1)While still adding to its balance sheet for another month and half and not hiking until then, Powell expressed a more heightened concern with inflation and is finally on the cusp of doing something about it.
2)Initial jobless claims after last week’s spike to 290k (revised from 286k), moderated back to 260k vs the estimate of 265k. Smoothing this out has the 4 week average at 247k vs 232k last week. Delayed by a week, continuing claims rose 51k after last week’s 69k increase and vs the January 1 print of down 198k. It stands at 1.675mm which is about where it was in January 2020.
3)According to the Employment Cost index, private sector compensation in Q4 rose 1.2% q/o/q. On a y/o/y basis, private sector wages/salaries were up 5% and benefits by 2.9% bringing total benefits higher by 4.4% y/o/y. Government employees saw a more modest 2.6% y/o/y increase in total comp.
4)In the December personal income report, income was up by .3% m/o/m but look at just the private sector where wages were up by .8% m/o/m. On a 6 month annualized basis, private sector wages/salaries in this measurement is up by 10% with particular strength in services in December.
5)Pending home sales fell 3.8% m/o/m in December, worse than the estimate of down a slight .4%. All four regions saw m/o/m declines but there was an outsized decline out West with its 10% fall. The NAR is blaming the lack of inventory but we can’t discount also the spike in home prices. And now we have the rise in mortgage rates too but that more showed up in January. On the affordability issue, the NAR said “The combination of a more measured demand and rising supply will bring housing prices better in line with wage growth.”
6)New home sales in December totaled 811k, 50k more than expected but partially offset by a downward revision of 19k to 725k. As this number is volatile each month, we’ll smooth it out to see a 3 month average of 728k vs the 6 month average of 714k and the 2021 average of 765k. The increase was driven by ‘homes not started.’ While the number of homes for sale rose, as the pace was less than contract signings months’ supply fell to 6 from 6.6. The median price was up 3.4% y/o/y but this is also very volatile month to month and mix has a big influence. There was a slight downtick in home sales priced over $500k and a jump for those priced between $200-$299k.
7)The US economy grew by 6.9% in Q4 annualized after a 2.3% print in Q3 and above the estimate of 5.5%. The inflation deflator was up a sharp 6.9%, 9 tenths more than expected which means that nominal GDP exceeded expectations even more. It was the inventory line that was where the upside surprise came from as it added 490 bps to GDP. Personal spending was in line with expectations, adding 225 bps. Spending on equipment and residential real estate added nothing to GDP. Spending on IP added 50 bps. Trade too added nothing as there was no contribution on a net basis. Government spending, both federal and state, was a drag on GDP by 50 bps.
8)If you have a microscope, home price inflation moderated ever so slightly in November according to S&P CoreLogic. Their home price index saw an 18.8% y/o/y increase vs 19% in October, and it’s the 3rd month in a row of modest deceleration. The m/o/m gain for the 20 city index was also up 1.2%. A 32% increase in the Phoenix area led the way, followed by Tampa, Miami, Las Vegas and Dallas. DC, Minneapolis, Chicago, Boston and NY saw the slowest gains in the low teens.
9)The January Conference Board consumer confidence index fell 1.4 pts m/o/m to 113.8 but that was above the estimate of 111.2. The two main components were mixed as the Present Situation rose 3.4 pts while Expectations fell almost 5 pts. One yr inflation expectations fell one tenth to 6.8%. The answers to the labor market questions were mixed. Spending intentions improved with plans to buy an auto, a home and/or a major appliance all up.
10)While the Bank of Canada did not hike rates, they said one is coming in March. They ended QE last year.
11)Vietnam’s December PMI rose to 53.7 from 52.5. Vietnam has backed away from its strict covid approach after learning its lesson last year. Markit said “Both output and new orders increased at sharper rates in the opening month of the year as customer demand continued to improve. In each case the rate of expansion was the sharpest in 9 months.” Export orders rose to the best since November 2018. Price pressures did ease but “a key factor behind rising input costs was higher charges for freight and international shipping.”
12)The January CPI in Tokyo was up .5% y/o/y headline but down by .7% ex food and energy. Lower hotel prices because of omicron and a tough comparison last year along with lower mobile phone fees (which cycle out in April) were the factors. Higher energy and food prices, exaggerated by the weaker yen, is what kept the headline CPI positive and we’ll be adding back more than 100 bps after the cell phone fee situation reverses.
13)Singapore said its December industrial production exceeded expectations led by a 162% y/o/y increase in pharma output.
14)After a hot inflation read, the Monetary Authority of Singapore tightened monetary policy by shifting up its currency band which would allow for a stronger Singapore dollar in order to cushion higher inflation. The timing was unexpected because they did not have a scheduled meeting. The MAS said “This move builds on the pre-emptive shift to an appreciating stance in October 2021 and is appropriate for ensuring medium term price stability…While core inflation is expected to moderate in the 2nd half of the year from the elevated levels in the 1st half as supply constraints ease, the risks remain skewed to the upside.”
15)South Korea’s December IP was up 4.3% m/o/m, well more than the estimate of down .3%.
16)The French economy expanded by .7% q/o/q and 5.4% y/o/y in Q4, above expectations helped by consumer spending.
17)Hopes that omicron is going away soon helped to lift the January German IFO business confidence index to 95.7 from 94.8 and that was 1.2 pts above the estimate. The Current Assessment fell .8 pts but the Expectations component led the way with an increase to 95.2 from 92.7. IFO said simply, “The German economy is starting the new year with a glimmer of hope.”
18)Consumer confidence in Germany was up slightly to -6.7 from -6.9 and that was just above the estimate of -8. GFK is referring to this as stabilization and said “Despite rising incidences and inflation, consumers are once again showing some optimism at the beginning of the year. In particular, they are hoping for a slight alleviation in price trends, as in January 2022 the base effect resulting from the January 2021 reversal of the VAT cut will mitigate the inflation rate to some degree. Nevertheless, consumers price expectations remain significantly higher than in recent years.”
19)The UK CBI industrial orders index for January was unchanged at 24. The estimate was 22. No relief though on pricing. The CBI said “The manufacturing sector continues to face intense cost and price pressures, with firms reporting average costs in the quarter to January growing at their quickest rate since April 1980. Firms expect costs to grow at a similar pace over the next three months.”
20)May this weekend’s football games be as great as last weekend.
1)You can drive a truck thru 7% consumer price inflation and a zero fed funds rate and a nearly $9 Trillion balance sheet and it’s because of the Fed waited so long in acknowledging reality that they will now be double tightening, just as they did in 2018.
2)December headline PCE rose 5.8% y/o/y, the highest in 40 years and was up .4% m/o/m. The core rate was higher by .5% m/o/m as expected. Versus last year, core PCE was higher by 4.9%, the fastest pace since 1983.
3)Personal spending in December declined by .6% m/o/m as expected but off a lower base as November was revised down by 2 tenths. This is a NOMINAL number and thus real spending was worse, down by 1% m/o/m.
4)Core durable goods orders in December were flat m/o/m vs the estimate of up .4% but that was just about fully offset by a 3 tenths upward revision to November.
5)The MBA said mortgage apps fell 7.1% w/o/w with another jump in mortgage rates to an average of 3.72% for a 30 yr. That’s the highest since March 2020. Most of the decline was driven by a 13% fall in refi’s w/o/w and 53.3% y/o/y. Purchases moderated by 1.8% w/o/w after rising by 7.9% in the week prior. They are still down 11% y/o/y.
6)The January Markit US manufacturing and services composite index fell to 50.8 from 57 with most of the decline driven by a nearly 7 pt decline in services to just above 50 at 50.9. Manufacturing slipped 2.7 pts to 55. With services Markit said, “labor shortages, employee absences and the omicron wave reportedly weighed on growth.” They said the demand side hung in pretty well but did moderate. “Demand conditions held relatively firm, however, as new business rose strongly. The rate of growth was the softest for four months, but was broadly in line with the series average. New business from abroad expanded for the 3rd month running.” Employment rose “at a modest pace.” Backlogs fell to the “slowest since May 2021.” With respect to pricing, on the input side it fell to the slowest in almost a year but “the uptick in costs was linked to supplier price hikes and soaring wage bills.” On manufacturing, “new order growth slowed to the softest rate since July 2020. Alongside labor and material shortages stymieing the upturn, firms noted that customers were keen to reduce spending amid sharp hikes in costs.” With the capacity side, “supply chain issues abounded, which further hampered production and weighed on client demand.” Specifically on prices, “The rate of cost inflation eased again in January and was the slowest since May 2021. Although still marked overall, there were signs of pressure waning. Similarly, the pace of charge inflation softened and was the least marked since April 2021.”
7)The January Richmond manufacturing index fell to 8 from 16 and that was below the estimate of 14. New orders, backlogs, and inventories all fell. Supplier lead times jumped as did both prices paid and received which rose to record highs dating back to 1997. Wages were up too to the 2nd highest on record while employment fell as “firms continued to report challenges finding the skills that they need.” Capital spending plans were mixed.
8)The January final UoM consumer confidence index was revised to 67.2 from 68.8 initially and vs 70.6 in December. That is a 10 yr low with both main components lower from December. Inflation expectations held with their early month read at 4.9% and 3.1% respectively for one yr and 5-10 yr expectations. Employment softened while income expectations were unchanged. Spending intentions all fell. Also of note according to the UoM, “Overall confidence in government economic policies is at its lowest level since 2014.”
9)Taiwan’s manufacturing PMI fell a touch to 55.1 from 55.5. Markit said “Robust client demand, particularly in overseas markets, supported a further solid increase in total work, while firms continued to add to their payrolls. However, shortages of inputs remained a key concern, and supplier delays weighed on growth of output and drove a further steep increase in backlogs of work. At the same time, companies reported further rapid rises in both input costs and output charges.”
10)The Japanese manufacturing and services index for January fell to 48.8 from 52.5 and was all driven by a sharp drop in services in response to omicron. The manufacturing component actually rose .3 pts m/o/m. With respect to the outlook which still remained positive for both, manufacturing sentiment fell to a 5 month low while that for services fell to a one yr low.
11)In Australia, its January composite index fell sharply to 45.3 from 54.9 and also because of covid as the services component fell to 45 from 55.1. The manufacturing index slipped to 55.3 from 57.7. Markit said “Supply issues meanwhile remained prevalent, with lengthening of lead times, reports of supply shortages and labor constraints persisting and made worse by the latest surge in covid cases. This has led to input price inflation worsening which may well lead to further selling price pressures, especially when demand later recovers.”
12)Australia said its CPI in Q4 (that’s how they report it) rose 3.5% y/o/y, 3 tenths more than expected and up from 3% in the prior quarter. Their ‘trimmed mean’ CPI was up by 2.6%, also 3 tenths above the estimate and vs 2.1% in the quarter before.
13)Germany’s economy shrunk by .7% q/o/q in Q4, worse than the forecast of a decline of .3%. Versus last year, it grew by 1.4%. A combination of omicron in December which hurt consumer consumption and continued supply problems infected the quarter. Likely too was the economic slowdown in China and who is such a big customer of Industrial Germany. Higher energy prices didn’t help either.
14)The January Eurozone Economic Confidence index fell to 112.7 from 113.8 and that was an unexpected fall relative to the estimate of 114.5. Both manufacturing and service components fell as did construction while consumer confidence was little changed and retail sales got back what it lost in December which was hurt by omicron.
15)The January Eurozone manufacturing and services composite index fell to 52.4 from 53.3 and also led by a drop in services as this component was down by almost 2 pts to 51.2. Manufacturing was up 1 pt to 59 and better than the estimate of 57.5. Markit said “most encouraging is the further easing of manufacturing supply chain delays despite the renewed virus wave. Not only has the alleviating supply crunch helped factories boost production, but cost pressures in manufacturing have also moderated.” That said however, “prices for goods and services are rising at a joint record rate as increasing wages and energy costs offset the easing in producers’ raw material prices, dashing hopes of any imminent cooling of inflationary pressures.”
16)The January UK PMI was little changed at 53.4 from 53.6 as services fell by .3 pts as they are powering thru omicron but not without headaches and manufacturing was down by 1 pt to 56.9. Markit said “With hospitality, leisure and travel all struggling due to omicron restrictions, this offset resilient growth in business and financial services. Manufacturers outperformed service providers as a sustained turnaround in materials availability led to the fastest rise in production volumes for 5 months. However, all types of private sector businesses commented on capacity constraints and rising backlogs of work as a result of staff absences in January.” With respect to prices, “Input cost inflation remained stubbornly high and accelerated to its 2nd fastest since the survey began 24 yrs ago (exceeded only by last November’s peak). This largely reflected stronger cost pressures in the service sector. In contrast, manufacturers reported a slowdown in purchase price inflation to its weakest since April 2021.”
17)French consumer confidence for January fell 1 pt as expected to 99. It stood at 105 in February and bottomed at 90 in May 2020.