Advance estimates of U.S. retail and food services sales for June 2019, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $519.9 billion, an increase of 0.4 percent (±0.5 percent)* from the previous month, and 3.4 percent (±0.7 percent) above June 2018. Total sales for the April 2019 through June 2019 period were up 3.4 percent (±0.5 percent) from the same period a year ago. The April 2019 to May 2019 percent change was revised from up 0.5 percent (±0.5 percent)* to up 0.4 percent (±0.2 percent).
This is from ING this a.m.:
US June retail sales look very strong with the “core” retail sales control group rising 0.7% month-on-month (consensus 0.3%) with upward revisions to the history. Headline sales rose a more modest 0.4% (consensus 0.2%), but even this is a firm figure that suggests the market is too aggressive in terms of pricing for interest rate cuts.
The headline rate was always going to be somewhat depressed given it is a nominal (value) figure and faced having to deal with a near 5% fall in the retail price of gasoline (3.6% on a seasonally adjusted basis, according to the CPI report). Gasoline station sales consequently fell 2.8% MoM. We also knew that the auto component wasn’t going to contribute meaningfully given unit sales were unchanged on the month. Nonetheless the nominal value of motor vehicle and parts sales rose 0.7% MoM in today’s report, suggesting some margin improvement.
It is the core control group that really interests us though. It excludes the volatile food, auto, building materials and gas station sales and better reflects the spending patterns seen in the personal consumer expenditure data, which in turn contributes to GDP. There was broad strength with furniture, clothing and health rising 0.5% while non-store retailers saw sales rise 1.7% MoM for the second month in a row. The year over year growth of this key indicator continues to strengthen and currently stands at 4.6%.
Today’s retail sales report suggests that personal consumer spending rose robustly in 2Q, probably close to 4% annualised, which in turn will help to keep GDP growth above 2%. Despite this financial markets continue to price in four 25 basis point interest rate cuts from the Federal Reserve over the next 18 months.
Yet, in an environment where growth is solid, core inflation is close to target, unemployment is near 50-year lows and stock markets are at all-time highs, there seems little justification for anything more than precautionary rate cuts. We expect 25bp moves in both July and September as an insurance policy to try and mitigate any negative effects from lingering trade tensions. For us to put more cuts into our forecast, we would need to see a dramatic escalation in the US-China trade conflict that would lead to clear evidence of weaker hiring and investment. At this stage, there is little evidence of this happening.
(…) With the -5.3% drop in June following the -6.0% drop in May, we repeat our message from last month: the shipments index has gone from “warning of a potential slowdown” to “signaling an economic contraction.”
We acknowledge that: all of these negative percentages are against extremely tough comparisons; and the Cass Shipments Index has gone negative before without being followed by a negative GDP.
May and June’s drops are significant enough to pose the question, “Will the Q2 ’19 GDP be negative?”
The weakness in spot market pricing for many transportation services, especially trucking, is consistent with the negative Cass Shipments Index and, along with airfreight and railroad volume data, strengthens our concerns about the economy and the risk of ongoing trade policy disputes. Weakness in commodity prices and the decline in interest rates have joined the chorus of signals calling for an economic contraction.
Based on all three months of data for Q2, the Cass Shipments Index is signaling the GDP may be negative, or at least come close to being negative, in Q2. If it does not, since reported GDP often lags the economic activity represented by freight flows, continued weakness in the Cass Shipments Index at the current magnitude should result in a negative Q3 GDP.
One has to wonder whether the below has anything to do with the above?
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- “Amazon is about 40% of all e-commerce. If they’re handling half of their own shipments, that’s 20% of the whole market,” Alex Pellas, a logistics expert at market research firm Rakuten Intelligence, says. “That’s huge.”
- In a dataset provided first to Axios, Rakuten Intelligence followed tracking numbers for millions of Amazon packages per month.
- Researchers found that nearly half (48%) of Amazon packages are delivered by the company itself.
- That’s a dramatic shift from two years ago, when the Postal Service delivered more than 60% of Amazon parcels, and Amazon just around 15%.
(chart via The Daily Shot)
China Growth at Its Slowest Since 1992 as Beijing Struggles to Juice Economy China’s economic growth was weakened by trade tensions with the U.S. and businesses holding back from making big investments despite encouragement from Beijing.
The economy grew by 6.2% in the second quarter, down from 6.4% in the period before, official statistics showed Monday. Growth was slower than the 6.3% year-over-year rate forecast by economists. (…)
Investment in bridges, roads and other infrastructure rose 5.8% in the first half of the year compared with 5.6% during the first five months. Factory output was up 6.3% in June from a year earlier, compared with 5.3% in May. (…) Nomura calculated that factory output was up 5.6% on a quarterly basis in the April-to-June period, compared with 6.5% in the first quarter. (…) Exports fell 1.3% in June from a year earlier after rising 1.1% in May, according to official data released last week. (…)
For reasons of its own, the WSJ stopped short at the data and did not report these important stats (courtesy of Andy Rothman)
Nominal retail sales rose 9.8% YoY in June and 8.4% for the first half of the year. This is cooler than the 9.4% pace during 1H18, but still quite healthy. Sales of cosmetics, for example, rose 22.5% in June, and household appliance sales were up 7.7%. Online sales of goods rose 21.1% last month. (…)
Real per capita disposable income rose 6.5% in 1H19, close to the 6.6% pace a year ago. (…) The housing market also held up better than I had expected, given that the government cut spending by half on renovation of low-income units this year. New home sales (by square meter) fell by 1% YoY during 1H19, compared to increases of 3.2% a year ago and 13.5% two years ago.
But that still translates into full-year sales of about 12 million new apartments, and inventories are low, so investment in residential property rose 15.8% during the first half, up from 13.6% a year ago. Housing starts rose 9.9% during 2Q19, down from 16.6% a year ago.
Another important factor is that the surveyed unemployment rate has been relatively stable: 5.1% last month, compared to 4.8% a year ago. (…)
Slowing China = ammo for the U.S. in trade negotiations? Think again:
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The US manufacturing sector activity has caught up with the global slump.
Source: Morgan Stanley Research (Via The Daily Shot)
(…) Indeed, its own measure of China’s economic activity — the CMI — slipped for the third consecutive month to 4.8% in May.
The latest IHS Markit Business Outlook survey shows the net balance of firms predicting a rise in activity declining to +9% from +16% in February. Furthermore, the latest reading is the lowest observed across all monitored countries, contributing to the weakest global average (+18%) on record. (…)
- But see how the U.S. has fared in the past year:
This next chart is from Bloomberg:
(…) Mr. Trump’s tariffs on Chinese imports raised $20.8 billion through Wednesday, according to data from United States Customs and Border Protection. Mr. Trump has already committed to paying American farmers hurt by the trade war $28 billion.
The president has rolled out two rounds of financial support for farmers: a $12 billion package that was announced last July, of which nearly $10 billion has been spent, and an additional $16 billion announced in May.
The government has provided no such benefit to the myriad other businesses, including plane makers, technology companies and medical device manufacturers, that have lost contracts and revenue as a result of Mr. Trump’s tariffs and China’s retaliation against American goods. (…)
There is little sign, though, that China’s loss is America’s gain. Much of the business activity is shifting to other low-cost countries, like Vietnam, with a transition cost attached for American companies that depend on them. (…)
But the monthly pace of revenue collection from tariffs has not increased this year. That’s because America is importing fewer Chinese goods than it did a year ago, which has canceled out the higher tariffs on a larger share of Chinese goods.
That decline appears to be the product of an overall slowdown in trade — which has contributed to weakened exports for American manufacturers — and the shift in supply chains to other countries. Imported goods from Vietnam have risen more than 30 percent this year from a year ago, Commerce Department data show.
Tariff revenue would likely surge if Mr. Trump followed through on his threat to impose tariffs on nearly all Chinese goods.
(…) On Monday, Mr. Trump signed an executive order requiring that 95 percent of the steel and iron that goes into projects funded by federal contracts eventually be American made, up from 50 percent. (…)
Jay Powell last week to the Senate Committee:
“We’re learning that interest rates — that the neutral interest rate — is lower than we had thought and I think we’re learning that the natural rate of unemployment is lower than we thought,” the Fed chief said. “So monetary policy hasn’t been as accommodative as we had thought.”
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