Americans spent more on shopping in October while pulling back on nonessential items, suggesting consumers’ willingness to buy remained solid but more cautious.
Retail sales—purchases at stores, restaurants and online—rose a seasonally adjusted 0.3% in October from a month earlier, the Commerce Department said Friday, after a drop in September. (…)
Consumer spending at gas stations and at food and beverage stores rose by 1.1% and 0.5%, respectively, as shopping for necessities helped drive the overall advance in sales last month.
Spending on big-ticket items in October was mixed. Vehicle sales were up 0.5%, while furniture and home furnishing sales dropped 0.9%, the biggest monthly decrease since December 2018, according to the Commerce Department.
Excluding vehicles and gasoline, categories that are often volatile, October sales were up 0.1%, as Americans spent less on items such as clothing and eating and drinking out.
(…) sales in the August through October period rose 1.1% compared with the previous three months, and were up 3.1% in October from the same month of 2018. (…)
“Rebound†was used profusely by the media and pundits to express relief after September’s widespread declines. Haver Analytics’ table shows the apparent October rebound…
…but here’s another way to look at the trends: two-month annualized growth rates over the last 8 months:
In reality, the October rebound merely offset the weak September. The fact is that retail sales stalled, across the board, in September-October, following several very strong months. “Control Sales†exclude cars, gas, building materials and restaurants sales and feed directly into GDP.
Here’s the MoM growth in Control Sales since April. First 4 months: +8.2% annualized; last 3 months: +1.8%; last 2 months: +1.0%.
There is an old saying in retailing: back-to-school sales set the trend for the all-important fourth quarter. Let’s hope this does not verify this year. The chart below plots YoY growth in Control Sales and nominal GDP. Control sales are still up 4.6% YoY thanks to very strong spring/summer sales but continued softness in November-December will crush the already slowing GDP growth.
The Census Bureau offers another series called Business Sales. This chart plots the quarterly YoY growth rate for each component, highlighting the amazing resiliency of retailers sales so far (last data point Q3’19) against very weak manufacturing and wholesale sales.
Industrial production fell a more-than-expected 0.8% m/m (-1.1% y/y) in October on top of a slightly upwardly revised 0.3% m/m decline in September. This was the third monthly decline in the past four months and the weakest monthly change recorded in this economic expansion as escalated trade tensions and slower economic growth abroad continue to take their toll on the U.S. industrial sector. A 0.5% m/m decline had been expected by the Action Economics Forecast Survey. Factory sector output declined 0.6% (-1.5% y/y), also the third monthly decline in the past four months.
Output of motor vehicles and parts collapsed 7.1% m/m (-11.9% y/y) in October, reflecting in large part the strike at General Motors. This strike is now over and motor vehicle output is set to rebound in November. Still, total production in October was weak outside of the auto sector with total industry output excluding motor vehicles and parts falling 0.5% m/m (-0.6% y/y) in October though manufacturing output excluding motor vehicles slipped only 0.1% m/m in October, the same decline as in September. Production apart from manufacturing was also weak in October with mining output down 0.7% m/m (+2.7% y/y) on top of a 0.8% m/m decline in September. Utilities output decreased 2.6% m/m (-4.1% y/y) after a 1.9% m/m rise in October.
Output of final products decreased 0.8% m/m (-1.9% y/y) on top of a 0.3% m/m drop in September. Consumer goods production fell 0.8% m/m (-2.2% y/y). Business equipment output declined 0.6% m/m (-2.5% y/y). Construction supplies production fell 0.4% m/m (+1.1% y/y). Materials production fell 1.0% (-0.6% y/y) with production of both energy and nonenergy materials dropping 1.0% m/m.
- And here is the US manufacturing output excluding autos (to remove the GM strike impact). The blue line is the ISM Manufacturing Production index. (The Daily Shot)
Source: Pantheon Macroeconomics
Import prices fell a greater-than-expected 0.5% during October (-3.0% year-on-year), following a downwardly revised 0.1% gain in September (was 0.2%). The Action Economics Forecast Survey expected a 0.4% decline in October. These figures are not seasonally adjusted and do not include import duties.
The decrease in import prices last month was primarily driven by a 3.7% drop in petroleum import costs (-14.7% y/y). Nonpetroleum import prices edged down 0.1% (-1.5% y/y). (…)
Export prices ticked down 0.1% in October (-2.2% y/y), following an unrevised 0.2% decline in September. Forecasters anticipated -0.1%. A 0.3% decline in nonagricultural exports (-2.7% y/y) more than offset the 1.9% jump in agricultural commodities prices (2.2% y/y). (…)
China’s central bank said it will “increase counter-cyclical adjustment†to ward off downward pressure on the economy, while staying vigilant on the possibility of expectations that inflation may spread.
The economy faces greater difficulties as investment growth slows and industrial production remains sluggish, the People’s Bank of China said in its third-quarter monetary policy report released Saturday. (…)
“It should be noted that the current external environment is complex, the economy is under rising downward pressure, and some businesses are faced with operating difficulties,†the PBOC said.
The report signals that the central bank faces limited scope for policy maneuvers despite the increasing economic risks. The PBOC will remain committed to a targeted, constrained approach toward easing. It repeated an earlier pledge to continue to cut the amount of money banks need to put aside as reserves to ease credit. (…)
Top negotiators from China and the U.S. talked again this weekend, after signs of concessions from both sides on some of the outstanding issues.
China’s Vice Premier Liu He, the country’s key negotiator in the trade talks with the U.S., spoke with Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer by phone on Saturday morning Beijing time, according to the Chinese Commerce Ministry. They had “constructive†discussions about each side’s core concerns in the phase-one deal, and agreed to stay in close communication, the statement said. The USTR confirmed the call took place. (…)
(…) Over the weekend, the Trump administration’s plans changed and it now plans to renew the temporary extension for the same 90-day period as it did in August, the sources said. (…)
Foreign companies continue to invest more in China even after President Donald Trump called on U.S. firms to look elsewhere, as the rising spending power of 1.4 billion people proves too hard to resist. (…)
Foreign direct investment into China rose nearly 3% in the first nine months of 2019 from a year earlier, according to the Ministry of Commerce, the same pace as 2018’s increase. While the U.S. outstripped that increase last year, investment has dropped off since Trump became president.
“Multinational firms are now more likely to invest in China since serving the market from abroad will be risky given the mutual trade barriers that have been erected and the fact that any truce in the trade war is likely to be only temporary,†said David Dollar, a senior fellow at the Brookings Institution in Washington. (…)
If anything, the trade war is encouraging companies to ensure they have a China base, he said.
That’s the opposite of what President Trump has pushed for: in August the president tweeted that U.S. companies should “immediately start looking for an alternative to China.†(…)
Trade war or not, the lure of 1.4 billion people can’t be ignored, AstraZeneca Plc Chief Executive Officer Pascal Soriot said in an interview at the second annual China International Import Expo in Shanghai. “We have to invest more in China.†(…)
Fortune informs us that
At a “Multinational Summit†in the eastern Chinese city of Qingdao last month, Xi vowed to fling open China’s market to companies from around the world. “The door of China’s opening up will only open wider and wider, the business environment will only get better and better, and the opportunities for global multinational companies will only be more and more,†he said in a letter read out by vice premier Han Zheng.
(…) In China, the desire to defer to market whims may reflect the country’s increasingly diversified food supply; the country has accounted for the decrease in U.S. agricultural imports by increasing trade with other countries. (…)
“[But] basically, over the past year and a half, China has been really aggressive in trying to diversify where [it’s] buying from.†(…)
“We’re a year and a half into this, and it made China realize [it was] way too dependent on U.S. beans.†(…)
“So [after a trade deal], the market might be open for the U.S., but [American producers] are going to face a lot of competition from all these new players.†(…)
“We’ve lost those markets, they’ve gone someplace else, they’ve built up those relationships,†Krauter, the North Dakota farmer, said. “It’s going to take years, years for that to come back.†(…)
“Because of the African Swine Fever, there is just not that much need for soybeans and corn [to feed pigs],†said Friedrichs. “The U.S. is trying to push China to buy huge amounts of soybeans, but China is saying, sure, but we don’t really need those.†(…)
Hence
Another irritant on the US side is that China has not agreed to set written numerical targets for a planned ramp-up in purchases of American agricultural products, according to the Wall Street Journal. Mr Trump is seeking to lock in up to $50bn in annual sales of farm goods to China in the deal, more than double the level before the trade war was launched. (FT)
Will that be tariffed?
The U.S. Food and Drug Administration has granted approval to a blood cancer drug from Beijing-based BeiGene Ltd., paving the way for American patients to access a Chinese cancer therapy for the first time.
The accelerated approval — ahead of even China’s own national drug regulator — marks a breakthrough for the growing legion of Chinese biotech companies determined to take on the world’s biggest pharmaceutical companies in medical innovation and scientific research.
(…) “Chinese biotech is on the rise. The industry is not yet on top of the world but we are quickly closing the gap.â€
BeiGene’s Brukinsa capsules was approved for patients with mantle cell lymphoma that have already received other therapies earlier, and will be a competitor to similar blood cancer therapies from AbbVie Inc. and AstraZeneca Plc. (…)
Investment into Chinese biotech startups is surging as the opening up of the Asian giant’s $132 billion pharmaceutical market creates an unprecedented profit-making opportunity for health-care companies. Last week, AstraZeneca announced a $1 billion fund with a Chinese investment bank to support local drug research, while a Shanghai-based company received Chinese regulatory approval for the first new Alzheimer’s drug in 17 years.
BeiGene has emerged as one of the most promising Chinese biotech companies and the new drug, also known as zanubrutinib, is the first in a raft of cancer drugs it is readying for regulatory approval. In a vote of confidence in its pipeline, American generics giant Amgen Inc. bought a 20.5% stake in BeiGene earlier this month for $2.7 billion to jointly develop cancer therapies. (…)
EARNINGS WATCH
From Refinitiv/IBES:
Through Nov. 15, 461 companies in the S&P 500 Index have reported earnings for Q3 2019. Of these companies, 75% reported earnings above analyst expectations and 18% reported earnings below analyst expectations. In a typical quarter (since 1994), 65% of companies beat estimates and 20% miss estimates. Over the past four quarters, 74% of companies beat the estimates and 18% missed estimates.
In aggregate, companies are reporting earnings that are 4.5% above estimates, which compares to a long-term (since 1994) average surprise factor of 3.3% and the average surprise factor over the prior four quarters of 5.3%.
Of these companies, 58.0% reported revenues above analyst expectations and 42.0% reported revenues below analyst expectations. In a typical quarter (since 2002), 60% of companies beat estimates and 40% miss estimates. Over the past four quarters, 59% of companies beat the estimates and 41% missed estimates.
In aggregate, companies are reporting revenues that are 1.0% above estimates, which compares to a long-term (since 2002) average surprise factor of 1.5% and the average surprise factor over the prior four quarters of 0.9%.
The estimated earnings growth rate for the S&P 500 for 19Q3 is -0.4%. If the energy sector is excluded, the growth rate improves to 2.2%.
The estimated revenue growth rate for the S&P 500 for 19Q3 is 3.8%. If the energy sector is excluded, the growth rate improves to 5.2%.
The estimated earnings growth rate for the S&P 500 for 19Q4 is 0.2% (0.6% last week). If the energy sector is excluded, the growth rate improves to 2.4% (2.8% last week).
The swing since Oct. 1 in the estimated Q4 earnings growth rate is –3.9% overall but some key sectors, mostly cyclicals, are getting downgraded big time:
While the S&P 500 Index, particularly cyclicals, is climbing the wall of worries, consumer-centric equities have failed to make new highs, This while the U.S. economy is hanging by the consumer nails. Something between retail sales trends, earnings estimates and stock behavior does not look rational.
Saudi Aramco set a valuation target for its initial public offering well below Crown Prince Mohammed bin Salman’s goal of $2 trillion and pared back the size of the sale after the government decided to make the deal an almost exclusively Saudi affair.
The initial public offering will now rely on local investors after most international money managers balked at even the reduced price target. The deal won’t be marketed in the U.S., Canada or Japan and on Monday bankers told investors roadshow events in London and other European cities, planned for this week, were canceled. (…)
Nationally, just 10 percent of offers written by Redfin agents on behalf of their homebuying customers faced a bidding war in October, down from 39 percent a year earlier and now at a 10-year low. (…)
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It’s a Buyer’s Art Market Collectors snapped up deals at the New York auctions, where a number of works sold for less than their low estimates.
(…) About 43 works at Sotheby’s and Christie’s $401 million combined evening sales of impressionist and modern art last week sold for less than their low estimates. That means skittish sellers opted to lower their reserves, or the minimum amount at which they agreed to sell the works, rather than risk having them go unsold. Phillips expected to sell Joan Miró’s “Catalan Farmer Worried About Passing a Flight of Birds,†for at least $7 million, but it wound up selling for $3.8 million with the hammer, or $4.5 million with fees. Sotheby’s also sold a 1934 Pablo Picasso, “Nudes,†for $9.9 million to a third-party guarantor—a bidder who had arranged to buy the work if no-one else stepped up in the sale. The Picasso was expected to sell for at least $12 million. (…)
TECHNICALS WATCH
Lowry’s Research notes that its measures of advance-declines and selling pressure have both begun to trend higher but only to warn of “possible short-term market weakness†as “both appear consistent with other indications of a possible short-term top in the marketâ€.
However, Lowry’s concludes that “with the weight of evidence still suggesting the bull market remains alive and well, any near-term pullback should serve as a buying opportunity.â€
US manufacturing limps into fourth quarter, but underlying trend is improving
China, U.S. Trade Talks Continue With Some Signs of Progress
