The US November manufacturing and services PMI fell deeper under 50 at 46.3 from 48.2 in October and is the 5th straight month in contraction with manufacturing now falling for the first time in this post covid rebound. Services dropped to 46.1 from 47.8 while manufacturing declined to 47.6 from 50.4.
With services, S&P Global said “Panelists often stated that the impact of inflation and interest rates on customer disposable income had dented demand conditions.” In terms of components, “The 2nd successive monthly decrease in new orders was the sharpest seen since May 2020.” Price pressures did ease up “as firms noted lower prices for some key inputs” while those received “eased for the 7th successive month and was the softest since October 2020” where “slower price hikes were linked to efforts to remain competitive and drive new sales.” Backlogs fell while employment was up slightly as “Where hiring was successful, firms linked this to the filling of long-held vacancies.” The further easing of cost pressures did help to improve business confidence over the next year.
On manufacturing, it was the first trip into contraction since June 2020. Output and new orders both declined as “Demand conditions were stymied by inflation and economic uncertainty, according to panelists, with new sales falling at the quickest rate since May 2020.” Also of note, export orders contracted at a quicker pace. Positively, supply constraints eased as did cost challenges. Employment hovered around the flatline. Backlogs “fell sharply in part due to firms receiving inputs in a more timely manner.” Business confidence about the year ahead also improved in part because of the moderating inflation pressures.
The bottom line from S&P Global, “Companies are reporting increasing headwinds from the rising cost of living, tightening financial conditions – notably higher borrowing costs – and weakened demand across both home and export markets.”
I’ll add this, many can still debate over whether the US economy is in a recession or not right now but be Wayne Gretzky here and see where the puck is going. See this broadening weakness in PMI where S&P Global equates to “the economy contracting at an annualized rate of 1%.” See what’s going on in the housing market (almost 20% of the US economy). See the growing unaffordability for many in autos. See what’s going on with jobless claims in terms of the trajectory, for both initial and continuing. See the retail trade down that’s going on and the challenges middle and lower income families are facing. See the tough economic times in Europe and what is going on in China. Again, an economic recession is not an event, it is a process, just as an expansion is. The yield curve is not lying.
US PMI
New homes in October totaled 632k, 60k more than expected while September was revised down to 588k from 603k. A rebound in sales in the Northeast and South offset a drop in the Midwest and no change out West. Months’ supply fell to 8.9 from 9.4 but is still well above historical averages even though not all of these homes are completed. The median price, very volatile month to month because of mix, rose 15.4% y/o/y as the number of homes sold over $500k rose while those below declined.
Bottom line, the amount of sales was definitely better than expected but this data point is so volatile and thus best to average out. The 3 month average was 627k vs the 6 month average of 605k, the 12 month average of 681k and the 2021 average of 769k. We have to remember too that builder incentives really has picked up. Here were the key comments on this in the NAHB builder survey report out last week, “To bring more buyers into the marketplace, 59% of builders report using incentives, with a big increase in usage from September to November. For example, in November, 25% of builders say they are paying points for buyers, up from 13% in September. Mortgage rate buy-downs rose from 19% to 27% over the same time frame. And 37% of builders cut prices in November, up from 27% in September, with an average price reduction of 6%.”
Lastly today, the final November UoM consumer confidence index ended up at 56.8, up 2.1 pts from the preliminary one seen a few weeks ago. Most of the improvement came from the Expectations component but confidence overall is still down from 59.9 in October and it’s the 2nd weakest going back decades. One yr inflation expectations was 4.9% vs 5.1% in the initial read and vs 5% in October. Longer term expectations was 3% vs 2.9% last month.
The UoM said “Along with the ongoing impact of inflation, consumer attitudes have also been weighed down by rising borrowing costs, declining asset values, and weakening labor market expectations…For the 6th straight month, over 40% of consumers reported that their living standards are being eroded by inflation, with few differences across the income distribution.”
Consumer Confidence
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.