Positives
1)The December Markit US manufacturing and services PMI was little changed from November at 52.2 vs 52 last month. The manufacturing component fell a hair to 52.5 from 52.6 while services was up by .6 pts to 52.2. With services again leading the way, Markit said “Although the increase in new business remained historically muted, the rate of expansion quickened, with companies indicating the fastest rate of new order growth for 5 months.” On manufacturing, output and new orders did ease but is off the recent lows. There was a rise in hiring and “output expectations improved to their strongest since June.” Of note, “cost burdens rose at the fastest pace since March as firms noted ongoing pressure from suppliers due to tariffs. However manufacturers increased their factory gate charges at a sharper pace in December as they sought to partially pass on higher costs to clients.” The bottom line according to Markit is that they like what they see in that “December’s expansion was led by an improved performance of the vast services sector, accompanied by another month of steady manufacturing growth.” But, “The brighter news needs to be caveated, as the overall rate of economic expansion signaled by the surveys remains well below that seen this time last year, commensurate with GDP rising at an annualized rate of just over 1.5%.”
2)The December NAHB home builder survey jumped by 5 pts m/o/m to 76, well above the estimate of 70. That is the highest level since June 1999 and thus exceeds the June 2005 peak when we saw the greatest housing bubble we’ve ever seen. About all of the increase within the 2 main components was in the Present Conditions where it jumped 7 pts m/o/m. Expectations rose 1 pt. Pointing to good demand, Prospective Buyers Traffic rose 4 pts to 58. The NAHB said “Builders are continuing to see the housing rebound that began in the spring, supported by a low supply of existing homes, low mortgage rates and a strong labor market” but “Higher development costs are hurting affordability and dampening more robust construction growth” and thus crimps the supply for the most needed price point, below $300k.
3)Within the November personal income figure, there was a 5.7% y/o/y gain in private sector wages and salaries vs 5.3% in October and 4.9% in September. Personal spending was as expected, rising by .4% m/o/m all driven by a rebound in spending on durable goods after the decline in the month prior. The savings rate was 7.9% vs 7.8% in October.
4)The final UoM consumer confidence index for December at 99.3 was little changed with the initial print of 99.2 but that is up 2.5 pts from November and puts it just below the high of the year of 100. One year inflation expectations did tick down by one tenth to 2.3% which is the lowest since December 2016 helped by lower gasoline prices. Net income expectations did slip by 3 pts m/o/m and worth watching after the November stat I gave above. Employment expectations were down by 8 pts m/o/m but only after jumping by 12 pts on November. Spending intentions improved notably with both vehicles and major household appliances and were up slightly for buying a home. Higher stock prices were a main factor in this lift in confidence in December with the UoM saying “Most of the December gain was among upper income households, with those in the top third of the income distribution gaining 7.5% from last month and those in the bottom two-thirds posting a gain of just .8%.”
5)Core PCE in November rose by one tenth m/o/m as expected while the y/o/y gain of 1.6% was one tenth more than the estimate due to rounding. The headline figure rose 1.5% y/o/y.
6)Housing starts in November totaled 1.365mm annualized, a slight beat of 20k more than expected and October was revised higher by 9k. Both single family and multi family starts grew m/o/m with the former at the highest level since January. Permits totaled 1.482mm, better than estimated and up a touch from October’s print of 1.461mm. Single family permits rose by 7k to 918k, the highest since 2007 and multi family was higher by 14k.
7)The impact of the end of the GM strike helped boost the production of motor vehicles/parts which rebounded by 12.4% m/o/m after 3 straight months of declines. This drove the 1.1% m/o/m gain in manufacturing production. Taking this category out though has manufacturing production up by a more modest 3 tenths m/o/m after declines in 3 of the prior 4 months and is down .8% y/o/y.
8)The number of job openings in October totaled 7.27mm, up from 7.03mm in September which was the least since March 2018.
9)The German IFO business confidence index for November rose a touch to 96.3 from 95.1 and that was a bit better than the estimate of 95.5. Both Expectations and the Current Assessment were higher m/o/m. The IFO said “In the run-up to Christmas, sentiment among German executives has improved noticeably…The German economy is heading into the New Year with more confidence.”
10)French business confidence in December came in better than expected at 106, unchanged with November but that was revised up by 1 pt and it was 2 pts above the estimate. It remains though in a tight range over the past 6 months.
11)Business sentiment in Italy was a bit above the consensus. That was due to a lift in construction, services and retailers confidence while manufacturing was little changed. At 100.7, this index is still below the 2017 peak in this cycle of 109.
12)In the UK, the core November CPI printed up 1.7% y/o/y as expected and unchanged with October.
13)For the 3 months ended October, the UK reported a better than expected jobs figure with a gain of 24k vs the estimate of a decline of 14k. Their unemployment rate held at 3.8%, the lowest since 1970’s and wages ex bonus’ rose 3.5% y/o/y, just off the best in this cycle. Jobless claims though keep rising, up by 28.8k in November that bears monitoring.
14)In Singapore, non oil exports fell 5.9% y/o/y but a touch better than the estimate of a 6.4% decline. This is the 11th month in the past 13 that has seen a fall. Particularly, exports of electronic products fell 23.3% y/o/y.
15)The Riksbank officially said good riddance to 5 years of negative interest rate policy, the first central bank who had taken the plunge of slapping a tax on its banking system.
16)I liked this quote from ECB Executive Board member Benoit Coeure in a speech today that said it was time to “dismantle the absurd idea of an omnipotent central bank that can mechanically steer inflation.”
17)I also liked this one from Boston Fed President Eric Rosengren this week, “I do have concerns about that financial stability. I would prefer probably a different level of rates…If you look at the last two recessions, they were not situations where inflation got out of control. They were situations where asset prices went way up and then came way down. So, if your goal is to avoid recessions, I think we need to be pretty focused on asset prices not just inflation.”
18)Merry Hanukkah and Happy Christmas, //www.youtube.com/watch?v=FufMxhao0Ac
Negatives,
1)Initial jobless claims totaled 234k, 9k more than expected and follows the spike higher last week to 252k. There are no holiday/seasonality issues the past two weeks. This brings the 4 week average to 226k from 224k and that is the highest since February. Also of note, continuing claims, delayed by a week, jumped to the most since early August.
2)The December Philly manufacturing index was at about the flat line at .3. The estimate was 8.0 and it’s down from 10.4 in November. The 6 month business outlook was little changed, down slightly but is above its 6 month average. Positively, capital spending plans did increase.
3)The NY manufacturing index was a touch below expectations at 3.5 but up slightly from November’s print of 2.9. The estimate was 4.0. The positive within the number was the 10 pt lift in the 6 month business activity outlook to the highest in 5 months and the rise in capital spending plans on both equipment and technology. The NY Fed’s bottom line was that “The general business conditions index remained subdued for the 7th consecutive month.”
4)The KC December manufacturing index fell to -8 from -3. The estimate was for no change and it’s the 6th month in a row of prints below zero.
5)The Cass Freight shipments index fell 3.3% y/o/y, marking the 12th month in a row of declines. They are hopeful though that we are close to bottoming out as the y/o/y growth rates “flatten out.” They refer to “Flat as the new up.”
6)The November Architecture Billings Index fell a touch to 51.9 from 52. The AIA said “The uncertainty surrounding the overall health of the economy is leading developers to proceed with more caution on new projects. We are at a point where there is a potential for an upside but also a potential for things to get worse.”
7)Influenced by the holiday time, the MBA said mortgage apps fell 5% w/o/w with a 2.1% decline in purchase apps and 6.5% drop in refi’s. Versus last year though, purchases are higher by 10.1% y/o/y and refi’s are up by 135% y/o/y.
8)Existing home sales in November totaled 5.35mm, about 100k less than expected and down from 5.44mm in October which was revised down by 20k. Home prices rose 5.4% y/o/y, more than double the level of core CPI and triple the pace of core PCE. Months’ supply shrunk to 3.7, the lowest since February. First time buyers came in at 32% in November vs 33% in November 2018. Investors in their search for yield are helping to block them out as they made up 16% of purchases, matching the most since March.
9)Boeing’s Max news could trim Q1 GDP by up to 5 tenths.
10)Foreign selling of US notes and bonds continued in October by a net $16.7b. This brings the year to date selling to $99b with much driven by liquidations from the Chinese and Japanese.
11)The Fed’s balance sheet rose by a whopping $41.5 billion on the week to $4.137 Trillion. That is up by $377b since the end of August that Fed members with a straight face and in a game of semantics don’t call QE.
12)The Japanese November CPI ex food and energy rose .8% y/o/y vs the estimate of up .7% and vs .7% in October. That happens to be the quickest rate since 2016 but helped out by the VAT hike. The 10 yr JGB yield close at .014%, the highest since January.
13)Trade for Japan remained soft in November as their exports fell 7.9% y/o/y but that was slightly better than the estimate of a drop of 8.9%. Imports were lower by 15.7%, more than the forecast of a 12.8% decline.
14)The Japanese manufacturing and services PMI index for December was unchanged at slightly below 50 at 49.8 as expected. Markit said “the Japanese economy remained stagnant in December, following on from a similar outturn in November. Taking 4th quarter survey data as a whole, the poor performance in October could see Japan’s economy dip into contraction.”
15)Australia’s composite PMI index for December slipped a touch to 49.4 from 49.7.
16)The Eurozone December manufacturing and services PMI was unchanged at 50.6, about as expected with Germany again underperforming France because of its outsized exposure to the auto industry and China trade. For the region, manufacturing softened further to 45.9 from 46.9 while services picked up the slack with a modest gain to 52.4 from 51.9. Markit said “The Eurozone economy closes out 2019 mired in its worst spell since 2013, with businesses struggling against the headwinds of near stagnant demand and gloomy prospects for the year ahead.” Also, “There are scant signs of any imminent improvement. New order growth remains largely stalled and job creation has almost ground to a halt, down to its lowest for over 5 years as companies seek to reduce overheads in the weak trading environment and uncertain outlook.”
17)German consumer confidence was down a hair to 9.6 from 9.7 but the estimate was 9.8.
18)Consumer spending in France in November slightly missed expectations.
19)The UK CBI industrial orders index did weaken further in December to -28 from -26. The estimate of -25. The CBI said “With manufacturers reporting that output is declining at a pace not seen since the financial crisis, alongside another month of softer order books, it is crucially important to rebuild business confidence in this sector.” Now that Johnson won with “a clear mandate to govern…Firms will be looking for reassurance of the new Government’s commitment to getting the UK economy fighting fit as it prepares to exit the EU.”
20)The UK manufacturing and services composite index slipped to 48.5 in December from 49.3 with both components falling.