Category Archives: Uncategorized

Housing index, Bank lending

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Trumped up expectations have now entirely faded and the general weakening of housing data is in line with the deceleration of bank mortgage lending:

Highlights

Home builders are less exuberant as the housing market index fell to a weaker-than-expected 64 in July. This is the lowest reading since November last year. The report cites the effects of high lumber costs on home builders but the decline in this index joins a run of moderation in other housing data.

Slowing is evenly divided among the 3 components. Future sales still lead at 73 with present sales at 70. But traffic, at 48, is below breakeven 50 for the 2nd month in a row. Regionally, the West remains the strongest for homebuilders followed by the Midwest and South and the Northeast far behind.

Today’s report does not point to improvement for tomorrow’s housing starts and permits data which are nevertheless expected to improve from prior weakness. Mortgage rates remain low but they haven’t been giving housing much of a push.


some anecdotal support for the bank lending collapse story:

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NY mfg survey, Total vehicle sales

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Settling down a bit:

Highlights

A little less strength is probably welcome in the New York Fed’s manufacturing sample where gains at times have been unsustainable. The Empire State index came in at 9.8 in July vs Econoday’s consensus for 15.0 and against June’s very hot 19.8.

New orders are strong at 13.3 but down nearly 5 points from June while unfilled orders moved back into contraction to minus 4.7. Employment slowed to 3.7 for a 4 point dip while shipments also slowed but are still very solid at 10.5.

Another sign of slowing is a nearly 8 point dip in general expectations to 34.9 which is relatively moderate for this reading, one that always runs well above current assessments. Inventory building is slowing this month with price readings stable and favorable as both inputs and selling prices are showing positive pressure.

Total vehicle sales typically roll over in front of recessions, also in line with the credit aggregates:

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Credit check, Atlanta Fed

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Still decelerating, and data releases seem to confirm that the credit deceleration is reflecting something similar in the macro economy:


Annual growth is down to about 1.5%:


This would have been maybe $500 billion higher if it had not decelerated:


Housing and cars contribution to growth also looking a lot lower than last year:


This chart is only through year end. It’s since decelerated as per the above current charts. Note how the downturn in credit growth tends to lead recessions:


And forecasts for last quarter, Q2, continue to fall:

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CPI, Retail sales, Industrial production, Hotel stats, rail week, US budget deficit, Asset price chart,Trump comments

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The Fed continues to fail to meet it’s target. They just need a little more time… ;)
And coincidentally this is inline with the credit deceleration as previously discussed:

Highlights

In what is one of the very weakest 4-month stretch in 60 years of records, core consumer prices could manage only a 0.1 percent increase in June. This is the third straight 0.1 percent showing for the core (ex food & energy) that was preceded by the very rare 0.1 percent decline in March. Total prices were unchanged in the month with food neutral and energy down 1.6 percent.

Housing, which is a central category, continues to moderate, also coming in at 0.1 percent following a 0.2 percent gain in May. Apparel is down for a fourth month in a row with transportation, reflecting falling vehicle prices, down for a second month. Medical care, which had been moderating, picked up with a 0.4 percent gain while prescription drugs which Janet Yellen has been citing for special weakness, bounced back with a 1.0 percent gain. However wireless telephone services, another area cited by Yellen for weakness, posted another sizable decline, down 0.8 percent in June.

Year-on-year, the core is steady at 1.7 percent with total prices, which fluctuate much more than the core, down 3 tenths to 1.6 percent. The Fed may be blaming this stretch of weakness on special factors, but that argument is losing force.

Also decelerating in line with decelerating credit aggregates:

Highlights

Consumer spending in second-quarter GDP will not be getting a lift from the retail component as retail sales fell an unexpected 0.2 percent in June. This follows a revised 0.1 percent decline in May and a revised 0.3 percent gain for April which proved to be the quarter’s only respectable showing.

Readings show wide weakness with vehicle sales coming in with a marginal 0.1 percent increase, the same for furniture and also electronics & appliances. Declines include food & beverage stores, down a sharp 0.4 percent, and department stores down 0.7 percent following the prior month’s 0.8 percent plunge. Restaurants are also weak, down 0.6 percent for the third decline in four months. Gasoline sales fell 1.3 percent reflecting price weakness. Nonstore retailers, which include e-commerce, are a positive in the report with a 0.4 percent gain as are building materials rising 0.5 percent gain.

But there really aren’t very many positives in today’s report, one that points to a surprising lack of consumer spirit and one that will not be raising estimates for second-quarter GDP.

Annual growth chugging along at a modest 2%, leveling off after the setback from the oil capex collapse, as per the chart:

Highlights

Mining is once again the highlight of an otherwise soft industrial production report. Gaining 1.6 percent for a third straight sharp increase, mining pulled industrial production up 0.4 percent in June as utilities posted no change and manufacturing managed an as-expected 0.2 percent gain.

Manufacturing makes up the vast bulk of the industrial sector and a breakdown does show strength with vehicles up 0.7 percent and selected hi-tech up 0.8 percent. But both consumer goods and business equipment came in flat with construction supplies down slightly.

The gain for manufacturing follows May’s 0.4 percent decline with a 1.0 percent surge in April nearly offset by March’s 0.8 percent plunge. The factory sector is moving forward, just not very fast. Today’s report is the first definitive factory data for June; watch next week for the first tentative data on May with Empire State on Monday and Philly Fed on Thursday. Note that traditional non-NAICS numbers for industrial production may differ marginally from NAICS basis figures.

Trumped up expectations have now all but reversed, also in line with the deceleration of consumer lending:

Highlights

Economic expectations are falling while current conditions remain high, a combination that the consumer sentiment report warns points to economic slowing ahead. The consumer sentiment index fell a sharp 2 points in the preliminary results for July to a much lower-than-expected 93.1.

The expectations component is down nearly 4 points to 80.2 for its lowest reading since before the election, in October last year. Republican expectations have been falling sharply from steep highs, down to 108.9 for a more than 7 point decline from June. Democrat expectations are actually improving slightly but remain very low at 63.2.

Current conditions rose slightly in the month to 113.2 which is a positive indication for this month’s consumer activity. But it’s future activity that may be in trouble. Inflation expectations edged higher in the month but remain very low at 2.7 percent for the 1-year outlook and 2.6 percent for the 5-year.

The drop in this index together with the drop in this morning’s retail sales report are new and imposing negatives for the consumer outlook.

Consequence of falling sales:

No growth of consequence from last year:

From HotelNewsNow.com: STR: US hotel results for week ending 8 July

The U.S. hotel industry reported mixed year-over-year results in the three key performance metrics during the week of 2-8 July 2017, according to data from STR.

In comparison with the week of 3-9 July 2016, the industry recorded the following:

• Occupancy: -3.0% to 65.3%
• Average daily rate (ADR): +1.1% to US$122.73
• Revenue per available room (RevPAR): -2.0% to US$80.11
Read more at http://www.calculatedriskblog.com/#biuKy43OQFvtIM6K.99

Rail Week Ending 08 July 2017: Slowing Continues

Week 27 of 2017 shows same week total rail traffic (from same week one year ago) improved according to the Association of American Railroads (AAR) traffic data. The economically intuitive sectors slowing continues.

Receipts lower than expected due to income slowdowns:

United States Government Budget

The US government posted a USD 90 billion budget deficit in June 2017, larger than market expectations of a USD 35 billion gap and compared with a USD 6 billion surplus in the same month of the previous year. Outlays jumped 33 percent to USD 429 billion while receipts increased at a much slower 3 percent to USD 339 billion.

Asset prices as a % of real disposable income:

Question: You were joking about solar, right?

Trump: No, not joking, no. There is a chance that we can do a solar wall. We have major companies looking at that. Look, there’s no better place for solar than the Mexico border — the southern border. And there is a very good chance we can do a solar wall, which would actually look good. But there is a very good chance we could do a solar wall.

One of the things with the wall is you need transparency. You have to be able to see through it. In other words, if you can’t see through that wall — so it could be a steel wall with openings, but you have to have openings because you have to see what’s on the other side of the wall.

And I’ll give you an example. As horrible as it sounds, when they throw the large sacks of drugs over, and if you have people on the other side of the wall, you don’t see them — they hit you on the head with 60 pounds of stuff? It’s over. As cray as that sounds, you need transparency through that wall. But we have some incredible designs.

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Mtg purchase apps, Fed’s beige book report, Trump comments

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Still soft, also somewhat in line with decelerating bank mortgage lending:

Highlights

Purchase applications for home mortgages fell a seasonally adjusted 3 percent in the July 7 week, while applications for refinancing fell 13 percent from the previous week to the lowest level since January 2017. The refinance share of mortgage activity fell 2.8 percentage points to 42.1 percent. The decline in applications was registered despite adjustments for the Fourth of July holiday. On an unadjusted basis, purchase applications were down a much sharper 22 percent from the previous week. The weekly decline shaved the year-on-year purchase index gain by 3 percentage points to 3 percent. Along with the midweek holiday, rising mortgage undoubtedly took their toll on mortgage application activity. After rising 7 basis points in the prior week, the average interest rate on 30-year fixed rate conforming mortgages ($424,000 or less) rose another 2 basis points to 4.22 percent.

First ‘weak’ report in a long time. And not to forget the Fed sees it their role to manage expectations…

Highlights

Wages are on the rise but only a modest-to-moderate rise, with economic growth described as slight-to-moderate across the Federal Reserve’s 12 districts. And a few of the districts are now saying that overall price pressures have eased. Consumer spending is rising in most districts but at a slower pace. Two districts, Cleveland and Philadelphia, are reporting slowing in overall growth. Two other districts, Atlanta and St. Louis, are reporting flat employment levels.

This edition, especially the descriptions of inflation and the introduction of the word “slight” for the downside description of growth, is perhaps the weakest Beige Book so far this year. There are, however, indications of strength with the report noting that qualified workers are in short supply and the labor market is continuing to tighten for both skilled and unskilled labor and especially in the construction and high-tech sectors.

Still no evidence he’s capable of any adult thought whatsoever:

Trump says he’s doing ‘many things’ that are the ‘exact opposite’ of what Putin wants

  • Donald Trump claims Russia’s Vladimir Putin would be happier with a Hillary Clinton presidency.
  • The president claims that his 2016 election opponent would have spent less on the military and focused less on the traditional energy sector.
  • His comments come amid renewed focus on his campaign’s interactions with individuals tied to the Kremlin.
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    Consumer credit, French fiscal policy, Mtg mkt index

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    Higher than expected, and last month revised up, however the trend is still lower. This report is only through May. The weekly bank loan report is as of June 28, and shows the down trend continuing, which generally reflects a deceleration in consumer spending:

    Highlights

    Consumer spending has been modest but consumers did run up their credit-card debt in May helping to lift consumer credit outstanding by a larger-than-expected $18.4 billion. Revolving credit, which is where credit cards are tracked, rose $7.4 billion vs only $1.2 billion in April. Nonrevolving credit, where auto financing and student loans are the biggest factors, posted yet another sizable increase of $11.0 billion in May. Credit card debt may not be a plus for long-term consumer health, but it is one for near-term consumer spending and GDP.

    Though May:


    Weekly through June 28:

    Analysts are looking how the drop in lending might affect banks, but nothing about how the lending deceleration reflects events in the macro economy:

    Bank stocks are about to face another major hurdle

  • Financials are expected to show 6 percent profit growth when bank earnings season starts Friday.
  • JPMorgan Chase, Citigroup and Wells Fargo report Friday, with other industry heavyweights set for next week.
  • M&A as well as commercial and industrial lending have been problem points for banks.

    • As previously discussed, this is more of ‘the beatings will continue until morale improves’ policy:

    French deficit pledge will help euro zone budget discussions, ECB’s Coeure says

    The French government has committed to stick to plans to cut the deficit to 3 percent of economic output this year despite overspending this year by its predecessor.

    “One of the constraints facing the government is to keep its commitments on the budget and in particular on the three percent. This is something that we welcome in part because of the consequences for the rest of Europe,” Coeure said.

    Again, this is inline with the deceleration in the weekly bank lending reports:

    Weekly Mortgage Market Index Sinks from Year Earlier

    Mortgage Market Index down 28%

    DALLAS — (July 10, 2017) During the week that included Independence Day, new mortgage activity significantly declined. A substantial drop from a year earlier was also recorded. Jumbo business, however, mostly held up.

    As of the week ended July 7, the Mortgage Market Index from Mortgage Daily, which provides insight into upcoming originations based or rate-lock volume by clients of OpenClose, was 107.

    That turned out to be the lowest level for the index, which is not adjusted to account for seasonal factors, since the week ended Jan. 6, 2017.

    New business plunged 28 percent from the preceding week. Even more telling was the comparison with the same holiday week in 2016, with a 36 percent year-over-year tumble.

    Rate locks for adjustable-rate mortgages plummeted from the week ended June 30 by 44 percent — the most of any category. At 7.3 percent, ARM share was thinner than 9.3 percent the previous week.

    A 34 percent week-over-week reduction was recorded for refinance business. Refinance share was cut to 28 percent from the previous week’s 30 percent.
    After that was the Purchase MMI, which declined 26 percent to 77.

    The Government MMI was 45, retreating 21 percent from seven days prior. Government share widened to 42 percent from 38 percent.

    Sporting the smallest week-over-week drop were rate locks for jumbo mortgages: 2 percent. Jumbo share widened to 10 percent from 7 percent a week earlier. Rates on jumbo mortgages were 17 basis points higher than conforming rates. The jumbo-conforming spread widened from 12 BPS in the preceding report.

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    Employment, Health care

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    A better than expected number but as per the chart, the year over year rate of growth continued its downtrend which began about 2.5 years ago when oil capital expenditures collapsed.

    Since GDP growth is the sum of the ‘pieces’ that make up GDP, if any piece contributes less to growth than it did last year, another must contribute more or the growth of GDP will be lower. So far this year we’ve seen a slowing of growth vs last year in vehicle sales, home sales, consumer spending, etc. as well as employment growth, all mirrored in the deceleration of bank lending that intensified about 6 months ago:

    Highlights

    The split between strength in demand for labor and weakness in wages is more acute than ever after the June employment report which shows a significant upgrade to payroll growth but a flat line for average hourly earnings. Nonfarm payrolls surged 222,000 in June with revisions to prior months adding another 47,000. The last 3 months of payroll growth had been very soft but have now have been revised away. Not revised away is earnings which could manage only a 0.2 percent gain in June with May, which was already weak, revised down 1 tenth to only a 0.1 percent monthly gain. Year-on-year, wages are lifeless at 2.5 percent. The weakness points to low wage, low productivity jobs.

    No sign of excess demand pressures building here:

    Without growth of govt. employees there’s a lot more room for growth of private sector employment, but it requires an appropriate fiscal balance:

    This sounds like a shift to patches for what we have now, rather than ‘repeal and replace’? Problem is, the patches will only be temporary, as what we have now is logically unsound, as was what we had before and what’s been proposed so far…

    McConnell no longer rejecting bipartisan health care talks

    Jul 7 (Axios) — Senate Majority Leader Mitch McConnell has made it clear he doesn’t want to negotiate with Democrats on health care — but he’s no longer dismissing the option. Here’s what he said today at a Rotary Club lunch in Kentucky when asked whether he might need bipartisan cooperation to pass a health care bill, per AP: “If my side is unable to agree on an adequate replacement, then some kind of action with regard to the private health insurance market must occur … We’ve got the insurance markets imploding all over the country, including in this state.”

    This reads to me as total nonsense as well. If you’re not going to let people ‘die in the streets’ as a point of logic you’ve got single payer, which most of Congress is ideologically against. No telling how long it will take them to come around to that but it doesn’t seem like it’s anytime soon:

    Mike Lee takes harder stance on conservative health care amendment

    Jul 7 (Axios) — Sen. Mike Lee won’t vote for the Senate GOP health care bill without the addition of a controversial amendment he’s championing with Sen. Ted Cruz — a position he has made clear to the White House and Senate Republican leaders. “The entire bill is unacceptable without the Consumer Freedom Option,” Conn Carroll, Lee’s spokesman, wrote in an email. This proposal would allow insurers to sell health plans that don’t comply with Affordable Care Act rules, like pre-existing conditions protections or essential health benefits, as long as they also sell plans that meet all of those rules.

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    Factory orders, Small business hires, Redbook retail sales

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    Weaker q2 vs q1, and muddling along at about 3% year over year as previously discussed:

    Highlights

    Forecasters thought factory orders would get a lift from nondurables but they didn’t as total orders fell 0.8 percent in May vs Econoday’s consensus for minus 0.5 percent. Nondurable orders, held down by weakness in petroleum and coal, also fell 0.8 percent as did durable orders where last week’s advance data showed a 1.1 percent decline.

    But there are positives in today’s report and they include a small lift for core capital goods orders (nondefense ex-aircraft) which, boosted by a jump in mining equipment, rose 0.2 percent vs last week’s initial estimate for a 0.2 percent decline. A small plus is a 1 tenth upward revision to April which is now at plus 0.3 percent. Shipments for core capital goods, which are inputs into second-quarter business investment, are similarly revised upward, now at plus 0.1 percent and 0.2 percent in May and April.

    Weakness in the report includes aircraft orders with both commercial and defense falling in the double digits in the month. Orders for motor vehicle & parts rose a very solid 1.2 percent though consumer goods fell 0.2 percent.

    But manufacturing activity, as described in last week’s PMI manufacturing report, is no better than subdued as total shipments rose only 0.1 percent following no change and minus 0.2 percent in the two prior months. A clear negative is a 0.2 percent decline in unfilled orders. Inventories fell 0.1 percent following no change in April, keeping inventories-to-shipments steady at a lean 1.38 ratio that points, however, to a defensive outlook that won’t be helping second-quarter GDP.

    There are bright spots in this report which overall, however, is consistent with a sector that is struggling to find momentum.

    Also in line with weak demand

    Small business hires dropped in June, but employees saw wages rise, Paychex survey shows

  • Small business hiring fell in June, but wages continued to increase, Paychex says.
  • The Small Business Jobs Index is at its lowest level since late 2011.
  • “The decline in this month’s index and modest growth in wages seem to reflect an unclear regulatory picture combined with a narrowing labor market,” Paychex President and CEO Martin Mucci says.

    • Definitely looking up some, though probably a lot fewer of these types of retailers now:

    Highlights

    Same store sales were up 2.7 percent year-on-year in the July 1 week, picking up the pace by 0.5 percentage points from the previous week to a tick below the strongest growth since January 2016 posted two weeks ago. Month-to-date same store sales versus the prior month also strengthened and were up 0.7 percent, an 0.1 percentage point improvement from the prior week. Full month year-on-year same store sales were up 2.5 percent, back up to the strongest pace in at least year also seen in the June 3 and June 17 weeks. The week’s survey results put a strong finish on a very good month for retailers in Redbook’s sample, who are reporting the best sales performance comparisons in 17 months after faltering sales in May, and suggest strong ex-auto less gas retail sales for the month.

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