Positives
1)The January 2022 Survey of Consumer Expectations from the NY Fed showed some moderation in inflation expectations for both 1 yr and 3 yrs out. For one year, they fell by .2% m/o/m but to a still very elevated 5.8%. It’s the 1st m/o/m drop since October 2020. For 3 yrs, the median pace of inflation is expected to be 3.5% vs 4% in December. The NY Fed said this 5 tenths drop was “broad based across age, education and income groups and is the largest one month decline in the measure since the inception of the survey in 2013.” The rise in interest rate expectations likely was main reason for both time frames.
2)Delayed by a week in its reporting, continuing claims hit near a new low at 1.593mm, down from 1.62mm in the week before. It was in the 1.7mm range pre Covid.
3)Core retail sales in January were well better than expected with a 4.8% m/o/m gain vs the estimate of up 1.3%. It was only partially offset by a 9 tenths downward revision to December which saw a drop of 4% but November was revised up by 7 tenths. These numbers are in nominal terms so for perspective sales ex gasoline, so encompassing all spending on goods and the lone service of restaurant/bars, are up in dollar terms by 11.4% y/o/y. Goods prices ex food and energy are up 11.7% y/o/y within last week’s CPI report.
4)Within the housing starts data, permits for single family did rebound to 1.205mm, up 77k m/o/m. Multi family gave back about half of the December spike but still remains high at 694k.
5)Existing home sales in January totaled 6.5mm annualized, 400k more than expected and up from 6.09mm in December. Assume many contracts were signed in the September thru November time frame thus making this the least timely housing number we see. Interest rates then when many likely locked in ranged between 3-3.30% vs about 4% today. Inventories remain very lean at just 1.6 months which is another new low which in turn helped to drive a 15.4% y/o/y median home price gain. The NAR did say that they are seeing more listings for homes priced above $500k but inventory is dry for those priced below. First time buyers continue to feel the strain of getting priced out as they made up just 27% of all purchases which is near the low of 26% two months prior. They are also getting pushed aside by investors and all cash buyers who are becoming a bigger piece of the market. All cash buyers totaled 27% of purchases vs 23% in December and vs 19% one year ago. Investors made up 22% vs 17% last month and vs 15% one year ago. There’s no question that many investors are using all cash. And for those getting a mortgage, “some moderate income buyers who barely qualified for a mortgage when interest rates were lower will now be unable to afford a mortgage” said the NAR.
6)Foreigners increased their net purchases of US notes and bonds in December by $44.2b and for the full year 2021 they bought a total of $81.2b. That though is just one month’s worth of what the Fed has been buying and we know the Fed is only going to be reinvesting for a short period of time before QT. Foreigners make up about 1/3 of the US marketable securities vs 50% at their peak in 2013, 2014.
7)Industrial production in January was better than expected, up 1.4% m/o/m vs the estimate of up .5% but it was all due to the rise in utility output. Manufacturing production was in line with another semi related drop in motor vehicle production which fell for a 2nd month and is down 6.2% y/o/y. The production of computer/electronics also fell m/o/m but remains up 6.2% y/o/y. Machinery production was higher by 1.1% helped by the commodity bull market. Part of this, mining production was up by 1% m/o/m and 8.2% y/o/y.
8)CPI for January in Japan was up .5% y/o/y headline but down 1.1% ex food and energy. Both were one tenth less than anticipated. Add back 150 bps though if you want to take out the plunge in cell phone fees.
9)Singapore said its non oil exports rose 5% m/o/m in January, better than the estimate of up 2%.
10)Australia said its January job increase was more than expected while its unemployment rate held at 4.2%.
11)China said its PPI rose 9.1% y/o/y in January, 4 tenths less than expected and vs 10.3% in December. Consumer price gains remain benign, up just .9% y/o/y vs the estimate of up 1% and vs 1.5% last month. A 3.8% drop in food prices kept a lid on things but even ex food and energy, prices were up just 1.2%.
12)As the UK economy came out of omicron jolt of December, January retail sales ex auto fuel rose 1.7% m/o/m, above the estimate of up 1.1%, partly offset by a 3 tenths downward revision to December.
13)Also in the UK, there was another drop in January jobless claims, notwithstanding the omicron influence. It fell by 32k after declining by 52k in December. Payrolls also expanded by 108k but that was below the estimate of 133k and December was revised down by 50k. The unemployment rate in December was 4.1%, unchanged while wages ex bonuses grew by 3.7% y/o/y in the 3 months ended December but that is still well below the rate of inflation.
Negatives
1)The Fed is getting tough with inflation as their balance sheet rose by another $33b to a fresh record high of $8,911,033,000,000.
2)Initial jobless claims totaled 248k, 30k more than expected and up from 225k last week (revised up by 2k). As a 290k print fell out, the 4 week average did fall to 243k from 254k last week.
3)The February Philly manufacturing index fell to 16 from 23.2 and that was 4 pts below the estimate. There were two special questions on inflation where “firms were asked to forecast the changes in prices of their own products and for US consumers over the next 4 quarters.” On the former, “the firms’ median forecast was for an increase of 5%, down slightly from 5.3% when the question was last asked in November. The firms’ reported own price change over the past year was 5%.” On the labor front, “The firms expect their employee compensation costs (wages plus benefits on a per employee basis) to rise 5% over the next 4 quarters, a slight increase from 4.8% in November.” As for what they expect broad inflation to be for US consumers in the coming year, “the firms’ median forecast was 5%, the same as in November.” The long run rate (which really is a wild guess) was 3% vs 3.5% in November. Also of note was the sharp drop in the outlook for Delivery Times and points to my belief that post Christmas and the Chinese New Yr, supply strains are easing.
4)The February NY manufacturing index was 3.1 up from a surprise negative print in January of -.7. The estimate though was +12. Prices paid were little changed but those received rose to a record high dating back to 2001. Disappointing too was the business activity outlook which fell to 28.2 from 35.1 in January and vs the 6 month average of 39.5. That’s also the lowest since April 2020 when it was trying to recover off the March 2020 plunge.
5)CoreLogic said that US single family rental home prices, that include condos, were up 12% y/o/y in December. That includes both new leases and renewals. They said “Rent growth continued at a rapid pace for all price tiers in December.” They were higher by 36% in Miami in particular, leading the major cities. CoreLogic highlighted the problem here, that prices for home buying have become unaffordable for many young families and they in turn have to rent. “While slowing home price appreciation could help gradually balance demand for the rental market, rent prices will likely remain strong throughout the year.”
6)The average 30 yr mortgage rate as of February 11th is above 4% at 4.05%. It was last there in November 2019. Purchases fell 1.2% w/o/w after an almost 10% drop last week. They are down 7.3% y/o/y. Refi’s were lower by 9% w/o/w to the lowest since January 2020 and down 54% y/o/y.
7)Housing starts totaled 1.638mm in January, below the estimate of almost 1.7mm and vs 1.708mm in December. Single family starts fell by almost 70k m/o/m while multi family held steady at 522k which is near the recent highs. Notably there was a drop in ‘single family’ completions to a multi month low which likely reflects those missing things like kitchen cabinets, and major appliances among other things.
8)The NAHB home builder sentiment index for February fell 1 pt m/o/m to 82 as expected. That is the lowest since October. The present situation was up 1 pt but fell 2 for the future outlook. Of note with respect to the demand side, Prospective Buyers Traffic fell 4 pts to 65, the lowest since September. Specifically with the issues delivering homes the NAHB said “Production disruptions are so severe that many builders are waiting months to receive cabinets, garage doors, countertops and appliances. These delivery delays are raising construction costs and pricing prospective buyers out of the market. Policymakers must make it a priority to address supply chain issues that are harming housing affordability.” And now we have this, “Higher interest rates in 2022 will further reduce housing affordability even as demand remains solid due to a lack of resale inventory.”
9)Producer prices jumped 1% in January, double the estimate while the core rate was higher by .8%, 3 tenths more than expected. Versus last year, prices were up 9.7% y/o/y, the same very high pace seen in December. The core rate was higher by 8.3% y/o/y, also the same rate seen in the month before. Service prices were up .7% m/o/m and 7.7% y/o/y. Core goods prices were up .8% m/o/m and 9.4% y/o/y. Prices in the pipeline are still pretty hot. Core processed prices were up 1.2% m/o/m and 24% y/o/y. The step before in the chain, unprocessed core prices, did fall .7% m/o/m after a 4.7% drop in December but they are still up 30% y/o/y.
10)Import prices in January were well more than anticipated with a 2% m/o/m gain, 8 tenths more than forecasted and up 10.8% y/o/y. Ex petro they were up 1.4% m/o/m, more than triple the estimate and higher by 7.5% y/o/y. Ex both food and energy saw import prices higher by 1.1% m/o/m and 6.2% y/o/y. Food/beverage import prices were up by 3.6% m/o/m and 15.8% y/o/y while industrial supply prices grew by 5.2% m/o/m and 35% y/o/y. The import prices of capital goods, auto’s/parts and consumer goods were up between 2-3% y/o/y. Really before the trucking mess in Ottawa, import prices from Canada were higher by 6.4% m/o/m and almost 27% y/o/y. Import prices from China rose .5% m/o/m and 4.8% y/o/y. We’re also exporting our own form of inflation as export prices rose 2.9% m/o/m and 15% y/o/y. Core prices were higher by .7% m/o/m and 7.4% y/o/y.
11)The CRB food stuff index is closing the week at another record high.
12)Cass Freight said January shipments fell 2.9% y/o/y and were lower by 10.8% m/o/m. Blame omicron driven absenteeism and quarantines. Cass specifically said “This was not a demand driven decline, as inventories are still lean and consumer balance sheets strong.” While we see headlines of less containerships at the California ports, down to 78 as of February from a high of 109 in January, “per our friends at MX SoCal, backlogs have been growing at several other ports, particularly Houston, Charleston and Virginia.” With respect to pricing, Cass Freight infers them by comparing shipments with total expenditures and here we see freight rates rose 35% y/o/y vs 33% in December. They were up by 3% m/o/m in January. They also said truck is taking share from rail “as the railroads continue to struggle.” This also adds to higher costs. With rail, “Chassis production has improved considerably for the past 6 months, but only enough to turn the direction of the chassis fleet from contraction to slight growth, and the chassis fleet remains far from what is needed to address rail network congestion.”
13)Japan’s January exports rose 9.6%, almost half the estimate of up 17.1%. Semi exports moderated and exports of auto’s fell. Imports, driven by much higher energy prices and a weaker yen, were up by 37% vs the estimate of up 40%.
14)UK CPI was up 5.5% y/o/y in January headline and higher by 4.4% ex food and energy, both one tenth more than expected. The Retail Price Index, that inflation linkers use and are priced off, was higher by 7.8% y/o/y. On the wholesale side, producer input prices were up by .9% m/o/m and 13.6% y/o/y while output charges grew by 1.2% m/o/m and 9.9% y/o/y. The input side was just under expectations but the pass thru via output prices was much greater than expected with the m/o/m gain double the estimate.
15)The February German ZEW investor confidence index in their economy rose to 54.3 from 51.7 but that was just below the estimate of 55. The Current Situation slipped by 2 pts to -8.1 but the forecast was -6.5. ZEW said “The economic outlook for Germany continues to improve in February despite growing economic and political uncertainties. Financial market experts expect an easing of pandemic related restrictions and an economic recovery in the first half of 2022. They still expect inflation to decline, albeit at a slower pace and from a higher level than in previous months.”
16)A week after the Riksbank said they won’t raise rates off zero until 2024, they printed CPI up 3.9% y/o/y headline and 2.5% ex energy vs the estimate of up 1.9%.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.