Succinct Summation of the Week’s Events:
Positives,
1)Initial jobless claims totaled 229k vs the estimate of 245k and last week was revised down by a sharp 17k to 225k. Maybe this is normalizing the fraudulent reports from Massachusetts and Kentucky from a few weeks ago. The 4 week average held at 232k. Continuing claims fell by 5k to 1.794mm but not far from the highest since December 2021.
2)The S&P Global services PMI in May improved further to 55.1 from 53.6 with particular strength in travel and leisure.
3)Personal income growth of .4% m/o/m was as forecasted. Specifically private sector wages and salaries grew by .5% m/o/m and 5.6% y/o/y (vs 5.3% in the month prior and 5.6% in the month before that). Spending was up .8%, 3 tenths more than estimated with a rebound in spending on both durable and non-durable goods. Spending on services continues on. Combining the two saw the savings rate fall to 4.1% from 4.5% and for perspective, this has averaged 6% in the 20 years leading into Covid.
4)Core durable goods orders in April were much better than anticipated with a 1.4% m/o/m jump vs the estimate of no change but comes after a .6% drop in March and .2% fall in February. The internals though driving the gain was pretty mixed.
5)New home sales were about as expected when we include the March downward revision. Smoothing out the monthly volatility has the 3 month average at 657k vs the 6 month average of 640k and the 12 month average of 613k.
6)The final May UoM consumer confidence index was 59.2 vs the initial print of 57.7 but still down from 63.5 in April and the lowest since last November. One yr inflation expectations fell 4 tenths m/o/m to 4.2% while the 5-10 yr outlook was up one tenth to 3%. In particular, “Consumer confidence in the government’s handling of the economy fell substantially this month, reflecting the government’s failure thus far to resolve the debt ceiling crisis.”
7)Nvida’s blowout guidance highlights the excitement and rush to create and capture the benefits of the new iteration of AI.
8)A positive on retail, DICKS Sporting Goods in their earnings call said people are still spending on athletic stuff. “We had really strong transaction growth…We had ticket growth. We have more athletes purchasing from us, purchasing more frequently, and spending more per trip. And I think very importantly, you have to look at each of our income demographics and we saw growth across every single income demographic from a lower income consumer to an upper income consumer. We did not see trade down from best to better or better to good. Overall, we really feel very good about how our consumer is holding up.”
9)UK retail sales in April ex auto fuel rose .8%, 4 tenths more than expected but March was revised down by a like amount so call it a push relative to expectations.
10)Japan’s composite May PMI improved by 2 pts m/o/m to 54.9 with services rising to 56.3 from 55.4 and manufacturing getting back above 50 at 50.8 from 49.5. That composite figure is the best since 2013. S&P Global said “Service providers continued to report strong growth momentum with a renewed record increase in business activity, while manufacturers indicated an improvement in operating conditions for the first time in 7 months, with output and new orders returning to expansion territory for the first time since last June. Firms were also optimistic about the outlook for activity in the near and medium term.”
11)The Bank of Korea and the Indonesian central bank both kept rates unchanged as expected. While the Reserve Bank of New Zealand raised again they also said that they are now done.
12)It’s not just AI that’s helping the economy right now, Swifties are too, //www.youtube.com/shorts/q03Y9q_Vt08
Negatives,
1)Highlighting the embarrassment of the debt negotiations, Fitch puts the credit rating of the US government on credit watch negative.
2)Headline PCE for April rose .4% m/o/m as did the core rate and both were one tenth above expectations. The y/o/y gains were 4.4% and 4.7% respectively, up from 4.2% and 4.6% in the month prior. Goods prices were up 2.1% y/o/y and service prices grew by 5.5% y/o/y.
3)The May S&P Global US manufacturing PMI fell back below 50 at 48.5 vs 50.2 in April. It’s now in contraction for the 6th month in the past 7.
4)April pending home sales was flat m/o/m vs the estimate of up 1% and follows a 5.2% drop in March. There was an outsized drop in sales in the Northeast which dropped 11.3% m/o/m after an 8.1% fall in March. Sales in the south were flat and rose out West and in the Midwest. To this the NAR said “Minor monthly variations in regional activity are typical. However, cumulative results over many years clearly point towards a much greater number of home sales in the South.” The NAR also said “Not all buying interests are being completed due to limited inventory. Affordability challenges certainly remain and continue to hold back contract signings, but a sizeable increase in housing inventory will be critical to get more Americans moving.”
5)The MBA said the purchase applications for the week ended May 19th fell 4.3% w/o/w and by 30% y/o/y. This component is now at the lowest since early March and near the lowest going back to 1995. Refi’s fell 5.4% w/o/w and are down by 44% y/o/y.
6)The April goods trade deficit jumped to $96.8b, $11b more than expected and helped to drive a drop in the Atlanta Fed’s Q2 GDP forecast to 1.9% from 2.9%.
7)The May Philly non-manufacturing PMI was -16, below zero for the 3rd straight month.
8)Some other noteworthy retail earnings comments,
COST: “Our average daily transaction or ticket was down 4.2% worldwide and down 3.5% in the US, impacted in large part from weakness in bigger ticket non-foods discretionary items.”
DLTR: “the consumer continues to be under pressure. There are simply fewer dollars available to them and those dollars are not going as far as they did a year or two ago. We are past the multiple rounds of government stimulus, SNAP dollars have been reduced and tax refunds are running lower. These impacts combined with persistent inflation have more families prioritizing needs over wants.”
RH: “With 30 yr mortgage rates trending at 20 yr highs, the possibility of continued economic tightening required to tame inflation, and uncertainty regarding the recent regional banking crisis, we expect luxury housing markets and broader economy to remain challenging throughout fiscal ’23 and into next year.”
WOOF: “we saw a more cautious consumer beginning in the 2nd half of the first quarter, resulting from banking uncertainty and lower tax refunds, which continues to weigh on discretionary spend.”
LOW: “we are updating our full-year outlook to reflect softer than expected consumer demand for discretionary purchases.”
9)The American Trucking Association’s said its For Hire Truck Tonnage index fell 1.7% in April after dropping by 2.8% in March and they said “While the broader economy continues to surprise and thus far stave off an expected recession, the freight economy is starkly different. The goods-portion of the economy is soft and as a result, even contract truck freight is now falling, albeit not nearly as much as the spot market. The tonnage index hit the lowest level since September 2021 in April and has now fallen on a y/o/y basis for two straight months.”
10)The April US Architecture Billings Index fell to 48.5 vs 50.4 in March. Particular weakness was seen in ‘multifamily residential’ whose component fell to 41.5 from 44.2 and thus well below 50. AIA chief economist said “The ongoing weakness in design activity at architecture firms reflects clients’ concerns regarding the economic outlook. High construction costs, extended project schedules, elevated interest rates, and growing difficulty in obtaining financing are all weighing on the construction market.”
11)The May Richmond manufacturing index joins NY and Philly in seeing contraction, again. Its index fell to -15 from -10 and that was double the estimate. The Richmond Fed said simply, “manufacturing firms reported deterioration in business conditions in May.”
12)In last Friday’s loan data, C&I loans outstanding for week ended 5/10 fell for a 4th straight week by $3.5b and taking it to the least since last October. Bank deposits declined by another $26.4b to the lowest amount since last July.
13)Australia’s composite services and manufacturing PMI for May fell to 51.2 from 53 as manufacturing was unchanged at 48 and services slipped by almost 2 pts to 51.8. S&P Global referred to the m/o/m drop as “a small retracement from the strong April outcome reinforcing the view that overall economic activity in Australia is holding up well as we enter the winter months.” That said, “The recent strength in services results stands in contrast to manufacturing.”
14)Tokyo said its May core/core inflation rose 3.9% y/o/y as expected and up one tenth from April. Governor Ueda has remained still very dovish saying “We haven’t reached Japan’s inflation target sustainably and stably.”
15)Taiwan’s exports in April fell 18.1% y/o/y, worse than the forecast of down 13.8%. A drop in electronic products led the way. As for the first 20 days in May, South Korea said its exports dropped by 16% y/o/y also driven by a slowdown in semi exports which were down by 36% y/o/y. The positive was the jump in shipments of autos which were up 55% y/o/y as inventories continue to be reset.
16)The May Eurozone PMI was mixed as manufacturing continued to soften to 44.6 from 45.8. Services remained strong but a bit less so at 55.9 vs 56.2 in April. Combining the two saw their composite index fall to 53.3 from 54.1. S&P Global said “The resulting outperformance of services relative to manufacturing was the widest since January 2009.” Germany’s manufacturing PMI fell all the way down to 42.9 from 44.5 while France is at 46.1 vs 45.6 in April.
17)The same story was seen in the UK with its manufacturing PMI falling to 46.9 from 47.8 while services came in at 55.1, though down .8 pts m/o/m. The composite index was 53.9 vs 54.9 in April “with the expansion continuing to be driven by surging post-pandemic demand in the service sector, notably from consumers and for financial services, with hospitality activities buoyed further by the Coronation.” Service prices in turn are remaining high. In contrast with manufacturing, “many companies are winding down their inventories, exacerbating the downturn in demand and driving both output and prices lower.” The net result, same as in the Eurozone, “The UK is seeing a tale of two economies.”
18)The May German IFO business confidence index softened to 91.7 from 93.4 and that was below the forecast of 93. Most of the decline came from the Expectations component but the Current Assessment was down too m/o/m. The IFO said “Managers are somewhat less satisfied with their current situation. German companies are skeptical about the upcoming summer.”
19)French business confidence dropped as well with its index down 2 pts to the lowest since April 2021.
20)April UK CPI rose 8.7% y/o/y. While down from the 10.1% pace seen in March it still was 5 tenths more than expected and the core rate accelerated further to 6.8% from 6.2%. The estimate was for no change. PPI moderated more than expected.
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