Consumer credit, Employment

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Highlights

Consumer credit growth slowed more than expected to just $10.9 billion in September, below Econoday’s consensus range and less than half of the upwardly revised $22.9 billion August increase. Growth slowed in nonrevolving credit, which rose $11.2 billion in September versus $18.3 billion previously, while growth in revolving credit stalled completely and posted a marginal decline of $0.3 billion. Gains in nonrevolving credit reflect vehicle financing and student loans while gains in revolving credit reflect credit-card debt.

Today’s report shows that despite strong employment, consumers were cautious in September after splurging a little in August and chose to pay down some of their credit card debt instead. While it may be a plus for household wealth, the thriftiness exhibited is not a plus for consumer spending and the GDP.

Highlights

In a very strong showing in which wage pressures may be less severe than they look, October’s nonfarm payroll growth easily surpassed expectations, rising 250,000 in the month and with strength centered in two sensitive components to economic pivots: manufacturing with a much higher-than-expected 32,000 gain and professional & business services where payrolls rose 35,000. And available labor in construction is now more scarce with payrolls here up a very sharp 30,000.

Average hourly earnings posted an expansion high year-on-year rate, up 3 tenths to 3.1 percent. But, importantly, this reflects an easy comparison with October last year. The month-to-month pace actually eased, rising at 0.2 percent vs two 0.3 percent gains and one 0.4 percent gain in the three prior reports.

The unemployment rate held at a low and favorable 3.7 percent with the labor participation rate improving 2 tenths to 62.9 percent.

The monthly slowing in wages removes at least some of the urgency felt by the hawks at the Federal Reserve who were voicing their views at the September FOMC that policy may, in a need to cool the economy and the labor market, have to rise beyond neutral and into the restrictive zone. The Fed may not raise rates at their meeting later this month, but today’s report does confirm, and strongly so, expectations for a rate hike at the December FOMC.

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Housing prices, Consumer confidence, Investment

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More housing weakness:

Highlights

Growth in home prices, as it is for home sales, is almost at a standstill, at least on a monthly basis for Case-Shiller’s 20-city adjusted index which inched only 0.1 percent higher in August. Year-on-year, the unadjusted index is still growing at healthy rate of 5.5 percent which, however, is down from 6.8 percent as recently as March and is the lowest rate since December 2016.

Outright monthly declines were posted in two cities where price traction is clearly slipping, Seattle at minus 1.0 percent in the month for year-on-year growth still very strong at 9.6 percent, and San Diego which fell 0.3 percent in the month for a mediocre year-on-year rate of 4.8 percent.

Las Vegas is once again the big headliner in the data, posting 1.1 percent monthly growth in August following 1.2 and 1.1 percent in the prior two months. Las Vegas leads the year-on-year growth rates at 13.9 percent. At the bottom, however, remain Washington DC and New York City at only 2.8 percent growth with Chicago little better at only 2.9 percent.

These results and trends are consistent with weakness seen in last week’s FHFA house price index as well price data in the existing home sales report. However strong the 2018 economy is, it doesn’t include home prices which are a central source of household wealth.

Confidence remains high:

Highlights

The consumer confidence index continues to hold near 18-year highs, at 137.9 in October vs a revised 135.3 in September. The index remains within striking distance of the all-time high at 144.7 reached in 2000.

A closely watched reading in this report, one used by forecasters to track the monthly employment report, is pointing to increasing strength for the labor market. Those saying jobs are currently hard-to-get fell nearly 1 percentage point to 13.2 percent. Strength in the labor market is also indicated by a 1.8 percentage rise in a less closely watched reading: those who say jobs are currently plentiful which is now at 45.9 percent.

Hiring and investment are largely functions of sales, not marginal income tax rates per se. So only to the extent that the lower tax rates somehow increase top line growth would hiring and investment tend to increase;

Most firms haven’t accelerated hiring or investments as a result of GOP tax cuts

(The Hill) Most firms haven’t accelerated hiring or investments as a result of the tax-cut law enacted by Republicans last year, according to a new survey by the National Association for Business Economics (NABE). Eighty-one percent of NABE members surveyed said the 2017 law, known as the Tax Cuts and Jobs Act, hasn’t led their firms to make changes to hiring or investment plans. More than three quarters of respondents said trade-policy changes haven’t affected their hiring, investment or pricing plans. NABE members work for private sector companies or industry trade associations.

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Personal income and spending, GDP comments, Philly index

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Income less than expected, spending ok, so savings fell:

Highlights

Income growth proved very slight in September with inflation steady and moderate and right on the Federal Reserve’s target. Personal income inched only 0.2 percent higher in September which misses the low end of Econoday’s consensus range. Wages & salaries are September’s weak link, managing only a 0.2 percent gain. When stripping out taxes and looking at inflation-adjusted data, disposable income gained only 0.1 percent in September.

Consumers had to slow their savings efforts to fund spending in the month as the savings rate fell 2 tenths to 6.2 percent. But spending was solid, at 0.4 percent in September with August revised 2 tenths higher to 0.5 percent. Spending on durables, reflecting strong vehicle sales that may have gotten a lift on replacement demand from Hurricane Florence, jumped 1.4 percent in the month with spending on nondurables and services both at 0.3 percent.

If you’re a Fed policy maker, it’s impossible to do any better than this on inflation as both the overall PCE price index and the core came in exactly on target, at 2.0 percent year-on-year rates. Monthly rates show the overall index up 0.1 percent and the core at 0.2 percent.

Though inflation proved steady in September, it had been on an uptrend evidenced by last September’s core rate which was at 1.5 percent. The current on-target result justifies the Fed’s efforts and forecasts and though income is stubbornly weak, consumer spending is alive and well and is another factor confirming a path ahead of gradually rising interest rates.

On the low side of what’s needed to sustain growth:


From the GDP release; Inventory building is most often reactive;


Dipping again into the danger zone. Last time it dipped this much and more they revised the numbers originally reported and it went away.

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GDP, Pending home sales, new home sales, leveraged loans, 3M chart

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Looks like without the build in private inventories GDP was about 2% lower at about 1.4%, and health care added .77% where health care premiums paid count as personal consumption. Also, the price index deflator was lower by 1.3%:


Bad:


Bad:

Highlights

Lack of available new homes has been holding sales down this year though supply did move into the market in September, up 2.8 percent to 327,000 for a very strong 16.8 percent year-on-year gain that underscores how busy home builders have been. But relative to sales, given how weak they now have turned, supply is suddenly over 7 months at 7.1 vs 6.5 months in August and 5.3 months in September last year.

Prices were flat in the month, up 0.3 percent to a median $320,000. Yet this may be rich relative to sales as the year-on-year slippage in the median, at minus 3.5 percent, is well below sales which are at minus 13.2 percent.

Regional sales data include a 12.0 percent drop in the West where year-on-year sales are at minus 15.8 percent. The Midwest is doing the best, up 6.9 percent in the month for a yearly gain of 4.1 percent.

Buyer blahs in the housing sector are one of the chief and unwanted features of the 2018 economy. Rising mortgage rates, now over 5 percent for 30-year fixed loans, aren’t helping though the strength of the jobs and stock markets should be pluses. September’s showing is lowest rate since July last year and follows last week’s disappointing results for existing home sales. Watch tomorrow for the pending home sales index where expectations are already very soft.

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Housing starts, Mtg purchase apps, Retail sales

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Gone from bad to worse:

Highlights

The highest interest rates in over 7 years took their toll on mortgage activity in the October 12 week, with purchase applications for home mortgages falling a seasonally adjusted 6 percent while applications for refinancing fell 9 percent. Despite the sizable seasonally adjusted decline, unadjusted purchase applications remained 2 percent higher than in the same week a year ago. The refinance share of mortgage activity decreased by 0.9 percentage points to 38.1 percent. After jumping 9 basis points in the previous week, the average interest rate on 30-year fixed rate conforming mortgages ($453,100 or less) rose another 5 basis points to 5.10 percent, the highest level since February 2011.

Gone from bad to worse:

Highlights
However strong third-quarter GDP may prove, it likely won’t be getting any lift from residential investment. Housing starts in September came in on the low side of expectations, down 5.3 percent to a 1.201 million annualized rate with completions very weak, down 4.1 percent to a 1.162 million rate that’s the lowest since November last year. Hurricane Florence certainly didn’t help the South where starts fell 13.7 percent but the Midwest, which was not affected by the hurricane, saw starts fall 14.0 percent in the month.

Building permits, which should be less affected by weather, fell 0.6 percent in September to 1.241 million that is well below expectations and, like completions, is the weakest rate since November. Permits were pulled down by a sharp 7.6 percent drop for multi-units with single-family permits up a solid 2.9 percent. But even here, the year-on-year rates show the weakness, up only 2.4 percent for single-family permits, down 7.8 percent for multi-units with total permits down 1.0 percent.

Looking at quarter-to-quarter comparisons, starts averaged 1.218 million which is down from 1.261 million in the second quarter in what points to yet another quarter of trouble for residential investment — which is the weak link in the 2018 economy. Hurricane effects are a wildcard for housing data both for September and also for October when Michael hit the Florida panhandle but the ultimate impact on the nation’s statistics, judging by today’s results, may prove elusive.

Weakness here to as trade wars seem to be taking their toll:

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Employment, Bank loans, Output gap chart, Foreign $ bonds

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Looks like it’s turned up a bit with the tax cuts?


Looks like this source of private sector deficit spending has gone flat again:


Looks to me a lot more like a deficiency of demand than a demographic shift:

This is a source of $US deficit spending that ‘offsets’ unspent incomes:

China to raise billions in rare US debt deal as trade tensions persist

(Nikkei) China is planning to sell $3 billion in U.S. dollar bonds this month. China is planning to sell bonds that mature in five, 10 and 30 years, and become a regular issuer of sovereign debt. In October 2017, China issued $2 billion in five- and 10-year bonds at slightly higher interest rates than what the U.S. Treasury was paying to borrow at the time. Asian companies outside of Japan have sold $185 billion in U.S. dollar bonds so far in 2018, of which roughly half has come from Chinese firms, according to ANZ Research. Overall Asia ex-Japan corporate debt issuance is down 17% from a year ago.

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Car sales, Redbook retail sales, Mtg apps, ISM and Markit services index

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A bit stronger than expected, but still trending lower, particularly adjusted for population:

Highlights

Unit sales of motor vehicle proved very strong in September, rising sharply to a 17.4 million annualized rate from 16.6 million in August. This points to a sharp rise in dollar sales of motor vehicles for the September retail sales report which in prior months had been flat. Note that some of the month’s gain may reflect replacement demand tied to Hurricane Florence which struck the Carolinas at mid-month. Sales of domestic-made vehicles rose to a 13.3 million rate from 13.0 million in August.


Same store sales growth has been increasing. As stores are being shut down those remaining open benefit:


Not showing any signs of life yet:


ISM is looking up suddenly. Might be just another post hurricane reading:


The markit PMI service index hit an 8 month low:


The ADP forecast for Friday’s employment number was up from last month:

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Lots of evidence of slowing;

Highlights

A marginal headline gain of 0.1 percent in construction spending masks significant declines in residential spending during August. Residential spending fell 0.7 percent in the month to more than offset a 0.2 percent rise in July. Looking at sub-components, single-family spending was also down 0.7 percent in August with multi-unit spending down 1.7 percent. Home improvement spending fell 0.6 percent.

Strength in the report is in highways & streets, up 1.7 percent in the month. Educational spending was also strong with a 1.0 percent gain. Government spending was very active in August, up 5.9 percent at the Federal level and up 1.7 percent for state & local.

Private nonresidential spending was flat, down 0.2 percent overall with commercial, power and manufacturing subcomponents all showing declines to offset gains for transportation and offices.

This report is not pointing to acceleration in business investment and is consistent with another weak quarter for residential investment which remains the economy’s weak spot for 2018.

Investing in the Soaring Popularity of Gaming

(Reuters) Global mergers and acquisitions dropped to $783 billion in the third quarter, down 35 percent from the prior quarter. The first nine months of 2018 saw global M&A reach a new record of $3.2 trillion. M&A activity in Europe has been particularly strong, with deals worth $962.5 billion so far this year, a 72 percent increase compared with a year ago. U.S. M&A, which rose 14 percent year-over-year to $368.1 billion in the quarter. Announced deals in Europe fell 14 percent to $151.4 billion, while M&A in Asia-Pacific was down 38 percent to $185.1 billion, the Thomson Reuters data showed.

Japanese business sentiment logs longest fall since 2009

(Nikkei) The closely watched index of large manufacturer sentiment came to plus 19 for the July-September period, down from 21 in the previous survey in June. The survey showed that big manufacturers expect profits to fall 4.6% for the year ending March 2019, on an assumption that the yen will average 107.40 to the dollar this business year. In the previous survey, the rate was seen at 107.26 yen per dollar. The survey showed that large companies plan to increase their capital investment in the current fiscal year by 13.4%, only a tick lower than the 13.6% increase predicted in the previous June survey.

China’s Economy Losing Steam as Trade Conflict With U.S. Intensifies

(WSJ) An intensifying trade brawl with the U.S. is starting to take a heavier toll on China’s economy, as weakening foreign demand and sluggish domestic consumption cause Chinese manufacturers to significantly scale back production. The new data released Sunday showed that privately owned makers of cars, machinery and other products stopped expanding in September, as export orders dropped the most in more than two years. At the same time, output by large, state-owned manufacturers continued to weaken.

Euro area manufacturing purchasing managers index

This reduces aggregate demand:

The savings bill the House passed Thursday would make it easier for small businesses to offer retirement plans to their employees, create universal savings accounts and allow 529 education savings plans to be used for more purposes.

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Trade, Pending home sales, New home sales, Durable goods, Bank lending, Earnings

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Need more tariffs…

Highlights

Amid the unfolding of tariff effects, exports are moving in the wrong direction and look to be a big negative for third-quarter GDP. The nation’s trade deficit in goods was a whopping $75.8 billion in August with exports down 1.6 percent for a second straight month. Imports are also a negative for the trade balance, up 0.7 percent following a 0.9 price rise in July.

Not good:

Highlights

It’s hard to find good news in the housing sector and today’s pending sales index doesn’t offer any, falling a very steep 1.8 percent and well below Econoday’s consensus range. The drop will lower estimates for the next report on existing home sales.

All regions show declines in the month with the steepest in the West at minus 5.9 percent. The West also shows the steepest decline year-on-year at minus 11.3 with only the South in the plus column on this basis, but at only 1.3 percent. Overall year-on-year sales are at minus 2.3 percent.

Depressed and working their way lower this year:

Highlights

A big swing higher for civilian aircraft skews August’s durable goods headline which jumped 4.5 percent to hit Econoday’s high estimate. But when excluding aircraft and other transportation equipment, durable goods orders inched only 0.1 percent higher which falls below Econoday’s low estimate. And far below the low estimate are core capital goods orders (nondefense ex-aircraft) which fell 0.5 percent.

Not inflation adjusted or population adjusted:


This appears to have flattened out again?

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PMI, Existing home sales, Permits, Homebuying index, Fed book, China car sales, Federal budget

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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.

China Auto Sales Slump on Trade Tensions, Economic Jitters

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.”

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