Consumer Confidence, GDP, Regional Manufacturing, Peak Autos?

The Conference Board’s consumer confidence index in February rose 3.2 pts to 114.8 which was above the forecast of 111. It exceeds the December print of 113.3 and is at the best level since July 2001 and thus is above the best level in the mid 2000’s expansion. Most of the improvement after the November election print has been seen in the Expectations component. The Present Situation, or how people feel right now, rose 3.4 pts to 133.4 vs 132 in November and 123.1 in October. Expectations came in at 102.4, up 3.1 pts m/o/m, up 8 pts from November and higher by 16.4 pts from October.

The answers to the labor market questions were mixed as those that said jobs were Plentiful fell almost 1 pt and is below where it was in August and September. But, those that said jobs were Hard to Get fell by .8 pts to the lowest level since August 2007. There was a modest increase in those expecting an Increase in Income of .2 pts to 18.3. It was 17.4 in October and printed 21.5 in December. Notwithstanding the nearly 16 yr high in confidence, spending decisions were mixed and remain at levels seen before the election. Those that plan to buy an auto within 6 months rose .6 pts to 13.1 but that’s below where it was in October. Those that plan to buy a home fell .1 pt to about where it was in October. Those that plan to buy a major appliance such as an AC or fridge, fell almost 5 pts to the weakest level since April 2015. One year inflation expectations held at 4.9%, a 5 month high.

Bottom line, consumers are obviously optimistic post election (there is no measure of political party breakdown here unlike in the UoM data where Republicans are euphoric and Democrats are suicidal) but that good feeling hasn’t yet translated into any increase in the intention to spend more money on things which is what matters for the economy. Hopefully that will change.

The Chicago February manufacturing index rose to 57.4, the best since December 2015 from 50.3 in January. The estimate was 53.5. New orders rebounded by 10.1 pts after falling below 50 last month. Backlogs rose too but are still below 50. Employment got back above 50 for the 1^st time in 4 months and now sit at the highest level since October 2014. Inventories jumped by 15.3 pts and rose above 50 for the 1^st time in 3 months. Price pressures intensified with this component at the highest level since September 2014.

Bottom line, this number is hugely volatile month to month and thus is best to smooth it out. The 3 month average is now 53.9 vs the 6 month average of 54.1 and the 12 month average of 53.4. So, not much of a change in trend notwithstanding the election at least in the Chicago area. The ISM tomorrow is expected to be little changed from January.

The Richmond manufacturing survey also saw upside with a print of 17 from 12 in January and above the estimate of 10. That matches the level seen in March 2016 and 2010 before then. All the key components were also higher m/o/m and prices pressures were evident still in prices paid and those received.

Bottom line, this index printed -4 before the election and a large expected increase in military spending should be very impactful for this part of the country which includes DC, Virginia, Maryland, and North and South Carolina. Also included is West Virginia which is breathing some signs of life with the rise in coal prices and Trump’s interest in saving many of these remaining jobs.

While old news since we’re 2/3 of the way thru Q1, Q4 GDP was left unrevised at 1.9% vs the expectation that it was going to be shifted to 2.1%. Nominal GDP was revised down one tenth as the price deflator was revised down by one tenth. Consumption was revised to a better than expected 3% rise from 2.5% initially and vs the 2.6% forecast. Within this, there was an increase in spending on both goods and services from the initial print. Within services, healthcare spending was the main reason. The spending side was mostly offset by a downward revision on the investment side with declines in equipment and intellectual property. There was also a downward revision to government spending. Trade was left unchanged with a drag of 170 bps. Inventories were revised slightly lower. Real final sales were left unrevised at .9% while final sales to domestic purchasers was moved up by one tenth to 2.6%.

Bottom line, GDP growth averaged 1.9% in 2016. Expectations for 2017 are 2.25-2.5% with tax and regulatory reform of course being the main determinants in terms of complexion and timing. The longer it takes to implement, the more companies will hold off decision making and why details now are needed. That said, the details are the most difficult part to figure out and why we should expect another vague speech tonight on these economic factors.

Q1 GDP forecasts might take a downward leg today after the goods trade balance was $3.2b more than expected and wholesale inventories fell .1% m/o/m instead of rising by .4% as forecasted. Of note within the retail inventory figure which jumped by .8% m/o/m, there was a sharp 2.3% m/o/m increase in motor vehicle/parts inventory at the dealer level and is up by 9.4% y/o/y. This helps to explain why we are seeing such large incentives to move cars/trucks off the lots. Peak autos.