Positives
1)As we head into Memorial Day Weekend, I just wanted to send this link again as we should all be grateful that we (specifically our genius scientists, doctors and healthcare workers) essentially conquered Covid, //www.youtube.com/watch?v=02G1IIgyhfo and it’s time to live life again.
2)Initial jobless claims fell to 406k, 20k less than expected and down from 444k last week. This marks the 3rd straight week below 500k and brings the 4 week average to 459k from 505k. Those filing for initial PUA was little changed at 94k from 95k last week. Continuing claims, delayed by a week, fell by 96k after rising by 98k in the week prior. At 3.64mm it is where it was on May 1st. Delayed by two weeks, those continuing to receive PUA was down by 91k to the lowest since early January. Those still receiving emergency benefits rose by 49k.
3)Core durable goods orders in April rose 2.3% m/o/m, more than double the estimate of up 1% and March was revised up by 4 tenths to a 1.6% gain. Core shipments, plugged into GDP, was about as expected when we include the March revision. Supply problems with semi’s and the commodity bull market was reflected here.
4)US mortgage apps for the week were mixed with little change in the average 30 yr mortgage rate at 3.18%. Purchases rose 1.7% w/o/w off the lowest level since February and not far from the weakest in a yr last week. They are down 3.8% y/o/y.
5)The May Chicago manufacturing index rose 3 pts m/o/m to 75.2 and that was 7 pts above the estimate for this volatile number. New orders and backlogs jumped but employment fell with the former at highest since 1983 and the latter at a 70 yr high. Inventories fell to a 9 month low. Reflecting the supply problems, supplier deliveries rose to a 47 year high. Off a 41 yr high, prices paid slipped by 3.1 pts “however, several respondents said prices for commodities, such as steel, plastics, copper, or electronic components rose further.”
6)Goosed by the sharp increase in government transfer payments in March upon the signing of the Biden spending bill, income fell back by 13.1% in April after a 20.9% jump in March but not as much as expected. Importantly, private sector wages and salaries rose 1.1% m/o/m for a 2nd straight month and that is up 19.4% y/o/y on the easy comp. After a robust month of stimulus induced spending in March of 4.7%, spending moderated in April to growth of .5% as forecasted. The combination of income and savings saw the savings rate fall to 14.9% from 27.7% in March and vs 14.7% in February.
7)The US Treasury had three good auctions this week.
8)The Eurozone economic confidence index for May rose 4 pts from April and that was 2 pts better than expected. At 114.5, that is now the highest level since January 2018. All the components, including manufacturing, services, consumer, retail and construction, were higher m/o/m.
9)Germany’s May IFO business confidence index rose to 99.2 from 96.6 and that was 1.2 pts above the estimate with both the Expectations and Current Assessment components higher m/o/m. The IFO simply said “The German economy is picking up speed.”
10)French business confidence index for May saw a 12 pt m/o/m jump to 108, 10 pts better than expected. That is the highest since April 2018 and was driven by sharp gains in services, retail and employment while manufacturing improved further but not by the same extent.
11)CPI in Tokyo in May ex food and energy fell .1% y/o/y as expected with again the sharp decline in mobile phone charges (down 28%) the factor which is taking 4 tenths from this figure.
Negatives
1)Coming two weeks after the April CPI report, the April PCE inflation deflator rose .6% m/o/m and .7% core (the highest since 1983 not including the influence of 9/11). The headline number was as expected but March was revised up to a 6 tenths increase from 5 tenths. The core rate was one tenth more than estimated and follows a 4 tenths increase in March. One can’t blame the easy comps of last year but for those looking, headline PCE was up 3.6% y/o/y and 3.1% y/o/y at the core.
2)Pending home sales in April fell 4.4% m/o/m, well below the forecast of a slight increase of .4%. Declines from March were seen in the Northeast, South and West and this drop takes the headline index to the lowest level since last May. The NAR did point out that the more modest priced homes in the Midwest is helping that region relative to the more expensive parts of the country.
3)New home sales in April totaled 863k, below the estimate of 950k and down from 917k in March (revised down sharply from the initial 1.02mm print) and vs 846k in February and 1.01mm in January. As the number of homes did increase, months’ supply rose to 4.4 from 4 months and vs 4.3 in the month before. Thanks to mix and higher material and labor costs, the median home price jumped by 20% y/o/y to a fresh record high.
4)Refi’s fell by 7.2% w/o/w and are lower by almost 9% y/o/y to the lowest since early April.
5)Home price gains again accelerated in March according to S&P CoreLogic to a 13.2% y/o/y increase from 12% in February, 11.2% in January, 10.3% in December, 9.5% in November, 8.4% in October, 7% in September, 5.8% in August, 4.8% in July and 4.4% in June. Home prices in Phoenix rose 20% y/o/y, those in San Diego by 19% and in Seattle by 18.3%. The laggard was in Chicago where prices rose ‘just’ 9% and in Vegas by 10.6%.
6)The May Conference Board Consumer Confidence index fell to 117.2 from 117.5 in April (revised from 121.7 initially). The Present Situation jumped to 144.3 from 131.9 but was offset by a decline to 99.1 from 107.9 in Expectations. One year inflation expectations rose 3 tenths m/o/m to 6.5%, the highest since the supermarket driven spike to 6.6% last June. Outside of that, it’s a 10 yr high. The main driver of the increase in ‘present conditions’ was the further improvement in the answers to the labor market questions. Those that said jobs were Plentiful jumped 10.5 pts to 46.8, the most since January 2020. Those that said they were Hard to Get fell to the least since January 2020. That said, inhibiting the Expectations component was a drop in expectations for both employment and income. Spending intentions fell across the board. Those that plan on buying an auto fell to the lowest since April 2020 with declines for both new and used (tough to get the former and massive price increases with the latter). Those that plan on buying a home fell to the lowest since 2013. And those that plan on buying a major appliance dropped to a 10 yr low.
7)The final May UoM consumer confidence index was 82.9, little changed with the initial print but down from 88.3 in April. Both components were lower and one year inflation expectations jumped to 4.6% from 3.4%. Expectations for inflation in a 5-10 yr time frame rose to 3% from 2.7%. Employment expectations improved further but income expectations were unchanged with April although at the highest since March 2020. Spending intentions fell sharply for auto’s, homes and major household items.
8)The May Richmond manufacturing index was little changed at 18 vs 17 in April and vs the forecast of 19. Price pressures continue to spike. Prices paid rose to 9.8 from 7.1 in April, 6.2 in March, 4.5 in February, 3.1 in January and 2.1 in December. That’s the highest on record dating back to 1997. Prices received rose to the highest since 2008. The 6 month outlook for prices has them accelerating further.
9)Off a record high goods trade deficit in March of $92b, it receded in April to $85.2b. The estimate was for no change. The main factor for the drop was the 2.2% decline in imports relative to the 1.2% increase in exports. We can blame the supply shortages for part of the drop in imports as imports of auto’s fell 3.5% m/o/m and that of consumer goods by 4.2% m/o/m.
10)There is something seriously wrong with the plumbing for short term financing when the level of usage of the Fed’s RRP facility skyrockets the way it has. Totaling $485b as of Thursday, that compares with under $1b per day, yes $1b, at the end of 2020 when there is typically quarter end funding needs. It jumped to $134b on the last day of Q1.
11)France said its May CPI jumped 4 tenths m/o/m after a 2 tenths rise in April and a .7% increase in March. The estimate was up .3%.
12)German consumer confidence rose to -7 from -8.6 but that was almost 2 pts light relative to expectations. There is still a ways to go to recover what was lost as this index was +9.1 in February 2020.
13)Helped by the reopenings and hope that Mario Draghi has some magic ability to efficiently funnel out government spending, the economic sentiment index in Italy rose to 106.7 from 97.9, exceeding its February 2020 level.
14)The UK CBI retail sales index for May unexpectedly slipped by 2 pts to 18 and that was 7 pts below expectations. But that April print of 20 was up from -45 in March. CBI said the April 28 to May 17 survey time frame “was a period when all retailers were once again open for business, but before the full relaxation of restrictions for the hospitality and leisure sectors.” They also said interestingly, “Some retailers have suggested the increase in demand after the initial reopening of non essential retail in early April was either short lived or less strong than expected. And non store sales remain well above seasonal norms, suggesting that some consumers who migrated to online shopping during the pandemic have not fully shifted back to old habits.”
15)The Japanese economy is recovering in fits and starts because of the stop and start reopening. They said their unemployment rate rose 2 tenths in April to 2.8% and the jobs to applicant ratio slipped to 1.09 from 1.10.
16)Reflecting the continued rebound in global trade, however crimped by supply challenges, and easy comps, Hong Kong said its April exports rose 24.4% y/o/y but just below the estimate of up 25.9%. Exports in particular were up by 20.5% to China and by 23% to the US. Imports were higher by 25.2% a bit better than the forecast of up 24.4%.
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.