Positives:
- Jobless claims totaled 254k, 6k less than expected after last week’s 251k print. This brings the 4 week average to 256k which matches the lowest level since 1973 from 258k last week. Continuing claims, delayed by a week, fell another 46k to the lowest amount since July 2000.
- The Chicago manufacturing PMI rose to 54.2 in September from 51.5 in August and vs 55.8 in July. That was 2.2 pts better than expected. Smoothing out this volatile number gets a 3 month average of 53.8 and a six month average of 53. Production jumped by 7.3 pts but the two key forward looking numbers, new orders and backlogs, were little changed with backlogs in particular still below 50. Off a 16 month high in August, employment fell. Inventories were a touch above 50. As for the impact of the upcoming election, MNI said “79% of Chicago panelists said the run up to it…is having a negligible impact on business.”
- The Markit US services PMI for September rose to 51.9 from 51.0 which was the lowest since February. Markit said “The service sector sent mixed signals in September, with faster growth of activity during the month offset by gloomy forward-looking indicators. Although business activity showed the largest monthly rise since April, inflows of new business slowed and employment growth was the weakest for three-and-a-half years. A drop in optimism about the year ahead to a near post-crisis low meanwhile cast a shadow over the outlook.”
- New home sales in August totaled 609k annualized, slightly above the forecast of 600k and July was revised up by 5k to 659k, the best in this recovery. Overall months’ supply was 4.6, up from 4.2 in July but vs 5.0 in June. The median home price fell 5.4% y/o/y to $284,000, the lowest since 2014 but part of this was in the mix.
- The Conference Board’s measure of consumer confidence for September rose to 104.1 from 101.8 in August. This is above the estimate of 99.0 and is the best level since August 2007. Current conditions were up by 3.2 pts while the Outlook was up by 1.7 pts. The answers to the labor market questions is where the lift in confidence mostly came from. Notwithstanding the improved overall confidence those planning on buying a home, a car or a major appliance in coming months all fell. One year inflation expectations rose two tenths to 5%, the most in 7 months. The Conference Board said, “Overall, consumers continue to rate current conditions favorably and foresee moderate economic expansion in the months ahead.”
- The UoM consumer confidence index rose to 91.2 from the first print of 89.8 and 89.8 seen in August. It’s the highest since June and it was all in the Outlook as it rose 4 pts from August while Current Conditions fell by 2.8 pts to the lowest level since October 2015 on a final basis. One year inflation expectations were 2.4% vs 2.5% in August. The disappointment within the data was the Income component which fell to 6 from 14 in August. Employment expectations rose 1 pt. Similar to the trend seen in the Conference Board’s index, while headline confidence improved, plans to buy a car, house and/or a major household item all fell m/o/m.
- The MBA said purchase applications were up by .8% w/o/w and 10% y/o/y.
- For those in the oil business, Saudi Arabia finally said ‘no mas’ to these low prices and may actually shake hands with the Iranians.
- In Japan August CPI ex food and energy was higher by .2% y/o/y as expected but it’s the slowest pace of gain since 2013 to the dismay of the BoJ but to the delight of every Japanese citizen that is either retired or seeing modest wage gains.
- The Japanese unemployment rate did rise one tenth to 3.1% but still only one tenth off the lowest in 20 years while the jobs to applicant ratio held at 1.37, the most since 1991.
- Hong Kong’s trade data, highly sensitive to economic activity in China, came in better than expected in August. Exports rose .8% y/o/y instead of falling by 2% as expected. Exports to China rose 4.3% (China said imports from Hong Kong rose by 14.3%, the closest spread in a while) but fell to the US and Germany. Imports were up by 2.8% y/o/y vs the estimate of down 1%.
- While seeing modest growth but typical of Europe, the ECB reported that loans to households were up 1.8% y/o/y in August, unchanged with July. Loan growth to businesses were up by 1.9% y/o/y, also unchanged with the prior month. Money supply growth was up by 5.1% y/o/y, about the pace seen over the past year.
- The German IFO Business Climate index rose to 109.5, the best since May 2014 from 106.3 in August and the estimate was no m/o/m change. Both Current Conditions and Expectations were up. IFO said “The German economy is expecting a golden autumn.” Manufacturing, wholesaling and retail were all higher but construction in particular was a standout as it hit a new record high thanks to extraordinarily low interest rates.
- UK consumer confidence got back its post Brexit drop. The GFK index in June was -1 and then fell 11 pts in July to -12. It was -7 in August and now is back to -1 in September.
Negatives:
- While the Fed would have this in the positive category, I don’t. The PCE headline inflation deflator in August was up .1% m/o/m and .2% at the core. The y/o/y headline gain is now at 1% which is the 2nd highest print since late 2014. The core rate was up 1.7% y/o/y, the highest in two years. For 7 years now inflation has run above the interest rate savers receive in their bank/money market accounts which total almost $11T.
- Personal income grew by .2% m/o/m in August which was in line with the consensus estimate but a slowdown from the .4% gain in July. Private sector wages and salaries were up just .1% thanks to a gain in services. Manufacturing wages/salaries fell .4%. On a y/o/y basis, private wages/salaries were up by 3.9% but is down from the 5.5-6% level in the early part of 2016.
- On the spending side, it was flat m/o/m, one tenth less than expected but July was revised up by one tenth to a .4% gain so it’s a push. After inflation, spending fell .1%. Spending on goods fell .6% m/o/m but saved by a .3% gain in services (with healthcare spending taking up a grower portion of this category thanks to high deductible plans). The savings rate rose one tenth to 5.7% which is around the one year average of 5.9%.
- Pending home sales in August fell 2.4% m/o/m, worse than the estimate of no change. The index is at the 2nd lowest level of the year with January being the weakest. The NAR continues to blame the dearth of inventories in both limiting choices and causing households to waver “at the steeper home prices.”
- Refi applications fell 1.6% w/o/w but are still up 34% y/o/y.
- Durable goods orders at the core level in August rose .6% m/o/m, better than the estimate of down .1% BUT it comes off a lower than expected July which was revised down by 7 tenths. Thus, let’s call it a push. Orders are up for a 3rd month but are still down 1.3% y/o/y and on an absolute basis, the current spending level was also seen in 2006. Shipments of core goods fell .4% m/o/m, 5 tenths more than expected and July was revised down by 2 tenths. As inventories rose, the inventory to shipments ratio rose to 1.66, a 5 month high.
- The Richmond manufacturing index in September was -8, six points weaker than expected but up slightly from the -11 seen in August. It’s now negative for the 3rd month in the past 4. As to the future, “Looking ahead six months, producers’ expectations about future business conditions have softened compared to last month’s readings.”
- The Dallas manufacturing index was -3.7, 1.2 pts less than expected but less worse than the -6.2 seen in August. It was December 2014 the last time this index had a plus sign in front of it.
- JD Power said they expect September vehicle sales to be down 1.4% y/o/y and said this is occurring even as “incentive spending thus far in September is at a record level of $3,923 per unit, surpassing the previous high of $3,753 set in December 2008.” This stat is not inflation adjusted.
- European and Japanese banks take another drubbing due to balance sheet worries combined with NIRP, flat yield curves and the resulting damage to profitability.
- Eurozone CPI in September rose .4% y/o/y as expected but up from .2% in August. While still low of course it actually matches the highest level in two years as the drag from the declines in energy prices have run their course. Energy prices fell 3% y/o/y but that was the least negative since December 2014. The core rate was up by .8%, unchanged with last month and has ranged between .7-1.1% for the past year and a half. Services inflation rose 1.2% and has been 1% or higher for the 4th straight month.
- The unemployment rate in the eurozone in August was unchanged at 10.1%. The estimate was for a one tenth decline. While this rate is at a 4 year low, it still remains well above the pre recession low of 7.2% in 2008.
- The September Economic Confidence index for the EU rose to 104.9 from 103.5 in August and vs expectations of no change. It’s the best level since January and was mostly led by the manufacturing and retail components as services and consumer confidence were little changed m/o/m.
- German unemployment rose by 1k in September, a bit worse than the expected decline of 5k. That’s the first increase since July 2015. The unemployment rate though held steady at 6.1%, matching the lowest level since reunification.
- The China private sector weighted manufacturing PMI was little changed at 50.1.
- South Korea’s manufacturing PMI fell 1 pt to 47.6 which is the 2nd straight month below 50. Industrial production in South Korea fell 2.4% m/o/m in August, four times more than expected.
- According to the WTO, “World trade will grow more slowly than expected in 2016, expanding by just 1.7%, well below the April forecast of 2.8%, according to the latest WTO estimates. The forecast for 2017 has also been revised, with trade now expected to grow between 1.8% and 3.1%, down from 3.6% previously. With expected global GDP growth of 2.2% in 2016, this year would mark the slowest pace of trade and output growth since the financial crisis of 2009.” They then expressed this message, “The dramatic slowing of trade growth is serious and should serve as a wake-up call. It is particularly concerning in the context of growing anti-globalization sentiment.”
- Janet Yellen said this yesterday, “If we found, I think as other countries did, that they could reach the limits in terms of purchasing safe assets like longer term government bonds, it could be useful to be able to intervene directly in assets where the prices have a more direct link to spending decisions.” In other words she would consider buying US stocks and corporate bonds. Thus, she would consider nationalizing US private assets on a broad scale. The Fed has already done so with MBS (let alone the government’s ownership of AIG and GM) but someone in Congress PLEASE SPEAK UP for the sake of our free market system.