Positives
- Initial jobless claims totaled 226k, 2k less than expected and down from 230k last week. The 4 week average fell a touch to 221,500k from 222,500k. Continuing claims, delayed by a week, rose by 4k.
- The NFIB small business optimism index improved again in February as it rose .7 pts m/o/m to 107.6. By .1 pts it is at the best level since 1983. Current Compensation Plans were unchanged but sit at the best level since December 2000. Future Compensation Plans did fall 2 pts but is also near the highest in 18 years. Lastly and of huge importance, small businesses seem to be getting more confident in their ability to pass on higher costs as Higher Selling Prices rose 2 pts m/o/m to 13%, matching the highest level since 2008. The CEO of the NFIB said “The historically high readings indicate that policy changes – lower taxes and fewer regulations – are transformative for small businesses. After years of standing on the sidelines and not benefiting from the so-called recovery, Main Street is on fire again.” Also, “For the first time since 2006, taxes received the fewest votes as the number 1 business problem for small business…Finding qualified workers remained as the number one problem for small business owners, surpassing taxes and regulations which have held the top two spots for years.”
- The preliminary UoM consumer confidence index for March improved to 102 from 99.7 and that was 2.7 pts better than expected. We are now at the best level since 2004 (it peaked at 112 in January 2000). Of particular note, one year inflation expectations rose two tenths to 2.9%. That is the most in 3 years. Also, those expecting Higher Income rose to the highest on record in this survey dating back to 1978. Those that said it’s a good time to buy a major household item rose 8 pts to the best since April 2000. There was no change in those planning to buy a car/truck. With housing, those that said it’s a good time to buy a house rose 5 pts to match a 5 month high BUT, those that said it’s a good time to sell a house was up by 6 pts to the most since August 2005 and 1999 before that.
- The NY manufacturing survey rose 9.4 pts after falling for 4 straight months by a total of 15 pts. At 22.5 it is at the best level since October. Price pressures picked up further as prices paid rose 1.7 pts to 50.3, the highest since March 2012. Prices received rose almost 1 pt to the most since January 2012. As for the 6 month business outlook, it fell to 44.1 from 50.5 and that is a 6 month low. Notwithstanding the incentive to increase capital spending, capital expenditure and technology spending plans both fell.
- With US mortgage rates hitting a fresh 4 year high at 4.69%, up almost 70 bps in just the last 6 months, there was a rush to lock in as mortgage applications to buy a home rose 3.4% w/o/w and are up 2.5% y/o/y.
- February industrial production was up 1.1% m/o/m vs the estimate of up .4%, only partially offset by a two tenths downward revision to January. The manufacturing component was the key driver as it saw a gain of 1.2% m/o/m vs the forecast of up .5% (Jan was revised down by also 2 tenths). Capacity utilization did improve to 78.1% but it is still below where it was in 2014 at 79.1% and remains below the very long term average of about 80%.
- Business inventories in January rose .6% as expected but December was revised up by two tenths. After a sharp drawdown in Q4 post storms, we are seeing an inventory rebuild. Sales though did fall by .2% m/o/m and the I/S ratio ticked up to 1.34 from 1.33.
- The JOLTS data on job openings in January saw a big jump to 6.3mm. That was 400k more than expected and brings it to the highest amount of job openings on record since this data set started in 2000.
- In January 2018, foreigners bought $8.4b of US notes and bonds. This follows total net buying in 2017 of $14b. They were also a voracious buyer of US stocks and bought the most since May 2007 and the 2nd most on record. Let’s hope their timing this time around wasn’t as bad as then. China bought $4.2b of notes and bonds but their total holdings fell by $16.7b because T-bills likely matured. They own the least amount of US Treasury debt since June 2017. Japan, the 2nd biggest foreign holder of US Treasuries, sold $2.1b of notes and bonds but offset that with the purchases of bills.
- Treasury auctions this week were better than the ones seen a few weeks ago.
- Eurozone CPI for February was unexpectedly revised down by one tenth to 1.1% y/o/y, the core rate held at 1%.
- While the major economic initiative of tax reform is already done, regulatory relief is ongoing and I don’t see realistically anything left of significance, Larry Kudlow will hopefully be the new firewall against trade initiatives that go too far.
- The central bank of Norway, the Norges Bank, pulled forward the possibility of a rate hike to either August or September from December. Their benchmark rate of .50% compares with the last CPI print of 2.2% y/o/y for February and PPI up 4.7%. Another central bank looking to reverse itself.
- Chinese industrial production picked up its rate of growth to 7.2% in January/February from 6.6% in December and that was above the forecast of 6.2%. Fixed asset investment, the key driver of Chinese growth, was up by 7.9% y/o/y ytd, an increase from 7.2% at the end of last year and higher than the expectation of a 7% increase.
- The always volatile Japanese machine orders number surprised to the upside in January as it was up 5.5% m/o/m in November after being down 9.3% in December and higher by 8.2% in January.
- While not the 3% the Japanese government wants in totality, the annual response day between companies and unions revealed a pick up in wage growth from 2017. To name a few, Nissan is raising wages by 2.4%, Hitachi by 2.3%, Toshiba by 2.5%, Sharp by 3% and Toyota by 3.3%. The total wage increase in 2017 was 1.98%.
Negatives
- February core retail sales (ex auto’s, gasoline and building materials) rose just .1% m/o/m after no change in January and a decline of one tenth in December. The estimate was for a gain of 4 tenths. Auto/parts sales fell for a 4th straight month. Core retail sales have gone nowhere over the past 3 months. They totaled $268.8b in November and was $268.2 in February.
- Headline and core CPI rose .2% m/o/m and 2.2% and 1.8% respectively as expected. The headline compares with 2.1% in January and the core rate is unchanged. Rent growth actually moderated to a .2% m/o/m increase vs what seemed like an endless run of .3% gains. The y/o/y rise was 3.6% while Owners Equivalent Rent was also up by .2% after .3% in the months prior. That growth slowed to 3.1% y/o/y. In some markets there has certainly been a large increase in supply. Medical care prices fell by .1% m/o/m and slowed to 1.8% y/o/y. Looking at overall services ex energy saw a .2% rise m/o/m and 2.6% y/o/y. Core goods prices rose for a 3rd straight month.
- Headline import prices jumped .4% m/o/m, double the estimate. It comes after an .8% spike in the month prior (original print was 1%). Taking out the influence of energy saw a .5% m/o/m rise for the 2nd straight month. Versus last year, import prices are up 3.5% and is the 4th month in a row with a 3 handle. Ex fuel, import prices were up 2.1% y/o/y, the biggest gain since January 2012 and 1.9% when also taking out food.
- The producer price index rose .2% vs the estimate of up .1%. The core rate was up by .2% as expected but taking out food, energy and trade saw a 4 tenths jump, double the estimate and after a similar gain in January. On the latter, the y/o/y gain is now 2.7%, the highest in at least 4 years when they started to calculate this figure. Headline PPI was up 2.8% and is up 2%+ for 12 in the last 13 months.
- Housing starts in February totaled 1.236mm, 54k less than expected and down from 1.329mm in January (revised up by 3k) and vs 1.207mm in December. The decline was all due to the volatile multi family component. Single family starts rose to 902k from 877k. Looking forward, permits for single family homes fell by 5k m/o/m to 872k while multi family permits fell by 74k m/o/m but after jumping by 81k in December.
- The NAHB March home builder survey fell 1 pt to 70. The estimate was 72. As the breakeven is 50, builders are obviously still very optimistic. Present conditions were unchanged, the outlook fell 2 pts and prospective buyers traffic fell by 3 pts to a 4 month low (rising rates with high prices?).
- Refi’s, which are typically negatively influenced by changes in rates immediately, fell 2.2% w/o/w and are lower by 18% y/o/y with another fresh 4 yr high in mortgage rates.
- The Philly manufacturing index fell 3.5 pts to 22.3 after rising by 3.6 pts last month. Prices paid and received both fell m/o/m but after sharp gains seen in the prior months. 6 month expectations for business activity was higher and the outlook for prices received rose to the highest level since 1989. Capital spending plans fell almost 5 pts to the lowest level since June.
- The Atlanta Fed GDPNow forecast has fallen to 1.8% for Q1. It was 5.4% at the beginning of February. The NY Fed’s Nowcast estimate is at 2.7% growth vs 2.8% in the week prior and 3.1% in the week before that.
- The BoJ has killed the JGB market as on Tuesday not one newly issued 10 yr JGB traded.
- Japanese PPI in February rose 2.5% y/o/y as expected and marks the 11th month in a row above 2% although the rate of change has slowed over the past few months.
- Chinese retail sales rose 9.7% y/o/y ytd (smoothing out Lunar New Year noise) and that was one tenth below the estimate and down from a 10.2% pace seen in December.
- In Europe, industrial production in January did miss estimates with a 1% m/o/m drop vs the forecast of down .5%.