lower rates don’t seem to be helping:

    Highlights

    The purchase index continues to pull back in what is an unfavorable indication for underlying home sales. After falling 4.0 percent in the prior week, the index fell 2.0 percent in the July 19 week to pull down year-on-year growth to 6.0 percent. Refinancing activity has also been coming down, 2.0 percent lower in the week. Rates fell back in the week, down 4 basis points to 4.08 percent for conventional 30-year loans.

    Still rolling over from what are already historically depressed levels, with tariffs now widely mentioned:

    Highlights

    The housing trend is visibly fading at the half-way point, opening the year on a solid rise before flattening out and slowing in May and June. This is true of existing home sales which were reported yesterday and is especially true with today’s report on new home sales which came in at a lower-than-expected 646,000 annual rate. The 3-month average is at 636,000 which compares unfavorably against a 673,000 peak in April.

    The median price firmed in June to $310,400 but is no better than dead flat versus June last year. Supply edged higher to 338,000 new homes on the market and on a sales basis is at an ample 6.3 months. Sales jumped in the West, edged higher in the South, and slipped in the South and Northeast.

    Market fundamentals should be pointing to better results for new home sales: there’s plenty of homes on the market, prices are soft, employment is strong, and mortgage rates have come down sharply. Yet today’s report is consistent with anecdotal reports that foreign buyers, due to trade tensions, have been scaling back US home buying. In any case, these results do fit in with arguments for a rate cut, a cut that would likely pull mortgage rates even lower in what couldn’t but help housing.


    US industry continues its deceleration into contraction, like most of the rest of the world:

    US Factory Activity Stalls in July

    The IHS Markit US Manufacturing PMI fell to 50.0 in July 2019, the lowest since September 2009 and below market expectations of 51.0, a preliminary estimate showed. Output contracted the most since August 2009 and new work from abroad declined at the fastest pace since April 2016 while employment dropped for the first time in six years.

    ***President Donald Trump asked teenagers at the Turning Point USA conference Tuesday to “imagine” a world without “fake news” media in which he would have “100 percent” approval ratings.

    Share

    Existing home sales, Richmond Fed, UK factory orders, Chemical Activity Barometer

    Posted on by

    Worse than expected and in contraction year over year:

    Highlights

    The housing market firmed in the early Spring but has since flattened out. Existing home sales came in softer-than-expected at a 5.270 million annual rate in June which, however, is right in line with the 3-month average of 5.280 million. This average started the year at roughly 5.1 million.

    Single-family resales fell 1.5 percent in the month to a 4.690 million pace while condo sales, the second and much smaller component in the report, fell 3.3 percent to 580,000. By region, the Northeast and Midwest posted mid-single digit monthly gains with the South and West posting mid-single digit declines.

    For home sellers, the good news is centered in prices which rose a sharp 2.7 percent to a median $285,700. For buyers, the good news includes a 1.0 percent rise in supply on the market, at 1.930 million which nevertheless is dead flat on the year at zero.

    Sales year-on-year are in negative ground at minus 2.2 percent in what should be an easy comparison against a weak 2018. Resales have only a limited impact on residential investment in contrast to new home sales which will be posted tomorrow. But if trends hold, even flat results for new home sales, given firmness early in the quarter, could still make for the first positive residential contribution, however modest, to GDP since 2017.

    Lack of momentum in housing, which is unexpected this year given the strength of the jobs market and the fall in mortgage rates, will be one factor that doves can cite at next week’s FOMC meeting in favor a rate cut. Watch Friday for the first estimate of second-quarter GDP.


    Bad:

    Highlights

    Fifth District manufacturing activity unexpectedly fell into contraction in July, according to the latest survey from the Richmond Fed, whose composite index fell 14 points from June’s revised reading of 2 to minus 12, its lowest level since January 2013. Coming in sharply below the range of analysts’ forecasts calling for a modest uptick in growth, the slowdown was driven by declines in in all three major components of the index, with shipments down 18 points to minus 13, new orders down 16 to minus 18, and the number of employees down 7 points to minus 3, the lowest level in more than three years.

    Weakness was registered in nearly all components, with some posting double digit declines. Backlog of orders fell 29 points to minus 26, the lowest level since April 2009, while capacity utilization fell 20 points to minus 24. Companies reported worsening local business conditions, with the index plunging 25 points to minus 18, the largest monthly drop on record.

    The one bright spot in an otherwise gloomy report were expectations over the next six months, as companies on balance saw improvement in most major components. Here, expected shipments were up 9 points 32 and expected new orders were up 9 points to 36, while expected local business conditions were up 14 points to 25.

    On the inflation front, companies said both prices paid and prices received grew at a significantly faster pace in July, though input price growth continued to outpace growth of output prices. Survey participants expected growth of both prices paid and prices received to slow in the near future.

    The surprising weakness of today’s report contrasts with the Philly Fed and Empire State regional reports last week showing manufacturing rebounding in these regions. Despite the reported increase in input and output prices, the marked deterioration in the region’s manufacturing survey to the lowest level in six years is likely to bolster the dovish case for cutting the Fed funds rate at the FOMC meeting next week.


    Not at all good- 3mo average now negative year over year:

    Chemical Activity Barometer Fell in July

    Share

    Housing starts, Architecture index, Foreign home buyers

    Posted on by

    Rolled over and on the decline and from highs that were at historically depressed levels:


    Now in contraction:

    From the AIA: Design services demand stalled in June, Project inquiry gains hit a 10-year low

    Demand for design services at architecture firms decreased in June in comparison to the previous month, according to a new report today from The American Institute of Architects (AIA).

    AIA’s Architecture Billings Index (ABI) score for June was 49.1, which is down from 50.2 in May. Any score below 50 indicates a decrease in billings. Both the project inquiries index and the design contracts index continued to soften in June but remained positive.

    Read more at https://www.calculatedriskblog.com/#YGy8qvAMEyXj5cSq.99

    Foreign purchases of American homes plunge 36% as Chinese buyers flee the market

    Share

    Trucking index, Tariffs, Singapore exports, Turkey retail sales

    Posted on by

    FTR Trucking Conditions Index weakens in May


    The President is in no hurry because he narrowly views the some $5 billion/mo in tariff revenues as a profit for the US at China’s expense, totally insensitive to the global economic downturn this ‘tax hike’ has created:

    Trade war to drag on as Trump says long way to go and China strikes hard-line tone

    Share

    Retail sales, Industrial production, Housing index, Business inventories

    Posted on by

    Better than expected:

    Highlights
    Taking out a policy-insurance rate cut when the main driver of the economy is booming sounds a little counter-intuitive, in retail sales results that came in much stronger than expected in June. Total sales rose 0.4 percent in the month with ex-auto sales also up 0.4 percent — both of these hit the top end of Econoday’s consensus range. Easily surpassing the top end of the consensus range are two of the report’s key core readings with less auto & less gas and also the control group up very sharply at 0.7 percent gains on the month.

    Strength abounds in this report with the isolated weak points led by gasoline stations, where price effects tied to lower oil prices pulled down sales by 2.8 percent, and also department stores, an ailing segment of the retail sector that seems to be devolving.

    The most surprising strength in the report, at least for forecasters, is a 0.7 percent jump in auto sales that conflicts with what was a flat month for unit sales (a series, however, that is clouded with special factors). Not surprising is a another surge, this time 1.7 percent for a second month in a row, for nonretailers which continue to feed off of traditional retailers such as department stores.

    A key strength, and one that underscores discretionary power, is yet another strong gain for restaurants, up 0.9 percent following prior gains of 1.0 percent, 0.7 percent, and 0.8 percent. This shows that consumers, flush with confidence and fully employed, are enjoying themselves.

    The list of strength goes on with both furniture and building materials snapping back with 0.5 percent gains that point to strength for residential investment. Clothing stores saw sales rise 0.5 percent as did health & personal care stores.

    The Federal Reserve may be looking across the oceans for reasons to justify a rate cut, but any justifications aren’t coming from the US consumer which makes up the vast bulk of GDP. And however much inflation may be flat, consumer spending is not to blame.

    Not inflation adjusted and June subject to revision next month:


    Worse than expected:


    Manufacturing:


    As expected, and still looking like it’s rolled over:

    Highlights

    Business inventories rose a slightly lower-than-expected 0.3 percent in May but follow a 0.5 percent rise in April in results that put the outlook for inventory contribution to second-quarter GDP at roughly flat. There are hints that inventory growth is exceeding underlying demand as 5.3 percent year-on-year growth for inventories is well above the 1.5 percent rise for business sales. Yet any imbalances aren’t increasing as the inventory-to-sales ratio in May held steady at 1.39.

    Inventory remains high relative to sales:

    Share