Category Archives: Economic Releases

Housing starts, Mtg purchase apps, Retail sales

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Gone from bad to worse:

Highlights

The highest interest rates in over 7 years took their toll on mortgage activity in the October 12 week, with purchase applications for home mortgages falling a seasonally adjusted 6 percent while applications for refinancing fell 9 percent. Despite the sizable seasonally adjusted decline, unadjusted purchase applications remained 2 percent higher than in the same week a year ago. The refinance share of mortgage activity decreased by 0.9 percentage points to 38.1 percent. After jumping 9 basis points in the previous week, the average interest rate on 30-year fixed rate conforming mortgages ($453,100 or less) rose another 5 basis points to 5.10 percent, the highest level since February 2011.

Gone from bad to worse:

Highlights
However strong third-quarter GDP may prove, it likely won’t be getting any lift from residential investment. Housing starts in September came in on the low side of expectations, down 5.3 percent to a 1.201 million annualized rate with completions very weak, down 4.1 percent to a 1.162 million rate that’s the lowest since November last year. Hurricane Florence certainly didn’t help the South where starts fell 13.7 percent but the Midwest, which was not affected by the hurricane, saw starts fall 14.0 percent in the month.

Building permits, which should be less affected by weather, fell 0.6 percent in September to 1.241 million that is well below expectations and, like completions, is the weakest rate since November. Permits were pulled down by a sharp 7.6 percent drop for multi-units with single-family permits up a solid 2.9 percent. But even here, the year-on-year rates show the weakness, up only 2.4 percent for single-family permits, down 7.8 percent for multi-units with total permits down 1.0 percent.

Looking at quarter-to-quarter comparisons, starts averaged 1.218 million which is down from 1.261 million in the second quarter in what points to yet another quarter of trouble for residential investment — which is the weak link in the 2018 economy. Hurricane effects are a wildcard for housing data both for September and also for October when Michael hit the Florida panhandle but the ultimate impact on the nation’s statistics, judging by today’s results, may prove elusive.

Weakness here to as trade wars seem to be taking their toll:

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Employment, Bank loans, Output gap chart, Foreign $ bonds

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Looks like it’s turned up a bit with the tax cuts?


Looks like this source of private sector deficit spending has gone flat again:


Looks to me a lot more like a deficiency of demand than a demographic shift:

This is a source of $US deficit spending that ‘offsets’ unspent incomes:

China to raise billions in rare US debt deal as trade tensions persist

(Nikkei) China is planning to sell $3 billion in U.S. dollar bonds this month. China is planning to sell bonds that mature in five, 10 and 30 years, and become a regular issuer of sovereign debt. In October 2017, China issued $2 billion in five- and 10-year bonds at slightly higher interest rates than what the U.S. Treasury was paying to borrow at the time. Asian companies outside of Japan have sold $185 billion in U.S. dollar bonds so far in 2018, of which roughly half has come from Chinese firms, according to ANZ Research. Overall Asia ex-Japan corporate debt issuance is down 17% from a year ago.

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Car sales, Redbook retail sales, Mtg apps, ISM and Markit services index

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A bit stronger than expected, but still trending lower, particularly adjusted for population:

Highlights

Unit sales of motor vehicle proved very strong in September, rising sharply to a 17.4 million annualized rate from 16.6 million in August. This points to a sharp rise in dollar sales of motor vehicles for the September retail sales report which in prior months had been flat. Note that some of the month’s gain may reflect replacement demand tied to Hurricane Florence which struck the Carolinas at mid-month. Sales of domestic-made vehicles rose to a 13.3 million rate from 13.0 million in August.


Same store sales growth has been increasing. As stores are being shut down those remaining open benefit:


Not showing any signs of life yet:


ISM is looking up suddenly. Might be just another post hurricane reading:


The markit PMI service index hit an 8 month low:


The ADP forecast for Friday’s employment number was up from last month:

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Lots of evidence of slowing;

Highlights

A marginal headline gain of 0.1 percent in construction spending masks significant declines in residential spending during August. Residential spending fell 0.7 percent in the month to more than offset a 0.2 percent rise in July. Looking at sub-components, single-family spending was also down 0.7 percent in August with multi-unit spending down 1.7 percent. Home improvement spending fell 0.6 percent.

Strength in the report is in highways & streets, up 1.7 percent in the month. Educational spending was also strong with a 1.0 percent gain. Government spending was very active in August, up 5.9 percent at the Federal level and up 1.7 percent for state & local.

Private nonresidential spending was flat, down 0.2 percent overall with commercial, power and manufacturing subcomponents all showing declines to offset gains for transportation and offices.

This report is not pointing to acceleration in business investment and is consistent with another weak quarter for residential investment which remains the economy’s weak spot for 2018.

Investing in the Soaring Popularity of Gaming

(Reuters) Global mergers and acquisitions dropped to $783 billion in the third quarter, down 35 percent from the prior quarter. The first nine months of 2018 saw global M&A reach a new record of $3.2 trillion. M&A activity in Europe has been particularly strong, with deals worth $962.5 billion so far this year, a 72 percent increase compared with a year ago. U.S. M&A, which rose 14 percent year-over-year to $368.1 billion in the quarter. Announced deals in Europe fell 14 percent to $151.4 billion, while M&A in Asia-Pacific was down 38 percent to $185.1 billion, the Thomson Reuters data showed.

Japanese business sentiment logs longest fall since 2009

(Nikkei) The closely watched index of large manufacturer sentiment came to plus 19 for the July-September period, down from 21 in the previous survey in June. The survey showed that big manufacturers expect profits to fall 4.6% for the year ending March 2019, on an assumption that the yen will average 107.40 to the dollar this business year. In the previous survey, the rate was seen at 107.26 yen per dollar. The survey showed that large companies plan to increase their capital investment in the current fiscal year by 13.4%, only a tick lower than the 13.6% increase predicted in the previous June survey.

China’s Economy Losing Steam as Trade Conflict With U.S. Intensifies

(WSJ) An intensifying trade brawl with the U.S. is starting to take a heavier toll on China’s economy, as weakening foreign demand and sluggish domestic consumption cause Chinese manufacturers to significantly scale back production. The new data released Sunday showed that privately owned makers of cars, machinery and other products stopped expanding in September, as export orders dropped the most in more than two years. At the same time, output by large, state-owned manufacturers continued to weaken.

Euro area manufacturing purchasing managers index

This reduces aggregate demand:

The savings bill the House passed Thursday would make it easier for small businesses to offer retirement plans to their employees, create universal savings accounts and allow 529 education savings plans to be used for more purposes.

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Trade, Pending home sales, New home sales, Durable goods, Bank lending, Earnings

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Need more tariffs…

Highlights

Amid the unfolding of tariff effects, exports are moving in the wrong direction and look to be a big negative for third-quarter GDP. The nation’s trade deficit in goods was a whopping $75.8 billion in August with exports down 1.6 percent for a second straight month. Imports are also a negative for the trade balance, up 0.7 percent following a 0.9 price rise in July.

Not good:

Highlights

It’s hard to find good news in the housing sector and today’s pending sales index doesn’t offer any, falling a very steep 1.8 percent and well below Econoday’s consensus range. The drop will lower estimates for the next report on existing home sales.

All regions show declines in the month with the steepest in the West at minus 5.9 percent. The West also shows the steepest decline year-on-year at minus 11.3 with only the South in the plus column on this basis, but at only 1.3 percent. Overall year-on-year sales are at minus 2.3 percent.

Depressed and working their way lower this year:

Highlights

A big swing higher for civilian aircraft skews August’s durable goods headline which jumped 4.5 percent to hit Econoday’s high estimate. But when excluding aircraft and other transportation equipment, durable goods orders inched only 0.1 percent higher which falls below Econoday’s low estimate. And far below the low estimate are core capital goods orders (nondefense ex-aircraft) which fell 0.5 percent.

Not inflation adjusted or population adjusted:


This appears to have flattened out again?

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PMI, Existing home sales, Permits, Homebuying index, Fed book, China car sales, Federal budget

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Highlights

Amid a backdrop of rising inflation pressures, sharp slowing in the services PMI sample pulled down September’s composite flash and masks a strong showing for manufacturing. The PMI composite fell to 53.4 which is well below Econoday’s consensus for 55.1 and also below the low estimate for 53.8. Services fell to 52.9 vs a consensus for 55.0 while manufacturing, however, rose to 55.6 vs expectations for 55.0.

Weakness in services is centered in the year-ahead outlook which fell to its lowest level of 2018 reflecting concerns over cost pressures as input prices rose sharply and selling prices surged to a record high in survey data going back 10 years. Respondents to the service sample cited the need to pass through higher labor costs and increased input costs sourced from overseas. Cost concerns overshadow a rise in new orders, a build in backlogs, and a jump in hiring to a 3-1/2 year high.

The year-ahead outlook on the manufacturing side is also weak, slipping to a 2-1/2 year low as this sample cited higher costs tied to metal tariffs and the related need for forward purchasing. Some of these respondents said strong order levels are allowing them to push up selling prices. Yet other details, much like the service side of the report, are positive including rising orders and production. Another negative, however, is the slowest rate of hiring over the past year.

The service sector dwarfs manufacturing in size which explains its much greater impact on the composite. But though a fraction of the size of services, manufacturing is considered, however, a leading barometer for future economic change which is the silver lining in today’s report. Yet not a silver lining at all is the inflation theme of the report, one that is certain to gain the attention of Federal Reserve policy makers who look to raise rates next week to defend against the risk of economic overheating.

Services pmi:

August 2018 Headline Existing Home Sales Continue In Contraction Year-over-Year

The headline existing home sales growth was unchanged with the authors saying “With inventory stabilizing and modestly rising, buyers appear ready to step back into the market”. Our analysis shows home sales three month rolling average is in contraction year-over-year.


Slowing here as well:

Chicago Fed “Index Points to Steady Economic Growth in August”

Fed’s Beige Book “This report was prepared at the Federal Reserve Bank of New York based on information collected on or before August 31, 2018”

Reports from the Federal Reserve Districts suggested that the economy expanded at a moderate pace through the end of August. Dallas reported relatively brisk growth, while Philadelphia, St. Louis, and Kansas City indicated somewhat below average growth. Consumer spending continued to grow at a modest pace since the last report, and tourism activity expanded, to varying degrees, across the nation. Manufacturing activity grew at a moderate rate in most Districts, though St. Louis described business as little changed and Richmond reported a decline in activity. Transportation activity expanded, with a few Districts characterizing growth as robust. Home construction activity was mixed but up modestly, on balance. However, home sales were somewhat softer, on balance–in some cases due to reduced demand, in others due more to low inventories. Commercial real estate construction was also mixed, while both sales and leasing activity expanded modestly. Lending activity grew throughout the nation. Some Districts noted weakness in agricultural conditions. Businesses generally remained optimistic about the near-term outlook, though most Districts noted concern and uncertainty about trade tensions–particularly though not only among manufacturers. A number of Districts noted that such concerns had prompted some businesses to scale back or postpone capital investment due to worries about the trade outlook.

China Auto Sales Slump on Trade Tensions, Economic Jitters

We’ll see if this ‘eventuates’:

Trump adviser eyes entitlement cuts to plug U.S. budget gaps

(Reuters) “We have to be tougher on spending,” White House economic adviser Larry Kudlow said in remarks to the Economic Club of New York, adding that government spending was the reason for the wider budget deficits, not the Republican-led tax cuts activated this year. “We’re going to run deficits of about 4 to 5 percent of GDP for the next year or two, OK. I’d rather they were lower but it’s not a catastrophe,” Kudlow said. “Going down the road, of course we’d like to slim that down as much as possible and we’ll work at it.”

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Employment, Rental markets

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The change in total nonfarm payroll employment for June was revised down from +248,000 to +208,000, and the change for July was revised down from +157,000 to +147,000. With these revisions, employment gains in June and July combined were 50,000 less than previously reported.

Read more at https://www.calculatedriskblog.com/#eVuYdeqRRy7O1pt6.99


Looks like the private sector credit ‘burst’ has run it’s course and the downtrend is resuming?


4.6 million people who weren’t considered to be in the labor force took jobs last month:


This is not adjusted for inflation:

Rental markets slowing:

Rental glut sends a chill through the hottest housing markets

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Construction spending, Trade

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Highlights

A solid rise in residential spending offset a mixed showing for non-housing components and made for a 0.1 percent July rise in overall construction spending to barely come within Econoday’s consensus range. Residential spending rose 0.6 percent but July’s gain was entirely centered in home improvements which jumped 2.1 percent to offset outright declines of 0.3 percent in single-family homes and 0.4 percent for multi-families.

Private non-residential spending fell 1.0 percent in the month, pulled down by a sharp fall in commercial projects, where spending has been uneven in recent months, that offset a fourth straight sharp gain in transportation. Public spending on educational building and highways & streets posted gains following declines in June.

Year-on-year rates help underline what is a healthy rate of growth in construction spending, up 5.8 percent overall with residential spending up 6.7 percent and both private nonresidential and public categories showing low to mid single digit gains. Nevertheless, reports out of housing have been uneven and are clouded further by the declines in single- and multi-family homes in this report.

Highlights

The nation’s trade deficit deepened sharply in July, to $50.1 billion vs a revised $45.7 billion in June. The deficit in goods jumped to $73.1 billion from $68.9 billion in June while the surplus in services slipped slightly to $23.1 billion.

Exports of capital goods fell $1.0 billion to $46.3 billion with civilian aircraft down $1.6 billion to $3.5 billion in the month. Exports of foods & feeds fell $0.9 billion to $13.2 billion with exports of consumer goods down $0.4 billion to $16.0 billion.

The import side shows a $0.8 billion decline in consumer goods to $52.6 billion with other components, however, on the rise including capital goods up $0.7 billion to $58.2 billion and autos up $0.5 billion to $30.7 billion.

The bilateral deficit with China deepened to $36.8 billion in unadjusted country data with the EU at a deficit of $17.6 billion. The deficit with both Japan and Mexico came in at $5.5 billion in July and Canada at $3.2 billion.

July’s deficit is much deeper than the $45.6 billion monthly average for the second quarter and points to a major uphill battle for net exports in the third-quarter GDP report.

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Personal income, Pending home sales, Real house prices

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Flattened out at modest levels of growth with no sign that the tax cuts have led to an acceleration:

Pending home sales fall for seventh straight month in July

  • Signed contracts to buy existing homes fell 0.7 percent in July compared with June, according to the National Association of Realtors’ pending home sales index.
  • The gauge was down 2.3 percent compared with July 2017. That is the seventh straight month of annual declines.
  • Pending home sales are an indicator of future closed sales.

    • Adjusted for inflation, house prices don’t look so high:

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    Trade, Redbook, Consumer Confidence, Durable goods orders, China, Architecture index, Bank loans

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    Larger than expected:

    Highlights

    In some of the early data coming out in this period of trade disputes, the goods deficit of the July trade report totaled a much deeper-than-expected $72.2 billion. Exports of goods fell 1.7 percent in the month to $140.0 billion showing a very steep 6.7 percent month-to-month decline in food & feeds together with a 2.5 percent dip in exports of consumer goods and a 1.7 percent decline in the nation’s largest export, that of capital goods.

    Imports also added to the widening of the deficit in July, up 0.9 percent compared to June to $212.2 billion with foods & feeds up 2.1 percent, vehicles up 1.6 percent, and industrial supplies, which include petroleum products, up 0.9 percent. The nation’s largest import category is consumer goods which was the only category to fall on the import side of the data, down 1.5 percent in the month.

    July’s $72.2 billion goods deficit compares with a monthly average of $66.7 billion in the second quarter which was a very good quarter for trade, representing 1.1 percentage points of the quarter’s 4.1 percent pace. Today’s results, however, pose a very slow start for the third quarter.

    Same store retail sales seem to be growing nicely, now that the number of stores has been reduced:

    Highlights

    Same store sales were up 5.1 percent year-on-year in the August 25 week, accelerating by 0.4 percentage points to the third fastest growth pace of the year. Month-to-date sales versus the prior month were up 0.4 percent, while the full month year-on-year gain widened by 0.2 percentage points to 4.8 percent, the second strongest reading for this comparison this year. Redbook’s same store sales point to continued robust strength in ex-auto ex-gas retail sales.

    Consumer confidence looking strong, in line with the stock market, while consumer sentiment fell:

    Highlights

    The consumer sentiment index at mid-month came in much weaker than expected in complete contrast to today’s consumer confidence index which easily tops expectations, at 133.4 for August vs Econoday’s high forecast for 128.0 and median consensus for 126.8. This is the strongest result since the dotcom fever of October 2000. July is revised 5 tenths higher to 127.9.

    The most important detail in the August report is a notable decline in those saying jobs are currently hard to get which is down very steeply from an already thin 14.8 percent to 12.7 percent. This is extremely favorable for this reading and is certain to raise expectations for a very healthy monthly employment report for August.

    A second detail that speaks to impressive strength is the outlook on income. Optimists here rose a very sharp 5.1 percentage points to 25.5 percent with pessimists shrinking 2.4 points to 7.0 percent. The gain here not only reflects the strength of the labor market but also the strength of the stock market.

    Boosted by jobs hard to get, the present situation index rose from 166.1 to 172.2 while the expectations index, boosted by income prospects, increased from 102.4 last month to 107.6 this month.

    Another positive in the report, at least for Federal Reserve policy makers who are concerned that inflation doesn’t overshoot their target, is a 2 tenths dip in year-ahead inflation expectations to 4.8 percent which for this reading is nevertheless elevated.

    Bulls are dominating stock market sentiment, at 39.4 percent for a 2.2 point gain from July with bears at 24.5 percent and down 4.1 points. Most see interest rates moving higher, at 69.4 percent vs 71.4 percent in July.

    Buying plans are yet another major positive showing strong gains across the board: autos, homes, and major appliances. This report points to a noticeable upward revision in Friday’s consumer sentiment report and more importantly hints at building consumer momentum for third-quarter GDP.


    Weak apart from ‘core capital goods’ but best to wait until next month’s revisions before passing judgement:

    Highlights

    A stunning showing for core capital goods orders steals the show in what looks on the surface, based on the 1.7 percent headline drop, to be a weak durable goods report for July. Orders for core capital goods (nondefense ex-aircraft) surged 1.4 percent to easily beat Econoday’s consensus for a 0.5 percent gain and also top Econoday’s high forecast for 1.2 percent. Computers & electronics as well as machinery were positive contributors for the capital goods group where July’s strength points to further acceleration for what has already been very strong growth in business investment.

    The headline weakness is tied to the always volatile commercial aircraft component where orders come in big batches, and July does not include one of those big batches as orders fell 35.4 percent. Orders for defense aircraft were also weak and together with commercial aircraft skew the transportation reading to a 5.3 percent decline. This decline masks another strong positive in today’s report and that’s a 3.5 percent jump in motor vehicle orders. Excluding all transportation equipment, orders inched 0.2 percent ahead in July.

    Turning back to core capital goods, the surge in orders will feed into shipments which is what the GDP account for business investment specifically tracks. Shipments here are up 0.9 percent following a 2 tenths upward revised gain of also 0.9 percent in June. The July gain marks a fast start for third-quarter nonresidential fixed investment while the upward revision to June will give a small boost to revision estimates for second-quarter GDP.

    Other details include a very large 1.3 percent build in durable inventories which had looked too lean going into the third quarter. Large builds for commercial aircraft equipment as well as continuing builds for primary metals and fabrications, both affected by tariffs, gave inventories a boost, one that will also be a plus for third-quarter GDP. Shipments of durables slipped 0.2 percent in the month and may reflect stubborn shortages of truck drivers in the transportation sector. Unfilled orders, which had been on the climb, were unchanged.

    Durable goods are one of the most volatile indicators on the economic calendar and today’s results further cement this reputation. But looking past the headline and at the strength of computers and machinery and vehicles, the factory sector continues to be the headline strength of the 2018 economy.

    These numbers are not adjusted for inflation, so on an inflation adjusted basis we remain well below the highs of 10 years ago and well below the highs of 20+ years ago as well:

    China to keep hitting back at U.S. over trade, to boost government spending

    (Reuters) China will keep hitting back at Washington as more U.S. trade tariffs are imposed, but its counter-strikes will remain as targeted as possible to avoid harming businesses in China – whether Chinese or foreign, Finance Minister Liu Kun said. There are three things China needs to do well – lowering taxes and cutting fees, preserving the intensity of its fiscal spending so that its effect can be better felt, and supporting the real economy and lightening the burdens of companies, he said.

    Going nowhere:

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