
Positives
1)The August Markit manufacturing and services composite index rose to 54.7 from 50.3 with manufacturing rising to 53.6 from 50.9 and services at 54.8 from 50 (first time above 50 since January). With services, “greater client demand and increased marketing activity led to a renewed rise in overall new business.” Export orders also improved as did backlogs. Employment also grew. The overall 12 month outlook though did moderate slightly. With respect to pricing, “despite a sharp and accelerated increase in cost burdens, competitive pressures led to a softer increase in selling prices.” On manufacturing and to start with inflation pressures, “the rate of input cost inflation accelerated notably in August to the fastest since January 2019. Manufacturers partially passed on some of their costs to their clients through a solid rise in selling prices.” Production and new orders rose as did export orders and employment. As for the one year outlook, it was rose “amid hopes that client demand will continue to increase as economies start to reopen.”
2)The Cass Freight shipments index in July fell by 13.1% y/o/y. This though is less negative as it fell by 17.8% y/o/y in June and to this they said “Everything in the freight world, although mostly still below year ago volume levels, seems at least to be moving in the same direction – up.” They had the typical caveats in today’s world, “The economy is not yet ‘open’ again, and much uncertainty surrounds the sustainability of the government intervention/stimulus. Until we get more confidence back, expect consumer spending to be held in check a bit longer.”
3)According to the MBA, purchases applications were little changed from last week, up .8%, but still are up 27% y/o/y.
4)The August NAHB home builder index rose to 78 from 72 and that was 4 pts above expectations. This diffusion index measuring the direction of the mood, rather than the extent, matches the highest level on record dating back to the 1990’s. All three components were higher. Present conditions jumped 6 pts to 84 while the Future outlook was up by 3 pts to 78. Prospective Buyers Traffic, both reflecting greater demand and open houses actually open, rose 8 pts to 65. The NAHB said “Single family construction is benefiting from low interest rates and a noticeable suburban shift in housing demand to suburbs, exurbs and rural markets as renters and buyers seek out more affordable, lower density markets.”
5)July housing starts totaled 1.496mm which was well above the estimate of 1.245mm and up from 1.22mm in June (revised up slightly from 1.186mm). A big piece of the upside was in the multi family sector as starts here spiked by 205k to 556k, the highest since January when it printed 628k and vs 533k in February. Single family starts were still higher but by 71k to 940k. It stood at 1.034mm in February. Permits were strong for both with single family up by 143k to 983k, just below the 994k seen in February. Multi family starts were up by almost 100k to 512k, the highest since January.
6)Existing home sales in July totaled 5.86mm, well above the estimate of 5.41mm and likely reflects contract signings in January thru June (not sure many were signing contracts in late March and April) which captures part of the shutdown and part of the reopening. This is the biggest number of closings since December 2006. This overwhelmed the rise in inventory and drove months’ supply down to 3.1 from 3.9. This, along with lower mortgage rates, drove the median home price to a record high of $304,100 and that’s an increase of 8.5% y/o/y. The investor category, which also includes 2nd home buyers, came back as they totaled 15% of purchases vs 9% in June and 14% in May while the first time buyer made up 34% of sales vs 35% in June. The NAR said what we know, “With the sizable shift in remote work, current homeowners are looking for larger homes.”
7)After months of massive selling, foreigners came back in June and bought $29b of US Treasury notes and bonds.
8)While they still might follow thru, the FOMC minutes revealed that the majority of the committee were not big fans of yield control but much of it was due to logistical reasons rather than intellectually. They are already verbally conducting it with Powell saying he’s not thinking about not thinking about raising rates and physically by buying $80b of US Treasuries per month.
9)The August UK manufacturing and services composite index rose to 60.3 from 57 and that was 3.4 pts above the estimate with both manufacturing and services higher. The UK has not had any new shutdowns or reclosings but the nervousness is still there. “Survey respondents often noted that it could take more than a year to return output to pre-pandemic levels and there were widespread concerns that the honeymoon period for growth may begin to fade through the autumn months.” This was reflected in the outlook with “confidence about growth prospects dipping for the 1st time since the slump in March.” Employment fell “with survey respondents frequently noting that redundancy programs had been running in tandem with efforts to return some staff from furlough.”
10)Taiwan July exports rose 12.4% y/o/y, well better than the estimate of up 3.1%, helped by semi/electronic exports, especially to China where exports rose by almost 17% y/o/y. Exports to the US were higher by 22%.
11)Singapore said its non oil exports in July rose 1.2% m/o/m which was better than the estimate of down .6%. But, this was completely offset by a June revision to -1.4% from the initial print of up .5%.
Negatives
1)Initial jobless claims got back above 1mm, totaling 1.11mm, up from 971k last week (revised up by 8k) and higher than the estimate of 920k. Continuing claims, delayed by one week, did fall to 14.8mm from 15.5mm and vs the estimate of 15k on the dot. Pandemic Unemployment Assistance after a few weeks of declines rose to 543k from 490k but these are not seasonally adjusted.
2)The Philly manufacturing index was below expectations but only slightly. At 17.2, it compares with 24.1 in July and the estimate of 20.8. The internals are very volatile month to month but we did see declines in shipments, new orders, backlogs, employment and the workweek. Inventories were less negative and prices paid and received were little changed m/o/m holding around the highest levels since February. As for the 6 month outlook, after falling by 30 pts in July m/o/m to 36 it rose a touch to 38.8. The 6 month average, to smooth out, is 44.8 for perspective. Capital spending plans moderated by 3.6 pts to 23.
3)The August NY manufacturing index slowed to 3.7 from 17.2 and that was well below the estimate of 15. New orders fell back below zero, declining by almost 16 pts and backlogs went from -.6 to -14. Inventories went further below zero to -10.7. Employment was mixed as the number of employees hired rose slightly to 2.4 from .4 but the average workweek fell and remains less than zero. Both prices paid and received rose m/o/m with the latter at a 5 month high. As for the 6 month outlook , it fell a touch to 34.3, a 3 month low from 38.4 with slight declines in capital spending plans.
4)With the 7 bps rise in mortgage rates w/o/w coincident with the increase in the 10 yr yield, refi’s fell 5.3% w/o/w and is down for the 3rd week in the past 4. The y/o/y increase slowed to 38%.
5)The July AIA Architecture Billings Index remains well below 50 at 40, unchanged from June. They said “It’s clear the pandemic continued to contribute to uncertainty in business conditions, especially as cases spiked in states across the country. While clients expressed interest in exploring new projects, many are hesitant to sign onto new contracts with the exception of the multifamily residential sector, which came close to seeing billings growth in July.”
6)Japan’s composite index saw no change at a still below 50 level of 44.9. Manufacturing rose slightly to 46.6 while services slipped a touch to 45. Markit said “Demand continued to be adversely affected by subdued trade flows and social distancing measures. New orders fell sharply in August, accompanied by a substantial drop in export sales. The downturn remains broad based across the manufacturing and services sectors, with the latter continuing to lead the decline midway through the 3rd quarter.” Employment also fell and “The prospect of a solid recovery remains highly uncertain as Japanese firms were pessimistic about the business outlook on balance during the August.”
7)Japanese exports in July, a month where things should have started to rebound globally, fell 19.2% y/o/y, only a touch better than the estimate of a drop of 20.9% y/o/y. The only positive was that it was less worse helped by a rise in exports to China. Imports were down by 22.3% y/o/y, about in line with the expected decline of 23%.
8)Old news as we’re half way done with Q3 and this weakness was completely self inflicted but Japan’s Q2 GDP figure showed a 28% q/o/q annualized decline, about in line with the estimate of -27% with greater weakness in consumer spending than forecasted offsetting capital spending which wasn’t as bad as feared.
9)Australia’s composite index dropped a sharp 9 pts to 48.8 so back in contraction driven by a 10 pt decline in services while manufacturing was little changed, still above 50 at 53.9. This is due to some reclosings, particularly with the shutdown of the Victoria region.
10)The Eurozone composite index softened to 51.6 from 54.9 with most of the decline led by services too as this component fell to 50.1 from 54.7 while manufacturing was down a hair to 51.7 from 51.8. The headline estimate was 55. Markit said “The recovery was undermined by signs of rising virus cases in various parts of the euro area, with renewed restrictions impacting the service sector in particular. Manufacturers continued to post marked increases in output and new orders” likely in part to rebuild inventories. Employment was softer.
11)The UK CBI August industrial orders number only improved to -44 from -46. The estimate was -34. The CBI chief economist said “This has been another difficult month for manufacturers. Activity continues to be poor and order books severely depressed, although the worst of the decline seems to be behind us.”
12)The UK core CPI in July rose 1.8% y/o/y, well more than the estimate of up 1.2% and is a quicker rate than the 1.4% seen in June. The headline rate was up by 1% y/o/y vs the forecast of up .6% and vs .6% in June. Producer prices also rose more than expected with its 1.8% m/o/m spike vs the forecast of up 1.1% and June was revised up by 6 tenths.