As I’m traveling this morning, this is going out early and thus will not include housing starts, import prices and consumer confidence.
- The NFIB small business optimism index for January rose 2 pts to 106.9 after falling by 2.6 pts in December. It is the 2nd best print in this expansion. Plans to Hire was unchanged in part because Positions Not Able to Fill was up by 3 pts to 34%, just below the highest level in 17 years as we know it’s gotten really hard to find qualified workers. This is FINALLY lead to upward wage pressures as the current Compensation component was up by 4 pts to 31%, matching the highest also in 17 years. Future Compensation Plans was up 1 pt to 24%, matching the best since 1989. How will companies maintain profit margins with labor costs rising, those that reported Higher Selling Prices rose 3 pts to 11%, the most since July 2014. Maybe this and productivity gains is the reason why Earnings Expectations improved by 11 pts to the best since 1988. The NFIB President was ebullient in her commentary. “Main Street is roaring. Small business business owners are not only reporting better profits, but they’re also ready to grow and expand.” The Chief Economist is directly attributing this change in mood to “the new management in Washington tackling the biggest concerns of small business owners, high taxes and regulations.” As stated above however, “Finding qualified workers now exceeds taxes and regulations as the top concern for small businesses.”
- The NAHB housing index was unchanged at 72 as expected. According to the NAR, builders had to balance their enthusiasm over tax reform and regulatory relief but with the reality of the marketplace. ““Builders are excited about the pro-business political climate that will strengthen the housing market and support overall economic growth. However, they need to manage supply-side construction hurdles, such as shortages of labor and lots and building material price increases.” On the last point, lumber prices dating back to 1986 have never been this high.
- The Philly regional index saw a gain of 3.6 pts m/o/m to 25.8 and that was 4 pts above the forecast. The internals were also better off weakness in January. The 6 month business outlook fell 1 pt but the most of the internals were higher with capital spending plans in particular up by 4 pts.
- Total aggregate financing in China in January was robust at 3.06 Trillion yuan but that was a bit less than expectations of 3.15 Trillion. A main goal of Chinese authorities has been to bring a lot of lending sources into the light, aka out of the dark, shadow and less transparent sectors of the financial system. That seemed to work in January as bank loans made up 2.9 Trillion of the 3.06 Trillion in lending growth. Also of note, this loan total is down by 17.2% y/o/y but because of the Lunar New Year and timing of it, we really need to group January and February together to make a fair comparison. Money supply growth did pick up to 8.6% y/o/y off the lowest level since at least 1996 in December at 8.2%.
- After no change in the immediate aftermath of the hurricanes, US business inventories in December rose .4% m/o/m for a 2nd straight month. As sales rose by a similar amount the I/S ratio was unchanged.
- The China proxy that is Australia did report an inline jobs figure for January with a job gain of 16k and an unemployment rate of 5.5%.
- For the quarter ended December, the French unemployment rate fell to 8.9%, a huge decline from the 9.6% seen in Q3 and that was well below the estimate of 9.5%. The actual number of unemployed fell by a large 205k, the biggest quarterly drop on record.
- As expected the German economy grew by .6% q/o/q and 2.9% y/o/y, a solid way to end the year. A strong level of exports led the way.
- The Eurozone economy was confirmed to have grown by 2.7% y/o/y in Q4, capping the best year of growth since 2007.
- NY Fed’s Underlying Inflation Gauge said January inflation is at 3.0% vs 2.94% in December. This level was last seen in 2006. This is considered the “full data set” which incorporates the “prices only” figure in addition to “additional macroeconomic and financial variables.” The “prices only” figure rose to 2.18% from 2.17% in December.
- CPI for January rose .5% headline which was 2 tenths more than expected and off a higher base as December was revised up by one tenth. This brings the y/o/y gain to 2.1% which marks the 5th straight month with a 2 handle. The core rate was one tenth higher than expected with a 3 tenths m/o/m gain but December was revised down one tenth so it’s really a push. The y/o/y gain was unchanged at 1.8%. A 3% m/o/m rise in energy prices drove the headline gain while rising rents and medical costs continue to drive services inflation. Rent of a Primary Residence was higher by .3% again m/o/m and up by 3.7% y/o/y. Owners’ Equivalent Rent was also up .3% m/o/m and 3.2% y/o/y. Medical care, 8.7% of CPI, was up by .4% m/o/m and 2% y/o/y where both rents and medical costs helped to lead to a .3% rise in services ex energy and 2.6% y/o/y. Also of note, goods prices rose for a 2nd month after a run of negative prints.
- The Cleveland Fed median CPI rose .3% m/o/m and 2.4% y/o/y. The 16% trimmed CPI was also up .3% m/o/m and 1.9% y/o/y.
- January PPI rose .4% m/o/m as expected while the upside surprise was seen ex food and energy. The core rate was also up .4% m/o/m vs the forecast of up .2%. The headline gain vs last year is 2.7%, the 3rd highest print since early 2012. The core rate was up by 2.2% y/o/y vs 2.3% in December. If we look at PPI ex food, energy and trade, it was up .4% m/o/m and 2.5% y/o/y, a multi year high.
- The rise in mortgage rates to the highest level in 4 years at 4.57% did catch up to mortgage applications. Purchases fell by 5.9% w/o/w and the y/o/y growth rate slowed to 4.2%. Refi’s fell by 1.9% but are still up by 2.8% y/o/y as those looking to refi better hurry up.
- Industrial production in January fell .1% m/o/m instead of rising by .2% as forecasted. The manufacturing component was the main reason as it was flat m/o/m vs the estimate of up .3% and December was revised down 1 tenth. Gains in auto’s, machinery, and computers/electronics were offset by other groups. Mining production driven by oil and gas saw a decline for a 2nd month. Capacity utilization also disappointed, falling to 77.5% from 77.9%.
- The core rate of retail sales (ex auto’s, gasoline and building materials) was unchanged in January m/o/m vs the estimate of up .4% and December was revised down by 5 tenths. Auto sales fell for a 3rd straight month after the post hurricane jump. Building material sales also were down but are still up solidly y/o/y. Online retail sales saw no change in January but are still up a robust 13.2% y/o/y.
- The February NY manufacturing index fell to 13.1 from 17.7 and that missed the estimate of a modest gain to 18. It’s also the lowest level since July. Notwithstanding the headline decline, the internals were better. The business outlook for the next 6 months was higher by about 2 pts but new orders, backlogs, inventories, employment, capital ex and technology spending plans all fell m/o/m.
- Initial jobless claims rose 7k to 230k and that was 2k more than expected. The 4 week average rose 4k to 229k off the lowest level since 1973.
- For the 3rd straight month, foreigners were net sellers of US Treasury notes and bonds in December totaling $15.96b. This brings the year to date net buying to just $14b after selling of $326b in 2016 and $20.3b in 2015. Back when foreigners loved our paper back in 2011 and 2012, they bought more than $400b in each of those years. What they were big buyers of instead in December were US stocks. They bought the 2nd largest amount on record with May 2007 being the biggest month. Nice timing back then. China and Japan were again net sellers of notes and bonds. China offset that though with the buying of bills which cumulatively increased their stash by $8.3b. Japan however also sold t-bills which made them the biggest foreign seller of US Treasuries in December at $22.6b.
- The always volatile Japanese machinery orders data for December disappointed. They fell 11.9% m/o/m, well more than the estimate of a drop of 2% and the worst monthly fall since 2014. The y/o/y decline was 5%.
- Japan’s lumpy economic recovery was evident again in Q4 as it reported a .5% q/o/q annualized rate of growth, half the estimate and Q3 was revised down by 3 tenths to 2.2%.
- If only Japan’s PPI was renamed CPI, the BoJ would have gotten what it wanted. PPI in January rose .3% m/o/m as expected but December was revised down one tenth. The y/o/y growth was 2.7% vs 3% in December. This marks the 10th month in a row of 2%+ PPI prints.
- The UK CPI held at 3% y/o/y in January, one tenth more than expected. The core rate was up by 2.7%, matching the highest level since 2011. PPI was up by 4.7% y/o/y, 6 tenths more than expected.
- Due to the real wage squeeze UK consumers are experiencing, retail sales ex auto fuel in January rose .1% m/o/m, below the forecast of up .6%. The Office for National Statistics said to expect a “continued slowdown.” This gets to the fallacious argument of central banks that higher inflation leads to better economic growth.
- Japan will stay on the same failed monetary policy path as PM Abe reappoints BoJ Governor Kuroda for another term. It of course was expected. There is no self analysis here as Kuroda said they “will persist with powerful monetary easing” and they are “steadily moving toward realizing 2% inflation.” He also said a “premature show of exit strategy would disturb markets.” What he doesn’t understand is that achieving his 2% inflation goal is what would most disturb markets.