The Boock Report

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Succinct Summation of the Week’s Events – 9/15/17

Positives

  1. The UoM consumer confidence index for September fell to 95.3 from 96.8 in August and was about in line with the estimate of 95. Current Conditions rose 3 pts to the best since November 2000 while Expectations were down by 4.3 pts after jumping by 7.2 pts in August. Those expecting Higher Income rose 1 pt after falling by 4 pts last month. Those expecting Lower Income was down by 3 pts after rising by the same amount in August. Business expectations were little changed as were employment expectations. Spending intentions were mixed. Those that plan to buy a home fell 2 pts to the weakest level since a one month drop in August 2011 and you have to go to 2009 before then. Those that said it’s a good time to sell a house rose by 6 pts to match the highest level since August 2005. Again, we’ve reached an inflection point with pricing where buyers are saying enough is enough with these 5-6% per annum price gains. Those that plan to buy a car/SUV fell 3 pts to a 4 month low and that is just one point from matching a 3 yr low. Peak autos. Buying intentions did improve by 6 pts from those wanting to buy a ‘major household item’ and is back to where it was 4 months ago. Likely in response to the rise in gasoline prices, one year inflation expectations rose one tenth to 2.7%, matching the highest level since April 2016. Lastly, this is how the UoM broke down the impact of the hurricane: “Across all interviews in early September, 9% spontaneously mentioned concerns that Harvey, Irma, or both, would have a negative impact on the overall economy. Among those who mentioned the hurricanes, the Sentiment Index was 80.2, while among those who did not spontaneously mention either hurricane, the Sentiment Index remained unchanged from last month at 96.8.”
  2. The NY manufacturing index for September was 24.4, down slightly from 25.2 in August but was 6 pts above the estimate. The key components of new orders, backlogs, inventories and employment were higher. Prices paid rose to the highest level since February as did prices received likely in response to the recent rise in commodity prices. Encouragingly (and follows the rise in the NFIB component) capital spending plans rose by 13 pts to a 5 month high. Also, expected spending on technology was much higher.
  3. Initial jobless claims totaled 284k, 16k less than the forecast which was of course boosted to take into account the hurricane stricken regions (wasn’t just Houston as claims were estimated for Florida, South Caroline and Georgia in anticipation of the storm).
  4. In July, the number of job openings rose to a fresh record high at 6.17mm, up slightly from 6.12mm in June and above the forecast of 6mm. This data series goes back to December 2000. Hiring’s rose by 69k and was enough to lift the hiring rate up by one tenth to 3.8% (which does match the best since ’07 but remains well below the peak last decade of 4.4%). The number of people quitting their jobs rose a modest 34k and the quit rate was also up one tenth to 2.2%.
  5. The US NFIB small business optimism index for August was little changed at 105.3 vs 105.2 in July. It still though is pretty much holding its post election spike where it went from 94.9 to 98.4 in November and to 105.8 in December. The NFIB bottomed lined the report by saying “Higher optimism resulted first in higher employment activity, and now we’re seeing more small business owners making capital investments…Consumer demand is very strong, and the regulatory relief has been dramatic. Small business owners still expect progress on tax reform and healthcare, and they will be watching closely.”
  6. Headline PPI rose .2% m/o/m in August after a .1% drop in July but that was one tenth below the forecast. Taking out food and energy saw a .1% m/o/m rise which also was one tenth less than expected. Breaking down the core by one more iteration (taking out trade), saw a .2% rise m/o/m which was one tenth above the estimate. On a y/o/y basis, headline PPI is up by 2.4%, core up by 2% and the core/core by 1.9%. The headline figure is one tenth away from matching the quickest pace of gain since early 2012. The same can be said for the core rate.
  7. According to the MBA, the average 30 yr mortgage rate fell another 3 bps on the week to 4.03%, the lowest since mid November. This helped to goose purchases by 11% w/o/w off near the lowest level since February. The y/o/y gain was 6.7%. Refi’s were up by 9% but remain down by 35% y/o/y.
  8. Business inventories in July rose .2% m/o/m as expected and sales did as well, thus keeping the inventory to sales ratio at 1.38, the highest since November 2016.
  9. I want to applaud Mark Carney and his fellow doves on the BoE MPC who finally realize that maybe they panicked after Brexit and now at least want to take back the emergency rate cut initiated soon after. The extra QE put in place then will however remain. After all as I said this week, wages rising in line with inflation is tolerable. Inflation rising without a commensurate gain in wages and no interest income on their savings is making people poorer. In response, the 2 yr Gilt yield went from .17% to .45%, the pound ripped to the level it stood the day after the Brexit vote (closed at $1.49 the day of) and the FX sensitive FTSE 100 is down more than 2% on the week.
  10. The UK economy added 181k in the 3 months ended July, well above the forecast of 150k and the most since December 2015. This helped to lower their unemployment rate by one tenth to 4.3% and you have to go back to June 1975 to see that rate previously. The more timely August jobless claims figure saw a decline for the 2nd straight month.
  11. Eurozone industrial production in July was in line and the 3.2% y/o/y gain is the 2nd best of the year.
  12. In Australia, employment rose by 54.2k, well more than the estimate of 20k and the participation rate rose to a 5 yr high while the unemployment rate held at 5.6%.
  13. Japan’s July machine orders rose 8% m/o/m, double the estimate. It does though follow 3 months in a row of declines

 

Negatives

  1. Getting right at the core retail sales figure saw a decline of .2% m/o/m in August which is well below the estimate of up .2%. After a big lift to July due to Amazon’s prime day, online sales fell 1.1% m/o/m after rising by 1.8% in July. The y/o/y gain is still great at 8%. Car sales fell 1.6% m/o/m as we know all about peak autos. Interestingly, the sale of electronic products fell .7% m/o/m and are lower for a 4th straight month and down 3.3% y/o/y (not much back to school boost here). Building materials, which will get a big boost in September post hurricanes, fell .5% m/o/m. As August is a big back to school month, clothing sales fell 1% m/o/m and are up just 1.5% y/o/y. Also related to back to school, sporting goods sales were up just .1% m/o/m and are down 1.7% y/o/y. Relative to last year, core sales are up 2.9% which is below the 5 year average of 3.3% and well less than the pace of gains seen in the past two economic expansions.
  2. US Industrial production in August fell a large .9% m/o/m vs the estimate of up .1%. A key reason for this was the .3% decline in manufacturing vs the expected .3% rise. The impact of hurricane Harvey was all over this as we saw declines in petro refining, organic chemicals and plastics materials and resins according to the Fed. Mining fell too “as Hurricane Harvey curtailed drilling, servicing, and extraction activity for oil and natural gas.” Utility output was also down a big 5.5% m/o/m due to “unseasonably mild temperatures, particularly on the East Coast” which reduced the demand for AC.
  3. August CPI rose .4% headline, one tenth more than expected and the core rate was up by .2% as expected. This brings the y/o/y gains to 1.9% and 1.7% respectively vs 1.7% for both in July. Leading the core rise was a pickup in services inflation ex energy which was higher by .4% m/o/m and 2.5% y/o/y (although down from the 3% pace seen over the past few years). Notwithstanding more supply in some of the big cities, rent growth overall remains a big problem for many as Rent of Primary Residence rose .4% m/o/m and 3.9% y/o/y. The other major cost of living, medical care, did moderate with just a .1% m/o/m gain and 1.8% y/o/y rise but with high deductibles eating into discretionary income, don’t take too much comfort in that. Wireless prices that the Fed seems obsessed with wanting to go higher were instead lower by 13.2% y/o/y and .1% compared with July. Goods prices is where the deflation remains as prices here fell by .1% m/o/m and .9% y/o/y.
  4. Here is the US debt clock which has now exceeded $20T, //www.usdebtclock.org/. “It’s the lure of easy money, it’s got a very strong appeal” sang Glenn Frey.
  5. UK CPI in August today printed up 2.9% y/o/y and 2.7% at the core level. The headline was one tenth more than expected, up from 2.4% in July and the fastest pace of gain since December 2011. The core rate was two tenths above the forecast and also last seen in late 2011.
  6. UK average weekly earnings for month ended July and ex bonus’ rose by 2.1%, the same pace as the previous month but two tenths below estimates and of course rising below inflation.
  7. Chinese retail sales were up by 10.1% y/o/y vs the estimate of 10.5% growth and a modestly slower pace from the 10.4% seen in July. It also is the weakest print since May 2016. Industrial production grew by 6% y/o/y, down from 6.4% growth in July and lower than the estimate of 6.6%. That pace matches the slowest since October 2015. Part of this slowdown within IP is purposeful in that old and out of date commodity capacity in steel, aluminum, etc… are being shut down. With fixed asset investment, it was up by 7.8% ytd y/o/y, also below the forecast and down from August. It’s also at a level last seen in 1999. Also of note, while property development rose a still robust 8% y/o/y, home sales were up at the slowest rate in about 3 years at 3.8% in response to buying restrictions.
  8. No matter how hard they try the Chinese government just can’t stop the massive credit growth. Aggregate loans in August totaled 1.48T, 200b more than expected with bank loan growth 140b of that upside (bank loans totaled 1.09T vs 915b in July and 950b in August 2016). The positive take was the August print was up only slightly from 1.46T seen in August 2016. Nonfinancial company loan demand fell but rose for households. This said, we should be on the cusp of a moderation as M2 growth slowed to 8.9% y/o/y, down from 9.2% in July and below the estimate of 9.1%. In data going back to 1996, this is the slowest rate of gain on record.
  9. I’ll say again, we need this guy:

Dennis-Rodman-Interview-Kim-Jong-Un-is-Friend-for-Life

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