1) Initial jobless claims totaled 204k, 6k less than expected and little changed from 205k last week. These are the lowest levels since the late 1960’s. The 4 week average is now down to 208k.
2) The NFIB small business optimism index for August rose almost 1 pt m/o/m to 108.8 and that is the highest level in the history of this survey dating back to 1973. The NFIB CEO bottom lined the report by saying “As the tax and regulatory landscape changed, so did small business expectations and plans. We’re now seeing the tangible results of those plans as small businesses report historically high, some record breaking, levels of increased sales, investment, earnings and hiring.”
3) The preliminary September UoM consumer confidence index jumped 4.6 pts to 100.8 and that was well more than the 96.6 that was expected and the best since March. Both Current Conditions and Expectations were higher and UoM said “the gains were widespread across all major socioeconomic subgroups.” One year inflation expectations did moderate by 2 tenths to 2.8% after touching the highest since 2014 last month. The likely reason was the drop in expectations for gasoline prices which fell to a 5 month low. Higher income expectations was a key reason for the consumer optimism as this component rose 3 pts to match the best level since March. The employment component also rose to the highest since February. Expectations for business also improved m/o/m. Helping confidence, “gains in household wealth were cited by near record numbers, primarily due to increases in stock holdings and rising home values.” Spending intentions rose to multi month highs.
4) Industrial production in August rose .4% m/o/m, one tenth more than expected and July was revised up by 3 tenths. Manufacturing production though was light as it rose .2% m/o/m, one tenth less than expected and July was left unrevised. A sharp 1.2% rise in utility output explains the headline beat. With manufacturing, auto production rebounded but was saw no growth ex auto’s. Capacity utilization at 78.1% is still running below its long term average of around 80% with manufacturing capacity at 75.8% vs its long term average of about 78%.
5) August CPI rose .2% headline and .1% core m/o/m, both one tenth less than expected. The y/o/y gain of 2.7% (down from 2.9%) was the headline print and 2.2% at the core (down from 2.4%). A sharp decline in apparel costs and a fall in medical prices weighed on price gains. Rent growth remained strong. Services prices ex energy rose 3%, offset by a .3% m/o/m decline in core goods prices and .2% drop y/o/y.
6) August PPI came in less than expectations both headline and core. Taking out food, energy and trade though has it about in line with the estimate. Finally some relief on the ‘truck transportation of freight’ category was a key reason as prices here fell .2% m/o/m although remain up 7.2% y/o/y and ‘rail transportation of freight and mail’ was higher by 6.4% y/o/y.
7) Likely helped by the stronger dollar, import prices fell .6% headline and .2% ex petro. The headline drop was well more than the estimate of down .2% but the ex petro figure was as expected. Versus last year, import prices are still up 3.7% and just 1% ex petro. Of note is the rise in export prices as emerging market currencies have of course dropped sharply. Headline export prices were up 3.6%, 2.3% ex food and energy and up by 4.1% ex ag.
8) The MBA said purchase applications were up a slight .9% and the y/o/y gain was 4.3% which was an improvement from the up 2% seen last week.
9) In what will be a lift to Q3 GDP, business inventories rose .6% m/o/m in July after a .1% rise in June.
10) Job openings in July reached a record high of 6.9mm. Hirings though were only a modest 2k after a decline in June. The quit rate rose to 2.4%, the highest since January 2001.
11) Eurostat said Eurozone Q2 labor costs rose 2.2% y/o/y up from 2.1% in Q1 and that matches the most since Q2 2012. European bond yields rise notably on the week.
12) In the UK, for the 3 months ended July, there was a 2.9% y/o/y wage gain ex bonuses’ matching the best since July 2015.
13) In the new UK data point reflecting the state of their economy on a rolling 3 month basis saw GDP in the 3 months to July rise .6% vs the estimate of up .5% driven by consumer spending and services. Construction was also a boost
14) The September German ZEW investor confidence index on the German economy rose 3 pts to -10.6 and that is better than the slight increase expected to -13. It is still negative though for the 6th straight month. Current conditions rose too. The ZEW said “During the survey period, the currency crises in Turkey and Argentina intensified, while German industrial production and incoming orders were surprisingly low in July. Despite these unfavourable circumstances, economic expectations for Germany improved slightly. The considerable fears displayed by the survey participants regarding the economic development have diminished somewhat, which may in part be attributable to the new trade agreement between the USA and Mexico.”
15) Italy seems intent on keeping its budget deficit closer to 2% of GDP. The Italian Finance Minister over the weekend said “It makes no sense to seek two or three billion euros of extra deficit if we then have to pay three or four billion more due to higher yields.”
16) The Turkish central bank finally stepped up and surprised the market with a greater than expected interest rate. The lira rallied 4% on the week in response. This was followed by the Russian central bank which unexpectedly raised rates and a ruble rally followed.
17) Chinese retail sales did improve to a 9% y/o/y rate from 8.8% in July and that was 2 tenths more than expected. The 8.5% pace seen back in May was the slowest since 2003. The 6.1% IP y/o/y increase was as expected and up from the near 3 yr low of 6% in July. The jobless rate in urban areas was 5% vs 5.1% in July.
18) China announced that aggregate loan financing in August totaled 1.52 Trillion, about 200b yuan more than expected. It’s up from July but down from August 2017. The main reason for the upside was a further pick up in corporate bond issuance. The shadow finance side saw a continued decline in loans and bank loans were below what was forecasted. There was a slowdown in money supply growth (M2) that moderated to 8.2% y/o/y growth, 4 tenths less than expected.
19) The Trump Administration invites the Chinese back for more trade discussions and combined with the Turkish central bank news helps to lift EM off the mat.
20) Chinese exports rose 7.9% y/o/y vs the forecast of up 5.7% in yuan. Imports jumped by 18.8%, well more than the estimate of up 12.1%. In dollars, exports were up by about 10% with imports up 20%, close to expectations. In dollar terms, exports to the US jumped by 13.2% and to Canada by 13.7%. Front loading I’m sure.
21) Japanese machinery orders rose 11% m/o/m in July, above the estimate and follows a decline of 8.8% in June.
22) Australia, a key China proxy, reported a better than expected August jobs number.
23) As a long suffering Jet fan, they looked really good Monday night and Sam Darnold is the future.
1) The negative commentary in the UoM consumer confidence data was this: “The largest problem cited on the economic horizon involved the anticipated negative impact from tariffs. Concerns about the negative impact of tariffs on the domestic economy were spontaneously mentioned by nearly 1/3 of all consumers in the past 3 months, up from one in five in the prior four months. Prospective tariffs were also associated with the expectation of higher rates of anticipated inflation during the year ahead.”
2) Core retail sales (ex auto’s, food and building materials) in August rose just .1%, 3 tenths less than expected but that was offset by a 3 tenths upward revision to July so we’ll call it a push relative to the forecasts. The core rate is running at a good rate of 5.2% y/o/y and marks the 3rd month in the past 4 with a 5 handle. This compares with the 5 year average of 3.7% core growth.
3) The MBA said refi applications fell 6% w/o/w and are down 39% y/o/y. The level stands at an 18 year low.
4) Consumer credit outstanding in July rose to another record high of $3.9 Trillion, 47% above the 2008 peak thanks to the parabolic rise in non revolving credit, mostly student and auto loans.
5) In the UK, for the 3 months ended July, 3k jobs were added after the solid 42k in the prior period. The estimate was up 10k. The unemployment rate did hold at 4%, the lowest since the 1970’s. The more up to date number on jobs saw August jobless claims rise by 8.7k, the 3rd straight month of gains.
6) UK industrial production in July was below expectations with the manufacturing component down by .2% instead of rising by .2% as expected.
7) Eurozone industrial production fell .8%, 3 tenths more than expected in July and June was revised down by one tenth.
8) In China, fixed asset investment ytd y/o/y slowed to 5.3% growth from 5.5%. The estimate was 5.6% and that is the lowest rate seen since at least 1999 that I have data on.
9) The China Association of Auto Manufacturers said vehicle sales in China fell 4.6% y/o/y in August.
10) China CPI rose by 2.3% in August, the most since February as a break out of swine flu boosted food prices by 1.7% y/o/y. The estimate was up 2.1%. Inflation ex food and energy was still up 2% y/o/y, matching the most since February. At the producer level, prices were up by 4.1% y/o/y, one tenth more than expected but basically in line with the trend seen this year but down from higher trends in 2017.
11) There was a lot of welcome reflection on the crisis of 10 years ago and the steps taken to deal with it. I wish there was also discussion on the excesses that built up and got us there.