The Boock Report

By

Succinct Summation of the Short Week’s Events – 3/29/18

Positives

  1. Private sector income growth rose .5% m/o/m and follows gains of .6%, .5% and .6% in the 3 months prior. This is a definite quickened pace of wage gains but at least in February was mostly driven by a large 2% m/o/m rise in manufacturing after a 1.1% gain in January. The y/o/y private sector income rise was 4.8% and marks the 5th straight month of above 4% y/o/y growth for the first time in years. Combined with spending seen below the savings rate did tick up by 2 tenths to 3.4% which is two months removed from a 10 yr low.
  2. Initial jobless claims fell all the way down to 215k, 15k below expectations and from 227k last week. That is just off the lowest level since 1969 but the 4 week average didn’t change much at 225k because a print of 210k dropped out of the calculation which was that 48 yr low. Continuing claims, delayed by a week, rose by 35k after dropping by 41k in the week prior.
  3. Pending home sales in February rose 3.1% m/o/m, better than the 2% estimated increase while January was revised slightly lower to a decline of 5% vs the first print of down 4.7%. The index level of 107.5 remains lower by 4.1% y/o/y seasonally adjusted but a bounce off the lowest level since December 2014 in January. On the affordability issue, the NAR stated clearly that “one of the top wild cards for the housing market in coming months will be how both buyers and potential sellers adjust to the steady climb in mortgage rates since late last year.” The other factor on the supply side is, “more would be sellers deciding to balk at listing their home for sale out of uneasiness of losing their low mortgage rate, especially if they refinanced in recent years, would not be good news for any alleviation of the ongoing supply shortages in much of the country.”
  4. The MBA said mortgage applications to buy a home rose 3.1% w/o/w and 8.2% y/o/y even as mortgage rates held at 4 year highs. Notable too was the 7.3% w/o/w increase in refi’s even though they still remain down about 10% y/o/y.
  5. Wholesale inventories jumped 1.1% m/o/m in February, more than twice the estimate of up .5% and January was revised up by 2 tenths. This led the Atlanta Fed GDPNow estimate to rise to 2.4% growth for Q1 from 1.8% last week.
  6. While very old news, Q4 GDP was revised up by 4 tenths to 2.9%. The estimate was for a change to 2.7%. Thus, Q1 started off on a higher base but the increase was mostly driven by an upward revision to spending on healthcare and housing/utilities along with inventories.
  7. In Germany, the number of unemployed fell by another 19k in March, 4k more than expected and their unemployment rate fell to a fresh 27 year low at 5.3% when East and West joined together again. Unemployment has fallen for the 23rd month in the past 24. While German CPI in March rose 1.5% from 1.2% in February, it was one tenth less than expected.
  8. The trade data out of Hong Kong was well below expectations but because of the China New Year distortion we must look at the first two months of the year together. Doing this puts exports up 10.7% y/o/y vs 6.5% in the same time last year. Exports to China in particular were up by 10%. Imports grew by 10.5% y/o/y year to date.
  9. Let’s hope something comes of these comments from Steve Mnuchin last weekend on China, “We’re having very productive conversations with them. I’m cautiously hopeful we reach an agreement.”

 

Negatives

  1. Both headline and core inflation as measured by PCE rose .2% m/o/m. The headline gain is 1.8% y/o/y, the highest since last March while the core rate was up by 1.6% y/o/y, also the most since then. Again, sticky services inflation (up 2.5% y/o/y) offset no goods inflation (up .1% y/o/y). On the latter, I expect that to change in coming quarters.
  2. Personal spending was up .2% m/o/m as expected but after inflation it showed zero growth m/o/m after an outright decline in January (but followed larger gains in Q4 last year). Spending on services and durable goods offset a decline in non-durable goods.
  3. Another week of mediocre US Treasury auctions culminating in a really poor 7 yr.
  4. The US goods trade deficit at $75.4b in February sits at the highest since July 2008.
  5. The March Conference Board Consumer Confidence index fell to 127.7 from 130 and that was below the forecast of 131 and off the 18 year high seen last month. Both Present Conditions and Expectations were lower m/o/m. There was still an improvement in some of the labor market questions as those that said jobs were Plentiful rose for a 3rd month to the best level since April 2001. And, those that said jobs were Hard To Get fell to the lowest level since July 2001. On employment expectations, that did give back most of the February rise. With respect to Income Expectations, those expecting an Increase fell 1.5 pts but after rising by almost 3 pts last month. It is just below the highest level since the early 2000’s. Along with the modest fall in confidence came a decline m/o/m in spending decisions. One year inflation expectations did tick down by one tenth to 4.6% after rising by one tenth in February.
  6. The final UoM March confidence index fell to 101.4 from the first print of 102 and the estimate of no change but it is up from 99.7 last month and is a high in this cycle. One year inflation expectations were 2.8% vs 2.7% last month but down one tenth from the preliminary print. Income expectations jumped 7 pts m/o/m. Spending decisions improved a touch for auto’s and homes but more pronounced for major household items.
  7. The Richmond manufacturing index dropped to 15 from 28 and vs the estimate of 22.
  8. The Dallas manufacturing index for March declined m/o/m to 21.4 from 37.2 and that was below the estimate of 33.5. Worries over steel tariffs were sprinkled throughout the report.
  9. The Chicago manufacturing PMI in March fell to 57.4 from 61.9 and that was below the estimate of 62. It’s also the weakest in a year. Supply chain issues remain, “there were multiple reports of suppliers struggling to keep up with orders of key inputs, ranging from steel to electronic components.” On pricing, the prices paid quarterly average is the highest since Q3 2011. “Multiple firms reported the increased price of steel, among other materials, as impacting their business while others noted that persistently high prices were forcing them to find new suppliers.”
  10. The 2s/10s yield spread narrowed by a sharp 9 bps this week to just 47 bps, the lowest since October 2007. US 3 month LIBOR up again, now above 2.30%.
  11. Japanese retail sales in February rose .4% m/o/m which was below the estimate but because of an upward revision to January, it was a push relative to expectations. The growth y/o/y was just 1.6% but over the past year has been an improvement after the VAT hike induced drop a few years ago.
  12. The average UK home price was up 2.1% y/o/y in March which matches the slowest rate of growth since June 2013. London prices fell 1% y/o/y.
  13. The CBI retail sales index fell to -8 from +8 and that was well worse than the estimate of +7. CBI said “sales for the time of the year were significantly below normal, and by the greatest extent since April 2013” and was broad based. Even online retail sales slowed “with sales rising at the weakest pace since the start of this series (in 2009).” CBI bottom lined the report by saying “Against a backdrop of stagnating household incomes and weak consumer confidence, the lengthy cold snap earlier this month has heaped added pressure on retailers.”
  14. The European Economic Confidence index for March fell to 112.6 from 114.2 and that was .7 pts below the estimate. That is a 6 month low as manufacturing, services and retail fell m/o/m. Consumer confidence was unchanged while construction confidence rose to the highest level since December 2006.
  15. Maybe this is related to the 50% decline in QE this year but the ECB said February money supply growth slowed to 4.2% y/o/y from 4.5% in January and below the forecast of up 4.6%. That is the slowest rate of money supply growth since February 2015. Lending to non financial companies slowed to 3.1% growth from 3.4% in January.