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10/28 – Succinct Summation of the Week’s Events

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Positives

  1. The US economy grew 2.9% in Q3, better than the estimate of 2.6%. Personal spending though grew just 2.1%, well below the estimate of up 2.6% and down from 4.3% growth in Q2. After three quarters in a row of declines, gross private investment grew by 3.1% in the quarter led by commercial building and spending on intellectual property. The offset were declines in residential spending and disappointingly, equipment spending fell for the 5th quarter in the past 6. Trade was the major delta in boosting GDP as exports jumped by 10% (huge boost in soybeans) that added a full 110 bps to GDP growth while imports were higher by 2.3% (net trade added 80 bps). Government spending was up slightly and a modest boost in inventories after the Q2 drawdown added 60 bps to GDP.
  2. The Markit services PMI index in October rose to 54.8 from 52.3 in September. It’s the best level since November ’15. Markit said “Business activity and incoming new work both expanded at the fastest pace for 11 months. The latest survey also revealed an upturn in confidence towards the year ahead business outlook, with service providers reporting the strongest optimism since August 2015.” Prices paid rebounded off the 19 month low last month. Employment “picked up only slightly from the 3 ½ yr low recorded in September…While some firms sought to boost their payroll numbers in response to rising workloads, there were also reports that efforts to reduce costs had led to the non replacement of voluntary leavers.”
  3. The Markit US manufacturing PMI index for October rose to 53.2 from 51.5 in September. That is the best level in a year. Markit said “Manufacturing showed further signs of pulling out of the malaise seen earlier in the year, starting the fourth quarter on a solid footing.” The improvement in output and orders are due to “optimism that demand will pick up again after the presidential election, which has been commonly cited as a key factor that has subdued spending and investment in recent months.”
  4. The October Richmond manufacturing index rose 4 pts but at -4 was below zero for a 4th month in the past 5. The Richmond Fed referred to manufacturing activity as “sluggish.”
  5. September pending home sales rose 1.5% m/o/m, above the estimate of up 1% and the y/o/y gain was 2%. The NAR said “buyer demand is holding up impressively well this fall.” However, “the one major predicament…is without a doubt the painfully low levels of housing inventory in much of the country. It’s leading to home prices outpacing wages.”
  6. The UK economy in Q3 grew by 2.3% y/o/y, above the estimate of 2.1%. On a q/o/q basis the growth was .5%, also two tenths more than expected but a modest slowdown from the .7% growth seen in Q2. The Chief Economist for the Office for National Statistics said “There is little evidence of a pronounced effect in the immediate aftermath of the vote.”
  7. The October German IFO business confidence index rose 1 pt m/o/m to 110.5 which was also 1 pt more than expected. It’s at the highest level since April 2014 with both current conditions and future expectations gaining from September. The IFO said “The upturn in the German economy is gathering impetus.”
  8. Spain’s Q3 unemployment rate fell to 18.9% from 20% in Q2 and was below the estimate of 19.3%. While they still have a ways to go (the rate was 7.9% in Q2 ’07), it is at the lowest level since 2009.
  9. Spain finally has a government after the Socialists said they wouldn’t again block Rajoy from having a coalition.
  10. The ECB said bank lending to households rose 1.8% y/o/y in September, steady but no pick up from the pace seen in August. The same is said for business lending which rose 1.9% y/o/y. Money supply growth was 5% in September vs 5.1% in August and which was also the estimate.
  11. The Eurozone October manufacturing and services composite index rose to 53.7 from 52.6. That was .9 pts above the estimate and moves the index to the highest level of the year with both components higher m/o/m.
  12. Economic confidence in Europe saw an unexpected gain in October. The index rose to 106.3 from 104.9 where the estimate was for no change. It is the best level of the year and just below the level seen in December.
  13. French consumer confidence rose 1 pt to 98 and matches its best level since 2007 but still remains below its long term average of 100.
  14. Hong Kong said exports in September rose 3.6% y/o/y, much better than the estimate of a slight drop of .4% and imports also surprised to the upside. The country breakdown though of the exports was uneven as they rose to Asia ex Japan and fell everywhere else.
  15. Singapore IP rose 6.7% y/o/y in September, well more than the estimate of up .1% but much of the gain was in the pharma area (up 27% y/o/y and very volatile month to month).
  16. South Korea’s economy grew by 2.7% y/o/y in Q3, about in line with the estimate of 2.6% but the slowest pace of gain since Q2 ’15.
  17. Japan reported another y/o/y decline in exports in September, the 12th month in a row certainly in part to the stronger yen but the decline wasn’t as much as the drop that was expected. Imports that have gotten cheaper because of the stronger yen still fell by 16.3% y/o/y, not far from the forecast of a 17% drop on a tough comparison. Volume exports saw a 4.7% y/o/y increase (most since January ’15) with all major regions seeing gains, particularly to the EU. Import volumes though fell 1.6%.
  18. The Japanese manufacturing PMI in October rose 1.3 pts to 51.7, the best level since January.
  19. Japan’s unemployment rate fell one tenth to 3%, matching the lowest level since 1995. The jobs to applicant ratio rose a tick to 1.38, the most since 1991. Where the wage gains?

 

Negatives

  1. Core capital spending fell 1.2% m/o/m, well worse than expectations of a .1% drop. This was only partially offset by a three tenths rise in August to up 1.2%. On a y/o/y basis, core capital spending is down 3.6%. Core capital spending on an absolute dollar basis peaked in September 2014 and the current pace was also seen in 2006.
  2. Initial jobless claims totaled 258k, 2k more than expected but down from 261k last week. The 4 week average moved up by 1k but to a still very modest 253k. Continuing claims, delayed by a week, fell by 15k to the lowest level since 2000.
  3. The final read of the October UoM consumer confidence index was 87.2, one point less than expected, down from 87.9 initially, below the 91.2 seen in September and matches the lowest print since October 2014. Most of the m/o/m decline was in the Expectations component which fell 5.9 pts. Current Conditions fell 1 pt. One year inflation expectations remained at 2.4%.
  4. The Conference Board consumer confidence index for October fell to 98.6 from 103.5 in September. That was about 3 pts less than expected but follows a gain of 6.8 pts over the two prior months. The Present Situation component was down by 7.3 pts and Expectations fell by 3.3 pts. The answers to the labor market questions were mixed. One year inflation expectations fell two tenths to 4.8% after rising by two tenths in September. The Conference Board said “Overall, sentiment is that the economy will continue to expand in the near term, but at a moderate pace.”
  5. The Q3 Employment Cost Index rose by .6% q/o/q as expected. Digging within, private sector wage and salaries rose by .5% q/o/q vs .6% gains in the two prior quarters of 2016. On a y/o/y basis they grew by 2.4% and is now averaging 2.3% over the past 4 quarters, decent but no hoped for acceleration yet. Benefits is where things are creeping up likely due to ever rising healthcare costs. Benefits grew by 2.3% y/o/y, the most since Q1 2015.
  6. New home sales in September totaled 593k annualized, just shy of the estimate of 600k but August was revised down by 34k, July was revised lower by 30k and June down by 21k. Months’ supply ticked down to 4.8 from 4.9 and still remains well below the longer term average of around 6 months. The median home price rose 1.9% y/o/y to $313,500, not far from the record high of $321,600 seen in June.
  7. The MBA said purchase applications to buy a home fell 6.9% w/o/w to the lowest level since January. The y/o/y gain though was 9%. Refi applications fell by 2.3% w/o/w, down for a 3rd straight week.
  8. October German confidence fell .3 pts to match a 7 month low. GFK who releases the figure said “Consumer sentiment is currently rather mixed.”
  9. French business confidence in October was unchanged for the 3rd straight month and remains in the same two point range for the past 15 months.
  10. The French economy grew .2% q/o/q in Q3 and 1.1% y/o/y, both one tenth less than expected.
  11. French consumer spending in September fell .2% m/o/m instead of rising by .3% as estimated.
  12. In the UK, the October CBI industrial orders index weakened to -17 from -5. This level matches the weakest since October 2015. The estimate was for no change. Reflecting growing pricing pressure, average selling prices rose to match the highest level since April 2014. On the flip side, the weaker pound led to a 4 pt improvement in export orders to match a two year high.
  13. September inflation stats in Germany and Spain on a EU harmonized measurement both rose more than expected. French CPI was a touch below the forecast.
  14. In Japan, while the September inflation stats were a touch below estimates, the forward looking October CPI for Tokyo surprised to the upside where CPI ex food and energy rose .1% y/o/y vs the estimate of a drop of .1%.