Consumer Spending Gives Some Retailers a Lift, But Risks Abound Strong retail sales lift economists’ growth outlook, but debt rises as saving rate falls
Sales at U.S. retailers rose a larger-than-expected 0.6% in July, the biggest monthly gain since December, the Commerce Department said Tuesday. Americans shelled out more for cars, furniture, home-improvement supplies and, more than anything, online goods, including purchases during Amazon.com Inc.’s annual “Prime Day” event. Retail sales in June were also far higher than previously reported. (…)
Forecasters said the latest figures suggest the economic-growth rate could reach 3% or more in the quarter, a pace the economy hasn’t hit since early 2015 and a pickup from a 2.6% pace in the second quarter. (…)
A big chunk of spending of late has been covered by debt: Total credit-card balances grew $20 billion in the second quarter to $784 billion, the highest since late 2009, the New York Federal Reserve said in a separate report Tuesday. Overall debt—including mortgages, auto loans and student loans—hit a record $12.8 trillion. (…)
For now, low interest rates are keeping a lid on the amount of money consumers must devote to paying off the debt each month. Debt-service payments account for about 10% of Americans’ disposable income, hovering near the lowest levels on record, Federal Reserve data show. (…)
Auto-loan delinquencies have been slowly rising for several years, and the annualized share of credit-card balances becoming 30-days delinquent climbed to 6.2% in the second quarter from 5.1% a year earlier, the New York Fed said. (…)
Things can change so quickly…when stats are revised. One month ago, May and June retail sales growth were shown declining at a 1.2% annualized rate. Post revisions, they are growing 1.2% annualized. Add July’s +0.6% jump and retail sales are now rising at a 3.7% a.r.. Last 2 months: nearly +5.0% a.r..
Of course, July will be revised, maybe June as well…
(…) The data follow the release of IHS Markit’s PMI survey data, which had shown new orders for consumer goods at US manufacturers rising sharply in July after weakness in prior months.
Having recently peaked in January, the PMI Consumer Goods News Orders Index exhibited a steady downward trend in the first half of 2017, slipping to its lowest for just over one-and-a-half years in June. However, the index measuring new business jumped to a six-month high of 58.0 in July as factories received an influx of new orders for consumer goods, indicating that retailers were restocking amid strong sales.
With the PMI data rising for the first time since January, it remains too early to tell if the upturn represents the start of a turnaround in retail sales, but the July numbers represent a good start to the third quarter, especially given improvements in the wider PMI numbers. Upturns in the manufacturing and services PMI surveys indicated that the economy grew at its fastest rate for six months in July.
U.S.: Household debt growing at fastest pace since 2008
As today’s Hot Charts show, household debt grew 4.5% year-on-year in Q2, the fastest pace of growth since 2008. Driving the year-on-year increase were the usual suspects, i.e. student and auto loans. But there was also a ramp up in the pace of growth for debt related to mortgages (3.9% y/y is the fastest pace in nine years) and credit cards (7.5% y/y is fastest pace since 2008Q1). The higher leverage should not be surprising in light of a solid labour market, rising consumer confidence and improving credit scores. The good news is that delinquencies, foreclosures and bankruptcies all remain relatively low. (NBF)
The Composite Housing Market Index from the National Association of Home Builders-Wells Fargo increased 6.3% to 68 during August and made up most of the prior two months’ declines. Despite uneven m/m performance this year, the index was 15.3% higher y/y. The NAHB figures are seasonally adjusted. During the last ten years, there has been a 72% correlation between the y/y change in the home builders index and the y/y change in housing starts.
The index for conditions in the next six months increased 6.8% (18.2% y/y) and equaled the highest level since December. The index of present conditions in the housing market gained 5.7% (13.8% y/y) to the highest level in three months.
Home builders reported that the traffic index rebounded 2.1% m/m. As it made up July’s decline, the index was 11.4% higher y/y. The index has fallen in all but two months this year. (…)
Hard Economic Data, Still Tepid, Lifted by Retail
A worsening trend in hard economic data got a reprieve today as retail sales handily beat economists’ forecasts. While the signal was encouraging much more is needed to push the Bloomberg Economic Surprise Index —excluding survey data — back to positive, or even neutral territory. (Bloomberg Briefs)
(…) we recently stumbled upon a measure of economic conditions that have reliably signaled every recession since 1948. The data point, Real Value Added, is currently in negative territory and may, therefore, be a harbinger of an economic downturn. If it is a false signal, it would be the first in a 70-year history of observations.
GVA is a measure of economic activity, like GDP, but formulated from the production side of the economy. It measures the dollar value of all goods and services produced less all the costs required to produce those goods or services. (…) Despite the differences, the levels of economic activity reported are remarkably consistent. Since 1948, nominal GDP has averaged annual growth of 6.55% while GVA has averaged 6.50%. It is important to note that, while they track each other very well over the longer term, they are less correlated quarter to quarter. (…)
Since 1948 there have been 277 quarters of data. RVA has only been negative during recessions or in proximity to periods leading up to and/or following recessions.
Currently, three of the last four quarters have produced negative RVA levels. Real GDP is not producing similar results, having averaged 2% growth over the same quarters. As mentioned earlier, RVA and Real GDP may not be well correlated over short time frames.
Once again, I had to check the data because the last time I looked at GVA (About Price/Sales, Profit Margins (and John Hussman), it was not negative. Here’s the rub: 720Global deflates GVA with the CPI when it would be more appropriate to use the GDP deflator. In any event, the BEA produces a real GVA series and theirs, also a good coincident indicator, is not into negative territory as of Q1’17 and is very much in tune with GDP.
CPI is much more volatile than the GDP deflator which is currently causing the distortion.
- US import prices unexpectedly stalled in July despite a softer US dollar. (The Daily Shot)
- Nonetheless, imported consumer goods prices are no longer declining.
- Here is the Bloomberg Agriculture Index. That’s a 15% slide this year!!! Some examples: Cocoa is down -36% since 09’16; soybeans: –10% since 02’17; coffee: -27% since 11’16; sugar: –38% since 10’16 (these last 2 should help SBUX margins).
But there is also this:
(The Congressional Budget Office said on Tuesday that premiums for the most popular health insurance plans would rise by 20 percent next year, and federal budget deficits would increase by $194 billion in the coming decade, if Mr. Trump ends the subsidies.) (…)
The Headline Sales Managers’ Index (SMI) registered 55.2 in August, representative of strong levels of economic growth. The Sales Growth Index registered a strong monthly improvement, increasing 2.4 index points on the July level. Market growth levels have remained buoyant, driven by strong sales and easing price inflation. The level of the Prices Charged Index was down on the previous month’s reading indicating that consumer prices are slowing slightly whilst the recent low in the Prices Charged Index for Manufacturing suggests Producer Price Inflation is continuing to ease. New employment growth is continuing in August at a modest rate with managers explaining that qualified staff are increasingly hard to find. Overall, panellists in August are saying that the US Economy is experiencing strong sales, easing prices and they are becoming increasingly optimistic that economic momentum is likely to continue in the second half of the year.
This is really funny…even though none of these guys are. (Tks Terry).