Rolling over:
Fiscal this tight means they are entirely dependent on exports for growth, and exports have been collapsing with US tariff policy:
From the ECB:
“Currently extra-euro area imports and exports of goods and services amount to around half of euro area GDP.”
Highlights
Amid a backdrop of rising inflation pressures, sharp slowing in the services PMI sample pulled down September’s composite flash and masks a strong showing for manufacturing. The PMI composite fell to 53.4 which is well below Econoday’s consensus for 55.1 and also below the low estimate for 53.8. Services fell to 52.9 vs a consensus for 55.0 while manufacturing, however, rose to 55.6 vs expectations for 55.0.
Weakness in services is centered in the year-ahead outlook which fell to its lowest level of 2018 reflecting concerns over cost pressures as input prices rose sharply and selling prices surged to a record high in survey data going back 10 years. Respondents to the service sample cited the need to pass through higher labor costs and increased input costs sourced from overseas. Cost concerns overshadow a rise in new orders, a build in backlogs, and a jump in hiring to a 3-1/2 year high.
The year-ahead outlook on the manufacturing side is also weak, slipping to a 2-1/2 year low as this sample cited higher costs tied to metal tariffs and the related need for forward purchasing. Some of these respondents said strong order levels are allowing them to push up selling prices. Yet other details, much like the service side of the report, are positive including rising orders and production. Another negative, however, is the slowest rate of hiring over the past year.
The service sector dwarfs manufacturing in size which explains its much greater impact on the composite. But though a fraction of the size of services, manufacturing is considered, however, a leading barometer for future economic change which is the silver lining in today’s report. Yet not a silver lining at all is the inflation theme of the report, one that is certain to gain the attention of Federal Reserve policy makers who look to raise rates next week to defend against the risk of economic overheating.
Services pmi:
August 2018 Headline Existing Home Sales Continue In Contraction Year-over-Year
The headline existing home sales growth was unchanged with the authors saying “With inventory stabilizing and modestly rising, buyers appear ready to step back into the market”. Our analysis shows home sales three month rolling average is in contraction year-over-year.
Slowing here as well:
Chicago Fed “Index Points to Steady Economic Growth in August”
Fed’s Beige Book “This report was prepared at the Federal Reserve Bank of New York based on information collected on or before August 31, 2018”
Reports from the Federal Reserve Districts suggested that the economy expanded at a moderate pace through the end of August. Dallas reported relatively brisk growth, while Philadelphia, St. Louis, and Kansas City indicated somewhat below average growth. Consumer spending continued to grow at a modest pace since the last report, and tourism activity expanded, to varying degrees, across the nation. Manufacturing activity grew at a moderate rate in most Districts, though St. Louis described business as little changed and Richmond reported a decline in activity. Transportation activity expanded, with a few Districts characterizing growth as robust. Home construction activity was mixed but up modestly, on balance. However, home sales were somewhat softer, on balance–in some cases due to reduced demand, in others due more to low inventories. Commercial real estate construction was also mixed, while both sales and leasing activity expanded modestly. Lending activity grew throughout the nation. Some Districts noted weakness in agricultural conditions. Businesses generally remained optimistic about the near-term outlook, though most Districts noted concern and uncertainty about trade tensions–particularly though not only among manufacturers. A number of Districts noted that such concerns had prompted some businesses to scale back or postpone capital investment due to worries about the trade outlook.
We’ll see if this ‘eventuates’:
Trump adviser eyes entitlement cuts to plug U.S. budget gaps
(Reuters) “We have to be tougher on spending,” White House economic adviser Larry Kudlow said in remarks to the Economic Club of New York, adding that government spending was the reason for the wider budget deficits, not the Republican-led tax cuts activated this year. “We’re going to run deficits of about 4 to 5 percent of GDP for the next year or two, OK. I’d rather they were lower but it’s not a catastrophe,” Kudlow said. “Going down the road, of course we’d like to slim that down as much as possible and we’ll work at it.”
More weakness:
Highlights
Yesterday’s new home sales report showed less strength than expected while today’s existing home sales results are outright disappointing. Sales fell 2.5 percent in April to an annualized rate of 5.460 million which falls below Econoday’s low estimate.
The decline in sales came despite a sizable increase in supply on the market, at 1.800 million for a monthly gain of 9.8 percent though the year-on-year rate remains squarely in the negative column at minus 6.3 percent. On a sales basis, supply rose to 4.0 months from 3.5 months.
The median price for a resale rose 3.2 percent in the month to $257,900 which no doubt held down the month’s sales. But the year-on-year rate for the median, in contrast to FHFA or Case-Shiller data which are near 7 percent, is a more moderate 5.3 percent.
All regions were weak in the month especially the Northeast where sales fell 4.4 percent. And only one region, the South, is in the year-on-year plus column and at only 2.2 percent.
Housing got off to a slow start this year and the first indications on the second quarter are not pointing to any acceleration. Housing, like consumer spending, has been unexpectedly flat.
Been near flat for going on three years now:
Ex aircraft better than expected, apparently due to the tariffs. The chart shows modest growth and levels that have not yet exceeded 2008 in real terms:
Highlights
Tariff-related price inflation may be driving up dollar totals in the factory sector which, based on the April advance durable goods report, has gotten off to a very strong start for the second quarter. Forget the 1.7 percent headline decline in the month, one due entirely to an understandable swing lower for what have been very strong aircraft orders. Excluding aircraft and other transportation equipment, durable goods orders rose 0.9 percent to beat Econoday’s consensus by 3 tenths.
Orders for primary metals, where tariffs on steel and aluminum are in effect, jumped 1.3 percent in April on top of March’s giant 4.6 percent surge when tariffs first took effect. Orders for fabricated metals, also affected by tariffs, rose 2.0 percent following March’s 1.2 percent gain. These two components make up more than 20 percent of total durable orders.
Elsewhere, capital goods put in a very strong April showing in what is very auspicious news for second-quarter business investment. Core orders, which exclude aircraft, rose 1.0 percent with core shipments, which are direct inputs into fixed nonresidential investment, up 0.8 percent.
Civilian aircraft orders fell by 36.2 percent but follow March’s 71.7 percent climb. And defense aircraft helped narrow the difference, rising 7.5 percent in the month. Vehicle orders also opened up the second-quarter on a strong note with a 1.8 percent gain.
The factory sector, as has been indicated by the regional reports, is picking up steam and, showing no immediate negatives and possibly positives from tariffs, looks to be an increasing contributor to the 2018 economy. Other details include a third straight strong rise in unfilled orders, up 0.5 percent in April, and a useful 0.3 percent build for inventories.
These numbers are not adjusted for inflation:
China debt crackdown leaves regional institutions short of cash
(Nikkei) China is cutting off funds to financial companies and banks tied to regional governments in a crackdown on risky debt. China’s massive state-owned banks are largely responsible for keeping the interbank market flush. Chinese regional governments that have hit limits on debt issuance have traditionally founded quasi-private companies to handle infrastructure and public works, borrowing as needed. From the beginning of 2018 through last week, financial institutions and companies sold just under 460 billion yuan in securitized products, a drop of 10% from a year earlier.
This chart has been revised by the Fed and now looks very different:
Muddling through at depressed levels:
Saudis set price. If they decide to hike as below, it will happen:
OPEC’s new price hawk Saudi Arabia seeks oil as high as $100
Apr 18 (Reuters) — Top oil exporter Saudi Arabia would be happy to see crude rise to $80 or even $100 a barrel. OPEC, Russia and several other producers began to reduce supply in January 2017 in an attempt to erase a glut. They have extended the pact until December 2018 and meet in June to review policy. OPEC is closing in on the original target of the pact – reducing industrialized nations’ oil inventories to their five-year average. Two industry sources said a desired crude price of $80 or even $100 was circulated by senior Saudi officials in closed-door briefings in recent weeks.
Worse than expected, weak, and decelerating:
Highlights
Construction spending has been soft, inching only 0.1 percent higher in February after posting no change in January but there are definitely signs of strength in the details. The most important gains are being posted for new single-family homes, up 0.9 percent for a second straight month for a year-on-year February increase of 9.5 percent. Multi-family homes, where spending has been weak, bounced back a monthly 1.2 percent for a yearly 0.9 percent increase. The weakness in February’s overall report comes from home improvements, which fell a monthly 1.5 percent for only a 1.4 percent yearly gain.
Public spending also weakened in February with educational and highway spending both slipping into slightly negative ground on the month. But private nonresidential spending is a positive, up 1.5 percent on the month though the year-on-year increase is still subdued at 1.1 percent. Power and manufacturing construction have been showing the most weakness though both posted gains in February. Transportation, despite a February slip, has been very strong as has commercial building while office spending, after a big monthly jump, moved back into the year-on-year plus column.
But total year-on-year spending is still subdued, down 2 tenths to only 3.0 percent. Yet the gains in single-family homes are a big plus for the housing market and should help build expectations for a badly needed rise in housing supply in what would prove a major plus for housing sales. Watch on Friday for construction payrolls in the employment report, a component that has been showing solid gains over the past year.
Another indicator showing how the credit expansion has stalled:
Erdogan has it right, of course:
Emerging Markets: A quote from Turkey’s Recep Tayyip Erdogan showing incredible ignorance:
The interest rate is both the mother and the father of the inflation. Those who don’t know this, they should. Anyone attempting to act against this would find me facing them.
This is not going to end well for Turkey.
More signs of a slowdown as exports fall, which means less gdp, and consumer imports down, meaning personal spending was lower than expected, as discussed might be the case previously due to lower personal income growth:
Highlights
Exports came back sharply in January to feed an oversized $74.4 billion goods deficit in January, in what starts off another quarter of trouble for net exports and GDP. Exports fell 2.2 percent in the month with capital goods and industrial supplies posting sharp declines and easily offsetting a sizable gain for the smaller category of consumer goods. Imports also fell but much less so, down 0.5 percent with imports of consumer goods, which on this side of the ledger is the largest category, down 2.2 percent. Imports of capital goods were also down. Today’s report points to a beginning-of-the-year slowing for cross-border trade and a slowing lopsided against exports.
Same here- lower than expected and at odds with the ‘surveys’ that show what I’ve called ‘trumped up expectations’:
Highlights
The major indications on the factory sector are mixed for January with more signs of moderation than acceleration in today’s durable goods report. Total orders sank a sharp 3.7 percent reflecting more than a give back for aircraft orders as the ex-transportation reading dipped an unexpected 0.3 percent. Unfortunately capital goods are part of the weakness, with core orders (nondefense ex-aircraft) down 0.2 percent in January following December’s 0.6 percent decline.
Total shipments are another point of softness, up only 0.2 percent to begin the first quarter off slowly. And shipments of core capital goods, which are inputs into GDP business investment, begin the quarter with only a 0.1 percent gain. Total unfilled orders are another negative, down 0.3 percent and aside from a 0.6 percent gain in December are extending a surprisingly flat trend. One positive is inventory growth, up 0.3 percent and together with gains for this morning’s wholesale and retail inventories (released separately) are pointing to a quick start for first-quarter inventories.
But like the previously released industrial production report, a quick start isn’t what the factory sector is showing and this despite all the enormous strength underway in private and regional surveys like yesterday’s Dallas Fed data or last month’s ISM report. Year-on-year growth rates in today’s report underscore the slowing, moving down from the low double digits/high single digits to the 6 percent range. Like housing, the factory sector appears to be slowing following last year’s rush at year end.
This is one of those ‘trumped up’ surveys that are at odds with the hard data:
Highlights
Market volatility or not, new long-term highs are the continuing story of the consumer confidence index which jumped to 130.8 in February to easily beat Econoday’s consensus and also top the high estimate. Only 14.7 percent of the sample say jobs are currently hard to get which is down noticeably from 16.3 percent in January and points to acceleration for the February employment report. The sample’s outlook for the labor market also continues to rise with 21.6 percent, nearly 3 percentage points higher than January, seeing more jobs opening up six months from now.
Market gyrations however are taking their toll on the sample’s bullishness with only 41.3 percent now seeing stocks moving higher over the next six months for a nearly 10 point monthly decline. The bears are now at 27.4 percent, which is up nearly 7 points.
Inflation expectations are up 1 tenth to 4.7 percent which, however, is very subdued for this reading. A look at component readings shows similar strength between the present assessment and the future outlook, at 162.4 for a 7.7 point gain and 109.7 for a 5.7 point gain, respectively.
Enormous strength in consumer confidence has been a standout feature of the economic data, in some contrast however with consumer spending where strength has been tangible but more limited. If the stock market begins to calm down, it will be interesting to see whether this report actually begins to accelerate further. Watch on Friday for final February consumer sentiment data which, though running less hot than this report, did jump sharply at mid-month.
And here’s another survey:
Highlights
After slower growth in the previous two months, manufacturing activity in the Fifth District showed renewed robust growth in February, with the Richmond Fed Manufacturing Index jumping from January’s 14 to 28, the second highest value on record. Far surpassing consensus analysts’ expectations calling for a modest increase of 2 points, the sharp acceleration in the sixteenth consecutive monthly expansion of manufacturing in the Fifth District was driven by increases in shipments, up 16 points to 31, new orders, up 11 points to 27, and the number of employees, up 15 points to 25.
Note how this has been coming down as weak hard data is released. However it’s also being propped up by survey data:
Still going nowhere:
Highlights
The volume of purchase applications for home mortgages remained unchanged on a seasonally adjusted basis in the February 2 week, while refinancing applications rose 1.0 percent from the previous week despite the headwind of rising interest rates. Unadjusted, purchase applications increased 7 percent from the previous week, though the year-on-year gain shed 2.0 percentage points to 8 percent. The refinancing share of mortgage activity fell 1.4 percentage points to 46.4 percent, the lowest level since July 2017. Mortgage rates continued to rise and accelerated their climb in the week, with the average interest rate on 30-year fixed rate conforming mortgages ($453,100 or less) up 9 basis points to 4.50 percent, the highest level since April 2014.
Worse than expected, but prior month revised higher, and still looking like a top to me:
Highlights
In bad news for fourth-quarter GDP revisions, the nation’s trade gap widened more sharply than expected in December, totaling $53.1 billion which just tops Econoday’s low estimate. Imports swelled by a steep 2.5 percent in the month to $256.5 billion which is a direct subtraction from GDP. The good news in the report is a solid 1.8 percent rise in exports to $203.4 billion which will add to GDP.
Imports of goods rose 2.9 percent to $210.8 billion with imports of services up 0.6 percent to $45.7 billion. Imports of consumer goods is the Achilles heel, at $55.5 billion for a 6.1 percent rise in the month.
Exports of goods, led by a strong rise in capital goods to $47.4 billion, rose 2.5 percent to $137.5 billion while growth in export of services remains slow, up only 0.2 percent to what is however a very positive $65.9 billion that does its share to hold down the total deficit.
Petroleum imports fell sharply to $15.8 billion as a decline in volume more than offset a rise in price. Exports of petroleum continue to catch up, at $12.5 billion for what is a modest petroleum deficit of $3.3 billion.
Country totals are in for full-year 2017 goods deficits and they are sizable: China up 8.1 percent on the year at $375.2 billion; EU up 3.2 percent at $151.4 billion; Mexico up 12.2 percent at $71.1 billion; Japan up fractionally at $68.9 billion; and Canada up the most by far in percentage terms, 63 percent higher to $17.6 billion.
Demand for foreign goods is bad for GDP but it does point to a very strong national appetite. Exports are on the rise which reflects the strength of global demand and also the decline in the dollar which, on the varying measures, fell about 10 percent during last year. For GDP which came in at an initial 2.6 percent annualized rate in the fourth quarter and was held down heavily by net exports, today’s data look to be an even bigger negative for the second estimate later this month.
Even lower than expected as weakness continues:
U.S. Light Vehicle Sales decline to 17.1 million annual rate in January
By Bill McBride
Feb 1, (calculated Risk) — Based on a preliminary estimate from AutoData, light vehicle sales were at a 17.1 million SAAR in January.
That is down 1.2% from January 2017, and down 3.8% from last month.
Once again, prior month revised down, and current month higher than expected. In any case as the chart shows, construction growth remains depressed:
Highlights
Construction ended a modest year on a strong note, rising 0.7 percent in December to lift the year-on-year gain by just more than a point to 2.6 percent. The strength has been in housing where residential spending rose 0.5 percent in the month for a yearly and very strong 6.2 percent increase. All components — single-family, multi-family, home improvements — have been solid contributors.
Holding down the results has been private nonresidential spending which did rise 1.1 percent in December though the yearly rate is still in the negative column at minus 2.5 percent. Spending on office construction fell 5.0 percent in the year with manufacturing and power both falling just over 10 percent. Commercial building was a positive at a 5.1 percent gain with transportation, the smallest of these subcomponents however, up an outsized 36 percent on the year.
Public spending was a positive but this is a small component compared to housing and private nonresidential. Federal spending rose 5.3 percent on the year with state and local up 4.3 percent.
The housing side of this report is positive but needs to accelerate even further to feed supply to what has been a housing sector starved of new homes and condos.
This is more than expected and to the extent it’s incrementally spent will support GDP:
Debt-limit deadline likely in first half of March
Jan 31 (The Hill) — The CBO said the Treasury Department will most likely run out of cash in the first half of March if Congress doesn’t raise or suspend the debt limit before then. “Because the tax legislation reduced individual income taxes for most taxpayers, the IRS released new income tax withholding tables for employers to use beginning no later than the middle of February 2018,” CBO said. “As a result of those changes, CBO now estimates that, starting in February, withheld amounts of individual income taxes will be roughly $10 billion to $15 billion per month less than anticipated before the new law was enacted.”
With government a large, net payer of interest to the economy, higher rates increase net federal spending add to income (I’ve called said govt. interest payments ‘basic income for those who already have $), thereby supporting aggregate demand and contributing to ‘inflation’. While the rate increases have been relatively small, the hikes have now increased the policy rate by about 1.5%:
Fed Signals Cautious Optimism and Support for Higher Rates
Jan 31 (Bloomberg) — “Gains in employment, household spending and business fixed investment have been solid, and the unemployment rate has stayed low,” the Fed said. “The committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate,” the FOMC said, adding the word “further” twice to previous language. Officials also said inflation “is expected to move up this year and to stabilize” around the goal, in phrasing that marked an upgrade from their statement in December.
And households are net savers:
This is ADP’s forecast of tomorrow’s employment number. We’ll see tomorrow how well accurate they were:
A bit higher than expected but down for 2017 vs 2016 (negative growth):
Highlights
Unit vehicle sales proved solid in December, at a 17.9 million annualized rate vs 17.5 million in November. Outside of October and September, which were driven by hurricane-replacement demand, December’s results are among the very best of the last two years. The results, which easily top Econoday’s high estimate, point to strength for the motor vehicle component of the retail sales report and are a plus for fourth-quarter consumer spending. Domestic-made sales also topped the high estimate, coming in at a 14.0 million rate vs November’s revised 13.8 million.
Based on a preliminary estimate from WardsAuto, light vehicle sales were at a 17.79 million SAAR in December.
That is down 1.5% from December 2016, and up 2.2% from last month.
This puts annual sales 17.14 million, down from 17.46 million in 2016.
Read more at http://www.calculatedriskblog.com/#VDdCh1WIl0m8GDhd.99
This is not population adjusted:
And in any case it’s turning into an all light truck story:
Annual U.S. Car Sales Drop for First Time Since Financial Crisis
Jan 3 (WSJ) — Though sales fell 1.8% last year as pent-up demand declined and interest faded in sedans and compact cars, auto makers still sold 17.2 million vehicles in 2017, the first time the industry has cleared the 17-million mark three consecutive years, according to IHS Markit. Vehicles now routinely sell for above $32,000, even with average incentives of $4,000 factored in, according to J.D. Power. That is 10% higher than what car buyers were dishing out when the industry’s rally began in 2010. The domestic car business is far healthier than the last time volumes slipped.
From Wolf’s book:
10. Wolff also writes at length about former Goldman Sachs executive Gary Cohn, who leads the president’s National Economic Council. Cohn has privately disagreed with Trump a number of times in the past year. But an April email that, Wolff writes, circulated around the White House “purporting to represent the views of Gary Cohn” takes this to a new level:
“It’s worse than you can imagine. An idiot surrounded by clowns. Trump won’t read anything – not one-page memos, not the brief policy papers; nothing. He gets up halfway through meetings with world leaders because he is bored. And his staff is no better. Kushner is an entitled baby who knows nothing. Bannon is an arrogant prick who thinks he’s smarter than he is. Trump is less a person than a collection of terrible traits. No one will survive the first year but his family. I hate the work, but feel I need to stay because I’m the only person there with a clue what he’s doing. The reason so few jobs have been filled is that they only accept people who pass ridiculous purity tests, even for midlevel policy-making jobs where the people will never see the light of day. I am in a constant state of shock and horror.”
Same store sales doing a lot better than last year:
Confidence remains high:
Housing, however, still seems to be going nowhere:
Highlights
The pending home sales index has been flat and has not been in line with the strength of final sales of existing homes. This may limit the impact of today’s report where the November index managed only a 0.2 percent gain to a 109.5 level that is still below last year’s levels. In contrast, existing home sales, at a 5.810 million annualized rate in data released last week for November, are at the highest level of the economic expansion. The pending index is up only 0.8 percent vs this time last year, again well below final sales where the year-on-year gain is 3.8 percent.
The regional breakdown in today’s report shows small declines in the West and South, a small gain for the Midwest and a sharp 4.1 percent jump for the Northeast where home sales, both resales and new home sales, have been showing marked acceleration.
Housing data in general have been accelerating strongly going into year end but the pending home sales index, though it did rise a sharp 3.5 percent in last month’s report for October, has been mostly an exception.
