January housing starts totaled 1.246mm, 20k more than expected and December was revised up by 53k to 1.279mm. Single family starts were up by 15k to 823k after falling by 18k in December. Multi family starts were 423k, down about 50k but after jumping by 150k in the month prior. Permits grew m/o/m but it was all in multi family. Starts there jumped by 79k to 477k, near the recent high of 486k. Single family permits fell by 22k to 808k but is still the 2nd best in the recovery. Bottom line, multi family continues to be the bright spot in housing construction. Single family starts continue their crawl upward. For perspective, the single family start level of 823k compares with the bubble peak in 2006 of 1.8mm. The 25 year average is 1.03mm. The industry is thus still well below trend but on the other hand points to the long runway of improvement that is possible if more first time households choose to buy.
Initial jobless claims totaled 239k, 6k less than expected but up from a very low 234k last week. The 4 week average was unchanged at 245k, the lowest since 1973. Continuing claims, delayed by a week, fell by 3k. Bottom line is the same bottom line I’ve been giving for a while. Employers are retaining their employees in a labor market where it’s tough to find qualified workers and now they are also holding out hope for an acceleration in economic growth due to Trumponomics.
The February Philly manufacturing index skyrocketed to 43, up 20 pts m/o/m and well above the estimate of 18. 1984 is the last time we saw a level this high and its basically gone parabolic post election. The internals however were more mixed (headline # is not a sum of its parts). New orders and shipments were up but backlogs were unchanged and Employment fell slightly. The workweek improved while inventories went negative. Prices paid fell 2.6 pts off the highest level since February 2012. Prices received plunged by 16 pts but only after spiking by 19 pts last month. The overall 6 month outlook moderated by 3 pts to a still very high 53.5. Disappointingly, capital spending plans were little changed and are barely up from October.
Bottom line, the ebullience speaks for itself as manufacturers will be a main beneficiary of any corporate tax changes. This joins a slew of euphoric sentiment indicators that we’ve seen for months but the actual rate of economic growth right now for Q1 is still estimated to be around the same 2% we’ve been stuck in. Yesterday the Atlanta Fed GDP Now cut its estimate to 2.2% from 2.7% last week and from 3.4% two weeks ago. The feel good feeling on the part of businesses is completely understandable but actual increases in business activity is now needed.
Foreign selling of US Treasury notes and bonds totaled $21.8b in December to finish the year with net selling of $343B, an unprecedented amount. This compares with net selling of $20.3b in 2015, and net buying of $165B in 2014, $40.9B in 2013 and over $400b in each of the two prior years. Unlike in prior months, it was private foreign sellers that drove the selling as central bank purchases actually rose for the first time since November 2015. China continued its pace of selling of notes and bonds but it was a more modest $1.28B and was offset by an increase in bill purchases. Japan again was a big seller of $14.4B which marks 5 months in a row.
Bottom line, the multi decade trend of our foreign friends financing our deficits in an ever increasing way is over for now whether due to a shrinking of overseas reserves (particularly in China), a reduction in the flow of petro dollars and/or the high cost of hedging out FX exposure. It will start to get even more interesting for the Treasury market when the Fed starts letting its balance sheet shrink if this trend of foreign selling continues.
Following the jump in US yields yesterday, longer term JGB yields continue to creep higher with the 40 yr yield up by 2 bps to 1.07%, the highest in a year.
In stark contrast to the extreme bullishness in the weekly II measure of investor sentiment, the CNN Fear and Greed survey at 80 and the Daily Sentiment Index which saw 91% bulls yesterday (can’t go above 100), the individual investor survey by AAII is in the “I don’t know” camp. Bulls are at 33.1 vs 35.8 last week, Bears rose 4.7 pts to 32.4 and those that are Neutral are at 34.5. As the AAII data is manic week to week, I don’t pay much attention to it.