This will be my last post until after Labor Day. Enjoy the next week whatever you might be doing.
Positives
- Initial jobless claims totaled 234k, 4k less than expected and up a touch from 232k last week. This brings the 4 week average down to 238k from 241k, the lowest since mid May. Continuing claims, delayed by a week, were unchanged.
- The August Markit US manufacturing and services composite index rose 1.4 pts to 56, the best since May 2015. The breakdown though was mixed as manufacturing fell .8 pts to 52.5 but was more than offset by a 2.2 pt increase in the services component to 56.9. Markit highlighted the bifurcation in the release by saying “The US economic growth story remained a tale of 2 sectors in August.”
- While very mediocre, I’ll put this on the positive side because core durable goods orders were at least in line with expectations with a .4% m/o/m gain. But, they are just back to where they were in November 2015 and in early 2006. Positively, shipments jumped by 1% vs the forecast of up .2% and June was revised up by 5 tenths. This gets directly plugged into the GDP calculation so both Q2 and Q3 should be revised up.
- While there was no m/o/m change in the August Richmond manufacturing survey, it came in 4 pts better than expected at 14. Of note though, all the 6 month outlook components were down m/o/m.
- Eurozone manufacturing and services composite index was 55.8 in August vs 55.7 in July. The estimate was 55.5. Germany’s index was up 1 pt m/o/m while France was flat. Markit did cite some bifurcation in the data. “There was further evidence of growth cooling in the service sector, where both business activity and new orders rose at the weakest rates since January. However, this was counterbalanced by further impressive manufacturing data as goods producers were able to secure new export orders at the fastest pace in 6 ½ years.” On pricing, “both input costs and output prices increased at faster rates in August” but the gains were modest.
- The UK CBI industrial orders figure rose 3 pts m/o/m in August to 13 and that was 5 pts more than expected. This is the 2nd highest number since 1995. The inflation component saw selling prices jump by 10 pts to 19, getting back almost all of the 14 pt fall in July. The CBI said “There are further signs that exporters are feeling the benefit from the lower pound in this month’s figure, and output growth is expected to power on over the coming quarter…But after a brief pause last month, expectations for selling prices have rebounded, indicating that the squeeze on consumers is set to persist.”
- Thanks to Emmanuel Macron, French business confidence continues its slow creep higher. The August index was up 1 pt to 109, the highest level since early 2011 and that was 1 pt better than expected. The manufacturing component is just 2 pts from the best level since 2001.
- In Japan, its manufacturing PMI index from Markit in August rose .7 pts to 52.8 which is right at the average level year to date. Markit said the growth was “supported by a mix of strengthened demand from both domestic and external sources.”
- No one should be surprised that Janet Yellen said nothing new in JH. We already know the committee wants to start QT in September because they’ve all told us and the December meeting is still way too far off to debate the direction of the fed funds rate then.
Negatives
- July new home sales totaled 571k, about 40k less than expected and half way offset by a 20k home increase upward to the June revision to 630k. With the monthly volatility in this data set, the 3 month average is 606k vs the year to date average is 609k. Both are up about 8.5% above the 2016 average of 561k which happens to be similar to the y/o/y gains in mortgage applications. This July print though is the lowest since January. ‘Homes for sale’ rose to the most since June ’09 and combined with the m/o/m sales drop sent months’ supply up to 5.8. The median home price rose 6.3% y/o/y to $313,700. There is still no pickup in sales for homes priced below $300k where a lot of the demand lies but where supply is lacking.
- The MBA said mortgage applications to buy a home fell 1.5% for a 2nd straight week which takes the index to the lowest level since mid February although they are still up 8.7% y/o/y. Refi apps were flat but down 38% y/o/y even though the average 30 yr mortgage rate sits at the lowest level since November.
- Existing home sales in July, likely capturing contracts signed in April thru June, totaled 5.44mm annualized, 110k below expectations and down from 5.51mm in June. That is the slowest pace of closings since August 2016. Months’ supply held at 4.2 as the number of homes for sale fell slightly with the decline in sales. The pace of home price gains remained robust as the median price was higher by 6.2% y/o/y, although it dropped sequentially off the June record high. First time buyers made up 33% of sales vs 32% in June and 33% in May and still well below the historical average of around 40%.
- The German IFO business confidence index for August was a hair below expectations at 115.9 vs the estimate of 116. The very slightest drop was because of a fall in the Current Assessment while Expectations were up. IFO said simply, “Germany’s economy remains on track for growth.” Thanks to ridiculously low interest rates, the construction index “continued its record breaking run.”
- Investor expectations of the German economy in August fell to 10 from 17.5. That was 5 pts below expectations and the smallest print since October. The Current Situation held in at 87.4 vs 86.4 in July. The ZEW said “The significant decrease of the ZEW economic sentiment indicator reflects the high degree of nervousness over the future path of growth in Germany. Both weaker than expected German exports as well as the widening scandal in the German automobile sector in particular have helped to contribute to this situation. Overall, the economic outlook still remains relatively stable at a fairly high level.”
- The UK CBI sales index for August fell from +22 to -10. Yes, a 32 pt decline and the estimate was +14. This is the weakest print since July 2016. The CBI said “Despite the warmer weather at the start of the month, retail sales have cooled as higher inflation continues to squeeze consumers’ pockets. Meanwhile, deteriorating sentiment regarding the business situation has combined with falling headcount among retailers. Looking ahead, firms to expect sales growth to recover, but the pressures on household budgets are set to persist, given little sign of wages picking up.
- Hong Kong exports in July were up 7.3% y/o/y but that was below the estimate of up 9.2% and imports also missed forecasts with a 5.5% gain instead of rising by 10% as expected. Exports to the US fell but remained strong to the rest of Asia and Germany too.
- In Japan, headline CPI rose .4% y/o/y, .5% y/o/y ex food (the most since March ’15) and up .1% ex food and energy, all as expected. Note for a second that the BoJ balance sheet is approaching 100% of GDP, they are dominating its stock market with its ETF purchases, they’ve instituted negative interest rates and the yen is down almost 30% over the past 5 years and inflation ex food and energy was up a whopping .1% y/o/y. While it’s not 2%, it truly is price stability. Central bankers have it backwards, inflation doesn’t lead to faster growth. As it is a tax, it in fact leads to slower activity.
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