Seems the corporate profits report includes the Fed’s profits, all of which get turned over to the Treasury, of course…

How the Fed Stopped the “Corporate Profit Recession” (and the Media Fell for it)

By Wolf Tichter

The end of the corporate “profit recession” has been declared last week. It was based on data by the Bureau of Economic Analysis, released on May 27. Corporate profits, after declining with some zigs and zags since their peak in the third quarter 2014, suddenly ticked up in the first quarter 2016. And everyone was ecstatic.

But there’s a detail – a huge detail – that the media conveniently forgot to point out: whose profits are included in “corporate profits.” The BEA tells us (emphasis added):

These organizations consist of all entities required to file federal corporate tax returns, including mutual financial institutions and cooperatives subject to federal income tax; nonprofit organizations that primarily serve business; Federal Reserve banks; and federally sponsored credit agencies.

For the first quarter, the Federal Reserve Banks reported a consolidated profit that had jumped 11% from a year earlier to a record $24.9 billion!

And this magic profit was added to the BEA’s measure of “corporate profits.” Total corporate profits ticked up $8.1 billion in the first quarter, including the Fed’s magic $24.9 billion. And without the Fed’s magic profits?

So somewhat embarrassingly for the gurus of the end of the corporate profit recession: “Were it not for this increase, overall profits in the US would have actually been down for a third consecutive quarter.”

In fact, on an annualized basis, the Fed’s magic profits accounted for 27.2% of US financial sector profits and for 5.3% of total US corporate profits (blue line in the chart below), “the highest level in a generation.”

A forecast for tomorrow’s employment report:

ADP Employment Report

Highlights
The May employment report isn’t expected to be very strong but it may not prove, in contrast to expectations, to be any weaker than April, at least based on ADP’s estimate for private payrolls which comes in at 173,000 vs ADP’s revised 166,000 for April. The Econoday consensus for private payrolls in tomorrow’s government report is noticeably lower, at 150,000 vs May’s 171,000. ADP has been very accurate so far this year and today’s results are bound to have forecasters wondering if they should boost their estimates, at least perhaps slightly, for tomorrow’s big report.

United States ISM New York Index

The ISM NY Current Business Conditions Index dropped sharply to 37.2 in May 2016 from 57 in the previous month. It is the lowest reading since April of 2009 as employment (44.6 from 49.9 in April), quantity of purchases (37.5 from 48.2) and prices paid (45.7 from 48.1) decreased further while current (60 from 50) and expected (68 from 56) revenues increased. The 6-month outlook stabilized at 53.6 after falling to a 7-year low of 53.1 in April. Ism New York Index in the United States averaged 55.69 percent from 1993 until 2016, reaching an all time high of 88.80 percent in December of 2003 and a record low of 23.40 percent in October of 2001. Ism New York Index in the United States is reported by the Institute for Supply Management.

The higher prices likely indicate a change in policy from that of putting downward pressure on prices to a more neutral stance.

Might have something to due with the last change in oil ministers.

We will know more when this latest chart of the history of discounts/premiums is updated:

Saudi Aramco Seen Increasing July Oil Premium for Asia Customers

By Serene Cheong and Sharon Cho

(Bloomberg) — Saudi Aramco may widen Arab Light premium by 40c/bbl for July sales to Asia, accord. to median est. in Bloomberg survey of 5 refiners, traders.

July Arab Light OSP fcast at 65c/bbl above Oman-Dubai bmark vs 25c/bbl premium for June

June OSP increased by $1.10 m/m vs fcast of 65c gain in a survey last mo.

For July OSP, 3 participants est. premium to rise 30-40c, 2 predict 50c-60c increase

Co. may announce OSP for July shipments in next few days

READ: Saudis Raise Oil Pricing for Asia by Most Since April Last Year

Car sales continue to soften from the highs of last year.

And May sales unchanged from April would mean no contribution to growth this month:

U.S. Light Vehicle Sales increase to 17.4 million annual rate in May

by Bill McBride

Based on a preliminary estimate from WardsAuto, light vehicle sales were at a 17.37 million SAAR in May (Preliminary estimate excluding Jaguar Land Rover and Volvo).

That is down about 1.5% from May 2015, and up slightly from the 17.32 million annual sales rate last month.

Not good!

The regional Feds are calling for higher discount lending rates even though borrowings are at 0!

According to the Fed minutes from the discount rate meeting (different from the FOMC minutes), four of the Fed banks called for a hike in the discount rate. It’s the emergency rate at which banks could borrow directly from the Fed’s discount window – currently at 1%. This disclosure suggests that the Fed is becoming increasingly hawkish.

Way up and better than expected, but looks like it was all a large aircraft order and some cars. Another good headline April release also likely to reverse in May:

Durable Goods Orders

Highlights
Indications on the factory sector have been mixed as is April’s durable goods report. The headline came in at a stronger-than-expected gain of 3.4 percent with March revised higher to a gain of 1.9 percent. Vehicles orders gave an important boost to April, up 2.9 percent as did the always volatile commercial aircraft component which swung 65 percent higher. But the ex-transportation reading, which excludes vehicles and commercial aircraft, rose a more modest and as-expected 0.4 percent.

A negative in the report is a sizable 0.8 percent decline in core capital goods orders which ominously is the third straight decline for this reading and the fifth out of the last six reports. Year-on-year, orders are noticeably in the negative column at minus 5.0 percent. These readings point squarely to stubborn weakness in business investment and uncertainty in the general business outlook.

There are, however, solid points of strength in the report including 0.6 percent gains for both total shipments and total unfilled orders. The gain for unfilled orders is the largest since July 2014. Another plus is a 0.2 percent decline in inventories which pulls down the inventory-to-shipments ratio to a leaner 1.65 from 1.67.

Vehicle strength is an important foundation for the factory sector, one tied to domestic consumer demand and a strength that highlights this otherwise mixed report.

After moving up some in April, backing down in May, and negative all along:

Another upbeat April housing number likely to reverse in May, the way all the other releases have so far:

Pending Home Sales Index

Highlights
News from the housing sector has been improving and very rapidly. First Tuesday’s new home sales report which absolutely surged and now a similar surge in the pending home sales index, up 5.1 percent in April for a third straight gain and pointing to greater acceleration for final sales of existing homes. The West, where existing home sales have been lagging, shot up a monthly 11.4 percent in today’s report with the South showing additional strength, up 5.1 percent. This week’s data, coming right at the beginning of the Spring season, have turned around the housing outlook, from modest growth to sharp growth in what is the latest indication of household strength.

As previously discussed, the logic behind allowing people with existing conditions to buy insurance at the same rate as everyone else is highly suspect:

Not a word from the analysts when they were down 6% last week.

But when up 5% this week expect lots of mentions…

MBA Mortgage Applications

Highlights
Purchase applications for home mortgages revived in the May 20 week, increasing by 5 percent from the prior week, while refinancing activity managed to post a gain of 0.4 percent despite slightly higher rates. The average 30-year mortgage for conforming loans ($417,000 or less) was up 3 basis points to 3.85 percent. Purchase applications were 17 percent higher than they were a year ago, an impressive gain that points to continuing strength of a very strong housing market, as seen best in yesterday’s new home sales report for April, showing total year-on-year sales up a remarkable 23.8 percent.