1)The Federal Reserve is responding the only way they know how, to ease policy at the prospect of an economic slowdown, this time due to ‘global developments.’ Separately, It is the rare central banker that cites financial markets and the desire not to spike the punch bowl for not wanting to cut rates. Quite refreshing to hear. Boston Fed President said that along with 50 yr low in the unemployment rate and inflation likely to rise to 2% in his opinion, “and with financial stability concerns being somewhat elevated given near record equity prices and corporate leverage, I do not see a clear and compelling case for additional monetary accommodation at this time.”
2)Pending home sales in June jumped 2.8% m/o/m which was well better than the estimate of up .5%. Growth was seen in all 4 regions, particularly out West with a 5.4% m/o/m increase. The overall index has improved to the best level since December 2017 but the y/o/y seasonally adjusted gain is still just 1.6%. That y/o/y increase by the way is after 17 straight months of declines.
3)Home price gains continued to slow in May (thus somewhat dated) according to Core Logic with a 3.4% y/o/y increase, the 4th month in a row below 4% and go back to 2012 the last time we saw this type of pace. I believe this is needed to bring in new younger buyers. Prices in Seattle outright fell 1.2% y/o/y and the other slow price increase markets are all SALT cap influenced, LA, NY, Chicago, San Diego and San Francisco. Not surprisingly, the best markets for price appreciation were Las Vegas, Phoenix, Tampa, Atlanta and Charlotte.
4)The Conference Board’s July Consumer Confidence index bounced to 135.7 from a revised 124.3 in June (which was down 7 pts from May) and that about 10 pts better than expected. This increase puts confidence at the best level since November. Most of the increase came from the Expectations component which rose about 15 pts m/o/m. The Present Situation was higher by 6.6 pts. The answers to the labor market questions were a main reason for the optimism. Spending intentions also improved but were still mixed. One year inflation expectations were 4.7% vs 5.1% in June and 4.6% in May. From an age standpoint, the main reason for the jump in confidence was from the cohort of those aged under 35 years old. In June, confidence in this demo was the lowest since 2016 and it rebounded by almost 21 pts. The Conference Board said “After a sharp decline in June, driven by an escalation in trade and tariff tensions, Consumer Confidence rebounded in July to its highest level this year. Consumers are once again optimistic about current and prospective business and labor market conditions.” The rally in the stock market to record highs I’m sure likely helped.
5)The PCE inflation gauge in June was as expected with .1% headline and .2% core m/o/m gains. That core gain is the 3rd month in a row with a 2 handle. Because of rounding though, the y/o/y increases of 1.4% headline (unchanged with May) and 1.6% core (up from 1.5% in May) were one tenth less than expected.
6)With both income and spending in June about as expected, the savings rate was 8.1% vs 8% in May and 8.1% in April. It was 8.8% in February. These are up from the 6 and 7 percent handles we saw before the benchmark revisions.
7)China’s manufacturing PMI index improved slightly but remained below 50 at 49.7 from 49.4 in June. The estimate was 49.6. Key components of new orders, employment, exports, and backlogs were all less than 50. Business Activity Expectations did rise a hair to 53.6 from 53.4 but it was 54.5 in May and 56.5 in April.
8)The Japanese unemployment rate did tick down by one tenth to 2.3% as the labor force participation did rise.
9)Japanese retail sales in June rose .5% m/o/m, above the estimate of up .2%. The question in coming months is how much will retail sales get a lift as consumers buy ahead of the VAT hike in October.
10)The unemployment rate in the Eurozone was 7.5% in June, the lowest since July 2008 but as expected.
11)Inflation in the Eurozone remained low in July. The headline CPI y/o/y gain was 1.1% vs 1.3% in May but that was as anticipated. The core rate slowed to .9% from 1.1% vs the estimate of 1%.
12)Eurozone retail sales rose 1.1% m/o/m in June, above the estimate of up .3% while May was revised down by 3 tenths.
13)Germany’s labor market remains pretty tight as their July unemployment rate held at 5%, the lowest since reunification and the number of unemployed rose 1k, a touch below the estimate of an increase of 2k.
14)The UK July consumer confidence index improved by 2 pts to -11. The estimate was for no change. This number was last above zero before the Brexit vote.
15)The July UK manufacturing PMI is still in contraction at 48, the same level as June, but that is higher than the forecast of 47.6.
1)Tariff man is back and more dangerous than ever to the health of our economy and that of the global one. No amount of Fed rate cuts will offset that.
2)The Fed is wasting bullets that are now blank as their cure won’t address the current economic disease. Instead they will just create further imbalances and addictions.
3)July payrolls grew by 164k, about as expected but the two prior months were revised down by 41k. But, the private sector was weaker than the July estimate. Private sector job adds totaled 148k vs the estimate of 165k and June was revised lower by 12k. The unemployment rate was unchanged at 3.7% as the labor force increase of 370k was almost offset by the 283k increase in the household survey. The all in U6 rate though fell to just 7% from 7.2%. Average hourly earnings rose 3.2% y/o/y, one tenth better than expected but diluted by a drop in hours worked and a slowdown in the pace of average weekly earnings growth to 2.6%. The participation rate ticked up by one tenth to 63% as did the employment to population ratio to 60.7%. The 3 month average is now 140k vs the 6 month average 141k, the 12 month average of 187k and the 2018 average of 223k.
4)July vehicle sales totaled 16.82mm at a SAAR, below the estimate of 16.9mm, down from 17.3mm in June and it’s the slowest pace since April.
5)Mortgage applications to buy a home fell 3% w/o/w and that’s the 3rd week in a row of declines. They are still up 6.4% y/o/y but it took a 75 bps drop in mortgage rates to get that modest of a gain. Refi’s were unchanged from last week but still up 84% y/o/y as lower rates has mostly helped refi’s.
6)The Q2 Employment Cost Index rose .6% q/o/q, one tenth less than expected and down from .7% in Q1. Digging right to the most important line item, private sector wages and salaries rose 3% y/o/y, the 4th quarter in a row with a 3 handle which is the best in years but is not accelerating.
7)The final July UoM consumer confidence index was a hair below the estimate of 98.5 at 98.4 but up from 98.2 in June. Current conditions fell from June but was offset by a rise in expectations. One year inflation expectations were 2.6% vs 2.7% in June.
8)Construction spending in June was weaker than expected with m/o/m declines for both private and public residential and non residential construction.
9)China’s services PMI fell to 53.7 from 54.2 and that was less than the estimate of 54 and the lowest since November 2018. New orders fell to 50.4 from 51.5 while backlogs were unchanged at 44.4. Employment was still under 50 but up .5 pt at 48.7 m/o/m. Business expectations fell to 59.8 from 60.6 and that’s the lowest since January.
10)Economic activity in Hong Kong contracted by .3% q/o/q in Q2 instead of rising by .9% as forecasted. Versus last year, growth was just .6% w/o/w, the same pace as Q1. Go back to 2009 the last time we saw growth this soft. Trade, business spending and services were all weak. Consumer spending was a positive, rising from Q1.
11)The BoJ did nothing as expected but Kuroda continues to express his burning desire to get to 2% inflation and AGAIN said they’d ease more if needed.
12)Japanese industrial production in June fell 3.6% m/o/m, about double the estimate of a 1.7% decline. Versus last year this figure has fallen for the 6th month in the past 7.
13)The Japanese labor market remains tight but a bit less so as the June jobs to applicant ratio fell for a 2nd month to 1.61. While this ratio is just off the highest level since the 1970’s, it does mark the first time since 2009 that it has fallen two months in a row.
14)Japan and South Korea continue their trade spat and that’s not a good thing for key technology related products. Japan has taken South Korea off its “white list.” Japanese companies now need to get licenses to ship product to South Korea. The President of South Korea Moon Jae-in said today Tokyo’s “selfish act will inflict tremendous damage on the world economy by disrupting global supply chains.”
16)Eurozone GDP in Q2 rose .2% q/o/q as expected and 1.1% y/o/y but a down trend from a .4% and 1.2% pace respectively in Q1.
17)The July Eurozone Economic Confidence index fell to .6 pts to 102.7 m/o/m to the lowest level since March 2016 but was about in line with expectations. Manufacturing softened further while the services component fell to the lowest level since September 2016. Retail and construction also softened with consumer confidence the only thing improving m/o/m, albeit still negative.
18)The direction of Brexit at this point with Boris Johnson now taking control looks more and more uncertain. The pound falls almost 2% on the week. The BoE is left powerless and paralyzed.
19)The July UK construction PMI did rise to 45.3 from 43.1 but that was below the estimate of 46 and still well below 50.
20)German consumer confidence for August fell to the lowest since April 2017.
21)The dollar amount of negative yielding securities surpasses $14 Trillion for the first time. The German curve went negative out 30 years before the 30 yr closed the week at exactly zero.