The Boock Report

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Succinct Summation of the Week’s Events – 3/2/18

Positives

  1. While Jay Powell is left holding the bag of finishing the rate hike cycle and also overseeing most of QT, he was measured in his responses and boring as he should have been this week in front of the Senate and House.
  2. The February ISM manufacturing index rose 1.7 pts m/o/m to 60.8 and that was above the estimate of 58.7. It’s at the best level since 2004. While new orders and production fell m/o/m, backlogs, manufacturer inventories, employment and export orders rose (helped by weaker dollar and strength overseas). Customer inventories remain low. Supplier deliveries rose to a 5 month high (which means longer waits). Of note, prices paid rose 1.5 pts to 74.2, the highest since May 2011 (17 of 18 saw price gains and 1 saw no change). Of the 18 industries surveyed, 15 saw growth vs 14 in January and 16 in December.
  3. The revised February UoM consumer confidence index was 99.7 vs the first print of 99.9 but that was a touch above the estimate of 99.5.  It’s also up 4 pts m/o/m and is just 1 pt below the highest level since 2004. Both current conditions and expectation components were up m/o/m. Those expecting higher income rose from January but fell from the initial February read. Those expecting higher employment was a bright spot. Spending intentions were mixed while one year inflation expectations were unchanged at 2.7%.
  4. The Conference Board’s consumer confidence index rose to 130.8 from 124.3 and that was 4.3 pts above the estimate. It is also at the highest level since November 2000. The Present Situation category jumped by almost 8 pts while Expectations was higher by 5.7 pts. The main reason for the optimism was due to the improvement in the answers to the labor market questions. Those that said jobs were Plentiful rose 2.2 pts to the highest since April 2001. Those that said jobs were Hard To Get fell 1.6 pts to the least since July 2001. There was a jump in those expecting more Employment and also encouragingly, those expecting an Increase in Income jumped 3.2 pts to the most since June 2001. Notwithstanding the ebullient consumer confidence, there were mixed answers to the spending decisions. Lastly, one year inflation expectations rose one tenth to 4.7% after being down by 2 tenths last month.
  5. The headline PCE inflation index in January rose .4% m/o/m and 1.7% y/o/y. The core rate was higher by .3% m/o/m and 1.5% y/o/y. Both were exactly as expected with the y/o/y gains unchanged with December. Again, the rise in services inflation, by 2.4% y/o/y offset a 2.3% drop in durable goods prices with nondurable goods prices up by 1.4%. Energy prices were up by 5.9% driving the headline gain and food was higher by about 1%.
  6. Income growth in January was .4% m/o/m, the same pace seen in December. That was one tenth more than expected and specifically the private sector wage and salary figure was up .5% m/o/m and 5% y/o/y. This now marks the 3rd month in a row of 5%+ y/o/y private sector wage gains.
  7. Initial jobless claims are now down to just 210k, 15k less than expected and down from 220k last week. Go back to 1969 and your Woodstock record to see the last time it was that low. This brings the 4 week average down to 221k from 226k. It is possible that while the data is seasonally adjusted, the President’s weekend altered the timing of claims.
  8. With mortgage rates holding steady at the highest level in 4 years, fence sitters got off the fence and purchase applications rose 6.2% w/o/w after a decline of 15% in the 4 prior weeks. The y/o/y gain was 3.3%. We continue to see a rise in adjustable rate mortgages as a percent of total loans in response to the rise in rates. They now make up 6.7% of loans, the most since late October 2017.
  9. For home owners, S&P CoreLogic said home prices rose 6.3% y/o/y in December (yes, dated data). It marks the 4th straight month with a 6%+ y/o/y gain.
  10. After the sharp inventory draw in Q4, wholesale inventories rose .7% m/o/m in January vs the estimate of up .4% and December was revised up.
  11. The Japanese January unemployment rate fell 3 tenths to 2.4%, the lowest since April 1993. The Jobs to Applicant ratio held at 1.59, the highest since 1974.
  12. The headline figure on Japanese consumer confidence did fall to a 5 month low in February, down by .4 pts m/o/m but the Income Growth component did rise by .3 pts to the highest level since 2007.
  13. The Chinese private sector focused manufacturing index was little changed in February at 51.6 from 51.5 last month and that was a bit above the estimate of 51.3. Caixin said “Business conditions continued to improve across China’s manufacturing sector in February. Although growth in production softened from that seen in January, total new work expanded at a slightly faster pace.” Employment fell slightly while on inflation, “input price inflation eased further in February” but “it remained sharp overall and remained much stronger than that seen for output charges.” Looking ahead for overall activity, “Business sentiment remained strongly positive in February, with the degree of optimism reaching an 11 month high.”
  14. Manufacturing PMI gains were seen in Taiwan, Indonesia, Japan and Vietnam.
  15. Reflecting still a very good pace of global growth, Hong Kong exports rose 18.1% y/o/y in January, above the estimate of 16.1% while imports jumped almost 24% vs the forecast of up 19%. The caveat though is the timing of the Chinese New Year. A government spokesman said, “the solid expansion of the global economy should continue to be supportive of Hong Kong’s exports in the near term. However, the trading environment is still subject to various uncertainties, including continued US monetary policy normalisation amid a complicated global monetary environment, potential rise in trade protectionism in major economies and heightened geopolitical tensions in various regions.”
  16. The Eurozone PPI in January did rose .4% m/o/m and 1.5% y/o/y. Ex energy, PPI rose 1.9% y/o/y. The y/o/y gain is the slowest since November 2016 but in part because the comparisons are getting tougher. The rise in January 2017 was 3.9%.
  17. The Euro area unemployment rate in January was 8.6% as expected and that is the lowest level since December 2008.
  18. The Eurozone manufacturing PMI index was revised up a hair from its initial print but is down for a 2nd month. Input price inflation fell m/o/m “but remained marked overall. In contrast, average output charges rose at the quickest pace in almost 7 years.”
  19. Eurozone February CPI was up 1.2% headline y/o/y and 1% core. With core CPI averaging .9% y/o/y over the past 5 years.
  20. The Economic Confidence index for the Eurozone in February was about as expected at 114.1 vs the forecast of 114. That though is down from 114.9 in January and lower for a 2nd month.
  21. Loan growth in January in the Euro area did improve again as loans to non financial companies rose 3.4% y/o/y, the best since May 2009 while loans to households (ex mortgages) was up by 2.9% y/o/y, unchanged vs December.
  22. German unemployment in February fell by 22k, more than the estimate of down 15k. It’s down for an 8th straight month and their unemployment rate held at the lowest since reunification.
  23. The UK manufacturing PMI in February was steady at 55.2 vs 55.3 last month. Both input and output charges grew at a slower pace m/o/m but “average input costs rose sharply during February, as manufacturers experienced price increases for a broad range of commodities and raw materials. Part of the increase in purchasing costs was passed on to clients in the form of higher output charges.”
  24. Brazil reported the best y/o/y growth rate in Q4 since Q1 2014. Granted it was off an easy comparison but the rate of growth was 2.1%.

 

Negatives

  1. It started with washing machines and solar panel tariffs and now shifts to steel and aluminum.
  2. Pending home sales fell 4.7% m/o/m, well worse than the forecast of up .5%. All four regions saw declines m/o/m with the most pronounced seen in the Northeast (weather partly a factor) and Midwest. The seasonally adjusted index level is at the lowest since October 2014.
  3. With mortgage rates holding at a 4 yr high, refi’s dropped for a 3rd straight week, down by 1.2% w/o/w and 9.5% y/o/y.
  4. For home buyers, S&P CoreLogic said home prices rose 6.3% y/o/y in December (yes, dated data). It marks the 4th straight month with a 6%+ y/o/y gain.
  5. New home sales in January totaled 593k, well less than the 647k expected. This was only partially offset by a 18k upward revision to December to 643k. It’s the lowest since August and the biggest decline was seen in the South. As the number of homes for sale rose, months’ supply was up to 6.1 from 5.5 in December. That matches the most since September 2011. The median home price was up by 2.5% y/o/y but really jumps around month to month.
  6. Core durable goods orders fell .2% m/o/m instead of rising by .5% as expected. This comes after a .6% drop in December. The absolute level of core cap ex is still below where it was in June 2000.
  7. Total vehicle sales in February totaled 16.96mm according to Wards. That was below the estimate of 17.2mm, down from 17.07mm in January and the lowest since August.
  8. Personal spending was up by .2% and because headline inflation was higher by .4%, REAL spending in January was negative. Spending rose for services (housing and medical care continue to drive this bus) and non durable goods but fell in durable goods (auto’s a factor).
  9. This was revealed in the Chicago PMI: “a large proportion of firms are anxious about the cost of input materials, and warn they could pass on these higher costs to consumers if inflationary pressures do not abate.”
  10. While just one model of GDP, the Atlanta Fed GDPNow that is widely followed cut its Q1 GDP forecast to 2.6% from 3.2%.
  11. Within the Q4 FDIC banking data released this week, noncurrent balances (those 90+ days due) rose 11.5%. Those tax cuts might just go to paying down debt.
  12. The goods trade deficit widened by $2b and $2b more than expected to the widest since 2008.
  13. The Japanese CPI for February only for Tokyo and the ex energy and food number rose .5% y/o/y as expected. It is obviously very low but it’s at the highest since June 2016. Their core rate which just takes out just food saw a .9% y/o/y rise, higher than expected and is up at the quickest pace since March 2015 when the hike in the VAT juiced the numbers. If you take out the VAT influence, it’s the fastest rate of core inflation since 2008.
  14. He said what? BoJ Governor Kuroda said that BoJ policy isn’t to finance government debt and that “financing government isn’t included in BoJ law.” This as the BoJ owns 40% of the JGB market. He did though say 2019 will be the time to start talking about exit. We’ll see.
  15. The Chinese February state sector weighted manufacturing PMI fell to 50.3, the weakest since July 2016 from 51.3 with just about every single key component down m/o/m including inflation. The estimate was 51.1. The services PMI also was down to 54.4 from 55.3 and below the estimate of 55. The internals were soft here as well.
  16. Manufacturing PMI’s fell m/o/m in India, South Korea, Malaysia, and the Philippines.
  17. German retail sales disappointed in January with a .7% m/o/m drop. The estimate was for a 7 tenths gain and the miss was only partially offset by an 8 tenths upward revision to December.
  18. French consumer spending in January badly missed expectations with a 1.9% m/o/m decline. The estimate was for a gain of .4%. The weakness was seen in every major category.