Category Archives: Trade

Euro area trade, Greece comment

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The latest trade release is very euro friendly. The lower euro, forced down by selling and not by trade, has increased the euro area trade surplus and with sellers largely exhausted, the euro goes up until the trade surplus goes away..
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So Tsipras rejected this latest offer which, based on his earlier offer, indicates he wouldn’t even accept his own offer if the troika agreed to it, but would put it to a popular vote next week.

Note the restructure terms, for all practical purposes, are functionally equal to what could be called the debt forgiveness Tsipras wanted.

Juncker makes last-minute offer to Greece: Sources

By

June 30 (Reuters) — “The offer published on Sunday incorporated a proposal from Greece that would set value-added tax rates on hotels at 13 percent, rather than at 23 percent as originally planned in the lenders’ proposals. It was not immediately clear whether there would be any additional changes.

If the offer were accepted, the euro zone finance ministers could adopt a statement saying that a 2012 pledge to consider stretching out loan maturities, lowering interest rates and extending an interest payment moratorium on euro zone loans to Greece would be implemented in October.”

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Retail sales, business inventories, import/export chart

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Sales up to higher gas prices is nothing to brag about:

Retail Sales
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Highlights
The consumer showed a lot of life in May, driving up retail sales 1.2 percent with gains sweeping nearly all components. A leading component in the month was motor vehicle sales which jumped 2.0 percent, excluding which retail sales still rose a very strong 1.0 percent. Another component showing special strength was gasoline sales which got a boost from higher prices. Still, excluding both of these components, retail sales ex-auto ex-gas gained a very solid 0.7 percent. These results offset weakness in April, when total sales rose only 0.2 percent (upward revised from no change).

In contrast to weakness through most of the April report, there’s only one component showing contraction in May and that’s the usually solid health & personal care stores at minus 0.3 percent. Standouts on the plus side, apart from vehicles and gasoline, are building materials & garden equipment stores, up 2.1 percent, clothing & accessories stores, up 1.5 percent, and nonstore retailers, up 1.4 percent. Department stores, which sank a steep 2.9 percent in April, rebounded with a 0.8 percent gain.

The long awaited rebound from the soft first quarter is finally here. Today’s results will have forecasters upping their estimates for second-quarter GDP. These results will also be a key point of discussion, especially in arguments by the hawks, at next week’s FOMC meeting.

See the move up since the decline earlier in the year January? The analysts are looking at those last few months and calculating the growth rates of just that segment and saying that’s how fast the economy is growing, etc:
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The % change year over year chart doesn’t look so good:
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Same with vehicle sales. Yes, ‘new highs’ but the growth is slowing, which is what counts when calculating year over year growth of the economy:
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All the talk about this showing where the money saved on gas was being spent has dried up:
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Inventories remain elevated. Unsold inventory most often leads to a slowdown in output:

Business Inventories
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Highlights
Inventories are rising in line with sales, pointing to well-balanced strength for second-quarter GDP. Business inventories rose 0.4 percent in April, just below a strong 0.6 percent in business sales and leaving the stock-to-sales ratio unchanged at 1.36.

Of the report’s three components, retail shows a slight imbalance with inventories jumping 0.8 percent against only a 0.1 percent rise in sales that lifts the sector’s stock-to-sales ratio to 1.46 from 1.45. But this is likely to reverse in the May inventory report given the enormous strength in this morning’s retail sales report for May.

Looking at the other two components, inventories at wholesalers are a little leaner than they had been, at a stock-to-sales ratio of 1.29 vs 1.30, while manufacturers are a little less lean, at 1.35 vs 1.34.

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Redbook retail sales, small business index, QE comment, wholesale trade, jolts

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Getting worse instead better in Q2:
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It’s up which is good, but not even back to q1 January high and below historic ‘good economy’ levels:

NFIB Small Business Optimism Index
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Highlights
The small business optimism index came in well above expectations, at 98.3 for a very solid 1.4 point gain from April’s 96.9 and compared with the Econoday consensus for 97.2. The gain is centered right where small business owners need it the most, in earnings trends. The gain here in turn is lifting the small business outlook with more saying this is now a good time to expand. The outlook on the general economy is also up as are job readings. This report hints at the big second-quarter rebound that many have been expecting.
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Calculated Risk:

From the National Federation of Independent Business (NFIB):Small business optimism level is finally back to a normal level

The Index of Small Business Optimism increased 1.4 points to 98.3 … May is the best reading since the 100.4 December reading but nothing to write home about. The 42 year average is 98.0 … Eight of the 10 Index components posted improvements.

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QE comment:

This gets to the bottom it- if the total number of securities outstanding remains unchanged, QE has done nothing apart from removing about $100b of interest income from the economy each year and maybe some repricing of financial assets. That is, at the macro level portfolios can’t be increasing risky assets if the total isn’t increasing:

Antonin Jullier, global head of equity trading strategy at Citi, told CNBC Tuesday that the bond-buying policies implemented by central banks including the Federal Reserve and European Central Bank had had a detrimental effect.

“The lack of liquidity is coming from QE, it’s one of the consequences…it’s sucking it out,” he said.

The aggressive stimulus was “one-sided,” according to Jullier, who said it was increasing valuations of securities, but not producing more stock flotations or capital increases.

“The net inventory of securities has actually been flat for years now. So there are no new securities available,” he added, calling it a period of “de-equitization.”

Inventories up more than expected which adds to Q2 GDP, but it’s still an inventory build and the inventory/sales ratio is still too high historically, which doesn’t bode well for production. The sales growth is a positive but a small rebound from prior declines, which is good for Q2 vs /Q1, but it’s an April read with 2 months to go.

Wholesale Trade
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Highlights
Inventories relative to sales lightened up in the wholesale sector during April with inventories up 0.4 percent but far below a giant 1.6 percent surge in sales. The stock-to-sales ratio edged down to 1.29 from 1.30. Autos, where sales have been strong, show a sizable decline in the stock-to-sales ratio as do farm products, furniture, computer equipment, and electrical goods. All these categories, like autos, show strong sales gains in the month.

Early indications on second-quarter inventories have been favorable with the risk of overhang, evident in the first quarter, now easing. Watch Thursday for the business inventories report which will round out related data for April.

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And this doesn’t say much for construction prospects:
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Another mixed bag with openings higher but actual hires pretty much flat as were quits:

Job Openings and Labor Turnover Summary

The number of job openings rose to 5.4 million on the last business day of April, the highest since the series began in December 2000, the U.S. Bureau of Labor Statistics reported today. The number of hires was little changed at 5.0 million in April and the number of separations was little changed at 4.9 million. …

Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. … There were 2.7 million quits in April, little changed from March.

Hires may have even peaked:

JOLTS
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Highlights
The hawks have something to talk about with the April JOLTS report where job openings surged to 5.376 million, far above the Econoday consensus for 5.038 million and the high estimate at 5.050 million. This is the highest reading in the history of the series going back to 2000. Year-on-year, openings are up an eye-popping 22 percent!

And the report includes a big upward revision for March, to 5.019 million vs an initial 4.994 million. April’s job openings rate rose to 3.7 percent from 3.5 percent.

This report will boost talk among the hawks that slack in the labor market is evaporating and that employers will have to raise wages to fill positions. Other readings include a tick lower for the quits rate, to 1.9 percent, and a tick lower for the separations rate, to 3.5 percent from 3.6 percent.

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And you can see how much of a lagging indicator this stuff can be:
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Labor market index, Container index

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Labor Market Conditions Index
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Highlights
Labor market conditions are improving with the index rising to plus 1.3 in May vs an upward revised minus 0.5 percent in April. The gain underscores Friday’s very strong employment report as well as the long run of very favorable jobless claims reports. Still, 1.3 isn’t that strong of a reading and doesn’t point to any urgency for a Federal Reserve rate hike. This index measures a broad range of labor indicators.

From Asia to America and Europe:
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mtg purch apps, ADP, Trade, ISM, Atlanta Fed

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Another setback, still up some year over year but all cash purchases are down quite a bit as well:

MBA Mortgage Applications
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Highlights
Application activity is sputtering with MBA’s composite index down a very steep 7.6 percent in the May 29 week for a 6th straight decline and the steepest decline since February. Purchase applications fell 3 percent in the week but are still up a respectable 14 percent year-on-year. Refinancing applications fell 12.0 percent in the week to their lowest level since May last year. Refinancing demand has been especially hurt by this year’s rise in interest rates though rates were down in the latest week, with the average 30-year mortgage for conforming loans ($417,000 or less) down 5 basis points to 4.02 percent.

Note the chart below, which doesn’t show much of a recovery from Q1:

ADP Employment Report
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Highlights
ADP estimates that private payrolls rose a moderate 201,000 in May which is right at the Econoday consensus for 200,000. For comparison, the consensus for private payroll growth in Friday’s employment report is a bit higher, at 215,000 with the low estimate at 185,000. ADP sometimes does and sometimes does not correctly anticipate the employment report having last month signaled weakness in what turned out to be a respectable report for April.
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The chart shows how non petroleum imports continued to rise sharply, and the May auto sales report which includes imports looks to continue to support that up trend. Petroleum imports show a lot of month to month volatility so they could very well be up substantially for the rest of the quarter, as prices were higher and US production is being forecast to decline due to the sharp drop off in drilling. So look for the US trade gap to widen, partly because of the dollar strength and partly because of fading exports and rising oil imports due to domestic production declines. The trade flows are now working against the dollar and in favor of the euro, which is being supported by a large and growing trade surplus.

International Trade
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Highlights
Second-quarter GDP looks to be getting a lift by a decline in imports, at least it will in April when the trade gap eased to $40.9 billion. The gap is on the low side of Econoday expectations and compares with March’s outsized revised gap of $50.6 billion which was distorted by a spike in imports tied to the resolution of the first-quarter port strike. Imports fell 3.3 percent in April to $230.8 billion at the same time that exports, in another positive for GDP, showed some life, up 1.0 percent to $189.9 billion.

Consumer goods show the strongest improvement on the import side, down $4.9 billion in the month and reflecting a $1.3 billion decline in cell phones as well as declines for apparel and furniture. Imports of capital goods, industrial supplies, and autos also fell. Imports of petroleum products rose $0.2 million to $15.4 billion, more than offset by a $0.9 billion rise in petroleum exports to $8.6 billion.

Strength in exports also includes capital goods, up $2.1 billion with civilian aircraft representing nearly half the total. Exports of industrial supplies and autos were also higher.

Another plus in the report is another gain for the nation’s services where the trade surplus rose to $19.8 billion from $19.4 billion in March.

Country data show a sharp easing in the gap with China, to $26.5 billion vs March’s $31.2 billion, and improvement with Mexico, to a gap of $4.4 billion vs $5.5 billion in March. The gap with Europe widened slightly to $13.3 from $12.7 billion while the gap with Japan was unchanged at $7.1 billion.

The decline in imports was of course expected given the special circumstances in March, but the gain for exports is very positive suggesting an easing in dollar-related troubles and perhaps pointing to some life in foreign demand. Today’s report includes annual revisions which increased deficits for 2013 and 2014.
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Again, the chart shows it’s not as strong as it was in q1, which means it’s contributing less growth in q2 than it did in q1, and it’s also no where near the strength of q2 2014:

ISM Non-Mfg Index
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Highlights
The ISM non-manufacturing index for May, at 55.7, came in solid but at the low end of Econoday expectations to indicate the slowest rate of monthly growth since April last year. Key readings all slowed slightly but are still very constructive with new orders at 57.9 and business activity at 59.5. Employment also slowed, down 1.4 points to 55.3 which is still a respectable rate.

Other details include a jump in exports, up 6.5 points to 55.0 in a reading that underscores this morning’s big service-sector surplus in the April trade report. Supplier delivery times, which had been slowing all year, were unchanged in May suggesting, also like this morning’s trade report, that supply-chain distortions tied to the first-quarter port strike have unwound. Input prices, likely tied to higher fuel costs, show some pressure, up 5.8 points to a 55.9 reading that’s the highest since August last year.

A look at individual industries shows special strength for arts/entertainment/recreation and management & support services, the latter one of the strongest export industries for the nation. And in the latest hint of strength in the housing sector, both real estate and construction show strength. The only one of 18 industries to contract in the month was, once again, mining which is being hurt by low commodity prices.

The dip in employment won’t be boosting expectations for Friday’s employment report and the hawks at the Fed are certain to take note of the rise in prices. But in sum, this report is mostly positive and in line with the PMI services index released earlier this morning, both pointing to modest deceleration in what is otherwise the economy’s central strength – the service sector.
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The Atlanta Fed GDP forecast for Q2 is up to 1.1% annualized, which would be a shockingly low follow up to Q1’s -.7. And, as above, there’s a good chance May’s trade number goes the other way, sending the GDP forecast back down:
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Saudi output, Greek statement, EU pmi

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Saudi output up a bit. As they post prices and let their refiners buy all they want at those prices, this shows demand is up a bit, likely because of a supply disruption elsewhere, like Libya, for example:
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As suggested all along:

In an interview with Realnews newspaper published on Saturday, Economy Minister George Stathakis said Athens had no alternative plan.

“The idea of a Plan B doesn’t exist. Our country needs to stay in the eurozone but on a better organized aid program,” he said.

Stathakis was confident a deal will be reached. “Otherwise, mainly Greece but the European Union as well will step into unchartered waters and no-one wants that.

Note the improvement in exports, with the current account surplus already strong. This is the opposite of the US, and caused by the liquidation of euro reserves by foreign central banks, whose selling drove the euro down to the point the current account surplus expanded to absorb it. As the selling subsides the CA surplus will continue until the euro goes high enough to eliminate it:

European Union : PMI Manufacturing Index
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Highlights
The final manufacturing PMI for May showed a minimal 0.1 point downward revision to its flash estimate to 52.2. This matched the 10-month high registered in March and was 0.2 points firmer than the final April print.

Manufacturing production expanded again, albeit at a slightly slower rate than last time, and both overall new orders and new export business improved suggesting that growth should be sustained over coming months. Increased demand was reflected in a rise in backlogs and also contributed to a ninth consecutive gain in the sector’s headcount.

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Atlanta Fed, LA port traffic, EU trade surplus, German ZEW, housing starts, redbook retail sales

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No positive change here yet:
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This was supposed to rebound:

LA area Port Traffic Decreased in April

By Bill McBride

May 18 (Calculated Risk) — Note: LA area ports were impacted by labor negotiations that were settled on February 21st. Port traffic surged in March as the waiting ships were unloaded (the trade deficit increased in March too), and port traffic declined in April.

Container traffic gives us an idea about the volume of goods being exported and imported – and usually some hints about the trade report since LA area ports handle about 40% of the nation’s container port traffic.

The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).

To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average.

On a rolling 12 month basis, inbound traffic was down 0.2% compared to the rolling 12 months ending in March. Outbound traffic was down 1.1% compared to 12 months ending in March.

Inbound traffic had been increasing, and outbound traffic had been moving down recently. The recent downturn in exports might be due to the strong dollar and weakness in China.

The 2nd graph is the monthly data (with a strong seasonal pattern for imports).

LA Area Port TrafficUsually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March (depending on the timing of the Chinese New Year).

Imports were down 2% year-over-year in April; exports were down 11% year-over-year.

The labor issues are now resolved – the ships have disappeared from the outer harbor – and the distortions from the labor issues are behind us. This data suggests a smaller trade deficit in April.
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Strong number.

Currencies with trade surplus don’t ordinarily go down…
;)

European Union : Merchandise Trade
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A bit on the weak side, to say the least, and even with negative rates and QE…
;)

Germany : ZEW Survey
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Solid improvement here. First good number in quite a while.
The 5 month average is almost back to where it was in November…

United States : Housing Starts
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Highlights
There were hardly any indications before today, but the spring housing surge is here. Today’s housing starts & permits report is one of the very strongest on record with starts soaring 20.2 percent in April to a much higher-than-expected annual rate of 1.135 million with permits up 10.1 percent to a much higher-than-expected 1.143 million. Both readings easily top the Econoday high-end forecast of 1.120 million for each. The gain for starts is the best in 7-1/2 years with the gain in permits the best in 7 years. Today’s report is an eye-opener and will re-establish expectations for building strength in housing, a sector held down badly in the first quarter by severe weather.
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Half way through May and this one isn’t bouncing back:

United States : Redbook
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sea container counts, state labor force stats, mtg purchase apps, existing home sales, FHA home prices, Japan headline

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March 2015 Sea Container Counts Are Not Strong Even Though the Labor Troubles Are Over

By Steve Hansen

The West Coast Ports labor dispute is over, and appears the backlog has been eliminated causing a spike in exports. However, not only is year-to-date volumes contracting for both imports and exports – but March exports are contracting month-over-month and year-over-year. This is indicating weak economic conditions domestically and globally.

U.S. March Labor Force Comparison Statistics (Table)

By Chris Middleton

April 21 (Bloomberg) — Following is a comparison of U.S. labor force figures as reported in the national employment situation release and the monthly regional and state employment report. Total state figures are calculated by Bloomberg News.

Each state series is subject to larger sampling and nonsampling errors than the national series. Summing them compounds the state level errors and can cause significant distortions at the aggregate level. Due to these statistical limitations, the Bureau of Labor Statistics does not compile a “sum-of-states” employment series and cautions users that such a series is subject to a relatively large and volatile error structure.
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Oil States See Slumping Employment as Texas Loses 25,000 Jobs in March

April 21 (WSJ) — While the U.S. economy continued to add jobs last month, states that rely heavily on the oil industry experienced significant cuts. Job losses hit particularly hard in Texas (down 25,400 jobs) and Oklahoma (down 12,900), leading the nation in losses. North Dakota lost 3,000 jobs, a significant cut in such a small state. All told, 31 states and Washington, D.C., saw a drop in employment in March, and only 18 states saw employment rising. The broad deterioration was a reversal from February, a month in which only 13 states saw decreases and 36 states and D.C. saw an increase.

Purchase apps up some from still very depressed levels, but cash sales have been falling so total sales not necessarily higher.

And year over year up but last year’s sales were even more depressed by the exceptionally cold winter.

MBA Mortgage Applications
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Highlights
Mortgage applications for home purchases have definitely been showing life this spring, up 5.0 percent in the April 17 week. This is the 4th increase in 5 weeks. Helping purchase demand are low rates, down 4 basis points in the week to an average 3.83 percent for conforming loan balances ($417,000 or less). Low rates, however, aren’t doing much to stimulate refinancing demand with this index up only 1.0 percent in the week. Watch for existing home sales later this morning at 10:00 a.m. ET.
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Up a bit more than expected, but still depressed as well. And few distressed sales raise the median price so a ‘quality adjusted’ price would be more informative. And with the last slowdown coincident with a rate spike maybe the Fed isn’t ready to risk that again?

Existing Home Sales
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Highlights
This winter’s heavy weather may very well have held down the housing market which appears to be heading into the spring with new momentum. Existing home sales surged 6.1 percent in March to a 5.190 million annual rate. This is near high-end expectations and the best rate since September 2013. In percentage terms, the 6.1 percent gain is the strongest since December 2010 and among the very highest in the 16-year history of the series.

Sales of single-family homes jumped 5.5 percent in the month to a 4.590 million rate while condos really jumped, up 11.1 percent to a 600,000 rate. All regions show solid gains in total sales led by the Midwest at 10.1 percent with the South at the rear, though still up a solid 3.8 percent.

Price data all show strength with the median price up a very strong 5.1 percent to $212,100. Year-on-year, the median is up 7.8 percent for the best reading since February last year. This is a bit below the year-on-year sales rate of 10.4 percent which hints at further pricing power ahead.
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Again, I’d like to see what this looks like excluding distressed sales:

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Bank of Japan to cut fiscal 2015 inflation forecast

April 1 (Nikkei) — The Bank of Japan is considering lowering its 1% inflation forecast for fiscal 2015 amid the continued slump in oil prices and a slow recovery in domestic consumption.

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wholesale trade

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Not that it matters but another bad release:

Wholesale Trade
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Highlights
Inventories relative to sales in the wholesale sector remained bloated for a 2nd straight month in February, up 0.3 percent vs a decline of 0.2 decline in wholesale sales. The mismatch keeps the stock-to-sales ratio unchanged at 1.29, which is the highest reading since the recession period of June 2009.

Revisions to January are even more unfavorable with the inventory build revised 1 tenth higher to plus 0.4 percent and sales revised even lower to minus 3.6 percent from an initial minus 3.1 percent. January, reflecting a huge price-related downswing in petroleum products, was the worst month for wholesale sales since March 2009.

But it’s more than any one sector as sales declines in the 2 months are spread out broadly through components. Pulling February down the most were electrical goods, machinery, and metals, all pointing to weakness in the industrial economy, weakness perhaps related to declining exports. Wholesale sales of autos were also weak. All these components show bloated gains in their stock-to-sales ratios.

The wholesale sector is the intermediary between manufacturing and retailing, and the signals it is sending tell of weakening demand on the retail side and point to slowing production on the manufacturing side. These of course are negative signals for future employment growth. Watch for the business inventories report on Tuesday which will include an inventory update out of retailing.

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Trade, factory orders, rail traffic, Japan PMI

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Imports and exports both down.

Note the last two time this happened in any magnitude sort of match up to the last two recessions:

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February 2015 Trade Data Shows a Mixed Picture of the Economy

By Steven Hansen

Written by Steven Hansen

A quick recap to the trade data released today shows a mixed picture. The unadjusted value of export three month rolling averages accelerating month-over-month, while imports decelerated. Many care about the trade balance (which was better than last month and well above expectations), but trade balance simply has little correlation to economic activity. Likely much of the soft data is due to the West Coast ports labor issues.

Factory Orders
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After 6 straight declines, factory orders finally moved to the plus column, up 0.2 percent in a February gain, however, that is tied largely to an upward price swing for petroleum and coal products. Another mitigating factor is a sharp downward revision to January orders, to minus 0.7 percent from minus 0.2 percent.

Durable goods show broad weakness with orders down 1.4 percent in data initially posted last week. Most readings show significant declines and underscore this morning’s export dip in the international trade report and the Fed’s concerns over weak export markets and the negative effects of the strong dollar. Core capital goods are down 1.1 percent in the month for a 6th straight decline in a reading that points to a lack of business confidence and business investment.

Total shipments bounced back 0.7 percent in February but follow a 2.3 percent plunge in January and which holds down factory contribution to first-quarter GDP. A clear negative is a 3rd straight decline for unfilled orders, down 0.5 percent for what is now the weakest string since way back in the recession days of late 2009. A lack of unfilled orders will not encourage manufacturers to add to their workforces. One positive is inventories which are less heavy, up only 0.1 percent and bringing down the inventory-to-shipments ratio to 1.35 from January’s recovery high of 1.36.

The main positive in today’s report is the non-durables component where a 1.8 percent gain ends 7 straight declines, declines all tied to oil-price effects. But the weakness in durables, tied to foreign demand, is becoming a significant negative for the economic outlook.
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February 2015 Manufacturing Mixed. Rolling Averages Remain in Contraction.

By Steven Hansen

US Census says manufacturing new orders improved. Our analysis agrees – and even the headline year-over-year growth declined from last month. The data has been soft for a half a year. Consider that this data is noisy – and the rolling averages (which include transport) remain in contraction territory. Unfilled orders are shrinking (year-over-year). Transport was soft this month.

Rail Week Ending 28 March 2015: Month Ends with Contraction Year-over-Year

Econintersect — Week 12 of 2015 shows same week total rail traffic (from same week one year ago) again declined according to the Association of American Railroads (AAR) traffic data. Intermodal traffic, which accounts for half of movements, is now strongly growing year-over-year – but weekly railcar counts remain in contraction. Rail traffic is surprisingly weak.

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Highlights
The March business activity index reading was below the crucial 50 no change mark for a second consecutive month, signaling deterioration of the service sector. The reading was 48.4. New orders stagnated with service providers continuing to reduce their staffing numbers albeit at a slight pace. Meanwhile, cost pressures were evident, as purchasing costs increased and at a faster rate than the previous month. Although only moderate, the rate of contraction was faster than the average since the higher sales tax was implemented in April 2014.

Panelists mentioned a slowdown in sales volumes and a fall in contracts leading to the latest decline in activity. Meanwhile, latest data highlighted a weaker improvement of output in the Japanese manufacturing sector. The composite output index posted at 48.4, indicating a slight contraction in overall activity.

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