Succinct Summation of the Week’s Events:
Positives,
1)Initial jobless claims fell 22k w/o/w to 242k and that was 9k below expectations. The prior week was upwardly influenced somewhat by fraud in Massachusetts and Kentucky. As a similar amount fell out of the 4 week average, it remained little changed at 244k vs 245k last week. Continuing Claims fell by 8k to just under 1.8mm at 1.799mm.
2)The Department of Energy is going to start refilling the SPR, they did say.
3)The May NAHB home builder index rose 5 pts and is finally getting back to the breakeven of 50. The estimate was for no change. The Present Situation was up 5 pts m/o/m to 56 and the Future Outlook was higher by 7 pts to 57. Lagging still is Prospective Buyers Traffic however which was up by 2 pts but still well below 50 at 33. The NAHB said “In March, 33% of homes listed for sale were new homes in various stages of construction. That share from 2000-2019 was a 12.7% average.” The NAHB also said builders “continue to face ongoing challenges to meet a growing demand for new construction. These include shortages of transformers and other building materials and tightening credit conditions for residential real estate development and construction brought on by the actions of the Federal Reserve to raise interest rates.” Builders also are gaining share from the existing market because of the incentives they are utilizing. The NAHB said 54% of builders offered some type of incentive to help lift sales, though that is down from 59% in April and the recent peak of 62% in December. They also said 27% are reducing prices but that is down from 30% in April and 36% last November. The average price of this cut was 6%, unchanged for the past four months.
4)US industrial production in April rose .5% m/o/m which was better than the estimate of no change but that no change was disrupted by the 4 tenths downward revision to March. Manufacturing production, even with the March revision lower did exceed the estimate because of a big jump in the production of autos/parts of 9.3% m/o/m after falling by 1.9% in March.
5)German said its April PPI was up 4.1% y/o/y which shows further deceleration due to lower energy prices but also very easy comps.
6)In the 3 months ended March in the UK saw a better than expected job gain of 182k, 22k more than anticipated. Their unemployment rate thru March rose one tenth to 3.9%. Wage growth ex bonus was still good, rising by 6.7% y/o/y but still below the 10% inflation pace.
7)Japan’s economy grew by 1.6% q/o/q annualized which was twice the estimate of up .8%. Business investment led the way and personal consumption also slightly exceeded expectations.
Negatives,
1)Core retail sales in April rose .7% m/o/m which was 3 tenths above the estimate but offset by a one tenth downward revision to March and a 5 tenths lower revision to February. Looking at sales ex gasoline, they are up 3.3% y/o/y in nominal terms which compares with the 20 yr average of 4.4%. This also compares with the April rise in core goods prices of 2%, thus REAL retail sales are barely growing.
2)The May NY manufacturing index collapsed by about 40 pts to -31.8. The six month outlook was up 3.2 pts m/o/m to 9.8 and I guess that is the one positive in this report. That said, capital spending plans for the coming quarters fell notably to barely above zero.
3)The May Philly manufacturing index was negative for the 11th month in the past 12 at -10.4 though that is up from-31.3 in April and above the estimate of -20. Negatively too, the 6 month outlook weakened further to -10.3 and in contraction for a 3rd straight month. Capital spending plans did lift back above zero at 2.5 after two months below. Expectations for both prices paid and received did jump with both at 5 month highs.
4)Housing starts were as expected in April totaling 1.4mm but there was a downward revision of 50k for March to 1.37mm. Single family starts were up by 13k m/o/m to 846k and multi family higher by 17k m/o/m to 555k. As for forward looking permits, those filed for single family grew by 26k to 855k. For multi family it fell by 47k to 561k.
5)Existing home sales in April, measuring actual closings in the important spring season, totaled 4.28mm, about as expected but down from 4.43mm in March. April months’ supply rose to 2.9 from 2.6 but they typically rise this time of the year. The median home price fell 1.7% y/o/y and that’s the 2nd month in a row of declines. It was bifurcated though as prices rose in the Northeast and Midwest where supplies are tighter but fell in the South and West. The West in particular saw the medium price fall by 8% y/o/y. The first time buyer totaled 29% of purchases vs 28% in March. All cash buyers made up 28% of buying vs 27% in March and 28% in February. Days on the market was 22 vs 17 in April 2022 but down from 29 in March and 34 in February. The NAR said “The combination of job gains, limited inventory and fluctuating mortgage rates over the last several months have created an environment of push-pull housing demand.”
6)A few comments from some of the retailers who reported this week:
WMT, “After a strong start, sales growth moderated as the quarter progressed…At the headline level, consumer spending has proven resilient. But below the surface, we continue to see signs that customers remain choiceful, particularly in discretionary categories.”
TGT, “Within the quarter, total sales were strongest in February, began decelerating in March, and softened further near the end of April…Strength in frequency businesses (Beauty, Food & Beverage and Household Essentials) offset continued softness in discretionary categories.”
HD, “As we looked beyond weather and lumber deflation, our underlying performance in the quarter was mixed. We saw more pressure across the business compared to what we observed when we reported fourth quarter results a few months ago. While there was relative strength in project related categories like building materials, plumbing, and hardware, we had many departments with negative comps in the quarter and continued to see pressure in a number of big ticket discretionary categories.”
TCS, “As we look to fiscal 2023, we expect it to be a tough year, considering the intensified macroeconomic headwinds which are driving reduced traffic and lower average ticket prices.”
FL, “since our Investor Day, in the face of increasing macro headwinds, our sales trends have slowed significantly just in the past month and a half, which will have an impact on our near-term results…the recent softness has resulted in us taking a more aggressive promotional stance to drive demand and to effectively manage our inventory, and we’re reducing our guidance for the year to reflect that.”
7)From the NY Fed’s household debt report: “The share of current debt becoming delinquent increased for most debt types. The delinquency transition for credit cards and auto loans increased by .6 and .2 percentage points, respectively approaching or surpassing their pre-pandemic levels.” While mortgage debt levels are down a lot over the past 15 years as a % of GDP, non housing debt as a % of GDP as of Q1 is at the same level seen in Q1 2008.
8)The April Cass Freight index fell 2.4% y/o/y “as freight markets remain muted and continue to work through an extended soft patch.” They also said, “But several higher frequency freight data series started April very soft and improved through the month and into May. This augers toward at least a seasonal improvement in May, though the y/o/y decline may still worsen on a tough comp against inventory building a year ago.” They highlighted declining real retail sales and the inventory destocking still going on as “the primary headwinds to freight volumes” but they speculate that “worst of the destock is most likely in the rearview.”
9)Seen late last Friday, C&I loans outstanding for the week ended May 3rd declined by $6.2b to $2.768T and that is now retesting the post $2.756T low in the weeks after SVB. As for bank deposits, they declined by another $13.8b.
10)Japan said inflation ex food and energy rose 4.1% y/o/y in April, a further acceleration and up from 3.8% in March but one tenth below the consensus. It’s now double the 2% target but Governor Ueda today they can still be patient and it would be “premature” to tighten policy just yet.
11)The China April economic data reflects the strength in consumer spending but softer industrial side. Retail sales rose 18.4% y/o/y and while below the 21.9% estimate, it’s an acceleration from the 10.6% gain seen in March. Industrial production was soft, rising just 5.6% y/o/y, about half the estimate of up 10.9%. Fixed asset investment ytd was a bit light relative to expectations.
12)Australia’s job data for April was weaker than expected with a drop in the number of employed and a rise in their unemployment rate.
13)Japan reported that April exports rose 2.6% y/o/y in April, just under the estimate of 3%. Imports fell mostly due to a slip in commodity imports (more price than volume).
14)The German May ZEW investor expectations index of the German economy weakened to -10.7 from +4.1 and that was worse than the forecast of -5. The Current Situation softened too. The ZEW said “the German economy could slip into a recession, albeit a mild one. The sentiment indicator decline is partly due to expectations of further interest rate hikes by the ECB.”
15)The UK April jobless claims figure reflected a jump of 46.7k, the most since February 2021.
16)In March, Eurozone IP fell 4.1% m/o/m, more than the estimate of down 2.8%.
17)Turkish president Erdogan might actually win again.