U.S. Consumer Spending Steady in October
U.S. Consumer Credit Usage Eases
Consumer credit outstanding increased $19.3 billion (6.5% y/y) during September following a $26.8 billion August rise, revised from $25.9 billion. (…) Over the past ten years, there has been a 46% correlation between the y/y growth in consumer credit and y/y growth in personal consumption expenditures.
Nonrevolving credit led the rise, with a $15.1 billion gain (6.7% y/y) after a $21.1 billion August increase. Revolving consumer credit increased a moderate $4.2 billion (5.9% y/y) after a $5.6 billion rise.
Student loans during Q3’16 increased 6.4% y/y, down from a high of 14.4% growth in 2009. Motor vehicle loans increased 6.6% y/y versus 9.0% growth in 2014.
Fitch: Student Loans, Stagnant Wages Push Millennials off Housing’s Wealth Ladder
Rising student loan balances, stagnant real wages, appreciation in home prices and more conservative underwriting standards are combining to keep millennials from participating fully in housing-driven wealth creation, says Fitch Ratings. (…)
Fitch’s comparison of cash flows for two hypothetical recent college graduates shows that a monthly student loan payment of $203/month, the 2016 median according to the Federal Reserve Bank of Cleveland, would result in $45,000 less in mortgage loan capacity. Over 40 million people now hold student loans. (…)
The cost of higher education in the U.S. has grown at an average of 5.4% annually since 2000, more than double the 2.2% average annual consumer price inflation rate. As the number of graduates with student debt and the average debt burden have grown, stagnant wages have also crimped millennials’ ability to save for a down payment. During 2007-2015, average student loan balances for all borrowers surged 60%, compared with nominal wage growth for recent university graduates of just 13%.
Longer-term, delays in purchases or decreasing homeownership rates raise a number of questions about the economic consequences of generational spending shifts, including consumers’ spending mix, savings rates, and related demographic variables like marriage and birth rates.
German Manufacturing Orders Decline
Orders fell 0.6% on the month in adjusted terms versus an expected gain of 0.1% in a Wall Street Journal poll of economists. The decline followed a gain of 0.9% in the previous month and 0.2% in July.
September’s data showed declines in both domestic and foreign orders with domestic orders down 1.1% and foreign orders down 0.3%.
The Economy ministry said orders grew by 0.5% in the third quarter versus the previous three months with momentum coming from abroad. “The brightening of relevant sentiment indicators suggests a certain recovery of industrial production for the rest of the year,” said the ministry.
The closely watched Ifo index of firms has increased over the last two months, while a recent purchasing managers’ survey signaled strong improvements in German manufacturing conditions. (…)
Haver Analytics has more on Germany and Europe:
Year-over-year trends (see table and chart) show that foreign orders have been gaining pace recently while domestic orders have been weak and are weakening. Foreign orders are accelerating over 12 months to six months to three months as domestic orders are decelerating on the same horizons. (…)
In the quarter-to-date (just completed Q3), overall orders are up at a 1.9% pace while real sector sales are weak across the board and are falling.
German new orders from within the euro area were down 4.5% on the month, while new orders from other countries increased by 2.5% compared to August 2016. (…)
On balance, the German orders data, the context from world trade, the global PMI data and the recent EU/EMU retail sales patterns show ongoing erratic trends that tend to the weak side. There has been some firming in the recent global PMI reports. There is still firm investor confidence as the Sentix indicator of investor confidence reported today showed a rise to 13.1 in October from 8.5 in September. Investors are not throwing in the towel by any means. Economic performance is still marginal, but it is staying in the plus column. (…) Monetary policy is still being leaned upon steadily, but perhaps the ramping up of that dependence has seen its end of days. Monetary policy may just have done all it can do apart from keeping markets liquid; in the U.S., policy is preparing to do less. While more speak of fiscal policy, it is not clear where or how it might be pressed into action if at all. Nor is it completely clear how developing political trends might affect policy.
Eurozone retail sales fall for second month running in October
Yesterday we got Eurostat retail sales data for September, down 0.2% MoM for total sales volume and down 1.0% for core sales. Markit’s Retail PMI survey for October points to another down month:
October’s headline Markit Eurozone Retail PMI –which tracks month-on-month changes in like-for-like retail sales in the bloc’s biggest three economies combined – registered 48.6, down from 49.6 in September and its lowest reading since June. Sales also decreased on an annual basis at the start of the fourth quarter, with the rate of decline the second-fastest seen in over one-and-a-half years (second only to that observed in April).
The only bright spot in an otherwise gloomy picture was Germany, though sales there rose only marginally and at the slowest rate for six months.
Saudi-Iranian Fallout Could Destroy The OPEC Deal
(…) According to OPEC sources, Saudi Arabia offered to cut to around 10.2 million bpd from the summer peak output of 10.7 million bpd if Tehran agreed to freeze at 3.6 million-3.7 million bpd. Which Iran did not.
“The Saudis have threatened to raise their production to 11 million barrels per day and even 12 million bpd, bringing oil prices down, and to withdraw from the meeting,” according to an OPEC source, as quoted by Reuters. Ironically enough, shortly after this came out, it was denied by OPEC secretary General Barkindo and contradicted again by another senior OPEC official. (…)
Iran is still saying it will cap only when it reaches that threshold, which is 4.2 million bpd, Reuters reports. Tehran is also pointing the finger at the Saudis, countering their ‘should-freeze-now’ threat with the argument that Riyadh has increased production by nearly 1 million bpd since 2014 and is now most kindly and generously offering to cut just 400,000 bpd to take one for the team in order to reach that production deal. (…)
China Trade Data Disappoints (Again) Despite Plunging Yuan
(…) Chinese imports have now declined for 23 of the last 24 months (falling 1.4% YoY in USD terms) and for 18 of the last 20 months, despite a devaluing yuan, exports have declined YoY (-7.3% YoY in October). In both USD and Yuan terms, trade data disappointed across the board suggesting a global economy that is far from as exuberant as recent PMIs suggest.
As Bloomberg notes, a depreciation of about 9 percent in the yuan since August 2015 has cushioned the blow from tepid global demand, but failed to provide any sustained boost to shipments. Rising input costs and surging wages bills have flattened profit margins for exporters to the point where many can no longer discount and are mulling price increases, according to interviews at the Canton Fair last month. (…)
Yuan Weakness Spurs Fresh Surge in China Outflows More money is leaving the world’s No. 2 economy again, threatening Beijing’s strategy of letting its currency weaken in a controlled fashion, with the potential for a feedback loop to develop and drag the yuan down further.
(…) China’s foreign reserves plunged $45.7 billion in October from the previous month to $3.12 trillion, official data showed Monday. That is the largest drop since January, suggesting that outflows could be edging back up to the record-breaking levels of late last year and early this year.
As much as $78 billion may have left China in September, according to Goldman Sachs, which has its own measure of outflows, the largest amount since the $100 billion-plus the firm estimates left the country in December and again in January. Analysts say October outflows are poised to be large as well. (…)
Bank of America Merrill Lynch estimates that outflows from China totaled $113 billion in the third quarter, up from $99 billion in the previous one. The bank now expects one dollar to buy 7.25 yuan at the end of 2017, compared with the 6.8 yuan it had forecast previously, in part because it expects significant capital outflows to continue next year. (…)
What to Drink on Election Night
