Housing starts, Unemployment claims, China

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Still heading south:

In addition to tightening requirements, states have found other means to keep people from receiving benefits:

Has the economy made it arder to get unemployment benefits?

Not every terminated employee is eligible to receive unemployment benefits. You have to earn a minimum amount to even qualify; you cannot quit or be fired for cause, as defined by Illinois law; and you must actively search for alternative employment. With these requirements in mind, the Illinois Department of Employment Insurance (IDES) has, in the past, generally appeared to lean in favor of the employee when determining eligibility.

However, through working with both executives and small business owners, my office has been seeing a shift. I am not sure if state budget pressures are pushing this change, but IDES employees have been seemingly going out of their way to contact small business owners and encourage them to contest unemployment claims.

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Euro area PMI, Architecture billings index, Philly Fed, Retail sales, Inventories, Fed report, Equity prices and earnings forecasts

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Not looking good:

German Factory Activity Continues to Contract in April

The IHS Markit Germany Manufacturing PMI rose to 44.5 in April 2019 from the previous month’s near seven-year low of 44.1, but below market expectations of 45, a preliminary estimate showed. Still, the latest reading pointed to a sharp contraction in the manufacturing sector, as inflows of new business fell for a fourth straight month led by a further steep decline in new export orders, which dropped at the second-fastest rate in the past ten years. Firms highlighted weak demand across the automotive sector in particular, whilst also suggesting some hesitancy among UK based clients. In addition, work-in-hand at manufacturers declined the most for almost a decade while employment levels were unchanged. Looking ahead, business confidence towards the year-ahead outlook was the weakest since November 2012.

French Factory Activity Contracts the Most in 2-1/2 Years

The IHS Markit France Manufacturing PMI edged down to 49.6 in April 2019 from 49.7 in the previous month, missing market expectations of 50, a preliminary estimate showed. The latest reading pointed to the steepest contraction in the manufacturing sector since August 2016, as output fell the most in four years. On the other hand, new orders and export sales both declined at a softer pace while employment growth accelerated.

Back in negative territory:

In contrast, this is an upbeat report (subject to revision) for March, though the chart doesn’t look so good:

Highlights

The optimists weren’t quite optimistic enough as March retail sales, across all major readings, came in just above Econoday’s high estimates. Still, the trend is uneven and not pointing with certainty to acceleration ahead for consumer spending.

Total retail sales jumped 1.6 percent in March which exactly matches the decline in the much more important month of December. February sales are unrevised at the headline level at minus 0.2 percent with January sales revised 1 tenth higher to a gain of 0.8 percent.

Ex-auto sales show a bit less strength over this period, rising 1.2 percent in March but falling 2.1 percent in December with February revised to a 0.2 percent decline and January holding at an increase of 1.4 percent. Other core readings are similar, showing strength in March following bumpy results previously with ex-autos ex-gas rising 0.9 percent in the latest month and control group sales, which are inputs into GPD, up a helpful 1.0 percent.

Vehicle sales stand out sharply in March, up 3.3 percent following declines in the two prior months. Sales at gasoline stations also stand out, up 3.5 percent for a second straight month but boosted by price effects for fuel.

Convincing strength is evident once again for non-store retailers which, after falling 4.5 percent in December, have posted three straight strong gains including 1.2 percent in both March and February. Restaurants are also convincing, up 0.8 percent in the latest month for a third straight gain in what speaks directly to discretionary strength. Furniture & home furnishing stores are also doing well with three straight gains including a 1.7 percent March jump.

Lagging are department stores, unchanged following three straight declines which may reflect a shift underway in consumer habits away from traditional malls than weakness in consumer demand. General merchandise, which is the broader category that includes department stores, rose 0.7 percent in March but failed to make up for recent weakness.

Yet this report is not about weakness but about strength, and the results are certain, like yesterday’s trade data for February, to give a lift to first-quarter GDP estimates. The economy’s soft patch so far this year isn’t as soft as it once looked, but questions remain.

Elevated inventories are not a good sign:

U.S. labor market remains tight, economy continues to grow

(Reuters) The U.S. central bank’s “Beige Book” report found economic activity grew at a slight-to-moderate pace in March and early April. Prices have risen modestly since the last Beige Book, with tariffs, freight costs and rising wages often cited as key factors, the Fed said. It added that consumer spending was mixed but suggested sluggish sales for both general retailers and auto dealers. Wages grew moderately in most districts for both skilled and unskilled workers. In terms of the manufacturing sector, the Fed said contacts in many districts reported that trade-related uncertainty was weighing on activity.

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Trade, Housing affordability, China, BOJ equity buying, Retail comment

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Imports and exports both decelerating indicates a weaker global economy, and weak US retail sales indicates domestic consumer spending growth is slowing:

Highlights

First-quarter GDP looks to get a major boost from improvement in the nation’s trade deficit which, for February, came in at much lower-than-expected $49.4 billion. And the positives are more than just a technical calculation as exports, driven by aircraft, jumped 1.1 percent in the month on top of January’s 1.0 percent gain.

Exports of goods rose 1.5 percent to $139.5 billion as civilian aircraft rose $2.2 billion in the month. Outside of aircraft, however, gains are less striking with auto exports up $0.6 billion and with monetary gold and consumer goods showing marginal gains. For farmers, the results are slightly in the negative column with exports down $0.2 billion. But exports of services, at $70.1 billion in the month and usually a reliable plus, rose 0.3 percent.

Imports rose only 0.2 percent in the month, totaling $259.1 billion but with consumer goods showing yet another large increase of $1.6 billion in the month. Imports of industrial supplies fell $1.2 billion despite a 0.8 billion rise in the oil subcomponent. Imports for other categories were little changed.

Bilateral country deficits show a sharp decline with China, down $24.8 billion in unadjusted monthly data that are hard to gauge given strong calendar effects during the lunar new year. But year-to-date, the deficit with China is at $59.2 billion and down sizably from $65.2 billion in the comparison with the 2018 period. February’s deficit with both the European Union and Canada narrowed while deficits with Japan and especially Mexico, at $7.4 billion vs January’s $5.8 billion, deepened.

Today’s results are certain to lift first-quarter GDP estimates which had been roughly at the 2 percent line. The average deficit for the first two months of the quarter is $50.3 billion which is well under the $55.6 billion monthly average in the fourth quarter. And the easing deficit with China may well ease immediate tensions in U.S.-Chinese trade talks.


Interesting as debt service and financial burdens ratios remain historically low:


They’ve made fiscal adjustments that may be kicking in:

Bank of Japan to be top shareholder of Japan stocks

Bank of Japan to be top shareholder of Japan stocks (Nikkei) The BOJ held over 28 trillion yen ($250 billion) in exchange-traded funds as of the end of March — 4.7% of the total market capitalization of the first section of the Tokyo Stock Exchange. Assuming that the bank maintains its current target of 6 trillion yen in new purchases a year, its holdings would expand to about 40 trillion yen by the end of November 2020. This would place it above the GPIF’s TSE first-section holdings of more than 6%. The BOJ has likely also become the top shareholder in 23 companies through its ETF holdings. It was among the top 10 for 49.7% of all Tokyo-listed enterprises at the end of March.

This could explain why same store sales have been growing by about 5% year over year:

CNN: American retailers already announced 6,000 store closures this year. That’s more than all of last year.

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Housing, Freight, Infrastructure, Trump advice, MMT hysteria, Cooling real estate markets

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Tax Reform Exacerbates Sales Cooldown in the U.S.

(WSJ) U.S. tax reform has exacerbated a gradual cooldown in U.S. home sales over the past year in certain parts of the country, according to research from realtor.com. The Tax Cuts and Jobs Act, which went into effect on Jan. 1, 2018, allows homeowners to deduct mortgage interest on a loan up to $750,000—down from $1 million—and caps state and local tax deductions to only $10,000. Home sales fell 6% across a sample of 30 counties where a large proportion of households took the mortgage interest deduction, while home sales rose by a modest 0.3% in a sample of 30 counties where taxpayers didn’t use the deduction.

Sliding Freight Rates Send More Big Bulk Ships to Scrapyards

(WSJ) Ship-broker BTIG said in a report that 107,000 deadweight metric tons of ship steel were recycled in the first three months of this year, up 35% from 78,000 metric tons in the same period a year ago. Of 23 vessels scrapped, 16 were capesize vessels, the biggest cargo ships. Capes now command daily freight rates of around $9,000, well below the average $25,000 needed to break even. The Baltic Dry index was at 726 points on Friday, down 27% in the past 12 months. The ship-breaking industry has annual revenue up to $5 billion and 2018 was one of the busiest years ever.

U.S. Democrats seek up to $2 trillion to invest in aging infrastructure

(Reuters) House of Representatives Speaker Nancy Pelosi and Senate Democratic leader Chuck Schumer said they would try to revive an effort for major investments in public works. The White House said President Trump had spoken recently with Pelosi and “agreed to meet soon to discuss working together on infrastructure,” spokesman Judd Deere said. “I’m all for taking it (infrastructure legislation) up once the president and Democrats, everybody says: ‘OK, here’s how we’re going to pay for it.’ As soon as that magically appears, I think we have a way forward,” Senate Majority Leader Mitch McConnell said.

In case there was any doubt he’s still doing his own tweets:

President Donald Trump encourages France to use “flying water tankers” to put out a raging fire at the Notre Dame Cathedral in Paris as firefighters rushed to save one of the country’s most visited landmarks.

“So horrible to watch the massive fire at Notre Dame Cathedral in Paris,” the president tweets. “Perhaps flying water tankers could be used to put it out. Must act quickly!”
“If you hit that with tons of water from above, that’s going to collapse the entire structure and make the situation worse,” said Wayne McPartland, a retired New York City Fire Department battalion chief. “If you miss, you might hit civilians in the street.”

They are talking about me!
:(

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Automatic cuts, China vehicle sales, Greenspan on wealth effect

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Trump may allow $125B in cuts if Congress doesn’t act

(The Hill) President Trump has indicated that he would allow $125 billion in spending cuts to take place if Congress does not agree to his spending plan, White House adviser Larry Kudlow said Thursday. Kudlow was referring to budget caps set in place in the 2011 Budget Control Act (BCA), a law that was meant to force bipartisan cooperation on budgeting by threatening steep cuts to both defense and nondefense spending. Without legislation to raise the caps, 2020 defense spending would drop $71 billion and nondefense spending would drop $54 billion from current levels — about a 10 percent across-the-board cut.

Vehicle sales in China continue to drop, NEV sales rise

(China Daily) Chinese sales of passenger vehicles, MPVs, SUVs and minivans in March dropped 12 percent on a yearly basis to 1.78 million units. This is the 10th consecutive monthly decrease, according to the China Passenger Car Association (CPCA). The MPV sector saw the largest sales decline, 20.2 percent to 130,000 units in the past month, while SUVs and sedans dropped 10.7 and 12 percent, respectively. As China began to cut manufacturing sector VAT from 16 to 13 percent on April 1, some imported and high-end vehicle brands lowered prices to boost sales nationwide.

I hadn’t seen this quantified and looks reasonable to me, via the various credit channels:

However, Greenspan said much of the improvement has come from a rise in stock market prices: He sees a “stock market aura” in the economy. A rise of 10 percent in the S&P 500 corresponds to a 1 percent real GDP increase, he said. The S&P 500 has risen nearly 16 percent in 2019 and is on track for its best performance in history should current trends hold.

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Freight, Pensions, ECB, Germany

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Truckers Cut Payrolls As Freight Demand Softens

Funding pensions reduces aggregate demand:

The Long Bull Market Has Failed to Fix Public Pensions

Long term loans to banks do nothing for the macro economy and negative interest rates are a tax:

Mario Draghi signaled that the European Central Bank expects to rely on long-term bank loans and tweaks to its negative interest-rate policy as a first defense if officials need to intensify their fight against the economic slowdown.

The comments came as the ECB president warned that euro-area growth has cooled further this year and could yet worsen. In a sign that hopes of a second-half rebound are fading, he said the weakness “will extend into the rest of the year.”

Germany’s Economy Runs on Low Wages

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Buy backs, Inflation, Credit applications, Philly Fed

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So the question is regarding dividends vs stock buy backs- do stock buy backs cause stocks to be over valued or do dividends cause them to be undervalued?
;)

A Surprising Connection Between the Bull Market and Stock Buybacks

(WSJ) A study published last year in the Financial Analysts Journal, “Net Buybacks and the Seven Dwarfs,” found that net buybacks—the number of shares that companies repurchased across the entire stock market, less the number of new shares issued—explain the bulk of the intermediate- and longer-term differences in stock-market returns around the world. In an analysis of 43 countries’ stock markets between 1997 and 2017, the researchers found that net buybacks explain 80% of the difference in countries’ returns.

Maybe core inflation does start rising after rates are hiked?


Note the 2018 deceleration:


Signs of elevated recession risk here:

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Auto sales, Lumber, Rail loadings, Global survey, Profits comments, Las Vegas Real Estate, Central Banks buying gold

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This has been know to be associated with the housing cycle:

Framing Lumber Prices Down 30% Year-over-year

This has taken a dive recently:

Global economy enters ‘synchronised slowdown’

(F) The global economy has entered a “synchronised slowdown” which may be difficult to reverse in 2019, according to the latest update of a tracking index compiled by the Brookings Institution and the Financial Times. The Brookings-FT Tracking Index for the Global Economic Recovery (Tiger) compares indicators of real activity, financial markets and investor confidence with their historical averages for the global economy and for individual countries. The headline readings slipped back significantly at the end of last year and are at their lowest levels for both advanced and emerging economies since 2016.

Corporate Profit Squeeze Looms, Threatening Stocks’ Climb

(WSJ) Analysts project S&P 500 profits in the first quarter will contract 4.2% from a year earlier, according to FactSet, followed by flat growth in the second quarter. That puts the broad index at risk of entering its first earnings recession—marked by at least two or more consecutive quarters of negative earnings growth—since 2016. S&P 500 companies grew profits 20% in 2018, one of the best growth rates since the financial crisis, according to FactSet. Analysts see profits growing just 3.7% this year. S&P 500 companies are trading at 16.7 times their future earnings, the same level the broad index traded at in early October.

Las Vegas Real Estate in March: Sales Down 16% YoY, Inventory up 92% YoY

Gold buying like this functions as ‘off balance sheet deficit spending’. It’s off balance sheet as the payments by the CB don’t count as fiscal expenditures as they are accounted for as CB asset. And it’s functionally state deficit spending as the purchases add income in the form of net financial assets to the non government sectors:

China’s on a bullion-buying spree. The world’s second-largest economy expanded its gold reserves for the fourth straight month, adding to optimism that central banks globally will continue to build holdings.

The People’s Bank of China raised reserves to 60.62 million ounces in March from 60.26 million a month earlier, according to data on its website. In tonnage terms, last month’s inflow was 11.2 tons, following the addition of 9.95 tons in February, 11.8 tons in January and 9.95 tons in December.

China, the world’s top gold producer and consumer, is facing signs of a slowing economy, even as some progress is being made in trade negotiations with the U.S. The latest data from the PBOC indicate that the country has resumed adding gold to its reserves at a steady pace, much like the period from mid-2015 to October 2016, when the country boosted holdings almost every month. Should China continue to accumulate bullion at that pace over 2019, it may end the year as the top buyer after Russia, which added 274 tons in 2018.

Governments worldwide added 651.5 tons of bullion in 2018, the second-highest total on record, according to the World Gold Council. Russia quadrupled its reserves within the span of a decade amid President Vladimir Putin’s quest to break the country’s reliance on the U.S. dollar, and data from the central bank show that holdings rose by 1 million ounces in February, the most since November.

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Employment, Durable goods, Trucking, Rail traffic, Draghi on rates, Dollar status

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Looks like there was a drop in employment growth by firms with under 50 employees:


‘Last hire first fired’ has made this a leading indicator in prior cycles:

Heavy-Duty Truck Orders Hit the Brakes in March

Trucking companies slammed the brakes on orders for heavy-duty trucks in March, signaling caution amid long backlogs for delivery and a softening freight market.

North American freight carriers ordered 15,700 Class 8 trucks, the big rigs used for regional and long-haul routes, according to a preliminary report from ACT Research. That is a 66% drop compared with March 2018, and the lowest level since October 2016, when tepid shipping demand meant many transportation companies held back on upgrading or expanding their fleets.

The slide in March, in which orders also declined 6.7% from February, follows a long surge in fleet expansion in 2018, when trucking companies riding one of the strongest freight markets in years rushed to order new trucks, outpacing manufacturers’ production capacity.

“Orders have gotten weak because you can’t get a truck this year,” said Tim Denoyer, an ACT vice president and senior analyst

The drop in orders could help burn through those backlogs. March is the fourth straight month in which new orders were significantly lower than the rate of new vehicle production, according to ACT.

Still, with few production slots available until 2020, trucking companies may be holding back because it is difficult to determine if they will have enough business at that point to support extra capacity.

Shipping demand has been slipping in the first quarter of 2019. The average price for hiring a truck on the spot market, where companies book last-minute transportation, was down 13.4% in March compared with the same month in 2018, according to online freight marketplace DAT Solutions LLC. The Cass Freight Index for U.S. shipments dropped 2.1% year-over-year in February, the third straight monthly decline.

Rail Week Ending 30 March 2019: Continuing Deeper In Contraction Year-to-Date

Week 13 of 2019 shows same week total rail traffic (from same week one year ago) contracted according to the Association of American Railroads (AAR) traffic data. The economically intuitive sectors rolling averages remain in contraction.

As previously discussed for the last 25 years:

“But what if the dollars loses it’s reserve currency status?” Seems it’s already happened:

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