Category Archives: Uncategorized

Personal income and spending, Pending home sales

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Personal income growth remains weal as per the charts, which also showed a sharp drop in the personal savings rate, which generally forecasts reductions in spending:

Highlights

Vital signs for the consumer are strong but inflation is completely lifeless, based on a mixed personal income & outlays report for July. Income is the highlight, up 0.4 percent in the month including a second straight 0.5 percent gain for wages & salaries in what is an important and emerging sign of wage traction.

Consumer spending rose 0.3 percent in the month, 1 tenth below expectations as spending on services managed only a 0.2 percent gain to offset strength for durables, up 0.6 percent, and non-durables, up 0.5 percent. The spending gain represents a moderate start for the major component of third-quarter GDP.

Inflation readings, however, remain a major trouble spot, up only 0.1 percent both overall and for the core (less food & energy). Year-on-year rates are 1.4 percent both overall and for the core, the latter edging down 1 tenth in a result that won’t be raising the odds for the beginning of balance-sheet unwinding at September’s FOMC meeting.

Employment is very strong and may finally be reflected in strength in wages, but gains here have yet to boost inflation readings which in this report are central to Federal Reserve policy. Nevertheless, the gain in income will put the focus on average hourly earnings for August in tomorrow’s employment report which, however, are not expected to show much strength.


Below stall speed:


Consumers are both dipping into savings to spend and slowing the growth of their borrowing as well- an historically unsustainable combination:

Low personal income growth and a consumer that’s been spending out out of savings even as consumer credit growth slows can quickly translate into a further reduction of spending:


Further confirmation of weakness in real estate sales:

Highlights

For the fourth time in five months the pending home sales index fell, down 0.8 percent in July to signal weakness for existing homes sales which have fallen in three of the last four reports. The regional breakdown shows the South, which is the largest housing region, falling 1.7 percent in the month with the West, at plus 0.6 percent, the only one in positive ground. Pending sales take about a month or two to close which points to trouble for both the August and also the September existing home sales reports. Housing opened the year with strength before fizzling during the Spring selling season and limping through the Summer months. Also note that Hurricane Harvey is certain to depress home sales in the South in coming housing reports.

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Mtg applications, GDP, Personal savings, Corporate profits, ADP employment, Federal tax reciepts

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Purchase applications were down again, as housing weakness reflects the drop in the growth of mortgage credit:

Highlights

Low mortgage rates are failing to entice home buyers, whose activity declined for the third straight week according to the Mortgage Bankers’ Association. Purchase applications for home mortgages fell a seasonally adjusted 3.0 percent in the August 25 week following 2 percent declines in the two prior weeks. Unadjusted, the purchase index decreased 5 percent from the prior week, taking it to a level only 4 percent higher than in the same week a year ago, well off the 8 plus percent gains seen in previous weeks this year. Applications for refinancing fell 2 percent from the prior week, with the refinance share of mortgage activity rising by 1.2 percentage points to 49.4 percent. The average interest rate on 30-year fixed rate mortgages ($424,100 or less) fell 1 basis point 4.11 percent, the lowest rate since November 2016. Three weeks of falling purchase applications is a worrisome development for the housing market, which may be accelerating its retreat from expansion highs, especially following the evidence of July weakness submitted in last week’s housing data, showing monthly declines in sales for both new and existing homes.

So the question is, how is GDP coming in at 3% while credit growth has collapsed and personal income growth has evaporated as well? A partial answer may be the personal savings rate, which has not only gone down, but total net personal savings seems to have declined as well. This is most likely unsustainable, and likely to very quickly translate into a further substantial decline in personal spending.

Also, prices pressures were very weak, indicating low demand, which seems contradictory. But close examination shows health care premiums for various private plans, which count as personal consumption, were up by 25%, and utility bills were high as well, leaving less for spending on other goods and services:

Highlights

The second-quarter proved to be very solid, revised 4 tenths higher in the second estimate to a 3.0 percent annualized rate. And strength is centered where it must be as consumer spending is now at a 3.3 percent rate for a 5 tenths upward revision.

Non-residential investment was also a positive, at a 6.9 percent rate following the prior quarter’s 7.2 percent showing. Residential investment, however, was a drag on the second quarter, at a negative 6.5 percent rate that followed a positive 11.1 percent rate in the first quarter. Government purchases were negative for a second straight quarter, at minus 0.3 percent following a minus 0.6 percent first-quarter showing. Both second-quarter net exports and inventories were slightly positive.

But prices were very weak in the quarter, at a 1.0 percent rate overall and 1.1 percent for the core. Inflation aside, the second quarter marked a solid though not exceptional reversal of the first quarter’s 1.2 percent pace and points to constructive momentum going into the third quarter.

The increased cost of health insurance is a central fact in any discussion of health policy and health delivery. Annual premiums reached $18,142 in 2016 for an average family, up 3 percent from 2015, with workers on average paying $5,277 towards the cost of their coverage.* For those Americans who are fully-covered, these cost realities affect employers, both large and small, plus the “pocket-book impact” on ordinary families. Yet for those buying insurance on an exchange or private market plan for 2017, the average increase before subsidies was a shocking 25 percent. For 2016 among the roughly 85 percent of HealthCare.gov consumers with premium tax credits, the average monthly net premium increased just $4, or 4 percent, from 2015 to 2016, according to an HHS report.

* Figures reported by Kaiser Employer Survey, 9/2016, apply to employer-based insurance.
http://www.ncsl.org/research/health/health-insurance-premiums.aspx


Yes, the growth rate is reasonable, but it’s currently measured from the dip that took place after oil capex collapsed. Total profits are now only back to where they’ve been for quite a while and have most recently flattened out:

Highlights

Corporate profits rose 8.1 percent year-on-year in second-quarter 2017 to an annualized $1.785.9 trillion from $1.652.1 trillion in second-quarter 2016. Profits are after tax without inventory valuation or capital consumption adjustments.

Highlights

ADP is calling for a 237,000 rise in August private payrolls for Friday’s employment report where Econoday’s consensus is 179,000. ADP’s predictive accuracy has been on-and-off this year with their call for July, at an initial 178,000 which is now revised to 201,000, well below the actual 205,000.

Looks to be slowing as well:

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Trade, SUV’s, Redbook retail sales, Trump and Harvey

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No ‘improvement’ here:

Highlights

Third-quarter GDP is off to a slow start, at least for international trade in goods where the July trade gap widened more than $1 billion to $65.1 billion. Exports fell 1.3 percent and were pulled down by a sharp fall in vehicles and also consumer goods which are two weak categories for the US. Helping to ease the effect of exports was a 0.3 percent decline in imports where foreign vehicles, which are usually in strong demand, fell 2.8 percent while industrial supplies were down 1.7 percent. July’s trade report including services will be posted next week.


Definitely looking up, but, again, might be due to fewer stores?

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Durable goods orders, Vehicle sales, Credit check

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Nothing impressing me here, as per the chart:

Highlights

Durable goods orders came in as billed with a steep aircraft-related decline for the headline, at minus 6.8 percent, contrasting with solid gains for ex-transportation at 0.5 percent and core capital goods (nondefense ex-aircraft) at 0.4 percent. A special plus in the report, and one that will lift GDP, is a sharp pickup in shipments of core capital goods, up 1.0 percent in July with June revised 2 tenths higher to 0.6 percent.

Total shipments rose 0.4 percent with inventories keeping a balanced pace, up 0.3 percent. A negative in the report is a 0.3 percent decline in unfilled orders that follows, however, June’s 1.3 percent surge.

For aircraft, which has picked up this year, orders fell 82 percent in July vs June’s enormous 227 percent jump. Orders for defense aircraft, up nearly 50 percent, are a positive in July’s data as is electrical equipment, up 2.6 percent in a good sign for construction. Computers and fabricated metals also show gains. Negatives include a 1.2 percent order decline for vehicles that follows a 0.7 percent decline in June and a 1.4 percent decline for machinery orders that belies the month’s strength for core capital goods.

But positives are definitely the theme of today’s report, one that helps offset last week’s unexpected decline in manufacturing production and supports the enormous strength being signaled by advance regional reports. The economy may very well get a solid second-half boost from what has been an improving factory sector.

Nothing good here either:

From WardsAuto: Forecast: U.S. Auto Market Continues Downward Trend in August

A WardsAuto forecast calls for U.S. automakers to deliver 1.51 million light vehicles in August. … The report puts the seasonally adjusted annual rate of sales for August at 16.5 million units, below the 17.1 million SAAR in same-month 2016 and 16.7 million in prior-month 2017.
…
Light-vehicle inventory stood at 3.86 million units at the end of July, up 9.4% from year-ago and about 15% higher than necessary with current sales rates. The streak of record-high stock is expected to continue with 3.8 million units at the end of August, 7.5% greater than same-month 2016. This will leave automakers with a 69 days’ supply, same as prior-month, but well above year-ago’s 62. Slowdowns in production and higher sales incentives through September are expected to narrow the gap between supply and demand.

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

With each data release it seems more likely to me that the deceleration in the growth of borrowing from the banks is reflecting a drop in aggregate demand:

Growth of C and I loans has been near 0 since the election:


Loans create deposits, so here it is from a segment of the deposit side. M2 includes M1 which is directly affected by the size of the Fed’s portfolio and QE, however those variables have been largely unchanged for the time period of this chart:

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Tax proposals, New home sales, PMI surveys, Architecture Billings Index

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Seems to me the highlighted proposals will reduce spending more than the cut in tax rates will increase spending:

Trump’s team and lawmakers making strides on tax reform plan

Aug 22 (Politico) — President Trump’s top aides and congressional leaders have made significant strides in shaping a tax overhaul. There is broad consensus on some of the best ways to pay for cutting both the individual and corporate tax rates. The options include capping the mortgage interest deduction for homeowners; scrapping people’s ability to deduct state and local taxes; and eliminating businesses’ ability to deduct interest, while also phasing in so-called full expensing for small businesses that allows them to immediately deduct investments like new equipment or facilities. One idea would be taxing the money that workers place into their 401(k) savings plans up front.

Weak, inline with permits and decelerating mortgage credit growth:

Highlights

Overstating weakness, July’s headline for new home sales fell to a far lower-than-expected annualized rate of 571,000. This is offset, however, by upward revisions totaling 33,000 in the two prior months which now stand at 630,000 and 618,000. This series, where sample sizes are low, is often volatile month-to-month with the 3-month average, still over 600,000 and just off expansion highs, telling the more reliable story.

The best news in July’s report is an increase in supply, up 4,000 to 276,000 new homes on the market. Relative to sales, supply moves from 5.2 months to 5.8 months which is nearly at the 6 month mark which is widely considered to be balanced for new homes.

Prices are showing increasing traction, up 0.7 percent in the month to a median $313,700. This is up 6.3 percent year-on-year which is roughly in line with prices of existing homes.

The strength in pricing is good news for residential investment but not for first-time buyers who are being priced out of the new home market. The downdraft in July’s data aside, new homes are probably still a positive for the housing sector which has been trending higher in fits and starts all year. Watch tomorrow for existing home sales where strength is the expectation.


Today’s survey information:

Highlights

Weakness in manufacturing, at 52.5, is being offset this month by strength in services, at a very strong score of 56.9. The two make for a PMI composite of 56.0. New orders for the services sample are at a 2-year high with hiring also very strong. Input costs for service providers are up as are, in especially positive news, selling prices which are at a nearly 3-year high.

Selling prices for manufacturers are also higher this month with input costs also up. Order growth, however, is slowing as is production. Inventory build is also slowing.

These results are mixed with the slowdown in manufacturing a concern especially following last week’s surprise dip in manufacturing production.


Down a bit, low and going nowhere:

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House prices, Redbook retail sales, NY Fed survey

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Home prices may be softening, but too soon to tell:

Highlights

The FHFA house price index came in at a very soft 0.1 percent increase in June, well short of Econoday’s consensus for 0.5 percent and low estimate of 0.3 percent. This is both good news and bad news, as slowing price appreciation should help affordability for home sales but will also limit growth in household wealth. Despite June’s weakness, year-on-year prices remain very strong, at plus 6.5 percent which is nearly a percentage point above Case-Shiller’s data. Watch on next week’s calendar for June data from Case-Shiller.


This has definitely come back from the lows, though there are likely fewer stores reporting, and this series is not adjusted for inflation:

U.S. workers have low hopes for higher pay

Aug 21 (Reuters) — A New York Fed survey found that on average respondents said in July that the lowest annual salary they would accept in a new job would be $57,960, down from $59,660 only four months earlier. Asked what salary they expected in job offers over the next four months, the average response declined to $50,790 from $54,590 when the last survey was taken in March. The survey also showed 22.7 percent of respondents searched for a job in the last four wees, up from 19.4 percent in the previous report. The respondents saw a 22 percent likelihood of receiving at least one job offer in the next four months, down from an average response of 25 percent eight months ago.

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Credit check, Rig count, Consumer sentiment, Romney comment, Pollak comment

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More of same:

More evidence this has stabilized and maybe reversed:


Expectations up, current conditions down:

Highlights

Consumer sentiment unexpectedly burst higher in the August flash but the results, warns the report, do not fully reflect the impact of the weekend’s violence in Virginia. The index rose to 97.6 which is well over Econoday’s high estimate and the strongest reading since the post-election surge in January. But the report said “too few” interviews were conducted after the violence and that related fallout may reverse expectations especially for Republicans.

Details of the August flash show an 8.5 point jump in the expectations component to 89.0 with, however, the current conditions component lagging with a 3.4 point decline to 111.0. The step back for current conditions is not a favorable indication for consumer activity in the month of August. And in a negative for Federal Reserve policy makers, inflation expectations are very subdued, unchanged at 2.6 percent for the 1-year outlook and down 1 tenth for the 5-year outlook at 2.5 percent.

Recent History Of This Indicator

Unlike the consumer confidence index which is holding steady near 20-year highs, the consumer sentiment index has been falling back, down more than 5 points from its highs early in the year to 93.4 in July. Econoday’s consensus for the preliminary August report is calling for a moderate rebound to 94.0. July showed continued strength in current conditions but a noticeable slowing in expectations in a divergence that hints at year-end erosion for the headline index.

Mitt Romney urges Trump to apologize for Charlottesville reaction

“I think there’s a fear among conservatives that with Steve Bannon gone, essentially the Trump administration could become in all but name a Democratic administration,” Pollak said.

Steve Bannon plans to go ‘thermonuclear’ on White House officials: Axios

Carl Icahn drops out of presidential advisory role

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Industrial production, Trump comments

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Worse than expected, but modest growth from depressed levels.

Highlights

The Federal Reserve inadvertently released what is a weak July industrial production report about a 1/2 hour early this morning. Headline production rose 0.2 percent vs expectations for 0.3 percent with manufacturing output showing outright contraction, at minus 0.1 percent vs Econoday’s consensus for a 0.2 percent gain. Capacity utilization hit expectations at 76.7 percent.

A 3rd straight decline in motor vehicles, down 3.6 percent in July, held down the month’s production. Excluding vehicles, manufacturing rose 0.2 percent. But also not helping were business equipment, down 0.5 percent in the month, and construction supplies, down 0.4 percent. On the plus side with small gains are consumer goods, materials, and non-industrial supplies.

Outside of manufacturing, mining posted a 4th straight solid gain, at 0.4 percent, with utilities swinging higher with a 1.6 percent July increase.

This report, which is the first definitive look at July’s factory sector, is unexpectedly flat and puts an end to the run of recently strong economic data. Strength in sentiment surveys like this morning’s Philly Fed do not always match the real world. Vehicle sales were up in July but it has been a tough year for the sector. And given the decline in this report’s manufacturing component, the upward momentum that the factory sector was showing looks less certain now.

As previously discussed, it’s only going to get worse:

Blackstone co-founder Steve Schwarzman and other CEOs on the now-defunct White House policy forum were perplexed by President Donald Trump’s efforts to take responsibility for disbanding the group, sources told The New York Times.

Schwarzman, who chaired the group, thought he had an agreement with the White House to announce that the idea of ending the Strategic and Policy Forum was a joint decision, the Times reported.

The CEOs decided during a Wednesday morning conference call to dissolve the forum in the uproar that followed Trump’s news conference in which he made comments that were deemed supportive of white supremacists.


Trumped up expectations taking a hit:

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Housing starts, Alt right study

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Lower than expected, and, as always starts are ultimately determined by permits, which have been slowing as per the chart, which also reflects the deceleration in mortgage lending over the last 6 months:

Highlights

Housing starts couldn’t hold the 1.200 million annualized line in July, falling to a lower-than-expected 1.155 million. The rate is now back to the weakness of March and April in what may be emerging as a declining trend this year. Permits also fell but are holding over 1.200 million, at 1.223 million which is down from June’s 1.275 million but with this trend holding up better.

The swing factor is multi-family units, the smallest of the report’s two components but, after a run of heavy building earlier this year, are now in retreat. Multi-family starts fell to a 299,000 rate in July from June’s 353,000 and are down 34 percent year-on-year. Multi-family permits, at 412,000, are down nearly 10 percent.

Single-family data are holding steady with starts at 856,000 for an 11 percent yearly gain and permits at 811,000 and a 13 percent gain.

Putting all the pieces together: starts are down 5.6 year-on-year in weakness offset by permits which are up 4.1 percent. Permits are the forward looking indication in this report and today’s news, despite July weakness and general volatility in the data, is good. The housing sector, even with starts being soft, looks to be a contributor to the second-half economy.

Psychologists surveyed hundreds of alt-right supporters. The results are unsettling.

Aug 16 (CNBC) — Kteily, the co-author on this paper, pioneered this new and disturbing way to measure dehumanization — the tendency to see others as being less than human. He simply shows study participants the following (scientifically inaccurate) image of a human ancestor slowly learning how to stand on two legs and become fully human.

Participants are asked to rate where certain groups fall on this scale from 0 to 100. Zero is not human at all; 100 is fully human.

On average, alt-righters saw other groups as hunched-over proto-humans.

On average, they rated Muslims at a 55.4 (again, out of 100), Democrats at 60.4, black people at 64.7, Mexicans at 67.7, journalists at 58.6, Jews at 73, and feminists at 57. These groups appear as subhumans to those taking the survey. And what about white people? They were scored at a noble 91.8.

The comparison group, on the other hand, scored all these groups in the 80s or 90s on average. (In science terms, the alt-righters were nearly a full standard deviation more extreme in their responses than the comparison group.)

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Retail sales, Import and export prices, Business inventories, Housing index

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The chart still looks weak to me. Shale boom in 2014 pumped it up, and then reversing with the shale bust, and still looking suspect after January when consumer credit further decelerated:

Highlights

The consumer was back in the stores last month in a July retail sales report, headlined by a 0.6 percent monthly gain, that not only exceeds top expectations but also includes sizable upward revisions. Nonstore retailers, vehicle dealers, building materials stores lead the report — all major categories. Secondary readings are all strong: up 0.5 percent ex-autos, up 0.5 percent ex-autos ex-gas, and up 0.6 percent for the control group.

Revisions are prominent in this report with June revised 5 tenths overall to plus 0.3 percent from an initial minus 0.2 percent. And May gets an upward revision too, now unchanged vs minus 0.1 percent.

One the weakest of all the consumer readings, retail sales are now back into the fold with other indications on consumer spending, which are positive and in line with full employment. Note that the upward revisions to June and May will be positives for second-quarter GDP revisions.

This measure has flattened recently:


This looks to me like it’s again working its way lower:


Looking like the weak $US is translating into deflation abroad rather than inflation at home:

Highlights

A boost in petroleum gave a lift to import prices while a boost from agricultural gave a boost to export prices. Import prices in July posted an as-expected 0.1 percent increase as petroleum was up 0.7 percent in the month. Outside of petroleum, however, July import prices limped in at no change. Prices of finished exports remain dead flat, at or near zero whether month-on-month or year-on-year. The yearly rate for overall imports is steady at a modest 1.5 percent.

Export prices rose a stronger-than-expected 0.4 percent with agricultural products up 2.1 percent to more than shave in half sharp declines in the two prior months. Prices for finished exports, like finished imports, are flat with consumer goods, at minus 1.7 percent year-on-year, especially weak. Total export prices are up only 0.8 percent year-on-year which is not good news for the nation’s exporters.

But what is good news for exporters is the tangible decline underway in the dollar. This points to increasing pressure for import prices which, though making them less affordable to U.S. buyers, will help the Federal Reserve in its efforts to stimulate inflation.

Inventories remain excessive and just grew a bit more than sales:

Highlights

After a flat start to the second quarter, businesses built up their inventories by a sharp 0.5 percent in June which beats Econoday’s consensus by 1 tenth. The build is centered in wholesale which rose 0.7 percent with inventories among retailers up 0.6 percent in June which, based on this morning’s retail sales report, is a plus going into what proved to be a very strong July for the sector. Factory inventories in June rose 0.2 percent.

In an uncertain result in the report, the rise in inventories exceeded the 0.3 percent rise in underlying sales to lift the inventory-to-sales ratio 1 tick to a less lean 1.38. This could mean that supply is exceeding demand, or however that businesses are stocking up ahead of what see as better business ahead. Note that the slightly higher-than-expected headline may give a lift to second-quarter revision estimates which are likely to get a more definitive lift from the upward revisions in today’s retail sales report.

Highlights

The housing market index joins retail sales and Empire State as major upside surprises this morning, up 4 points to 68 in August which tops Econoday’s high forecast by 2 points. This puts the index back at levels earlier this year and points to building confidence among the nation’s home builders.

Builders see gains for both present sales, up 4 points to 74, and 6-month sales, up 5 points to 78. Trailing far behind, however, and not showing much pace is traffic still under 50 at 49. Lack of traffic hints at lack of first-time buyers who appear to be getting locked out of the new home market by high prices and lack of supply on the market.

Regional composite scores show the West, a key region for builders, out in front followed by the South and Midwest which are also both very strong followed in the distance by the Northeast which is flat. This report offers an advance indication for August but won’t be hurting expectations any for tomorrow’s July housing starts and permits report where strength is the call.

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