U.S. Retail Sales Are Held Back by Severe Winter Weather in February
Total retail sales including food service and drinking establishments declined 3.0% (+6.3% y/y) during February after rising 7.6% in January, which was strengthened by a second round of government stimulus checks. The January gain was revised from 5.3%. The Action Economics Forecast Survey expected a 0.3% slip. Retail sales excluding motor vehicles and parts declined 2.7% last month (+5.5% y/y) after surging 8.3% in January, revised from 5.9%. Sales have fallen in four of the last five months. A 0.3% February rise had been expected.
Sales in the retail control group, which excludes autos, gas stations, building materials and food services, fell 3.5% last month (+10.2% y/y) after surging 8.7% in January, revised from 6.0%.
Motor vehicle purchases declined 4.2% in February (+9.2% y/y) following a 5.0% January rise. The decline compares to a 5.6% weakening (-6.7% y/y) in unit sales of light vehicles. (…) Furniture & home furnishings sales weakened 3.8% (+8.9% y/y) following a 12.9% jump while sales of electronics & appliances eased 1.9% (-3.1% y/y) after surging 16.7% in January. Sporting goods, hobby and book store sales declined 7.5% (+15.4% y/y) after rising 10.3%.
Building materials sales fell 3.0% (+14.2% y/y) with the severe weather after increasing 4.9% in January. (…)
In the nondiscretionary sales categories, food & beverage store sales held steady in February (11.7% y/y) after gaining 2.4% in the prior month. Health personal care store sales eased 1.3% (+5.4% y/y) following a 2.3% rise.
Sales at restaurants and drinking establishments posted a 2.5% decline (-17.0% y/y) in February after rising 9.1% in January.
The consumer-spent-out theory finds support from the declining sales in 4 of the past 5 months. Note however that Control Sales (blue bars) are still up at a 3.6% annual rate since October amid the second wave and poor February weather:
The pent-up-demand view says that consumers continue to buy goods at double digit YoY rates over pre-pandemic February 2020. Per ING: “January’s stimulus-payment-induced surge was revised even higher and with another stimulus cheque hitting bank accounts and the weather situation having improved, the numbers for March and April will surge.”
The next set of government payments have not reached consumers yet but Chase’s spending tracker has surged through March 12:
China’s experience per Bloomberg which coined the expression “revenge spending”: “The reopening of the nation’s domestic travel corridors sparked a tourism revival, with locals visiting destinations like Macau and Hainan. They’ve been spending so much there that brands like Ralph Lauren Corp., Estee Lauder Cos. and Coach are all scrambling to open more stores. There’s universal hope that there’ll be a similar fervor in the U.S. too.
The other, related, debate:
Goldman Sachs: The Inflation Boost From Supply Chain Disruptions: Here Today, Gone in 2022
US manufacturers’ supply chains are increasingly strained, as a rapid recovery in goods demand combined with lingering pandemic-related constraints on international transport services has pushed delays in supplier deliveries to their highest level in over 40 years. As a result, a significant majority of manufacturing firms currently indicate that supply chain disruptions and delivery delays are negatively affecting production.
Unfortunately, supply chain disruptions are unlikely to abate in the near term and will continue to put upward pressure on consumer prices for the rest of this year: fiscal stimulus will keep goods demand elevated and the virus will continue to disrupt the supply of international goods transport services. However, by early next year, we think that shipping bottlenecks are likely to resolve themselves and prices will moderate, turning the boost to core inflation into an outright drag.
The good news is that because supply challenges are largely driven by transportation and not production constraints—unlike last spring when supplier delays spiked due to factory shutdowns that halted the supply of intermediate goods—we expect that supply constraints will put upward pressure on prices but have less of an impact on real economic activity. As examples of how some importers and manufacturers have alleviated bottlenecks at higher costs, some companies have started importing bike parts and hot tubs by air rather than sea freight, and other producers have started rerouting imports through alternate ports.
Hmmm…read on and judge by yourself if “supply challenges are largely driven by transportation and not production constraints”.
Commodities Boom Hits Home Prices are surging for the raw materials used to build American homes and builders and manufacturers are passing along higher prices for wood, copper and bricks.
(…) “Whoever the home buyers are, they have been able to pay for it,” said Todd Tomalak, who tracks building products for John Burns Real Estate Consulting.
American Homes 4 Rent, which built more than 1,600 rentals last year and plans to construct another 2,000 houses this year, said its lumber bill is between $20,000 and $25,000 per house, up from about $10,000.
“Fortunately, we’ve been in a rental-rate growing environment, and that has kept us yield neutral,” said Jack Corrigan, the company’s chief investment officer.
Investors are watching all corners of the economy for signs of stimulus driving a pickup in inflation. They are finding it in housing, where rising input prices are translating into higher costs for consumer goods. (…)
“We’re sold out. We can’t take on any more business this year,” [CanWel Building Materials Group Ltd.] Chief Executive Amar Doman told investors last week. “Everything that we’re producing is sold, and it’s out the door.” (…)
The National Association of Home Builders says that rising lumber prices have added $24,000 to the cost of building the average single-family home and about $9,000 per apartment. (…)
Builders boosted prices for nearly three quarters of all floor plans offered during January, according to RBC Capital Markets, compared with 54% of models that became more expensive in December. (…)
At Burke Brothers Hardware nearby, owner Jeff Hastings is balancing rising costs with keeping customers. He is stocking up on copper wire before prices go any higher and sacrificing his own profit on lumber sales to attract customers who will add higher-margin items, like fasteners and tools, to their tickets. (…)
From the latest ISM survey:
- “The coronavirus [COVID-19] pandemic is affecting us in terms of getting material to build from local and our overseas third- and fourth tier suppliers. (Computer & Electronic Products)
- “Supply chains are depleted; inventories up and down the supply chain are empty. Lead times increasing, prices increasing, [and] demand increasing. Deep freeze in the Gulf Coast expected to extend duration of shortages.” (Chemical Products)
- “Steel prices have increased significantly in recent months, driving costs up from our suppliers and on proposals for new work that we are bidding. In addition, the tariffs and anti-dumping fees/penalties incurred by international mills/suppliers are being passed on to us.” (Transportation Equipment)
- “We anticipate a fast and large order surge in the food-service sector as restaurants open back up.” (Food, Beverage & Tobacco Products)
- “Overall capacities are full across our industry. Logistics times are at record times. Continuing to fight through shipping and increased lead imes on both raw materials and finished goods due to the pandemic.” (Fabricated Metal Products)
- “Prices are going up, and lead times are growing longer by the day. While business and backlog remain strong, the supply chain is going to be stretched very [thin] to keep up.” (Machinery)
- “Things are now out of control. Everything is a mess, and we are seeing wide-scale shortages.” (Electrical Equipment, Appliances & Components)
- “We have seen our new-order log increase by 40 percent over the last two months. We are overloaded with orders and do not have the personnel to get product out the door on schedule.” (Primary Metals)
- “Prices are rising so rapidly that many are wondering if [the situation] is sustainable. Shortages have the industry concerned for supply going forward, at least deep into the second quarter.” (Wood Products)
Samsung Warns of Severe Chip Crunch While Delaying Key Phone The tech giant voices concern about chip shortages spreading beyond the automaking industry.
(…) Samsung, one of the world’s largest makers of chips and consumer electronics, expects the crunch to pose a problem to its business next quarter, (…).
Industry giants from Continental AG to Renesas Electronics Corp. and Innolux Corp. have in recent weeks warned of longer-than-anticipated deficits thanks to unprecedented Covid-era demand for everything from cars to game consoles and mobile devices. Volkswagen AG said this week it’s lost production of about 100,000 cars worldwide. In North America, the silicon shortage and extreme weather have combined to snarl more production at Toyota Motor Corp. and Honda Motor Co. The fear is the crunch, which first hit automakers hard, may now disrupt the much larger electronics industry.
“There’s a serious imbalance in supply and demand of chips in the IT sector globally,” said Koh, who oversees the company’s IT and mobile divisions. “Despite the difficult environment, our business leaders are meeting partners overseas to solve these problems. It’s hard to say the shortage issue has been solved 100%.” (…)
“The tightened supply of Qualcomm AP chips produced by TSMC is affecting everybody except Apple,” said MS Hwang, analyst at Samsung Securities. “PCs will soon be hit due to the short supply of display driver ICs, and the profitability of TV will be affected by soaring LCD panel prices.”
Compounding matters, Samsung’s own production got sideswiped last month. Its fab in Austin, Texas — which makes chips both for internal and external consumption — was sidelined in February by statewide power outages and hasn’t resumed full production. The resulting shortfall in production of Qualcomm 5G radio frequency chips could reduce global smartphone output by 5% in the second quarter, research firm Trendforce estimates. (…)
Some analysts say shortages could get mostly ironed out in coming months. But the concern is that tight supply in certain segments — such as in more mature semiconductors where it takes time to build capacity — could eventually throttle the broader consumer electronics industry and jack up prices if it persists. (…)
At the same time, China’s insatiable appetite for chips — fueled in part by its rapid recovery from the pandemic — and inventory stockpiling by local companies is fueling demand. Sales for the country’s chip industry climbed 18% to 891.1 billion yuan ($137 billion) in 2020, China Semiconductor Industry Association Chairman Zhou Zixue told a conference in Shanghai Wednesday. (…)
U.S. Import and Export Prices Rise Further in February
Import prices increased a slightly larger-than-expected 1.3% m/m (3.0% y/y) in February on top of an unrevised 1.4% m/m gain in January. The Action Economics Forecast Survey anticipated a 1.2% m/m gain in February. The 3.0% y/y increase was the largest since October 2018. A 11.1% m/m (6.5% y/y) jump in fuel prices following a 9.0% m/m increase in January was the major factor behind the rise in import prices in February. (…)
Nonfuel import prices rose a modest 0.4% m/m (2.8% y/y) in February after a 0.9% m/m increase in January. The 2.8% y/y rise in nonfuel prices was the largest since January 2012. Prices in all of the major end-use categories rose in February, though apart from fuel and foods, feeds, beverages (1.6% m/m), the increases were very small. These figures are not seasonally adjusted and do not include import duties.
After posting a 2.5% m/m jump in January, the largest monthly gain in the series history, export prices increased a larger-than-expected 1.6% m/m (5.2% y/y) in February. The Action Economics Forecast Survey had expected a 1.1% m/m gain. The 5.2% y/y rise was the largest since June 2018. The price index for agricultural exports rose 2.9% m/m (16.1% y/y) following a 6.0% jump in the previous month. The February gain was primarily due to higher soybean and corn prices. The 16.1% y/y increase was the largest annual gain since September 2011.
Prices of nonagricultural exports increased 1.5% m/m (4.1% y/y) in February after a 2.2% m/m gain in January. Prices rose in all major end-use categories in February with the largest being a 3.6% m/m increase in prices of industrial supplies and materials, led by an 8.8% m/m increase in exported fuel prices.
Note that non-fuels import prices are up 7.0% a.r. in the last 3 months.
“It’s Gone Parabolic”: Canadian Housing In One Shocking Chart The months’ supply of homes for sale across the country hit a record low of 1.8 in the month (the norm is about 5)
U.S. Industrial Production Drops 2.2% in February After 4 Strong Months
Industrial production fell 2.2% in February (-4.2% y/y). It had advanced 1.1% in January, 1.0% in December, 0.9% in November and 1.0% in October. The Action Economics Forecast Survey looked for a 0.3% m/m gain for February. Nearly all industry groups experienced the February declines. Manufacturing output fell 3.1% (-4.1% y/y) after a 1.2% increase in January. Mining output declined 5.4% (-15.3% y/y) following a 2.1% increase in January. Utilities were the exception in February, as their output advanced 7.4% (10.1% y/y) after falling 0.6% in January.
Durable manufacturing output fell 2.6% in February (-4.0% y/y) after a 1.5% gain in January. Among those individual industries, only primary metals and aerospace and miscellaneous transportation equipment had increases, with declines marked in the other nine industries in that sector. Specifically, motor vehicle industry output fell 8.3% in February (-8.6% y/y).
Nondurable goods output fell 3.7% in the month (-3.6% y/y) after increasing 1.1% in January and 1.2% in December. The only industry with an increase was textiles and product mills, which saw their production increase 0.6% (-3.3% y/y). Otherwise, the biggest declines in February output were in chemicals, which plunged 7.1% m/m (-5.1% y/y) and in petroleum and coal products, 4.4% (12.3% y/y). (…)
Output of selected high technology equipment decreased 0.3% m/m (7.9% y/y) in February. Excluding these products, overall production fell 2.3% m/m (-4.0% y/y). Excluding both high tech products & motor vehicles, factory production fell 1.9% m/m (-3.7% y/y).
Capacity utilization for the industrial sector increased dropped to 73.8% last month from 75.5% in January. Factory sector utilization was 72.3%, down from 74.6%.
PMIs are supposed to be leading indicators. But diffusion indices sometimes fail showing the actual magnitudes of trends.
Here’s what Markit was saying on March 1:
Despite easing, rates of expansion in output and new orders remained sharp overall in February. The rate of production growth was among the fastest in six years while new order growth was among the fastest seen over the past three years. New export orders also rose solidly, registering the second-steepest gain since September 2014.
Particularly encouraging is a marked improvement in demand for machinery and equipment, hinting strongly at strengthening business investment spending. However, new orders for consumer goods showed the strongest back-to back monthly gains since the pandemic began, suggesting higher household spending is also feeding through to higher production. (…)
The accumulation of backlogs of work was the quickest for three months. (…) The degree of optimism was the highest for three months (…)
Toyota, Honda to Halt Some U.S. Production Over Supply Shortages Toyota and Honda are halting production at some North American plants as the pandemic’s continuing effects on the global supply chain create shortages of essential components.
(…) Toyota cited an unspecified “shortage of petrochemicals” at some North American plants. The shortage would affect production at vehicle factories in Kentucky and Mexico, as well as an engine plant in Alabama. (…) It said that for now it didn’t expect to have to furlough any workers.
Honda said it would halt production at most of its U.S. and Canadian car factories next week because of supply-chain issues including port backlogs that have delayed the delivery of parts.
Honda said a combination of the port issues, a shortage of semiconductors, pandemic-related problems and fallout from severe winter weather across the central U.S. led to the decision. The cold caused pipes to burst in some of its factories. (…)
The shutdown is set to start at most of Honda’s five auto plants in the U.S. and Canada on March 22 and last a week, the company said, without specifying which plants would halt production.
Honda said the duration of the shutdown could change depending on parts supply. Workers will continue to be paid to perform other tasks at the plants, it said. (…)
That was all about goods. What about services?
NY Fed’s Service Business Leaders Survey
No surprise, service business activity remains very weak:
The surprise may be that wages and prices are rising in this environment:
The employment index rose seven points to -7.1, pointing to a modest decline in employment levels. The wages index continued to march upward, rising eight points to 34.9. As in recent months, price increases picked up in the March survey. The prices paid index rose eleven points to 53.2, its highest level in two years, and the prices received index rose five points to 14.5.
Uber to Reclassify U.K. Drivers in Win for Labor Activists The change, after a court loss, reclassifies drivers as “workers” rather than independent contractors, making the U.K. the first place where Uber is paying directly for drivers’ vacations and pensions amid a global battle over gig-economy employment.
(…) The changes may presage legal wrangling, however, because the ride-hailing company says it will guarantee its drivers the U.K.’s minimum wage only after they have accepted a trip—not from the moment they sign into the app and are ready to work, as labor activists have demanded. (…)
But the U.K.’s Supreme Court found in its February ruling that the group of former drivers should have been considered working whenever they were connected to the Uber app and available for trips. (…)
In November, Uber won a major ballot battle in California—its home state—that exempted it from having to reclassify its drivers as employees eligible for broad employment benefits. As part of that win, Uber offered some new benefits including health insurance for some drivers. The company passed on some of its costs to riders in the form of higher prices.
Uber and others are lobbying to make such a model the national standard in the U.S., and the company has made similar proposals in Europe. (…)
Elsewhere in Europe, meantime, Swiss courts have forced Uber Eats, the company’s food-delivery arm, to stop using independent contractors in the Geneva area. Last spring, a French court reclassified a former Uber driver as an employee. (…)
Uber, for instance, says the change in employment status doesn’t cover delivery workers at its Uber Eats business, saying the food-delivery sector operates using a different economic model—a view labor activists may challenge. (…)
THE YEARN TO EARN
Putting the Risk Into Risk-Free Treasurys Inflation worries make buyers wary of locking up money in government bonds for a long time
(…) The value of a 30-year Treasury fell 15.6% in just three months. That is the equivalent of almost a decade of the income it offered three months ago, and it is the flip side of the sudden rise in yields. Shorter-maturity Treasurys have fallen less, but even for the 10-year note it will take six years of income to recover the loss of the past three months.
The danger is that this is just the beginning. (…)
But this recent chart from David Rosenberg should interest the contrarian in you:
David titillates us even more writing that “bond yields have always peaked out and rolled over at these levels.”
Like Ronald Reagan, I trust but verify: the red dots are approximately where sentiment bottomed above. Rosie is right!
Coincidentally, BofA just published its latest Fund Manager Survey: getting long bonds here is a truly contrarian move.
TLT may be extended but the trend is not your friend just yet, particularly with the booming budget deficit:
Steve Blumenthal’s On My Radar warns:
What the next chart shows is how much is at risk for every 1% rise in bond yields (red arrow pointing right). Shown are the 10-year Treasury note and the 30-year Treasury bond. Zero in on the -9.24% and -21.67% numbers. That’s the current loss in rise in interest rates since late August. Note the losses should rates move up another percentage point from here too. This is why I say the bond market is broken. A 1.54% yield with inflation above that number does nothing to help your portfolio. Further, should rates continue to rise, you lose money. The reward-to-risk is just not there.
More yearn to earn:
Greensill-Owned Bank Declared Insolvent, Causing Losses for Small German Towns Local governments deposited money at the lender to escape negative interest rates at their usual banks.
COVID-19
Alibaba Browser Pulled From China’s App Stores As Xi Warns Tech Giants Pose “Risks” To CCP Control
(…) According to minutes from a meeting of senior CCP leaders, President Xi warned that tech giants are growing “in an inappropriate manner” that creates risks for the Chinese system.
“Some platform companies are growing in an inappropriate manner and therefore bear risks. It is a considerable problem that the current regulatory regime has failed to adjust” to the rise of these groups,” the minutes of the meeting said. Regulators will “step up” efforts to improve the regulation of China’s big internet companies, the minutes added.
Xi added that the development of China’s platform economy is currently at a crucial stage, and it’s necessary to focus on the long term, strengthen weaknesses and create an innovative environment to promote the healthy and sustainable development of the platform economy. In the past, Xi has spoken about the importance of limiting monopolies, but this is the first time he has specifically addressed the problems posed by “platform” companies like Tencent, Alibaba, JD.co and others. (…)
Morningstar