Recent interview transcript, Car sales, Fed Atlanta GDP forecast

Posted on December 2, 2015 @ 12:33 am (Wednesday) by WARREN MOSLER

Transcript: Interview with Economist Warren Mosler

Interesting- total sales rate unchanged, but domestic vehicle sales rate down again.

In other words, not currently growing:

Motor Vehicle Sales

Highlights
Consumers have really shown their strength the last three months, buying vehicles at a 12-year high annualized rate of 18.2 million. That’s right, for three months in a row. The results, however, do not point to a monthly gain for the motor vehicle component of the November retail sales report — but they do point to a foundation of strength.

The composition of November’s unit sales shows a shift higher for light truck sales, no doubt the result of low gasoline prices, that offsets a shift lower for cars. Low gas prices are keeping more money in consumer pockets, reflected not only in a rising savings rate but also in exceptionally strong vehicle sales.

Down again, now forecasting only 1.4% for Q4:

Saudi output, Redbook sales, PMI, ISM

Posted on December 2, 2015 @ 12:17 am (Wednesday) by WARREN MOSLER

While demand for Saudi crude is up a bit, seems it’s still far below their presumed 12 million or so bpd capacity, and their strategy has been to lower their prices to the point where they are selling their full capacity:

Nice bounce here, as the year over year comparisons get ‘easier’:

Redbook

Highlights
Store sales surged in the November 28 week, the week that includes Black Friday. Redbook’s same-store year-on-year sales tally jumped to plus 3.9 percent, more than doubling the pace of prior weeks and the strongest pace since the very beginning of the year. Yet the report is not upbeat, saying shoppers were drawn in by deep discounting. Other commentary on Black Friday notes that shoppers tend to shop for themselves, seeking big ticket items at a discount in buying that is not predictive of holiday sales. Still, the gain in this report offers positive evidence of consumer strength. Watch for motor vehicle sales later today for further evidence of consumer strength.

This is the suspect one:

PMI Manufacturing Index

Highlights
Markit’s U.S. manufacturing sample, which has been reporting much stronger levels of activity than others, reports slower rates of growth in November. The final index for the month is 52.8 for a 2 tenths improvement from the flash but down a tangible 1.3 points from October.

Softness in new orders, rising at their slowest pace in just over two years, is the chief reason for the dip. Export orders are in contraction, once again the result of weak foreign demand made weaker for U.S. goods by the strength of the dollar. Weakness in new orders is compounded by the first contraction in backlog orders since November last year. With orders down, output moderated in the month and manufacturers cut back inventories of finished goods.

Hiring is slowing and supply deliveries are improving, both indicative of weakness. Price readings remain mute.

Though levels in this report are still pointing to growth, their weakness relative to prior months points perhaps to contraction in November for the factory sector which, however, bounced back in October, at least based on the industrial production and factory order reports. Watch for the ISM report coming up at 10:00 a.m. ET.

Particularly bad:

ISM Mfg Index

Highlights
After skirting right at the breakeven 50 line since September, ISM’s manufacturing index broke below in November to 48.6 which is more than 1 point below Econoday’s low-end estimate the lowest reading since June 2009. The decline includes a significant dip for new orders which are down 4.0 points to 48.9 and the lowest reading since August 2012. At 43.0, backlog orders are in a six-month streak of contraction. With orders down, ISM’s sample cut back on production, down nearly 4 points to 49.2, and cut back on inventories, down 3.5 points to 43.0. Employment firmed but remains soft at 51.3. This report is closely watched and will raise expectations for a quick reversal in the factory sector which, in October at least, showed glimpses of strength.

Note the deceleration since oil related capital expenditures collapsed about a year ago:

Not bad vs last month, but still depressed historically and as a % of GDP.

And in general it’s been softening since the surge in front of the NY tax breaks expired in June.

Construction Spending

Highlights
Construction is one of the highlights of the 2015 economy with spending up a solid 1.0 percent in October for the best rate since May. Despite mixed signals from the housing sector, spending on residential construction is very solid, up 1.0 percent in October for a seventh straight gain and all of them convincing. Year-on-year, residential construction is up 16.6 percent vs 13.0 percent for total spending. Private non-residential spending rose 0.6 percent in October with the year-on-year rate at plus 15.3 percent. Public spending is holding down totals with the educational component unchanged in the month though Federal spending did jump, up 19.2 percent for a year-on-year rate of plus 10.7 percent which leads the public components. This report points to solid fourth-quarter contribution from construction.

From a previous report:

This chart hasn’t updated yet, and so is only through September, but you can see how the growth rate this cycle is well below last cycle, and how year over year comparisons will be a bit misleading for a while due to the dip last year:

Saudi production, Restaurant index

Posted on November 30, 2015 @ 2:26 pm (Monday) by WARREN MOSLER

Just came out.

Saudis still producing and selling far below their stated ‘cap’:

OPEC November Crude Output Down 33,000 Bbl/Day to 32.121 Mln
2015-11-30 17:55:55.463 GMT

New York, Nov. 30 (Bloomberg) — Crude-oil production from the 12 OPEC members in November declined 33,000 barrels a day from October, the latest Bloomberg survey of producers, oil companies and industry analysts shows. Figures are in the thousands of barrels a day.

Nov. Oct. Monthly 1/1/2012 Nov. vs Est.
OPEC Country Est. Output Change Target* Target Cap(@)
Algeria 1,100 1,100 0 — — 1,150
Angola 1,840 1,814 26 — — 1,870
Ecuador 537 544r -7 — — 540
Iran 2,800 2,800r 0 — — 2,900
Iraq* 4,321 4,217r 104 — — 4,400
Kuwait# 2,850 2,820 30 — — 2,950
Libya 375 430 -55 — — 1,550
Nigeria 1,878 2,019 -141 — — 2,200
Qatar 670 640 30 — — 780
Saudi Arabia# 10,330 10,300r 30 — — 12,500
U.A.E. 2,940 2,970 -30 — — 3,150
Venezuela 2,480 2,500 -20 — — 2,500
Total OPEC-12 32,121 32,154r -33 30,000 2,121 36,490
Total OPEC-11 27,800 27,937r -137 — — 32,090

Yes, it’s still expanding, but seems the rate peaked as oil capex collapsed and its since been decelerating:

Chicago PMI, Pending home sales, Dallas Fed

Posted on November 30, 2015 @ 2:22 pm (Monday) by WARREN MOSLER

Another bad one, reversing last month’s suspect move up:

Chicago PMI

Highlights
Volatility is what to expect from the Chicago PMI which, at 48.7, is back in contraction in November after surging into strong expansion at 56.2 in October. Up and down and up and down is the pattern with prior readings at 48.7 in September (the same as November) and 54.4 in August.

New orders are down sharply and are back in contraction while backlog orders are in a 10th month of contraction. Production soared nearly 20 points in October but reversed most of the gain in November. Despite November’s weakness, employment are up slightly. Prices paid is in contraction for a fourth straight month.

Though this report points to November weakness for the whole of the Chicago economy, the volatility of the report should limit its impact on the month’s outlook.

Along with the ISM, it’s decelerated with the collapse in oil related capital expenditures, and nothing yet has come along to fill that spending gap (apart from building unsold inventory):

More bad, and it’s not like mortgage rates aren’t low:

Pending Home Sales Index

Highlights
Sales of existing homes have been soft and are not likely to pick up in the next few months based on October’s pending sales index which is up only 0.2 percent. Year-on-year, the index is up 3.9 percent which matches the rate of gain for final sales during October. Flatness, unfortunately, is the theme.

The Northeast did the best in October, up 4.5 percent for a year-on-year plus 6.8 percent. The West is next with pending sales up 1.7 percent for a year-on-year gain of 10.4 percent. Bringing up the rear are the Midwest, down 1.0 percent on the month for a year-on-year plus 3.3 percent, and the largest region which is the South, down 1.7 percent in October for the only negative year-on-year reading of minus 0.3 percent.

The National Association of Realtors cites low supply of available homes as a negative for sales and warns that prices in some markets are rising too fast, especially for first-time buyers. The association cites strength in the Northeast as an example, a region where price appreciation is lower and supply greater.

The new home market isn’t doing that much better than existing homes, with sales up 4.9 percent year-on-year in the latest available data. Watch for construction spending on tomorrow’s calendar, one aspect of the housing market that has been showing solid strength.

And in sync with last week’s existing home sales report also showing flatness at low levels:

Not as bad as expected but still in contraction mode:

Dallas Fed Mfg Survey

Highlights
The Dallas Fed’s general activity index is in contraction for an 11th consecutive month, at minus 4.9 for November which is, however, improved from October’s minus 12.7. The Econoday consensus was calling for an 11.0 point decline.

Order readings are also negative, at minus 1.6 for new orders, which is a 6 point improvement, but at minus 7.3 for the growth rate of new orders which is little changed from October and in the negative column for the 13th month in a row.

On the plus side is a second straight increase for production, up 4 tenths to 5.2. And readings on the business outlook are steady to higher.

But price data in the report are pushing further into negative ground with finished goods prices at minus 12.1 for an 11th straight negative reading, underscoring the deflationary effects of low energy prices on the Texas economy.

This report rounds out what is a flat to negative run of regional indications for the nation’s manufacturing sector during November, a sector that continues to be hurt by weak export demand and low prices.

Credit check

Posted on November 30, 2015 @ 1:55 pm (Monday) by WARREN MOSLER

Nothing of consequence here. Growth still below prior cycles and not accelerating as it was beginning to do before oil capex collapsed:

While growth of real estate lending is still far below the prior cycle, it has been increasing, probably due to fewer ‘all cash’ purchases, and the modest recovery in prices and sales:

Consumer credit growth remains modest and, if If anything, is softening most recently:

Looks to me like car loan growth is slowing a bit:

Philly Fed Coincident Index, Rail Chart, Truck Tonnage

Posted on November 27, 2015 @ 11:09 am (Friday) by WARREN MOSLER

Mtg prch apps, Durable goods, Personal income and outlays, New home sales, Consumer Sentiment, PMI services

Posted on November 26, 2015 @ 2:26 am (Thursday) by WARREN MOSLER

Purchase apps have been flat to down for quite a while now,
and the year over year comp will be reflecting that in a few months as well:

United States : MBA Mortgage Applications

Highlights
After spiking sharply in the prior when rates jumped and triggered concern they would move even higher, mortgage application volumes eased in the November 20 week as rates settled back with purchase applications down 1.0 percent and refinancing applications down 5.0 percent. However, purchase applications, up a stunning 24 percent year-on-year, are pointing very strongly to underlying gains for home sales. The average for conforming 30-year mortgages ($417,000 or less) fell 4 basis points to 4.18 percent after rising 6 basis points in the prior week.

Up more than expected, and the details highlighted below and year over year chart still looking recession:

United States : Durable Goods Orders

Highlights
The factory sector is showing life with new orders in October up a very solid 3.0 percent which just exceeds Econoday’s high-end forecast. Excluding transportation, and orders tied to the biennial Dubai airshow, new orders rose 0.5 percent which is also solid and higher than expected. And underscoring the gains in a significant way is sudden strength in orders for core capital goods, up an outsized 1.3 percent with the prior month revised from a decline to a 0.4 percent gain.

Looking at details, commercial aircraft orders surged more than 200 percent, which again is an anomaly, though in a sign of weakness out transportation, orders for motor vehicles fell 2.9 percent in the month. But this decline is probably not the beginning of a trend given still very strong vehicle sales.

Turning to capital goods industries, new orders for machinery jumped 1.6 percent with computer orders up 5.5 percent and communications equipment up 1.8 percent. Total year-on-year core orders are suddenly in the plus column, at 0.4 percent for the first positive reading since January. These gains speak to a rebound in expectations among businesses which perhaps are now looking for strength in the new year.

Among other readings, total shipments fell 1.0 percent in October which is not a good start to the fourth quarter with core capital goods shipments also lower, down 0.4 percent. Inventories do offer good news, down 0.2 percent amid concern that levels are too high right. And relative to shipments, if not orders, inventories are too high with the inventory-to-shipments ratio jumping to 1.66 from 1.64. Unfilled orders, however, are positive, ending two months of decline with a 0.3 percent gain.

The order data in this report are very encouraging and follow strength in the manufacturing component of the industrial production report. Together they point to a year-end rebound underway for what had been, at least, an export-depressed factory sector. As far as a December rate hike, this report will offset, at least to a degree and perhaps to a large degree, the softness in this morning’s PCE price data.

This is for consumer goods:

PCE for durable goods growth has been working its way lower ever since oil related capex collapsed about a year ago:

Spending is low and below expectations, and it’s spending that ultimately provides the income. Also, inflation related data remains depressed, perhaps giving the Fed pause regarding rate hikes. But perhaps not…:

United States : Personal Income and Outlays

Highlights
The core PCE is the Fed’s most important inflation reading and it is not showing rising pressure, coming in unchanged in October, vs an expected gain of 0.2 percent, with the year-on-year rate at 1.3 percent which is also unchanged. Consumer spending also proved soft, up only 0.1 percent vs expectations for a 0.3 percent gain. Spending shows flat readings across categories including only a small gain for services which usually are strong.

The income side is better, hitting expectations at a 0.4 percent gain with wages & salaries showing an outsized gain of 0.6 percent. And the outlook for future spending is solid with a strong 3 tenths rise in the savings rate to 5.6 percent.

Turning back to inflation readings, the overall PCE price index remains nearly dead flat in a reminder that fuel prices remain very low and should give a boost to durable spending during the holidays. The PCE price index is up only 0.1 percent, vs Econoday expectations for a 0.2 percent gain, with the year-on-year rate at a very telling and extremely low plus 0.2 percent.

Though income data in this report do point to consumer strength ahead, the spending data are not a strong start at all for the fourth quarter. These results, especially the core price readings, will not lift the odds for a December rate hike.

The consumer took a hit with the tax hikes and sequesters and that wide gap is still there:

Consumption growth is decelerating, including services:

This inflation indicator remains depressed:

Last month revised lower and this month below expectations, as a presumed housing ‘burst’ has again failed to materialize:

United States : New Home Sales

Highlights
New home sales are not surging, coming in near expectations in October at a 495,000 annualized rate. Though the month’s gain is 10.7 percent, it doesn’t quite reverse the prior month’s 12.9 percent plunge. Year-on-year new home sales are up a respectable looking 4.9 percent which, however, pales to the double-digit rates through most of the year.

Lack of supply is a key issue for the new home sector that is holding down sales, at only 5.5 months relative to sales which is down from 6.0 months in September. But actual new homes on the market are up slightly, at 226,000 which compares to 208,000 a year ago.

Unlike price data in this week’s Case-Shiller and FHFA reports, there is no indication of improved traction in what belies the lack of supply in the market. The median price, at $281,500, is down a very severe looking 8.5 percent in the month with the year-on-year rate at minus 6.0 percent.

The Northeast is showing very solid strength, up more than 100 percent in the month though sales levels in this region make up only a tiny fraction of national sales. The South, by far the largest region for new home sales, showed key strength in the month with a 8.9 percent gain. Year-on-year, the Northeast is out in front with a 60 percent gain followed by the South with a 5.2 percent gain. The West, a key region for home builders, shows a disappointing 2.6 percent year-on-year decline with the Midwest bringing up the rear at minus 4.8 percent.

The housing sector remains uneven with this report confirming lack of strength in Monday’s existing home sales report. Though there are indications, not in this report of course, of price traction in housing, conditions in the sector do not point to an increased chance for a December rate hike.

Still below the bottom of all prior recessions, and this is not population adjusted!

Sales are near the bottom of prior recessions:

A bit worse than expected:

Consumer Sentiment

Highlights
Consumer sentiment fell back in the last half of November to a final reading of 91.3 vs a mid-month flash of 93.1. Though November’s final is higher than the 90.0 final in October, the implied reading for the last two weeks is in high 80s/low 90s area and do, unfortunately, point to a possible effect from the Paris attacks. Like yesterday’s very disappointing consumer confidence report, weakness is centered in expectations with this component at 82.9 vs 85.6 for November’s flash. The implied reading here over the last two weeks is in the high 70s area which is noticeably below the mid-80s trend.

But in a positive that points to no immediate effect on consumer spending, the current conditions component shows much less weakness, down only 5 tenths from the flash at 104.3. Inflation readings are up from mid-month but little changed from October, at 2.7 percent for the 1-year outlook, which is unchanged from October, and at 2.6 percent for the 5-year outlook which is up 1 tenth from October.

This is the Markit index which tends to overstate things relative to other indexes:

PMI Services Flash

Redbook retail sales, Corporate profits, Inflation adjusted real house prices

Posted on November 25, 2015 @ 2:05 pm (Wednesday) by WARREN MOSLER

Sales = gross income, and profits are net income:

Still down:

Adjusted for inflation housing prices are about where they were 10 years ago:

Discount rate, Profits, GDP commentary

Posted on November 25, 2015 @ 11:11 am (Wednesday) by WARREN MOSLER

Interesting, with no discount borrowings, the regional Federal Reserve Bank presidents want a discount rate hike?

Nine Fed banks called for discount rate hike: minutes

Nov 24 (Reuters) — The number of regional Federal Reserve banks pushing for a hike in what commercial banks are charged for emergency loans rose to nine in October, minutes from its discount rate meeting showed. Eight Fed banks had voted to raise the discount rate at the prior meeting in September, a jump from five in July and August. The nine regional banks that requested a hike want to normalize the spread between the discount rate governing Fed lending to banks and the overnight federal funds rate, which is the central bank’s primary economic lever.

Falling Corporate Profits Blur U.S. Growth Outlook

Nov 24 (WSJ) — A comprehensive measure of companies’ profits across the U.S.—earnings adjusted for inventory and depreciation—dropped to $2.1 trillion in the third quarter, down 1.1% from the second quarter. Compared with a year earlier, profits fell 4.7%. Profits as a share of overall economic output have shrunk to 11.4% in the third quarter from a recent peak of 12.5% in 2012. Domestic profits rose $7.3 billion in the third quarter, or 0.4%. Domestic profits were down 2.8% from the third quarter of 2014. Meanwhile, foreign profits fell by $30 billion, a 7.4% decline from the second quarter and 12.2% drop from a year earlier.

As previously discussed, if agents spending more than their incomes weren’t sufficient to offset agents spending less than their incomes the output didn’t get sold, and inventories build. This leads to reduced production, reduced employment, and reduced income, in a downward spiral that only reverses via agents spending that much more than their incomes. With the private sector largely pro cyclical, the reversal most often requires govt spending that much more than its income, either by reducing taxes or increasing spending. This can be done proactively, or the ugly way- via reduced tax collection due to the slow down and rising unemployment benefits, as most often is the case, at least initially. With the currency itself a (simple) public monopoly, and in this case the currency monopolist is restricting the supply of net $US financial assets, and a necessarily pro cyclical private sector, the idea of markets clearing on their own to restore output and employment is entirely inapplicable once the down turn is in progress:

U.S. GDP growth raised for third quarter

Nov 25 (Reuters) — US GDP grew at a 2.1 percent annual pace, not the 1.5 percent rate it reported last month. Wages and salaries increased $109.3 billion, $61.6 billion more than initially estimated. In the third quarter, businesses accumulated $90.2 billion worth of inventories, instead of the $56.8 billion reported last month. That followed more than $100 billion worth of inventories accumulated in each of the prior two quarters. Business spending on equipment was revised up to a 9.5 percent rate from a 5.3 percent pace.

Consumer Confidence Index Declines Again

Nov 24 (Conference Board) — The Consumer Confidence Index declined to 90.4 in November, down from 99.1 in October. The Present Situation Index decreased from 114.6 last month to 108.1 in November, while the Expectations Index declined to 78.6 from 88.7 in October. Those stating jobs are “plentiful” decreased from 22.7 percent to 19.9 percent, while those claiming jobs are “hard to get” increased to 26.2 percent from 24.6 percent. Those anticipating more jobs in the months ahead fell from 14.4 percent to 11.6 percent, while those anticipating fewer jobs increased from 16.6 percent to 18.7 percent.

As recession hits, deficit spending is what always leads the subsequent recovery:

GDP, Consumer confidence, Corporate profits, Richmond Fed, Trade

Posted on November 24, 2015 @ 1:10 pm (Tuesday) by WARREN MOSLER

Output was revised up, but mainly due to growing unsold inventory, with other spending revised lower and showing more deceleration than the first release:

GDP

Highlights
Third-quarter GDP is revised to an annualized plus 2.1 percent, up 6 tenths from the initial estimate but showing less strength by the consumer with final sales now at plus 2.7 from plus 3.0 percent. Higher inventories are a big factor in the upward revision, subtracting 6 tenths from GDP vs an initial 1.4 percent subtraction.

Net exports pulled GDP down by 2 tenths vs only a small negative effect in the first estimate. Exports rose only 0.9 percent in the quarter, down 1 percentage point from the initial reading. Readings on residential investment, adding 2 tenths to GDP, and nonresidential fixed investment, adding 3 tenths, are little changed.

Turning back to the consumer, personal consumption expenditures are revised to plus 3.0 percent, down 2 tenths from the initial estimate and reflecting less strength for durable goods and also services on lower spending for communications and natural gas.

The gain in inventories is not a positive for the fourth quarter, posing headwinds for businesses which may limit production and employment to pull down their inventories. Still, the readings on the consumer are a positive and a reminder that the nation’s economy is being driven by domestic demand. Other details include a tame plus 1.3 percent rise in the GDP price index, up 1 tenth from the initial reading.

Note the decelration over the last year as oil prices and capital expenditure collapsed:

Collapsing?

Consumer Confidence

Highlights
Lack of confidence in the outlook for the jobs market sank the consumer confidence index in November, which fell to 90.4 vs a revised 99.1 in October. The November reading is far under expectations and is the lowest since September last year. Expectations, one of two main components in this report, fell more than 10 points to 78.6 which is the lowest reading since February last year. The employment subcomponent here shows fewer consumers seeing jobs opening up six months from now and more seeing fewer jobs ahead.

The present situation component shows less weakness, down 6.5 points to 108.1 which is the lowest reading since only July. Here the employment subcomponent also shows weakness but nothing dramatic, with 26.2 percent saying jobs are hard to get which is up from October’s 24.6 percent but still respectable. But those describing jobs as currently plentiful showed more noticeable deterioration, at 19.9 percent vs October’s 22.7 percent.

A plus in the report is a jump in buying plans for autos, at 12.4 percent vs October’s 9.8 percent in a reading that hints at renewed acceleration for the motor vehicle component of the government’s retail sales report. A negative is a dip in home buying plans, to 5.6 percent from 6.2 percent. Other readings include a 1 tenth dip in inflation expectations to 5.0 percent which, for this particular reading, is actually subdued but nothing dramatic.

But the decline in job expectations is dramatic and raises the question whether global effects, which have been negative for the U.S., are beginning to weigh on the American consumer — which would not be a positive for the holiday spending outlook.

Corporate Profits

Highlights
Corporate profits in the third quarter came in at a revised $1.786 trillion, up a year-on-year 1.4 percent. Profits are after tax without inventory valuation or capital consumption adjustments.

Richmond Fed Manufacturing Index

Highlights
Early indications for the November factory sector are soft right now after Richmond Fed reports a much lower-than-expected minus 3 headline for its manufacturing index. Order data are very negative with new orders at minus 6, down from zero in October, and backlog orders at minus 16 for a 9-point deterioration. Shipments are also in contraction, at minus 2, with the workweek at minus 3. Employment, at zero, shows no monthly change but the declines for backlog orders and the workweek don’t point to new demand for workers. Price data are subdued but do show some constructive upward pressure.

This report along with Empire State, as well as yesterday’s manufacturing PMI, are pointing to a downbeat month for the factory sector which is being held down by weak foreign demand, as evidenced in the decline for goods exports in this morning’s advance release of international trade data.

International trade in goods

Highlights
The nation’s trade gap in goods came in at a lower-than-expected deficit of $58.4 billion in October vs $59.2 billion in September. Though the month-to-month comparison points to improvement for the trade deficit, the details are not positive with exports down 2.6 percent and imports, in a sign perhaps of softening domestic demand, down 2.1 percent and following weakness also in September. Weak categories for imports include foods/feeds/beverages, industrial supplies and also capital goods as well as consumer goods with the latter hinting at weak business expectations for the holidays. Export categories showing weakness include foods/feeds/beverages and also industrial supplies.

Mosler Economics / Modern Monetary Theory

The Site of Economist Warren Mosler