Housing remains depressed, and not the driver of US growth that had been forecast by most analysts:

Highlights

Housing starts are being hit by huge swings. November starts fell 18.7 percent in November to a much lower-than-expected 1.090 million annualized rate following an upward revised gain of 27.4 percent to 1.340 million in October. There’s less volatility on the permits side where a roughly 30,000 undershoot in November, at 1.201 million vs the Econoday consensus for 1.240 million, is offset by a roughly 30,000 upward revision to October which is now at 1.260 million.

Trends for both starts and permits have been struggling with year-on-year starts down 6.9 percent and year-on-year permits down 6.6 percent.

The best news in the report is a 15.4 percent gain in housing completions to a 1.216 million rate which follows a 6.3 percent jump in the prior month. Houses authorized but not started are also up, 3.0 percent higher to 138,000. Gains here will help ease what is very tight supply for new homes.

Still, lack of supply remains a negative for the new home market where sales, in sharp contrast to starts and permits, look to post a roughly 20 percent gain this year.

This chart is not population adjusted:

This is strong euro stuff, further supported by low inflation, even as the euro falls to decade lows due to ongoing portfolio shifting:

Euro Area Balance of Trade

The Eurozone trade surplus rose 37.8 percent to €26.5 billion in September 2016 compared to a €19.2 billion in the same month of the previous year, above market consensus of €22.5 billion. Exports increased 2 percent while imports dropped 2 percent. Considering the first nine months of the year, the trade surplus increased to €204.8 billion, compared with €169.1 billion in the same period of 2015.

Budget Shortfalls Expected in the Most States Since Recession

By Liz Farmer

Dec 13 (Governing) — Almost half the states cut their budgets this year, and that trend is likely to continue into 2017.

Weak revenues are causing the most state budget shortfalls since the Great Recession.

According to the National Association of State Budget Officers’ (NASBO) annual state spending survey, half of all states saw revenues come in lower than budgeted in fiscal 2016 and nearly as many (24) are seeing those weak revenue conditions carry into fiscal 2017, which ends in summer 2017 for most states. It marks the highest number of states falling short since 36 budgets missed their mark in 2010.

As a result, 19 states made mid-year budget cuts in 2016, totaling $2.8 billion. That number of states “is historically high outside of a recessionary period,” according to the report.

The revenue slowdown is caused mainly by slow income tax growth, even slower sales tax growth and an outright decline in corporate tax revenue.

Farmland Values in Iowa Tumble
First time they have dipped 3 years in row since ’80s farm crisis

Iowa’s average farmland value declined for the third year in a row, down 5.9 percent to $ 7,183 an acre over the past year. It’s the first time since the 1980s farm crisis that land values have fallen three straight years, according to an Iowa State University report released Tuesday.

Fed still failing to hit its 2% target after years of trying, and after years of forecasting that it would hit its 2% target:

Highlights

Inflation at the consumer level remains low. The CPI rose 0.2 percent in November with the year-on-year rate up 1 tenth to plus 1.7 percent. The core rate, which excludes food and energy, also rose 0.2 percent with this year-on-year unchanged at 2.1 percent.

Food prices were unchanged in November though energy did move sharply, up 1.2 percent and led by a 2.7 percent jump in gasoline. Excluding just energy, the CPI rose only 0.1 percent.

The Labor Department is citing housing as a central area of consistent price pressure. The housing component only rose 0.2 percent in November but was up 0.4 percent in both of the prior two months. Owners’ equivalent rent, a closely watched reading in this report, rose 0.3 percent for a second straight month.

Medical prices have also been a source of pressure but were unchanged in November for a second month in a row. Apparel is a weak point in the report, down 0.5 percent for the second steep monthly fall of the last three months. Weakness here hints at holiday discounting.

The year-on-year rates are inching forward but just barely. Low inflation will allow the Fed to be patient when raising rates.

More Trumped up surveys, even as ‘real’ data sags?

Highlights

The Empire State report is showing less strength than the Philly Fed report but momentum is building. The general conditions index is in positive ground for a second month in a row, at 9.0 for the December score vs 1.5 in November. New orders are also positive for a second month, at 11.4 vs last month’s 3.1. Like the Philly Fed report, 6-month expectations for new orders are showing a sudden surge, up 18 points in the month to 40.1. Other readings, however, are still lagging including employment, at minus 12.2, and the workweek at minus 7.0. Price data, also like the Philly Fed, show pressure for inputs but no traction for selling prices. The weaknesses aside, the strength and optimism for new orders are strong indications of wider factory strength going into year end.

Highlights

Both the Philly Fed and Empire State reports have been pointing to accelerating strength for the factory sector, as does Markit Economics’ manufacturing PMI which comes in at 54.2 for the December flash. This index has been moving steadily higher from September’s 51.5. Positives this month include a rise in hiring and a big build for inventories, one the report says reflects confidence in the outlook. New orders are solid but slowing due to weak foreign sales while growth in output is also slowing. Price data show pressure for input costs, especially steel, and slight improvement in selling prices which otherwise remain flat. The factory sector had been flat all year but looks to post solid numbers for the fourth quarter.

This is where I see additional risk to growth post election- stronger $US due to portfolio shifting, higher oil prices, and a weaker global (export) market:

Highlights

The nation’s current account narrowed to $113.0 billion in the third quarter from a downward revised $118.3 billion in the second quarter. The trade deficit narrowed by $8.3 billion in the quarter reflecting a $9 billion narrowing in the goods gap that offset a small decline in the services surplus. The surplus in primary income also declined while the deficit on secondary income widened, both small negatives. The gap relative to GDP remains moderate, down 2 tenths in the quarter to 2.4 percent.

November 2016 Retail Hiring Falls To 6-Year Low

Dec 13 (Econintersect) — Retailers added fewer workers through the first two-thirds of the typical holiday hiring period – and is down nearly 10% from a year ago.

The latest data from the Bureau of Labor Statistics (BLS) showed that employment in retail grew by 371,500 in November. That was down 9.3 percent from a year ago, when jobs in the sector increased by 409,500. It was the lowest November employment increase since 2010.

November followed equally anemic employment gains in October, when retailers added 154,600 workers. That figure has since been adjusted even lower to 150,300, which is 23 percent lower than the 194,800 retail employment gains recorded in October 2015.

While seasonal hiring is down in retail, it is picking up in other areas; namely, transportation and warehousing. Employment in the sector increased by 96,200 workers in October and November, according to BLS data. That was up from 71,300 a year ago.

From Fed Chair Yellen:

The labor market has improved enough that the United States will not need big U.S. government spending to reach full employment, Fed Chair Janet Yellen said Wednesday.

“I would judge that the degree of slack has diminished. I would say at this point that fiscal policy is not, obviously, needed to help us get up to full employment,” the central bank chief told reporters after the Fed hiked interest rates.

These charts indicate the extent to which central banks move foreign exchange levels. The Swiss National Bank has been selling their euro to buy dollars, as indicated in the first chart, and the second chart shows how CB’s shifted from euro to dollars when they feared ECB ‘money printing’ would be inflationary:

Post election euphoria? In any case, as per the chart, historically it doesn’t tend to stay this high for long:

Highlights

Post-election confidence continues to build, lifting consumer sentiment by more than 4 points to a 98.0 level that hits the very outside of the Econoday range and is 1 tenth away from the index’s recovery peak hit last year. Consumers specifically cite expectations of new economic policies as the biggest positive. A rise in the current conditions component, up 4.5 percent from November to 112.1, offers an early indication of strength for December’s holiday spending while a gain for expectations, up 4.3 percent to 88.9, points to confidence in the jobs outlook. But the rise in spirits isn’t translating to any improvement for inflation with both the 1-year and 5-year outlooks down 1 tenth, to 2.3 percent and 2.5 percent respectively. Inflation aside, this report is another signal that the economy may be closing out the fourth-quarter with strong momentum.

Inventories resume their decline which means less new output and lower GDP, as too high inventory to sales ratios do their thing:

Highlights

Inventories were looking heavy going into the fourth quarter but, given strength in demand, are turning out to be perhaps too lean. Inventories at the wholesale level fell 0.4 percent in October, drawn down by a 1.4 percent surge in wholesale sales. The mismatch drops the stock-to-sales ratio from 1.32 to 1.30 for the lowest reading in nearly two years. Advance data for retail point to a similar decline for retail inventories to be posted next week while factory inventories, posted earlier in the week with the factory orders report, were unchanged.

Looks to me like maybe 1.2 would be normal indicating there’s a long way to go:

Sales have recovered but remain well below ‘normal’:

For all practical purposes, these sales have gone flat:

So mortgage applications for purchases rose during the first half of the year, then reversed and are looking to be at best flat vs the year before come year end:

Highlights

Purchase applications for home mortgages fell just 0.2 percent on a seasonally adjusted basis in the November 25 week following the prior week’s outsized 19-percent increase. But applications for refinancing were down 16 percent from the prior week, as the sharp post-election increase in interest rates continues to muffle mortgage activity among homeowners seeking to refinance at lower rates. The weekly drop took the purchase index to just 3 percent above the level a year ago, far less than the double-digit gains seen earlier this year, which in March reached more than 30 percent. Mortgage rates continued their climb higher during the week, with the average interest rate on 30-year fixed-rate conforming mortgages ($417,000 or less) moving up 7 basis points to 4.23 percent.

Pending home sales aren’t doing any better than mortgage purchase apps, so looking like a no growth year for housing and cars:

Highlights

Pending sales of existing homes rose only 0.1 percent in October, pointing to flat results for the rest of the year in final sales. Pending sales in October were held down by weakness in the South that offset gains elsewhere. The resale market has been soft in contrast to new homes which are having a good year.

This is their forecast for tomorrow’s number. Note the large downward revision to last month’s release, which continued the downtrend as shown on the chart. Two things- First, this month’s number is subject to the same kind of revision. Second, the average of the last two months as reported today is just over 160,000 which keeps the pattern of deceleration intact:

Highlights

ADP has had a good year forecasting private payroll growth and its November estimate is very strong, at 216,000 which is far above Econoday’s consensus for 160,000. The 216,000 is nearly double ADP’s revised estimate for October of 119,000. Econoday’s consensus for Friday’s private payrolls is 155,000 with total nonfarm payrolls expected at 170,000.

And the jump in trade, transportation, and utilities looks a bit suspect as well:

Here it’s the income side that seems a bit suspect, especially with last month’s jobs report just getting revised lower. But in any case it continues to decelerate on a year over year basis. Also note the relative weakness in spending on services. As previously discussed, I expect goods will muddle through reasonably well from this point, as the macro weakness works its way through the service sector:

Highlights

A decline for services held down consumer spending in October, coming in at plus 0.3 percent vs Econoday’s consensus for 0.5 percent. Strong spending gains of 1.0 percent for durables (auto related) and 1.4 percent for nondurables (gasoline related) compare with a 0.2 percent decline for services. A partial offset is an upward revision to September’s consumer spending which now stands at a very strong 0.7 percent.

The income side is the best news in the October report, rising 0.6 percent to beat expectations by 2 tenths. An upward revision to September, now at plus 0.4 percent, is another positive. The wages & salaries component shows back-to-back gains of 0.5 percent which is very solid. And October spending would have been greater if not for savings as consumers moved their money into the bank with the savings rate up a sharp 3 tenths in the month to 6.0 percent.

Inflation data are showing some life with the total price index, boosted by energy, up 0.2 percent in the month with the year-on-year rate moving to a two-year high at 1.4 percent. But the core rate shows less life, up only 0.1 percent with the year-on-year rate unchanged at 1.7 percent.

Though the spending headline softens the look, the meat of this report is very solid as the strong jobs market is making for increasingly strong income gains and continued strength in spending.

Real disposable personal income continues to decelerate and has reached ‘stall speed’ vs prior recessions:

A bit of Trumpet blowing here, but note that employment went negative:

Highlights

The Chicago Fed’s business barometer is showing its volatility once again, surging 7 points in November to 57.6 to signal the strongest rate of monthly growth in nearly two years (since January 2015). New orders, as they have been in other early reports on November, are the center of strength with backlogs, which are often in contraction, once again building. Up-and-down is the theme of the report and a negative is employment which is back in reverse. Volatility aside, the report’s overall message is consistent with other advance data this month, that is a significant upturn in activity has followed the November 8 election.