1) Initial jobless claims totaled 210k, exactly as expected and up 4k from last week. As a print of 223k dropped out of the 4 week average, it fell to 209k from 212k last week. That’s the lowest since last April and continues to point to a very benign environment with respect to the pace of firing’s. Continuing claims, delayed by a week, rose by 25k but after falling by 58k in the week prior.
2) The February Philly manufacturing index saw big upside with a print of 36.7, up from 17 last month and well more than the estimate of 11. That’s the best in 2 years. As seen in the NY survey a few days ago, much of this excitement has to do with businesses that are rebuilding inventory, likely following the trade deal. As for the 6 month outlook, the overall business activity figure rose by 7 pts m/o/m driven by a rise in new orders but backlogs, inventories and employment were about unchanged. Capital spending plans did moderate by 3 pts.
3) The February NY manufacturing index rose to 12.9 from 4.8 and that was better than the estimate of 5.0. It is also the best since May. Much of the improvement was due to a sharp increase in inventories and new orders as seen with the Philly index. Negatively, the employment component fell to the lowest since August as was the average workweek.
4) Housing starts in January totaled 1.567mm, well more than the estimate of 1.428mm and December was revised up by 18k to 1.626mm. Single family starts were over 1mm for a 2nd straight month at 1.01mm and follows a jump in December to 1.073mm. Multi family starts remained robust at 557k vs 553k in the month prior and 441k in the month before that. Assume a very mild winter was a big help to starts with a big jump in particular in the Northeast on the multi family side. The forward looking permits also surprised to the upside with single family permits at the highest level since June 2007 at 987k. Multi family permits rose to the most since June 2015.
5) The January Architecture Billings index rose a hair to 52.2 from 52.1. The AIA said “Even with the ongoing challenges facing the nonresidential construction sector, this upturn points to at least modest growth over the coming year.”
6) January existing home sales totaled 5.46mm, about in line with expectations when including a slight downward revision to December to 5.53mm. Low inventory continues to be a problem as months’ supply is just 3.1 vs 3.0 in the month prior and it’s why prices rose 6.8% y/o/y. That’s great for owners and sellers but really is tough for buyers, particularly young ones. First time buyers made up 32% of purchases vs 31% in December and remains again in the low 30’s range. Low mortgage rates are certainly a big help but as the NAR said “in order to further expand opportunities, significantly more inventory and home construction are needed at the affordable price points.”
7) The size of the Fed’s balance sheet fell by $11.1b on the week and continues to show signs that we’ve seen the peak in this new current experiment of price fixing the cost of money. At $4.17T, the balance sheet is no higher than where it stood on January 1st as the repo slowdown and MBS roll off offset the rise in T-bill holdings.
8) South Korean exports did jump by 12.4% y/o/y but on a very easy comparison and the timing of the Lunar holiday in China added days to February shipments. Actual daily shipments fell 9.3% y/o/y. Exports to China fell 3.7% y/o/y but “per day exports to China probably was far worse” in seasonal adjusted terms according to the Customs Office. Imports were higher by 4.7% y/o/y.
9) Japan said its January CPI rose .8% y/o/y ex food and energy as expected.
10 )Japanese January exports did fall by 2.6% y/o/y which was better than the estimated drop of 7% and helped by big exports of cargo ships but imports were down by 3.6% y/o/y, twice the forecast. Exports to China fell 6.4% and to the US by 7.7%.
11) China again cut its loan prime rate with the 1 yr down 10 bps to 4.05% and the 5 yr was down 5 bps to 4.75%. They are trying to buy time.
12) The Bank of Indonesia cut rates by 25 bps to 4.75% as expected as another central bank tries to mitigate the impact of the China driven slowdown.
13) The Eurozone manufacturing and services PMI in February did improve to 51.6 from 51.3 as both manufacturing and services rose although the former is still below 50. This improvement is good to see but they are of course being impacted by the virus and “the full immediate impact may not yet be apparent” according to Markit. They also said “In particular, the widespread delivery delays seen in February bode ill for production in March unless new deliveries can be secured.”
14) The UK February composite index was unchanged at 53.3, better than expected and thus hung in there in light of the global pressures with manufacturing in particular rising by 1.9 pts to 51.9. The UK economy is benefiting from pent up behavior post election. But of course, “Where there are positive signals for UK businesses on the domestic front, the latest PMI findings highlight a number of concerns from an international perspective following the virus outbreak. Service providers often commented on reduced tourism related bookings and cancellations from overseas clients in affected markets.”
15) UK retail sales ex fuel oil in January rose twice the estimate with a 1.6% m/o/m rise.
16) The UK CBI industrial orders number for February improved slightly to -18 from -22 and just above the estimate of -20. CBI said “It is encouraging to see manufacturers reporting some early signs of a turnaround in activity, but it’s probably still too early to say whether we’ve seen the end of the slowdown in the sector.”
17) In the face of Brexit uncertainty in December it didn’t stop the UK economy from still moving forward as for the 3 months ended December saw job growth of 180k, above the estimate of 148k. The unemployment rate held at the lowest level since the 1970’s at 3.8%. Wage growth did moderate to a pace of 3.2% y/o/y ex bonus’ from 3.4% but that is still well above the rate of inflation. January jobless claims rose a modest 5.5k.
1) The US manufacturing and services composite index fell to 49.6 from 53.3 with a 4 pt drop in services to 49.4 and a 1.1 decline in manufacturing to 50.8. Outside of the 2013 government shutdown this is the 1st time this index is below 50 since 2008. “Total new orders fell for the first time in over a decade. The deterioration was in part linked to the coronavirus outbreak, manifesting itself in weakened demand across sectors such as travel and tourism, as well as via falling exports and supply chain disruptions. However, companies also reported increased caution in respect to spending due to worries about a wider economic slowdown and uncertainty ahead of the presidential election later this year.” This all said, “the February survey also saw a notable upturn in business sentiment about the year ahead, reflecting widespread optimism that the current slowdown will prove short lived.”
2) Price pressures are building for any good that needs to be sourced from somewhere other than China and good luck trying to secure shipment without having to pay up.
3) Producer prices in January jumped higher at the headline and core levels and were well more than expected. Headline PPI was up by .5% m/o/m and 2.1% y/o/y. The estimate was up .1% and 1.6% respectively. The core rate was higher by .4% m/o/m and 1.7% y/o/y. Core goods prices were up by .3% m/o/m driven by a 14% spike in iron and steel scrap prices and services prices jumped by .7% with 40% of that coming from higher prices for apparel, jewelry, footwear and accessories retailing.
4) The Cass Freight shipments index for January fell 9.4% y/o/y and they said “The turn of the calendar didn’t leave the bad news in 2019, as the Cass Freight Index showed continued weakness in the US freight market. Both the shipments and expenditures components of the Cass Freight Index worsened sequentially and showed decelerating y/o/y growth.” They said while the stock market is optimistic that things will get better soon, “freight trends have yet to turn. And the Covid-19 corona virus case count continues to grow, creating uncertainty around containment and eventual impact on global supply chains…As stated last month, we expect Q2 2020 to have the best chance of showing actual y/o/y growth in domestic US shipments and freight costs, if traditional seasonal freight patterns hold, because Q2 2019 was below average in terms of the seasonal surge in activity. Plus, depending on how the aforementioned corona virus affects supply chains, there could be a Q2 2020 wave of import activity (and therefore truck and intermodal) when the Chinese export machine starts churning again.”
5) Mortgage rates did tick up by 5 bps on the week to an average of 3.77% but of course remains very low. Mortgage applications to buy a home fell 3.4% w/o/w, the 3rd straight week of declines but are still up by 10.3% y/o/y but that is in part due to easy comparisons. The index itself is at the lowest since late December but really just puts it back to around the average over the past 12 months. Refi apps fell 8% w/o/w but are still up 165% y/o/y.
6) The NAHB February home builder sentiment index fell 1 pt m/o/m to a still very high 74. The estimate was for no change. Both the Present Situation and Expectations components fell 1 pt. The Prospective Buyers Traffic also fell 1 pt to 57, thus remaining well above 50. Lower mortgage rates have certainly created better demand but “accelerating price growth due to limited inventory may offset some of that effect” according to the NAHB. On the supply side of delivering homes, particularly those priced below $300k where the greatest demand is, “regulatory constraints along with a shortage of construction workers and a dearth of lots are hindering the production of affordable housing in local communities across the nation.”
7) The 3 month/10 yr yield curve spread has reinverted this week to 9 bps as of this writing from 1 bp steepener last week.
8) Australia’s manufacturing and services composite index fell to 48.3 from 50.2 but was driven by a drop in the services sector which fell 2.2 pts m/o/m rather than manufacturing which rose by .2 pts to still below 50 print of 49.8. Markit said on the overall results “Whilst this is clearly a disappointing result it is not altogether surprising given the two exogenous shocks that have hit the Australian economy – the bushfires and the coronavirus.”
9) Japan saw weakness for both manufacturing and services as its February PMI composite index fell to 47 from 50.1. Manufacturing fell 1.2 pts to 47.6 while the services component fell a sharp 4.3 pts to 46.7. Markit said “Japan’s economy has gone into 2020 still reliant on services and consumer centered markets to pick up the slack from the industrial sector. However, Q4 disconcertingly showed that the sales tax hike and devastating typhoon in October severely dented consumption, and flash data indicate that domestic demand is still yet to fully recover.”
10) Japan’s economy contracted by 6.3% q/o/q annualized, well more than the estimate of a decline of 3.8% and was mostly driven by a decline in consumption on the heels of the value added tax increase.
11) Japan saw core machinery orders in December (thus dated) fall by 12.5% m/o/m, more than expectations of down 8.9%.
12) China passenger car sales are down 92% y/o/y in the first 16 days of February.
13) Headline UK CPI rose 1.8% y/o/y in January, two tenths more than expected and the core rate was higher by 1.6% y/o/y, one tenth more than estimated. Producer prices also exceeded expectations. 14)The February German ZEW investor expectations index of the German economy fell to 8.7 from 26.7 and that was well below the estimate of 21.5. The Current Situation also weakened falling to -15.7 from -9.5 and that was less than the forecast of -10. The ZEW said “The feared negative effects of the corona virus epidemic in China on world trade have been causing a considerable decline of the ZEW Indicator of Economic Sentiment for Germany…Both the downward revision of the assessment of the economic situation and the downturn in expectations show clearly that economic development is rather fragile at the moment.”