Positives
1)Only a positive because it was a hair less than anticipated, the May headline PCE rose .6% and the core rate was higher by .3% and both were one tenth below expectations. The y/o/y gain for headline PCE was 6.3%, the same print seen in April. The core rate grew by 4.7% y/o/y vs 4.9% in the month before. Durable goods prices rose 8.4% y/o/y and the pace of these gains continue to moderate for a 3rd month. Service prices continue with its persistent increases, by 4.6%.
2)May personal income was up .5 m/o/m as expected and combined with a weaker personal spending number (see the first negative), the savings rate was 5.4% vs 5.2% in April, 5.3% in March and 5.8% in February. Expect this to rise further if consumers further cut back on spending.
3)Pending home sales in May unexpectedly rose .7% m/o/m, better than the estimate of another 4% decline. I say ‘another’ because it was down 6 months in a row going into today’s print. A rebound in the Northeast just offset the sharp decline in April. Sales out West fell for the 6th month in the past 7 “where homes are the most expensive,” said the NAR. The NAR chief economist said simply, “Despite the small gain in pending sales from the prior month, the housing market is clearly undergoing a transition. Contract signings are down sizably from a year ago because of much higher mortgage rates.” Quantifying the extent of the change in payments the NAR said “at the median single family home price and with a 10% down payment, the monthly mortgage payment has increased by about $800 since the beginning of the year as mortgage rates have climbed by 2.5 percentage points since January.”
4)With the average 30 yr mortgage rate pulling back by 14 bps w/o/w to a still relative high of 5.84%, mortgage apps rose slightly. Purchase apps were flat w/o/w but down by 24% y/o/y. Refi’s rose by 1.9% w/o/w but are down a whopping 80% y/o/y.
5)In nominal terms, core durable goods orders in May rose .5% m/o/m, 3 tenths more than forecasted while April was revised down by one tenth to a 3 tenth increase. These figures though are below the rate of inflation.
6)The Chinese state sector focused manufacturing and non manufacturing PMI for June bounced back above 50 to 54.1 with the latter (which includes construction along with services) leading the way as Shanghai slowly reopens. The firm that publishes the data said “The Chinese economy bottomed out in June and the recovery is basically entrenched, although attention still needs to be paid to imbalances between the recoveries in supply and demand.”
7)China’s Caixin private sector weighted manufacturing PMI rose to 51.7 from 48.1 and that was 1.5 pts above the estimate. Simply, “The reduction in Covid case numbers and subsequent easing of containment measures across China led to a renewed improvement in manufacturing business conditions in June. Output expanded sharply as disruption to operations receded.”
8)As Vietnam is an ever growing manufacturing stand out, they reported exports that grew by 20% in June y/o/y, above the estimate of up 18%. Imports were up by 16.3% y/o/y, also higher than forecasted. The Vietnam economy is expected to grow by 7% this year according to their statistics office.
9)The Swedish Riksbank hiked interest rates by 50 bps as expected to .75%. That is a rate last seen in 2014. Governor Ingves said “Inflation in Sweden is way too high, and it is spreading throughout the economy, which is noticeable and expensive for households as well as others. Hence, we need to bring inflation back to the 2% target by increasing the policy rate more than we thought in April.”
10)The Eurozone Economic Confidence Index for June fell 1 pt m/o/m to 104 but that was 1 pt above the estimate. The consumer confidence component in particular is just above its April 2020 low. Manufacturing confidence did lift by .9 pts but after falling by 1.3 last month. Services confidence did rise too benefiting from the end of covid restrictions with leisure and hospitality but retail and construction confidence softened.
11)//www.youtube.com/watch?v=sEJSp-igWqs
Negatives
1)Following the miss in April and May personal spending numbers, some Q2 GDP estimates now have a minus sign in front of them. I’m raising my recession odds to 99.5% from 99%.
2)The June ISM manufacturing index fell to 53 from 56.1 and that was 1.5 pts below expectations and the weakest since June 2020. Of note, new orders have fallen below 50 at 49.2 from 55.1 in May. Also, employment fell further below 50 at 47.3 from 49.6 in May and 50.9 in April but ISM did say companies are having more success in finding labor. Backlogs fell to almost 10 pts below its 6 month average. Inventories, both at the manufacturer and customer levels, rose m/o/m. Supplier deliveries eased further and prices paid moderated to 78.5 from 82.2 and that’s the lowest since February. Export orders softened to 50.7 from 52.9 while imports got back above 50. Of the 18 industries surveyed, 15 saw overall growth but only 8 saw growth in new orders.
3)To repeat comments from RH and MU: Gary Friedman the CEO of RH in its press release said “The deteriorating macro-economic environment has resulted in lower than expected demand since our prior forecast…With mortgage rates double last year’s levels, luxury home sales down 18% in the first quarter, and the Federal Reserve’s forecast for another 175 bp increase to the Fed Funds Rate by year end, our expectation is that demand will continue to slow throughout the year.” From MU: “Our expectations for calendar 2022 industry bit demand growth have moderated since our last earnings call. Near the end of fiscal Q3, we saw a significant reduction in near term industry bit demand, primarily attributable to end demand weakness in consumer markets, including PC and smartphone.”
4)Initial jobless claims were 231k about as expected and vs 233k last week. As a 202k print dropped out, the 4 week average rose to 232k from 225k, and that is the highest since December. Continuing claims, delayed by a week, was little changed at 1.328mm vs 1.331mm in the week before.
5)The Duke CFO optimism index about the US economy fell to 50.7 from 54.8 last quarter and vs 60.3 two quarters ago.” Here was the succinct summation, “Price pressures have increased, real revenue growth has stalled, and optimism about the overall economy has fallen sharply. Monetary tightening is one of several factors dampening the economic outlook.” As for the cost pressures, “The median CFO expectation last quarter was for a 6% increase in unit costs for 2022; this quarter the expectation was an 8% increase.” Also, this lack of confidence and if borrowing costs rise by 2% or more, at least half of companies surveyed “indicate they would reduce their capital spending plans.”
6)Apartment List’s National Rent Report June index rose 1.3% m/o/m, the same pace seen in May. While growing at a slower pace than 2021, rents are still up 14.1% y/o/y as comps get more difficult and are higher by 5.4% ytd vs 8.8% in the same time frame last year. On the supply side, “our national vacancy index ticked up slightly again this month, continuing a streak of gradual easing dating back to last fall. Our vacancy index now stands at 5%, up from a low of 4.1%, but remains well below the pre-pandemic norm. And with spiking mortgage rates sidelining potential homebuyers, we could see additional tightness in the rental market in the months ahead. Rents increased this month in 97 of the nation’s 100 largest cities.” They said NYC has seen the quickest rent growth over the past year while the very hot sun belt states are beginning to plateau. Only SF is still below its pre-pandemic rent levels but “barely.” The Apartment List bottom line, “Despite a recent cool-down, many American renters are likely to remain burdened throughout 2022 by historically high housing costs.”
7)For the first time home buyer, this is so discouraging, the S&P CoreLogic Home Price Index for April rose 20.4% y/o/y. Tampa, Miami, Phoenix and Dallas led the increases not surprisingly with 30%+ y/o/y gains while Minneapolis, DC, Chicago and NY saw the slowest rates of increases in the low to mid teens, also not surprising.
8)The Conference Board’s measure fell to 98.7 from 103.2. That was just below the estimate of 100 and it is the lowest since February 2021. Almost all of the weakness was in the Expectations component which dropped to 66.4 from 73.7. That is the weakest since March 2013. One yr inflation expectations rose to 8% from 7.5% and that is the highest on record dating back to 1987. On the labor market questions, those that said jobs are Plentiful did tick down by .6 pts from May to the lowest since May 2021 but is still above its pre covid level. Those that said jobs were Hard to Get did fall by .8 pts after rising by 2.3 last month. This line item is below pre covid. On the expectations side, ‘more jobs’ fell 1.2 pts to the lowest in a few years and income expectations softened further. With regards to spending intentions, they rose for auto’s and major appliances and didn’t change for homes. Those intending on taking a vacation within 6 months fell to the weakest since February 2021.
9)CPI in Tokyo in June rose 2.1% y/o/y ex food and 1% ex food and fuel, both as expected. That core/core rate increase matches the highest since 2015 when the VAT was hiked. Away from that it’s a level last seen in 2008.
10)There were m/o/m declines in the June manufacturing PMI’s from Japan, South Korea, Indonesia, Vietnam, Taiwan (below 50 at 49.8), Thailand and the Philippines.
11)Both Japan and South Korea reported May industrial production figures that were below expectations.
12)A proxy on China’s stance towards covid, Hong Kong said its exports fell 1.4% y/o/y in May which was worse than the estimate of up 4.3%. Exports to China were down by 10.1% y/o/y but this wasn’t all about China. A spokesman with the Hong Kong statistics bureau said “Looking forward, the worsened global economic prospects will continue to weigh on Hong Kong’s export performance.”
13)In the Eurozone, its June manufacturing PMI was revised a hair to 52.1 from the first print of 52 but that is down from 54.6 in May and 55.5 in April. The UK PMI was revised down to 52.8 from 53.4 initially and down from 54.6 in April.
14)The UK PMI was revised down to 52.8 from 53.4 initially and down from 54.6 in April.
15)June CPI rose 8.6% in the Eurozone from 8.1% in May, one tenth more than expected while the core rate was higher by 3.7%, two tenths less than expected and down from 3.8% in May.
16)Germany saw a big negative surprise with their labor market for June. Unemployment jumped by 133k, so much worse than the forecast of a drop of 5k. Their unemployment rate jumped to 5.3% from 5%. The explanation for the huge deviation from the estimates was explained by the Federal Labor Agency who said “The labor market as a whole continues to be stable. These increases are due to the fact that the Ukranian refugees are now being recorded in the job centers and are therefore visible in the labor market statistics.”
17)German consumer confidence fell to -27.4 from -26.2 said GFK. That’s a new record low dating back to 1991 and GFK said “The ongoing war in Ukraine and disruptions in supply chains are causing energy and food prices in particular to skyrocket, resulting in a gloomier consumer climate than ever before. Above all, the increase in the cost of living, which is almost 8% at present, is weighing heavily on consumer sentiment and sending it into a downward spiral.”
18)In France, consumer confidence dropped by 3 pts m/o/m to a less than expected 82, the lowest since 2013.