1)Wage gains are now showing up. Private sector wages/salaries rose 1% m/o/m in July after a .9% increase in June, .8% in May, .9% in April and .8% in March. That is a 13% annualized pace. Spending was up by .3% after a 1.1% increase in June. Combining the two puts the savings rate at 9.6% vs 8.8% in June and 9.8% in May.
2)The average 30 yr mortgage rate fell slightly on the week to 3.03% from 3.06% and mortgage apps rose. Purchases were up by 3% w/o/w after last week’s .8% drop. They are still down 16.4% y/o/y but on tougher comps and the other factors we know. Refi’s were higher by .9% after last week’s 5.3% decline and are up by 2.9% y/o/y.
3)New home sales in July totaled 708k, just above the estimate of 697k and June was revised up by 25k to 701k. With respect to supply, maybe it is catching up as months’ supply has risen for the 4th straight month to 6.2, about where the longer term average is. Prices though continue to explode higher, by 18.4% y/o/y.
4)Existing home sales in July totaled 5.99mm, above the estimate of 5.83mm and up from 5.87mm in June. Months’ supply remains anemic but a touch less so at 2.6 vs 2.5. Six is the long term average. The median home price rose 18% y/o/y, a slowdown from the 23% reads in the two prior months but still a crazy rate of gain. It is why the 1st time home buyer component has now fallen to 30%, the lowest I’ve seen and why rental price gains are accelerating.
5)The Bank of Korea decided to prioritize its proper focus on inflation and financial bubbles and unexpectedly hiked interest rates by 25 bps overnight to .75%. With respect to Delta, Governor Lee said citizens are adjusting to this new world. He said “We’ve decided to put the focus on reducing financial imbalances, and as we raise the rate, we are embarking on a process of normalizing policy in line with economic recovery.” He also hinted that more hikes are to come, “We won’t be doing things in a hurry, but we also won’t hold off.”
6)The Reserve Bank of New Zealand said it wasn’t the shutdowns that prevented them from raising rates and instead it was just the timing of the meeting on the day the shutdown was announced. Why is it not a factor? because “It’s likely, going into the future, that we’re going to be in an environment where we need to live with Covid in its various forms.” Also, “Lockdowns have been about delaying the timing of spending rather than taking away spending in total.”
7)Tokyo said its CPI in August fell .1% ex food and energy y/o/y vs the estimate of a .2% decline. As stated here many times, a sharp drop in mobile phone charges is the main reason. The offset was a sharp jump in hotel prices but that is because last year’s subsidies were not repeated.
8)Hong Kong’s trade date for July was about as expected with an export gain of 27% and an import rise of 26%. Exports specifically to China rose 26% and to the US by a similar amount.
9)Demand we know is still strong for semi’s and auto’s and that was reflected in South Korea’s export figure for the 1st 20 days of August as they rose 41% y/o/y after a 33% jump in July. Car exports were up by 37% and by almost 40% for semi’s. Some commodity exports were up by more than 50% y/o/y. Imports were up by 52%.
10)The Eurozone August services PMI held in at 59.7 from 59.8 in July and that was just above the estimate of 59.5. Manufacturing held above 60 at 61.5 vs 62.8 last month. The shortages and price pressures remain the challenge. “Supply delays, combined with surging demand, nevertheless once again played a key role in driving input costs higher. These costs were commonly passed on to customers in the form of higher selling prices for both goods and services. Measured overall, input cost and selling price inflation rates were the 3rd highest recorded over the past two decades, exceeded only by the increases seen in June and July.”
11)The August CBI industrial orders index was little changed at 18 vs 17 in July. The estimate was 16. The CBI said “Manufacturing activity remained strong this month, with total order books remaining firm and most sub-sectors reporting rising output.” But as we all know by now, “it is notable that stock adequacy deteriorated to a new record low for the 3rd consecutive month. Many firms are feeling the pinch from ongoing supply chain disruption, which also partly explains the continued strength in pricing pressures.”
12)August CBI retail sales index almost tripled to 60 from 23. The estimate was for a slight dip to 20. That is a level last seen in December 2014. CBI said “A ramping up in retail sales growth in the year to August shows just how much consumer demand continues to spur economic recovery. While sales growth is set to remain strong, a more definitive shift in household spending towards consumer services is anticipated later in the year, leading to greater normalization of growth in the retail sector.” Business though is still challenging because of all the supply side issues “with stock levels reaching another record low and import penetration falling. Disruption is being exacerbated by continued labor shortages, with many retailers reliant on younger employees currently awaiting their jab.” As for actual pricing, “average selling prices in August increased at the fastest pace since November 2017.”
1)By continuing to downplay inflation, particularly rampant housing inflation, Jay Powell has chosen to go down the path of Arthur Burns, the Fed Chair from 1970 to 1978. With respect to QE specifically and his still non-committal approach, I’m going to quote from Larry Summers Washington Post editorial yesterday titled “It’s Time for the Fed to Rethink Quantitative Easing.” He wrote: “The Fed is running QE at current levels not because anyone has analyzed that as appropriate given current conditions. Rather, there is a felt need to maintain credibility given previous commitments and a reluctance to accept the immediate pain and dislocation associated with changing course, coupled with faith in the ability to manage the situation down the road.” //www.washingtonpost.com/opinions/2021/08/26/its-time-fed-rethink-quantitative-easing/
2)July headline PCE rose .4% m/o/m and .3% at the core, as expected. Versus last year, headline PCE is up 4.2% and by 3.6% ex food and energy. Goods prices are 5.4% higher y/o/y while service inflation is up by 3.5%. Headline PCE is now up 5.3% from July 2019, so about a 2.6% annualized rate.
3)Initial jobless claims totaled 353k, about in line with the 350k estimate and vs 349k last week. As a print of 399k drops out, the 4 week average fell to 367k from 378k. PUA claims rose by almost 10k w/o/w to 118k. Delayed by a week, continuing claims rose 42k w/o/w to 2.86mm, 90k more than expected but little changed with last week which was revised up by 45k. Delayed by two weeks, continuing PUA rose by 105k w/o/w to 5mm. On the other hand, those still getting the emergency kind fell by 52k.
4)The US Markit August manufacturing and services composite index fell to 55.4 from 59.9 with both components lower. Manufacturing went to 61.2 from 63.4 and services fell by 4.7 pts m/o/m to 55.2. The service side “slowdown in activity growth was often linked to labor shortages, the spread of the Delta variant and some instances of supply chain disruption” according to Markit. Notwithstanding Delta and in the face of all these cost and labor pressures, “Business expectations across the service sector remained upbeat, as the degree of confidence in a rise in activity over the coming year ticked higher.” Manufacturing moderated slightly but remains at a high pace although is being impacted by factors we all know of. Markit said “material shortages and pressure on capacity led to a slowdown in output growth. The rate of increase in production was the softest since March. Challenges fulfilling new orders and an unprecedented deterioration in vendor performance led to the 2nd steepest rise in backlogs of work in the over 14 yr series history. Exacerbating the fresh record extension to delivery times, difficulties retaining employees and finding suitable candidates led to the slowest rise in workforce numbers in 2021 to date.” Directly with pricing, “The rate of input price inflation was the fastest on record (since May 2007) as suppliers hiked their charges again. Meanwhile, firms increased their own selling prices at the steepest rate in the series history in the hope of partially passing on higher costs to clients.”
5)Core durable goods orders in July was flat m/o/m instead of rising by .5% as forecasted but partially offset by a 3 tenths upward revision to June to 1%. Core shipments grew by 1%, 3 tenths more than expected and June was left unrevised at a 6 tenths gain. We know inventories are very low, not for lack of demand, and that was reflected in the inventory to shipments ratio which fell to 1.76 from 1.79 and that is the lowest since January. On a REAL basis, durable goods orders are down.
6)The Richmond manufacturing index for August declined to 9 from 27 and that was well below the forecast of 24. New orders, backlogs, capacity utilization, local business conditions, capital spending and employment all fell m/o/m. Wages though continued higher and now is at the highest level on record dating back to 1997. Inventories remained negative but less so. Vendor lead times fell 2 pts but remains very high. Prices paid were little changed, a touch off record highs while prices received jumped another 2.25 pts to a fresh record high. Six month expectations moderated as well for most categories but continued to rise for wages, prices paid and those received.
7)The final August UoM consumer confidence index was 70.3 vs 81.2 in July and is a 10 yr low. One yr inflation expectations were 4.6% vs 4.7% in July which was a 13 yr high. Longer term expectations were 2.9%, one tenth from matching a 10 yr high. Those who believe that income will offset inflation fell to the lowest level in 5 years. Employment and income expectations fell from July. Spending intentions for auto’s is at a 40 yr low and near one for major appliances and homes. UoM said in summary, “The losses were widespread across all demographic groups, regions, and all aspects of the economy. Personal financial prospects worsened due to smaller income gains amid higher inflationary trends…The extraordinary falloff in sentiment also reflects an emotional response, from dashed hopes that the pandemic would soon end and lives could return to normal without the reimposition of strict covid regulations.”
8)In the UK, services did slip to 55.5 from 59.6 while manufacturing was little changed at 60.1 vs 60.4. With services, “Survey respondents attributed higher levels of activity to the reopening of the UK economy and subsequent improvement in demand for business and consumer services. However, there were reports that staff shortages had constrained the recovery, while others commented on less favorable demand conditions.” With respect to the labor market, “despite a slowdown in output growth during August, service providers signaled a robust and accelerated rise in employment numbers.” On the manufacturing side, again it was the supply side that was the problem. “Latest data pointed to the 2nd sharpest downturn in supplier performance since the survey began in January 1992. There were widespread reports that escalating shipping costs and shortages of raw materials had led to intense price pressures.”
9)The German August IFO business confidence index fell to 99.4 from 100.7 and that was 1 pt below expectations. The internals were mixed though as the Current Assessment rose 1 pt m/o/m but was more than offset by the 3.5 pt decline in Expectations. The IFO said “In the hospitality and tourism sectors in particular, concerns are growing. On the other hand, companies rated the current situation somewhat better than in the previous month. Supply bottlenecks for intermediate products in the industry and concerns about rising numbers of infections are burdening the economy.”
10)German import prices rose 2.2% m/o/m and 15% y/o/y in July. Import prices are up a whopping 21% year to date annualized and we know the Germans HATE inflation.
11)German consumer confidence moderated by .8 pts to -1.2 instead of holding steady at -.5 as expected. Higher inflation and Delta were the stated reasons.
12)France said its August index fell 3 pts m/o/m to 110 and that was 2 pts below expectations but off a high level. Manufacturing and employment were the sources of strength as they continue to rise but services and retail slipped likely in response to Delta worries.
13)Sweden said its PPI for July jumped 2.7% in the month alone and 13.5% y/o/y. The annualized pace year to date is now 19%.
14)Spain said its July PPI rose 1.7% m/o/m and 15.3% y/o/y. Prices are now up at a year to date annualized pace of 22% this year.
15)Australia’s manufacturing index fell to 51.7 from 56.9 and services declined further below 50 at 43.3 vs 44.2. Services definitely suffered from the strict rules and while manufacturing did to some extent as well, “firms also reported that supply issues had constrained output. Indeed, suppliers’ delivery times continued to lengthen, and at the most severe pace since April 2020.”
16)In Japan, manufacturing was little changed at 52.4 vs 53 but services fell all the way down to 43.5 from 47.4. “Survey respondents commonly attributed weaker demand to ongoing Covid restrictions, coupled with sustained supply chain pressures.” There is hope though as “positive sentiment was solid overall as vaccination rates continued to increase markedly.”
17)The loss of US soldiers just as we are leaving is so tragic.
18)”’There’s no time to lose’, I heard her say. Catch your dreams before they slip away.” Thank you Charlie Watts.