Positives
1)Headline PCE in April rose .2% m/o/m and 6.3% y/o/y. As for the core rate, it was up .3% m/o/m and 4.9% y/o/y. All in line with expectations and the rate of change is slowly moderating as should have been also fully expected especially with the comps getting very tough. Goods prices jumped 9.5% y/o/y vs 10.6% in March and 9.5% in February. Service prices, which include those healthcare costs, were up 4.6% y/o/y vs 4.5% in March and 4.6% in February.
2)After a few weeks of higher than expected initial claims prints, this week saw 210k, down from 218k last week and vs the forecast of 215k. That though is the 3rd week in the past 4 with a 2 handle and the 4 week average is now 207k vs 200k last week and vs 191k in the week prior. That’s the highest since mid February. Continuing claims rose 31k to 1.346mm off the 50+ yr low seen in the week prior.
3)While the KC manufacturing May index slipped 2 pts to 23, that was above the estimate of 15. New orders, backlogs, employment and exports all rose m/o/m. Prices paid and received both moderated. The negative within is that the 6 month business outlook fell to a 5 month low.
4)The April goods trade deficit did narrow by $20b to $105.9b off the March record high. The estimate was for a drop of $10b.
5)The Bank of Korea hiked rates by 25 bps to 1.75% as forecasted. They said “The Board sees it as warranted to conduct monetary policy with more emphasis on inflation for some time…If inflation expectations broaden, real wages will decline and financial instability can widen, hurting vulnerable groups in the mid to long term.”
6)The Reserve Bank of New Zealand increased its base rate by 50 bps to 2.00% as expected. They said, “The Committee is resolute in its commitment to ensure consumer price inflation returns to within the 1 to 3% target range…A larger and earlier increase in the OCR (Official Cash Rate) reduces the risk of inflation becoming persistent, while also providing more policy flexibility ahead in light of the highly uncertain global economic environment.”
7)The German May IFO business confidence index rose to 93 from 91.9 and that was better than the estimate of 91.4 and was almost solely led by a rise in the Expectations component. IFO said “The German economy has proven itself resilient in the face of inflation concerns, material bottlenecks, and the war in Ukraine. There are currently no observable signs of a recession.”
8)French business confidence in May was unchanged m/o/m at 106, matching the lowest since April 2021. The estimate though was for a 1 pt drop. Manufacturing confidence fell to the lowest since last September but there was a lift in services and retail. Employment and construction fell m/o/m.
9)After two months of declines after the Ukranian invasion, Italian business confidence in May rebounded by 2.5 pts and gets back almost all of the confidence that was lost in March and April. At 110.9, it compares with 111 in February and 115.6 in December 2021. It was led by a pick up in services and retailers’ confidence while manufacturing and construction moderated. Helping is likely the fall in natural gas prices.
10)Japan’s manufacturing and services composite index rose slightly to 51.4 from 51.1 with a modest m/o/m drop in the former and a 1 pt rise in the latter. Markit said “Private sector firms reported that the reduced impact of covid had lifted services activity, most notably in the tourism sector as pandemic related restrictions were eased further. That said, the renewed introduction of lockdown measures across China and economic sanctions placed on Russia amid the Ukraine war had exacerbated supply chain disruptions, with greater reports of material shortages and severe delivery delays. As a result, there was a further intensification in price pressures across the private sector, as firms reported series record rises in both input and output prices.”
11)In a very timely data point, South Korea’s exports in the 1st 20 days of May rose 24.1% y/o/y from a 16.9% y/o/y pace in April. Imports jumped by almost 38% y/o/y vs 25.5% last month. The big caveat though is this includes two extra working days. If we just look at ‘daily shipments’, exports rose a more modest 7.6% and was led by auto shipments.
Negatives
1)Microsoft, Lyft, Instacart are added to the list of larger companies announcing a planned slowdown in the pace of hiring.
2)Markit’s (now S&P Global) May manufacturing and services PMI fell to 53.8 from 56 with both components weaker m/o/m. Manufacturing fell to 57.5 from 59.2 while services was at 53.5 from 55.6. With respect to services, the index is at a 4 month low and “the pace of expansion was reportedly weighed down by hikes in selling prices and concerns with higher interest rates.” While manufacturing slowed, the headline number is still elevated and “was supported by strong and steep expansions in output and new orders respectively, alongside a faster upturn in employment and longer supplier lead times.” The caveat, “further reports of raw material shortages and delays in supplier delivery times dampened output growth and led to a quicker rise in work-in-hand.” Their bottom line, “Companies report that demand is coming under pressure from concerns over the cost of living, higher interest rates and a broader economic slowdown.”
3)The final May UoM consumer confidence index was 58.4, below the preliminary read of 59.1 out a few weeks ago and that is the lowest print since August 2011 with both main components contributing to the drop. One yr inflation expectations were 5.3%, little changed with the 5.4% seen in the prior three months which was a 41 yr high. The 10 yr average is 3.0%. And 3% happens to be the 5-10 yr inflation prediction, unchanged for a 4th month. From April, income expectations improved but employment expectations fell 13 pts. Spending intentions fell across the board with notable weakness in plans to buy a home. Bottom line, the biggest worry remains inflation and “while the declines in sentiment were visible across demographic groups, middle income consumers and middle educated consumers showed the strongest declines from April.”
4)As spending in April exceeded the rate of income growth again, the personal savings rate fell to just 4.4%, the lowest since September 2008. This compares with 5% in March, 5.9% in February, 6% in January and the 2021 yr end figure of 8.7%.
5)Pending home sales (existing homes make up about 90% of the market) fell 3.9% m/o/m in April after a 1.6% drop in March. That is almost double the estimate of a 2.1% drop. That is also the 6th straight month of declines. The NAR said “The escalating mortgage rates have bumped up the cost of purchasing a home by more than 25% from a year ago, while steep home prices are adding another 15% to that figure.” In dollar terms, “these higher rates increase mortgage payments by as much as $500 per month.”
6)With a 3 bps w/o/w downtick in the average 30 yr mortgage rate to 5.46%, purchase applications were little changed from last week but are now down 16.4% y/o/y. Refi’s declined another 3.9% w/o/w and are lower by 75% y/o/y.
7)New home sales in April totaled 591k, well worse than the estimate of 749k and down from 709k in March (revised from 763k). That’s the lowest since April 2020. As the number of homes for sale rose to May 2008, months’ supply jumped to 9 months, the highest since May 2010. The y/o/y change in home prices was up 19.6% after a 21% rise in March but a lot influenced by mix as there was a sharper decline in homes sold priced below $500k vs those priced above.
8)Non defense capital goods orders ex aircraft rose .3% m/o/m in April, two tenths less than expected and March was revised down by two tenths to a gain of 1.1%. Core shipments, plugged into GDP, was about as expected when combined with the downward revision to the prior month. These are nominal numbers and producer prices are rising at a pretty similar pace to the increase in durable goods orders.
9)The May Richmond manufacturing index fell to -9 from +14 and that was well below the estimate of +10. Stagflation was all over this as wages held steady and prices paid and received jumping with the former at a fresh record high. Capital spending plans were mixed and expectations for employment plummeted to 14 from 43.
10)Consumer prices in Tokyo in May rose 2.4% headline, 1.9% ex food and .9% ex food and energy. All were about as expected but quite the change in the multi yr trend.
11)While up a hair m/o/m, German consumer confidence was just under expectations. GFK said “Despite further easing of pandemic related restrictions, the war in Ukraine and especially high inflation are weighing heavily on consumer sentiment.”
12)French consumer confidence in May fell to the lowest level since 2014.
13)The May Eurozone services index fell 1.4 pts m/o/m but to a still good 56.3 as “Many consumer facing service sector businesses again reported strong demand due to the reopening of the economy after omicron related restrictions, driving especially robust growth for tourism and recreation activities.” But there was some moderation in financial and industrial services because of the “recent slowdown in manufacturing.” The manufacturing component slipped 1.1 pts to 54.4. Markit said, “Factory output continued to be constrained by widespread supply shortages, with the Ukraine war and China’s lockdowns having exacerbated existing pandemic related supply chain pressures.
14)In the UK, its services May PMI plunged 7.1 pts m/o/m to 51.8. the estimate was 57. Markit said “respondents often noting that economic and geopolitical uncertainty had contributed to a slowdown in client demand. However, many businesses in the travel, leisure and events sector still commented on strong growth conditions due to a rapid recovery from pandemic restrictions.” It’s manufacturing index fell to 54.6 from 55.8 and just under the estimate of 55. Markit said “Goods producers typically commented on growth headwinds due to supply chain disruption, the war in Ukraine and rising inflation.”
15)Australia’s composite PMI fell to 52.5 from 55.9 in April with both components lower. Price pressures were intense and “firms are concerned with the rising interest rate outlook and the effect on their businesses.” But, “overall business sentiment remained positive while workforce expansion continued at a strong pace in May.”
16)The tragedy in Texas.
17)Ray Liotta, //www.youtube.com/watch?v=Vk-gg0dVVDA//www.youtube.com/watch?v=zdJ8x6lyrfo
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.