Succinct Summation of the Week’s Events:
Positives,
1)For the first time since last October, S&P Global’s US manufacturing PMI for April is above 50 at 50.4 from 49.2 last month. The service component was up 1.1 pts m/o/m to 53.7. Combining the two has the composite index at 53.5 vs 52.3 last month and that is the highest since last May mostly because of the strength in services.
2)The April NY manufacturing index unexpectedly rebounded sharply to +10.8 from -24.6 and well better than the estimate of -18. The 6 month business activity outlook rose 3.7 pts m/o/m to 6.6 and for perspective the 6 month average is 5.4. Expectations for both prices paid and received rose while capital spending plans were mixed.
3)March housing starts were about as expected when including the February revision. Single family starts rebounded to 861k from 838k in February, 823k in January and vs 881k in December. Multi family starts, the more volatile monthly component, totaled 559k vs 594k in February, 511k in January and vs 467k in December. As for the forward looking permits figures, single family bounced back to 818k from 786k in February and that is the most since last October. Multi family permits shrunk to 595k from 764k in February which was the 2nd most since 1986.
4)The April NAHB home builder sentiment index rose 1 pt m/o/m to 45 as the consensus expected with 50 the breakeven between expansion and contraction. The Present Situation and Future Outlook components did get back to 50 with the former at 51 and the latter exactly at 50 but Prospective Buyers Traffic remained deeply below at 31. This was an interesting stat from the NAHB, “Currently, one third of housing inventory is new construction, compared to historical norms of a little more than 10%. More buyers looking at new homes, along with the use of sales incentives, have supported new home sales since the start of 2023.”
5)American Express highlighting the strength in leisure and hospitality, “We saw strong demand across all T&E categories and customer types. Spending at restaurants continues to be a bright spot, with growth accelerating to 28% on an FX adjusted basis y/o/y. In fact, March was a record month for reservations booked through our Resy platform…”Consumer travel also remains high, with Q1 bookings through our consumer travel business reaching their highest level since pre-pandemic.”
6)Service PMI’s for April in Japan, Australia, the Eurozone and the UK all showed improvement m/o/m.
7)China’s economy in Q1 grew by 4.5% y/o/y, well above the estimate of up 4%, though we take these numbers with a grain of salt. Regardless, the Chinese consumer is driving the rebound with the reopening as retail sales in March accelerated to a 5.8% y/o/y gain, well more than the expected 3.7% estimate.
8)According to the Civil Aviation Administration of China, reported in China Daily, “China’s domestic aviation passenger transportation scale has recovered to about 90% of the pre-pandemic level in the first quarter of this year.” International travel is lagging badly but also points to the enormous catch up ahead. International travel is just 12.4% of the same period in 2019.
9)Japan saw a 4.3% y/o/y rise in exports in March and was driven by autos as inventories normalize.
10)The Europeans are traveling too. Ryanair said business is “booming and getting boomier…There is full employment, people are getting paid every month and they are spending – they are certainly spending on travel.” As is my visiting son, but with my money.
11)German PPI in March fell 2.6% m/o/m which was much more than the estimate of down .6%. Prices are still up 7.5% y/o/y but that continues to decelerate as the comps are REALLY tough. In March 2022, PPI was up 31% y/o/y.
Negatives,
1)Initial jobless claims totaled 245k, 5k more than expected and up from 240k last week. The 4 week average was unchanged at 240k and just off the highest since last November. Of particular note was the jump in continuing claims to 1.865mm, higher by 60k w/o/w and that’s the most since November 2022.
2)The Philly Fed said its April manufacturing index fell to -31.3, the 8th month in a row below zero. Go back to the depths of March 2009, not including Covid, the last time you saw manufacturing reads like this. Also of note, the 6 month outlook was less than zero for the 2nd straight month at -1.5 and this compares with -1.8 in the 6 month average. Capital spending plans were negative too.
3)The Beige Book reflected widespread (outside of a few districts) tightening of credit and the demand for it.
4)The average 30 yr mortgage rate rebounded by 13 bps to 6.43% to a 3 week high, after multiple weeks of declines and it had an immediate impact on mortgage applications. Purchase apps fell 10% w/o/w and are down by 36% y/o/y. Refi’s declined by 5.8% w/o/w and are lower by 56% y/o/y.
5)Existing home sales in March totaled 4.44mm, below the estimate of 4.5mm and down from 4.55mm in February. Home prices fell .9% y/o/y and that is the first decline since February 2012 as the housing market was trying to recover then. The NAR said prices are rising in the regions that are seeing job growth and housing is more affordable “however, the more expensive areas of the country are adjusting to lower prices.” Months’ supply, reflecting the still tight inventory, was 2.6 for a 2nd month. The first time buyer made up 28% of purchases vs 27% in February and 31% in January. Days on the market averaged 29 vs 34 in February, 33 in January and 26 in December. All cash buyers totaled 27% vs 28% in the month before and vs 29% in the month before that. The NAR said “Home sales are trying to recover and are highly sensitive to changes in mortgage rates. Yet, at the same time, multiple offers on starter homes are quite common, implying more supply is needed to fully satisfy demand. It’s a unique housing market.”
6)The March Cass Freight shipments index fell 3.8% m/o/m seasonally adjusted after being lower by .3% in February. It was down by 4% y/o/y. They said “Mild weather this winter and Omicron a year ago both supported volume comparisons in January and February, so the lower result in March was not a surprise…Soft retail sales trends and ongoing destocking remain the primary headwinds to freight volumes, and sharp import declines suggest this type of environment will persist for some time.”
7)Said by JB Hunt in their earnings call, “Simply stated, we’re in a freight recession.”
8)CDW said this in their earnings release, “The first quarter was marked by a period of intensifying economic uncertainty that led our customers to spend more cautiously and prioritize mission critical initiatives…Given first quarter market performance and near-term conditions, we currently expect the US IT market to decline at a high single digit rate in 2023.”
9)As seen in the TIC data seen, Japan’s holdings of US Treasuries fell by $22.6b in February to just off the lowest in 4 years at $1.082t. China holds the smallest amount of US Treasuries since 2010 at just under $850b, down for the 15th month in the past 16 and whose declining pace really picked up after the US and EU confiscated half of Russia’s central bank reserves.
10)Manufacturing PMI’s for April in Japan, Australia, the Eurozone and the UK all were weak and below 50.
11)Pressure is growing already on the new BoJ Governor Ueda after Japan said March CPI ex food and energy rose 3.8% y/o/y, up from 3.5% in February and two tenths more than expected. That’s a fresh 40 yr high.
12)Taiwan said its March export orders fell a sharp 26% y/o/y, more than the forecast of down almost 19%, led by falls in electronics. This comes as the CFO of Taiwan Semi said in their earnings call that “Moving into second quarter 2023, we expect our business to continue to be impacted by customers’ further inventory adjustment.”
13)French business confidence fell 1 pt m/o/m where no change was expected. Declines were seen m/o/m in manufacturing, services and employment and a slight uptick was in retail and with no change in construction.
14)The UK saw a March 10.1% y/o/y CPI increase, 3 tenths more than expected. The core rate was up 6.2% y/o/y, two tenths above the forecast.
15)The German April ZEW missed expectations coming in at 4.1 from 13 in March and 11.5 pts below the estimate. The Current Situation though did improve by 14 pts and 7.5 more than forecasted but is still deeply negative at -32.5. According to ZEW, that 4.1 expectations print “means that no significant improvement in the economic situation is to be expected in the next six months.”
END