Succinct Summation of the Week’s Events:
Positives,
1)Initial jobless claims fell again to just 186k, 19k less than expected and vs 192k in the week before. The 4k week average is back below 200k at 198k, the lowest since May 2022. Continuing claims rose by 20k to 1.675mm.
2)Pending home sales in December rose 2.5% m/o/m instead of falling by 1% as forecasted and November was revised slightly higher to a less weak print. That is just the 2nd m/o/m increase dating back to October 2021. A bounceback in contract signings in the South and West offset weakness in the Northeast and a slight drop in the Midwest. The NAR said “Mortgage rates are the dominant factor driving home sales, and recent declines in rates are clearly helping to stabilize the market.”
3)The post holiday activity continued according to the MBA as purchases rose 3.4% w/o/w and refi’s rose by almost 15% w/o/w. I still emphasize that this is typical after the new year. Versus last year, purchases are still down 39% and refi’s by 77%.
4)December headline PCE rose one tenth m/o/m and 3 tenths core with the former one tenth more than expected and the latter in line with the estimate. The y/o/y gains were 5% headline and 4.4% core. Goods prices were up 4.6% y/o/y, a continued slowdown for a 6th straight month. Services inflation was unchanged from the November print of up 5.2%. For those that eat, food prices grew 11.2% y/o/y and for those that drive, get on a plance, wear clothes, use plastic, heat their homes, etc… saw energy prices up by 6.9%.
5)The final January UoM consumer confidence figure was 64.9 vs the first print of 64.6 and compares with 59.7 in December. This is the highest figure since April 2022 but still remains well below the 101 seen in February 2020. Most of the m/o/m gain was driven by the rise in Current Conditions. One yr inflation expectations fell to 3.9% from 4.4% and vs 4% in the initial January print. The 5-10 yr outlook was unchanged with December at 2.9% but was at 3% in the preliminary January survey. The bottom line from the UoM was that the gain in confidence resulted from “improving assessments of both personal finances and buying conditions for durables, supported by strong incomes and easing price pressures.” Here though is the caveat, “there are considerable downside risks to sentiment, with two-thirds of consumers expecting an economic downturn during the next year.” Also of note, “While the recent easing of inflation has been noted and welcomed by consumers, its positive effects on sentiment were partially offset by the negative impact of rising borrowing costs. For the 3rd consecutive month, at least 30% of consumers spontaneously cited high interest rates as a reason for poor buying conditions for durables, cars or homes.”
6)The US economy grew by 2.9% q/o/q annualized in Q4, 3 tenths above the estimate but a breakdown of the components is key. Inventories contributed 150 bps of the gain and trade added another 60 bps but not for good reason as both imports and exports both fell with the former falling more. Government spending added another 50 bps.
7)The Bank of Canada raised rates by 25 bps to 4.50% as expected and said they are on pause for now but will hike again if they feel necessary. QT continues on.
8)The Bank of Thailand hiked rates by 25 bps as expected but still to only 1.50%. Expect more hikes said the Assistant Governor who said “The economy is taking off so it’s still appropriate to raise the rate for a while. But how far we will go is the key task for the following meetings.”
9)Leisure stats out of China, particularly from Macau continue to improve.
10)Japan’s composite manufacturing and services PMI for January got back above 50 at 50.8 vs 49.7. Services led the way, up by 1.3 pts m/o/m to 52.4. Manufacturing was unchanged at 48.9. Services benefited from further covid relaxations and more travel with the latter helped by a subsidy program, “while manufacturing firms continued to face muted customer demand.”
11)In Australia, they saw the same trend of better services and weaker manufacturing with the combined composite index at 48.2 vs 47.5 with both components below 50. Services rose 1 pt m/o/m to 48.3 while manufacturing softened to 49.8 from 50.2. That manufacturing dip below 50 was for the first time in almost 3 years. The press release differentiated the two “with service sector contraction easing on better demand while manufacturing output shrank faster amid lower new business and supply issues.”
12)The January Eurozone PMI got back above 50 at 50.2 from 49.3 and that was just above the estimate of 49.8. Services rose almost 1 pt to 50.7 while manufacturing was up by 1 pt to 48.8. S&P Global said “The survey suggests that a nadir was reached back in October, since when fears over the energy market in particular have been alleviated by falling prices, helped by the warmer than usual weather and generous government assistance. At the same time, supply chain stress has eased, benefiting producers most notably in Germany, and more recently the reopening of the Chinese economy has helped to restore confidence in the broader global economic outlook for 2023, propelling business optimism sharply higher.” Putting this altogether, the survey is “merely indicating a stagnation of the Eurozone economy.” Germany and France each had their composite indices just below 50.
13)As for the UK economy, its January PMI fell to 47.8 from 49 with services falling almost 2 pts to 48 while manufacturing was less weak at 46.7 vs 45.3. The strikes in the UK are not helping either. S&P Global said “Industrial disputes, staff shortages, export losses, the rising cost of living and higher interest rates all meant the rate of economic decline gathered pace again at the start of the year. Jobs also continued to be lost as firms tightened their belts in the face of these headwinds, though many other firms reported being constrained by an ongoing lack of available labor.” The positive, “improved business expectations for the year ahead and a further cooling of inflationary pressures.”
14)The German IFO January business confidence index rose to 90.2 from 88.6, about as expected but the components were mixed as the Current Assessment fell a touch but offset by a rise in Expectations. AS they always do succinctly, the IFO said “The German economy is starting the new year with more confidence.”
15)Wholesale price pressures eased a bit in the UK but still remain VERY high. Input prices rose 16.5% in December vs 18% in November while output charges grew by 14.7%, down from 16.2% in November.
Negatives,
1)The US January manufacturing and services PMI from S&P Global did rise to 46.6 from 45 but still marks the 7th straight month in contraction. The services index was 46.6 vs 44.7 while manufacturing was up .6 pts m/o/m to 46.8.
2)The December income and spending stats were as expected but inflation adjusted has personal spending down in the last 2 months of 2022 and why Q1 2023 will likely be negative as inventories give back the Q4 contribution and consumer spending remains modest. Private sector wages/salaries rose by .3% m/o/m and 5.4% y/o/y. Combining the rise in income and drop in spending saw the savings rate lift to 3.4% from 2.9% and off the near 65 yr low seen in September at 2.4%.
3)New home sales in December totaled 616k, about as expected but November was revised down by 38k to 602k. Months’ supply was 9 vs 9.2 in November and 9.4 in October. Some of this supply though is not fully finished homes. The y/o/y home price gain was up 7.8% but bounces around a lot because of mix.
4)The January Richmond manufacturing index fell to -11 from +1 and follows NY and Philly showing another month of contraction. The KC region was also negative at -1 but less so vs the -4 seen in December.
5)Core durable goods orders in December were a touch below expectations when we include the downward revision.
6)Within the Q4 US GDP report, real final demand taking out government spending, inventories and trade saw just .2% growth, the slowest since Q4 2009 not including covid.
7)Tokyo said January CPI rose 4.4% y/o/y headline, 4 tenths more than expected and up from 3.9% last month. Inflation ex food and energy was higher by 3%, one tenth above the forecast and up from 2.7% in December.
8)French consumer confidence continues to plumb the lows, falling 1 pt m/o/m to 80 in January. The multi year low was 79 last July.
9)France said its business confidence index for January fell 1 pt m/o/m as expected. It has printed 102 for the 4th month in the past 5.