Positives
1)The November ISM services index rose to 56.5 from 54.4 in October and that was also 3 pts better than expected. It compares with 56.7 in September. The internals though were pretty mixed. While the headline ISM rose, the breadth weakened as 13 industries saw growth vs 16 in October and 15 in September. The ISM said in a bottom line, “increased capacity and shorter lead times have resulted in a continued improvement in supply chain and logistics performance. A new fiscal period and the holiday season have contributed to stronger business activity and increased employment.”
2)The initial December UoM consumer confidence index rose to 59.1 from 56.8 and that was 2 pts above the forecast. Both Current Conditions and Expectations components were up m/o/m. One yr inflation expectations moderated by 3 tenths to 4.6% “partly due to gas prices, which have fallen to levels similar to a year ago” but the 5-10 yr outlook held at 3.0%. After falling by 17 pts last month, plans to buy a major appliance rose 4 pts. Those that said it’s a good time to buy a car/truck was up 3 pts after falling by 7 last month. Those that want to buy a home increased by 3 pts but only after dropping by 10 pts in November. The UoM said there were more notable gains in confidence for the higher income families “and those with larger stock holdings, supported by recent rises in financial markets.” On inflation, “Throughout the survey, concerns over high prices – which remain high relative to just prior to this current inflationary episode – have eased modestly.”
3)Mortgage rates continued to fall according to the MBA to 6.41% vs 7.14% one month ago and that helped to lift refi’s by 4.7% w/o/w but they are still down 86% y/o/y. Purchases fell 3% w/o/w after gains seen in the prior 4 weeks. They are still lower though by 40% y/o/y.
4)The Atlanta Fed released its November wage data and the overall ‘Growth Tracker’ saw a 6.4% y/o/y increase, no change from October. Wage growth for the ‘job switcher’ rose 8.1% y/o/y, up from 7.6% in October. This stat peaked in July at 8.5% but is still pretty robust. It averaged 3.7% growth in the 20 years leading into Covid. For the ‘job stayer’ was up 5.5% y/o/y vs the pre Covid average of 3.2%. That is up one tenth m/o/m.
5)Manheim said wholesale used car prices fell .3% m/o/m in November and are lower by 14.2% y/o/y.
6)The Bank of Canada raised interest rates by 50 bps to 4.25% and rather than commit to more, they said they are ‘considering’ more. The Reserve Bank of Australia raised interest rates by 25 bps to 3.10% as fully expected. The Central Bank of Brazil held its rate at 13.75% as expected.
7)China takes a variety of further measures to reopen.
8)India’s November services PMI rose to 56.4 from 55.1. S&P Global said “Indian service providers continued to reap the benefits of strong domestic demand…Moreover, expectations of demand buoyancy in the medium-term promoted further job creation.” Inflation though remains stubborn as “The overall upturn in input costs was sharp and little changed from October, while output charges rose at the quickest rate in over five years.”
9)Germany said its October factory orders and industrial production figures were better than feared.
Negatives
1)In stark contrast to ISM in part because of differences in the sector’s included and the breadth of businesses, the S&P Global services PMI fell to 46.2 in November from 47.8 and under 50 for a 5th straight month. They said the fall in output was the 2nd sharpest since May 2020. “Contributing to the decline was a steeper decrease in new orders, as domestic and foreign client demand remained weak. Efforts to entice customer spending were reflected in the slowest rise in output charges since October 2020.” Business confidence about the future did pick up on “hopes of greater client demand and lower rates of inflation over the coming year” but “The degree of confidence was below the series trend, however, as firms remained concerned regarding cost pressures, the economic outlook, rising interest rates and customer hesitancy.”
2)Initial jobless claims totaled 230k, spot on with expectations and up from 226k last week (revised up by 1k). The 4 week average was 230k vs 229k last week and vs 227k in the week prior. That is a 3 month high. Delayed by a week, continuing claims continued higher and now totals 1.671mm, up about 60k w/o/w and above the estimate of just under 1.62mm. That is the most since early February.
3)Within the headline UoM consumer confidence, employment expectations fell 1 pt to the weakest since August 2011. Those seeing ‘Higher Income’ declined 1 pt to a 5 month low.
4)The Business Roundtable’s Q4 CEO Economic Outlook Survey index fell 11 pts q/o/q to 73 and they said this “is the first time it has dipped below its long-run average of 84 since Q3 2020.” It still though remains well above the expansion or contraction breakeven of 50. Hiring plans fell 17 pts to 61, capital spending plans were down by 7 pts to 68 while those expecting higher sales in the coming 6 months declined by 8 pts to 91. The Roundtable said “The results signal CEOs remain cautious amid persistent domestic and global economic headwinds, including high inflation and the Fed measures required to tame it.” They are pushing Congress to restore “full and immediate expensing of American R&D investments this session and reforming the permitting system to expedite energy infrastructure projects.” CEOs forecast 1.2% GDP growth in 2023.
5)The PPI in November rose by .3% headline and .4% core with the former one tenth more than expected and the latter double the estimate. Also, October was revised up by one tenth for each. Versus last year, headline PPI was up 7.4% y/o/y and by 6.2% ex food and energy. They are though both off the October prints of up 8% and 6.7% respectively. With respect to the goods side, a 38% jump in fresh and dry vegetables led the way, along with some other food products like chicken and meats. Energy prices fell 3.3% m/o/m but are still up 16.2% y/o/y. With services, the BLS said “About 1/3 of the November rise in the index for final demand services can be traced to prices for securities brokerage, dealing, investment advice, and related services, which jumped 11.3%.” Anything auto saw prices lower.
6)The Cox Automotive Dealer Sentiment Index for Q4 fell to the lowest since this survey started in Q2 2017. With the breakeven of 50 between expansion and contraction, the index dropped to 43, down from 49 in Q3 and lower by 17 pts y/o/y. The Cox chief economist said “High interest rates and a generally slowing economy are clearly weighing heavily on US auto dealers right now. Dealers are normally optimistic, so the drop in the 3 month outlook to a new low in our survey history is particularly noteworthy. As the year began, dealers were telling us about one obvious problem: Inventory. Now, as 2022 comes to a close, it’s all about the economy and interest rates.”
7)The November Logistics Managers’ Index fell to 53.6 from 57.5 in October. The breakeven level is 50 but it is the 2nd lowest reading in this index, only just above the 51.3 seen in April 2020. While a few months ago we were alerted by many large retailers of the excess inventory situation, “inventory metrics are now settling into more sustainable rates of growth. Inventory levels have decreased significantly, particularly for upstream respondents.” Warehouse capacity remains tight they said and warehouse prices continue higher.
8)China’s Caixin November services index capturing the private sector (about 80% of employment in China is with private companies by the way) fell to 46.7 from 48.4. Hong Kong’s PMI fell to 48.7 from 49.3.
9)Singapore’s November PMI fell 1.5 pts m/o/m to 56.2. S&P Global said “Private sector activity continued to expand at a robust pace midway into the final quarter of 2022 but saw the rate of expansion moderate from October’s high. Survey respondents remarked that virus-related disruptions underpinned the slowdown. Indeed, lead times lengthened at a substantial rate in November amid reports of Covid related delays and manpower constraints…While firms were generally hopeful that sales will continue to improve, the average level of optimism fell to a modest one with recession risks, higher GST (goods and services tax) impact on sales and Covid implications reported to have negatively affected sentiment.”
10)China said its November exports fell 8.7% y/o/y, more than double the expected decline of 3.9%.
11)Taiwan said its November exports dropped by 13.1% y/o/y vs the forecast of down 6.8%.
12)Running well below the rate of inflation, regular base pay in Japan rose 1.3% y/o/y in October vs 1.4% in September, 1.5% in August and .9% in July.
13)The S&P Global UK Construction PMI fell to 50.4 from 53.2. The estimate was 52. They said “Stalling house building activity contributed to the weakest UK construction sector performance for 3 months in November. Survey respondents noted that new residential building projects had been curtailed in response to rising interest rates, cancelled sales and worries about the economic outlook. Construction growth was largely confined to the commercial segment, but even here the speed of expansion slowed considerably since October as client confidence weakened in response to heightened business uncertainty. At the same time, a lack of new work to replace completed projects resulted in another fall in civil engineering activity.”
14)The Eurozone November services PMI was revised a hair to 48.5 from 48.6 seen a few weeks ago. That is down for a 7th straight month and to the weakest since February 2021 when the Delta variant was raging. S&P Global said “Weak demand conditions were a major factor behind the drop in output in November. Incoming new business receipts fell for a 5th month running, with the pace of decline unchanged from October’s 20-month record.” Inflation stayed very high but less so. “There was another marginal uptick in the level of optimism at service sector companies, although the business outlook remained subdued.”
15)The UK services index was left unrevised at 48.8 and that is unchanged with October’s weakest level since January 2021.” S&P Global cited “cost of living challenges weighing on discretionary spending. Cost pressures showed little signs of abating, with operating expenses again rising sharply, although pricing power was limited to some degree by rising competition and falling sales.” The business outlook did improve “somewhat” though “remains historically subdued.”
16)One more clip from Kirstie Alley, //www.youtube.com/watch?app=desktop&v=p-4gZJzqC_Y