Category Archives: Germany

Rental tightness, Trump comments

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From the National Multifamily Housing Council (NMHC): Apartment Markets Soften in the January NMHC Quarterly Survey

— Apartment markets continued to retreat in the January National Multifamily Housing Council (NMHC) Quarterly Survey of Apartment Market Conditions. All four indexes of Market Tightness (25), Sales Volume (25), Equity Financing (33) and Debt Financing (14) remained below the breakeven level of 50 for the second quarter in a row.

“Weaker conditions are evident across all sectors as the apartment industry adjusts to changing conditions,” said Mark Obrinsky, NMHC’s Senior Vice President of Research and Chief Economist. “Rising supply—particularly during a seasonally weak quarter—is causing rent growth to moderate in many markets. At the same time, the sharp rise in interest rates in recent months was a triple whammy for the industry. First, higher rates directly worsen debt financing conditions. Second, the associated rise in cap rates also put a crimp in sales of apartment properties. Third, higher cap rates following the long run-up in apartment prices caused greater caution among equity investors.”

Read more at http://www.calculatedriskblog.com/#2WgZcWzbFIxpsveW.99

TRUMP’S VAINGLORIOUS AFFRONT TO THE C.I.A.

By Robin Wright

Jan 22 (The New Yorker) — The President’s remarks to the C.I.A. on Saturday, delivered in front of a hallowed memorial, stirred anger and astonishment among current and former agency officials.

The death of Robert Ames, who was America’s top intelligence officer for the Middle East, is commemorated among the hundred and seventeen stars on the white marble Memorial Wall at C.I.A. headquarters, in Langley, Virginia. He served long years in Beirut; Tehran; Sanaa, Yemen; Kuwait City; and Cairo, often in the midst of war or turmoil. Along the way, Ames cultivated pivotal U.S. operatives and sources, even within the Palestine Liberation Organization when it ranked as the world’s top terrorist group. In April, 1983, as chief of the C.I.A.’s Near East division, back in Washington, Ames returned to Beirut for consultations as Lebanon’s civil war raged.

Shortly after 1 p.m. on April 18th, 1983, Ames was huddling with seven other C.I.A. staff at the high-rise U.S. Embassy overlooking the Mediterranean, when a delivery van laden with explosives made a sharp swing into the cobblestone entryway, sped past a guard station, and accelerated into the embassy’s front wall. It set off a roar that echoed across Beirut. My office was just up the hill. A huge black cloud enveloped blocks.

It was the very first suicide bombing against the United States in the Middle East, and the onset of a new type of warfare. Carried out by an embryonic cell of extremists that later evolved into Hezbollah, it blew off the front of the embassy, leaving it like a seven-story, open-faced dollhouse. Sixty-four were killed, including all eight members of the C.I.A. team. It was, at the time, the deadliest attack on an American diplomatic facility anywhere in the world, and it remains the single deadliest attack on U.S. intelligence. (Only one of the thirty attacks on U.S. missions since then, in Nairobi, in 1998, has been deadlier.)

Ryan Crocker, the embassy’s political officer, had met with Ames earlier that day. Crocker was blown against the wall by the bomb’s impact, but escaped serious injury. He spent hours navigating smoke, fires, and tons of concrete, steel, and glass debris, searching for his colleagues.

“This is seared into my mind, irretrievably,” Crocker recalled for me this weekend. “There wasn’t an organized recovery plan, not in the initial hours after the bombing. I was de facto in charge that first awful night, when you dug a little and shouted out in case there was someone alive there, and then dug a bit more. Somewhere that night, I was on that rubble heap, and a radiator caught my eye. There was an object at the foot of the radiator. It looked like a beach ball, covered thick with dust. It was Bob Ames’s head.”

Ames left behind a widow and six children. He was so clandestine that his kids did not know that he was a spy until after he was killed. President Ronald Reagan and his wife, Nancy, saw the flag-draped coffins of the American victims arrive at Andrews Air Force Base, and met with the families of the deceased.

Reagan, who had known Ames, recounted the meetings in his diary, according to Kai Bird’s book about Ames, “The Good Spy”: “We were both in tears—I know all I could do was grip their hands—I was too choked up to speak.” More than three thousand people turned out for the memorial service at the National Cathedral for Ames and the other American victims.

On his first full day in office, President Trump spoke at the C.I.A. headquarters in front of the hallowed Memorial Wall, with Ames’s star on it. Since his election, Trump has raged at the U.S. intelligence community over its warnings about Russian meddling in the Presidential election. After CNN reported on, and BuzzFeed published, an as-yet unsubstantiated dossier about Trump’s ties to Russia and personal behavior, the President erupted on Twitter, “Intelligence agencies should never have allowed this fake news to ‘leak’ into the public. One last shot at me. Are we living in Nazi Germany?”

On Saturday, speaking to about four hundred intelligence officials, Trump blamed any misunderstanding on the media. “They are among the most dishonest human beings on Earth,” he said. (The official White House transcript notes “laughter” and “applause” here.) “They sort of made it sound like I had a feud with the intelligence community. And I just want to let you know, the reason you’re the No. 1 stop is exactly the opposite—exactly.”

Trump vowed greater support for America’s sixteen intelligence agencies than they had received from any other President. “Very, very few people could do the job you people do,” he said. “I know maybe sometimes you haven’t gotten the backing that you’ve wanted, and you’re going to get so much backing. Maybe you’re going to say, Please don’t give us so much backing. Mr. President, please, we don’t need that much backing.” Trump said he assumed that “almost everybody” in the cavernous C.I.A. entry hall had voted for him, “because we’re all on the same wavelength, folks.”

In his remarks, Trump made passing reference to the “special wall” behind him but never mentioned the top-secret work or personal sacrifices of intelligence officers like Ames and the others who died in Beirut, including the C.I.A. station chief Kenneth Haas, and James F. Lewis, who had been a prisoner of war in North Vietnam, and his wife Monique, who was on her first day on the job at the Beirut embassy. Nor did the President refer to any of the dozens of others for whom stars are etched on the hallowed C.I.A. wall of honor. It was like going to the Tomb of the Unknown Soldier and not mentioning those who died in the Second World War.

Trump’s unscripted remarks were, instead, largely about himself, even as he praised Mike Pompeo—a West Point and Harvard Law School graduate, Kansas congressman, and Tea Party supporter—as his choice to lead the C.I.A.

“No. 1 in his class at West Point,” Trump said. “Now, I know a lot about West Point. I’m a person that very strongly believes in academics. In fact, every time I say I had an uncle who was a great professor at M.I.T. for thirty-five years, who did a fantastic job in so many different ways, academically—was an academic genius—and then they say, Is Donald Trump an intellectual? Trust me, I’m like a smart person.”

Apparently as proof, the President noted that he had set an “all-time record” in Time magazine cover stories. “Like, if Tom Brady is on the cover, it’s one time, because he won the Super Bowl or something, right?” he told the intelligence officials. “I’ve been on it for fifteen times this year. I don’t think that’s a record that can ever be broken.” Time told Politico’s Playbook that it had published eleven Trump covers—and had done fifty-five cover stories about Richard Nixon.

Trump spoke briefly about eradicating “radical Islamic extremism,” a cornerstone of his foreign policy. But he devoted more than twice as many words to the dispute over the turnout at his Inauguration. “Did everybody like the speech?” Trump asked. “I’ve been given good reviews. But we had a massive field of people. You saw them. Packed. I get up this morning, I turn on one of the networks, and they show an empty field. I say, wait a minute, I made a speech. I looked out, the field was—it looked like a million, million and a half people.”

Crowd scientists who spoke to the Times estimated that about a hundred and sixty thousand people attended, compared with the record-setting 1.8 million who were estimated to have been at President Obama’s first Inauguration. Trump was defiant. “We caught them, and we caught them in a beauty,” he told the C.I.A. crowd. “And I think they’re going to pay a big price.”

Trump’s remarks caused astonishment and anger among current and former C.I.A. officials. The former C.I.A. director John Brennan, who retired on Friday, called it a “despicable display of self-aggrandizement in front of C.I.A.’s Memorial Wall of Agency heroes,” according to a statement released through a former aide. Brennan said he thought Trump “should be ashamed of himself.”

Crocker, who was among the last to see Ames and the local C.I.A. team alive in Beirut, was “appalled” by Trump’s comments. “Whatever his intentions, it was horrible,” Crocker, who went on to serve as the U.S. Ambassador in Iraq, Syria, Afghanistan, Pakistan, Lebanon, and Kuwait, told me. “As he stood there talking about how great Trump is, I kept looking at the wall behind him—as I’m sure everyone in the room was, too. He has no understanding of the world and what is going on. It was really ugly.”

“Why,” Crocker added, “did he even bother? I can’t imagine a worse Day One scenario. And what’s next?”

John McLaughlin is a thirty-year C.I.A. veteran and a former acting director of the C.I.A. who now teaches at Johns Hopkins University. He also chairs a foundation that raises funds to educate children of intelligence officers killed on the job. “It’s simply inappropriate to engage in self obsession on a spot that memorializes those who obsessed about others, and about mission, more than themselves,” he wrote to me in an e-mail on Sunday. “Also, people there spent their lives trying to figure out what’s true, so it’s hard to make the case that the media created a feud with Trump. It just ain’t so.”

John MacGaffin, another thirty-year veteran who rose to become the No. 2 in the C.I.A. directorate for clandestine espionage, said that Trump’s appearance should have been a “slam dunk,” calming deep unease within the intelligence community about the new President. According to MacGaffin, Trump should have talked about the mutual reliance between the White House and the C.I.A. in dealing with global crises and acknowledged those who had given their lives doing just that.

“What self-centered, irrational decision process got him to this travesty?” MacGaffin told me. “Most importantly, how will that process serve us when the issues he must address are dangerous and incredibly complex? This is scary stuff!”

Trump could have taken a page from Reagan, whom he has often invoked. In 1984, at a groundbreaking ceremony for an addition to C.I.A. headquarters, Reagan told the intelligence community, “The work you do each day is essential to the survival and to the spread of human freedom. You remain the eyes and ears of the free world. You are the ‘trip wire’ over which totalitarian rule must stumble in their quest for global domination. . . . From Nathan Hale’s first covert operation in the Revolutionary War to the breaking of the Japanese code at Midway in World War II, America’s security and safety have relied directly on the courage and collective efforts of her intelligence personnel.”

Bruce Riedel was a protégé of Ames at the C.I.A.; they travelled together in the Middle East. For more than three decades, he has made an annual visit to Ames’s grave at Arlington National Cemetery. He noted one glaring omission from Trump’s comments: a third of the stars are from deaths that have happened since 9/11, “making it more dangerous to work for the agency now than ever before.” He faulted Trump for not visiting the Counterterrorism Center, talking to the team now tracking Al Qaeda and Islamic State leaders, and seeing how drones work—all “invaluable experience when he later needs to make life-and-death decisions,” Riedel, now a senior fellow at the Brookings Institution, told me.

Paul Pillar, a Vietnam veteran, rose to become deputy director of the Counterterrorism Center and later the National Intelligence Officer in charge of the Middle East and South Asia. He, too, was anguished by Trump’s comments. “He used the scene as a prop for another complaint about the media and another bit of braggadocio about his crowds and his support,” Pillar told me Sunday. “That the specific prop was the C.I.A.’s memorial wall, and that Trump made no mention of those whom that wall memorializes, made his performance doubly offensive.”

At 7:35 a.m. on Sunday, Trump responded on Twitter to the negative reactions to his comments. “Had a great meeting at CIA Headquarters yesterday, packed house, paid great respect to Wall, long standing ovations, amazing people. WIN!”

But it’s hard to see how America’s new leader will recoup from a performance so shallow, irreverent, and vainglorious.

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US balance of trade, New home sales, PMI health care premiums, ECB statement, German consumer morale

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A bit fewer than expected and prior month revised down bringing it more in line with permits:

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A nice uptick here, but as per the chart too soon to say the downtrend has reversed. And notice, again, how employment is faltering as has been the case in most of the surveys:

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Highlights

Markit Economics’ U.S. samples are reporting a sharp upturn in business this month, first with Monday’s manufacturing report and now with the service flash where the headline index is up nearly 3 points to 54.8 for the strongest rate of composite growth this year. New orders are at an 11-month high as is business activity, and year-ahead expectations are at their best level since August last year. The rise in demand is being reflected in inflation readings with input costs moving up from a nearly 2-year low and with selling prices also moving higher. Not showing much life, at least yet, is employment where job creation did improve but still remains near a 3-1/2 year low. The report attributes this month’s strength to rising hopes for improvement in the domestic economy. The sharp gains for Markit’s samples are a surprise but are still only anecdotal indications. Definitive data on October will be posted next week with the month’s unit auto sales and of course the monthly employment report.

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August revised higher which lowers GDP estimates, Sept higher than expected which increases estimates. I suspect Sept (like August) will be revised lower next month when October is released. And note the highlighted details that don’t bode well for domestic demand:

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Highlights

In a positive for Friday’s third-quarter GDP report, the nation’s trade gap in goods narrowed sharply in September, to $56.1 billion vs a revised $59.2 billion in August. Exports in September rose a solid 0.9 percent led by the largest component, capital goods, which rose 3.8 percent in what is a positive indication for global business investment. Exports of consumer goods also rose, up 4.4 percent, with industrial supplies up 2.3 percent. Also helping the deficit is a 1.1 percent decline in imports where most components fell with the exceptions of autos, up 4.3 percent, and other goods, up 0.8 percent. In a negative indication of retail expectations for the holidays, imports of consumer goods fell 1.8 percent following a 0.6 percent decline in August. And in a negative indication for domestic business investment, imports of capital goods fell 3.6 percent. Also released this morning are advance data on September inventories in the wholesale and retail sectors, up 0.2 percent for the former and up 0.3 percent for the latter.

This will be counted as increased consumption, but will take away from other consumption:

U.S. government says benchmark 2017 Healthcare.gov premiums up 25 percent

By Caroline Humer

Oct 24 (Reuters) — The average premium for benchmark 2017 Obamacare insurance plans sold on Healthcare.gov rose 25 percent compared with 2016. The average monthly premium for the benchmark plan is rising to $302 from $242 in 2016, the Department of Health and Human Services said. The government provides income-based subsidies to about 85 percent of people enrolled, and those credits will increase with the higher premiums. It said 72 percent of consumers on HealthCare.gov will find plans with a premium of less than $75 per month.

If anything, it’s the weak euro that’s added some support to GDP, but not to consumption:

Draghi hits back at critics of QE and negative rates

By Claire Jones

Oct 25 (FT) — “We have every reason to believe that, with the impetus provided by our recent measures, monetary policy is working as expected: by boosting consumption and investment and creating jobs, which is always socially progressive,” ECB president Mario Draghi said. “I find it hard to reach the conclusion that, over a longer timeframe, the outcome of our policies has been — or will be — to redistribute wealth and income in an unfair or unequal way,” the ECB president said. “That is certainly not true across countries, and there is not much to suggest it is true within countries either.”

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Germany Inc. Sits on $500 Billion in Cash Amid Weak Outlook

By Nina Adam

Oct 25 (WSJ) — Germany’s nonfinancial businesses have saved more than they have invested for the past seven years, piling up about €455 billion ($500.4 billion) in cash and deposits, German central bank data show. Of 11 companies in the DAX-30 stock index that disclosed their investment plans, five said they plan no increase in capital expenditure this year or next. Five others said they plan increases, but mostly outside Germany. Volkswagen said it was canceling or delaying all investment projects that it doesn’t consider “core.”

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Mtg purchase applications, Fed’s Williams, EU, Fed Labor mkt index, PMI services index

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Look at how many more new applications there used to be when rates were double where they are now:

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Just an fyi, his logic makes no sense to me whatsoever:

Fed’s Williams says U.S. economy in good shape, wants rate hike (Reuters) It “makes sense to get back to a pace of gradual rate increases, preferably sooner rather than later,” San Francisco Fed President John Williams said. Targeting low inflation, as the Fed and many other central banks currently do, simply will not work well in a world where economic growth and interest rates are likely to be persistently lower than they were in the era before the Great Recession, he said. A low inflation target, he said, gives the Fed too small a buffer to fend off future shocks. The Fed could raise its 2 percent inflation target to 3 percent or even 4 percent, or shift away from inflation targeting altogether and instead target a nominal level of national economic output, Williams said. “Time is not on our side,” Williams said.

One day it seems ok, next day not so good:

German industry output posts steepest drop in almost two years (Reuters) German industrial production unexpectedly fell in July. Industrial output fell by 1.5 percent on the month, data from the Economy Ministry showed. “Companies in the industry sector continue to adopt a wait and see approach because of sluggishness in the global export markets,” the Economy Ministry said in a statement. A 1.8 percent rise in output in the construction sector and an surge of 2.6 percent in energy output were not enough to offset a 2.3 percent fall in manufacturing. The June reading was revised up to a rise of 1.1 percent from a previously reported rise of 0.8 percent.

Eurozone Investment Spending Stalls in Second Quarter (WSJ) Eurostat confirmed that in the three months to June, the combined GDP of the eurozone’s 19 members increased by 0.3% from the first quarter of 2016, and by 1.6% from the second quarter of 2015. The statistics agency also released details of the pattern of growth for the first time, and they showed that investment spending was unchanged on the quarter, having grown by 0.4% in the three months to March, and 1.4% in the three months to December. Consumer spending increased by just 0.2% in the three months to June, while government spending rose by just 0.1%, having jumped by 0.6% in each of the two previous quarters.

U.K. Manufacturing Shrinks Most in a Year After Brexit Vote (Bloomberg) Output fell 0.9 percent from June, far exceeding the 0.3 percent decline forecast in a Bloomberg survey, Office for National Statistics data show. Total industrial production rose 0.1 percent, thanks to a jump in oil and gas output. Nine of 13 manufacturing sectors saw output decline in July, led by pharmaceuticals and transport equipment, the ONS said. Overall production in July was boosted by a 5.6 percent increase in oil and gas extraction along with higher output at utilities. Industrial production rose 2.1 percent from a year earlier, with manufacturing gaining 0.8 percent.

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Highlights

Growth in Markit Economic’s U.S. service sector sample remains limited, at 51.0 for the final August reading vs 50.9 for the August flash and 51.4 for July. New orders slowed in the month as did business activity with employment gains slowing to the weakest level since December 2014. The report continues to cite weakness in client demand and uncertainty over the presidential election as negatives. Price readings are muted. A positive, however, is relative strength in the 12-month outlook which continues to rise from a survey low in June. The results underscore the risk of second-half weakness for the bulk of the U.S. economy, as likewise indicated by yesterday’s ISM non-manufacturing report where headline growth came in at a cycle low.

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Producer prices, Retail sales, Business inventories, Consumer sentiment, Saudi output, German, Euro area GDP

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Nothing here to get the Fed concerned about inflation:

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Not good, less then expected and excluding autos, a ‘core reading’ even worse. Seems to me that perhaps the higher gas prices that caused the increases over the last couple of month’s have taken their toll on other spending. And at the macro level, without an increase in either private or public deficit spending top line growth won’t be there:

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Highlights
Consumers spent their money on vehicles in July but not on much else as retail sales came in unchanged. When excluding autos, retail sales slipped 0.3 percent for the first decline in this reading since March. When excluding both autos and gasoline, the latter falling on lower prices, retail sales improve slightly but are still down 0.1 percent for the first decline since January. This core reading is telling and will likely define total consumer spending (which includes services) for the month of July.

The big plus that saves the report is the 1.1 percent monthly surge in motor vehicle sales, one that follows a 0.5 percent gain in June. Spending elsewhere may be weak, but spending on vehicles is a signal of consumer confidence and strength. Elsewhere, positives are hard to find.

Supermarket sales fell in the month as did building materials. Sporting goods were especially weak as were restaurant sales, the latter a discretionary category that speaks to the month’s lack of non-vehicle punch. On the plus side once again are sales at nonstore retailers which, driven by ecommerce, jumped a sizable 1.3 percent for a second straight month and follows even larger gains in prior months. Sales at gasoline stations, reflecting lower prices, swung 2.7 percent lower following a 2.2 percent gain in the prior month.

The consumer is the driver of the economy and July’s weakness for retail sales makes for a slow start to the third quarter and will ease talk for now of a September FOMC rate hike. Upward revisions are footnotes in the report with June now at plus 0.8 percent, up 2 tenths from the initial reading which will pull GDP revision estimates for the second quarter higher.

You can see how retail sales growth peaked when oil capex collapsed at the end of 2014,
and that spending has yet to be ‘replaced’:

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Business inventories corrected some due to what I think was a one time jump in auto sales (which remain down year over year). However inventories still look way too high to me and so the liquidation is likely to continue into q3. And note that the inventory growth began when oil capex collapsed:

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This was also below expectations and doesn’t look to be recovering to prior levels:

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Highlights
Consumer sentiment is flat, at 90.4 for the August flash for only a 4 tenths gain. Components are mixed with expectations higher, at 80.3 for a 3.5 point gain, but current conditions lower, down 2.9 points to 106.1. The gain in expectations points to rising confidence in the jobs outlook but the decline in current conditions hints at a second month of slowing for consumer spending.

This too peaked when oil capex collapsed:

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Saudi oil sales have moved up a bit but are still far below their presumed output availability of 12 million bpd. So it’s still a matter of setting price, in this case via their posted discounts to benchmarks:

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German GDP grows much faster than expected

By Todd Buell

Aug 12 (MarketWatch) — Germany’s economy grew at a much faster pace than expected in the second quarter. In quarterly adjusted terms, Europe’s largest economy and economic powerhouse grew by 0.4%. The statistics office said that growth came primarily from foreign trade. Quarterly growth in the first quarter was 0.7%.

Euro Area GDP Growth Rate
The Eurozone’s economy expanded 0.3 percent on quarter in the three months to June 2016 slowing from a 0.6 percent growth in the previous period and matching preliminary reading, second estimate showed. Among the largest economies of the Euro Area, GDP growth slowed in Germany and Spain; while growth in France and Italy was flat.

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Trade, Jobs, SNB buying US stocks, German Factory Orders

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Larger trade deficit than expected for June, lowering Q2 GDP calculations as previously discussed:

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Much better than expected and prior month total payrolls were revised up some with private payrolls revised down. The headline unemployment rate was unchanged, while U6 unemployment, the broader measure, moved up a tenth to 9.7, indicating an unexpectedly large increase in the available labor force. More details later today.

Also, year over year job growth is still decelerating, and, in my humble opinion, enormous ‘slack’ persists:

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The headline unemployment rate held steady at 4.9 percent, though a more encompassing measure that includes those not actively looking for work and those working part-time for economic reasons moved up a notch to 9.7 percent.

Hourly wages also moved higher, increasing by 8 cents or an annualized pace of 2.6 percent, while the average work week edged up to 34.5 hours.

Economists had been looking for an increase of 180,000 and a decline of the unemployment rate to 4.8 percent from June’s 4.9 percent. June payroll growth initially was reported at 287,000.

Professional and business services led the way with 70,000 new positions, while health care rose 43,000 and Wall Street jobs increased by 18,000. Leisure and hospitality continued to be a big contributor to job growth, adding 45,000.

Jobs were evenly distributed, with full-time positions growing by 306,000 and part-time adding 150,000.

Previous months’ tallies also gained due to revisions. May’s anemic 11,000 gain got bumped up to 24,000 while the strong June number moved from 287,000 to 292,000.

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Sometimes the stock market has a life of it’s own, sometimes, for example, going up for no apparent reason. It’s only later that a reason is discovered, and this time turns out the Swiss National Bank has been buying US stocks in very large quantities as part of its reserve management policy. And to buy that much stock ‘at the market’ means the price has to go up sufficiently to attract that many sellers, which itself can create at ‘top’ when that buying ends:

“Mystery” Buyer Revealed: Swiss National Bank’s US Stock Holdings Rose 50% In First Half, To Record $62BN.

SNB’s U.S. Equity Holdings Hit Record $61.8 Billion Last Quarter

Interesting mix of orders highlighted:

Germany Factory Orders
German industrial orders unexpectedly fell 0.4 percent month-on-month in June of 2016, following an upwardly revised 0.1 percent rise in May and missing market consensus of a 0.6 percent gain. While domestic demand increased by 0.7 percent, foreign orders dropped by 1.2 percent. New orders from the euro area were down 8.5 percent. In contrast, those from other countries were up by 3.8 percent.

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CPI, retail sales, Empire State Mfg, Industrial production, Business inventories, Consumer sentiment, JPM earnings, UK comment, China comment

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A bit less than expected- nothing to cause the Fed to be alarmed. You’d think that by now they’d realize that all that rate cutting and so called ‘money printing’ has nothing to do with the price level or ‘accommodation’…:

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Highlights

Price pressures evident the last two months down the supply chain are not yet appearing in consumer prices where the CPI rose only 0.2 percent in June for a weak year-on-year rate that is not going in the right direction, at plus 1.0 percent vs 1.1 percent in the prior three months. Ex-food & gas, consumer inflation also rose 0.2 percent with this year-on-year rate moving 1 tenth higher to a respectable but still soft 2.3 percent.

Strength in service prices was a highlight of yesterday’s producer price report and is also a highlight in this report, up 0.3 percent for the third straight month. This gain helps offset weakness in commodity prices which rose only 0.1 percent. Lodging away from home shows an outsized gain for a second month, at plus 0.6 vs May’s 0.7 percent, though housing overall is flat at only plus 0.2 percent. Transportation rose 0.6 percent in the month with medical care up 0.4 percent, gains offset by a 0.1 percent decline for food and a 0.4 percent dip for apparel.

Energy prices rose 1.3 percent in the month and follow similar gains in the four prior months, pressure reflecting the pass through from the manufacturing and wholesale sectors. For consumer prices in general, however, this effect is still limited, yet today’s report does show some signs of new life and may boost confidence among policy makers that the inflation picture is improving.

Pretty large downward revision to last month, when the larger than expected increase was taken as evidence of a recovery. If this revised number had been reported last month it would have been taken as a setback. Watch for that to happen again with this month’s larger than expected increase, and I’ll be watching next month to see if it’s also revised.

Also, note that the year over year chart continues to show severely depressed levels of growth and no sign yet of material improvement:

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Highlights

June proved a fabulous month for the consumer though May, after revisions, proved only so so. Flat vehicle sales could not hold back retail sales which jumped a much higher-than-expected 0.6 percent in June, with May revised however 3 tenths lower to plus 0.2 percent. Excluding vehicles, June retail sales surged 0.7 percent as did the key ex-auto ex-gas reading.

Ex-auto ex-gas offers a gauge on underlying trends in consumer spending, a dominant one of which is ecommerce as nonstore retailers popped a 1.1 percent surge in the month which follows even stronger gains in prior months. Department stores, up 0.9 percent, show a big comeback in the month with sporting goods & hobbies strong for a second month. An outsized gain, one that hints at adjustment issues and the risk of a downward revision, is a 3.9 percent surge in building materials & garden equipment, a component that had been lagging.

This report is a major plus for the second-half economic outlook not to mention coming data on the second quarter (sales for April, after the second revision, are at a standout plus 1.2 percent). The job market is healthy and the consumer is alive and spending.

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A setback here:

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Highlights

The first anecdotal report on the factory sector for the month of July is not very promising as the Empire State index barely held in the plus column, at 0.55 vs 6.01 in June and minus 9.02 in May. New orders, after jumping to 10.90 in June, are down 1.82 in this month’s report. This combined with yet another contraction for backlogs, at minus 12.09, do not point to strength ahead for other readings. Employment is one of these readings and, after coming in at zero last month, is at minus 4.40. The workweek is also negative as are inventories which continue to contract. Price data are mixed, showing steady energy-related pressure for inputs but no life for selling prices. The factory sector has been up and down this year on a trend that is dead flat. Watch for the industrial production report coming up this morning at 9:15 a.m. ET. It will offer the first definitive data on the factory sector for the month of June.

Better than expected for the month, largely from a gain in vehicle output. However with vehicle sales sagging and down vs last year this month’s gain is likely to be a one time event:

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Highlights

Vehicles held down industrial production in May but not in June, making for a big 0.6 percent gain that is just outside Econoday’s high-end estimate. The production of motor vehicles & parts surged 5.9 percent in June following a 4.3 percent drop in May. Year-on-year, this component tops the list with 7.8 percent growth compared to only 0.4 percent growth for manufacturing as a whole. Only due to vehicles, manufacturing managed to put in a good showing in June, up 0.4 percent on the month to reverse a revised 0.3 percent decline in May.

Headline production also got a big boost from utilities where output rose 2.4 percent in the month. Mining output, which is down 10.5 percent year-on-year, posted a second straight small gain, at plus 0.2 percent which is promising and follows the recovery in energy and commodity prices.

Looking at details deeper in the report, the output of business equipment rose a solid 0.7 percent but the year-on-year rate, in what is definitive evidence of weakness in business investment, is in the negative column at minus 0.6 percent. The output of consumer goods, up 1.6 percent on the year, rose 1.1 percent in the month in what is another good showing in this report.

The second quarter had been looking soft before this report and especially this morning’s retail sales report. A June bounce in the factory sector, facing global weakness and unfavorable currency appreciation, may not extend much into the third quarter but it may make a difference in the final readings of the second quarter.

From the Fed: Industrial production and Capacity Utilization

Industrial production increased 0.6 percent in June after declining 0.3 percent in May. For the second quarter as a whole, industrial production fell at an annual rate of 1.0 percent, its third consecutive quarterly decline. Manufacturing output moved up 0.4 percent in June, a gain largely due to an increase in motor vehicle assemblies. The output of manufactured goods other than motor vehicles and parts was unchanged. The index for utilities rose 2.4 percent as a result of warmer weather than is typical for June boosting demand for air conditioning. The output of mining moved up 0.2 percent for its second consecutive small monthly increase following eight straight months of decline. At 104.1 percent of its 2012 average, total industrial production in June was 0.7 percent lower than its year-earlier level. Capacity utilization for the industrial sector increased 0.5 percentage point in June to 75.4 percent, a rate that is 4.6 percentage points below its long-run (1972–2015) average.

Read more at http://www.calculatedriskblog.com/#JhY5L16LgIWsMrRf.99

You can see how weak this cycle is, particularly when compared to prior cycles. The rate of growth has been low and the total is below where it was in 2007:

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7-15-7

7-15-8
Still way too high/recession levels:

7-15-9

Highlights

Businesses are keeping their inventories in check amid slow sales. Inventories rose only 0.2 percent in May following April’s even leaner 0.1 percent rise. Sales in May also rose 0.2 percent keeping the inventory-to-sales ratio unchanged at 1.40, which is a little less lean than this time last year when the ratio was at 1.37.

Retail inventories did rise an outsized 0.5 percent in May in a build, however, that looks to be drawn down by what proved to be very strong retail sales in June. Manufacturing inventories fell 0.1 percent in May with wholesalers up 0.1 percent.

Year-on-year, total inventories are up 1.0 percent which looks fat against what is a 1.4 percent decline in sales. With Brexit now in play, businesses are certain to keep ever tightening control over their inventories, a factor that will keep down current GDP growth but will help the outlook for employment and future GDP.

(this chart not updated yet for today’s 1.40 print)

7-15-10
Big setback here, confirming the downtrend:

7-15-11

7-15-12
Ok, stronger than expected, but down from same quarter last year, with other banks reporting similar or worse, and overall rates of loan growth are decelerating:

J.P. Morgan Posts Stronger-Than-Expected Results on Trading Surge

By Emily Glazer and Peter Rudegeair

July 14 (WSJ) — J.P. Morgan’s second-quarter profit fell slightly from a year earlier, to $6.2 billion. Loan growth topped 10%. Revenue rose 2.4% from a year ago to $24.38 billion. The bank’s net-interest margin fell 0.05 percentage point from the prior quarter to 2.25%. J.P. Morgan’s loan portfolio grew to $858.6 billion. And total net-interest income of $11.4 billion was up 6% from a year earlier. Total consumer loans, excluding credit cards, grew by 14% to $361.31 billion. The bank’s overall provision for credit losses ballooned 50% to $1.4 billion because of reserve increases and higher net charge-offs.

Looks to me the UK can now threaten not to leave unless they get favorable terms?
;)

‘Reasonable’ that Britain wants financial services access to EU: Schaeuble

By Joseph Nasr

July 14 (Reuters) — UK Treasury Secretary Philip Hammond’s remarks that British financial services should retain access to the European Union’s single market are “reasonable,” German Finance Minister Wolfgang Schaeuble said on Thursday.

So maybe those western educated monetarists will recognize that fiscal adjustments do work…:

China Q2 economic growth beats estimates as stimulus shores up demand

July 15 (CNBC) — China’s economy narrowly beat estimates Friday with a 6.7 percent expansion on-year in the three months through June. The headline figure was steady from the previous quarter’s 6.7 percent pace. Second quarter Gross Domestic Product (GDP) was up 1.8 percent from the first quarter. The Chinese government is aiming for growth of 6.5 to 7 percent this year. For 2015, Beijing logged 6.9 percent growth. Friday’s release was the first since China tweaked its methodology of compiling data by adding research and development (R&D) spending into its calculations for GDP.

7-15-13

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Employment, Bank losses, German Banks

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Nice rebound as Verizon workers return to work, but the year over year deceleration continues and, of course, this number will be revised next month. And the lower average hourly earnings gains could put off fears of the US turning into Zimbabwe and Weimar for several hours:

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The payroll gain in June is what is striking in this report. Yet smoothing the big ups and downs, second-quarter payroll growth averaged a monthly 147,300 vs a more substantial 195,700 in the first quarter. The labor market is solid but perhaps slowing, this and still subpar wage growth (not to mention Brexit) may not be pointing to any urgency for a new Federal Reserve rate hike.

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This chart is the change in the 3 month average payroll growth this year vs the same period last year:

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Employment isn’t currently keeping up with population growth:

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Apparently the ‘conspiracy theory’ of the CB’s ‘helping the banks’ at the expense of the macro economy needs a bit of rethinking? Maybe policy has been drilling holes in the boat to let the water out, and it’s all going down? ;)

The Big-Bank Bloodbath: Losses Near Half a Trillion Dollars

By David Reilly

July 6 (WSJ) — Since the start of 2016, 20 of the world’s bigger banks have lost a quarter of their combined market value. Added up, it equals about $465 billion, according to FactSet data. In fact, among the group of 20 big banks only one bank—Wells Fargo—trades at a premium to its book value. Only one other, J.P. Morgan Chase, trades near book value. The fact that some banks are trading at less than half their book value flags even deeper concerns. Among the likely issues: A brewing battle within the EU over rules curtailing governments’ ability to bail out banks and whether those could be put on hold.

The problem with bank issues is when lending is cut back which directly reduces spending/output/employment:
Europe’s Bank Crisis Arrives In Germany: €29 Billion Bremen Landesbank On The Verge Of Failure.

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Mtg purchase apps, Gas prices, Greek debt, Euro area trade and inflation, Oil prices

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Another setback for those grasping for straws looking for housing to lead a recovery:

MBA Mortgage Applications
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Gas prices up enough to hurt consumers, but not enough boost oil capex.

You might say it’s in the ‘sour spot’:
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Again, for all practical purposes this IS full debt forgiveness, and something Greece has yet to recognize as such:

IMF Proposal on Greece Sets Up Battle With Germany

May 17 (WSJ) — A new IMF proposal goes far beyond what Greece’s eurozone creditors have said they are willing to do. Germany is leading the pressure on the IMF to dilute its demands and rejoin the Greek bailout program as a lender. The IMF wants eurozone countries to accept long delays in the repayment of Greece’s bailout loans, which would fall due in the period from 2040 to 2080 under the proposal. The IMF is also pressing for Greece’s interest rate on its eurozone loans to be fixed for 30 to 40 years at its current average level of 1.5%, with all interest payments postponed until loans start falling due.

Trade continues to provide serious fundamental support for the euro, much like it did for the yen for two decades, which continued to strengthen even with 0 rates, QE, and perhaps the highest debt/GDP ratios in the world:
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This also provides fundamental support for the euro:
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And the recently rising oil prices work to increase the US trade deficit with prices and imports rising, as the price increase isn’t enough to slow the decline in US output. Again, you could call it the ‘sour spot’ for as long as it lasts:
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My WRKO interview today, Consumer Sentiment, Rail traffic, Fed’s Bullard on rates

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WRKO Interview

Still drifting lower:

US Consumer Sentiment at 5-Month Low

The University of Michigan’s consumer sentiment for the United States came in at 90 in March of 2016 from 91.7 in the previous month and hitting its lowest reading since October 2015, as both future expectations and current conditions deteriorated sharply. Markets were expecting the index to rise to 92.2.

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Rail Week Ending 12 March 2016: Rail Returns To Its Slide Into The Abyss

Week 10 of 2016 shows same week total rail traffic (from same week one year ago) declined according to the Association of American Railroads (AAR) traffic data. All rolling averages are again negative and in decline.

Must be reading my stuff???
;)

Low rates may be causing low inflation, St. Louis Fed President James Bullard theorized in Friday remarks.

Bullard, who is a voting member of this year’s Federal Open Market Committee, suggested in prepared remarks for a policy conference in Frankfurt, Germany that the current period of low interest rates and low inflation could potentially persist for a long period of time. Furthermore, raising rates could conceivably increase inflation, he said.

He didn’t conclude this argument was correct, but suggested it deserved further analysis.

The St. Louis Federal Reserve president also discussed the normal argument for raising rates, saying the FOMC’s policy remains extreme, labor markets are close to normal, and inflation is close to the Fed’s target levels.

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Chicago PMI, Pending home sales, EU inflation, G20 statement, Virginia jobless claims

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As previously suspected, last month’s higher print was just a bit of volatility on the way down, as per the chart:

Chicago PMI
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Highlights
Another month and another month of wild volatility for the Chicago PMI which lurched from solid expansion in January to noticeable contraction in February. At a headline 47.6, Chicago’s PMI has fallen outside Econoday’s consensus range for a third month in a row! Still, this report is closely watched and confirms other early indications of February softness, not only for manufacturing but for services as well since this report tracks both sectors. The good news in the report is that new orders have held over breakeven 50 which hints at better readings in next month’s report. Now the bad news. Production is down sharply, backlogs are in a 13th month of straight contraction, employment is down and in a fifth month of contraction, and prices paid are contracting at the fastest pace since 2009. The resilience in new orders limits the signal of damage from this report, but production and other activity look to have slowed in February following respectable strength in January.

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Another bad one, as the weakness that began with oil capex continues to dampen the rest:

Pending Home Sales Index
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Highlights
Pending sales of existing homes slowed in January, down an unexpected 2.5 percent to an index level of 106.0 in a decline offset but only in part by an 8-tenths upward revision to December to plus 0.9 percent. Econoday forecasters were expecting a much better reading, at a consensus plus 0.5 percent for January sales. Sales in the month fell in three of the four regions with only the South in the plus column. Year-on-year, pending sales are up only 1.4 percent. Today’s report is yet another disappointment for a sector that, despite high employment and low mortgage rates, is getting off to a flat start for 2016.

The oil patch is where the recession started and it keeps getting worse which means the rest of the economy will continue to deteriorate as well:

Dallas Fed Mfg Survey
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Highlights
Dallas, together with Kansas City, are two Fed districts that are being hit hardest by the collapse in oil prices. The Dallas Fed’s general activity index came in at a deeply minus 31.8 in February vs minus 34.6 in January. New orders contracted a further 8.4 points in the month to minus 17.6 for their lowest reading since 2009 in what is a very ominous signal for the months ahead. Unfilled orders are also in contraction as are production and shipments. Price contraction deepened for both raw materials and selling prices. Inventories are down as is employment. In fact, in a rare sweep of weakness, all 17 current components are in contraction! The company outlook index is at minus 17.4 with a quarter of the sample saying their outlook has worsened during February. The latter is a telling reading and suggests very strongly, in line with all other anecdotal readings this month, that the factory sector, hit by weak exports and a weak energy sector, fell back in February.

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Fundamentally high inflation = weaker currency as higher prices means the same amount of currency buys less,etc. and deflation = a fundamentally stronger currency. However, the euro has been falling on news of deflation, as portfolio mangers, traders, etc. sell what euro they still have (or get outright short), their logic/fears being that deflation will trigger more inflationary policy from the ECB, which has yet to ‘trigger’ inflation. Meanwhile, the lower euro, driven down by selling and not ‘fundamentals’, continues to support the large and growing trade surplus that removes net euro financial assets from global markets. This has been going on for maybe a couple of years now leaving the euro more and more ‘undervalued’ and in ever shorter supply:

Euro-Area Prices Decline Most in Year as ECB Mulls Easing

By Alessandro Speciale

Feb 29 (Bloomberg) — The inflation rate in the 19-nation bloc declined to minus 0.2 from a positive reading of 0.3 percent in January,. Core inflation, which strips out volatile elements such as food and energy, was at 0.7 percent, down from 1 percent in the prior month. In Germany, the European Union- harmonized inflation rate dropped to minus 0.2 percent from 0.4 percent. The rate in France fell to minus 0.1 percent, while Spanish prices slid 0.9 percent. The ECB has already cut its deposit rate to minus 0.3 percent and is pumping 60 billion euros ($66 billion) a month into the economy via asset purchases.

Nothing good here:

The world’s top economies are set to declare on Saturday that they need to look beyond ultra-low interest rates and printing money if the global economy is to shake off its torpor, while promising a new focus on structural reform to spark activity.

A draft of the communique to be issued by the Group of 20 (G-20) finance ministers and central bankers at the end of a two-day meeting in Shanghai reflected myriad concerns and policy frictions that have been exacerbated by economic uncertainty and market turbulence in recent months.

“The global recovery continues, but it remains uneven and falls short of our ambition for strong, sustainable and balanced growth,” the leaders said in a draft seen by Reuters.

“Monetary policies will continue to support economic activity and ensure price stability … but monetary policy alone cannot lead to balanced growth.”

Geopolitics figured prominently, with the draft noting risks and vulnerabilities had risen against a backdrop that includes the shock of a potential British exit from the European Union, which will be decided in a June 23 referendum, rising numbers of refugees and migrants, and downgraded global growth prospects.

But there was no sign of coordinated stimulus spending to spark activity, as some investors had been hoping after the market turmoil that began 2016.

Germany had made it clear it was not keen on new stimulus, with Finance Minister Wolfgang Schaeuble saying on Friday the debt-financed growth model had reached its limits.

“It is even causing new problems, raising debt, causing bubbles and excessive risk taking, zombifying the economy,” he said.

This is from a story about Virginia’s claims for unemployment which are down even as the economy has weakened:

Colonna said the dip to 1974 levels in new unemployment claims is baffling since economic growth has been so sluggish in Virginia recently.

The state’s economy didn’t grow at all last year, U.S. Bureau of Economic Analysis data show.

And for the 12 months ended in July, the number of Virginians working rose by just 12,200, or 0.3 percent, the Virginia Employment Commission reports. The number who were unemployed declined by 33,000 – a figure that’s larger because it includes people who have stopped looking.

Part-time workers can’t always qualify for benefits when they are laid off, since to receive the minimum $60 a week unemployment benefit in Virginia, a person must have earned at least $3,000 during two of the previous five quarters.

And if income from any part-time job exceeds a laid-off person’s unemployment benefit, the state won’t pay the unemployment benefit. The maximum unemployment benefit in Virginia is $378, and the maximum time it is paid is 26 weeks. You can’t get the benefit if you are fired or quit your job.

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