1)Continuing claims, delayed by a week in its reporting, fell to 3.39mm from 3.52mm and that was below the estimate of 3.46mm and the lowest since last March. Delayed by two weeks, those still receiving PUA fell by another 175k.
2)Spending, when including the April revision, was as expected with income slightly better with a smaller than expected drop. The savings rate moderated for a 2nd month after the March spending bill induced spike to 12.4%, the lowest since the pre Covid level of 8.3% and compares with the 20 yr average of 6.9%. With respect to income, the most important component is wages/salaries for private industries and they rose .8% m/o/m after two straight months of 1.1% m/o/m gains and is up by almost 16% y/o/y. On spending we saw a shift to services from goods but that is in part because for some goods it now takes to months to get.
3)Mortgage apps were up slightly w/o/w but remain sharply lower y/o/y. With the 7 bps increase in the average 30 yr mortgage rate to 3.18%, purchases rose .6% w/o/w but are still down 14.2% y/o/y. Refi’s were up by 2.8% w/o/w but down 9.4% y/o/y.
4)Existing home sales in May, likely reflecting many contracts signed during the January thru April time frame, totaled 5.8mm annualized, a touch above the estimate of 5.73mm. That though compares with 5.85mm in April, 6.01mm in March, 6.24mm in February and 6.66mm in January. With a lift in the number of homes for sale as is always the case come spring, months’ supply rose to 2.5 from 2.4 and which compares with the long term average of 6 months. The median home price is now rising by a 24% pace with an average rate of 17% as we’re seeing big jumps in home sales priced above $500k. Taking out the influence of mix likely has home price gains between 13-15%. Those aggressive price gains is why 1st time buyers make up just 31% of purchases, the same level for the 3rd month in the past 4. The NAR said “Lack of inventory continues to be the overwhelming factor holding back home sales, but falling affordability is simply squeezing some 1st time buyers out of the market.”
5)The Richmond June manufacturing index rose 4 pts m/o/m to 22. The estimate was for no change. Off record highs by far, prices paid fell slightly and those received fell a touch too off the 2nd highest read on record.
6)Consumer confidence in German jumped to -.3 from -6.9 and that was better than the estimate of -4.0.
7)The German IFO business confidence index for June improved to 104 from 102.9 and that was just above the estimate of 103.6 with both components higher. As they always do, the IFO said simply “The German economy is shaking off the coronvirus crisis.” For perspective, the level of the IFO was last at this level in 2010. Business continues to improve but “Many companies are concerned about increasing bottlenecks in intermediate products” which now is certainly common knowledge and global.
8)French business confidence also saw continued improvement as it rose to 113 from 108 and that was 3 pts better than expected. The services sector confidence drove this gain along with retail trade and employment. The manufacturing component was unchanged but at the best level since September 2018.
9)The UK CBI industrial orders index rose 2 pts m/o/m to 19, 3 pts better than expected. That happens to be the best level since 1988. CBI said “Encouragingly, this performance is reflected in the majority of manufacturing sub-sectors and looks set to continue in the coming quarter.” But, we know what is coming along with this. “However, supply shortages continue to bite, and firms expect that to push through into prices in the months ahead.”
10)The UK CBI retail sales index for June rose 7 pts m/o/m to 25 and that was well better than the expected drop to 11. CBI said “After a generally gloomy 2021 so far, the sun finally shone for retailers in June, with seasonal sales volumes the strongest since November 2016. This was the latest sign that the success of the vaccination program is feeing through to stronger consumer confidence which, along with the re-opening of hospitality, is encouraging shoppers back onto the streets.” Nothing is perfect though as “The return of demand is patchy, with inner city footfall still well down. The outlook is also clouded somewhat by supply pressures, with stocks seen as too low compared with expected sales, as logistical and capacity challenges continue to hamper global activity.”
11)Economic sentiment in Italy in June rose to 112.8 from 107.3 and that’s the best since 2007.
12)In the Eurozone, its manufacturing and services PMI composite index rose to 59.2 from 57.1 and was all led by services as the manufacturing component was unchanged m/o/m but still a growth driver. Services was helped by “the easing of virus fighting measures in many eurozone member states, notably in hospitality.” Here were the comments on inflation: “Average input prices rose at a rate exceeded only once (in September 2000) over the 23 yr survey history. A record increase in manufacturers’ material prices was accompanied by the steepest increase in service costs since July 2008, the latter reflecting widespread reports of higher supplier prices, increased fuel and transport costs plus rising wage pressures.” As for the ability to pass this on? “Average prices charged for goods and services meanwhile rose at by far the fastest pace since comparable data for both sectors were first available in 2002, with prices rising in each sector at rates not exceeded for approximately two decades.”
13)Normalizing policy now that the Covid emergency is over was seen with rate hikes by the Bank of Mexico, Czech Republic and in Hungary. South Korea laid the groundwork for a few rate hikes in the coming quarters which follows Norway doing the same last week.
14)Fed president Raphael Bostic gave us he’s definition (with it being highly subjective) of transitory inflation as 6-9 months from his previous belief of 2-3 months. He also said a “tapering decision could be in 3-4 months.”
15)South Korea, a key exporter of semi’s and auto’s, said exports in the 1st 20 days of June rose 29.5% y/o/y but that is down from a 53.3% increase in May for a similar time frame (full month gain in May was 45.6%). Exports to China slowed to 8% y/o/y but were up by 41% to the US, 49% to the EU and 33% to Japan. Imports were higher by 29.1% y/o/y vs 36% in the month prior.
16)Let’s go Islanders.
1)Initial jobless claims were little changed w/o/w at 411k but that was 30k more than expected and last week was revised up to 418k from 412k initially. The 4 week average was little changed at 398k vs 396k last week. The number of those filing for PUA did tick higher for a 2nd week to 105k vs 71k just two weeks ago. Those continuing to get emergency benefits rose by 108k.
2)The June Markit manufacturing and services composite index fell to 63.9 from 68.7 with all of the decline in the services sector which fell to 64.8 from 70.4. Manufacturing was up slightly to 62.6 from 62.1. Markit said “struggles among companies to find suitable workers hampered employment growth in June. Although strong, the rate of job creation was the slowest for three months…At the same time, inflationary pressures remained elevated in June. Service providers stated that wage costs and additional transportation fees pushed up cost burdens, which rose at the 2nd fastest pace on record. Similarly, output prices increased markedly as firms sought to pass on greater input costs to clients.” The outlook moderated slightly “with some concerned about the impact of rising inflation over the coming months.” In manufacturing, Markit said “there were reports that the softer rise in production among manufacturers was linked in part to supplier delays and difficulties finding suitable workers. Average supplier delivery times lengthened to the greatest extent on record by some margin.” With respect to prices, “Amid worsening vendor performance, input prices soared once again at the end of the 2nd quarter. The rate of input cost inflation accelerated to a fresh series record amid broad based raw material price hikes. Firms raised their selling prices at a quicker rate in an effort to pass on these higher costs, with charge inflation also surpassing all previous records.”
3)The headline PCE inflation deflator rose .4% m/o/m and by .5% at the core after gains of .6% and .7% in the month prior for each. Both though were one tenth less than expected but forecasts were raised after the CPI print a few weeks ago which exceeded the estimate. The y/o/y rates were as expected due to rounding with a headline gain of 3.9% and core increase of 3.4%.
4)Core durable goods orders for May when taken with the upward revision to April was slightly below expectations. Shipments of core goods was about as expected.
5)New home sales in May totaled 769k, almost 100k less than expected and April was revised down by 56k to 817k. That is the slowest pace of sales since last May. While it is easy to blame inventory, months’ supply rose to 5.1 from 4.6 and that is the highest since last May. The median home price rose 18.1% y/o/y even with a drop in the number of homes sold and priced above $500k.
6)The final June UoM consumer confidence index was 85.5 vs the 1st print of 86.4 and that compares with 82.9 in May, 88.3 in April and 84.9 in March. The internals were mixed as Current Conditions fell .8 pts m/o/m but was offset by a rise to 83.5 from 78.8 in Expectations. One year inflation expectations were 4.2% vs the initial June read of 4% and vs 4.6% in May, 3.4% in April and 3.1% in March. That’s the 2nd highest level in 10 years. Consumers believe in transitory as longer term expectations came in at 2.8% vs 3% in May and the UoM said “consumers also believed that the price surges will mostly be temporary.” Employment expectations continued to rise but income expectations have been little changed. Said UoM, “The highest income expectations were anticipated by younger households, who expected income gains of 4.1%.” Spending intentions fell sharply m/o/m because of sticker shock. Those that said it’s a good time to buy a home fell 16 pts m/o/m to 74. It was 125 in March. Those that want to buy a vehicle fell 13 pts m/o/m to 87. It was 114 in March and 118 in April. There was no change in those that said it’s time to buy a major household item at 112 but it was 126 in April and 128 in March. For cars and homes, those are the lowest levels since 1982. UoM said “All of the June gain was among households with incomes above $100,000.” A lot of this is because of muted income expectations for the bottom 3rd of income households at the same time “16% of households in the bottom third of the income distribution complained more often that inflation had already reduced their living standards, three times the 5% recorded among those with incomes in the top third.”
7)The US trade deficit in May rose to $88.1b just off a record high with imports higher by .8% m/o/m and exports falling by .3% m/o/m. The imports and exports of autos in particular were weak for reasons we all know.
8)Instead of taking advantage of the opportunity to ask Fed Chair Jay Powell relevant questions, both Republican and Democratic House members wasted the time and ours.
9)While the Bank of England is ending QE by year end, they remain sort of trapped by what the Fed and ECB are doing and of course are in the transitory camp with inflation and thus were on hold this week.
10)In the UK, its manufacturing and services composite index fell 1.2 pts m/o/m with both components lower m/o/m although the index is still above 60 at 61.7. Optimism remained about the outlook but did moderate to a 5 month low. As for prices, “The rate of input cost inflation accelerated for the 5th month running and was the joint-fastest on record, equal with that seen in June 2008. While inflation continued to be led by the manufacturing sector, service providers also posted a marked increase in input prices. In turn, the rate of output price inflation hit a fresh record high for the 2nd month running.”
11)In the city of Tokyo in June, headline CPI was flat y/o/y but the estimate was for down 3 tenths. Ex food and energy prices were also unchanged vs the forecast of down .1%. Government induced lower cell phone charges are a main factor and alone cut 4 tenths from the CPI print. They fell 28% y/o/y.
12)Japan’s June manufacturing and services index fell 1 pt m/o/m with manufacturing slipping by 1.5 pts while services rose .7 pts but is still below 50 at 47.2 in response to the still uneven reopenings. Markit said “Panel members commonly associated disruption to operating conditions to ongoing Covid restrictions, coupled with severe supply chain pressures, notably for manufacturers.” Businesses though became more optimistic “that business conditions would improve in the year ahead, and to a greater extent than that seen in May” as the vaccine rollout ramps up and more restrictions are eased.
13)In Australia, their composite index fell 2 pts m/o/m with both components lower. Markit said, similar to the Japan commentary, “Renewed movement restrictions in the Victorian state and supply constraints stood out as two key reasons weighing on the growth momentum for Australia.”
14)Taiwan’s exports in May rose 34.5% y/o/y but that was below the estimate of up 42.1%.