Peter Boockvar

Succinct Summation of the Week’s Events:

Positives,

1)Initial jobless claims totaled 192k, 8k less than expected and down from 195k last week. The 4 week average was up slightly to 191k from 190k. It was about 190k in February 2020. Continuing claims fell by 37k w/o/w to 1.654mm but off the highest since December and not far from the most since February 2022. For perspective, this was just under 1.8mm in February 2020.

2)The S&P Global US February manufacturing and services composite PMI finally got back above 50, albeit slightly after 7 months in contraction. It rose to 50.2 from 46.8 and was mostly led by a lift in the services component which got to 50.5 from 46.8. S&P Global is specifically saying the mild winter weather likely helped out. Manufacturing remained below 50 at 47.8 vs 46.9 in the month before.

3)New home sales in January totaled 670k, 50k more than expected and December was revised up by 9k to 625k. That January print is the best since March 2022 helped by the drop in mortgage rates last month, but we know what they’ve done since. The pick up in sales chipped away at supply as months’ supply fell to 7.9 from 8.7. The median home price was little changed y/o/y but is very volatile month to month because of mix.

4)The February final UoM consumer confidence number was a bit above the initial at 67 vs 66.4 in the preliminary print. That compares with 64.9 in January and is the highest since January 2022 but still remains well below the 101 February 2020 figure. One yr inflation expectations were 4.1% vs 3.9% in January while the 5-10 yr guess was unchanged at 2.9%. As seen in the first February report, “Consumers with larger stock holdings exhibited particularly large increases in sentiment.” To the new bifurcation in the labor market between higher income/lower income and white/blue collar workers, the UoM said this with regards to the labor market, “concerns are strongest among consumers with more income, consistent with well-publicized layoffs largely affecting white collar jobs, including in the tech sector. In contrast, lower income consumers have a more positive outlook for labor markets. This runs counter to the typical pattern, where higher income consumers tend to have more favorable expectations for labor markets than their lower income counterparts.”

5)Private sector wages/salaries grew by 1% m/o/m and 7.9% y/o/y (both aggregate the number of newly employed plus total wages) in January.

6)January personal spending was up more in nominal terms but as expected in REAL terms. Spending on both goods and services rose m/o/m. The savings rate ticked up by 2 tenths to 4.7%.

7)The Eurozone February composite index rose to 53 from 50.8, solely driven by a 2.2 pt m/o/m increase in services to 53. The manufacturing component remained below 50 and slipped by .3 pts to 48.5. S&P Global said “A key change in the services sector was the revival of growth in financial services activity, albeit with real estate remaining in decline, as well as resurgent tourism/recreation and media activity. Transportation broadly stabilized after 7 months of decline, industrial services gained momentum and IT services enjoyed a surge in activity.” With respect to manufacturing, “chemical & plastics and basic resources remained the main areas of weakness while food & drink, household goods and industrial goods manufacturing showed further signs of recovery. Auto making likewise continued to pull out of the slump seen last year.” Overall inflation pressures eased but “remained stubbornly high, especially in the service sector, in part linked to the impact of higher wage costs.”

8)The UK saw its PMI also improve with both components higher. The composite index rose to 53 from 48.5 with the services piece rising to 53.3 from 48.7. Manufacturing lifted by 2.2 pts to 49.2. S&P Global said “While many companies continue to report tough operating conditions, especially in the manufacturing sector, the broader business mood has been buoyed by signs of inflation peaking, supply chains improving and recession risks easing.” It’s not though all a bed of roses though as, “elevated inflation pressures clearly remain a concern, especially in the service sector.”

9)The February German IFO business confidence index rose 1 pt m/o/m to 91.1 which was about as expected. The Current Assessment was down slightly but offset by a 2.1 pt rise in Expectations. The IFO said simply, “The German economy is gradually working its way out of a period of weakness.”

10)Consumer confidence in Germany rose 3.3 pts m/o/m but still remains deeply negative at -30.5. It was at +9 in February 2020. GFK said “Recent drops in energy prices and reports that experts believe a recession in Germany this year can now be avoided mean that optimism is slowly returning.”

11)The German February ZEW index which rose to 28.1 from 16.9 and that was 5 pts above the estimate with improvement too seen in the Current Situation component, though remains deeply negative at -45.1.

12)French business confidence was up 1 pt in February. The estimate was for no change. Manufacturing, services and retail each rose 1 pt while employment was down 1 pt and not surprisingly with the rise in interest rates, building construction confidence declined by 2 pts.

13)French February consumer confidence fell 1 pt m/o/m but January was revised up by 3 pts so the net result was better than expected. At the current 82, it compares with the February 2020 print of 105.

14)The February UK CBI retail sales index improved by 10 pts but is still below zero at -12. The CBI said “Whilst retail sales volumes were largely unchanged in the year to February and slightly above seasonal norms, firms remain pessimistic about their business outlook and are bracing themselves for yet another fall in sales next month.”

15)Japan’s February composite PMI index was unchanged m/o/m at 50.7 with a lift in services and a drop in manufacturing while Australia saw a rise to 49.2 from 48.5, though still below 50.

16)The Bank of Korea held rates unchanged at 3.5% as expected but the Governor still said the rate hiking might not be over. “I hope the hold this time isn’t going to be seen as meaning the rate-hike stance is over.”

17)The Reserve Bank of New Zealand hiked rates by 50 bps as expected to 4.75%. That pace is down from 75 and they will likely go to 25 bps at their next meeting.

Negatives,

1)The January headline PCE rose .6% m/o/m vs the estimate of up .5% after a .2% gain in December which was revised up by one tenth. The core rate was higher by .6% m/o/m, two tenths above the forecast and December was also revised up by one tenth to a .4% increase. Versus last year headline PCE was up 5.4% while the core rate grew by 4.7%.

2)The MBA said purchase applications fell 18% on the week (ended Feb 17th) as the average 30 yr mortgage rate is back at the highest level since mid November at 6.62%. Purchases are lower by 42% y/o/y. Refi’s fell 2.2% after last week’s 12.5% drop and are lower by 72% y/o/y.

3)If you haven’t already, make sure to listen to ZipRecruiter CEO Ian Siegel’s comments on the labor market.

4)US Q4 GDP was revised down by 2 tenths to 2.7% with personal spending taking the biggest hit, slowing to 1.4% from 2.1% initially.

5)Following the NY and Philly manufacturing indices which remain in contraction, the KC region saw no growth with its activity index at zero.

6)Interest rates around the world are spiking again. We’re of course all watching US rates but the German 2 yr yield closed at a 15 yr high.

7)The February UK CBI industrial orders index was little changed at -16 vs -17 in January. CBI said, “Conditions in manufacturing remain challenging, with output disappointing and order books having thinned out since late last year. However, if growth is going to return to the sector on a sustainable basis, then manufacturers need more than the boost some will receive from lower energy prices over the winter season.”