Positives
1)Initial jobless claims totaled 281k, 7k less than expected and down by 10k w/o/w. The 4 week average fell under 300k at 299k vs 320k last week. Also positive was the 237k person drop in continuing claims to 2.243, another post Covid low.
2)Personal income in September fell by 1% m/o/m, more than the estimate of down .3% but it was all because of the sharp decline in unemployment insurance as the extra benefit program expired after Labor Day. Most importantly was the .9% m/o/m jump in private sector wages and salaries and is running at a 10% increase for the last 6 months annualized.
3)The Employment Cost Index for Q3 rose by 1.3% q/o/q, above the estimate of up .9%. Private sector compensation was up by 1.4% and by 1.6% for wages & salaries q/o/q. On a y/o/y basis, total private comp was up 4.1% and by 4.6% for wages & salaries. Those gains are 10 yr highs, albeit off easy comps but that 1.4% q/o/q gain is the fastest on record in this data going back 20 years and that can’t be blamed on easy comps.
4)Spending in September was a touch better than expected when the slight upward revision to August is included. Since the juiced up March after checks were sent out, personal spending is up by 3.9% while PCE inflation is higher by 2.7%, thus REAL spending is up just 1.2% over the past 2 quarters.
5)Core durable goods orders in September rose .8% m/o/m, above the estimate of up .5% and vs a .5% increase in August which was revised down by one tenth. These are nominal numbers however and they are declining in REAL terms. In Q3, PPI is up 2.3% from June. Durable goods orders are up 1.4%. Core durable goods orders are up 1.5% in Q3 from June.
6)Notwithstanding another rise in mortgage rates, purchase apps rose 3.5% w/o/w but after falling by 4.9% last week. They are down 9.3% y/o/y.
7)New home sales in September totaled 800k, 44k more than expected but almost completely offset by a downward revision to August by 38k to 702k. Smoothing out this volatile number has the 3 month average at 738k vs the 6 month average at the same 738k. The year to date is 791k and 12 month average is 824k. The y/o/y median home price was up 19% which is pretty similar to what S&P CoreLogic said for August in its different calculation. Months’ supply fell to 5.7 but at around 6 is historically average but some of that inventory hasn’t been built yet.
8)The Conference Board’s Consumer Confidence index for October rose 4 pts m/o/m to 113.8, better than the estimate of 108 and vs 115.2 in August. Both the present situation and expectations components were higher m/o/m. The peak in 2021 was 128.8 back in June and it stood at 132.6 in February 2020. One year inflation expectations quickened to 7% from 6.5% and that is the highest since July 2008. The answers to the labor market questions were mixed. Those that said jobs were Plentiful fell .9 pts but remains at a high level while those that said they are Hard to Get fell to just above the lowest level since July 2000. Off historically low levels, spending intentions did improve.
9)The final October UoM consumer confidence index was 71.7, a bit better than the preliminary read of 71.4 but down from 72.8 in September and well below the year to date high in April of 88.3. One year inflation expectations were 4.8% vs 4.6% in September and that is the highest since 2008. Employment expectations fell but improved for income. Spending intentions were very mixed with a record low for auto’s dating back to 1978.
10)The Richmond October mfr’g index rose to +12 from -3 and that was 7 pts above the estimate. New orders, shipments, employment and backlogs all rose with Vendor Lead Times rising to a record high. Inventories remained low. Wages fell slightly as did prices paid but prices received rose to a record high dating back to 1997.
11)The October Dallas manufacturing index rose to 14.6 from 4.6 in September, 9 in August and 27.3 in July.
12)The Chicago manufacturing PMI in October rose to 68.4 from 64.7 and better than the estimate of 63.7.
13)Germany said the number of unemployed in October fell by 39k, double the estimate. Their unemployment rate is down to 5.4% and the Federal Labor Agency said “Joblessness and underemployment are falling strongly, employment and firms’ demand for new personnel are rising and furloughs are receding.”
14)The economic confidence index for the Eurozone for October rose to 118.6 from 117.8 and that was 2 pts better than forecasted. The rise in services led the way but retail and construction were up too. Consumer confidence gave back some of the September gain while manufacturing was little changed but at a high level notwithstanding the challenges there with supply.
15)There was improvement in Germany’s consumer confidence figure which rose .5 pt to .9 and that was better than the expected drop to -.5. That’s the highest level since April 2020.
16)Eurozone GDP in Q3 did rise 2.2% q/o/q and 3.7% y/o/y which was a bit better than expected. Services certainly rebounded with Covid under control and restrictions relaxed while manufacturing is benefiting from strong demand but challenged supply.
17)The October UK CBI retail sales index jumped to 30 from 11 and that was well better than the estimate of 13. But, this number jumps around a lot as it was 60 in August and 23 in July. Smoothing it out puts the 6 month average at 28. CBI said “The UK’s economic recovery has been pretty bumpy lately and the same seems true of the retail sector…Disruptions to supply chains, combined with staff shortages and uncertain public health conditions mean retailers are finding it difficult to plan for the winter ahead.”
18)Tokyo said its CPI for October fell .4% y/o/y vs the estimate of flat. Lower mobile phone fees continues to weigh.
19)The Japanese unemployment rate held at 2.8% in September and the jobs to applicant ratio rose to 1.16 from 1.14, the highest since May.
20)The Bank of Canada decided to end QE immediately and will only purchase bonds to keep the level of their balance sheet steady.
21)The Brazilian central bank hiked rates by another 150 bps to 7.75%, getting it closer to the rate of inflation.
Negatives
1)A rather sharp adjustment in the short end of the curve for many countries is taking place. In October, the US 2 yr yield has gone from .28% to .53%. The Australian 2 yr yield has had a parabolic rise to .775% from .04%. Yes, 4 bps one month ago. The Canadian 2 yr yield is at 1.02% vs .50% at the beginning of the month. The UK 2 yr yield went from .41% to .68% as of this writing. It was .20% on September 1st. A rise in yields is fine in response to inflation and expectations for tightening but the pace of these moves is what is notable.
2)The PCE inflation figures both headline and core were as expected for September, up .3% and .2% respectively. Versus last year, headline PCE is up 4.4% and the core by 3.6%. Goods prices rose by 6.1% and service prices were up by 3.5%. Energy prices jumped by 25% y/o/y and by 4.1% for food.
3)Pending home sales in September fell 2.3% m/o/m, below the estimate of up .5% and follows an 8.1% increase in August. All four regions declined from the prior month. The NAR is attributing this fall to “signs of a calmer home price trend.” The better way of saying it is that price increases got too high and now mortgage rates have risen to the highest since April.
4)The average 30 yr mortgage rate rose another 7 bps on the week to 3.30%, the highest level since early April. As a result of this rate rise, refi’s fell for the 8th week in the past 9 and are at the lowest level since January 2020. They are down 26% y/o/y.
5)S&P CoreLogic said its US home price index rose 19.7% y/o/y in August after a 20% print for July. While we know this is not included in CPI and rents are instead, if it was, CPI would running north of 10% as housing alone is 30% of CPI and 40% of the core. A 33.3% increase in the Phoenix area led the way.
6)US Q3 GDP printed 2% q/o/q annualized, below the estimate of 2.6%. Cutting into REAL GDP was the 5.7% increase in the inflation deflator which was 4 tenths more than expected. Core PCE q/o/q was up 4.5%. REAL FINAL SALES fell .1% in the quarter and which takes out the influence of inventories. An inventory build added 2 full percentage points to GDP.
7)The US trade deficit in September rose to a record $96.3b, well more than the estimate of $88.3b.
8)The German IFO business confidence index for October slipped to 97.7, the lowest since April from 98.9 last month and that was just under the estimate of 98. Both Expectations and the Current Assessment were lower m/o/m. The IFO said in their usually succinct way, “Supply problems are giving businesses headaches. Capacity utilization in manufacturing is falling. Sand in the wheels of the German economy is hampering recovery.”
9)Eurozone CPI for October rose 4.1% y/o/y, well more than the estimate of up 3.7% and the core rate was higher by 2.1% y/o/y, two tenths more than expected and the fastest rate of gain since 2003. German inflation in particular was up 4.6% y/o/y.
10)While Mario Draghi left Christine Lagarde a really tough hand and she did acknowledge that inflation is not so temporary, she seems to be relying too much on that belief rather than getting ahead of the markets which are now tightening for her.
11)Spain said its September PPI rose 24% y/o/y. In France it was up 11.6% y/o/y.
12)The tough but weakening Covid restrictions in Vietnam saw its exports in October essentially go to no change y/o/y as it was up .3% vs the estimate of up 4%. Imports too rose less than expected, by 8.1% vs the forecast of up 11.3%.
13)Australia reports its CPI data on a quarterly basis and for Q3 it rose 3% y/o/y and .8% q/o/q, about as expected. They also have a ‘trimmed mean’ CPI and that was up 2.1% y/o/y, 3 tenths more than expected and a 5 yr high.
14)South Korea, the semi and auto production powerhouse, said its economy grew by 4% y/o/y, below the estimate of up 4.3%.
15)Singapore reported a weaker than expected industrial production figure for September but it was all due to a drop in biomedical. Ex that and manufacturing output was up by 9.4% thanks to electronics and chemicals.
16)Nothing like taking the Jets +40 against the Pats and still losing the bet.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor.