Positives
1) January new home sales totaled 607k, 15k less than expected but December was revised up by 31k to 652k and which followed below 600k prints in the two prior months. Smoothing out this volatile number puts the 3 month average at 619k vs the 6 month average of 603k and the 12 month average of 621k. The average in 2017 was 616k. Months’ supply rose to 6.6, a 3 month high while the median home price fell to the cheapest since last June but that’s due to a mix shift as there were more sales of homes priced below $400k and less priced above.
2) January core durable goods orders rose .8% m/o/m which was 6 tenths more than expected but comes after declines in 4 of the prior 5 months. Versus last year, growth was a modest 3.1% which is about half the average over the past two years. The internals were mixed. Good for the GDP input, core shipments exceeded expectations with a .8% m/o/m rise vs the estimate of a decline of .2%. There was a .4% increase in inventories and 4.9% y/o/y gain which is something to watch as it brings the inventory to shipments ratio to 1.62 which matches the most since July.
3) Versus last month the February PPI report was one tenth less than expected at the headline and core levels. The y/o/y headline gain was 1.9% and the core rate was higher by 2.5%. A big area of focus of mine has been transportation costs and they are moderating. ‘Truck transportation of freight’ prices fell .3% m/o/m while still higher by 5.5% y/o/y.
4) The February CPI was up .2% m/o/m headline and higher by .1% at the core. The headline was as expected while the core rate was one tenth below the estimate. Still, y/o/y the core rate was still up by 2.1% y/o/y, the 12th straight month above 2%. The y/o/y headline figure was up by 1.5%. The core rate continues to be driven by persistent services inflation which was up 2.7% y/o/y mostly driven by rents. Core goods prices fell .2% after a .4% jump in the month prior. The y/o/y change is basically unchanged.
5) The NFIB small business optimism index for February rose .5 pt m/o/m to 101.7 and breaks a 5 month losing streak which was the longest since 1998. Notwithstanding the modest rise though, it does follow a 3.2 pt drop in January and the index averaged 106.7 in 2018. Internally, Plans To Hire fell 2 pts to match the least since June 2017. There was also moderation in the compensation components, both current pay and future plans. Capital spending plans rose 1 pt 27 but that is still 1 pt below the 6 month average and what is not a good lead indicator for future capital ex plans is the Positive Earnings Trends component which fell 4 pts to -9%, the weakest since December 2017. There was no intention to change inventory levels from the lowest since December 2017. The expectations components were mixed. Those that Expect a Better Economy rose 5 pts but after falling by 10 pts in January and at 11 is 9 pts below the 6 month average. Those that Expect Higher Sales was unchanged and those that said it’s a Good Time to Expand was higher by 2 pts after dropping by 4 last month. Finally, inflation was muted as those seeing Higher Selling Prices fell 2 pts to the lowest in a year. The NFIB is blaming mostly the government shutdown for the recent weakness in small business confidence but I think that’s a lame excuse.
6) The dip in the average 30 yr mortgage rate to 4.64%, the lowest since February 2018, helped to boost purchases according to the MBA. They grew by 4.3% w/o/w but are still only up by 1.7% y/o/y. Refi’s didn’t budge though, falling by .2% w/o/w and are down 4.4% y/o/y as comparison’s are really easy.
7) The preliminary UoM consumer confidence index for March improved 4 pts m/o/m to 97.8 and that was 2.2 pts above the estimate. It now has almost gotten back what it lost in January during the shutdown as the December print was 98.3. From that December, Current Conditions remain 5 pts below but Expectations is now 2 pts above. One year inflation expectations fell further to 2.4% from 2.6% in February but bounced by two tenths for the 5-10 yr outlook. The UoM specifically pointed this out in the very first sentence of its press release as the help to consumer confidence early on in March. “The early March gain in sentiment was entirely due to households with incomes in the bottom two-thirds of the distribution, whose sentiment rose to 97.4 from 90.0 in February. Sentiment fell among households with incomes in the top third to 98.5 in early March from 101.7 in February. The difference that accounted for the divergence was how households evaluated their personal finances, as lower income households expressed much more positive assessments.” Spending intentions were mixed. Those that said it’s a good time to buy a car/truck fell 1 pt. Those that said it’s a good time to buy a home was up by 3 pts, hopefully helped by the drop in mortgage rates. Those that said it’s a good time to buy a major household item fell 4 pts to match the lowest level since October 2014.
8) In January there were 7.58mm job openings, about 350k more than expected and that’s near a record high. Hirings rose by 84k after a drop of 104k in the month prior. The hiring rate rose one tenth to 3.9% after falling by one tenth in December. The Quit rate held at 2.3%. The two areas that stood out in search of many more people was ‘financial activities’ and education/healthcare services.
9) January construction spending rose 1.3% m/o/m in January, well more than the estimate of up .5%. But, it was all due to a spike in public spending. Private residential spending fell for the 6th straight month and private non residential spending was up just 2.4% y/o/y.
10) While coming in more than expected, US import prices in February across all major categories were down y/o/y. The headline figure is lower by 1.3% y/o/y while ex food and fuels saw prices down by .3%.
11) The final Eurozone February CPI read was left unchanged with the initial. Headline CPI rose 1.5% y/o/y while the core rate was higher by 1%.
12) In February, Euro area auto sales y/o/y for the 6th month in a row but the decline of 1% was the least of them. Positively, they rose y/o/y in Germany, France and the UK.
13) Eurozone industrial production in January saw a 1.4% m/o/m gain, 4 tenths more than expected.
14) German exports were unchanged in January vs December but that was .5% better than forecasted.
15) The UK Parliament voted no to a no deal Brexit in a non binding vote.
16) Thanks to a lift in manufacturing production, overall industrial production for the UK in January did exceed estimates with a .6% m/o/m gain, triple the forecast. This helped lift the January rolling 3 months GDP figure to a gain of .5% m/o/m, well better than the .2% estimate and is a rebound after the prior month .4% decline. This brings the 3 month increase to .2% q/o/q, but is still very slow.
17) Chinese fixed asset investment ytd y/o/y was up by 6.1% as forecasted and two tenths above what was expected. As seen in this real estate dependent economy, property investment ytd y/o/y rose by 11.6%, up from 9.5% in January. I know, excessive growth from here in these two areas is the last thing China needs. Foreign direct investment in February rose 6.6% y/o/y.
Negatives
1) We’ll get a trade deal of some sort but the timing keeps get pushed out. We also now wonder about the details and the state of the existing tariffs.
2) Initial jobless claims totaled 229k, 4k more than expected and up from 223k last week. This brings the 4 week average to 224k from 226k because a print of 239k fell out.
3) December was not a statistical anomaly. January retail sales at the core level (ex auto’s, gasoline and building materials) was as expected when including the downward revisions to December. Core December sales were revised to a decline of 2.3% m/o/m from the first print of down 1.7% and this offsets the 1.1% increase in January, 5 tenths more than expected. On a y/o/y basis, core sales grew by 2.7%, well less than the one year average of 4.2% growth and is the 2nd weakest print (after December) since June 2017. January core retail sales on a dollar basis were slightly less than where they stood in July and thus have essentially flat lined since then.
4) The March NY manufacturing index, the 1st March figure of importance out, fell to 3.7 from 8.8 and that was below the estimate of 10. This is now the weakest print since May 2017 when it was at 3.4 and is considered ‘slight’ growth according to the NY Fed. Looking at the 6 month business outlook, it fell to 29.6 from 32.3 but that is a touch above the 6 month average.
5) US industrial production in February was softer than expected but not as much as the headline inferred as January was revised up by almost the extent of the February miss relative to expectations. Looking specifically at the manufacturing component saw a .4% m/o/m drop vs the estimate of a .1% gain but January was revised up by 4 tenths. This does mark the 2nd month in a row of declines while the y/o/y gain is just 1% and the index is at the lowest level since last July. The production of motor vehicles/parts was a culprit as it fell for a 2nd month. Capacity utilization clocked in at 78.2%, 3 tenths less than expected, the lowest since July and led by autos.
6) BoJ Governor Kuroda remains committed to generating 2% inflation in the 7th year of trying.
7) The FT reported this week: “Japan’s biggest employers have proposed lower pay rises for 2019 compared with 2018.”
8) The always volatile Japanese core machinery orders in January fell 5.4% m/o/m, well worse than the estimate of a decline of 1.5% and follows a .1% drop in December. This marks the 4th month in the past 5 of declines.
9) Chinese Retail sales grew by 8.2% y/o/y as expected but this figure was 9.8% in February last year and it’s the slowest pace of growth 2003. Industrial production ytd y/o/y slowed to a rate of 5.3%, 3 tenths less than expected and down from 6.2% last month. Go back to 2009 the last time that was seen. The jobless rate increased by 4 tenths to 5.3% and while a volatile number month to month is the highest since early 2017.
10) China reported its loan data for February and we need to merge it with January in order to get a clear read. The February print of 703b yuan, almost half the estimate combined with 4.64T yuan in January still puts the year to date increase at 25% vs the first two months of 2018. Looking at just bank loan data within, the year to date y/o/y increase was a more reasonable 10% (a touch above nominal GDP growth which is their plan). Money supply growth as measured by M2 slowed to match the lowest growth rate on record.
11) The weight of a slowing China and a falling housing market is impacting Australian business confidence with its Business Confidence index down 2 pts to just +2, the lowest since January 2016. The Business Conditions component dropped 3 pts to 4, the 2nd lowest print since January 2016. Exports in particular fell below zero.
12) The RICS (Royal Institution of Chartered Surveyors) saw its housing market survey for February fall to -28% from -22% in January and it was -3% last September. That’s the weakest since May 2011.
13) The German IFO Institute has further trimmed their 2019 GDP forecast for the German economy to .6% growth vs its last estimate of 1.1%.
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.