The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.6 percent in October to 124.1 (2010 = 100), following a 0.1 percent decline in September, and a 0.1 percent decline in August.
The U.S. LEI rose sharply in October, with the yield spread, stock prices, and building permits driving the increase. Despite lackluster third quarter growth, the economic outlook now appears to be improving. While the U.S. LEI’s six-month growth rate has moderated, the U.S. economy remains on track for continued expansion heading into 2016.
As we can see, the LEI has historically dropped below its six-month moving average anywhere between 2 to 15 months before a recession. The latest reading of this smoothed rate-of-change suggests no near-term recession risk.
US industrial production fell 0.2% for a second successive month in October, but the decline clouds a more upbeat picture of the health of the country’s factories.
(…) While mining saw a 1.5% drop in production, and output of the utilities sector slumped 2.5%, manufacturers saw a 0.4% rise.
The upturn in manufacturing, with October seeing the largest monthly gain for six months, contrasts with 0.1% declines in each of the prior two months, and leaves factory output up 0.6% in the latest three month period compared with the prior three months. This matches the solid trend seen in the Markit US Manufacturing PMI survey, where the Output Index rose from 54.5 in September to a seven-month high of 55.6 in October, which is broadly in line with the survey’s average of 55.7 seen over the past six years.
A divergence between the Markit and ISM surveys in recent months sends strikingly different signals to policymakers mulling over whether the US economy is ready for interest rates to start rising. While both the Markit PMI and official data signal a strong start to the fourth quarter for US manufacturing, the ISM survey data signalled one of the weakest increases in manufacturing output since the recession. The ISM Output Index registered 52.9, well below the past six years’ survey average of 57.5.
The recent divergence also enhances the Markit survey’s track record in accurately anticipating official data. At 92%, the correlation between the Markit US Manufacturing PMI Output Index and official output data (as measured by the three month growth rate) exceeds the 86% correlation observed for the equivalent ISM index.
The diffusion index for current activity edged higher this month, from -4.5 to 1.9, its first positive reading in three months. The indexes for current new orders and
shipments approached zero this month, increasing 7 points and 4 points, respectively. Both indexes remained negative, however, suggesting continued weakness.
The survey’s indicators for labor market conditions were mixed this month. The percentage of firms reporting increases in employment (14 percent) was slightly greater than the percentage reporting decreases (11 percent). The employment index increased 4 points, from -1.7 to 2.6. Firms, however, reported overall declines in average work hours in November. The workweek index registered its second consecutive negative reading and declined 9 points.
The surveyed firms reported near-steady prices for their own manufactured goods this month. Most firms (70 percent) reported no changes in prices received, while the percentage of firms reporting lower prices (14 percent) was slightly greater than the percentage reporting higher prices (13 percent). Firms reported, on balance, declines in input prices.
Household re-leveraging a boon to auto industry
Household re-leveraging is in full swing in the US. Latest data from the New York Fed show debt rising in Q3 for an eighth time in nine quarters taking the total increase over the period to US$912 bn. Increased borrowing has helped boost spending on big-ticket items such as autos. In the last nine quarters, auto loans represented 25% of the flow of debt despite accounting for just 8% of the total stock of debt. That explains why auto sales have been so strong in the last couple of years ─ this year’s sales are on track to average roughly 17.5 million units, the highest ever.
But not all is rosy. While consumer releveraging has worked wonders for the auto industry, its impact on the housing market has been more subdued. That’s
partly because banks have significantly tightened lending standards after being burnt by the subprime crisis. As today’s Hot Charts show, more than half of new mortgage originations are going to borrowers with scores 780 and above. So, it shouldn’t be surprising that home sales and prices (for both resales and new construction) as well as housing starts, all remain well below the peak reached about a decade ago. (NBF)
Surge in Subprime Auto Lending Draws Attention Subprime auto lending is shifting into higher gear, raising some concerns in Washington where a top financial regulator has been sounding alarms about this category of loans, as overall household borrowing hit the highest level in more than five years.
Over the six months through September, more than $110 billion of auto loans have been originated to borrowers with credit scores below 660, the bottom cutoff for having a credit score generally considered “good,” according to a report Thursday from the Federal Reserve Bank of New York. Of that sum, about $70 billion went to borrowers with credit scores below 620, scored that are considered “bad.” (…)
The vast majority of subprime auto lending is concentrated within auto finance companies, according to the New York Fed. (…)
Delinquency rates in both auto and home loans remain low, according to the New York Fed’s report, pointing to improvement in the overall economy.
Just over 3% of auto loans were more than 90 days delinquent in the third quarter, a share that’s little changed over the course of the year, and down from over 5% as recently as 2011. Foreclosures on mortgages fell to a new low in the 17-year history of this data, the New York Fed said.
Saudi seeks to quell supply glut fears Warning over future oil shortages if investments fall further
Saudi Arabia and its Gulf Opec allies have lined up to try and quell mounting fears of a prolonged supply glut in the oil market, warning of future shortages in the sector if investments fall further. (…)
But Mr Naimi’s remarks — alongside those of other Gulf officials in recent weeks — show he is still trying to win over a sceptical market that has adopted the mantra of “lower for longer”. (…)
A poll at the conference showed more than 90 per cent of attendees do not expect oil prices to rise significantly next year, with a quarter expecting them to remain at current levels or lower.
Just 7 per cent saw the prices trading back above $70 a barrel, the level many major oil producing countries need to get closer to balancing their budgets. (…)
The International Energy Agency said last week oil inventories have reached record levels, approaching 3bn barrels in developed countries — the equivalent of a month’s global demand.
Physical oil cargoes are trading at large discounts as oil has started to strain ports and storage, with vessels queueing to unload at some major hubs. (…)
Meanwhile, Russia is doing its part:
Why ISIS has all the money it needs.
But Americans are also contributing:
The Department of Transportation (DOT) reported:
Travel on all roads and streets changed by 2.3% (6.3 billion vehicle miles) for August 2015 as compared with August 2014. The seasonally adjusted vehicle miles traveled for August 2015 is 263.3 billion miles, a 3.6% (9.1 billion vehicle miles) increase over August 2014.
Biggest Insurer Threatens to Abandon Health Law UnitedHealth cuts earnings outlook, citing losses from health-exchange products
The biggest U.S. health insurer said it has suffered major losses on policies sold on theAffordable Care Act’s exchanges and will consider withdrawing from them, adding to worries about the future of the marketplaces at the heart of the Obama administration’s signature health law.
The disclosure by UnitedHealth Group Inc., which had just last month sounded optimistic notes about the segment’s prospects, is the latest sign that many insurers are finding the new business unprofitable, despite an influx of customers that has helped swell revenues.
The industry’s woes, and broad rate increases aimed at stanching the red ink, are putting pressure on the Obama administration to tweak aspects of the law; the issues also risk pulling the ACA back into the political spotlight. (…)
UnitedHealth Group Chief Executive Stephen J. Hemsley said the company isn’t willing to continue its losses into 2017. UnitedHealth has already locked in its exchange offerings for 2016, but it is pulling back on marketing them during the current open-enrollment period to limit membership, which it said last month totaled around 550,000.
The company will make market-by-market determinations in the first half of next year about whether it will continue selling products on the exchanges.
“We can’t sustain these losses,” he said. “We can’t subsidize a market that doesn’t appear at this point to be sustaining itself.” (…)