Housing index, Saudi oil pricing charts

A lot less than expected as the housing slump continues:

Highlights

Acceleration is not the indication from the home builders’ housing market index which, though at a high level, edged back 2 points in June to 68 which is at the bottom end of Econoday’s consensus range. Current sales at 75, future sales at 76, and traffic at 50 all slipped 1 point in the month. The reading for traffic is the lowest since November and is not a good sign for the homestretch of the Spring housing season.

The West is a focused region for home builders and leads the regional breakdown followed by the South and Midwest and then the Northeast which though last has been showing improvement.

The new home market has been moving higher, both sales and permits, though indications including prices have been pointing to slowing growth. Watch for housing starts tomorrow where positive results are expected.

Can’t say what they are up to currently. Could be fine tuning to keep things steady, but hard to say what their actual price target is vs the $US, as they may be targeting a euro price,
for example:


Sales at their posted prices seem to be reasonable stable:

Industrial production, China retail sales, Miles driven, Federal interest payments, Budget charts

A weaker than expected print due to auto sales which have been volatile, but charts show it’s still chugging along at a modest pace:

Highlights

A big drop in autos skewed industrial production lower in May, slipping 0.1 percent and missing what was an already soft consensus by 2 tenths. Manufacturing volumes fell a very steep 0.7 percent, pulled down by a 6.5 percent monthly drop in motor vehicles that itself reflected the effects of a fire early in the month at a supplier in Michigan.

Yet readings outside autos are also soft with hi-tech production up only 0.2 percent and production of business equipment down 1.1 percent. Excluding autos, manufacturing production fell 0.2 percent in the month. The manufacturing component of this report never really has shown the kind of strength being posted by factory shipments or factory orders.

Manufacturing makes up the great bulk of industrial production and once again is overshadowing another standout month for mining which surged 1.8 percent. Year-on-year mining production is up 12.6 percent vs only a 1.7 percent rate for manufacturing. Utility production has been mixed, up 1.1 percent in May for 4.0 percent yearly growth.

Capacity utilization is over 90 percent for mining at 92.4 percent vs 79.4 percent for utilities and 75.3 percent for manufacturing. Utilization overall, down 2 tenths to 77.9 percent, is not extreme and points to available slack in the industrial sector.

Putting mining and utilities aside, industrial production is once again an anomaly, not pointing as other reports to building strength and a rising tempo for the nation’s factory sector.

Note that traditional non-NAICS numbers for industrial production may differ marginally from NAICS basis figures.


Growth slowing:

Will the tax cuts and spending increases save us?

Jobless claims, Retail sales, Bank lending, Fed comments

Just a reminder (from 2015) as to why claims are this low:


This is not population adjusted:


We haven’t yet to recover from the last recession, in my opinion due to an ongoing lack of demand:

Highlights

The FOMC said yesterday that household spending has picked up and indeed it has. Retail sales jumped 0.8 percent in May which easily tops Econoday’s high estimate. And the results include an upward revision to April which now stands at a 0.4 percent gain.

The report shows balanced gains including a 1.3 percent jump at restaurants and a 0.5 percent increase for motor vehicles, both pointing to rising discretionary demand. Building materials, which have been soft, surged 2.4 percent in what will be a plus for residential investment. Department stores have been very weak but have now put together back-to-back gains of 1.5 percent in May and 0.7 percent in April. Clothing stores, at 1.3 and 1.2 percent, have likewise bounced back with sizable gains the last two months. Gasoline sales have risen 2.0 and 1.0 percent in May and April on higher prices. Disappointments include a decline for furniture in May and only a 0.1 percent rise for nonstore retailers (e-commerce).

It was only a few weeks ago that the Fed’s Beige Book had downgraded consumer spending to “soft” which highlights the importance of today’s report, one that, as far as the Fed at least, marks a pivot upward. Consumer spending so far this year has been mixed but given the strength of the jobs market, improvement should be no surprise.


Muddling through at rates of growth that exceed personal income growth, so seems unsustainable:


Bank lending:

Like the hair dresser said, ‘no matter how much I cut off, it’s still too short.’ Raising rates supports the economy via the interest income channels, and the higher the debt to gdp ratio the larger the effect. (Paying interest is like basic income for people who already have $…) That is, the Fed has it backwards. They think they are stepping on the brakes when they are stepping on the accelerator with regards to the economy and inflation:

Fed Raises Interest Rates, Sets Stage for Two More Increases in 2018

(WSJ) Eight of 15 officials now expect at least four rate increases will be needed this year, up from seven in March and four in December. Most officials expect the Fed would need to raise rates at least three more times next year and at least once more in 2020, leaving rates in a range between 3.25% and 3.5% by the end of 2020, the same end point officials projected in March. The statement dropped language added four years ago that said officials expected to hold their benchmark rate “for some time” below a neutral setting. Nine of 14 officials putting neutral at either 2.75% or 3%.

Trade, Consumer credit

The trade deficit narrowed but due to a drop in consumer spending on imported cell phones, which doesn’t bode well for retail sales, which are under pressure from the reduced growth of real disposable personal income. And the widening trade gap with the euro area is fundamentally euro friendly even as fears of Italian politics are frightening portfolio managers:

Highlights

Helped by a dip in cellphone imports, the nation’s trade gap narrowed sharply in April to a much lower-than-expected $46.2 billion. Cellphone imports fell $2.2 billion to pull down the consumer-goods deficit which narrowed by $2.8 billion in the month.

Despite the improvement for consumer goods, the bilateral gap with China rose a noticeable $2.1 billion to an unadjusted $28.0 billion in results that probably won’t ease ongoing trade friction. Note that country data, unlike other data in this report, are traditionally tracked in unadjusted terms due to small monthly totals yet adjusted data for China are available and tell a different story with the gap at a higher level of $30.8 billion but down in month-to-month terms from an adjusted $34.2 billion in March.

Turning back to unadjusted country data, the gap with Europe also deepened, by $2.5 billion in April to $14.6 billion with the Japanese gap little changed at $6.3 billion. Turning to North America, the gap with Mexico narrowed by $2.4 billion to a deficit of $5.7 billion while a small March surplus with Canada turned into a $785 million deficit in April.

Imports of iron and steel mill products rose $228 million to $2.1 billion with imports of bauxite and aluminum up slightly to $1.5 billion. It will be interesting to watch whether these totals, due to U.S. tariffs on steel and aluminum, begin to slide in the month’s ahead.

Overall, exports rose 0.3 percent in the month to $221.2 billion with goods, led by a gain for industrial supplies and also food, up 0.2 percent at $141.3 billion and despite a 0.1 percent slip in service exports which totaled $70 billion. Imports fell 0.2 percent with goods, again reflecting the weakness in cellphones, down 0.3 percent to $209.5 billion and services up 0.6 percent to $47.9 billion.

April’s deficit is more than $1 billion narrower than March and far under the $53.1 billion monthly average of the first quarter. This points to a big net-export lift for second-quarter GDP.

The petroleum deficit appears to have leveled off, while trade overall still looks to be trending further into deficit, recognizing the volatility around year end:


Deceleration continues:

Highlights

Consumer credit rose a lower-than-expected $9.3 billion in April though consumers did run up their credit-card debt slightly as revolving credit, which was in the negative column the last two reports, rose $2.3 billion in the month. Nonrevolving credit, which includes student loans and also vehicle financing and which often posts double-digit gains, rose only $7.0 billion in the month.

Employment, Construction spending

Above expectations and indicative of continuous modest growth. However, I have trouble making it all ‘add up’. More comments below:

Highlights

Employment growth is strong and it is not entirely without wage pressure. Nonfarm payrolls rose 223,000 in May to just top Econoday’s high estimate while the unemployment rate moves down a tick to a new expansion low of 3.8 percent. The monthly gain for average hourly earnings came in at the high end of expectations, up 0.3 percent for a year-on-year rate that is up a tenth to 2.7 percent.

Payroll gains are led by trade & transportation, up 53,000 in the month for a sector where delivery delays have been climbing, and include solid 31,000 gains for both retail and also professional & business services with the gain for the latter suggesting that employers are scrambling to fill positions. Manufacturing payrolls rose 18,000 which hits Econoday’s consensus with construction payrolls up 25,000.

The participation rate moves down a tenth to an even thinner 62.7 percent as the number of people actively looking for work is down 281,000 to 6.065 million. The workweek for all employees is unchanged at 34.5 hours though factory hours and factory overtime are down which point to give back for May’s industrial production report.

But today’s report is about strength and the risk that available slack in the labor force is disappearing and in turn raising the potential of wage inflation. The results clearly support expectations for a rate hike at this month’s FOMC.

The federal government continues to reduce headcount:

Seems the deceleration in payroll growth reversed around year end, perhaps in reaction to the change in tax laws:

This dropped dramatically with the 2008 recession, recovered only modestly, and most recently seems to have leveled off at historically low levels:

The participation rate began falling with the recession, leveled off for the last two years, and has yet to recover:


Wage growth shows a lack of demand as well:


Unemployment as defined has hit a multi cycle low even with weaker wage growth and weaker GDP growth.

Might have something to do with healthcare? Increasingly health insurance is available only through employment? Maybe there’s been a reduction of illegal workers which would also explain in part the reduction in productivity?

And this chart shows that 4.3 million people took jobs last month who previously were not classified as unemployed and were not even considered as part of the labor force:

Highlights

A rebound in multi-family units helped drive construction spending 1.8 percent higher in April to fully reverse the prior month’s 1.7 percent decline. Spending on multi-family units rose 3.6 percent in the month following March’s 4.3 percent decline in a gain, however, that can’t overshadow no change for spending on single-family homes. But home improvements were a big positive rising 0.7 percent in the month.

Non-housing data are mixed with private nonresidential, led by transportation and power, up a strong 0.8 percent but with highways & streets down 1.0 percent.

This report is often very volatile making year-on-year readings useful to gauge trends. And there is clear strength here, with total spending up 7.6 percent including a very strong 9.6 percent gain for single-family homes that puts April’s no change in perspective. Housing is in short supply which has been holding down home sales and the question for the sector is whether builders can pick up their pace to meet demand.

This chart is not adjusted for inflation. On an inflation adjusted basis it’s still short of the prior cycle highs:

Personal income and outlays, Corporate profits, Trade, Bank lending, Corporate debt

Spending was up, but unfortunately due to higher gas prices, which were paid for by further dipping into savings that were already far too low. So looks to me like q2 is off to a very uncertain start after a weak q1:

Highlights

Income isn’t quite as soft and spending isn’t quite as strong as they look while inflation readings are modest and steady. Income rose 0.3 percent in April but the wages & salaries component shows a solid 0.4 percent gain. Spending jumped 0.6 percent in the month led, however, by a 0.9 percent gain for nondurables which reflects April’s rise in gas prices.

Both the overall PCE price index and the core rose 0.2 percent in the month, the latter edging above Econoday’s consensus by 1 tenth, with the year-on-year rates hitting expectations, at 2.0 percent overall and 1.8 percent for the core.

Of note for the core is a revision to March’s year-on-year rate which has been downgraded to 1.8 percent. Also of note is a 2 tenths dip in the savings rate to an even lower 2.8 percent which suggests April’s spending, to a degree, was funded at the expense of savings.

Yet gas-driven or not, the rise in spending marks a strong opening for second-quarter consumer spending and, together with yesterday’s big improvement in April goods trade, are both early indications of strength for second-quarter GDP. More fundamentally, concerns in yesterday’s Beige Book that consumer spending was moderating look perhaps unwarranted and that steady growth, backed by respectable income, is now the more accurate description. For inflation, no alarms in this report with the overall rate holding on target for a second straight month but room still left to run for the core in its awaited approach to the Fed’s 2 percent line. Note that the Fed’s goal is to bring both the overall price index and the core to the 2 percent target and then to hold them there as steady as possible.


While the trade deficit was small than expected, the drop was due to weak US imports, which doesn’t bode well for domestic demand or for foreign economies:

Highlights

Second-quarter net exports open up on the positive side, at a goods deficit of $68.2 billion in April vs $68.6 in March and far better than expectations which were calling for a much deeper $71.0 billion deficit.

But the mix of the results are less favorable as exports of goods fell 0.5 percent to $139.6 billion reflecting sharp slowing for vehicles and also capital goods that offset gains for industrial supplies and especially food products. The import side is more favorable, falling 0.5 percent to $207.8 billion after March’s 1.5 percent decline with consumer goods falling very sharply, down 5.3 percent after March’s 1.7 percent dip.

The decline in exports aside, today’s results are positive and should give a lift to early estimates for second-quarter GDP.

Mtg purchase apps, New home sales, Architecture billing index, China

Weakness continues:

Housing, while growing modestly, remains very depressed historically:

Highlights

Month after month the new home sales report shows its volatility behind which, however, slight strength is evident. Sales in April came in 15,000 short of Econoday’s consensus, at a 662,000 annualized rate with revisions pulling down the prior two months by a total of 30,000. Yet compared to the prior report, when sales beat expectations by 64,000 and when upward revisions added 81,000, today’s report doesn’t reverse what is still an upward slope for new homes.

Yet details are mixed. Price discounting may be underway as the median fell a very steep 6.9 percent in the month to $312,400 for a year-on-year gain of only 0.4 percent. Relative to sales, which are up 11.6 percent year-on-year, prices look like they have room to climb. Supply data are also a concern. New homes on the market rose only 2,000 to 300,000 with supply relative to sales also moving only marginally higher, to 5.4 months from 5.3 months.

Until supply begins to build at a better pace, sales of new home homes will lack acceleration. Residential investment, where new home sales are a major piece, proved flat in the first quarter though improvement in the second quarter, however limited, does look like it’s underway. Watch tomorrow for existing home sales which have been flat and which are expected to remain so.

This chart is not population adjusted:

Permits are also growing very modestly and remain historically depressed. Again, this is not population adjusted:


This has also been historically depressed this cycle;

https://asia.nikkei.com/Economy/China-curbs-infrastructure-spending-as-local-debt-climbs

China curbs infrastructure spending as local debt climbs

BEIJING — China is slamming the brakes on infrastructure investment to reel in soaring local debt, but the move is certain to hurt regions reliant on public works projects, widening the country’s already stark economic gaps.

Infrastructure spending in the January-April period rose 12.4% on the year, 0.6 percentage point lower than the growth marked in the three months ended March, data from China’s National Bureau of Statistics shows. The seemingly strong growth appears less impressive when put in context. The annual increase has been around 20% in recent years. In 2017, when the Communist Party held its twice-a-decade congress, the figure was 19%.

Overall fixed asset investment expanded just 7% in the January-April period, the slowest since 6.3% in 1999.

Retail sales, Mtg apps, Housing starts, Industrial production, Wage growth tracker

Pretty much as expected. These numbers are not adjusted for inflation, which is running around 2%:

Highlights

Consumer spending was weak in the first quarter and the first look at the second quarter is no better than moderate. Total sales rose an as-expected 0.3 percent in April which pretty much tells the story of the month. Vehicle sales, despite a decline in previously reported unit sales, did post a rise of 0.1 percent in the month which is very respectable given the oversized comparison with March when sales jumped 2.1 percent. Gasoline sales rose an outsized 0.8 percent on higher prices in the month and when excluding both vehicles and gas, retail sales matched the 0.3 percent showing at the headline level.

Details throughout the report are mixed: furniture, which offers a reading on housing demand, extended recent strength with a 0.8 percent gain but restaurants, and their indication on discretionary spending, fell 0.3 percent but following a sharp gain in February. Apparel sales, which have been mixed, surged 1.4 percent but sales at department stores, which have been very weak, managed only a 0.2 percent gain. Building materials rose 0.4 percent in another positive sign for residential investment while nonstore retailers, the report’s strongest component, posted a solid 0.6 percent gain.

Control group sales, which are another core measure and a direct input into GDP, rose 0.4 percent which, given the weak comparison in the first quarter, does point to an early lift for second-quarter consumer spending. But the lift is not dramatic especially considering this year’s tax cut, which has raised disposable income, and of course the enormous demand in the labor market. Note that today’s report includes upward revisions to March, up another 2 tenths to 0.8 percent, and a 1 tenth upward revision to February which now stands at unchanged. These revisions will help limit the weakness of consumer spending in the second estimate for first-quarter GDP.

The December spike coincided with a spike in credit card balances, as well as the peak in Bitcoin prices. Seems to have leveled off since then?


From very modest growth to nearly no growth and only about half what it was some 10 years ago:


Looks to me like a serious lack of aggregate demand:

Highlights

Despite headline declines, the housing starts and permits report for April is mostly positive. First the negatives: starts fell 3.7 percent in the month to a lower-than-expected 1.287 million annualized rate while permits fell 1.8 percent to an as-expected 1.352 million rate. The decline for both starts and permits reflects give back from multi-units which fell sharply in April after rising sharply in March.

Steady readings for single-family homes are the positives in today’s data. Starts here posted a 0.1 percent increase to an 894,000 rate while single-family permits, which are the best news in the report, rose 0.9 percent to an 859,000 rate. But not all the single-family news is positive as completions fell 4.0 percent in the month to an 820,000 rate for a decline that is not welcome in a housing market starved of supply.

But behind all the volatility in the numbers is a housing sector that continues to climb at a solid rate, reflected in year-on-year change that shows total starts up 10.5 percent and permits up 7.7 percent.

Slowly climbing back to levels historically seen only in recessions, and these numbers are not population adjusted:


No growth here since oil capex collapsed about 2 1/2 years ago;


Back through the 2015 highs, growing at modest rates;


Led by oil, though oil related capital expenditures aren’t back to where they were:


This more general categories have been going mostly sideways since the oil capex collapse:


Looks to me like a serious lack of aggregate demand: