The Boock Report

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Succinct Summation of the Week’s Events – 4/14/17

Positives
  1. Headline CPI fell .3% m/o/m and .1% at the core level, both 3 tenths below the forecasts. The y/o/y gain was 2.4% vs 2.7% in February and the core rate slowed to 2% from 2.2%. Energy prices fell 3.2% m/o/m as we start the other side of the rate of change process but the y/o/y gain was still 11%. Food prices though were higher by .3% m/o/m. Rents showed its persistence as Rent of Primary Residence was higher again by .3% m/o/m and 3.9% y/o/y. The faux look at rents (asking people who own a home what they can get if they rent, like they would know…) was higher by .2% m/o/m and 3.5% y/o/y. There’s plenty of multi family building going so rent gains are moderating in some big city markets like NY and SF. Overall services ex energy (60% of CPI) fell .1% m/o/m which breaks a long string of .2-.3% monthly gains. This brings the y/o/y gain to below 3% at 2.9%. On the core goods side, used car prices fell .9% m/o/m and a large 4.7% y/o/y. This of course creates problems for the pricing of new cars which fell .3% m/o/m and were basically flat y/o/y. And this auto sector challenge is just beginning. The other problem in retail is of course apparel and prices here fell .7% m/o/m but were up .6% y/o/y. Overall, the core goods side of pricing (19% of CPI) was lower by .3% m/o/m and .6% y/o/y. Any discussion/debate and the plusses and minuses on inflation/deflation is not black or white as central bankers have made it out to seem.
  2. The preliminary UoM April consumer confidence index rose 1.1 pts to 98 which was 1.5 pts above the estimate. This compares with the September level of 91.2, October at 87.2 and the peak post election of 98.5 in January. Almost the entire m/o/m gain was in the Current Conditions component which rose 2 pts to the highest since November 2000. Consumer Expectations were up by .4 pts to 86.9. It peaked back on January at 90.3.
  3. Initial jobless claims totaled 234k, 11k below expectations and essentially flat with the 235k seen last week but with both at very low levels. This helped to drop the 4 week average to 247k from 250k last week and vs 255k in the week prior. The low in this cycle was 240k at the end of February which was the lowest since the late 1970’s. Continuing claims, delayed by a week, fell by 7k to a 3 week low.
  4. In the midst of the spring selling season, the MBA said mortgage applications to buy a home rose 2.9% w/o/w and 2.8% y/o/y. That y/o/y move is the slowest since February but on an absolute basis is the best since June.
  5. In February there were 5.743mm job openings up from 5.625mm in January. That’s the most since July. Hirings though fell and the hiring rate was down one tenth. The amount of quitters also dropped and the quit rate fell one tenth to 2.1%.
  6. February business inventories rose .3% m/o/m as forecasted while sales were up by .2% and the I/S ratio held at 1.35.
  7. On a dollar basis Chinese exports in March jumped 16.4% y/o/y, well more than the forecast of up 4.3%. The gains were broad based geographically and helps to confirm the belief that global trade has bottomed out after a challenging few years. Imports were higher by 20.3% y/o/y vs the forecast of up 15.5%.
  8. The China economic proxy that is Australia reported a big upside jobs surprise in March but keep in mind the large monthly volatility in its measure. Employment grew by 61k, triple the estimate while the unemployment rate held at 5.9% as the participation rate rose by 2 tenths. Full time job growth was the most in almost 30 years.
  9. Chinese consumer prices rose .9% y/o/y in March, below the estimate of up 1% and the moderation in CPI was all food. Food prices fell 4.4% y/o/y while non food prices were higher by 2.3% y/o/y. PPI prices rose 7.6% y/o/y on easy comps and the rise in commodity prices. That compares with the estimate of 7.5% but down from 7.8% in February.
  10. The BoJ reported that bank loan growth grew 3% in March vs 2.8% in February and it hasn’t grown that fast since May 2009. Net interest margins are still shrinking thanks to BoJ policy so loan growth is trying to grow faster than the decline in margins.
  11. Investor expectations for the German economy in April as measured by the ZEW index rose to 19.5 from 12.8 last month. It’s the best level since August 2015 and above the estimate of 14.8. The Current Situation component was higher by almost 4 pts to 80.1, the best in almost 6 years.
  12. The Sentix Euro area economic survey of private and institutional investors rose to the best level since August 2007.

 

Negatives
  1. Core retail sales in March were 2 tenths above expectations with a .5% m/o/m rise but it was completely offset by a 3 tenths downward revision to February that saw a decline of .1% and January was revised down by one tenth. Sales ex auto’s and gasoline missed the estimate by 2 tenths and February was revised down by one tenth as was January. Under the hood, motor vehicle/parts sales fell for the 4th month in the past 5 by 1.2% though the y/o/y gain was 5.6%. Also of note, sales at restaurant/bars were down for the 3rd month in 4 and the y/o/y gain slowed to 4%. We know it’s been cheaper to eat at the supermarket than out. Online retailing continued to be solid as sales here grew by .6% m/o/m and 11.4% y/o/y. For the first time in a while department store sales grew m/o/m, with a slight .2% gain but the y/o/y decline was still 5.2%. After a solid February driven by mild weather, building material sales fell 1.5% m/o/m but are still up a good 6.3% y/o/y. Sales of clothing rose m/o/m but are still down vs last year. Bottom line, I expect a slight downward revision to Q1 GDP estimates with the data on core sales for the three months.
  2. Import prices ex petroleum in March rose .2% m/o/m after a .3% rise in February and vs the estimate of no change. That brings the y/o/y gain to 1.2%, the most since March 2012.
  3. Refis saw no change w/o/w and remain down 40% y/o/y even though the average 30 yr mortgage rate fell 6 bps to 4.28%, the lowest since mid January.
  4. The NFIB small business optimism index in March fell to 104.7 from 105.3 in February. It’s down for a 2nd month but is still holding near the multi year peak of 105.9 in January and is well above the 94.9 print in October. BUT “most of the March data were collected before Congress failed to pass a bill repealing and replacing Obamacare” and hopes for its change was “a big reason for the soaring optimism.” The NFIB CEO said “We are encouraged by signs that optimism is translating into economic activity, such as capital investment and job creation.” The fly here though and realized by healthcare was “a significant increase in the Uncertainty Index, a subset of data on how small business owners see the near term future” and “could indicate trouble on the horizon” said Bill Dunkelberg. He went on to say, “The Uncertainty Index hit 93 in March, which is the second highest reading in the survey’s history,” he said. “More small business owners are having a difficult time anticipating the factors that affect their businesses, especially government policy.”
  5. While I understand the good intentions of wanting to boost US manufacturing and exports, it’s a slippery slope in wanting a weaker currency for a consumer dependent economy that has not seen notable real wage gains in decades. And while I understand not wanting to preside over the inevitable hangover from an adjustment higher in interest rates, wanting them to remain artificially low just perpetuates the culture of too much debt and not enough savings.
  6. In the UK for the 3 months ended February, 39k jobs were added vs the estimate of 70k. It still was enough though to keep the unemployment rate steady at 4.7%, which matches the lowest since 1975. Wages were up 2.2% y/o/y ex bonus for 3 months ended February vs 2.4% in the prior period. The March jobless claims figure rose by 25.5k, the biggest one month increase since August 2011.
  7. UK PPI input prices were up by 17.9% y/o/y in March vs the estimate of up 17% but that at least is some moderation from the 19.4% spike seen in February as the pound has stopped weakening. Output prices were higher by 3.6%, two tenths more than the forecast and vs 3.7% in the month prior. As for the consumer, headline CPI was up by 2.3% y/o/y, the same pace from February and holding at a 3 ½ yr high while the core rate moderated to a rise of 1.8% from 2%.
  8. Eurozone industrial production in February fell .3% m/o/m, well below the estimate of up .1% and January was revised down by 6 tenths to a .3% gain.
  9. China’s shadow banking credit expansion in March again was out of control. Aggregate financing grew by 2.1T, well more than expectations of up 1.5T and the only respite was that it was down 11% y/o/y. Within this, bank loan growth slowed to 1.02T vs the estimate of 1.2T and money supply growth moderated too with a y/o/y gain of 10.6%, well below the estimate of 11.1% and the slowest rate of gain since July. Just when we thought Chinese authorities had taken steps to cool the housing market, bank loans to households grew 25% y/o/y in March. Credit growth continues to run well above the rate of nominal GDP growth.