Positives
- Let the negotiating games begin now that DJT and Co. have finally laid down a beginning marker in the tax reform debate. Please don’t wait so long to figure this one out even though we acknowledge all the competing interests involved.
- Positively for wage earners, the employment cost index for Q1 rose .8% q/o/q, two tenths more than forecasted. This brings the y/o/y gain to 2.4% which is the best in two years. Specifically, private sector wages and salaries were up by 2.6% y/o/y which matches a two year high. Bottom line, the ever elusive evidence of rising wages might finally be peaking its head above water. As a reminder, in last week’s Fed Beige Book we saw every single one of the 12 regional districts reported areas where qualified employees couldn’t be found. Negatively will be corporate profit margins where labor gets a larger piece of the profit pie off the lowest since WWII.
- Pending home sales in March fell .8% m/o/m, a hair better than the 1% expected decline and follows a 5.5% rise in February which was likely goosed by the mild winter. The Chief Economist of the NAR was ebullient on the spring housing season saying “home shoppers are coming out in droves this spring and competing with each other for the meager amount of listings in the affordable price range. In most areas, the lower the price of a home for sale, the more competition there is for it. That’s the reason why first time buyers have yet to make up a larger share of the market this year, despite there being more sales overall.” Redfin’s Housing Demand Index fell 14% m/o/m in March but still said it was the strongest March since 2013. They also cite the lack of inventory “constraining the options for interested buyers.”
- As the average 30 yr mortgage rate fell to a 5 month low at 4.20%, refi applications got a boost of 7.2% w/o/w but they are still down 34% y/o/y as rates are 35 bps higher than a year ago.
- March new home sales in March totaled 621k, 37k more than expected and up from 587k in February which was revised down by 5k. The 621k is just 1k from matching the peak in this cycle but still has progress to make to get back to the 25 year average of 715k. The median home price was up by 1.2% and months’ supply fell to 5.2 from 5.4 but is around the long term average of around 6 months unlike what is seen with existing homes.
- Economic Confidence in the Eurozone rose to the highest level since August 2007 at 109.6 for April vs 108 in March and above the estimate of 108.2. Manufacturing, services and consumer confidence all continued to improve within the headline number.
- German IFO business confidence index for April and it rose .6 pts m/o/m to 112.9 and that was .5 pt above the estimate. A rise in the Current Assessment more than offset a drop in Expectations. The headline figure is now at the best level since July 2011. IFO said succinctly, “The German economy is growing strongly.”
- French business confidence in April held at 104 as expected. This is within 1 pt of matching the best level since 2011 and we’ll of course look forward to the May read to see if it gets close to the ’07 peak of 115.
- MFGA! Emmanuel Macron will most likely be the next French President.
- The ECB said M3 money supply growth was 5.3% y/o/y in March, well above the estimate of 4.7% and it’s the fastest pace of loan growth since 2009. Lending to households rose by 2.4% y/o/y, the best also since 2009 and up from 2.3% last month. Loan growth to businesses rose by 2.3% vs 1.9% in the month prior.
- The CBI industrial confidence figure fell to 1 from 15. The estimate was for a drop of just 3 pts. Total orders got cut in half and selling prices remained just off the highest level in 6 years. CBI said “Manufacturers’ anticipate that new orders will grow more moderately over the near-term, largely owing to a predicted slowdown in domestic demand outweighing export orders growth – expectations for the latter are at their strongest in over two decades.” They also said “There was a softening in investment plans across the board, particularly those for buildings and plant & machinery, with the latter at its most negative for nearly six years. When queried about potential limits on capital spending over the next year, the proportion of firms citing inadequate net returns climbed to the highest in a decade. Headcount saw decent growth, but hiring intentions for the next three months are muted.”
- Here’s another sign that global trade is improving: Exports from Hong Kong in March grew by 16.9% y/o/y, well more than the estimate of up 10.4% and it follows an 18.2% y/o/y gain in February.
- The Japanese unemployment rate in March held at 2.8%, the lowest level since 1993. The jobs to applicant ratio rose to 1.45, the most since 1990. Talk about tight and the only thing missing is faster wage growth. Inflation remains benign with core/core down .1% y/o/y in March vs the estimate of zero. The forward looking Tokyo April core/core print was down .1% y/o/y. Without faster wage growth, low consumer price inflation is a good thing.
Negatives
- The consumer credit quality worm has turned for the worse after hearing this week from Capital One, Discover and Synchrony Financial. This joins the uptick in subprime auto delinquencies.
- Core durable goods orders in March were up by .2% m/o/m which was 3 tenths worse than expected but mostly offset by February which was revised up by two tenths to a .1% gain. The y/o/y gain was 3.2% but on an absolute basis is no different than it was 11 years ago.
- Initial jobless claims rose by 14k to 257k and that was 12k more than expected. Because a 259k print dropped out of the calculation, the 4 week average held at around 242k, near the lowest in decades. Continuing claims, delayed by a week, rose by 10k off its lowest level since 2000.
- Mortgage applications to buy a home fell 1% w/o/w and that’s after a 3.4% drop last week. The y/o/y change is essentially unchanged and the index level is at a one month low.
- The final UoM confidence index for April was 97 vs the 1st print of 98 and vs the estimate of 98. It’s essentially flat with the 96.9 seen in March and compares favorably with the 87.2 print in October and is just below the cycle peak of 98.5 in January. From March, Current Conditions fell .5 pt but was offset by a .5 pt rise in Expectations. One year inflation expectations held at 2.5%. This was a positive from UoM: “An improved financial situation was reported by 50% of all households in both the March and April surveys—the last time a higher figure was recorded was more than fifteen years ago. Consumers cited net income and wealth gains as the main reasons for their improved finances.” This is more of the same since the election: “There remains widespread agreement among consumers on their very positive assessments of the current state of the economy as well as widespread disagreement on future economic prospects based on partisanship. Although the partisan divide has slightly narrowed in recent months, it still reflects a very pessimistic economic outlook among Democrats and a very optimistic outlook among Republicans.”
- The April Conference Board Consumer Confidence index fell 4.6 pts to 120.3 and that was 2 pts below the forecast. This though does come after a nearly 9 pts rise in March. Both the Present Situation and Expectation components were down as was confidence in business conditions. Those that said jobs were Plentiful fell 1 pt but after a 5 pt jump last month. Those that said jobs were Hard To Get were little changed. Disappointingly there was a 3.2 pt drop in those expecting an Increase in Income which completely gives back the March rise. Buying intentions were mixed. The Conference Board’s bottom line is that “Despite April’s decline, consumers remain confident that the economy will continue to expand in the months ahead.”
- The US economy in Q1 grew by .7% q/o/q annualized which was below the estimate of 1%. Higher inflation took some wind out of the real print as the price deflator rose 2.3%, 3 tenths more than expected and matches the quickest pace of gain since September 2012. The core inflation rate was up 2% as expected. Looking at GDP on a y/o/y basis saw it higher by 1.9%. Low inventory build was the biggest drag while personal spending added just two tenths. Spending on equipment, structures and residential real estate added the most to Q1 activity.
- Every new tariff on incoming imports just raises the cost of materials for its users. This time for homebuilders after users of steel got slapped. Add higher lumber prices to the high costs of lots, labor and permitting which makes it even more difficult to make an affordable home priced below $250k, the area of the market that most needs it.
- Both the Dallas and Richmond Fed manufacturing survey’s moderated a touch from March with Dallas slightly below the estimate while Richmond was 4 pts above. The KC region saw a more pronounced move falling by 13 pts and was 10 pts below the forecast.
- BoJ Governor Kuroda seems intent on their path of nationalizing all the publicly traded securities in Japan all in the name of 2% inflation which hasn’t been seen since 1998 ex food and energy and not including the VAT hike spike. As to when this all might end, “I think debate over exit strategies will start when our price stability target of 2% is achieved” said Mr. Kuroda. Mr. Kuroda, that debate should start well before.
- Overall household spending in Japan in March fell 1.3% y/o/y, worse than the estimate of down .5%. Industrial production in March fell 2.1% m/o/m, more than the forecast of down .8%.
- Just a day after Mario Draghi threatens even more QE and even deeper negative rates if things falter while also talking up the recovery but saying the risks are still to the downside (I’m confused too), core CPI for April prints up 1.2% y/o/y, two tenths more than expected and is the quickest pace of gain in 4 years. The headline print was 1.9%, one tenth above the estimate. There was some timing issues with Easter compared to last year but averaging the services inflation component for March and April has it up to 1.4%, the most since 2014.
- The UK economy grew .3% q/o/q and 2.1% y/o/y in Q1, both one tenth less than expected. Consumer spending was a particular drag.
- The French economy grew by .3% q/o/q too in Q1 but just .8% y/o/y, also both one tenth below the estimate. Consumer spending in March fell for the 3rd month in the past 4.