Positives
1)When taken with the revision to May, headline PCE was as expected, rising by .5% m/o/m. The core rate was higher by .4% after a .5% increase in May but that was below the estimate was for a rise of .6%. Versus last year, headline PCE is up 4.0% and the core rate by 3.5% and the easy comp excuse is going away. Core CPI is running at an annualized pace of 4.8% year to date and by 6.2% over the past 4 months.
2)The Chicago manufacturing index for July jumped to 73.4 from 66.1 and that was almost 10 pts better than expected. New orders rose 5.4 pts m/o/m while backlogs were up by 3.4 to a two month high. “Companies noted a lack of raw materials and warehouse personnel, leading to an increased backlog of work.” Inventories rose but remains still below zero. Employment grew by 3.4 pts but “staff availability remains subdued.” On the supply and pricing challenges, “Supplier Deliveries remained at June’s level in July, still at the highest level since March 1974…Prices paid at the factory gate eased slightly, down .3 pts but remained at a historically high level. Higher prices for materials and freight were again a major concern for survey respondents.” As for the special question, “Is your company looking at the current inflationary pressures as transitory; in agreement with the Fed (and most everyone else I say)? The majority (37.2%) was unsure.”
3)The Richmond July manufacturing survey was little changed m/o/m at 27 vs 26 in June (revised from 22) and that was 7 pts better than expected. Both employment and wages were higher with the latter at a record high dating back to 1997, “but they struggled to find workers with the necessary skills.” Price pressures intensified with prices paid rising to 11.2 from 8.6 and that is the highest in the survey’s history. Those received are also at a record.
4)The July final UoM consumer confidence index printed 81.2 from the initial read of 80.8 seen a few weeks ago and vs the estimate of 80.8 but it’s still down from 85.5 in June and it’s the weakest final figure since February. From June, both main components were lower. One year inflation expectations were 4.7% vs 4.2% in June and vs 4.8% in the preliminary read seen a few weeks ago. Longer term expectations held at 2.8% from June but was one tenth below the 1st print. In summary from the UoM on the confidence decline in July, “The largest monthly declines remained concentrated in the outlook for the national economy and complaints about high prices for homes, vehicles and household durables. While most consumers still expect inflation to be transitory, there is growing evidence that an inflation storm is likely to develop in the not too distant horizon.” Luckily for now, “The improved finances of consumers have greatly reduced consumers’ resistance to price increases” but “firms have reacted to their own supply and labor shortages with a greater readiness to increase prices as well as wages.
5)The July Conference Board Consumer Confidence index rose .2 pts m/o/m to 129.1 and that was better than the estimate for a drop to 123.9 (which would have followed the decline in the UoM survey). The m/o/m gain was all in the Present Situation as it was up .7 pts while Expectations were little changed at 108.4 vs 108.5 in June. Off a ten year high, one year inflation expectations fell one tenth to 6.6% and compares with the 25 year average of 4.95%. The labor market answers were little changed after the sharp improvement seen in the two prior months. Spending intentions rose.
6)Personal income rose .1% m/o/m, 4 tenths better than expected but half offset by a 2 tenths downward revision to May. Most importantly, private sector wages/salaries rose by .7% m/o/m vs .6% in May and 1% in April. It was another drop in government transfer payments that kept a lid on the headline income figure. Spending in June rose 1% m/o/m, 3 tenths more than anticipated and follows a .1% drop in May. Spending on durable goods fell again (partly because we’ve pulled forward so much spending but also because of a lack of product to buy) while spending on nondurable goods and services jumped.
7)The Q2 Employment Cost Index saw a private sector wage gain of up .8% with wages/salaries up by 1% (following 1.1% in Q1) and benefits higher by just .3%. The 1% pace is above what was seen pre Covid. The headline figure including public sector workers saw a gain of .7% vs .9% in Q1 and the .9% estimate.
8)A leg down in the average 30 yr mortgage rate to 3.01% coincident with the drop in the 10 yr yield only helped refi’s this week as they rose 9.3% w/o/w, although are still down 10% y/o/y on tough comps.
9)In Japan, the jobs to applicant ratio to 1.13 from 1.09 and above the estimate of 1.10. Their unemployment rate fell to 2.9% from 3% led by an increase in the number employed. They also reported industrial production in June which exceeded forecasts while retail sales were as expected.
10)South Korea’s June IP was better than expected with a 2.2% m/o/m increase vs the estimate of up 1.5%, partially offset by a 3 tenths upward increase to the May figure.
11)Hong Kong’s trade data for June was better than expected for both exports and imports.
12)Out of the Eurozone was the better than expected Q2 GDP print where it rose by 2% q/o/q vs the estimate of 1.5%. The unemployment rate for June fell to 7.7% from 8% and that is the lowest since May 2020.
13)The Economic confidence index in the Eurozone in July rose to 119 from 117.9 and that was above the estimate of 118.2. The increase was led by both manufacturing and services but consumer, retail and construction confidence all moderated m/o/m.
14)Germany said the number of unemployed in July plunged by 91k, well better than the estimate of a drop of 29k. Their unemployment rate fell to 5.7% from 5.9% and that is the lowest since March 2020.
15)The July CBI retail sales index was little changed at 23 vs 25 in June but that was 3 pts above expectations. CBI said “Consumer demand continues to support the UK’s economic recovery. Retail sales have been at or above seasonal norms for the last four months now, although this picture is not universal, with the clothing and footwear stores in particular yet to see demand recover to usual levels.” Here is what they said on the supply challenges, “Relative stock levels are at a record low and expected to fall further still, while the number one worry for many firms at the minute is labor shortages throughout the supply chain as staff self-isolate.” Also noteworthy, “Internet sales were flat in the year to July. With growth slowing for the 5th consecutive month, the balance in July was the weakest since the question was first asked in August 2009. Retailers expect internet sales to pick up next month, but growth is expected to remain well below the long run average.”
Negatives
1)I’ll leave it to the WSJ Review & Outlook Opinion page from yesterday on this one because I’m sure you’re tired of hearing it from me. “Fed Chairman Jerome Powell conceded at his press conference Wednesday that prices had caught the central bank by surprise, but he showed no particular concern. The FOMC’s statement…also showed little interest in reeling in what has been the most reckless monetary policy since Arthur Burns roamed the Eccles Building. History hasn’t been kind to Burns…One trait of the modern Fed is never to take responsibility for financial and economic problems. The financial panic of 2008 was the bankers’ fault. The historically slow expansion after 2009 was the fault of fiscal policy. Now the inflation surge is due to forces beyond its control. If the Powell Fed won’t even accept responsibility for the price level, which is central to the Fed’s mission, maybe it’s time for a Fed Chairman who will.”
2)Initial jobless claims totaled 400k, 15k more than expected and last week was revised up by 5k to 424k. The 4 week average did lift to 395k from 387k. Those filing for PUA fell by 14k to 95k which is where it was 2 weeks ago. Delayed by a week, continuing claims rose by 7k to 3.27mm. Delayed by two weeks, those still receiving PUA rose 112k to 5.26mm but follows 6 weeks in a row of declines. Continuing emergency claims was up by 99k to 4.23mm but after a drop of 576k in the week prior.
3)Home prices in May ran at a near 17% y/o/y run rate according to S&P CoreLogic, a pace never before seen. Phoenix, San Diego and Seattle all saw north of 20% y/o/y home price gains. Chicago saw the slowest pace of gain at ‘only’ 11.1% followed by Minneapolis at 12.8%.
4)Pending home sales in June fell 1.9% m/o/m vs the estimate of no change but does come after an 8.3% rise in May. All of the weakness was in the South and West while the Northeast and Midwest saw modest gains. Stating what we all now know on the state of the housing market, the NAR said “Buyers are still interested and want to own a home, but record high home prices are causing some to retreat. The moderate slowdown in sales is largely due to the huge spike in home prices.” They said sales in the Midwest have hung in because of the better affordability.
5)Purchase applications fell 1.6% w/o/w and are lower for the 4th week in the past 5 and sits at the lowest level since early May 2020. They are also down 18% y/o/y but the comps are getting tougher.
6)New home sales in June totaled 676k, well below the estimate of 796k and is down from 724k in May which was revised down by 45k. With an increase in the homes for sale combined with the sales slowdown, months’ supply rose to 6.3 from 5.5 and that is the highest since April. After 20%+ y/o/y price gains in the two prior months, they were up by 6.1% y/o/y in June. There was a drop in homes sold priced below $500k and an increase for those sold above that price point.
7)The July Dallas manufacturing index for July moderated to 27.3 from 31.1 and below the estimate of 31.6. Prices paid and received slipped both with current conditions and the outlook but off high levels. The overall business 6 month outlook was little changed at 37.1 vs 37.3 but above the 6 month average of 35.
8)Real GDP in Q2 rose 6.5% q/o/q annualized, well below the estimate of 8.4% and 6 tenths of the miss was because the price deflator was 6 tenths more than expected. Also, inventories took off 110 bps after a drawdown of 260 bps in Q1. Trade was also a drag of about 40 bps as was gross private domestic investment of 60 bps and government spending of about 25 bps. Thus, ALL OF THE GDP growth (when breaking out the key components) was from the consumer where personal consumption rose 11.8% and adding 780 bps to the GDP figure. Core PCE rose 6.1% q/o/q annualized, the highest since 1983.
9)Core durable goods orders rose .5% m/o/m in June vs the estimate of up .7% but May was revised up by 4 tenths. Shipments, which get plugged into the GDP calculation, were a bit light relative to expectations. Keep in mind that these nominal numbers are all below the rate of goods inflation.
10)The Eurozone July CPI rose 2.2% y/o/y vs 1.9% in June, led by higher energy prices and that was 2 tenths more than expected. The core rate higher by .7% was as forecasted.
11)The German July IFO business confidence index moderated to 100.8 from 101.7 and that was below the expected increase to 102.5. The m/o/m decline was all due to a fall in Expectations as the Current Assessment was higher. IFO said simply, “Supply bottlenecks and concerns over newly rising infection numbers are weighing on the German economy.”
12)Because of the delta flare up, German consumer confidence held at -.3 instead of rising to 1.0 as expected. French consumer confidence fell 2 pts m/o/m.
13)The ECB keeps raining money from the sky but it doesn’t mean loan growth will grow if there isn’t much need for it. In June, loans to companies were up just 1.9% y/o/y off a very easy comp and that is a nominal rate. Loan growth to households grew by 4% y/o/y led by housing and credit cards but is really just in line with nominal GDP growth.
14)Japan’s July PMI saw services continued to be weighed down by selective Covid restrictions as it fell to 46.4 from 48. Manufacturing instead held steady at 52.2 from 52.4. With respect to the outlook, “While firms remained confident that activity would increase over the coming 12 months, the degree of optimism dipped to the lowest since January.” With manufacturing, “Both output and new order growth eased to 6 months lows in the latest survey period amid rising Covid cases and ongoing delays in receiving raw materials…Nonetheless, positive sentiment remained strong overall, despite easing slightly from June.”