Category Archives: GDP

Mtg prch apps, Housing starts, Industrial production, Euro trade

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Yes, up vs last year’s dip, but remain depressed and have been
heading south since early this year:

MBA Mortgage Applications
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Highlights
Application activity was little changed in the December 11 week, up 1 percent for refinancing and down 3.0 percent for home purchases. Year-on-year, purchase applications remain very high, up 34 percent in a gain that in part reflects a pulling forward of demand ahead of what is expected to be a rate hike at today’s FOMC. Rates were little changed in the week with the average 30-year fixed loan for conforming loan balances ($417,000 or less) unchanged at 4.14 percent. The rise in purchase applications points to strength for today’s housing starts and permits data.

Up, which may give the Fed an excuse to hike rates, but remains severely depressed and gains again are in lower cost multifamily units, and even then the chart shows it’s all only been going sideways since February, with multifamily starts decelerating since the NY tax break expired in June:

Housing Starts
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Highlights
Housing permits surged in November, up 11.0 percent to a far higher-than-expected annualized rate of 1.289 million and reflecting a 27 percent monthly jump for multi-family units though permits for single-family homes also increased, up 1.1 percent. Starts were also very strong, up 10.5 percent to a 1.173 million rate with multi-family homes again leading the way, up 16.4 percent with single-family homes up 7.6 percent.

Year-on-year rates are robust, up 19.5 percent for permits (single-family up 9.0 percent, multi-family up 36 percent) and up 16.5 percent for starts (single-family up 14.6 percent, multi-family up 20 percent).

Homes under construction offer more good news, up a monthly 2.2 percent to a recovery best rate of 965,000 and up a very strong 18.3 percent year-on-year. Housing completions fell back for a second month in November, down 3.2 percent to a 947,000 to indicate that there’s still plenty of building underway. Year-on-year, completions are up 9.2 percent.

Strength for starts is certainly getting a boost from this winter’s mild weather while the gain in permits points in part to speculative demand, especially for multi-family units. Housing readings have been inconsistent but this report is very constructive for the new home and construction outlooks.

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Yet another abysmal report from the industrial sector, which continues the tumble that began when oil capex collapsed about a year ago, and has yet to be ‘replaced’ by some other sector. And lost sales and output also means that much lost income in a downward spiral that can only be reversed by some sector ‘dipping into savings’ to spend that much more. And declining capacity utilization is one measure of slack for the Fed to consider:

Industrial Production
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Highlights
November was another weak month for the industrial economy, in part reflecting unusually warm temperatures that are driving down utility output. Industrial production came in at the Econoday low forecast, down a very sharp 0.6 percent in November. This is the biggest drop in 3-1/2 years. Utility output fell a monthly 4.3 percent after falling 2.8 percent in October. Mining, reflecting low commodity prices and contraction in energy extraction, has also been week, down 1.1 percent for a third straight decline.

This brings us to the most important component, manufacturing where October’s 0.3 percent bounce higher (revised downward from 0.4 percent) now unfortunately looks like an outlier. Manufacturing production came in unchanged in November reflecting weakness in motor vehicles, down 1.0 percent in the month, and also a dip back for construction supplies which fell 0.2 percent after a weather-related surge of 2.3 percent in October. One positive is a slight snapback for business equipment which, after declines in the two prior months, rose 0.2 percent.

All the weakness is pulling down capacity utilization, to 77.0 percent in November for a heavy 5 tenths dip. Utilization is running more than 3 percentage points below its long-term average. Mining utilization is now under 80 percent, down 1.1 points in the month to 79.4 percent. Utility utilization fell 3.4 points in the month to 74.5 percent with manufacturing utilization down 1 tenth to 76.2 percent. Excess capacity, though not cited as a major factor behind the lack of inflation in the economy, does hold down the cost of goods.

Year-on-year rates confirm the weakness, down 1.2 percent overall with utilities down 7.6 percent and mining down 8.2 percent. Manufacturing is in the plus column but not by much at plus 0.9 percent.

Weather factors are skewing utility output but otherwise, readings are fundamentally soft and reflect the downturn in global demand made more severe for U.S. producers by strength in the dollar.

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Euro area surplus high and continues to trend higher.

This is super strong currency stuff:
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Different aggregate than the above, same message. And note exports growing with a weak global economy:

European Union : Merchandise Trade
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Highlights
The seasonally adjusted trade balance returned a E19.9 billion surplus in October, matching the downwardly revised outturn in September.

The stability of the headline reflected a 0.3 percent monthly increase in exports and a 0.4 percent gain in imports. Exports stood at their highest level since July and were 5.0 percent above their year-ago level. Imports also recorded a 3-month peak and now show a yearly increase of 2.0 percent.

The October black ink was 3.1 percent below the average level in the third quarter when net exports subtracted 0.2 percentage points from quarterly GDP growth. Lower oil prices are helping to bias down nominal imports but the weakness of the euro should help to ensure a stronger performance from the real external trade sector moving through 2016.

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Retail sales, Business inventories, Consumer Sentiment

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Retail sales = retail (gross) income and growth is still way down year over year, as per the charts.

Also declining vehicle sales are highly problematic, as they were what was keeping a bad story from being that much worse. And not to forget when looking at year over year change oil and gas prices were already down quite a bit by this time last year:

Retail Sales
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Highlights
Once again the headline for the retail sales report understates underlying strength. Total retail sales rose only 0.2 percent in November which is just under the Econoday consensus. But weakness here came from vehicles of all places which otherwise have been one of this year’s standout component for this report. Excluding vehicles, sales rose 0.4 percent which is 1 tenth above expectations. Excluding both vehicles and gasoline, core sales rose a very solid 0.5 percent which is 2 tenths above expectations. A key discretionary category, restaurants, shows yet another very strong gain, this at 0.7 percent in the month. Also showing sizable gains are electronics & appliances, clothing & accessories, non-store retailers (once again), and the general merchandise category where, despite a deflationary pull from falling import prices, sales jumped 0.7 percent in the month.

Vehicle sales fell 0.4 percent in the month on top of October’s 0.3 percent decline. These declines are a bit of a surprise given steady readings in unit sales of vehicles which have been holding firmly at 12-year highs. Whether there’s a rebound ahead for vehicle sales, which had been so strong through the year, will be key to consumer spending going into the new year. Sales at gasoline stations continue to contract, at minus 0.8 percent in the month. Furniture sales, which have been strong, fell back as did sales of building materials & garden supplies, which have been soft.

Year-on-year rates show nonstore retailers out in front, at plus 7.3 percent to confirm acceleration for online sales. Restaurants are right behind at plus 6.5 percent year-on-year followed by furniture and by sporting goods, both at plus 5.4 percent. All together, core retail sales are up a moderate 3.6 percent year-on-year held down by contraction in electronics & appliances and soft readings for grocery stores and general merchandise. Outside the core, motor vehicles are still in the thick of things, at plus 4.0 percent year-on-year, with gasoline stations down 19.9 percent. Total retail sales are up only 1.4 percent but the gain goes up to 3.6 percent (the same as the core) when excluding just gas.

Taken together, rates of growth are no more than moderate but certain areas are posting eye-catching results, results that point to what must have been a successful Black Friday sales push. The consumer, boosted by a solid labor market and having more money to spend because of low gas prices, is definitely alive and spending going into the final weeks of the holiday season. In a methodology note, the November data reflect a new sample and prior levels have been revised (mostly lower).

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This one’s call the ‘control group’ (excludes auto dealers, gas stations, food services, building materials) and sure doesn’t look to me like it’s part of a rate hike story:
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These came out Dec 3:
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Trucks doing better:
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Inventory building stops but slow sales hike the inventory/sales ratio:

Business Inventories
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Highlights
Businesses appear to be putting the brakes on inventories which however are still rising a bit relative to sales. Business inventories were unchanged in October with September revised down 2 tenths to plus 0.3 percent in readings that will pull down the GDP outlook slightly. Sales came in unchanged which is just enough to drive up the stock-to-sales ratio to 1.38 from 1.37. This time last year, this reading was at 1.31.

All three components show only the most minimal change in inventories, up 0.1 percent for retailers and down 0.1 percent for both manufacturers and for wholesalers. And sales tell the story, unchanged in October for both retailers and wholesalers and down 5 tenths for manufacturers.

The lack of punch in the economy, the result of weak foreign demand, continues to put upward pressure on inventories. But businesses are successfully keeping their stocks as low as possible, thereby limiting future corrections in production and employment.
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Factory orders, ISM non mfg, ECB news

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Yes, they were up, but there is a ‘seasonal’ aspect to it, including an air show, so the year over year chart is a bit more indicative of what’s going on and it’s still in negative territory. Also, vehicle orders declined, and inventories remained at levels that beg continuing production cuts.

Factory Orders
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Highlights
Factory orders bounced sharply higher in October and, together with the bounce higher for manufacturing in the industrial production report, confirm what was a very solid month for the sector. Factory orders rose 1.5 percent in the month led by a 2.9 percent surge in durable goods orders (revised 1 tenth lower from last week’s advance release). This gain offsets a no change result for non-durable goods orders.

Excluding transportation, and orders tied to the biennial Dubai airshow, new orders rose a less exciting 0.2 percent. But indications from core capital goods are very strong with new orders surging 1.3 percent on top of a 0.5 percent orders gain in September. Turning to capital goods industries, new orders for machinery jumped 1.2 percent with computer orders up 5.9 percent.

A negative in the report is a surprising 2.0 percent decline for vehicle orders, a disappointment that may very well be reversed in coming months based on the sustained and unusual strength of vehicle sales.

Looking at other readings, total shipments fell 0.5 percent in October which is not a good start to the fourth quarter with core capital goods shipments also down 0.5 percent. But future shipments are certain to benefit from October’s orders gain. Inventories, which are widely seen as too high, did dip 0.1 percent but relative to shipments could do no more than hold steady at a ratio of 1.35. Unfilled orders are positive, ending two months of decline with a 0.3 percent gain.

Given that the factory sector has been in decline all year, the order data in this report are encouraging and should help offset concern from this week’s sub-50 reading in the ISM manufacturing report.
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After a ‘normal’ lag non manufacturing is now clearly softening form the decline in aggregate demand that began with the oil capex collapse about a year ago, with nothing that I can see stepping up to replace it. And note that exports went into contraction as it’s been the non manufacturing exports that have held up as other exports declined:

ISM Non-Mfg Index
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Highlights
Strength in ISM’s non-manufacturing sample is cooling but remains very solid, at 55.9 in November which is, however, the lowest rate of monthly growth since May. Readings across the report have also edged down to growth levels last seen in the second quarter including new orders (57.5), backlog orders (51.5), and employment (55.5). New export orders, at 49.5, show their first contraction since April. The breadth of strength across industries, with 12 showing growth and six in contraction, is positive but, like most of this report, less positive than prior months. Still, this report surged through the third quarter and into October making a step down to a lower rate no major surprise.
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So Draghi increased the tax on deposits, and this time the euro went up. Maybe portfolios don’t have any more left to sell as the high and growing trade surplus drains them from global markets?

Euro Rises After ECB

The Euro gained around 0.58% to 1.0667 USD right after the ECB cut deposit facility rate by 10 bps to -0.3% and said further stimulus measures would be announced during the press conference.
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And taking euro away from depositors hasn’t seem to help consumer spending:

Euro Area Retail Sales Unexpectedly Fall

Retail sales in the Eurozone edged down 0.1 percent in October of 2015, following a 0.1 percent drop in September and no growth in August. Figures came below market expectations of a 0.2 percent gain, marking the longest period of no growth since mid-2013. Sales of food, drinks and tobacco shrank 0.5 percent, those of auto fuel fell 0.4 percent while sales of non-food products edged up 0.1 percent.

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Business Roundtable, Mtg apps, ADP, Productivity, 1 year charts

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More evidence the capital spending contraction is not over:

CEO Confidence Goes From Bad to Worse

Dec 1 (Fox Business) — CEO confidence in the U.S. economy is dwindling. The Business Roundtable CEO Economic Outlook Index for the 4Q, which looks out six months, fell to the lowest level in three years

For third consecutive quarter, U.S. CEOs cautious on economy

Dec 1 (Reuters) — The Business Roundtable CEO Economic Outlook Index fell 6.6 points to 67.5 in the fourth quarter. The long-term average for the index is 80.1 points. Of the 140 CEOs surveyed, 60 percent said they expected sales to increase over the next six months, down from 63 percent during the previous quarter. The proportion of CEOs who said they expected their capital spending to decrease over the next six months rose to 27 percent from 20 percent in the third quarter. CEOs said that regulation was the top cost pressure facing their business, followed by labor and health care costs.

For the first six months of 2016, CEO expectations for sales decreased by 3.2 points and their plans for capital expenditures decreased by 16.7 points. Hiring plans were essentially unchanged from last quarter when they declined by nearly 8 points.

Nice to see purchase apps up but the 4 week moving average remains depressed:

MBA Mortgage Applications
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Highlights
Purchase applications are moving sharply higher, up 8.0 percent in the November 27 week that, after a pause in the November 20 week, follows a 12.0 percent surge in the November 13 week. Year-on-year, purchase applications are up an eye-popping 30 percent in strength that points to much needed acceleration for underlying home sales. The rise in mortgage rates has triggered the move, encouraging buyers to step up and lock in rates before they move even higher. In contrast, demand for refinancing is easing, down 6.0 percent in the latest week. Rates edged lower in the week with the average for 30-year fixed mortgages ($417,000 or less) down 2 basis points to 4.12 percent.

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The ADP number is a forecast for Friday’s Non Farm Payroll numbers, based partially on their own payroll data. We’ll see Friday how accurate it is this time:

ADP Employment Report
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Highlights
ADP is calling for strength in Friday’s employment report, at a higher-than-expected gain of 217,000 for government payrolls in November. Month-to-month, this report is not always an accurate indicator for the government’s data, forecasting a much lower reading than what turned out for October and a much higher reading than what turned out for September. But ADP’s trend has been accurate, that is steady payroll growth near 200,000 — and today’s report points to strength that would be slightly above trend.

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And seems to me what’s keeping unit labor costs up is low capacity utilization, as previously reported, and not wage increases. At some point business adjust with either fewer employees or higher output:
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Note that this also peaked when oil related capital expenditures collapsed a year ago:

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In fact it was about a year ago when oil prices fell below costs of production, triggering cuts in capital expenditures. At the time the oil price drop was universally deemed an ‘unambiguous positive’ for the US economy. I wrote that it looked to me like an unambiguous negative, listing my reasons why it would not support consumption or investment, but would instead induce a general economic deceleration with a high probability of negative growth, particularly after subsequent revisions of data.

So let’s look at a few 1 year charts to isolate what’s happened:

The Fed was looking for 3%+ as ‘monetary policy kicked in’ and oil prices helped consumption.

And Q4 is now looking even worse:
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Consumption has decelerated:
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Industrial production not so good:
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Nor investment:
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Or manufacturing:
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How about employment?
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Housing starts are back to where they started from, with a mini surge related to the NY tax bread the expired in June:
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Non manufacturing slower to react, but sagging as well:
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And credit aggregate growth has slowed as well:
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Autos have been the ‘bright spot’ but turns out the growth has been from imports:
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Saudi output, Redbook sales, PMI, ISM

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While demand for Saudi crude is up a bit, seems it’s still far below their presumed 12 million or so bpd capacity, and their strategy has been to lower their prices to the point where they are selling their full capacity:
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Nice bounce here, as the year over year comparisons get ‘easier’:

Redbook
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Highlights
Store sales surged in the November 28 week, the week that includes Black Friday. Redbook’s same-store year-on-year sales tally jumped to plus 3.9 percent, more than doubling the pace of prior weeks and the strongest pace since the very beginning of the year. Yet the report is not upbeat, saying shoppers were drawn in by deep discounting. Other commentary on Black Friday notes that shoppers tend to shop for themselves, seeking big ticket items at a discount in buying that is not predictive of holiday sales. Still, the gain in this report offers positive evidence of consumer strength. Watch for motor vehicle sales later today for further evidence of consumer strength.

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This is the suspect one:

PMI Manufacturing Index

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Highlights
Markit’s U.S. manufacturing sample, which has been reporting much stronger levels of activity than others, reports slower rates of growth in November. The final index for the month is 52.8 for a 2 tenths improvement from the flash but down a tangible 1.3 points from October.

Softness in new orders, rising at their slowest pace in just over two years, is the chief reason for the dip. Export orders are in contraction, once again the result of weak foreign demand made weaker for U.S. goods by the strength of the dollar. Weakness in new orders is compounded by the first contraction in backlog orders since November last year. With orders down, output moderated in the month and manufacturers cut back inventories of finished goods.

Hiring is slowing and supply deliveries are improving, both indicative of weakness. Price readings remain mute.

Though levels in this report are still pointing to growth, their weakness relative to prior months points perhaps to contraction in November for the factory sector which, however, bounced back in October, at least based on the industrial production and factory order reports. Watch for the ISM report coming up at 10:00 a.m. ET.

Particularly bad:

ISM Mfg Index
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Highlights
After skirting right at the breakeven 50 line since September, ISM’s manufacturing index broke below in November to 48.6 which is more than 1 point below Econoday’s low-end estimate the lowest reading since June 2009. The decline includes a significant dip for new orders which are down 4.0 points to 48.9 and the lowest reading since August 2012. At 43.0, backlog orders are in a six-month streak of contraction. With orders down, ISM’s sample cut back on production, down nearly 4 points to 49.2, and cut back on inventories, down 3.5 points to 43.0. Employment firmed but remains soft at 51.3. This report is closely watched and will raise expectations for a quick reversal in the factory sector which, in October at least, showed glimpses of strength.

Note the deceleration since oil related capital expenditures collapsed about a year ago:
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Not bad vs last month, but still depressed historically and as a % of GDP.

And in general it’s been softening since the surge in front of the NY tax breaks expired in June.

Construction Spending
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Highlights
Construction is one of the highlights of the 2015 economy with spending up a solid 1.0 percent in October for the best rate since May. Despite mixed signals from the housing sector, spending on residential construction is very solid, up 1.0 percent in October for a seventh straight gain and all of them convincing. Year-on-year, residential construction is up 16.6 percent vs 13.0 percent for total spending. Private non-residential spending rose 0.6 percent in October with the year-on-year rate at plus 15.3 percent. Public spending is holding down totals with the educational component unchanged in the month though Federal spending did jump, up 19.2 percent for a year-on-year rate of plus 10.7 percent which leads the public components. This report points to solid fourth-quarter contribution from construction.
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From a previous report:
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This chart hasn’t updated yet, and so is only through September, but you can see how the growth rate this cycle is well below last cycle, and how year over year comparisons will be a bit misleading for a while due to the dip last year:
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Chicago PMI, Pending home sales, Dallas Fed

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Another bad one, reversing last month’s suspect move up:

Chicago PMI
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Highlights
Volatility is what to expect from the Chicago PMI which, at 48.7, is back in contraction in November after surging into strong expansion at 56.2 in October. Up and down and up and down is the pattern with prior readings at 48.7 in September (the same as November) and 54.4 in August.

New orders are down sharply and are back in contraction while backlog orders are in a 10th month of contraction. Production soared nearly 20 points in October but reversed most of the gain in November. Despite November’s weakness, employment are up slightly. Prices paid is in contraction for a fourth straight month.

Though this report points to November weakness for the whole of the Chicago economy, the volatility of the report should limit its impact on the month’s outlook.

Along with the ISM, it’s decelerated with the collapse in oil related capital expenditures, and nothing yet has come along to fill that spending gap (apart from building unsold inventory):
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More bad, and it’s not like mortgage rates aren’t low:

Pending Home Sales Index
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Highlights
Sales of existing homes have been soft and are not likely to pick up in the next few months based on October’s pending sales index which is up only 0.2 percent. Year-on-year, the index is up 3.9 percent which matches the rate of gain for final sales during October. Flatness, unfortunately, is the theme.

The Northeast did the best in October, up 4.5 percent for a year-on-year plus 6.8 percent. The West is next with pending sales up 1.7 percent for a year-on-year gain of 10.4 percent. Bringing up the rear are the Midwest, down 1.0 percent on the month for a year-on-year plus 3.3 percent, and the largest region which is the South, down 1.7 percent in October for the only negative year-on-year reading of minus 0.3 percent.

The National Association of Realtors cites low supply of available homes as a negative for sales and warns that prices in some markets are rising too fast, especially for first-time buyers. The association cites strength in the Northeast as an example, a region where price appreciation is lower and supply greater.

The new home market isn’t doing that much better than existing homes, with sales up 4.9 percent year-on-year in the latest available data. Watch for construction spending on tomorrow’s calendar, one aspect of the housing market that has been showing solid strength.
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And in sync with last week’s existing home sales report also showing flatness at low levels:
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Not as bad as expected but still in contraction mode:

Dallas Fed Mfg Survey
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Highlights
The Dallas Fed’s general activity index is in contraction for an 11th consecutive month, at minus 4.9 for November which is, however, improved from October’s minus 12.7. The Econoday consensus was calling for an 11.0 point decline.

Order readings are also negative, at minus 1.6 for new orders, which is a 6 point improvement, but at minus 7.3 for the growth rate of new orders which is little changed from October and in the negative column for the 13th month in a row.

On the plus side is a second straight increase for production, up 4 tenths to 5.2. And readings on the business outlook are steady to higher.

But price data in the report are pushing further into negative ground with finished goods prices at minus 12.1 for an 11th straight negative reading, underscoring the deflationary effects of low energy prices on the Texas economy.

This report rounds out what is a flat to negative run of regional indications for the nation’s manufacturing sector during November, a sector that continues to be hurt by weak export demand and low prices.
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Mtg prch apps, Durable goods, Personal income and outlays, New home sales, Consumer Sentiment, PMI services

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Purchase apps have been flat to down for quite a while now,
and the year over year comp will be reflecting that in a few months as well:

United States : MBA Mortgage Applications
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Highlights
After spiking sharply in the prior when rates jumped and triggered concern they would move even higher, mortgage application volumes eased in the November 20 week as rates settled back with purchase applications down 1.0 percent and refinancing applications down 5.0 percent. However, purchase applications, up a stunning 24 percent year-on-year, are pointing very strongly to underlying gains for home sales. The average for conforming 30-year mortgages ($417,000 or less) fell 4 basis points to 4.18 percent after rising 6 basis points in the prior week.
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Up more than expected, and the details highlighted below and year over year chart still looking recession:

United States : Durable Goods Orders
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Highlights
The factory sector is showing life with new orders in October up a very solid 3.0 percent which just exceeds Econoday’s high-end forecast. Excluding transportation, and orders tied to the biennial Dubai airshow, new orders rose 0.5 percent which is also solid and higher than expected. And underscoring the gains in a significant way is sudden strength in orders for core capital goods, up an outsized 1.3 percent with the prior month revised from a decline to a 0.4 percent gain.

Looking at details, commercial aircraft orders surged more than 200 percent, which again is an anomaly, though in a sign of weakness out transportation, orders for motor vehicles fell 2.9 percent in the month. But this decline is probably not the beginning of a trend given still very strong vehicle sales.

Turning to capital goods industries, new orders for machinery jumped 1.6 percent with computer orders up 5.5 percent and communications equipment up 1.8 percent. Total year-on-year core orders are suddenly in the plus column, at 0.4 percent for the first positive reading since January. These gains speak to a rebound in expectations among businesses which perhaps are now looking for strength in the new year.

Among other readings, total shipments fell 1.0 percent in October which is not a good start to the fourth quarter with core capital goods shipments also lower, down 0.4 percent. Inventories do offer good news, down 0.2 percent amid concern that levels are too high right. And relative to shipments, if not orders, inventories are too high with the inventory-to-shipments ratio jumping to 1.66 from 1.64. Unfilled orders, however, are positive, ending two months of decline with a 0.3 percent gain.

The order data in this report are very encouraging and follow strength in the manufacturing component of the industrial production report. Together they point to a year-end rebound underway for what had been, at least, an export-depressed factory sector. As far as a December rate hike, this report will offset, at least to a degree and perhaps to a large degree, the softness in this morning’s PCE price data.

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This is for consumer goods:
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PCE for durable goods growth has been working its way lower ever since oil related capex collapsed about a year ago:

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Spending is low and below expectations, and it’s spending that ultimately provides the income. Also, inflation related data remains depressed, perhaps giving the Fed pause regarding rate hikes. But perhaps not…:

United States : Personal Income and Outlays
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Highlights
The core PCE is the Fed’s most important inflation reading and it is not showing rising pressure, coming in unchanged in October, vs an expected gain of 0.2 percent, with the year-on-year rate at 1.3 percent which is also unchanged. Consumer spending also proved soft, up only 0.1 percent vs expectations for a 0.3 percent gain. Spending shows flat readings across categories including only a small gain for services which usually are strong.

The income side is better, hitting expectations at a 0.4 percent gain with wages & salaries showing an outsized gain of 0.6 percent. And the outlook for future spending is solid with a strong 3 tenths rise in the savings rate to 5.6 percent.

Turning back to inflation readings, the overall PCE price index remains nearly dead flat in a reminder that fuel prices remain very low and should give a boost to durable spending during the holidays. The PCE price index is up only 0.1 percent, vs Econoday expectations for a 0.2 percent gain, with the year-on-year rate at a very telling and extremely low plus 0.2 percent.

Though income data in this report do point to consumer strength ahead, the spending data are not a strong start at all for the fourth quarter. These results, especially the core price readings, will not lift the odds for a December rate hike.

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The consumer took a hit with the tax hikes and sequesters and that wide gap is still there:
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Consumption growth is decelerating, including services:
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This inflation indicator remains depressed:
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Last month revised lower and this month below expectations, as a presumed housing ‘burst’ has again failed to materialize:

United States : New Home Sales
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Highlights
New home sales are not surging, coming in near expectations in October at a 495,000 annualized rate. Though the month’s gain is 10.7 percent, it doesn’t quite reverse the prior month’s 12.9 percent plunge. Year-on-year new home sales are up a respectable looking 4.9 percent which, however, pales to the double-digit rates through most of the year.

Lack of supply is a key issue for the new home sector that is holding down sales, at only 5.5 months relative to sales which is down from 6.0 months in September. But actual new homes on the market are up slightly, at 226,000 which compares to 208,000 a year ago.

Unlike price data in this week’s Case-Shiller and FHFA reports, there is no indication of improved traction in what belies the lack of supply in the market. The median price, at $281,500, is down a very severe looking 8.5 percent in the month with the year-on-year rate at minus 6.0 percent.

The Northeast is showing very solid strength, up more than 100 percent in the month though sales levels in this region make up only a tiny fraction of national sales. The South, by far the largest region for new home sales, showed key strength in the month with a 8.9 percent gain. Year-on-year, the Northeast is out in front with a 60 percent gain followed by the South with a 5.2 percent gain. The West, a key region for home builders, shows a disappointing 2.6 percent year-on-year decline with the Midwest bringing up the rear at minus 4.8 percent.

The housing sector remains uneven with this report confirming lack of strength in Monday’s existing home sales report. Though there are indications, not in this report of course, of price traction in housing, conditions in the sector do not point to an increased chance for a December rate hike.

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Still below the bottom of all prior recessions, and this is not population adjusted!
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Sales are near the bottom of prior recessions:
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A bit worse than expected:

Consumer Sentiment
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Highlights
Consumer sentiment fell back in the last half of November to a final reading of 91.3 vs a mid-month flash of 93.1. Though November’s final is higher than the 90.0 final in October, the implied reading for the last two weeks is in high 80s/low 90s area and do, unfortunately, point to a possible effect from the Paris attacks. Like yesterday’s very disappointing consumer confidence report, weakness is centered in expectations with this component at 82.9 vs 85.6 for November’s flash. The implied reading here over the last two weeks is in the high 70s area which is noticeably below the mid-80s trend.

But in a positive that points to no immediate effect on consumer spending, the current conditions component shows much less weakness, down only 5 tenths from the flash at 104.3. Inflation readings are up from mid-month but little changed from October, at 2.7 percent for the 1-year outlook, which is unchanged from October, and at 2.6 percent for the 5-year outlook which is up 1 tenth from October.

This is the Markit index which tends to overstate things relative to other indexes:

PMI Services Flash
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Discount rate, Profits, GDP commentary

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Interesting, with no discount borrowings, the regional Federal Reserve Bank presidents want a discount rate hike?

Nine Fed banks called for discount rate hike: minutes

Nov 24 (Reuters) — The number of regional Federal Reserve banks pushing for a hike in what commercial banks are charged for emergency loans rose to nine in October, minutes from its discount rate meeting showed. Eight Fed banks had voted to raise the discount rate at the prior meeting in September, a jump from five in July and August. The nine regional banks that requested a hike want to normalize the spread between the discount rate governing Fed lending to banks and the overnight federal funds rate, which is the central bank’s primary economic lever.

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Falling Corporate Profits Blur U.S. Growth Outlook

Nov 24 (WSJ) — A comprehensive measure of companies’ profits across the U.S.—earnings adjusted for inventory and depreciation—dropped to $2.1 trillion in the third quarter, down 1.1% from the second quarter. Compared with a year earlier, profits fell 4.7%. Profits as a share of overall economic output have shrunk to 11.4% in the third quarter from a recent peak of 12.5% in 2012. Domestic profits rose $7.3 billion in the third quarter, or 0.4%. Domestic profits were down 2.8% from the third quarter of 2014. Meanwhile, foreign profits fell by $30 billion, a 7.4% decline from the second quarter and 12.2% drop from a year earlier.

As previously discussed, if agents spending more than their incomes weren’t sufficient to offset agents spending less than their incomes the output didn’t get sold, and inventories build. This leads to reduced production, reduced employment, and reduced income, in a downward spiral that only reverses via agents spending that much more than their incomes. With the private sector largely pro cyclical, the reversal most often requires govt spending that much more than its income, either by reducing taxes or increasing spending. This can be done proactively, or the ugly way- via reduced tax collection due to the slow down and rising unemployment benefits, as most often is the case, at least initially. With the currency itself a (simple) public monopoly, and in this case the currency monopolist is restricting the supply of net $US financial assets, and a necessarily pro cyclical private sector, the idea of markets clearing on their own to restore output and employment is entirely inapplicable once the down turn is in progress:

U.S. GDP growth raised for third quarter

Nov 25 (Reuters) — US GDP grew at a 2.1 percent annual pace, not the 1.5 percent rate it reported last month. Wages and salaries increased $109.3 billion, $61.6 billion more than initially estimated. In the third quarter, businesses accumulated $90.2 billion worth of inventories, instead of the $56.8 billion reported last month. That followed more than $100 billion worth of inventories accumulated in each of the prior two quarters. Business spending on equipment was revised up to a 9.5 percent rate from a 5.3 percent pace.

Consumer Confidence Index Declines Again

Nov 24 (Conference Board) — The Consumer Confidence Index declined to 90.4 in November, down from 99.1 in October. The Present Situation Index decreased from 114.6 last month to 108.1 in November, while the Expectations Index declined to 78.6 from 88.7 in October. Those stating jobs are “plentiful” decreased from 22.7 percent to 19.9 percent, while those claiming jobs are “hard to get” increased to 26.2 percent from 24.6 percent. Those anticipating more jobs in the months ahead fell from 14.4 percent to 11.6 percent, while those anticipating fewer jobs increased from 16.6 percent to 18.7 percent.

As recession hits, deficit spending is what always leads the subsequent recovery:
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Posted in GDP

Atlanta Fed, Investor poll, Fed surveys

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The crowd is not always wrong, but it’s not always right, either:

Fund managers polled at the start of November have significantly hiked their allocation to equities and cut cash holdings to levels not seen since July, according to research from Bank of America Merrill Lynch.

Of the 200 investors managing $576 billion of assets that were quizzed by the bank for its monthly fund manager survey, four-fifths now expect the U.S. Federal Reserve to raise rates this quarter.

Some 43 percent of managers are now “overweight” stocks, up 17 percentage points from the previous month.

Long dollar is the most crowded trade according to the survey, with 32 percent of the investors polled anticipating further strength in the greenback.

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