Positives
1)Initial jobless fell again to 193k which was 22k less than expected and down from 209k last week (revised from 213k). This brings the 4 week average to 207k from 216k and vs 223k in the week before. Also of note, continuing claims fell to 1.347mm, about 40k less than expected and down from 1.376mm in the week prior.
2)The September Conference Board’s index on consumer confidence rose to 108 from 103.6 in August and that was above the estimate of 104.6. Thanks mostly to lower gasoline prices and a still good labor market, this figure is at the best since April. Both the Present Situation and Expectations rose m/o/m. One yr inflation expectations fell to 6.8% from 7%. Those that said jobs are Plentiful rose 1.8 pts after dropping by 1.6 pts last month. Those that said they are Hard to Get fell .2 pts which is a 5 month low. The employment component improved by .4 pts to match a 5 month high. Of note, those expecting an Increase in Income was up 1.8 pts to the most since November 2021. Spending intentions were mixed as they rose 1 pt for auto’s but fell a touch for homes. Plans for purchases of a major appliance was up 3.5 pts to a 5 month high.
3)New home sales in August totaled 685k annualized, well better than the forecast of 500k and comes after the drop to 532k in July (revised up by 21k). Sales rose in all four main regions. With a slight uptick in homes for sale with the big boost in sales, months’ supply fell to 8.1 from 10.4 (long term average is 6). The very volatile median home price was up 8% y/o/y after a jump of 15% in July.
4)Home prices in July according to S&P CoreLogic moderated to a 15.8% y/o/y pace in July from 18.1% in June. That is the slowest rate of gain since April 2021 and assume this slowdown will only continue. The gains were still led by the sunbelt cities, Tampa, Miami, Dallas, Charlotte and Atlanta. Phoenix home prices slowed to a 22.4% y/o/y pace from over 30% just a few months prior. Home price gains were below 10% in Minneapolis and in DC and just above that in San Francisco.
5)Apartment List.com released its October National Rent Report and it showed a .2% m/o/m drop in rents in September, “marking the first time this year that the national median rent has declined m/o/m. The timing of this slight dip in rents is consistent with a seasonal trend that was typical in pre-pandemic years. Assuming that trend continues, it is likely that rents will continue falling in the coming months as we enter the winter slow season for the rental market.” Apartment List also went on to say, “This cooldown in rent growth is being mirrored by continued easing on the supply side of the market. Our vacancy index now stands at 5.2%, after nearly a year of gradual increases from a low of 4.1% last fall. That said, today’s vacancy rate remains well below the pre-pandemic norm, and spiking mortgage rates that continue sidelining first time homebuyers could contribute additional tightness to the rental market.” They also said that the slowdown in rent growth “has been geographically widespread.”
6)Core durable goods orders in August rose 1.3% m/o/m, well above the estimate of up .2% and July was revised up by 4 tenths. From July, orders rose for vehicles/parts, computers/electronics, electrical equipment, machinery and primary metals. They fell for fabricated metals. Shipments of core goods, plugged into GDP, was in line with its .3% m/o/m gain and July was revised up by one tenth.
7)The Richmond Fed said its September regional manufacturing index was zero but that was better than the estimate of -10.
8)August income and spending, when including the July revision, were both about as expected so I don’t expect much change in Q3 GDP estimates. The savings rate was 3.5% for a 2nd month but that is the 2nd lowest level since 2008.
9)The Japanese labor market tightened further in August with their jobs to applicant ratio rising to 1.32 from 1.29 and that was better than the estimate of 1.30. That’s the highest since March 2020 when it was 1.39 before the sharp covid driven decline. Their unemployment rate fell one tenth as expected to just 2.5%.
10)The Japanese September composite PMI rose back above 50 at 50.9 from 49.4 in August. The components though were mixed as services rose to 51.9 from 49.5 but manufacturing slipped to 51 from 51.5. S&P Global said “A further loosening of restrictions aided an expansion in September, but overall growth remains subdued as inflationary pressures and deteriorating global economic growth weigh on activity in both the manufacturing and services sectors…Looking ahead, businesses are reporting concerns around the economic outlook amid steep cost pressures and the rising likelihood of a global economic downturn. The remarkable weakness we’ve seen in the year to date in the yen continues to push up price pressures, with companies struggling to fully pass on these higher cost burdens to clients. Subsequently, business confidence slumped to a 13 month low in September.”
11)On the heels of the now hotel quarantine free shift in Hong Kong for incoming visitors (although more needs to be done to allow them to go out to bars and restaurants immediately instead of waiting 3 days), tour groups from mainland China can now finally visit Macau again. Another step to a broader China reopening we all must hope for, for the sake of the global economy.
Negatives
1)The August headline PCE inflation figure was up .3% m/o/m, 2 tenths more than expected and after a one tenth drop in July. The core rate was up by .6% m/o/m, one tenth more than expected but July was revised down by one tenth to flat so call it a push at the core level. Versus last year, core PCE was up by 4.9% after a 4.7% rise in July. Energy prices fell by 5.5 m/o/m while food prices rose another .8%.
2)The Chicago manufacturing September PMI posted a below 50 print of 45.7. That was down from 52.2 in August and well below the estimate of 51.8.
3)The manufacturing index from the Dallas Fed fell to -17.2 from -12.9. The estimate was -9. It’s negative for a 5th straight month.
4)The final September UoM consumer confidence index was 58.6 vs the initial read of 59.5 and vs 58.2 in August. One yr inflation expectations were 4.7% vs 4.6% initially and from 4.8% in August. The longer term 5-10 yr forecast was 2.7% vs 2.8% a few weeks ago and down 2 tenths from last month. On this, the UoM said “uncertainty over these expectations remained high, particularly given the mixed signals on prices, with energy prices falling and food prices rising.” Employment expectations rose 2 pts m/o/m but the income component fell by 6 pts. The mean % of those ‘Expecting Family Income Will Beat Inflation Over Next 5 years” was 34.1% vs 35.1% in August and vs 31.5% in June. With respect to spending intentions, they rose 1 pt each for auto’s and a house and by 4 pts for a major household item. The bottom line from the UoM, “Even with tentative improvement in inflation expectations, consumer sentiment remains low by historic standards. Trends are consistent with a recession to come, particularly as developments overseas generate further downside risk to the economy…About 42% of consumers – lower income and higher income alike – continued to cite high prices eroding their living standards, down from a peak of 49% in July but more than double the 18% reading from a year ago.” The labor market continues to be the bright spot as “consumers reported little change in their outlook.”
5)With a further rise in the average 30 yr mortgage rate to 6.52%, refi’s fell 10.9% w/o/w and are down by 84% y/o/y. Purchases held in, down just .4% w/o/w but still weaker by 29% y/o/y.
6)Pending home sales in August fell 2% m/o/m, more than the estimate of down .5% but mostly offset by a 4 tenths upward revision to July.
7)China’s September state sector weighted PMI fell to 50.9 from 51.7 but the components were mixed. Services fell while manufacturing got back above 50.
8)The private sector Caixin manufacturing PMI weakened further to 48.1 from 49.5 in contrast to the above. Caixin said “A key factor driving the headline index lower was a faster fall in new orders during September. New business fell for the 2nd month in a row, and at the quickest rate since April, with panel members often commenting that restrictions around travel and operations had dampened customer demand. Foreign sales also fell again, and at a solid rate that was the fastest for four months.” Also, “Concerns over potential repeated outbreaks of Covid and the prolonged use of containment measures weighed on optimism towards future output. Notably, the level of positive sentiment slipped to its lowest since November 2019.”
9)Vietnam said its September exports rose 10.3% y/o/y but that was well below the estimate of up 18%. Imports grew by 6.4%, about half the forecast. Their economy as a whole rose by 13.7% y/o/y in Q3, just under the estimate of 14.4% and helped by manufacturing which was up 13% y/o/y. Their statistics office said “Production and business activities grew strongly. Many industries have recovered strongly and achieved higher growth even compared to the time before the Covid-19 pandemic.”
10)In Europe, September inflation rose to 10% on the dot, up from 9.1% in August and that was 3 tenths more than expected. The core rate accelerated to a 4.8% increase from 4.3% last month and that was one tenth more than forecasted.
11)The September EC Economic Confidence index fell to 93.7 from 97.3 and that was below the estimate of 95. Manufacturing fell below zero and there was further softening in services, consumer, retail and construction confidence.
12)The September German IFO business confidence index fell to 84.3 from 88.6 and that was well below the estimate of 87. The current assessment fell 3 pts m/o/m and the Expectations component was down by 5.3 pts to 75.2. The IFO said succinctly, “Sentiment in the German economy has deteriorated considerably…The German economy is slipping into recession.”
13)Consumer confidence in Germany and France weakened further as it did in Italy.
14)Liability Driven Investments almost blow up many UK pension funds resulting in the Bank of England to come in and indirectly bail them out.
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.