Paradox of thrift goes way back!
It’s always an unspent income story…
;)
There is that scattereth, and yet increaseth; and there is that withholdeth more than is meet, but it tendeth to poverty.
The liberal soul shall be made fat: and he that watereth shall be watered also himself.
—Proverbs 11:24–25
My RT interview:
US Manufacturing Production slows as doubts over rate hike grow
NFIB Small Business Optimism Index
Highlights
In a confirmation of strong levels of job openings in the JOLTS report, small businesses are reporting the most difficulty in finding qualified workers since 2007, pointing to the risk ahead of wage pressures. Boosted by employment, the small business optimism index inched 2 tenths higher in September to a slightly higher-than-expected 96.1. Plans to increase employment are also up, at their best level of the year, while capital outlay plans are also positive. Earnings trends are in the negative column as are expected credit conditions. Overall, this report is moderate though the strength in employment could raise talk of strength for the October employment report.
Still zig zagging it’s way lower:
Still depressed:
Bad:
Germany: ZEW Survey
Highlights
ZEW’s October survey was surprisingly weak with analysts’ assessment of both current and expected economic performance comfortably short of the market consensus.
Current conditions fell 12.3 points to 55.2, their sharpest decline since October 2014 and their lowest reading since March. Expectations were off an only slightly smaller 10.2 points at 1.9, their seventh consecutive decrease and their worst outturn in a year.
The findings provide one of the first real looks at how the impact of the VW emissions scandal has hit confidence and if anything, there may even be some relief that the report is not weaker still. Nonetheless, with worries about the slowdown in business activity in the emerging markets also a major feature, it was significant that ZEW felt obliged to talk down the likelihood of Germany sliding back into recession. Not so long ago the domestic economy was supposed to be leading the rest of the Eurozone on the path to solid economic recovery.
The correlation between the ZEW and PMI surveys is not especially high on a monthly basis but there is probably some extra downside risk to the latter in the wake of today’s news.
Sales to inventory ratios still looking way high to me, as happens entering a recession:
Wholesale Trade
Highlights
Wholesale inventories look to be pulling down on third-quarter GDP, up only 0.1 percent in August following a downwardly revised 0.3 percent decline in July. But relative to sales, which fell 1.0 percent in August and fell 0.3 percent in July, inventories are looking heavy. The stock-to-sales ratio rose to 1.31 in September from July’s 1.30.
Inventories relative to sales rose in autos which is a plus given how strong auto sales proved to be in September. Inventories of machinery also rose but here sales have been uneven and the build might be unwanted. Metals show a large draw on a bounce back for sales.
As far as GDP goes, inventories are looking to have a neutral effect. Businesses are keeping their inventories in check even as sales remain on the slow side. Watch for the business inventories report on Wednesday.
Wholesale Inventories +0.1% in August
U.S. wholesale inventories rose in August, boosted by larger stocks of computers and professional equipment used by businesses. Inventories are a key component of gross domestic product changes. The component of wholesale inventories that goes into the calculation of GDP – wholesale stocks excluding autos -rose 0.1 percent. Inventories for durable goods climbed 0.3 percent, with computers up 1.9 percent. At August’s sales pace it would take 1.31 months to clear shelves, up slightly from 1.30 months in July. An inventory-to-sales ratio that high usually means an unwanted inventory build-up, which would require businesses to liquidate stocks. That in turn could weigh on manufacturing and economic growth.
Inventory to sales ratio:
Total sales:
Their price cuts reported yesterday indicate they’d like to pump more:
Gap widening as previously suspected, even with lower oil prices:
International Trade
Highlights
A surge in imports of new iPhones helped feed what was an unusually wide trade gap in August of $48.3 billion, well up from July’s revised $41.8 billion. But cell phones, at $2.1 billion, make up only a portion of the gap with a drop in exports the most salient factor. Exports were down nearly across the board including industrial supplies at minus $2.2 billion, consumer goods at minus $0.6 million, autos at minus $0.5 million, and foods/feeds/beverages at minus $0.3 million. Weakness in exports reflects weakness in foreign demand together with the strength of the dollar.
The goods gap came in at $67.9 billion, which is up from last week’s advance reading of $67.2 billion. The petroleum gap, which is always a central factor in the nation’s deficit, fell to $6.9 billion from July’s $8.1 billion and reflects lower prices. Demand for the nation’s services, unlike its goods, continues to climb, to a surplus of $19.6 billion vs $19.5 billion in a reflection of demand for technical and managerial services.
By country, the gap with China, the main source of iPhones, rose sharply, to $35.0 billion from $31.6 billion. The gap with Mexico widened to $5.3 from $3.4 billion. Other bilateral data are mostly steady though the gap with the EU narrowed to $13.8 from $15.2 billion.
Imports are a subtraction on the national accounts but are, nevertheless, a two-way street, that is reflecting demand at home which is a sign of economic strength, not weakness. Still these results will limit expectations for third-quarter GDP.
Gallup US ECI
Highlights
Unlike other confidence readings that are climbing, Gallup’s reading is holding at lows, at minus 14 in September vs August’s minus 13. The report cites losses in the stock market and disappointing jobs data as negatives, offset by low prices at the gas pump. For current conditions, 24 percent of the sample rates the economy as excellent or good vs 31 percent rating it as poor. For expectations, 38 percent say the economy is getting better vs 58 percent who say it’s getting worse.
Just when you think it can’t get any worse:
Redbook
Highlights
Retail sales are looking very soft based at least on Redbook’s sample which has been reporting, mostly in contrast to solid government data, soft results since way back in March. Same-store sales are up only 0.7 percent for the October 3 week which is the weakest Redbook reading of the year. The report doesn’t offer any meaningful commentary on the weakness but does say seasonally cooler weather is now helping sales at specialty and department stores.
Germany under pressure as well:
Germany : Manufacturers’ Orders
Highlights
Manufacturing orders were weaker than expected in August. A 1.8 percent monthly fall followed a steeper revised 2.2 percent drop in July and constituted the first back-to-back decline since January/February. However, with orders down a particularly hefty 5.3 percent a year ago, annual growth still rebounded sharply to stand at 2.2 percent.
The monthly decrease was led by capital goods which were down fully 2.8 percent. However, weakness was broad-based as consumer and durable goods dropped 1.5 percent and basics were off 0.4 percent.
Regionally domestic orders contracted 2.6 percent after a 3.7 percent bounce at the start of the quarter and, ominously, have now declined in four of the last five months. Overseas demand fell 1.2 percent, compounding July’s 6.1 percent slump and would have looked a lot worse but for the surprising robustness of the Eurozone component which posted a 2.5 percent gain following a 0.6 percent increase last time. Orders from the rest of the world fell 3.7 percent having already nosedived 10.1 percent in July.
August’s setback means that average total orders in July/August were 2 percent below their mean level in the second quarter. The new manufacturing PMI pointed to solid growth of both output and orders in September but readings here have proved overly strong in recent months. Although early days yet, there are good reasons for supposing that the economic recovery has lost some momentum and hopes for a rebound this quarter are looking somewhat optimistic.
Ugly:
Empire State Mfg Survey
Highlights
The shocking weakness in August was no fluke as the Empire State index came in far below expectations for September, at minus 14.67. Next only to August’s minus 14.92, September’s reading is the weakest of the recovery, since April 2009. And, unfortunately, judging by new orders, activity in October may prove to be just as weak. New orders are deeply negative this month, at minus 12.91 vs minus 15.70 in August and the fourth straight negative reading. And manufacturers in the New York region won’t be able to turn to backlogs which are extending their long run of contraction at minus 8.25.
Searching for positives in this report is difficult. Negative signs sweep components including shipments, at minus 7.98 following August’s minus 13.79. If extended to national data, these results point to trouble for third-quarter GDP. Employment is at minus 6.19 which is the first negative reading since all the way back in January 2013. The workweek, reflecting the weakness in shipments, is down very steeply at minus 10.31. Price data show outright contraction for finished goods at minus 5.15 — the first negative reading since November 2013. And rounding things out is a 10 point loss in the 6-month outlook to 23.21 which is the weakest since, once again, January 2013.
The negative signals from this report from August were not confirmed by other regional indications but could be confirmed as early as this morning with the August industrial production report. Strength in the auto sector gave manufacturing a lift in June and July but this lift, given weakness in foreign markets and the energy sector, may not have extended too far, at least based on this report.
Bad here too, as excess prior inventory building led to production cuts:
Industrial Production
Highlights
A reversal in the auto sector pulled down industrial production in August, falling 0.4 percent vs the Econoday consensus for a 0.2 percent decline. The manufacturing component fell 0.5 percent, also deeper than the consensus at minus 0.3 percent. In an offset, gains in July proved more robust than initially reported with total industrial production revised 3 tenths higher to plus 0.9 percent and manufacturing revised 1 tenth higher, now also at plus 0.9 percent.
Motor vehicle production is August’s disappointment, down 6.4 percent following July’s giant 10.6 percent spike. When excluding motor vehicle production, however, industrial production was unchanged in August following respectable gains of 0.3 percent in the prior two months. But these readings are far from spectacular and the weakness in the latest month could be a signal of retrenchment tied to Chinese-based volatility.
Turning to the report’s other two components, utility production rose 0.6 percent in August with mining at minus 0.6 percent. Mining, hit by weak commodity prices, has been hurting all year with the year-on-year reading at minus 3.2 percent. Utilities, however, are up 3.2 percent year-on-year which leads the major components as manufacturing’s year-on-year rate is a soft looking plus 1.4 percent. Total industrial production is up only 0.9 percent year-on-year.
This weakness is reflected in capacity utilization which is at 77.6 percent in the August report, down 4 tenths in the month and 2 tenths lower than consensus. Manufacturing utilization is at a soft 75.8 percent vs an unrevised 76.2 percent in July.
The vehicle-led burst in the manufacturing sector faded noticeably by summer’s end, a reminder that foreign demand for U.S. goods is weak and that the domestic energy sector is suffering. The consumer is the lead horse for the economy, making up for factory slack that the doves are certain to cite at this week’s FOMC.
The inventory build was small, but weak sales kept inventory to sales ratio too high.
Note the July inventory build in autos led to the August cutback in production just reported:
Business Inventories
Highlights
The nation’s inventories remain slightly on the heavy side, up an as-expected 0.1 percent in July vs a 0.1 percent gain in sales that leaves the stock-to-sales ratio at 1.36, substantially higher than 1.29 a year ago.
Retail inventories rose 0.6 percent in July with the build, however, centered in vehicles which is positive given the strength, evident in this morning’s retail sales report, of strong consumer demand for vehicles. Excluding vehicles, retail inventories rose a manageable 0.2 percent. Building materials rose 0.6 percent which may be a problem given weakness for this component in the August retail sales report. The stock-to-sales ratio for retail is unchanged at 1.46.
I don’t see this as good news:
Retail Sales
Highlights
For a second report in a row, upward revisions highlight solid growth in retail sales. Retail sales rose 0.2 percent in August with ex-auto at plus 0.1 percent and ex-auto ex-gas at plus 0.3 percent. These are all 1 tenth below consensus. July, however, shows broad upward revisions with total sales at a very strong plus 0.7 percent vs an initial plus 0.6 percent. Ex-auto for July is revised upward by 2 tenths to plus 0.6 percent and ex-auto ex-gas revised upward by 3 tenths to plus 0.7 percent.
Turning first to strength in the August data, motor vehicles rose 0.7 percent on top of July’s 1.4 percent gain. These are very solid readings for a very important component that points squarely at a healthy and confident consumer. Restaurants, another component tied to discretionary health, rose a very strong 0.7 percent to extend a run of gains. On the weak side are gasoline stations where, due to lower gas prices, sales fell 1.8 percent. But this decline actually underscores one of the reasons behind the consumer’s health unlike, however, declines in building materials, down 1.8 percent, and furniture, down 0.9 percent. Yet both of these declines follow very strong gains in the prior month.
Taken together, July and August point to a very strong start to the third quarter for the consumer, a fact that plays into the hands of the hawks at this week’s FOMC. Still, the doves can argue that slowing in August could point to negative effects from China-based volatility.
ATA Trucking Index decreased 0.5% in June
by Bill McBride on 7/27/2015 01:55:00 PM
Here is an indicator that I follow on trucking, from the ATA: ATA Truck Tonnage Index Fell 0.5% in June
American Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index decreased 0.5% in June, following a revised gain of 0.8% during May. In June, the index equaled 131.1 (2000=100). The all-time high of 135.8 was reached in January 2015.
Compared with June 2014, the SA index increased 1.8%, which was above the 1.5% gain in May. Year-to-date through June, compared with the same period last year, tonnage was up 3.4%. …
With flat factory output and falling retail sales, I’m not surprised tonnage was soft in June,” said ATA Chief Economist Bob Costello. “I also remain concerned over the elevated inventory-to-sales ratio for retailers, wholesalers, and manufacturers, which suggests soft tonnage in the months ahead until the ratio falls.
Read more at Calculated Risk Blog
The rate of growth of new car sales continues to slow, with most of the growth coming from imports:
From Kelley Blue Book: New-Car Sales To Increase Nearly 3 Percent In July 2015, According To Kelley Blue Book
New-vehicle sales are expected to increase 2.6 percent year-over-year to a total of 1.47 million units in July 2015, resulting in an estimated 17.1 million seasonally adjusted annual rate (SAAR), according to Kelley Blue Book www.kbb.com …
“As the industry settles into the summer selling season, new-car sales are expected to remain consistent with last month’s numbers, representing modest and slowing growth versus last year,” said Alec Gutierrez, senior analyst for Kelley Blue Book. “Sales in the first half of the year totaled 8.5 million units, a year-over-year improvement of 4.4 percent and the highest first-half volume since 2005. Total sales in 2015 are projected to hit 17.1 million units overall, a 3.6 percent year-over-year increase and the highest industry total since 2001.”
Read more at Calculated Risk Blog
Down a touch but the 4 week moving average still moving higher:
Highlights
Auto retooling is clouding initial jobless claims data which fell 15,000 in the July 11 week to 281,000. But the 4-week average, inflated by a 14,000 spike in the prior week, rose 3,250 to a 282,500 level that’s more than 5,000 above the month ago comparison. The rise in the average is not a positive indication for the July employment report.
But the latest on continuing claims, which are reported with a 1-week lag, are very favorable, down a very steep 112,000 to 2.215 million in the July 4 week which is a new recovery low. Nevertheless, the 4-week average, down 3,000 to 2.264 million, is trending slightly higher than the month-ago comparison. The unemployment rate for insured workers is down 1 tenth to a recovery low of 1.6 percent.
July, with its closings in the auto sector, is always a difficult month for claims data. Next week’s report will be especially important as initial claims will cover the sample week for the monthly employment report.
Not at all good:
Highlights
It turns out that the Philly Fed’s big jump in June was in fact a one-time wonder as the index slowed substantially in the July reading to 5.7 from 15.2. Growth in new orders is still respectable, at 7.1, but well down from June’s 15.2. Likewise, shipments slowed to 4.4 from 14.3 while backlog orders fell into contraction at minus 6.3 from plus 3.7. Employment also fell into contraction, at minus 0.4 from 3.8.
The June reading for this report stood alone as really the only strong indication this year on the manufacturing sector, but the give back now in July puts the Philly Fed in line with other readings. The nation’s manufacturing sector is being held down by weak exports and is a drag on economic growth.
Housing still a bit of a bright spot, relatively speaking, but still very low and depressed, and too small to move the GDP needle. And there are fewer builders:
Highlights
The housing market index, unchanged in July at 60, is signaling substantial strength for the new home market. This is the strongest reading since November 2005.
Future sales, at 71, lead the report with present sales right behind at 66. Still lagging is traffic, down 1 point in the month to 43 and reflecting a lack of first-time buyers in the market.
All regions are showing growth led by the West at a composite 63 followed by the South at 62. The Midwest is at 59 and the Northeast, which had been under 50 for a long run, is now at 52.
The new home market is accelerating and is in place to be the best surprise of the 2015 economy. Housing starts & permit data, which have been volatile but very strong, will be posted tomorrow.
To that point:
