Year: 2023

Shoppers Boosted Retail Sales in April, Reversing Two Months of Declines Consumers spent more on autos, dining out and home projects last month after cutting spending earlier in the year

Retail sales—a measure of spending at stores, online and in restaurants—rose a seasonally adjusted 0.4% last month from the month before, after declining in February and March, the Commerce Department said Tuesday.

Consumers spent more on autos and dining out last month, while boosting online purchases. They cut spending on gasoline and on big-ticket purchases such as appliances and furniture. (…)

Retail sales rose 1.6% in April from a year earlier, below the 4.9% inflation rate for the same period. (…)

Home Depot said Tuesday it expects annual sales to decline for the first time in over a decade as households spend less on home improvement in favor of services. Chief Financial Officer Richard McPhail said customers are also balking at making big-ticket purchases that can be easily deferred. (…)

Auto purchases started to rebound in the first quarter as dealers built up inventories after supply-chain constraints faded, with many companies reporting higher sales. (…)

Retail sales (i.e. goods consumption) have flatlined in the past 12 months but remain 30.6% above their pre-pandemic level, substantially higher than total consumption expenditures (including services) at +22.4% and disposable income at +17.0%. The convergence will continue.

• US retail sales increased 0.5% over the last year, the lowest growth rate since May 2020 & well below the historical average of 4.8%. After adjusting for inflation, though, the story is far worse. Real retail sales fell 4.2% over the last year, the 6th consecutive YoY decline.

@charliebilello

Not so fast Charlie. If you want to adjust retail sales for inflation, you can’t use total CPI which is up 5.0% in April. You must use CPI-Goods, +2.0% in April. Real retail sales are thus down, but not quite as much as your measure suggests.

How Car Sales Could Keep the Economy Humming Retail spending is still growing and could soon get a boost for car sales

The Commerce Department on Tuesday reported that retail sales rose a seasonally adjusted 0.4% in April from a month earlier after slipping 0.7% in March. That was less than the 0.8% economists polled by The Wall Street Journal had expected. But sales excluding gasoline stations, car dealers, building-materials stores and food services—the so-called control group that economists use to track the underlying pace of consumer spending— rose 0.7%. That put control spending above its first-quarter average, setting the stage for another quarter of spending gains.

The report also showed how the contours of consumer spending continue to shift. Sales at furniture and home furnishing stores, department stores and electronics and appliance stores, all of which were pandemic beneficiaries, fell. Sales at food services and drinking places rose.

Sales at motor vehicle dealers also rose a bit, increasing by 0.1% from a month earlier. Gains there seem likely to continue, and strengthen, in the months ahead, providing support for spending and the economy. (…)

Last year, there were 13.75 million cars, pickup trucks and other light vehicles sold in the U.S., the fewest since 2011, when auto sales were still pulling out of the financial crisis. Lately, with supply chains steadier and vital semiconductor chips more widely available, sales have been making a comeback. Through the first four months of the year, Commerce Department figures show that 15.41 million light vehicles have been sold at a seasonally adjusted, annual rate. (…)

In 2019, 16.9 million light vehicles were sold. And considering how many people have been holding on to their cars longer than they usually would, sales could feasibly go higher than they were before the pandemic. (…)

Recent research from the Federal Reserve Bank of San Francisco suggests that the excess of savings households built up after the pandemic hit can continue to support spending through at least the fourth quarter of this year. (…)

And there is also the fact that cars are getting older:

Reproduced from S&P Global Mobility. Chart: Axios Visuals

Fed Officials Debate Whether to Pause Rate Rises Some central bankers are more worried about banking-sector stresses, while others haven’t seen enough inflation progress

(…) The Fed should raise and then hold rates at a level where the next move is equally as likely to be an increase or a decrease, and the central bank isn’t there yet because inflation isn’t showing enough signs of improvement, Cleveland Fed President Loretta Mester said Tuesday.

“The question in my mind is have we gotten to that rate yet? At this point, given the data we’ve gotten so far, I would say no,” she said during a question-and-answer session after a speech in Dublin. (…)

Two other Fed officials suggested they were leaning toward holding interest rates steady at the central bank’s June 13-14 meeting to study the effects of past moves as well as the impact of three bank failures since mid-March, which could further tighten credit conditions.

“You don’t land the plane nose down,” said Chicago Fed President Austan Goolsbee at a conference in Amelia Island, Fla., on Tuesday evening. (…)

Speaking on the same panel, Atlanta Fed President Raphael Bostic said he expected it would take time for inflation to come down, in part because interest rates had only recently reached levels that would restrict economic activity.

Mr. Bostic said he was inclined to pause rate rises next month because of his concern that continuing to raise rates without allowing more time to assess their impact would lead the central bank to overshoot. The Fed could decide after that whether to raise rates again or hold them steady, he said.

A fourth official, New York Fed President John Williams, didn’t tip his hand, but indicated he was comfortable with current market expectations of no increase at the June meeting. Investors in interest-rate futures markets on Tuesday saw a 22% chance of an increase next month, according to CME Group. (…)

On a YoY basis, total CPI was up 5.0% in April but its major components were all above that: core CPI was +5.5%, “CPI-essentials” was +6.1% and core services was 6.8%.

The bar chart shows the same categories on a MoM basis with the dash line indicating where we need to be to reach a 2% annualized rate. A hard grind, to say the least. And we have been lucky on energy, thanks to a very mild winter.

The big worry is that stubbornly high inflation gets transmitted to higher wages. The Atlanta Fed Wage Growth Tracker is seen as the gold standard on wages since it is composition-adjusted. Wage gains peaked last August at 6.7% but they have remained above 6% since. 

But this is a 3-month moving average. It so happens that the April number came in at -1.4% MoM bringing the non-smoothed April number to +5.1% YoY, down from +6.4% on average in the previous 3 months. The Daily Shot has the non-smoothed charts:

  

This gives more credibility to the non composition-adjusted BLS wage measures which were both below 5% in April.

• Americans Have Never Been So Unwilling to Relocate for a New Job

The share of job seekers who relocated to take up a new position fell to 1.6%, the lowest level on record, in the first quarter of 2023, according to a quarterly survey that’s been carried out by executive coaching firm Challenger, Gray & Christmas, Inc. for decades.

Behind the shift in attitudes lies a post-pandemic surge in remote and hybrid positions, which has made it possible for more workers to stay where they’re living even as they change jobs. What’s more, higher interest rates have made buying a house somewhere else more expensive — especially when it also requires people to sell an existing home that’s financed with a mortgage locked in at low costs. (…)

About one-third of US companies say most of their workers are in the office, according to Challenger — up from just 13% last fall. Still, many workers are digging in their heels and refusing to come back.

Fewer than half of workers went to the office in 10 of the largest US business districts in the week ended May 10, according to data from Kastle Systems, a office key-fob firm.

Canadian Inflation slowing

• Headline CPI inflation edged up 0.1% to +4.4% yoy in April.
• Core CPI edged down to +4.4% YoY in April (vs. +4.5% in March), and the average of the BoC-preferred CPI-trim and CPI-median edged down to +4.20% YoY from a downwardly revised average of +4.45% in March.
• On a three-month average annualized basis, CPI-Trim increased to +3.7% (vs. +3.3% in March) and CPI-Median increased to +3.8% (vs. +3.6%).
• On a seasonally adjusted MoM basis, headline CPI increased +0.6% in April. March was revised to +0.3%, up from the +0.1% published originally.
• Core CPI was unchanged at +0.3% MoM.

• Rents surge higher in April: ‘Virtually every area in Canada is experiencing an increase’

Europe Car Sales Up in April as Output Gains on Better Supply

New-car registrations increased 16% to 964,932, the European Automobile Manufacturers’ Association said Wednesday. While the recovery continues, deliveries during the first four months of the year remain roughly a fifth below pre-pandemic levels. (…)

Fully electric vehicles saw a nearly 50% increase in registrations compared to April last year, while sales of gas-fueled cars rose by 15%. Orders for diesel-powered vehicles declined slightly.

China’s Home-Price Growth Slows as Housing Rebound Fizzles

New-home prices in 70 cities, excluding state-subsidized housing, rose 0.32% last month from March, when they grew 0.44%, National Bureau of Statistics figures showed Wednesday. Price gains slowed to just 0.01% in the secondary market, after climbing 0.26% a month earlier. (…)

High-frequency indicators in recent weeks show momentum in home purchases has fizzled, despite Beijing’s effort to prop up the market. (…)

New household mid and long-term loans, a proxy for mortgages, posted the first decline in a year in April, suggesting residents repaid more than they borrowed.

Empire State Manufacturing Survey: Activity Fell Sharply in May

The diffusion index for General Business Conditions fell 42.6 points from last month to -31.8, its biggest monthly decrease in 3 years. This morning’s reading was well below the Investing.com forecast of -3.7 and puts the index back into contraction territory for the fifth time in six months. (…)

• New orders and shipments plunged after rising significantly last month. (full NY Fed report)

Strangely, the NY Fed survey has been unusually volatile in the past year, much more so than other similar surveys.

US Households Show Signs of Stress as New Delinquencies Rise

Households added $148 billion in overall debt, bringing the total to $17.05 trillion, according to a report released by the Federal Reserve Bank of New York on Monday. Balances are now $2.9 trillion higher than just before the pandemic.

Consumers typically build up more credit-card debt at the end of the year, during the holiday season, and then reduce those balances at the start of the following year, sometimes with the help of tax refunds. But for the first time in 20 years, that wasn’t the case this year, suggesting some households are under strain from higher prices and may be relying on credit cards to maintain their spending.

“Credit card balances were flat in the first quarter, at $986 billion, bucking the typical trend of balance declines in first quarters,” researchers wrote in the report.

The overall delinquency rate remained low by historical levels, at 2.6%. But the share of debt that became delinquent — meaning it was at least 30 days late — is rising for most loan types, including credit cards and auto debt. (…)

In another sign that consumers are tapping into available credit: Balances on home equity lines of credit increased by $3 billion at the start of the year, rising for the fourth straight quarter after declining for nearly 13 years. Some borrowers who locked in lower mortgage rates may prefer to tap into their equity through a line of credit instead of refinancing their mortgages into a higher rate, New York Fed researchers said. (…)

(Bloomberg)

(Bespoke)

  Consumers with student loan debt were able to save, on average, more than $15,000 since March 2020 — and that’s about to end

Education Secretary Miguel Cardona said the student loan deferment program will end no later than June 30, 2023, and payments are expected to resume by Sept. 1, 2023. The amount of money we are talking about, in excess of a trillion dollars, is staggering. Student loans represent 7% of U.S. GDP.

Sixty-four percent of the $1.7 trillion in student loan debt remains in forbearance, amounting to $1.1 trillion. Many of the 25 million Americans who have deferred payments for student debt are aged 18-44 years old, one of the most important demographic groups that drive consumer spending.

According to a New York Federal Reserve Study, the average student loan payment is $393 per month. The original forbearance program was instituted by President Donald Trump at the beginning of COVID in March 2020.

For consumers taking advantage of the program, they have deferred 39 months worth of payments, resulting in more than $15,327 in additional discretionary income during the period, much larger than the amount most consumers received from other COVID stimulus programs.

The Biden administration has been working to forgive up to 30% of outstanding student loans, but that is currently in doubt, with the Supreme Court expected to rule within the next month that the president lacks the authority to cancel the debts.

Because the president has been signaling a desire to cancel student loans and consumers have not had to make payments for over three years, the resumption of payments will come as a personal cash flow shock to many households.

Look at the light green line on the BB chart above; it’s about to spike back up. Maybe this chart too:

Data: New York Fed (Credit-card balances delinquent by 90 days or more). Chart: Axios Visuals

• For ages 30-39, the rate was 6.27% — slightly higher than before COVID.

That said, let’s not forget there is an election in 18 months…

Meanwhile, bankruptcies filings are spiking:

JPM via The Market Ear

Workers Are Still Needed, but Many Small Businesses Have Slowed Hiring Entrepreneurs are being more cautious in response to shifts in the economy and rising wages.

The portion of small-business owners who expect to expand their workforce over the next year was below 50% for the second month in a row in May, hitting the lowest level since June 2020, during the early months of the Covid-19 pandemic, according to a recent survey conducted for The Wall Street Journal. (…)

Forty-five percent of entrepreneurs said in May they expect to expand their workforces in the next 12 months, according to the survey of nearly 500 small-business owners by Vistage Worldwide, a business-coaching and peer-advisory firm. That’s down from 47% in April, 58% in March and 59% in May 2022. (…)

Small-business hiring plans have been weaker on only two occasions since the launch of the survey in 2012: during the early portion of the Covid shutdown from April to June 2020 and the federal fiscal cliff crisis in 2012. (…)

Hourly earnings grew at the slowest pace in April since December 2021, according to Paychex, a small-business payroll processor. The slowdown is particularly notable in retail and hospitality, which have been driving recent wage gains, said Paychex vice president Frank Fiorille. (…)

The BLS measure of job openings declined 1.6 million or 14.6% so far this year through March. But job postings on Indeed have flattened since the end of March (through May 4).

The Return to the Office Has Stalled Offices remain half empty as companies settle into a hybrid work strategy that shows little sign of fading.

Views of U.S. Housing Market Reach New Depths

Twenty-one percent of U.S. adults believe it is a good time to buy a house, down nine percentage points from the prior low recorded last year. The 2022 and 2023 readings are the only times that less than half of Americans have perceived the housing market as being good for buyers in Gallup’s trend since 1978. (…)

Opinions of the housing market are bleak and generally similar among all major subgroups, including by region, urbanicity, homeownership status, income, education and party identification. Subgroups in these categories range from 18% to 24% thinking it is a good time to buy a house.

• Home Prices Rebound in Canada as Spring Market Picks Up Speed

The benchmark price for a home in Canada rose to C$723,900 (about $536,000), up 1.6% from March on a seasonally adjusted basis. Transactions surged 11.3% from the month before, but new supply of homes is near a 20-year low, according to data from the Canadian Real Estate Association.

After an abrupt rise in borrowing costs triggered a sharp correction in home prices last year, the Bank of Canada’s decision to pause rate hikes seems to be helping spark a turnaround. It means the cost of variable-rate mortgages is holding steady, while longer-term fixed mortgage rates have edged down recently due to a rally in government bonds.

In addition, Canada’s population is swelling — more than a million newcomers arrived last year — bringing attention once again to a shortage of housing stock and prompting some buyers to make aggressive bids. (…)

In the two most expensive markets, Toronto and Vancouver, some of the hallmarks of the 2021 real estate frenzy are showing up again — such as bidding wars, crowds at open houses and homes selling well above the asking price. (…)

However, Canada’s benchmark price remains 12.3% below its level a year ago.

In the U.S., the S&P Case-Shiller price index is down 4.9% from its June 2022 peak.

China’s Youth Unemployment Tops 20% Amid Signs of Stalling Recovery Retail sales, factory activity and fixed-asset investment all fell short of expectations, fueling chatter of monetary stimulus

(…) the most dramatic data point was the unemployment rate for Chinese people aged between 16 and 24, which rose to a record of 20.4% last month. That figure stood at 16.7% at the end of last year. (…)

On Monday, the People’s Bank of China kept interest rates unchanged for a ninth consecutive month. At the same time, the central bank issued a statement saying the country wasn’t suffering from deflation, though it acknowledged that weak demand had kept inflation low. (…)

Exuberance from the sudden lifting of strict Covid regulations late last year uncorked a gusher of service sector spending. But that burst of activity already appeared to be losing steam in April.

While retail sales, a proxy for consumption, jumped 18.4% in April from a year earlier, the magnitude of the increase was mainly attributable to the comparison with the year-earlier period, when a monthslong citywide lockdown in Shanghai snarled supply chains and hammered consumer confidence across the country.

The result also undershot expectations for a 20.5% increase among economists surveyed by The Wall Street Journal. When compared with March, consumer spending rose a mere 0.5% in April, according to the statistics bureau.

Spending on services has been the main driver of the recovery while spending on goods is lagging. That divergence continued in April, with sales of home appliances, furniture and other goods remaining in the doldrums, even as spending in restaurants continued to gather momentum, Tuesday’s data showed.

Factory activity also disappointed, falling 0.5% last month compared with March, reflecting softening export demand as retailers in the West dial back on new orders amid elevated inflation.

Growth in fixed-asset investments, including those in manufacturing, property and infrastructure, slowed unexpectedly in April, with investment made by private firms growing just 0.4% during the first four months of the year, slowing further from last year’s weak 0.9% rate.

Fixed-asset investment increased 4.7% from a year earlier in the January-to-April period, slowing from a 5.1% increase recorded in the first quarter and lower than the 5.3% growth anticipated by economists pulled by the Journal.

The drag from the real-estate sector, which suffered a sharp pullback through most of 2022, continued. Investment in China’s property market fell 6.2% in the first four months of the year compared with a year earlier, widening from a 5.8% decline in the first quarter.

In the labor market, China’s headline measure of joblessness—the surveyed urban unemployment rate—fell for a third straight month in April to 5.2%, the lowest level since late 2021. But that good news was overshadowed by a fourth straight month of rising joblessness among young people, who made up nearly 40% of service-sector employment before the pandemic, according to Louise Loo, China economist at Oxford Economics. (…)

China strongly benefitted from the U.S. Covid money shower since most goods consumed in the U.S are imported. It’s now paying the price for excess consumption and excess inventories.

Source: CEIC, ING

• Breaking up with China (Fortune)

In our new poll of Fortune 500 CEOs, we asked them which of the following three statements is true for their organization:

1. “We are reducing our exposure to the Chinese market because of concerns about political and reputational risk.”
2. “We are increasing our exposure to the Chinese market because of the business opportunity.”
3. “Our company is not involved with the Chinese market in a significant way.”

Forty-one percent answered No. 1, while only 20% answered No. 2 and 39% No. 3. That means companies with China exposure are now, by a factor of greater than two to one, trying to cut back. And their desire is only increasing over time: that 41% was 35% last year and 23% in 2021.

Divorce won’t be quick. Many Western companies have spent decades sourcing their manufacturing goods from China and increasing their investments there. Rebuilding supply chains and unwinding investments will take time. But it’s one more reason to think the 21st Century may not be the Chinese century after all.

China’s Demand for Oil Hits Record as IEA Raises Global Forecasts The outlook highlights widening divide between booming demand in the developing world and lackluster requirements in Europe and North America, the International Energy Agency said.

(…) In its closely watched monthly oil market report, the IEA raised its forecast for global oil demand growth this year by 200,000 barrels a day, to 2.2 million barrels a day. It said total demand would stand at 102 million barrels a day, 100,000 barrels a day more than it forecast last month.

China’s share of that increase, already expected to be large, appeared to be growing and “continues to surpass expectations,” the IEA said. The nation’s crude demand hit a record 16 million barrels a day in March while China will account for 60% of all oil demand growth this year, the IEA said. (…)

Oil demand in the developed nations that make up the Organization for Economic Cooperation and Development will grow by just 350,000 barrels a day this year, the IEA said—around 16% of the total expected oil demand growth. The rest, around 1.9 million barrels a day, will come from non-OECD nations, primarily in Asia.

As oil demand grows this year, the IEA expects the oil market to slip into a large deficit as oil producers struggle to keep pace. Demand is expected to exceed supply in the current quarter for the first time since early 2022, with that gap growing to around 2 million barrels a day by the end of the year.

For 2023, global supplies are expected to average 101.1 million barrels a day, 1.2 million barrels a day more than in 2022.

Recent steps by major oil producers have only added to that growing gap. A plan by some of the largest members of the Organization of the Petroleum Exporting Countries to cut production by more than a million barrels a day began this month. Meanwhile, oil producers in the U.S. have been reluctant to invest money in new production.

Those OPEC cuts could see output from the group and its allied producers—known collectively as OPEC+—fall by 850,000 barrels a day between April and the end of the year, the IEA expects. Meanwhile, output from non-OPEC+ nations is expected to rise by 710,000 barrels a day in that time. (…)

Meanwhile, supplies from Russia have remained stronger than expected, helping to further depress prices. Russian oil exports hit 8.3 million barrels a day in April, their highest level since the invasion of Ukraine in February 2022, as Moscow doesn’t appear to have fully followed through on a plan to slash output by 500,000 barrels a day, the IEA said. (…)

• Russian oil exports hit post-invasion high Almost 80% of country’s crude shipments flow to China and India, says IEA
• EU urged to crack down on imports of Indian fuels made with Russian oil

Investors Most Pessimistic So Far This Year, BofA Survey Shows A majority expect a downturn in the economy, the survey found.

The sentiment among fund managers deteriorated to the most bearish this year, with 65% of survey participants now expecting a weaker economy, BofA’s poll showed. At the same time, almost two thirds of investors see a soft landing as the most likely scenario for global economic growth and expect only a small contraction in earnings.

While cash levels rose to 5.6% in May, exposure to equities also climbed to the highest this year, while bond allocations are now the biggest since 2009, according to BofA. In a “flight to safety,” allocation to technology shares saw the biggest two-month increase since the global financial crisis and being long big tech is the most crowded trade.

• Bank credit crunch and global recession are seen as top tail risks, followed by high inflation keeping central banks hawkish, worsening geopolitics and systemic credit event

BACK TO REALITY

Led by CEO Masayoshi Son, the Vision Fund — anchored by $45bn from Saudi Arabia’s PIF — immediately became the world’s largest venture capital fund, hunting for, and often creating, the next “unicorns” (companies valued at more than $1bn) around the world. All told, the fund launched with more than $100bn, and through aggressive investments in companies like WeWork, Uber, DoorDash, Klarna, Flexport, Grab and many others, it quickly became a kingmaker for any company looking to raise investment and “blitz scale”.

At its peak, SoftBank’s funds had gained more than $66bn in value — gains that have since been wiped out despite a modest resurgence in tech stocks this year.

In order to cover these substantial losses, the company has resorted to selling its most profitable and notable holdings, going into “defense mode” in the last year. Last August, it announced the sale of its remaining stake in Uber and offloaded approximately $29 billion worth of its Alibaba shares last year as well. Indeed, the Japanese conglomerate confessed that it had “effectively” used all of its remaining shares in Alibaba for financing.

SoftBank now pins its hopes on the forthcoming Arm IPO, where it holds a 25% stake, as a potential source of additional funds, as it begins to aggressively pursue investments in AI.

And

• Tiger Global Wants to Sell Portions of its Empire

You can’t put a price tag on how badly some of Tiger Global’s big technology bets are performing — and therein lies the problem.

This weekend, the Financial Times reported that the massive hedge fund that collects tech startups like baseball cards is exploring opportunities to offer portions of its $40 billion portfolio to the so-called secondary market of private equity players. Figuring out how to value all that is going to be the tricky part.

Last year’s epic stock market tech rout is still pounding Tiger, long a true believer in Silicon Valley’s infinite-scalability hype cycles. Last year, Tiger marked down the value of its private company investments across all its venture-capital funds by an entire 33%, sources recently told The Wall Street Journal, reportedly erasing some $23 billion in value.

Meanwhile, Tiger’s flagship fund saw its value slashed by more than half in 2022 — amounting to its worst-ever annual loss. The slippage is even easier to explain on a more granular, case-by-case basis. A prime example: While raising capital for a new $5 billion venture fund last fall, Tiger told investors that its stake in Stripe, one of the manager’s marquee bets, was worth $1.6 billion as of June 2022. But when Stripe finalized a $6.5 fundraising deal just this March, it came in at a valuation of nearly half of what the company had raised at before — seemingly dooming, for now, a public debut once deemed fait accompli.

Plus many, many more under the radar…

Plus ça change…