1)The Administration realized that since most of the goods that will be sold in the holiday shopping season have already been ordered with pricing in place, US importers were going eat about all of the intended tariffs. Hence, shifting about $165b of the affected to mid December.
2)July retail sales at the core level (ex auto’s, gasoline and building materials), rose 1% m/o/m, 6 tenths more than expected and comes after a .7% gain in June. Sales gains were helped by online retailing, likely goosed by Amazon’s prime day which lifted sales up by 2.8% m/o/m and 19% y/o/y.
3)The Philly August manufacturing survey did surprise to the upside with a print of 16.8 vs the estimate of 9.5 but it’s down from the jump to 21.8 last month which was a total outlier after seeing the national number. New orders, backlogs, and inventories all rose. As for the 6 month outlook, it fell to 32.6 from 38 but well up from 21.4 in the month prior.
4)The NY manufacturing index was up slightly in August to 4.8 from 4.3 and that was a touch better than the estimate of 2. The internals were mixed. The 6 month outlook gave back its July gain. Capital spending plans on both equipment and tech did improve to around their 6 month averages.
5)Productivity in Q2 was better than expected with a 2.3% q/o/q annualized pace, above the estimate of 1.4%. I like to look at the y/o/y number here and it was up 1.8%, the best since 2015. For perspective, the 15 year average is 1.4%.
6)The MBA said purchase applications rose 1.9% w/o/w after falling for 4 straight weeks. Yes, they are up 12% y/o/y but it took an almost 100 bps decline in rates to get that. Again, refi’s are the main beneficiary as they spiked 20% w/o/w and 196% y/o/y and to a 3 year high.
7)The NAHB home builder survey for August rose 1 pt m/o/m to 66. The estimate was for no change. While the Present Condition rose 2 pts, the Expectations component fell by 1 pt. Prospective Buyers Traffic did rise 2 pts to exactly 50 and we have to assume the sharp drop in rates at least has more people looking. The NAHB said builders “continue to struggle with rising construction costs stemming from excessive regulations, a chronic shortage of workers and a lack of buildable lots.” The NAHB also said that notwithstanding the sharp drop in rates “we have not seen an equivalent higher pace of building activity because the rate declines occurred due to economic uncertainty stemming largely from growing trade concerns. Although affordability headwinds remain a challenge, demand is good and growing at lower price points and for smaller homes.”
8)The NFIB small optimism index for July did improve to 104.7 from 103.3 in June and vs 105 in May. Their chief economist Bill Dunkelberg said “Contrary to the narrative about impending economic doom, the small business sector remains exceptional. This month’s index is a confirmation that small business owners remain very optimistic about the economy but are being hamstrung by not finding the workers they need.” Keep in mind that this data came before the last tariff announcement.
9)According to Der Spiegel, German is lining up a deficit spending stimulus plan if a recession ensues. They certainly have fiscal room for it.
10)The UK reported a good jobs number for the 3 months ended June as a net 115k were created, almost twice the estimate of 60k but the employment rate did tick up by one tenth to a still very low 3.9% as participation rose. Positively too was the wage growth which grew by 3.9% y/o/y ex bonus’ and that is the quickest since June 2008.
11)UK retail sales in July ex fuel oil rose .2% m/o/m, better than the expected decline of .2%.
12)As excessive credit growth is their problem, China announced that credit growth slowed in July and was well below expectations. Total financing came in at just above a trillion yuan at 1.01T vs the estimate of 1.625T. Of this, bank loans totaled 1.06T vs the forecast of 1.275T. Money supply growth as measured by M2 was also slower than expectations at 8.1% vs consensus of 8.4%.
13)Singapore said its non oil exports in July fell 11.2% y/o/y, the 6th month in the past 7 that is down but that wasn’t as bad as the forecast of a 15.4% decline. Electronic exports in particular fell by 24.2% after a 32% drop in June but the estimate was for a plunge of 33.2%.
14)Japanese core machinery orders, an always very volatile data point, jumped 13.9% m/o/m after a 7.8% decline in May. The estimate was for a decline of 1%.
15)Australia saw better than expected job growth in July of 41.1k, well above the estimate of up 14k.
16)For those Springsteen fans, this is a must see: //www.firstshowing.net/2019/official-trailer-for-amazing-springsteen-musical-blinded-by-the-light/
1)The potential longer term impact of our fight with China comes from the Cisco conference call: “We certainly saw an impact on our business in China this quarter. A lot of state owned enterprises, I think where they have options, they’re choosing local manufacturers. We don’t know if that’s a short term thing or a long term thing.”
2)The July Cass Freights shipping index fell 5.9% y/o/y and that now marks the 8th month in a row of declines. Cass Freight said in its release, “we repeat our message from last two months: the shipments index has gone from ‘warning of a potential slowdown’ to ‘signaling an economic contraction.’” Here are more details on where the issues lie: 1)”We are concerned about the severe declines in international airfreight volumes (especially in Asia) and the ongoing swoon in railroad volumes, especially in auto and building materials.” 2)”We see the weakness in spot market pricing for transportation services, especially in trucking, as consistent with and a confirmation of the negative trend in the Cass Shipments Index.” 3)As volumes of chemical shipments have lost momentum, our concerns of the global slowdown spreading to the US and the trade dispute reaching a ‘point of no return’ from an economic perspective grow.”
3)Initial jobless claims totaled 220k, 8k more than expected and up from 211k last week (revised up by 2k). This lifted the 4 week average to 214k from 213k, a 4 week high.
4)CPI for July rose .3% m/o/m both headline and core. The headline figure was as expected while the core rate was one tenth more. Versus last year the headline number rose 1.8% y/o/y and the core rate was higher by 2.2%. That core rate matches the most since July 2018. Services inflation ex energy, rose .3% m/o/m for the 4th month in the past 5 and is up 2.8% y/o/y. Of note now is the rise in goods prices ex food and energy, likely due in part to the tariffs. This category rose .2% m/o/m after a .4% rise in June and is now up .4% y/o/y.
5)Import prices in July were very modest but above the negative prints that were expected both with energy and without.
6)Housing starts in July totaled 1.191mm, well less than the estimate of 1.256mm and June was revised lower by 12k to 1.241mm. The m/o/m decline was all in the multi family sector as single family starts did rise by 11k from June. Multi family also mostly drove the permit side but to the upside as they jumped by 89k m/o/m but only after an 80k drop in June. Single family permits rose 15k m/o/m to the most since November.
7)Within the Philly manufacturing index, the employment component fell to the lowest level since November 2016 and the workweek was down too m/o/m.
8)Within the NY manufacturing survey, employment was negative for a 3rd straight month and the workweek also went below zero. Both NY and Philly follow the decline in hours worked seen in the July payroll figure.
9)The UoM consumer confidence index took a hit in August as it fell to 92.1 from 98.4 and that was below the estimate of 97. It’s also the lowest since January. Most of the decline was in the Expectations component which fell 8.2 pts while current conditions were down by 3.3 pts. Income expectations rose but employment expectations fell. Tariffs and the Fed rate cut hurt confidence. As for the latter, “The main takeaway from consumers from the first cut in interest rates in a decade was to increase apprehensions about a possible recession. Consumers concluded, following the Fed’s lead, that they may need to adopt a precautionary spending outlook in anticipation of a potential recession.” Those that said it’s a good time to buy a vehicle fell 6 pts to the lowest since November 2013. Those that said it’s a good time to buy a major household item dropped also by 6 pts to match the weakest since October 2014. The further drop in mortgage rates did nothing to encourage people to buy as there was no change in intentions to buy a home and instead there was a 9 pt jump in those that said it’s a good to sell a house to the most 1992 when this question was first asked. One year inflation expectations rose one tenth to 2.7%.
10)The fly in the Q2 productivity report was that what drove the rise in productivity was a decline in Employee Hours q/o/q.
11)Helping to partly explain the reduction in corporate profit margins in Q2, unit labor costs y/o/y in Q2 was up 2.5%, the most since Q1 2018.
12)Industrial production in July fell .2% m/o/m vs the estimate of up .1% but this was mostly offset by a 2 tenths upward increase to the June figure. Within this, manufacturing production fell .4% m/o/m, one tenth more than expected but June was revised up by 2 tenths. Capacity utilization fell to 77.5% which is the lowest since November 2017 led by a decline in manufacturing.
13)In June, foreigners again were net sellers of US Treasuries, totaling $7.7b, driven again by central banks (instead of private entities). This brings the year to date selling to a net $28.2b. While many other buyers have completely offset foreign selling, we still need all the help we can get considering the amount of debt we need to sell in coming years.
14)ECB member Olli Rehn’s indication this week that they are going big and bold next month, with rates so well below zero, the delusion within that institution is truly breathtaking in thinking there is need for even lower rates and more QE.
15)German confirmed as expected that its economy contracted in Q2 by .1% q/o/q after a .4% increase in Q1. This brings the Eurozone Q2 GDP performance at up .2% q/o/q. Trade was the main drag not surprisingly.
16)The German ZEW said its business confidence index plunged to -44.1 from -24.5 and that was well weaker than the estimate of -28. That’s the lowest since late 2011. Current conditions dropped to -13.5 from -1.1 and that was about double the estimate of -6.3. The ZEW said “The ZEW Indicator of Economy Sentiment points to a significant deterioration in the outlook for the German economy. The most recent escalation in the trade dispute between the US and China, the risk of competitive devaluations, and the increased likelihood of a no deal Brexit place additional pressure on the already weak economic growth. This will most likely put a further strain on the development of German exports and industrial production.”
17)UK headline CPI for July rose 2.1% y/o/y, two tenths more than expected and the core rate was up 1.9% y/o/y, one tenth above the estimate. PPI was also just above expectations.
18)UK July jobless claims figure rose another 28k.
19)Global yields collapse further. The Japanese Topix bank stock index closes the week down 2.5% after the 2.8% drop in the week prior and the 2.8% fall in the week before that. As of this writing the Euro STOXX bank index is down 2.4% this week after last week’s 4% decline and after the 6.4% drop in the week before. The US BKX index also as of this writing is down 4.4% on the week after the 3.6% fall last week and the 5% decline in the week prior.
20)China said industrial production slowed to a growth rate of just 4.8% y/o/y, less than the estimate of 6%, down from 6.3% in June and it’s the slowest since 2002. Manufacturing and infrastructure investment led the weakness. Retail sales softened to a growth rate of 7.6% y/o/y from 9.8% in June and that was 100 bps below the forecast and driven by a slowdown in auto sales. Fixed asset investment ytd was 5.7%, about in line with expectations.
21)Mauricio Macri got walloped in the Argentina primary last Sunday. I hope the citizenry gives him more time via another term. The peso plunged by 19% this week and the Merval index fell 29%.