U.S. Personal Spending Growth Improves as Savings are Drawn Down
Personal consumption expenditures increased 0.4% (3.0% y/y) during March following a 0.2% February gain, revised from 0.1%. The rise matched expectations in the Consensus Economics Forecast Survey.
Adjusted for price inflation, personal spending rose 0.3% (2.7% y/y) following little change during February. Motor vehicles and parts purchases jumped 4.0% last month (3.5% y/y) following a 2.8% decline. Furnishings & appliance spending recovered 0.8% (5.5% y/y) after a 0.7% drop. Recreational goods & vehicles purchases jumped 0.9% (9.2% y/y. Apparel purchases improved 0.2% (2.1% y/y) following three consecutive months of decline. Real services purchases remained unchanged (2.5% y/y) after a 0.2% rise. Spending on restaurants and hotels improved 0.3% (3.9% y/y).
Personal income remained unchanged last month (3.8% y/y) after an unrevised 0.4% increase. Expectations had been for a 0.3% rise. Wages & salaries improved 0.2% (3.8% y/y) following a 0.3% rise.
Disposable income remained unchanged (3.6% y/y) after a 0.5% jump. Real disposable income declined 0.2% (+3.3% y/y) after a 0.3% rise.
Last month’s strength in spending coupled with no change in income lowered the personal savings rate to 5.3%. Nevertheless, the savings rate during last quarter averaged 5.5%, reaching its highest level since Q4 2012. Personal saving rose 12.9% during the last twelve months.
The 0.2% increase (0.3% y/y) in the chain price index followed a like increase during February. Energy prices jumped 1.5% (-18.5% y/y) as gasoline prices gained 3.9% (-27.0% y/y). Food prices fell 0.3% (+1.8% y/y). Durable goods prices fell 0.2% (-2.4% y/y) while nondurable goods prices rose 0.4% (-2.8% y/y). Services prices ticked 0.1% higher (1.8% y/y) for the fourth straight month. The price index excluding food & energy edged up 0.1% (1.2% y/y), about the same as during the last nine months.
U.S. Employment Cost Index Firmer in Q1
The employment cost index for private industry workers rose 0.7% (2.8% y/y) in Q1’15, following a 0.5% Q4 rise, revised from 0.6%. The Q1 number was stronger than expectations for a 0.5% rise, according to the Action Economics Forecast Survey.
Wages & salaries of private industry workers were also up 0.7% (2.7% y/y) last quarter after their 0.5% Q4 rise. There was considerable variation among industry groups in Q1. Professional and business services were strongest, at 1.6% in the quarter and 4.0% year/year. Leisure & hospitality (2.4% y/y), financial activities (2.2% y/y) and “other” (2.2% y/y) were at 0.8% for the quarter. Educational services had a 0.7% gain (2.1% y/y), and manufacturing (2.3% y/y) and information services (2.1%) came at 0.6% in Q1. Construction workers had a 0.5% increase (2.0% y/y) and the trade, transportation and utilities group (3.0% y/y) and health and social assistance (2.1% y/y) were at 0.4%.
Benefit costs were up 0.6% (2.6% y/y) after 0.5% in Q4. Reported by occupational group, benefits for production, transportation and material-moving workers jumped 1.1% (2.5% y/y), management, professional and related staff saw an increase of 0.6% (3.0% y/y), and service occupations got 0.5% (1.7% y/y). Benefit gains were weaker at 0.1% for both sales and office workers (2.1% y/y) and natural resource, construction and maintenance workers (3.0% y/y).
Total compensation for state & local government workers rose 0.5% (2.1% y/y) in Q1 after 0.6% in Q4. Education workers’ compensation gained 0.6% (2.1% y/y), health care and social assistance 0.9% (2.5% y/y), and that for public administration workers went up just 0.2% (2.2% y/y).
FT headline: US labour market starts to tighten
In Labor vs. Capital, Workers Gain a Slight Edge WSJ’s Greg Ip explores signs that labor may finally be gaining ground on capital and breaking out of a stagnant-wage rut.
(…) The Labor Department reported Thursday that wages and salaries for private-sector workers rose 2.8% in the year through the first quarter, the best since 2008. This upbeat picture is a bit of a puzzle because the department’s separate monthly measure of average hourly earnings was up just 2.1% in the first quarter, not much different from the trend that’s been in place since 2009.
Part of the divergence may be explained by the fact that the quarterly figures include commissions and other performance-based pay, which rose sharply in the first quarter, and may not be repeated.
Another factor is that low-paying sectors such as leisure and hospitality have been adding jobs faster than the total economy, which holds back average hourly wage growth as the low-wage sectors account for more of the total work force.
By contrast, the new quarterly figure adjusts for that shifting composition of work. Those figures show that wage gains have been a bit more brisk in low-paying sectors such as leisure and hospitality. (…)
China Economy Shows Small Gains
China’s official manufacturing Purchasing Managers’ Index came in at 50.1 in April, unchanged from March, according to data released Friday by the China Federation of Logistics and Purchasing and the National Bureau of Statistics.
Meanwhile, a measure of activity in the increasingly important nonmanufacturing sector remained above the 50 level but its expansion rate slowed to 53.4 from 53.7 in March.
The statistics bureau said in a statement accompanying the data that manufacturers were cautiously optimistic about the future, though it added “there was downward pressure on the manufacturing sector and insufficient domestic and external demand.” (…)
The statistics bureau said that bigger manufacturers included in the official survey saw some improvement in their operations in April though smaller and medium-size firms were still struggling. The official subindex measuring new orders was unchanged at 50.2 in April, while the production subindex improved to 52.6 from 52.1.
Bloomberg vs Reuter’s:
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Chinese Factory Gauge Suggests Economy Stabilized on Easing
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China’s struggles argue for stimulus all round
From CEBM Research:
Subtracting fiscal expenditure from China’s officially reported GDP figure provides an indicator that can be used to observe private sector economic growth. This indicator shows that private sector growth has been slowing over the past several quarters. This suggests the government needs to increase fiscal expenditure to stabilize economic growth. (…)
Based upon the 2015 deficit target, the fiscal expenditure growth target is 10.6% in 2015. However, fiscal expenditure growth in Q1 fell below 8%. Normal delays in implementation of budget policy could explain the slow start to fiscal spending in 2015. If this is the case, we expect to see fiscal expenditure accelerate in 2Q15.
Japan Inflation Rises for First Time in Nearly a Year Prices rose in Japan for the first time since April 2014, offering hope of a rebound in price growth.
The figures showing 0.2% growth in the core consumer price index come a day after the central bank left its monetary policy unchanged, sticking to the view that it has done enough to generate stable inflation albeit in a slower time frame than originally set out two years ago. (…)
Japan’s jobless rate fell to 3.4% from 3.5%, while the jobs-to-applicants ratio stayed unchanged at 1.15, indicating there are 115 jobs available for every 100 people looking for jobs. A tightening labor market has often been cited by the central bank as an important source of inflationary pressure.
Household spending fell 10.6% in March from a year earlier, better than an expected drop of 12%. A large drop was forecast due to the surge in spending seen last year in March ahead of a sales tax increase in April 2014.
U.K. Manufacturing Unexpectedly Cools as Pound Saps Exports
South Korean Exports Drop for Fourth Month as Won Strengthens
Overseas shipments fell 8.1 percent in April from a year earlier, the fourth straight monthly decline, the Ministry of Trade, Industry and Energy said on Friday. The median of 18 estimates in a Bloomberg survey was for a 6.6 percent drop. (…)
The weakening of the yen and the euro has hurt Korean exporters from carmakers to machinery manufacturers, the trade ministry said. Shipments to Japan fell 12.6 percent while exports to Europe dropped 11.9 percent.
The won has appreciated to more than a seven-year high against the Japanese yen this month, while rising to a nine-year high versus the euro, data compiled by Bloomberg show.
Samsung Electronics Co. said Wednesday that it estimates a negative currency impact of 800 billion won ($744 million) in the first quarter. LG Electronics Co. also said the same day that its mobile phone sales growth was marginal in the first quarter due to negative currency impact. (…)
Oil futures settle higher after EIA data shows Cushing inventory decline
Saudi Arabia burns through foreign reserves New king funds public-sector salaries and major projects
The central bank’s foreign reserves have dropped by $36bn, or 5 per cent, over the past two months, as newly crowned King Salman bin Abdulaziz Al Saud dips into Riyadh’s rainy-day fund and increases domestic borrowing to fund public-sector salaries and large development projects.
The latest data show Saudi’s foreign reserves dropped by $16bn to $708bn in March, driven by public-sector bonuses paid by King Salman after he assumed power in January. This follows a fall of $20bn in February. Saudi has spent $47bn of foreign reserves since October. (…)
The International Monetary Fund has warned Gulf states to cut spending on wages and subsidies to prevent the draining of national reserves.
“The [military] bonuses are not an encouraging sign,” said Steffen Herthog of the London School of Economics. “It shows the knee-jerk reaction to political challenges is to distribute more money.”
A combination of reserve drawdowns and domestic debt are expected to continue funding Saudi’s budget deficit, which bankers estimate will reach $100bn this year. (…)
Which speaks, err, literal volumes about the near-record amount of crude Saudi is currently pushing into the market. As JBC Energy reported today:
JBC Energy’s assessment for OPEC crude output in April sees this having jumped to 30.9 million b/d, up 125,000 b/d from March. The uptick comes mostly due to higher Saudi Arabian production and a partial Libyan recovery, and thus brings the average of the last two months some 1.2 million b/d higher compared to Mar-Apr 2014. The very high levels of production in the world’s top crude exporter for March were not a one-off as the Kingdom continues to produce near record levels.
The logical explanation is that Saudi Arabia is engaged in a race to the bottom with US shale producers, and is now prepared to throw everything it has at the market just to ensure it is the last man standing when everything settles down.
SENTIMENT WATCH
The II survey shows 4 bulls for each bear…
…but it seems it is not because there are so many bulls…
…rather a huge shortage of bears as the “neutral” (confused) crowd has swelled:
Confused but active:
No More Greater Fools: Retail Traders Are “Pretty Fully Invested” In Stocks, TD CEO Says
“Margin loans at high levels, client cash at low levels and account holders at the firm logging in frequently.”
(…) the quote featured above is actually from TD Ameritrade CEO Fred Tomczyk and he’s describing America’s own legion of day-trading BTFDers who are apparently all-in at just the wrong time:
A broad look at the 6.5 million customer accounts at TD Ameritrade indicates that retail investors are “pretty fully invested” in stocks, the online brokerage’s CEO said Thursday.
Fred Tomczyk cited several signs of this: margin loans at high levels, client cash at low levels and account holders at the firm logging in frequently. “It’s usually a good indication that people are very engaged in the markets and watching their investments closely,” he said on CNBC’s ” Squawk Box .”
But Tomczyk acknowledged the potential pitfalls of these trends and what they may portend for stocks. “I wouldn’t be surprised if we have a correction here. We’ve had six [or] 6½ years of up markets here.
But this is nothing compared with that:
Srsly. This is nuts. When’s the crash?
Consider the chart to the right. Beijing Baofeng Technology, an online video group, listed in Shenzen just over a month ago.
To begin with, we thought there had to be something fishy going on. Surely the staircase can’t be the product of humans trading with each other.
But then James Mackintosh discovered the answer. The stock has just traded limit-up every single day.
From his Short View on the topic:
Forget valuations; the company (“Storm” in English) has risen 17-fold in 26 trading days, making it far and away China’s best-performing stock this year. From being one of China’s tinier stocks, it is now valued at $2bn.
Have a great weekend! 
