The Boock Report

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Peter: Succinct Summation of the Week’s Events

Positives

  1. The ISM manufacturing index for November rose to 53.2 from 51.9 in October. That was a touch ahead of the estimate of 52.5 and matches the June level that was the best since early 2015. Of the 18 industries surveyed, 11 saw growth vs 10 in October. The ISM’s bottom line was “comments from the panel cite increasing demand, some tightness in the labor market and plans to reduce inventory by the end of the year.”
  2. Bloomberg News quantified the extent of the bond carnage in November. They report that $1.7 Trillion was lost from the Bloomberg Barclays Global Aggregate Total Return Index. That was a 4% decline and was “the deepest slump since the gauge’s inception in 1990.” The partial offset was the world’s equity market cap which rose by $635 Billion.
  3. Capturing the month of October where the average 30 yr mortgage rate was 3.72% vs 4.23% today, pending sales of existing homes rose by .1% m/o/m exactly as expected and the y/o/y gain was .2%. With respect to the November spike in rates, the NAR said “those obtaining a mortgage last month were likely the last group of buyers to lock in a rate near historically low levels…”
  4. The October PCE inflation deflator rose .2% m/o/m and 1.4% y/o/y, both one tenth less than expected but the core rate gain of .1% m/o/m and 1.7% y/o/y was in line. The headline y/o/y print is the most since October 2014 while the core rate matches the most since August 2014.
  5. Personal income grew by .6% m/o/m with private sector wages/salaries in particular up by the same amount. The y/o/y gain in this important category was up by 4.5% vs 4.9% in September and 4.6% in August.
  6. The Conference Board’s consumer confidence index spiked to 107.1 from a revised 100.8 in October. That was well above the estimate of 101.5 and is at the best level since July 2007. The internals were more mixed though than the headline.
  7. The Dallas regional mfr’g index rose to 10.2 from -1.5 and was above the estimate of +2.0. It’s the first positive print since December 2014. Here is what one respondent said, “We are looking forward to the end of the disastrous socialist policies of the last eight years. Please reduce the regulation, taxes and government interference so we can compete globally. We hope the new administration makes good on its promises and, if so, it will increase our business expansion, hiring and investments.”
  8. Vehicle sales in November at 17.75mm SAAR were slightly above the forecast of 17.7mm. The peak in this cycle though is clearly in. Edmonds.com recently said this, “a rising number of car shoppers have negative equity on their trade ins when they’re purchasing their next vehicle.”
  9. Q3 GDP was revised up by 3 tenths to 3.2% from the 1st print. The estimate was 3% and the improvement was led by consumer spending (but some of which was higher spending on healthcare and rent). Atlanta Fed’s GDPNow estimate for Q4 is 2.9%.
  10. China’s state sector weighted PMI rose .5 pt to 51.7, above the estimate of 51 and it matches the highest level since 2012. With services, the state sector PMI rose .7 pts to 54.7, the best since June 2014.
  11. Manufacturing PMI’s rose in Taiwan, Indonesia and Vietnam.
  12. The Japanese labor market keeps getting tighter as the jobs to applicant ratio in October rose to 1.40 from 1.38. That is above the estimate of 1.39 and it’s at a level last seen in August 1991. The unemployment rate held steady at 3% as forecasted and matches the lowest level since 1995.
  13. As for Japanese consumer spending, they were better than estimated in October as retail sales grew by 2.5% m/o/m vs the consensus of up 1.1%. They still fell by .1% y/o/y which is lower for the 11th month in the past 12. Overall household spending shrunk by .4% y/o/y, not as bad as the 1% expected decline.
  14. South Korean exports rebounded in November by 10.1% y/o/y after a stretch of 24 of the last 25 months of declines.
  15. The eurozone manufacturing PMI was left unrevised at 53.7 but which is up .2 pts from October and is the best level since January 2014.
  16. The eurozone unemployment rate in October fell to 9.8% from a revised 9.9% in September. The estimate was 10% and this is now the lowest rate since June 2009.
  17. Eurozone inflation rose by .6% y/o/y as expected but that is the highest print since April 2014. The core rate remained at .8% y/o/y for the 4th straight month.
  18. Germany’s job data for November was exactly in line with the forecast as unemployment fell by 5k and the unemployment rate held at 6%, the lowest since reunification.
  19. The new US Treasury Secretary reiterated the new Administration’s desire for a 15% corporate income tax.

Negatives

  1. November payrolls grew by 178k, about in line with the estimate of 180k but the private sector gain of 156k missed expectations by 20k. The net revision to the two previous months at the headline level was down by a combined 2k while the private sector was revised up a net 10k. The unemployment rate fell a sharp 3 tenths to 4.6%, the lowest since August 2007 as the household survey said jobs grew by 160k combined with a 226k drop in the size of the labor force. The all in U6 rate fell two tenths to 9.3%. The participation rate fell a tenth to back to matching a 6 month low. Those not in the labor force jumped by almost 500k to 95.05mm people, a new record high. WTF are so many of them doing? Wages unexpectedly fell by .1% m/o/m vs the estimate of up .2% and grew 2.5% y/o/y. As hours worked remained unchanged at 34.4, average weekly earnings were up just 2.2%. Maybe the wage miss was due to the mix as those aged 16-24 yrs old saw a job gain of 136k where the category above them up to 54 yrs saw job losses.
  2. Initial jobless claims totaled 268k, 15k above the estimate and up from 251k last week. It’s the highest level since late June but smoothing this out puts the 4 week average at 252k which is little changed with last week’s print of 251k. Continuing claims, delayed by a week, did rise another 38k after rising by 60k in the week prior off the lowest level since 2000.
  3. Personal spending grew by .3% m/o/m which was two tenths less than expected but that was offset by a two tenths upward revision to September so we’ll call it a push. Spending on goods, both durable and nondurable, offset a decline in services spending in October. On a real basis, spending grew by just .1% after a .3% rise in September.
  4. The continued spike in mortgage rates sent refi’s down by 16.2% w/o/w to the lowest level since January. They are now down 8 straight weeks and now lower by 3.1% y/o/y. After spiking by 19% last week, mortgage applications to buy a home was unchanged as fence sitters respond to the rate jump and others back off. They remain up 3% vs last year.
  5. Economic confidence in the euro area in November was little changed at 106.5 vs 106.4 in October and slightly below the estimate of 106.8. It does stand though at the best level since December. There was “mild deterioration in industry confidence and stable readings in services, which offset more upbeat assessments of construction and retail trade managers, as well as consumers.”
  6. The UK manufacturing PMI fell to 53.4 from 54.2 last month. The trade off was the boost to export competitiveness on one hand but rising import costs and “selling prices rising to one of the greatest extents in the past 5 ½ years.”
  7. French consumer spending in October grew by .9% m/o/m which was 3 times more than expected and the y/o/y gain of 1.5% was the best since May.
  8. Ahead of Sunday’s vote, consumer and manufacturing confidence in Italy fell slightly m/o/m. A No vote is not anti establishment, it’s a vote for more of the same political dysfunction. The real rebel vote is a Yes.
  9. South Korean industrial production in October fell by 1.7% m/o/m vs the estimate of down .5%. It’s manufacturing PMI remained below 50 at 48, flat m/o/m.
  10. Manufacturing PMI’s fell in India, Thailand and Malaysia.
  11. “Companies are not going to leave the United States anymore without consequences. Not going to happen…they will be taxed very heavily at the border if they want to leave” said Trump this week. The Mexican wall/fence that he wants to build to keep out illegal immigrants apparently will now extend around the entire US with the intent of keeping all US businesses in. Oh boy.