Gallup’s initial measure of Americans’ 2015 Christmas spending intentions finds consumers planning to spend an average $812 on gifts this season, up from $781 at the same time a year ago, and the highest estimate since 2007.
The poll also finds consumers a bit less cautious than last year when asked about how their Christmas spending will compare with the year prior. Although the majority of Americans routinely say they will spend about the same as they did the previous year, the 20% saying they will spend less is down from 24% in October 2014, and is the lowest Gallup has recorded for any October since 2007. It is also markedly lower than the 35% and 33% figures recorded in 2008-2009 during the last recession. Instead, consumers’ current mindset about holiday spending appears to be finally restored to the non-recessionary levels seen prior to 2008. (…)
Together, these findings point to improved holiday sales this year compared with 2014. But a cautionary note is in order, as Americans’ estimate of the total amount they will spend on gifts can change as the holiday season progresses.
In 2008, consumers’ spending estimate plunged nearly $200 between October and November, precipitated by the Wall Street financial crisis, and retail sales wound up falling nearly 5% compared with the year prior. Even in less turbulent times, Gallup has typically found consumers shrinking their spending estimate between October and November. (…)
The Architecture Billings Index (ABI) returned to positive territory after a slight dip in August, and has seen growth in six of the nine months of the year so far. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending.
The American Institute of Architects (AIA) reported the September ABI score was 53.7, up from a mark of 49.1 in August. This score reflects an increase in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 61.0, down from a reading of 61.8 the previous month.
“Aside from uneven demand for design services in the Northeast, all regions are project sectors are in good shape,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “Areas of concern are shifting to supply issues for the industry, including volatility in building materials costs, a lack of a deep enough talent pool to keep up with demand, as well as a lack of contractors to execute design work.” (Chart from CalculatedRisk)
Are China’s GDP Data Biased?
The service sector has become a key growth driver in China, with its share in GDP climbing from 44.8% in early 2012 to 50.9% in 2015Q3. However, it is surprising to see that shares of wholesale & retail trades and transport, storage & post industries, which account for 30% of total service output, remained largely flat during
the same time period, despite the fact that ecommerce transactions in the country grew at an average annual pace of 30% over the last three years.
The under-estimated spillover effects of the rapid e-commerce expansion might be related to government statistics that don’t include untaxed small businesses and the existing sampling system that under-weights online service providers. This is more evidence of China’s economic data deficiencies, but, in this case, working to underestimate GDP. (NBF)
(…) why do the skeptics accept the truth of dismal government figures for construction and steel output – down 15% and 4%, respectively, in the year to August – and then dismiss official data showing 10.8% retail sales growth? (…)
In mid-‐September, for example, when the private sector Purchasing Managers’ Index came out at 47.0, the result was generally reported along these lines: “The index has now indicated contraction in the [manufacturing] sector for seven consecutive months.”
In fact, Chinese manufacturing was growing by 5-7% throughout that period. The supposed evidence was wrong because 50 is the PMI’s dividing line not between growth and recession, but between accelerating and slowing growth. Indeed, for 19 out of the PMI’s 36 months of existence, the value has been below 50, while Chinese manufacturing growth has averaged 7.5%. (…)
The renminbi, however, has recently stabilized, and capital flight has dwindled, as evidenced by the better-than-expected reserve figures released by the People’s Bank of China on October 7. This suggests that the government’s policy of shifting gradually to a market-based exchange rate may have been better executed than generally believed; even the measures to support the stock market now look less futile than they did in July.
In short, Chinese economic management seems less incompetent than it did a few months ago. Indeed, China can probably avoid the financial meltdown widely feared in the summer. If so, other emerging economies tied to perceptions about China’s economic health should also stabilize.
The world has learned since 2008 how dangerously financial expectations can interact with policy blunders, turning modest economic problems into major catastrophes, first in the US and then in the eurozone. It would be ironic if China’s Communist leaders turned out to have a better understanding of capitalism’s reflexive interactions among finance, the real economy, and government than Western devotees of free markets.
Rail freight fell 15.6% YoY in August and is down 11.4% YoY YTD. Worst reading on record.
According to Platts calculations, China’s apparent oil demand rose 10% year on year to 11.19 million b/d in August. For the first eight months of 2015, China has clocked a 8.2% year-on-year rise in its apparent oil demand at an average of 11.14 million b/d, according to Platts data. In its October oil market report, the International Energy Agency said that it expected China’s oil demand to grow by around 500,000 b/d in 2015 to 11.1 million b/d. This growth could ease to around 300,000 b/d next year due to “the exceptionally choppy macroeconomic headwinds, weaker car sales and rising gasoline prices,” the IEA said. Platts China Oil Analytics expects China’s oil demand to rise by 556,000 b/d, or 5.3% year on year, to 11.06 million b/d.
Nicola Wealth Management informs us that
- China only represents ~0.7% of U.S. GDP in terms of exports, not really meaningful (Canada is a 2.5x larger trading partner).
- Corporate America is not as exposed to China as most people would think. The S&P 500 companies have very low revenue exposure to China at only 1.6%. The sectors most exposed are technology and consumer discretionary names (e.g. gaming names have been hurt, particularly Wynn which has ~70% of revenues tied to China).
- 117 companies (30.2% of the S&P 500’s market cap) have reported. Earnings are beating by 3.6% (2.8% yesterday) while revenues have missed by -0.3%.
- The beat rate is 67% on EPS (73% ex-Financials) and 35% on revenues.
- Expectations are for a decline in revenue, earnings, and EPS of -3.8%, -4.6%, and -3.5%. Ex-Energy, these would be +1.7%, +2.6%, and +3.9% (+3.4% yesterday). This excludes the likelihood of beats, which have been above 4% over the past three years. (RBC Capital)
Nearly a third of the way and earnings look fairly good as we exit September-October. Nicola WM adds this:
Since 1896 the Dow Jones, on average, declined 1.06% in the month of September in contrast to an average gain of 0.75% among the remaining months. If history is on our side, we would expect a bounce back and return to a positive month in October.
Also from NWM:
Another sector feeling the pain of a delay in rate hikes is the financial sector, more specifically, banks and asset managers.
Banks and asset managers took it on the chin after the announcement [of no rate hike] as net interest margin expansion will be delayed for the banks (net interest margins have compressed more than 27% since 2010) and the significant amount of assets still sitting in money market funds. The banks and asset managers are basically managing these funds pro-bono as they’ve been waiving fees over the last 6 years in order to offer a positive yield which is currently averaging 0.01% or $1/year on $10,000. In fact, since 2009, the waivers cost the industry $30-billion in lost revenue.
CANADA: SLOWER FOR LONGER
The Bank of Canada (BoC) is losing confidence about the outlook for potential GDP growth. Back in July, the BoC was still estimating the economy’s normal cruising speed at 1.8% annually for the years 2015 through 2017. That is no longer the case. Due to continued weakness in commodity prices and lack of business investment, Mr. Poloz’s team estimates that “in the near term, growth in potential output is more likely to be in the lower part of the Bank’s range of estimates”. The problem is that the bottom of the range is quite low, meaning that the “new normal” for economic growth is likely to be close to 1.4% for the next two years – consistent with our own estimate of 1.3%. As today’s Hot Chart shows, there are no precedents for such weak potential growth outside recessions. The Canadian situation differs markedly from that in the U.S. where potential growth is estimated to accelerate to 2% by 2017. This development argues for a significant divergence for estimates of the neutral rate of interest between the two countries. (NBF)
Last week Credit Suisse released its annual Global Wealth Report. The big headline grabber was their analysis showing that the top 1% of people now own 50% of the world’s wealth.
That is true and rather astonishing.
However, the report had another finding that was even more astonishing and largely overlooked.
What they found was that, as a percentage of the world’s population, there are now more poor people in the United States and Europe than there are in China.
Shown here, along the left side of the graph you can see that 10% and 20% of the world’s poorest are in North America and Europe.
Here, they aren’t talking about income. They define poor as lacking ‘wealth’, i.e. taking into account assets and liabilities like cash and debt.
Credit Suisse estimates that half of the world has a net worth less than $3,210. And a large chunk of Americans and Europeans can’t make that cut because their net worth is negative.
That’s especially the case for young people these days, who graduate from university with an incredibly expensive degree and an average of $35,000 in student debt.
Of course, plenty of people are in debt up to their eyeballs in the Land of the Free, and not just student debt. (…)
Credit Suisse estimates that 25% of Americans are in this situation of having a negative net-worth.
“If you’ve no debts and have $10 in your pocket you have more wealth than 25% of Americans. More than 25% of Americans have collectively that is.” (…)