U.S. Home Construction Rose 9.7% in January Builders showed signs they are planning to ramp up construction later this year
The number of new housing units under construction rose 9.7% from a month earlier to an annual rate of 1.326 million, the Commerce Department said Friday. That marked the third increase in four months.
Builders also showed signs they are planning to ramp up construction later this year. The number of permits they lined up to build units rose 7.4% last month to an annual pace of 1.396 million. (…)
Apartment starts surged 24% in January, while construction of single-family homes rose just 3.7%. Permits for buildings with five units or more likewise were up more than 25%, while permits for single-family homes fell 1.7%.
Over the longer-term, new-home construction is picking up. Total starts rose 7.3% in the 12 months through January, while single-family starts rose 7.6% during that period. (…)
U.S. Import Prices Rise in January Prices for foreign-made goods imported to the U.S. rose in January, driven by a broad range of product price increases and capping a week of solid inflation readings.
Import prices increased 1% in January from a month earlier, the Labor Department said Friday, beating expectations of economists surveyed by The Wall Street Journal. The January rise matched November’s increase and hasn’t been exceeded since May 2016, when the index grew 1.2%. (…)
Nonpetroleum import prices rose 0.5% in January and 2.8% annualized in the last 3 months. (Chart from Haver Analytics)
Cass Truckload Linehaul Index
January’s Cass Truckload Linehaul Index (measuring changes in linehaul rates) continued the acceleration established in November and December (up 6.3% and 6.2% respectively) by posting a 6.5% YoY increase, to 133.5 (just shy of December’s 134.5 all-time high).(…) “In just the last seven months, our pricing forecast has increased from -1% to 2%, to 6% to 8%, and now giving us reason to believe the risk to our estimate continues to be to the upside,” stated Donald Broughton, analyst and commentator for the Cass Indexes. “The current strength being reported in spot rates tells us contract pricing rates should keep rates in positive territory well into 2018.”
Cass Intermodal Price Index
The latest data point shows total intermodal pricing rose 5.0% YoY to 141.4 in January (an all-time high) with a YoY three-month moving average increase of 4.3%. (…)
U.S. Weighs Tariffs, Quotas on Metals Imports The Trump administration said it is considering sweeping new limits on imports of steel and aluminum as the next phase of its “America First” economic policies.
(…) The release of the recommendations had a swift market impact Friday. Stocks of steel and aluminum makers, including Nucor Corp. , US Steel Corp. and AK Steel Holding Corp. , soared. Aluminum prices rose 2% in London trading. Stocks of manufacturers that use the metals, such as Caterpillar Inc. and Harley-Davidson Inc., fell. (…)
It is one of the many ways that Mr. Trump, in pursuit of more aggressive trade enforcement, is turning to long-dormant powers that his recent predecessors have been hesitant to use, especially since the 1995 founding of the World Trade Organization discouraged such broad, unilateral trade actions. (…)
Section 232 “is a little like old-fashioned chemotherapy,” Texas GOP Rep. Kevin Brady told Mr. Trump. “It isn’t used as much because it can often do as much damage as good,” added Mr. Brady, who chairs the Ways and Means Committee, which oversees trade policy.
Defense companies have also raised worries. “We are concerned that tariffs may have an unintended impact on the global supply chains that our industry depends on,” said a spokesman Friday for the Aerospace Industries Association. “It’s particularly true of aluminum and steel.” (…)
“We really don’t think there’s very much likelihood” of sharp cost increases for U.S. consumers of steel and aluminum, Mr. Ross said Friday. “We really don’t think that’s a big factor.”
In the Tuesday White House meeting, Mr. Trump suggested he placed a higher priority on trying to protect workers than consumers, even at a time of a historically low 4.1% jobless rate. “You may have a higher price…but you’re going to have jobs,” he said. “To me, jobs are very important.” (…)
US eyes 24% global tariff on steel imports Tough action set to provoke anger from China and other global trading partners
(…) “If the final decision impacts China’s interests, China will certainly take necessary measures to protect its own rights,” Wang said. [Wang Hejun, chief of the trade remedy and investigation bureau at China’s Ministry of Commerce] (…)
(…) Looking more deeply at the January jump in CPI shows definite trends, according to Steven Blitz, chief U.S. economist at TS Lombard. Deflation in the prices of consumer goods we like to buy is ending; the rate of increase in the cost of things we have to buy either is rising, as for food and energy, or remains high, as for services or rent.
Goods inflation has been held down since the mid-1990s by increased low-cost imports, technology, or slowing spending by “aging baby boomers” (or should that be “aged”?). The dollar’s weakness is boosting import prices (up 1% in January and 3.6% from its level a year earlier), which should pass through to consumer prices this year and into the next. (…)
Stephanie Pomboy of MacroMavens via the same Barron’s article::
Nondiscretionary outlays—for food, energy, housing, and medical expenses—have accounted for 55% of the increases in household spending over the past two years. During that same period, savings have been “pillaged,” she writes in a recent missive to clients. “The ineluctable conclusion is that the decline in saving is occurring out of necessity, not choice.”
In another note, Pomboy points out that the cost of paying back debt jumped by $62 billion through the third quarter—which predates the most recent rise in interest rates. Given the increase in rates since then and the Fed hikes likely this year, she conservatively estimates an additional $75 billion jump in debt service in 2018. “That alone would wipe out nearly all of the $80-to-$100 billion boost to growth forecast from the tax cuts,” she observes.
As for drag from the fiscal side, President Donald Trump’s suggestion last week of a 25-cent-per-gallon tax would wipe out 60% of the benefit of the tax cuts to individuals, according to Strategas’ Washington team lead by Daniel Clifton. No wonder this trial balloon was made of lead. (…)
Speaking of oil:
(…) Producers should keep cutting for the whole year, even if it causes a small supply shortage, Al-Falih said. “If we have to overbalance the market a little bit, then so be it,” he told reporters in Riyadh last week. (…)
“They are definitely not a price dove anymore,” said Mike Wittner, head of oil market research at Societe Generale SA. “They have to think about their social costs, about Vision 2030, about the Saudi Aramco partial IPO or private placement. Al-Falih’s statement last week could not have been much clearer.” (…)
“If you’re Mohammed Bin Salman, and trying to radically reinvent your country” then “you need a certain price to make it work,” said Helima Croft, head of commodity strategy at RBC Capital Markets LLC. (…)
The Rise of the Jumbo Student Loan Most students with loan balances exceeding $50,000 in 2010 had failed to pay down any debt four years later
A study released Friday by the Brookings Institution finds that most borrowers who left school owing at least $50,000 in student loans in 2010 had failed to pay down any of their debt four years later. Instead, their balances had on average risen by 5% as interest accrued on their debt.
As of 2014 there were about 5 million borrowers with such large loan balances, out of 40 million Americans total with student debt. Large-balance borrowers represented 17% of student borrowers leaving college or grad school in 2014, up from 2% of all borrowers in 1990 after adjusting for inflation. Large-balance borrowers now owe 58% of the nation’s $1.4 trillion in outstanding student debt. (…)
- FYI: The macroeconomics of student debt cancellation
Household Debt Sees Quiet Boom Across the Globe A decade after the crisis, a number of economies face a familiar problem—but regulators are better prepared
(…) At the top of the heap is Switzerland, where household debt has climbed to 127.5% of gross domestic product, according to data from Oxford Economics and the Bank for International Settlements. The International Monetary Fund has identified a 65% household debt-to-GDP ratio as a warning sign.
In all, 10 economies have debts above that threshold and rising fast, with the others including New Zealand, South Korea, Sweden, Thailand, Hong Kong and Finland.
In Switzerland, Australia, New Zealand and Canada, the household debt-to-GDP ratio has risen between five and ten percentage points over the past three years, paces comparable to the U.S. in the run-up to the housing bubble. In Norway and South Korea they’re rising even faster.
The IMF says a five percentage-point increase in household debt over a three-year period is associated with a hit to GDP growth of 1.25 percentage points three years down the road. (…)
Collectively, those 10 economies have $7.4 trillion in total economic output and a household debt stock about the same size. Taken as a whole, that’s more than the output of Germany or Japan. Moreover, many of them have a large stock of adjustable-rate mortgages that could suddenly become more costly to service should global interest rates rise. (…)
Figure 29 suggests that in comparison to other high-income countries, fast-rising house prices relative to incomes in the countries studied have in large part been caused by both low levels of housing stock and a lack of house building. In 1990, the UK, Australia, and the US all had comparatively low levels of housing stock relative to population size, and while this increased slightly between 1990 and 2000, these levels have since declined.
As a result, the levels of housing stock per 1000 inhabitants aged over 20, in the whole period from 1990 and 2015, increased only marginally in the UK from 555 homes to 560, and decreased in Australia from 544 to 539. In the US, the figure in 1990 was roughly the same as the figure in 2015. Moreover, although starting from a higher level, Sweden has also seen a decline between 1990 and 2015. Comparatively, in Germany and Japan, which have had the largest long term declines in HPIR (as shown in Figure 29), housing stock per 1,000 inhabitants aged over 20 has risen rapidly from 546 to 616 and 459 to 576 respectively.
In an analysis of eight high-income countries, the Resolution Foundation think tank found that millennials in their early 30s have household incomes 4 percent lower on average than members of so-called Generation X at the same age. (…)
The peaks in dependency ratios around the late-1960s and 1970s represents the point at which members of the baby boomer cohort were just reaching working age. Higher dependency ratios in the years prior to this were caused by large numbers of dependent ‘children’ i.e. under 20s. In contrast, the increase in dependency ratios starting around the 2000s is caused by an increase in the proportion of over 65s.
Americans Are Confident About Retirement A gauge measuring the chances of retiring comfortably rose to the highest level since 2001 this month, despite the market correction
(…) Despite the recent market correction, years of gains in equities have boosted the value of households’ retirement accounts. (…)
Summertime, and the livin’ is easy
Fish are jumpin’ and the cotton is high
Oh, your daddy’s rich and your ma is good-lookin’
So hush, little baby, don’t you cry
(Steve Blumenthal, CMG)
Despite Ups and Downs, Investors Surveyed by UBS Remain Upbeat Even in the thick of turmoil, investors viewed the market downturn as temporary and were positive about the future, UBS Wealth Management found.
An impressive 84% of investors in a UBS survey say last week’s market dip was “temporary” and “not indicative of recession” and 86% say “economic fundamentals are still strong,” according to a UBS “Investor Watch Pulse” survey released Friday. Still, 80% of those surveyed believe the market will be more volatile going forward. (…)
Big stock market declines typically are triggered by a growth scare or geopolitical event, but this downturn was sparked only by evidence of higher average hourly earnings, a signal of rising inflation, and worries the Fed would accelerate interest rate hikes. (…)
Although 68% of those surveyed in the midst of last week’s volatile global market swings believe now is a good time to buy stocks, only 10% to 15% have put cash to work or boosted their stock investments during the pullback. (…)
The business owners surveyed remain hopeful, but are slightly more cautious than earlier this year. For instance, 51% are optimistic about the stock market outlook over the next six months, down from 81% in January. While 36% planned to boost hiring in January, by February, only 24% are. (…)
To date, 80% of the companies in the S&P 500 have reported actual results for Q4 2017. In terms of earnings, more companies are reporting actual EPS above estimates (75%) compared to the 5-year average. In aggregate, companies are reporting earnings that are 5.3% above the estimates, which is also above the 5-year average. In terms of sales, more companies (78%) are reporting actual sales above estimates compared to the 5-year average. If 78% is the final number for the quarter, it will mark the highest percentage of S&P 500 companies reporting positive sales surprises since FactSet began tracking this metric in Q3 2008. In aggregate, companies are reporting sales that are 1.5% above estimates, which is also above the 5-year average.
The blended (combines actual results for companies that have reported and estimated results for companies that have yet to report) earnings growth rate for the fourth quarter is 15.2% today, which is above the earnings growth rate of 14.7% last week.
If the Energy sector were excluded, the blended earnings growth rate for the remaining ten sectors would decrease to 13.2% from 15.2%.
The blended sales growth rate for the fourth quarter is 7.9% today, which is equal to the sales growth rate of 7.9% last week. [Thomson Reuters says that excluding the Energy sector, the revenue growth estimate declines to 7.0%.]
Thomson Reuters I/B/E/S reports that 42 of the 96 (44%) pre-announcements for Q1’18 were positive, up sharply from 29% and 32% at the same time in Q1’17 and Q4’17 respectively and from 26% since 1995.
Q1’18 estimates are +18.0% from +12,2% on Jan.1.
Trailing EPS are now $132.96. Pro forma for the tax reform, assuming a 7.0% average positive impact, trailing EPS rise to $142.27.
Industry analysts have raised their consensus S&P 500 earnings estimate for 2018 by $9.00 per share over the past seven weeks to $155.26 during the week of February 2. That’s mostly on guidance provided by managements during January’s Q4-2017 earnings season about the very positive impact of the corporate tax cut enacted late last year. The actual Q1 earnings season is still ahead, starting in April. By then, corporations are likely also to report that the weak dollar (down 7.7% y/y) has boosted their earnings.
Lowry’s Research reminds us that the “market plunge from late Jan. was accompanied by two 90% Down Days (Feb. 2nd, Feb. 5th) and one near-90% Down Day on Feb. 8th – compelling signs of the intense selling needed to exhaust Supply. These 90% Down Days were followed by two 80% Up Days (Feb. 12th, Feb 14th) and the registration of a conventional short-term buy signal by our Short Term Index, also on Feb. 14th. While less-than-ideal, this combination of 80% Up Days and a short-term buy signal has, in the past, provided sufficient evidence that a sustainable market bottom is in place.”
Evergreen/Gavekal’s CIO David Hay does his annual exercise of forecasting the “unforecast”.