Drop in Manufacturing Takes Shine Off Small Gain in Industrial Production Sign of economic weakness or weather-related upheaval?
Industrial production rose a seasonally adjusted 0.1% from the prior month, the Federal Reserve said Monday. Utility output surged during unusually cold weather, but factory and mining production declined, reflecting weaker demand and cuts in the oil and gas sector.
Capacity utilization, a measure of slack in the industrial sector, slipped two-tenths of a percentage point to 78.9%. (…)
Updated figures showed industrial production was far weaker than previously estimated in January. Production fell 0.3% that month instead of the initially reported gain of 0.2%.
Prior IP data were revised down a cumulative -0.4% MoM. Q1 is on track for zero growth QoQ. The weather is once again conveniently blamed but the fact is that manufacturing production peaked last November and has declined every of the last 3 months at a 2.4% annual rate.
The Empire State PMI New Orders Index fell below zero in March
Housing starts slumped 17 percent, the most since February 2011, to an 897,000 annualized rate after January’s revised 1.08 million pace, the Commerce Department reported Tuesday in Washington. The median estimate of 80 economists surveyed by Bloomberg called for 1.04 million. Ground-breaking in the Northeast plummeted by the most on record.
Starts of single-family properties dropped 14.9 percent to a 593,000 rate in February. Construction of multifamily projects such as condominiums and apartment buildings decreased 20.8 percent to an annual rate of 304,000.
Construction slumped 56.5 percent in the Northeast and 37 percent in the Midwest, which was the most since January 2014. Starts also dropped in the South and West, indicating weather was only partially to blame.
Building permits climbed 3 percent to a 1.09 million annualized pace, the fastest since October, after a 1.06 million rate a month earlier. They were projected at 1.07 million, according to the Bloomberg survey median. The increase was led by a jump in applications for multifamily projects. Permits for single-family dwellings were the lowest since May. (Chart from CalculatedRisk)
Home-Builder Confidence Falls for Third Straight Month A measure of home-builder confidence fell for the third consecutive month in March, a sign the housing sector may struggle to gain traction during the spring buying season.
Builder confidence in the market for new single-family homes declined by two points to a seasonally adjusted level of 53 in March from February’s reading of 55, the National Association of Home Builders said Monday.
“The drop in builder confidence is largely attributable to supply chain issues, such as lot and labor shortages as well as tight underwriting standards,” NAHB Chief Economist David Crowe said in a statement.
Hmmm…Here’s the real reason: traffic has declined below that of 2014 and 2013 (chart from Haver Analytics).
TOPSY TURVY ECONOMIC SENTIMENTS
Could it be that the Eurozone will be the economic engine of the world?
US and eurozone economic fortunes continue to diverge, with companies in the euro area more optimistic that their counterparts in the US for the first time since 2009. (…)
Global business optimism has waned to a post-crisis low, according to Markit’s Business Outlook Survey. The survey is conducted three times a year and the results reflect expectations for the coming year at some 6,100 companies worldwide.
The deterioration in the global outlook was largely driven by optimism among US firms falling to the lowest seen since the survey started in 2009. Hiring intentions also hit a post-crisis low in the US, pointing to weaker employment growth in coming months.
Just as the US is showing signs of slowing, brighter signs of life are appearing in the eurozone. For the first time since the survey began in 2009, eurozone companies are now more positive about the year ahead than their US counterparts.
Across the single currency area as a whole, business optimism has risen to a level just shy of last year’s post-crisis high. Employment intentions have meanwhile hit a post-crisis high in the euro area, contrasting with the new low seen in the US.
(…) the survey is signalling no such turnaround for Japan. A slight improvement in optimism failed to prevent Japanese companies seeing the weakest prospects of all countries monitored amid worries about a lack of demand in the domestic market. (…)
Business expectations across the main emerging markets edged up only slightly from the survey low seen late last year, albeit diverging significantly among the ‘BRICs’. (…) The emerging markets consequently look set to continue to act as a drag on global economic growth in 2015. Recessions look inevitable in Russia and Brazil. Even in China, optimism remains historically weak and there is a growing threat of deflation, with companies expecting prices to fall for the first time in the survey’s history. (…)
Facts about the U.S.:
- Nominal retail sales have been very weak since and including December.
- Manufacturing production has declined in each of the last 3 months.
- Citigroup’s economic surprise index has plunged lately indicating that economists have been much too optimistic in their forecasts.
- The more timely company surveys have been deteriorating since the fall of 2014 and the deterioration has accelerated in the past 3 months.
- Capital Goods company surveys, both domestic and export-oriented have dropped in recent months.
- China-sensitive company surveys also remain weak and seem to be getting weaker.
- The U. of M. consumer sentiment survey revealed weakening home buying and car purchasing plans
- Q1’15 EPS estimates (the quarter ends in 2 weeks) have dropped like rocks from +3.8% on December 2014 to –4.9%. While Energy take the brunt of the revisions, other key sectors are being hit: Consumer Staples from +4.2% to –2.0%; Consumer Discretionary from +14.0% to +6.1% and Industrials from +8.6% to +1.9%. Only 4 of the 10 sectors are expected to display positive growth in Q1 (Factset).
For their part, foreign exchange markets certainly don’t seem to think that Europe is so much stronger than the U.S. The DXY jumped 3% last week and 25% in the past 6 months. But equity investors are evidently betting on Draghi. Even though the Euro is sinking like a rock, investors ploughed nearly $36 billion into European stock funds so far this year, exceeding the prior record of $32B set in Q1’14, just before Euro equities corrected 10% through October…Coincidentally, just about the same amount fled U.S. equity funds so far this year. Never mind Russia, Ukraine, China.
Eurostat on Tuesday said consumer prices in the 28-nation bloc fell 0.2% in February from a year earlier, and confirmed data that showed prices in the eurozone were 0.3% lower. In January, prices fell by 0.5% in the EU as a whole, and by 0.6% in the eurozone.
Twenty EU members experienced an annual decline in consumer prices in February, down from 23 in January.
In another sign that deflationary pressures may be easing, the core rate of inflation in the eurozone picked up to 0.7% from 0.6% in January. Eurostat initially estimated that it was unchanged.
Although car markets across Southwestern Europe gained momentum, the situation in Eastern Europe remained gloomy, where sales fell 2% as the region’s consumer spending continued take a beating due to the crisis in Ukraine.
EU New Car Registrations Rise in February Sales surge 27% in Spain; Italy, the U.K., Portugal and Ireland also log double-digit gains
Eurozone new car registrations, a proxy for car sales, rose 7.3% in February from a year earlier to 924,440 vehicles, according to the European Automobile Manufacturers’ Association.
Since the start of the year, new car sales grew 7% to 1.9 million units, with most major markets contributing to the overall upturn of the European market, the ACEA said on Tuesday.
Sales in Spain increased 27% in February from a year earlier, while Italy and the U.K posted growth of 13% and 12% respectively. Portugal and Ireland posted double-digit growth as well.
In Germany, Europe’s biggest auto market, new car sales increased 6.6% last month, while they grew 4.5% in France.
China’s apparent oil demand rose 2.6% over the first two months of this year to 83.92 million mt or an average 10.43 million b/d, Platts estimates showed Monday, March 16, based on recently released government data.
This is the highest rate of growth over the period since the 5.7% recorded in 2012.
Last year, there was a 0.6% year-on-year contraction in China’s apparent oil demand over January to February. (…)
The increase in apparent oil demand in the first two months was mainly driven by higher refinery throughput, which climbed 3.5% year on year to 82.64 million mt, or an average 10.27 million b/d, over January and February, according to preliminary data from the NBS on March 11. (…)
Iranian exports in recent years have been essentially capped by Western sanctions aimed at pressuring Tehran over its nuclear ambitions. A deal easing those sanctions could eventually translate into half a million barrels or more a day in Iranian crude heading into a currently glutted global market, analysts estimate. (…)
While a deal is far from certain, Iran’s Oil Minister Bijan Zanganeh said Monday that the country could double its exports quickly.
“In case the international sanctions against Iran are lifted, one million barrels a day will be added to the country’s crude-oil production and exports in several months,” Mr. Zanganeh was quoted as saying by his ministry’s news agency Shana. (…)
Iran could perhaps export as much as 800,000 additional barrels a day, within a year “if they had a market to take their crude to,” said Robin Mills, head of consulting at Dubai-based consultancy Manaar Energy. “That’s just turning the fields back on again,” said Mr. Mills. “After that it would be flat or declining until they get some foreign investment.” (…)
(…) Equity analysts now expect nearly a 5% drop in year-over-year earnings this quarter for the group, an about-face from a 4% growth rate at the start of the year.
That we knew already. But here’s a gem:
And finance chiefs tempted to give more frequent updates based on current conditions risk seeing the environment shift before the quarter ends.
“It was the one of the worst guidance periods since the great recession,” said Carmine Grigoli, chief investment strategist for Mizuho Securities USA.
I happen to track guidance and trends in guidance and the facts don’t support the statement. As of March 13, we have had 98 pre-announcements including 82 negative ones (83.7%). At the same time last year, 89 of the 106 pre-announcements were negative (84%). Negative pre-announcements were even worse for the Q4’13 earnings season (88%).
To me, the fact that we have had fewer pre-announcements this year is a positive. During the last 2 weeks, there has been only one negative pre-announcement.