Positives
1) Initial jobless claims totaled 215k, about in line with the forecast of 214k and vs 212k last week (revised up by 1k). The 4 week average is now 217k vs 221k last week as a 230k print drops out. For perspective, the 217k average is about the same as the one year average of 218k. Continuing claims, delayed by a week, fell by 26k to just above the lowest in 50 years.
2) The headline April PCE price deflator rose .3% m/o/m led by energy and 1.5% y/o/y while the core rate was higher by .2% m/o/m and 1.6% y/o/y.
3) The Chicago manufacturing May PMI rose to 54.2 from 52.6 and vs 58.7 in the month prior. The estimate was 54. The average year to date is now 57.4 vs 62.4 last year. MNI said “Despite the pick up in sentiment, the survey points to softness in business activity, as indicated by the 3 month average slipping to a two year low. Furthermore, it is evident that business confidence in Q2 is going to be significantly weaker than Q1, which already was at sluggish levels.”
4) As measured by S&P CoreLogic’s 20 city home price metric, home price growth continues to slow which along with lower mortgage rates will hopefully generate better demand, especially for first time buyers. Prices rose 3.7% in March, the slowest rate of gain since September 2012. Price gains were the slowest in San Diego, LA, San Fran, Seattle, Chicago and NY. They were up the most in Vegas, Phoenix, Tampa, Atlanta, Miami and Denver.
5) The goods trade balance for April widened a bit to $72.1b to just below expectations but not enough to really change Q2 GDP forecasts. What might lift Q2 estimates was the higher than expected jump in wholesale inventories of .7% in April vs the forecast of up just .1%. While good for GDP, the slowing in end demand is leading to a rising inventory to sales ratio which eventually needs to reverse.
6) Personal income was higher by .5%, two tenths better than expected and looking directly at private sector wages and salary growth saw a 3.7% y/o/y gain, the best in 4 months but below the 4% prints we were seeing last year. Combining income and spending saw the savings rate tick up by one tenth to 6.2% which is bouncing along the low end of this economic cycle.
7) Q1 GDP was revised down by one tenth to 3.1% but that was one tenth more than anticipated. Nominal GDP though was as expected as the price deflator was lowered by one tenth. We also saw profit data for all of American business and profits before tax y/o/y were up by 2.9% (thus taking out influence of new lower tax rate to get organic figure) vs 4.6% in Q4 and which followed declines in the prior 4 quarters (yes, down but which were all up after tax).
8) There is a light at the end of the tunnel for the American farmer, suffering from a rough 7 years, as planting intentions plummet but crop prices spike and setting up a likely very positive 2020.
9) The Conference Board’s Consumer Confidence index for May rose 4.9 pts m/o/m to 134.1 and that was 4.1 pts better than expected. It follows a 5 pt rise in April and is at the best level since October. For perspective, the 12 month average is now 130.5. In contrast to the rise in inflation expectations in the UoM confidence figure, one year inflation expectations in this survey fell to 4.4% from 4.6%. Both the Present Situation and Expectations components were up m/o/m. Again, the strength of the labor market was the main catalyst for the boost in confidence. Those that said jobs were Plentiful rose .7 pts to the best level since January 2001. Those that said jobs were Hard to Get fell 2.4 pts to the least since September 2000. Employment expectations are at the highest level since November and those expecting an Increase in Income saw the best print since November too. Offsetting somewhat the higher income expectations was also a rise in those expecting a Decrease in Income. Spending intentions rose slightly.
10) South Korea’s industrial production figure for April was better than feared, falling .1% m/o/m vs the forecast of down 2.2%.
11) Japan’s labor market remains drum tight as their unemployment rate for April fell one tenth to 2.4% as expected. The jobs to applicant ratio held at 1.63, the highest since the 1970’s.
12) Japan’s industrial production in April surprised to the upside with a .6% m/o/m gain vs the forecast of up .2%.
13) To the benefit the Japanese consumer, May Tokyo CPI core/core rate rose just .8% y/o/y, below the estimate of up 1% and down from .9% last month.
14) It was refreshing to hear this from a member of the Bank of Japan, “We shouldn’t recklessly seek to achieve our price target with additional easing because doing so could accumulate imbalances in the economy.” With respect to its punitive impact on banks, “While financial institutions’ capital to asset ratios are sufficient from a regulatory standpoint, what’s important to note is that they are declining as a trend.” As to getting to their inflation target of 2%, “Achievement of our price target is being delayed. But this is because the relationship between monetary policy and price moves are changing and becoming more complex.” And finally of note, “The BoJ must make appropriate policy decisions by scrutinizing the merits and demerits, including the risk our policy is building up financial imbalances.”
15) Economic confidence in the Eurozone did improve in May. The index went to 105.1 from 103.9 and that was 1 pt better than expected and the first m/o/m increase since June 2018. It gets back most of the 1.7 pt drop last month.
16) The ECB saw 4.7% y/o/y money supply growth in April, 3 tenths more than expected. Loans to companies rose 3.9% y/o/y in April, up from 3.6% in March. The peak in this cycle was the 4.3% increase last September. Loans to households were up by 3.4% y/o/y, not much different than the 3.3% gain in the month prior but that is the quickest since 2009 when the comparisons were real easy.
17) French consumer confidence for May rose 3 pts to 99 and that was 2 pts better than forecasted. That’s the best since April last year as things continue to rebound post Yellow Vest protests.
18) UK consumer confidence in May rose 3 pts m/o/m to -10, the least negative since September.
19) For those fans like me and my son, this starts tonight //deadandcompany.com/.
Negatives
1) So just after we get rid of the steel and aluminum tariffs against Mexico and Canada to help facilitate the passing of a free trade agreement the President threatens…
2) China opens up a can of worms for American companies doing business in China with the newly put together “unreliable entities list” where the unlucky businesses that make it here would be “Foreign enterprises, organizations or individuals that do not comply with market rules, deviate from a contracts spirit or impose blockades or stop supplies to Chinese enterprises for non commercial purposes, and seriously damage the legitimate rights and interests of Chinese enterprises, will be included on a list of ‘unreliable entities.”
3) The yield curve inversion deepens. As of this writing, the 3 month/10 yr spread goes from -1.7 bps to -17 bps this week.
4) Holding at the lowest level since January, the 4.33% average 30 yr mortgage rate (Bankrate said its around 4%) did nothing to help weekly mortgage applications. Purchase applications fell for the 5th week in the past 6 and were down by 1.4% w/o/w. The index matches the lowest since March but are still up 7.3% y/o/y when mortgage rates were about 4.80%. Refi’s fell by 6% w/o/w after rising by 8.3% last week but are still up 29% y/o/y.
5) April personal spending saw a .3% gain but because inflation rose by the same amount, there was no increase on a real basis. March was revised up by two tenths though.
6) The Dallas May manufacturing index fell to -5.3 from 2.0. The estimate was 6.2.
7) The May Richmond manufacturing index rose to 5 from 3 but that was below the estimate of 7.
8) The final May UoM consumer confidence index fell to 100 from the initial print of 102.4 but still up from 97.2 in April. The components though were mixed as Current Conditions are down by 2.3 pts from last month but Expectations are higher by 6 pts. For those worrying about inflation expectations on the part of the consumer, they rose to 2.9% from 2.5% in April and that was one tenth higher than the first May print. It matches the most since August 2018. Mostly likely higher gasoline prices were a main factor as well as tariffs. The UoM said “The decline at month’s end was widespread across socioeconomic subgroups, and was concentrated in prospects for the overall economy…Unfavorable references to tariffs rose in late May, spontaneously mentioned by 35% of all consumers, up from 16% in the first half of May and 15% in April. Unfavorable references to tariffs in the last two weeks regained the peak recorded last July in response to the initial imposition of tariffs. Year ahead inflation expectations among those who unfavorably mentioned tariffs was .5 percentage points higher than those who made no references to tariffs.”
9) In the May Conference Board survey, consumer confidence for those under the age of 35 plunged by 25 pts to the lowest level since September 2016.
10) Pending home sales in April fell 1.5% m/o/m, an unexpected drop relative to the estimate of up .5%. Three of the four regions saw declines with the Midwest the only one seeing an increase. The Northeast saw the 4th month in the past 5 with declines which I continue to attribute to SALT cap. The NAR even commented in today’s press release on this issue, “Price conditions are soft on the upper end, especially in high tax states in Connecticut, New York and Illinois.” Demand is good for homes priced under $250k but the catch, “home price appreciation has been the strongest on the lower end as inventory conditions have been consistently tight on homes priced under $250,000.”
11) The May Chinese manufacturing PMI index fell back below 50 at 49.4 from 50.1 and that was .5 pt below expectations. New orders are back below 50 while export orders fell to 46.5 from 49.2. Business Expectations fell 2 pts to a 4 month low. The services sector held in much better as it was unchanged at 54.3.
12) Hong Kong said its exports in April fell 2.6% y/o/y, worse than the estimate of up .1%. That’s now 6 months in a row of y/o/y declines. Exports to the US fell 17%, to China by 1.3% and to Germany by 4.4%. Looking at exports year to date, they are down 2.5% vs the first 4 months last years. A Hong Kong spokesman said “There were weak exports observed in many Asian economies in recent months. The near term outlook for Hong Kong’s exports is subject to a high level of uncertainty. It will hinge, to a large extent, on how the US-China trade tensions evolve.” Imports were no better, falling 5.5% y/o/y vs the forecast of down .1%.
13) Japanese retail sales in April saw no change m/o/m vs the consensus of up .6%. We await the decision on the VAT.
14) Instead of falling by another 7.5k, the number of German unemployed spiked by 60k in May. The unemployment rate rose by one tenth to 5%. The Federal Labor Agency had a caveat however and said there was a change in how some unemployed benefit beneficiaries were classified. That said though, they also said “On the labor market, we can see first spill over effects of the recently somewhat weaker economic development. The demand of companies for new employees is weakening sharply while remaining on a high level.”
15) Germany retail sales in April fell 2% m/o/m vs the estimate of up .1%.
16) German consumer confidence for June (basically expectations for June) fell a hair to 10.1 from 10.2 but that is the lowest since May 2017.
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.