Category Archives: Economic Releases

Rail traffic, apartment vacancy rate, durable goods orders, personal income and consumption, KC manufacturing

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Rail Week Ending 15 December 2018: Economically Intuitive Sectors Continue In Contraction

Written by Steven Hansen

Week 50 of 2018 shows same week total rail traffic (from same week one year ago) improved according to the Association of American Railroads (AAR) traffic data. The economically intuitive sectors were in contraction this week.


Weak:

Highlights

A swing higher for the always volatile aircraft group gave an outsized lift to durable goods orders in November, rising 0.8 percent but still under consensus for 1.4 percent. When excluding aircraft and other transportation equipment, durable goods orders fell 0.3 percent which is near Econoday’s low-end expectations. Under low-end expectations are core capital goods orders (nondefense ex-aircraft) which fell 0.6 percent in the month.

Aircraft orders, both civilian and defense, reversed two prior months of steep declines, rising 17.7 percent for the former and 15.4 percent for the latter. Primary metals at 1.0 percent, fabrications at 0.5 percent, and communications equipment at 0.8 percent all posted solid monthly gains.

Elsewhere, however, orders were weak with electrical equipment down 0.7 percent, computers unchanged, and motor vehicles down 0.2 percent. The biggest disappointment, and the heart of the capital goods group, is machinery where November orders sank a very steep 1.7 percent.

The drop in capital goods orders is offset, however, by a large 5-tenths upward revision to October which now stands at plus 0.5 percent. And the upward October revision also includes core shipments which are inputs into GDP business investment and which now jumped 0.8 percent in the month in what is also a 5-tenths upward revision. Yet shipments for November, like orders, were weak at minus 0.1 percent.

Unfilled orders are another weakness, falling 0.1 percent after dipping 0.2 percent in October. Total shipments bounced back with a 0.7 percent November gain that follows a 0.4 percent decline with inventories up 0.3 and 0.2 percent in the two months. November’s build relative to shipments is favorable, drawing back the inventory-to-shipments ratio to a leaner 1.61 from 1.62.

Certainly much of the news in today’s report is favorable though the dip in the ex-transportation reading and turn lower for capital goods do echo last week’s industrial production report, all pointing to a factory sector that may be losing a little steam going into year end. And a look at year-on-year change in today’s report points to the same, at 5.3 percent for total orders which is strong but lower than October and September and down from a peak of 12.1 percent in August.

Not inflation adjusted, so still well below prior highs in real terms:

This is the series that got revised by a full $200 billion last year so I don’t read much into it…

Highlights

November was a mixed month for the consumer as personal income managed only a lower-than-expected 0.2 percent gain which is offset, however, by a solid and higher-than-expected 0.4 percent rise for consumer spending.

Price data are subdued, rising 0.1 percent for both the PCE and core PCE with year-on-year rates now both below the Federal Reserve’s 2 percent target, at 1.8 and 1.9 percent respectively.

Highlights

This morning’s durable goods report proved no better than mixed as have many of the recent regional manufacturing reports including Kansas City’s composite index for December which slowed to 3 for the lowest reading in more than two years.

New orders, at 4, are one of the lowest of the last two years with export orders especially weak at minus 7. Production moved sharply into the negative column at minus 18 with the workweek flat. Employment is a positive rising 2 points to 8 as are backlog orders which came in at 9 though down from November’s unusually strong rise of 18. Prices also moderated sharply including input costs and also selling prices which had been strong in this sample but are now flattening.

And flattening is a reasonable description for the nation’s factory sector in general, ending what was a strong 2018 with a bit of fizzle.

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Housing starts, Existing home sales, Fedex

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Up some but the chart not looking so good:

Highlights

Mostly goods news finally greets the housing sector as both starts and permits are showing an uplift in November results that top Econoday’s consensus range. Starts jumped to a 1.256 million annualized rate for a 4-month high with permits at a 1.328 million rate and an 8-month high.

But not all the news is good. Strength in both starts and permits is concentrated in multi-family units, not single-family units where construction costs per unit are higher and have a bigger impact on residential investment. Single-family starts fell sharply to an 824,000 rate vs October’s 864,000 with single-family permits up only fractionally to 848,000. Multi-family starts surged to 432,00 from 353,000 with permits at 480,000 vs 418,000.

And in unfavorable news for ongoing new home sales, single-family completions fell sharply to 772,000 from 816,000, again in contrast to the multi-family side where completions rose to 327,000 from 279,000.

Regional data show two months of strength in starts for the South, which is by far the largest region in this report, and a swing higher for the Northeast which is by far the smallest. Permits in November also show the South out in front. The Midwest and the West posted mostly declines with permits in the latter, which underscores weakening sentiment in yesterday’s home builders report, down 11.0 percent from November last year.

Year-on-year rates continue to speak to the general weakness of housing with total starts down 3.6 percent and permits up only 0.4 percent. Today’s report is positive especially for builders of multi-family units but the weakness on the single-family side won’t be giving much lift to what are downcast expectations for the nation’s housing sector.


A slight move up today but the chart isn’t looking at all good:

Tariffs cutting into global trade:

UPDATE 6-FedEx cuts 2019 earnings forecast on economic slowdown

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Containers, Housing index and sales

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Analyst Opinion of Container Movements

Simply looking at this month versus last month – this was a terrible month. The three month rolling averages significantly declined. This is the first dataset I have seen which could be a self-inflicted wound from the trade wars. The three month rolling average for exports is barely positive year-over-year.

This data set is based on the Ports of LA and Long Beach which account for much (approximately 40%) of the container movement into and out of the United States – and these two ports report their data significantly earlier than other USA ports. Most of the manufactured goods move between countries in sea containers (except larger rolling items such as automobiles). This pulse point is an early indicator of the health of the economy.

More housing weakness:

California Bay Area Home Sales Decline 17% YoY in November, Inventory up 27% YoY

From Pacific Union chief economist Selma Hepp: Bay Area Housing Inventory Again Posted a Solid Increase in November

  • Overall Bay Area home sales (single-family homes and condominiums) declined by 17 percent year over year in November, with all counties and price ranges posting decreases.
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    US factory growth, China car sales, Euro Area, Germany, Fisher comment, State revenues, Las Vegas housing

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    The tariff thing keeps taking its toll:

    China Nov car sales fall 14%, biggest drop since 2012

    (Reuters) China’s automobile sales fell 13.9 percent in November from a year earlier. The drop in sales to 2.55 million vehicles, a fifth straight decline in monthly numbers. The last time sales fell by more than this was in January 2012, when business was hurt by the timing of the Lunar New Year holiday. The November drop comes on the heels of almost 12 percent declines in each of the past two months, putting China on track for an annual sales contraction not seen since at least 1990. Sales in the country totalled 25.4 million vehicles in the first eleven months of the year, down 1.7 percent from the same period a year earlier.

    Euro Area Private Sector Activity at 49-Month Low: Markit

    The IHS Markit Eurozone Composite fell to 51.3 from 52.7 in the previous month and below market expectations of 52.8, a preliminary estimate showed. The reading pointed to the weakest expansion in the private sector activity since November 2014, as both manufacturing (51.4 from 51.8) and services (51.4 from 53.4) slowed. The job creation rate dropped to a two-year low; new export orders fell for the third straight month, recording the steepest decrease since series began while new business almost stalled. The slowdown was centered in France, as disruptions to business and travel were registered from the ‘gilets jaunes’ protest. On the price front, input price inflation eased to an eight month low due to lower oil and other commodity prices and fewer supply constraints regarding demand in the region. Finally, optimism deteriorated drivn by growing concerns over global trade and economic growth, rising political uncertainty, Brexit and tighter financial conditions.

    German Private Sector Growth at 4-Year Low

    The IHS Markit Germany Composite PMI declined to 52.2 in December 2018 from 52.3 in the previous month and below market forecasts of 52.5. The latest reading pointed to the weakest pace of expansion in the private sector since December 2014 as service sector expansion was the second-weakest seen in over two years (PMI at 52.5 vs 53.3 in November) and manufacturing growth slowed to a near three-year low (PMI at 51.5 vs 51.8 in November). Inflows of new orders edged closer to stagnation as new export business fell for the fourth month running, with a number of manufacturers highlighting a drop in sales to China. Meanwhile, employment growth picked up from November’s six-month low and remained solid overall while backlogs of work decreased for a second straight month. On the price front, input price inflation was the lowest since September 2017. Looking ahead, business confidence regarding the year-ahead outlook for activity dropped to a four-year low.

    Seems a particularly silly statement, but not uncommon:

    Ex-Fed’s Richard Fisher: Rates need to go higher to create enough room to cut should the economy tank

    State and local tax receipts now growing faster than expenditures is a source of drag on the economy:

    Many States See Strong Revenue

    (WSJ) With most states nearing the midpoint of their fiscal years, which end June 30, at least 19 of them are seeing higher-than-expected general-fund revenue, according to a report from the National Association of State Budget Officers. “Clearly, from what I’ve observed, a continued, much-improved personal-income tax situation” is feeding the states’ revenues, said John Hicks, Nasbo’s executive director. “But also, we’re seeing an improved sales tax.” The states’ personal income-tax collections grew by a median 7.9% in fiscal 2018, Mr. Hicks noted. And general-fund collections from personal-income taxes outperformed forecasts by 3.6%.

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    China, Corporate debt and profits, Bank credit, Japan, Leveraged loans

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    China exports falling with tariffs:

    China’s November export, import growth shrinks, showing weak demand

    US exports turning south as well?

    The deceleration that started with the collapse of oil capex in Dec 2014 took a brief zig up late in 2017, and subsequently continued lower:


    Likewise the ability to generate gross profits has been fading:


    After tax and depreciation it’s not a whole lot different, with a one time leg up for the 2018 corporate tax cut that just brought it back to the prior highs, not adjusted for inflation:


    And real hourly compensation flattened out around the same time:


    This series decelerated with the collapse of oil capex at the end of 2014 and has remained at historically low levels:

    Japan GDP Growth Rate

    The Japanese economy shrank 0.6% on quarter in Q3, faster than a preliminary estimate of a 0.3% drop and market expectations of a 0.5% decline. It is the steepest contraction since Q2 2014 as natural disasters like flood and earthquake weighed more on personal consumption and capital investment than initially estimated.

    Leveraged loans are now funded by non banks as well as banks, and some of the non banks are funded by banks, so banks are still funding some portion of leveraged loan funding.

    However, this credit expansion- including what does not show up as bank lending- does support GDP growth, and a slowdown removes that support for the economy:

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    Fed comments, Trump watching stocks

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    A falling stock market will get the Fed’s attention and trigger real economic weakness and aggressive rate cuts. But those rate cuts remove interest income from the macro economy, which doesn’t recover until after net deficit spending (public or private) gets high enough to support aggregate demand growth. And the last recession didn’t reverse until after the federal deficit rose to over 10% of GDP:

    President Donald Trump has been consulting with his advisors to see if his trade policies are responsible for the volatility that has hammered markets in recent weeks, according to The Wall Street Journal.

    The president still sees the Dow Jones Industrial Average as a significant benchmark for his performance, the report said, citing sources close to Trump. The blue chip index is up about 23 percent since Trump’s inauguration but turned negative for the year during another rough market session Friday.

    One person close to the White House told the WSJ that the president is “glued” to the stock market.

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    Employment, NYSE margin debt

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    Employment growth had been decelerating with the collapse in oil capex in Dec. 2014, but had started to accelerate with the initial impact of the year-end tax cuts, which now look to be fading:

    Highlights

    Sustainable non-inflationary strength is the indication from the November employment report as payroll growth proved favorable and moderate and wage pressures modest. Nonfarm payrolls rose 155,000 which is on the low side of expectations while average hourly earnings increased 0.2 percent, also on the low side of expectations. The year-on-year rate for earnings held unchanged at 3.1 percent, again on the low side of expectations.

    The unemployment rate, at 3.7 percent, is also unchanged as is the labor participation rate at 62.9 percent, both matching Econoday’s consensus. A sign of moderation comes from average weekly hours which, at 34.4, is at the low end of expectations to hint at easing capacity stress. Manufacturing hours and overtime are soft which points to moderate results for the upcoming industrial production report.

    Turning back to payrolls, manufacturing rose a very solid 27,000 in the only reading in today’s report that tops Econoday’s consensus. Trade & transportation, where capacity stress has been elevated, added a very strong 53,000 jobs with professional & business services up 32,000 which is solid but still low for this reading to suggest that the scramble to find full-time employees may be easing.

    This report does not raise any urgency for the Federal Reserve to tighten monetary policy and may well raise talk of fewer rate hikes to come in 2019.

    A rising stock market coincides with rising margin debt that seems to provide support for the macro economy. And a drop in the stock market causes a drop in margin debt that removes that support. Additionally, a similar thing happens with other lenders who accept stock as collateral:

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    Trade, Factory orders, Vehicle sales, UK service sector, German PMI

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    Deficit growing despite tariffs. Could be J curve effect:

    Highlights

    A slight 0.1 percent decline in exports and a slight 0.2 percent gain in imports made for a sizable 1.7 percent deepening in the nation’s trade deficit in October to $55.5 billion which is just outside Econoday’s consensus range.

    The deficit with China was very deep, at $43.1 billion in October vs $40.2 billion in September for a year-to-date deficit of $420.8 billion that is 23 percent deeper than this time last year. This is important data for ongoing trade talks between the U.S. and China.

    October’s deficit with the EU, at $17 billion, also deepened as did the deficit with Japan at $6.2 billion. The deficit with Mexico, at $7.2 billion, eased slightly while the deficit with Canada, at $1.9 billion, widened slightly. Note that country balances, unlike other data in this report, are not adjusted for calendar or seasonal effects.

    Exports, in possible tariff effects, show another sizable drop in foods, feeds & beverages, to $10.3 billion vs September’s $11.0 billion. Exports of civilian aircraft were also weak, at $4.9 billion vs September’s $5.2 billion. Services exports, an area of strength for the U.S., edged higher in the month to $69.6 billion.

    Foods, feeds & beverages on the import side rose slightly to $12.3 billion with imports of consumer goods, which are a special sore spot in the U.S. trade picture, rising $2.0 billion to $57.4 billion. Imports of services rose modestly to $47.0 billion.

    October’s $55.5 billion headline deficit compares with a monthly average in the third-quarter of $52.8 billion and unfortunately marks a very weak opening for fourth-quarter net exports.

    Tariffs taking their toll:

    Highlights

    Held down by downturns in the defense goods and also civilian aircraft, factory orders sank 2.1 percent in October. The split between the report’s two main components shows a modest 0.3 percent increase for nondurable goods — the new data in today’s report where the gain is tied to printing and petroleum — and a 4.3 percent drop for durable orders vs 4.4 percent in last week’s advance report for this component.

    Orders for defense goods have fallen 16.4 and 16.2 percent the last two reports but follow a giant 48.8 percent surge in August that was tied to aircraft. Orders for civilian aircraft in October and September have fallen 22.2 and 19.1 percent but here too follows an outsized gain in August, of 63.7 percent.

    Core capital goods (nondefense ex-aircraft) are mostly weak in today’s report, with orders unchanged following declines of 0.6 and 0.2 percent in the prior two months. But core shipments, which are direct inputs into fourth-quarter GDP, did rise 0.3 percent for a respectable opening to fourth-quarter business investment.

    Areas of strength in October include sharp order gains for fabrications, computers & electronics, and also electrical equipment. Other readings include a marginal 0.1 percent rise in factory inventories which will offset very strong October builds for retailers and wholesalers and will limit October’s contribution to GDP inventory. Both total shipments and also total unfilled orders posted soft 0.1 percent declines.

    Monthly swings in aircraft can badly cloud results this report which focuses attention on the smoother reading of year-on-year change. This remains solidly positive at a 6.9 percent gain for total orders which, however, is down from 7.5 percent in September and a 4-year high of 10.3 percent in August. But a little slowing at year-end won’t dim manufacturing’s central contribution to the strength of the 2018 economy.


    Still flat to down, much like housing:

    Highlights

    Unit vehicle sales in November came in on the high end of expectations but, at a 17.4 million annualized rate, still fell just short of October’s 17.5 million rate. The results do not point to a back-to-back monthly gain for motor vehicles which make up about 1/5 of total retail sales and which in October ended two months of declines. Yet November did come in at a very healthy rate with strength concentrated in light trucks which typically have high sticker prices and which help dollar totals of the retail sales report.

    The IHS Markit Germany Composite PMI stood at 52.3 in November 2018, compared to a preliminary reading of 52.2 and October’s final 53.4. The latest reading pointed to the weakest pace of expansion in the private sector in nearly four years amid slower growth in service sector and a slight rise in manufacturing output that was the weakest for over five-and-a-half years. New orders rose the least since the start of 2015, with export orders falling for the third straight month, and job creation slowed. On the price front, output charge inflation eased to an 11-month low. Looking ahead, business confidence towards the outlook remained close to the lowest in almost four years. Composite Pmi in Germany is reported by Markit Economics.

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    Construction spending, Smart phones

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    Looking very weak:

    Highlights

    Construction has been a soft spot of the economy evident once again in October where spending fell 0.1 percent for the third straight decline and the fourth decline in five months. Spending on new single-family homes in October fell 0.5 percent with home-improvement spending down 0.9 percent, both offsetting a strong 1.0 percent rise in multi-family homes.

    Private nonresidential construction fell 0.3 percent in October with declines in power, manufacturing, transportation and commercial components offsetting another strong gain for office building.

    Public building has been a strength for the construction sector as it was again in October. Educational building rose 2.6 percent in the month though highway & street spending did edge 0.1 percent lower.

    But the year-on-year rates really tell the story with education up 9.2 percent and highway & streets up 5.2 percent. Private nonresidential spending is up a very solid 6.4 percent led by office building at 16.3 percent with the commercial subcomponent bringing up the rear at a 0.6 percent gain.

    Total residential spending is up only 1.8 percent year-on-year with single-family up 2.4 percent, home improvements up only 0.4 percent, and multi-family up 3.2 percent. The softness on the residential side is limiting overall construction spending to a 4.9 percent yearly gain.

    Nonresidential and public building have been solid this year but the rise underway in mortgage rates appears to be taking the steam out of what was already an exhausted looking housing sector.

    According to latest estimates from market research firm IDC, global smartphone shipments amounted to 355.2 million units in the third quarter of 2018, marking the fourth straight quarter of negative growth for the smartphone market. For the first nine months of 2018, global shipments added up to 1.03 billion units, down 3.6 percent from the same period last year.

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