1)GDP in Q2 surprised to the upside with a 2.1% performance. The estimate was 1.8% and this brings the year to date average to 2.6%. The 2018 growth rate was revised down to 2.5% (4th Q over 4th Q) as part of benchmark revisions. Personal spending was the main catalyst as it grew by 4.3%, 3 tenths more than expected after a modest 1.1% gain in Q1. Spending on durable goods led the way as spending on services was more muted. Government spending also gave the GDP figure a big boost, of 9 tenths of a point, particularly led by non defense federal spending which spiked by 16%. State and local government spending was also strong. Trade, investment and a draw down of inventories were the drags. Final sales to private domestic purchasers grew 3.2% after a 1.6% gain in Q1, thus giving us an average growth rate of 2.4% year to date. The 2018 average was 2.8%. The price deflator rose at the quickest pace since Q2 2018 while core PCE was 1.8%.
2)Core durable goods orders in June surprised to the upside with a 1.9% m/o/m gain, well more than the estimate of up .2%. May was revised down slightly by two tenths. The y/o/y gain though was just .7%.
3)Initial jobless claims totaled 206k, 12k less than expected and down from 216k last week. This lowers the 4 week average to 213k from 219k and that’s the lowest since late April.
4)The more up to date CPI for July in Tokyo (the whole country has only reported for June) held steady from June with the core rate ex food higher by .9% y/o/y and the ex food and energy figure up by .8% y/o/y. Both though were one tenth more than expected.
5)Japan’s manufacturing and services composite index did improve to just 51.2 from 50.8. The manufacturing component though remained below 50.
6)Singapore reported a 6.9% y/o/y decline in industrial production in June but that wasn’t as bad as the 8.5% expected decline. Electronics production, a key area of softness, was down by 18.8% y/o/y.
7)South Korea’s economy grew by 2.1% y/o/y which was slightly better than the estimate of 1.9% and follows a 1.7% performance in Q1. For perspective, the average 1.9% y/o/y increase year to date compares to growth of 2.7% in 2018, 3.2% in 2017 and 3% in 2016.
8)French consumer confidence for July rose 1 pt as expected to 102.
9)Economic confidence in Italy did improve a touch in July as its index went to 101.2 from 99.3 but the manufacturing component fell. The gain instead was driven by retailers, services and construction. Consumer confidence had a nice rebound, rising to 113.4 from 109.8 and almost back to where it was in January.
1)As measured by Markit, US manufacturing has now officially flat lined as its July index fell to exactly 50 from 50.6 in June. That is the lowest level since September 2009. Markit said “The negative influences on the headline PMI were lower production volumes, a fall in employment and reduced stocks of purchases. Production levels dropped only slightly, but the rate of decline was the greatest since August 2009. Moreover, the marginal decrease in staffing levels ended a 6 yr period of sustained job creation across the manufacturing sector.” The particular weakness in July was in the automotive sector and “heightened global economic uncertainty.” The services sector is what saved the day again as this component rose to 52.2 from 51.5 but still remains below the year to date average of 53.3. What Markit said drove the improvement “was supported by price discounting in July, with average charges reduced to the greatest extent since February 2016.” Expect possible weakness in the service sector ahead though as “Business expectations for the next 12 months dropped sharply across the service sector in July. Moreover, the latest reading was the lowest since this index began in October 2009.”
2)New home sales in June missed expectations with a print of 646k, 12k less than estimated and May was revised down by 22k to 604k. Unaffordability is trumping lower mortgage rates in preventing faster growth. Regionally, new home sales in the Northeast remained soft, falling to match the weakest level since September 2015. Sales out West did bounce back to a sales total of 185k but only after dropping by 77k in May to 123k. Overall months’ supply was 6.3, in range for where it’s been over the past 6 months. The median home price was $310,400, unchanged with last year.
3)The MBA said both purchase applications to buy a home and refi’s fell w/o/w. Purchases were down for a 2nd week, by 1.6% but are still up 6.2% y/o/y. Lower rates have mostly helped refi’s which rose 81% y/o/y but did fall 2.1% w/o/w.
4)Existing home sales in June, likely covering contracts signed in the March thru May time frame, totaled 5.27mm which was below the forecast of 5.32mm and May was revised up by 20k to 5.36mm. As the number of homes for sale rose, months’ supply ticked up to 4.4 from 4.3 and that matches the most since September 2016. The median home price rose 4.3% y/o/y. Positively, the number of first time buyers made up 35% of purchases which is the most in years and investors took up a smaller amount of the pie. The NAR said “Home sales are running at a pace similar to 2015 levels, even with exceptionally low mortgage rates, a record number of jobs and a record high net worth in the country.” Affordability remains the issue as “imbalance persists for mid to lower priced homes with solid demand and insufficient supply, which is consequently pushing up home prices.”
5)The Richmond July manufacturing survey fell sharply to -12 from +2 and that was well below the estimate of +5. Go back to January 2013 the last time we saw a weaker print. Internally, there were negative signs before New Order Volume, Order Backlogs, Capacity Utilization, Number of Employees and the Average Workweek. Capital spending plans fell to the lowest levels since last year. Notably, both prices paid and received both jumped.
6)The July KC manufacturing index fell to -1 from zero and that was 4 pts below expectations. An economist at the KC Fed said “Regional factory growth remained basically flat this month, and a number of firms noted increased uncertainty because of trade concerns and weaker domestic demand.” New orders, backlogs, production, employment, workweek and exports were all negative. Prices paid were up but slightly down for those received.
7)Mario Draghi and many within the ECB believe that deeper negative interest rates will somehow result in a different outcome. Meanwhile, investors in ever shrinking yielding bonds are being forced to make bad decisions with many holdings guaranteed to lose money if held to maturity. As for the banks, the ECB is finally after 5 years of NIRP looking at mitigating actions via tiering. Also, at least Draghi admitted that the law of diminishing returns also applies to ECB policy.
8)The Eurozone July manufacturing and services composite index fell to 51.5 from 52.2 with continued notable weakness in manufacturing which fell to 46.4 driven by Germany’s manufacturing PMI down to 43.1 from 45. The French manufacturing PMI fell to 50 from 51.9. Both also saw declines in services. The overall service sector for the region dropped to 53.3 from 53.6. Markit said “The eurozone economy relapsed in July, with the PMI giving up the gains seen in May and June to signal one of the weakest expansions seen over the past six years.” Markit went on to say “The manufacturing sector has become an increasing cause for concern. Geopolitical worries, Brexit, growing trade frictions and the deteriorating performance of the autos sector in particular has pushed manufacturing into a deeper downturn with the survey indicative of the goods producing sector contracting at a quarterly rate of approximately 1%.” The services sector continues to be the stand out “though even here the rate of growth has slowed, likely in part due to signs of weaker labor market trends. Hiring was close to a 3 yr low in July.”
9)The July IFO business confidence index fell to 95.7 from 97.5 in June and that was below expectations of 97.2. That’s the weakest since April 2013. Both expectations and the current assessment fell m/o/m with the former at the lowest level since July 2009, 10 yrs ago. The IFO said simply, “The German economy is navigating troubled waters.” The manufacturing component in particular “took a serious tumble; such a major decline was last seen in February 2009.”
10)French manufacturing confidence fell to the lowest since mid 2015. Services confidence was down too but they saw a rise in retail trade confidence and employment. The overall net result was total business confidence that fell 1 pt to match a 5 month low.
11)The July UK CBI industrial orders index was a disaster, falling to -34 from -15 in June, well worse than the estimate of no change. This is the weakest print since April 2010. CBI said “As the tailwind from stockpiling weakens, clouds are gathering above the manufacturing sector. It’s being hit by the double blow of Brexit uncertainty and slower global growth…With activity contracting, sentiment deteriorating, and key investment decisions on hold, there can be no clearer evidence of how much Brexit uncertainty is continuing to hold back the UK’s manufacturing sector.”
12)The UK CBI retail sales index did improve from an awful -42 in June to -16 in July but that was still 1 pt below expectations.
13)Hong Kong said its exports in June fell 9% y/o/y, well worse than the forecast of down 2.3%. Exports specifically to China dropped 10.6% y/o/y and to the US by almost 7%. Imports were down by 7.5% vs the estimate of negative 3%.
14)South Korea said its exports for the first 20 days of the month (so call this preliminary) fell 13.6% y/o/y, the 7th month in a row of y/o/y declines. The exports of semi’s plunged by 30% as the spat with Japan is certainly helping to make things worse. Imports were down by 10.3% y/o/y.
15)In Australia, its July manufacturing and services composite index fell to 51.8 from 52.5.