- We finally have a tax framework with which to work from. Make America Competitive Again.
- Non defense capital goods orders ex aircraft rose by .9% m/o/m in August, well more than the estimate of up .3%. Also of note, shipments (which gets put into the GDP calculations) were up by .7% vs the forecast of up .1%. A key contributor was the 1.3% m/o/m increase in computers/electronics which I’m guessing has to do in part with a ramp up of the new Apple iPhones. Commodity related capital spending also was a contributor. The caveat is that this key data point is still 8% below its peak.
- Purchase applications to buy a home were up by 2.8% just off the lowest since February and are higher by almost 4% y/o/y.
- The goods trade balance for August was lower than expected at $62.9b vs the estimate of $65.1 and July was revised lower. Exports got back most of what it lost in July while imports fell. This should lead to a modest increase to Q3 GDP estimates.
- Also possibly lifting Q3 GDP estimates was the 1% m/o/m increase in August wholesale inventories, well more than the estimate of up .4%. Retail inventories jumped by .7% driven by a 1.2% rise in car/parts inventories for reasons we all know (but could be partially relieved post Hurricane Harvey). Both this figure and the trade numbers are of course pre Hurricane.
- The Chicago manufacturing index for September jumped to 65.2 from 58.9 and above the estimate of 58.7. New orders rose while order backlogs hit a 29 year high. After 3 months below 50, “the employment indicator returned to above 50 territory in September. Despite the rise, companies continued to cite difficulty in finding skilled workers while there was evidence of firms hiring temporary staff and staff working overtime hours.” Also of note, “Inflationary pressures at the factory gate rose markedly in September to a level not seen since July 2011.” Inventories were up because “the adverse weather conditions led some companies to stockpile goods as a precautionary measure.”
- The Richmond manufacturing index rose 5 pts to 19 led by shipments and that is better than the estimate of 13. New orders rose but backlogs fell m/o/m. Employment was down a touch but the average workweek was up with wages little changed. With inflation, both prices paid and received rose to 5 month highs.
- The Dallas Fed said its manufacturing index for September rose to 21.3 from 17 and that’s a 7 month high. The estimate was for a drop to 11.5. The Dallas Fed asked specific questions about the impact of the Harvey. “What do you expect the hurricane’s net impact to your firm’s revenue/production will be over the next 6 months?” For all firms surveyed on the gulf coast and in the rest of Texas, 46% said there will be No Change On Net. 27% said there would be a Slight Decrease, 17% said a Slight Increase. On the edge, 6% said they would see a Significant Decrease while 5% would see a Significant Increase. As for the ability to “find and hire workers” and whether that will change over the next 6 months, 69% saw no change while 20% said it would be Slightly More Difficult.
- Headline PCE inflation for August rose .2% m/o/m and .1% at the core which brings the y/o/y changes to 1.4% and 1.3% respectively. These were both one tenth less than expected. Low inflation and positive real wages is what is conducive to growth.
- Personal income was up by .2% as expected m/o/m in August while the private sector wage and salary change was zero but comes after a .6% rise in July and .5% gain in June. Looking at it y/o/y has wages and salaries up by 2.8% vs 2.5% in July.
- While very old news as we are just about done with Q3, the Q2 GDP figure was revised up by one tenth to 3.1%. The y/o/y increase was 2.2%.
- Germany reported a better than expected September jobs number where the number of unemployed fell by 23k, well more than the forecast of a drop of 5k. This sent their unemployment rate down by one tenth to 5.6%, the lowest level since Checkpoint Charlie went down.
- The European confidence index for September rose 1.1 pts to 113, 1 pt more than expected and is the best level since May 2007. All 5 components consisting of manufacturing, services, consumer, retail and construction were up m/o/m. With respect to inflation, “selling price expectations firmed across all surveyed sectors, in line with higher price expectations among consumers.”
- The ECB said money supply growth in August was up by 5% y/o/y, a pick up from 4.5% seen in July. Lending to non financial companies rose by 2.5% y/o/y vs 2.4% in July and that is the quickest pace since June 2009. Household lending held at 2.7% y/o/y growth.
- To the dismay of Mario Draghi and the ECB but to the delight of the European citizenry, September CPI for the eurozone rose 1.5% y/o/y as it did in August but that was one tenth less than expected. The core rate fell one tenth from August with a 1.1% y/o/y rise off the quickest pace since 2013. The estimate was 1.2%.
- The CBI in the UK said its retail sales index for September spiked to +42 from -10 and that crushed the estimate of +8. The CBI said the main drivers were the grocery and clothing sectors. CBI said “It’s encouraging to see some vigor returning to the retail sector in September…and consumer demand expected to hold up reasonably well next month. But inflation continues to squeeze household budgets, and with the pressure on incomes to set to persist, retailers will continue to face a challenging environment.”
- The Italian economic confidence index for September rose almost 1 pt to the best level since October 2007.
- As a proxy on global trade, Hong Kong exports in August rose 7.4% y/o/y, a touch above the estimate of 7.1%. It was trade to Asia which contributed to most of the gains. Exports to the US fell by 5.5% y/o/y. Imports jumped by 7.7%, above the forecast of up 5.9%.
- In Japan their unemployment rate in August held at 2.8%, the lowest since 1993 while the jobs to applicant ratio was unchanged too at 1.52, the highest since 1974.
- As for Japanese inflation where 2% is the holy grail in the halls of the BoJ, it rose .2% y/o/y ex food and energy in August as expected but actually matches the most since October ‘16. If one only takes out food, prices rose by .7% y/o/y, the quickest in 2 ½ years. The more up to date inflation gauge was the Tokyo data for September where CPI core/core was unchanged y/o/y vs the estimate of up .1%. With an aging population with no interest income, country debt levels that are lethal and interest rates that are microscopic, higher inflation is financial suicide.
- If faster economic growth is the result of tax reform, it won’t be happening in a vacuum and I’m going to assume the bond market won’t sit by idly at current levels of rates. And for sure, the Fed will continue on with QT where $450b of liquidity will be removed from the financial system from October 1st thru the end of next year just to get started and also they will continue with rate hikes. If only we didn’t get so overleveraged and drug addicted to low interest rates…
- Initial jobless claims totaled 272k, 2k more than expected and up from 260k last week. Obviously the data is being skewed by the rise in claims in Texas, Florida, Puerto Rico and Georgia. The 4 week average did rise to 278k from 269k as the 236k print of August 25th and thus pre Harvey drops out of average. Continuing claims, delayed by a week, fell by 45k after rising by a like amount in the week prior.
- Pending home sales in August fell 2.6% m/o/m, worse than the estimate of down .5%. This now marks the 5th month in the past 6 with declines and the y/o/y drop is 3.1%. The index itself sits at the lowest level since January 2016 and sales were down in each of the 4 regions. The NAR cited “the one-two punch of limited listings and home prices rising far above incomes.” The NAR Chief Economist believes that the “housing market has essentially stalled” due to this inventory and pricing issue.
- August new home sales totaled 560k annualized, 25k less than expected and down from 580k in July (revised up by 9k). That August print is the weakest since December. The issue with inventories is being slowly alleviated as the number of homes for sale rose to the most since May 2009 and combined with the home sale decline, months’ supply rose to 6.1 from 5.7 and that is the most since December. The median home price was little changed y/o/y but fell sequentially to the lowest since February. A welcome relief to buyers, especially first timers.
- With a 7 bps rise in the average 30 yr mortgage rate w/o/w to 4.11%, refi applications fell 3.5% from last week and are down 36% y/o/y.
- The September Conference Board Consumer Confidence index fell a touch to 119.8 from 120.4 and that was about in line with the estimate of 120. The Present Situation was down slightly while Expectations were up .5 pt. The answers to the labor market questions became more mixed. Those that said jobs were Plentiful fell 1.8 pts to a 3 month low but those that said jobs were Hard To Get fell .3 pts to the lowest since February 2007. Those expecting Higher Income was up by .6 pts to a 3 month high and there was a slight drop in those expecting a Decrease. The answers on Business Conditions were mixed. As for spending intentions, they were mixed as well. Those that plan to buy a home fell .4 pts but after rising by .6 pts last month. Those that plan to buy a car fell .8 pts to the lowest level since July 2016. The bright spot was within one’s home where those that plan the purchase of a Major Appliance rose 3.5 pts (due to washing machines, dryers and refrigerator’s) to the best since this question was asked in 1967. Lastly, and to all those worried about falling inflation expectations, the one year inflation expectation index rose to 4.9% from 4.5% and that matches the most in a year.
- The final September UoM confidence index fell to 95.1 from 95.3 initially and is down from 96.8 in August. The estimate was 95.3. From August, Current Conditions did rise .8 pts but was more than offset by a 3.3 pt drop in Expectations and it did fall from the 1st September print. One year inflation expectations were 2.7%, unchanged with the preliminary September print but up one tenth from August and matches the highest since April 2016. Income expectations were unchanged. Spending intentions were mixed as those that said it’s a good time to buy a home and a car both fell m/o/m. Intentions to buy a major household item did rise. Those that said it’s a good time to sell a house was up from August but down from the first September print. Specifically on housing, “Home buying conditions were judged favorably by 68% of all consumers, the lowest level in more than 5 years.” With respect to the hurricanes, “Given that the survey was able to reach most households in Florida and Texas in late September, it should be no surprise that small declines were recorded in the current financial situation of households” (from the initial print).
- Personal spending was up just .1% m/o/m in August but because inflation was up by .2%, REAL spending was negative. The spending weakness was in durable goods and most likely driven by the auto sector for reasons we all know. Spending on services was up by .3% m/o/m and healthcare spending has been a key component here. The savings rate held at 3.6% which is not far from the lowest level since 2008 and below the 20 year average of 4.9%. It is not encouraging to see such a low savings rate and should be a reminder of the tenuous nature of consumer spending at this stage of the economic cycle.
- German IFO business confidence index for September moderated to 115.2 from 115.9. The estimate was for little change at 116. Both the Current Assessment and Expectations components fell modestly. I don’t know whether this was due to the recent rise in the euro but IFO said “In manufacturing the index declined markedly. Manufacturers were clearly less satisfied with their current business situation, which nevertheless remains favorable.” The retail component did rise m/o/m. “More retailers plan to implement price increases. While clothing retailing flourished, car dealers remain plagued by concerns.”
- German retail sales in August fell .4% m/o/m instead of rising by .5% as expected.
- French business confidence in September was unchanged at 109 vs the estimate of a 1 pt rise. The manufacturing component was down by 1 pt.
- French consumer spending in August unexpectedly fell too.
- Merkel wins again but the top two parties garner only 53% of the total vote after dominating for 70 years. Populism is not dead.
- Abe should win his confidence vote but his political standing is on shakier ground too.
- Overall household spending in Japan was up just .6% y/o/y in August, 3 tenths less than expected after falling by .2% in July. The retail sales component fell 3 times more than forecasted m/o/m.
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