Leaving the Philippines Saturday. In Cambodia until Nov.9. Back home Nov. 10.
U.S. Personal Income & Spending Strengthen
Personal income increased 0.4% (3.0% y/y) during September following an unrevised 0.2% August rise. It was the largest income gain since February and matched expectations in the Action Economics Forecast Survey. The Commerce Department indicated that the figures reflect the effects of Hurricanes Harvey & Irma, which were not quantified. Wages & salaries rose 0.4% (3.2% y/y) following an upwardly revised 0.1% gain. (…)
Disposable income gained 0.4% (2.9% y/y), the strongest rise since May. Adjusted for price changes take-home pay eased slightly (+1.2% y/y) and continued the lethargic movement of the last four months.
Personal consumption expenditures jumped 1.0% (4.4% y/y) last month, the strongest rise since August 2009. A 0.9% gain had been expected. Adjusted for price change, personal spending increased 0.6% (2.7% y/y) after a 0.1% slip. Real durable goods purchases surged 3.5% (7.3% y/y), reflecting a 9.9% jump (8.5% y/y) in motor vehicle buying. Real furniture purchases jumped 1.0% (6.5% y/y), while real spending on recreational goods & vehicles rose 0.6% (8.2% y/y).
Constant dollar spending on nondurable items rose 0.3% (2.6% y/y) for a second straight month. Real purchases of clothing & footwear increased 0.5% (1.7% y/y) following three straight months of decline. Real spending on gasoline & oil declined 1.5% (-2.8% y/y) after a 0.4% gain. Real spending on food & beverages rose 0.5% (2.5% y/y). Real spending on services improved 0.3% (2.0% y/y) following no change. Real recreation spending jumped 1.2% (3.4% y/y), the strongest rise in six months. Real outlays on health care rose 0.1% (2.3% y/y), but housing & utilities expenditures improved 0.4% (0.8% y/y) after three months of decline.
The personal savings rate weakened to 3.1%, the lowest level since December 2007. Personal saving declined by roughly one quarter y/y.
The chain-type price index increased 0.4% (1.6% y/y), the strongest increase since January. Excluding food & energy, prices increased 0.1% (1.3% y/y) for the fifth straight month. Nondurable goods prices jumped 1.2% (2.0% y/y) with a 12.2% surge (18.3 y/y) in gasoline prices. Durable goods prices declined 0.3% (-2.1% y/y), down for the eighth straight month. The price index for recreational goods & vehicles fell 0.4% (-3.4% y/y). Services prices improved 0.2% (2.1% y/y) for the fourth month in five.
Ex-autos, real expenditures rose 0.3% in September.
Noteworthy from Haver Analytics table:
- Wages and Salaries have accelerated, rising at a 4.0% annualized rate in Q3.
- But real disposable income has been flat for 4 months.
- Spending keeps outgrowing income.
- The 3.1% savings rate is unsustainably low. The sharp September drop was out of necessity as households scrambled to rebuild and buy cars after the storms. But if income does not accelerate, spending will slow down.
Not to scare you but the last times the savings rate was so low was in December 2007 and in December 2000…The reality is that the American consumer is spent out and very fragile, threatening 70% of the economy. Read on.
(…) US economic growth has become so skewed toward the wealthiest households that data showing healthy consumer balance sheets masks underlying troubles facing middle-class and poor Americans.
Deutsche Bank’s economists tried to wrestle with this issue in a recent note. They note that, overall, things look OK — households are earning enough to pay back debt that now totals $12.84 trillion — about two-thirds of gross domestic product.
But that big picture is skewed by the booming incomes of the wealthy, and “underneath the surface, there may be incipient cracks forming,” the bank’s economists say.
“Some measures of income growth have slowed; the saving rate has fallen to near record-low-levels; measures of consumer credit demand and credit growth have weakened, and balance sheets have become more fragile for the lower part of the income distribution.”
(…) “strikingly, all parts of the income distribution have seen their net worth to income ratio decrease except for the top 10%, indicating that the record high net worth to income ratios noted previously are driven primarily by the upper portion of the income distribution,” the bank’s economists say.
“Despite most households reducing their debt loads, they actually may be in a more precarious situation as they have lost more out of their buffer stock of assets.”
Another way to visualize America’s economic divide is looking at the ratio between household liabilities and assets.
— The median household overall has seen only a slight increase in leverage since 2007, rising to 0.36 from 0.3.
— The bottom of the distribution has increased leverage pretty dramatically, rising almost 50% to 0.45 from 0.31.
— The second-poorest quintile has boosted leverage by about 10%.
— The rest of the distribution saw much smaller increases in leverage, or even outright deleveraging at the top end. (…)
The share of U.S. disposable income that went toward such spending totaled 3.81 percent in the third quarter, marking the highest share in data going back almost six decades. (…)
And this is happening when inflation is really helping:
Vehicle Sales Continued Hot Streak in October
(…) Nearly all major auto makers posted considerable gains, sending the closely watched seasonally adjusted annual sales rate to 18.1 million, Autodata said, outpacing the prior October’s 17.8 million and initial analyst expectations for a 17.5 million SAAR. Full-year auto sales through 10 months are holding close to the pace set a year ago.
Autodata, which excluded BMW AG from estimates because of delays in the German auto maker’s reporting, said sales volume slipped 1.3% in October to 1.35 million. The modest decline is seen as a positive development, however, because there was one fewer selling day this year compared with October 2016 and analysts had been expecting a bigger year-over-year setback.
The fourth quarter has been an important period for auto makers during the past two years, both of which represented consecutive records for U.S. sales. The October-through-December period set the fastest sales pace in 2015 and 2016, replacing the summer selling season as the prime car-selling period. (…)
J.D. Power said the transition to 2018 model-year vehicles has been sluggish this year. To date, sales of 2018 model-year vehicles make up 29% of all retail sales, a sign that auto makers might pile on incentives to get 2017 model-year vehicles off dealer lots.
Auto makers offered an average discount of $3,902 per vehicle in October, a record for the month, J.D. Power said. (…)
Fed Signals December Hike On Track a Day Before Trump Announces Next Chair
(…) “Economic activity has been rising at a solid rate despite hurricane-related disruptions,” the Federal Open Market Committee said in a statement Wednesday following a two-day meeting in Washington at which they left rates unchanged as expected.
After its meeting in September the FOMC said the economy was expanding “moderately.” Wednesday’s statement marked the first time since January 2015 that the committee used the word “solid” to describe growth.
The Fed repeated its assessment that while inflation may remain “somewhat below 2 percent in the near term,” it’s expected to stabilize around the central bank’s 2 percent objective “over the medium term.” (…)
PMIs
Notice the rising pressures on capacity worldwide and the easier pass through for rising input costs.
The seasonally adjusted IHS Markit final US Manufacturing Purchasing Managers’ Index™ (PMI™) registered 54.6 in October, up from 53.1 in September. The latest index figure indicated a solid improvement in manufacturing operating conditions, that was the fastest seen since the start of the year.
Production grew at an accelerated rate in October, with the pace of expansion reaching an eight-month high. Anecdotal evidence suggested the rise was due to a strong demand environment and larger new order volumes.
Similarly, new business received by manufacturers increased solidly and at the fastest pace since March. Panellists generally attributed the upturn to larger client bases. Demand from foreign clients was also substantial, reflected in the quickest rise in export orders since August 2016. Survey respondents noted firmer demand among clients from Europe and Asia.
In response to greater production requirements, US manufacturing firms expanded their workforce numbers and at the strongest rate since June 2015. Despite further job creation, the level of outstanding business grew for the third successive month.
Meanwhile, purchasing activity continued to rise, with firms replenishing inventories to ensure orders could be met in a timely manner. Notably, both pre-production inventories and buying levels rose at the fastest pace in three months.
On the prices front, inflationary pressures remained marked in October. Output charge inflation accelerated to a solid rate that was the fastest since April. Input costs, however, increased at a slightly softer pace than September. The rate of inflation was nonetheless sharp and above the survey average. Panellists linked the rise to supplier shortages stemming from supply chain disruption after the recent hurricanes. Furthermore, supplier delivery times lengthened to the greatest extent since February 2014.
Expectations regarding future output improved to a three-month high in October. Anecdotal evidence linked confidence to more favourable business conditions.
An important change in October was the broadening out of the expansion to smaller firms, which have lagged behind the strong growth reported by larger rivals throughout much of the year to date but under-performed to a lesser extent in October.
The final IHS Markit Eurozone Manufacturing PMI® rose to an 80-month high of 58.5 in October, up from 58.1 in September and slightly below the earlier flash estimate of 58.6. (…)
Looking at the components of the headline PMI, the rate of growth in euro area manufacturing production eased from September’s high, whereas the pace of increase in new work received remained robust and gathered pace to its best in 80 months.
Job creation was also a solid contributor, with employment rising at a new survey-record rate. The trends in stocks of purchases and supplier delivery times also had stronger positive contributions than one month ago. (…)
October saw companies expand capacity in response to rising new order inflows and a further solid increase in backlogs of work. Employment increased at sharper rates in Germany, Italy, Spain, the Netherlands, Ireland, Austria and Greece. Only France failed to register stronger jobs growth.
Outstanding business rose at the joint-fastest pace in the series history, as capacity was tested by improved inflows of new work from both domestic and export clients. The level of new export business rose at a quicker pace, reflecting increases across all of the nations covered by the survey.
Capacity pressures also impacted on supply chains during October, as reflected by a further substantial lengthening in vendor lead times. Delivery times increased to the greatest extent in six-and-a-half years, with especially severe lengthening signalled in Germany, France, Austria and the Netherlands.
Robust demand for raw materials and associated shortages of certain inputs both contributed to the latest increase in vendor lead times. The development of sellers’ markets for a number purchased items also led to an increase in their cost.
Average input prices rose at the fastest pace in six months, with stronger inflation signalled in almost all of the nations covered (the exception being Ireland). Part of the increase in purchasing costs was passed on to clients in the form of higher selling prices. Output charges rose for the thirteenth successive month, with the rate of inflation rising to its highest since June 2011. The steepest increase in selling prices was in Germany, despite it being one of only two nations covered (the other being Ireland) to see slower inflation than in September.
The seasonally adjusted Purchasing Managers’ Index™ (PMI™) was unchanged from September’s reading of 51.0 in October to signal a further marginal improvement in the health of the sector. Operating conditions have now strengthened in each of the past five months.
Manufacturing companies in China reported a further increase in new business during October. The rate of expansion picked up slightly since September, but remained moderate overall. New export sales rose at a similarly modest pace, following a marginal upturn in September.
In contrast, production increased only slightly in October. Moreover, the rate of growth was the weakest seen for four months. At the same time, confidence towards the 12-month outlook for production moderated to its second-lowest level since August 2016.
Chinese manufacturing employment fell again in October, thereby extending the current sequence of job shedding to four years. Some panellists mentioned lowering workforce numbers in order to boost efficiency. That said, the rate of reduction remained moderate. Reduced staffing levels and higher than expected new orders led to a further increase in backlogs of work. Notably, the rate of accumulation was the joint-steepest since March 2011 (on par with July 2016). (…)
Stringent environmental inspection policies and low stock levels among suppliers contributed to a further deterioration in delivery times. These factors also contributed to a further sharp increase in average purchasing costs. The rate of input price inflation edged down only slightly since September and was among the highest seen since early-2011.
In order to protect their margins, firms raised their selling prices again in October. That said, the rate of increase was not as steep as the previous month.
The headline Nikkei Japan Manufacturing Purchasing Managers’ IndexTM (PMI)® edged fractionally down in October to 52.8, from 52.9 in September. Albeit lower, the
index reading signalled another solid rate of sector expansion. (…)
Incoming new business grew solidly, albeit at a slightly slower pace than in September. Some panellists attributed the rise to new customer acquisitions. Furthermore, overseas demand increased amid reports of new business from China, Taiwan and South Korea.
Consequently, firms boosted production to meet demand. Latest survey data marked a fifteenth successive month of higher output. Moreover, the rate growth was solid and the most marked since May.
Higher volumes of new work appeared to add to capacity pressures in the Japanese manufacturing sector. Backlogs of work accumulated at the quickest pace since February. That said, the rate of expansion in unfinished work was modest overall. Higher backlogs of work encouraged companies to enhance operating capacity by taking on additional staff. The rate of job creation picked up from September’s ten-month low in line with production requirements. (…)
Pressure on supply chains continued to build, in part reflecting solid growth in demand across the manufacturing sector. As has been the case since May 2016, suppliers’ delivery times lengthened in October. Furthermore, average lead times worsened to the greatest extent since May 2011. (…)
Meanwhile, input cost inflation quickened fractionally to a six-month high in October. Panellists generally linked this to higher raw material prices. As a result, companies raised output charges, with inflation accelerating to the joint-fastest since November 2014.
EARNINGS WATCH
Q3 is getting stronger thanks mainly to IT surprising by 12.1% for a 20.5% jump in profits. Blended EPS are now seen up 7.7% on a 5.2% revenue gain.
Trailing EPS are now $127.71.
