U.S. Light Vehicle Sales Rebound
Total sales of light vehicles increased 3.3% during July to 17.55 million units (SAAR, 6.2% y/y), recovering most of June’s decline from the cycle high.
Light truck purchases improved 3.9% to 9.75 million units (14.0% y/y), the highest level since July 2005. Trucks share of the total vehicle market improved to 55.5%. Domestic light truck sales increased 4.5% (12.8% y/y) to 8.39 million units. Imported truck sales improved 0.3% to 1.36 million units (21.7% y/y) following five straight months of material increase. Sales were at the highest level since March 2008 and accounted for 13.9% of total truck sales.
Auto sales gained 2.4% last month to 7.80 million units (-2.1 y/y) after June’s 5.1% decline. Domestic auto sales increased 5.3% to 5.81 million (0.7% y/y) and recovered virtually all the June decline. Imported car sales eased 5.2% to 2.00 million (-9.6% y/y), adding to a 3.4% June decline.
Car sales have yet to surpass previous cyclical highs (Charts from CalculatedRisk):
It’s all about trucks:
But even trucks seem to be flattening (chart from Bespoke Investment):
U.S. Factory Sector Orders Ease
New orders in the manufacturing sector increased 1.8% during June (-6.2% y/y) following a 1.1% May decline [and a 0.7% April decline, so flat over last 3 months]. The rise roughly matched expectations in the Action Economics Forecast Survey. Durable goods orders rose 3.4% (-3.0% y/y) following 2.3% decline. These figures were unchanged from the advance release. A roughly two-thirds increase in nondefense aircraft bookings (11.2% y/y) powered the rise.
Orders excluding the transportation sector altogether rose 0.5% (-6.2% y/y) after a 0.1% dip. Nondurable goods orders (which equal shipments) improved 0.4% (-8.0% y/y) following no change. Petroleum refinery shipments gained 1.7% (-28.4% y/y) after a 2.4% increase. Food products shipments eased (-0.9% y/y) for the sixth straight month. Apparel shipments gained 0.4% (0.3% y/y) following a 0.9% jump and paper product shipments fell 0.9% (-2.1% y/y) after a 1.1% decline. Basic chemical shipments improved 0.4% (-0.9% y/y) and reversed the May decline. Shipments of durable goods improved 0.5% (3.5% y/y) after they declined during four of the prior five months.
Fed Survey Finds Pickup in Demand for Loans
Banks reported stronger demand for commercial and consumer loans in a variety of categories during the second quarter, a Federal Reserve survey found, suggesting a positive uptick in growth in the second half of the year.
Demand picked up for commercial, industrial and commercial real-estate loans as well as home-purchase, auto and credit card loans, according to the Fed’s survey of senior loan officers released Monday.
Overall, banks reported little change in their lending standards for commercial and industrial loans. However, on net, more banks reported easing than tightening of terms, especially for larger firms. Those banks that did report easing cited “more-aggressive competition” from banks and nonbank lenders as a key rationale. That same competition was also a commonly cited reason some banks reported weaker loan demand.
Banks reporting stronger demand for commercial and industrial loans cited a “wide range of customers’ financing needs” behind the demand, including mergers and acquisitions, investment in plants and equipment, and inventories, hinting that some firms feel confident enough to invest.
Home loan demand strengthened across most categories, including home equity lines of credit. “Modest” net fractions of banks reported easing underwriting standards on residential mortgages, especially for jumbo residential mortgages that conform to qualified mortgage rules put forth by the Consumer Financial Protection Bureau.
(…) prospective home buyers with weak credit histories were still locked out of the market. The “vast majority” of banks reported they still do not lend to subprime borrowers. Lending standards for home equity lines of credit were little changed.
(…) residential real estate lending standards remained “at least somewhat tighter” than the midpoints of the last decade’s ranges for all categories of home loans. (…)
The Thomson Reuters/PayNet Small Business Lending Index rose to 143.3 in June from an upwardly revised May reading of 131. It was the highest level since the index was launched in 2005, and was up 19 percent from the level a year earlier.
The increase is “a signal of some fundamental, underlying strength in private companies that is really not being registered anywhere else,” PayNet founder Bill Phelan said. “Job openings are going to be harder to fill. … (Companies) will have to raise compensation to attract workers.”
Why is this important? (from BloombergBriefs)
Hiring Rates Are Diverging Among Different-Sized Firms
Small Business Sentiment Has Slipped in 2015
From Bloomberg:
“More lending means more spending,” said Dan Binder, an analyst at Jefferies Group LLC in New York. By increasing in consecutive quarters this year, lending practices are “moving in the right direction,” he said. The percentage of banks more willing to lend minus the share less willing is a leading indicator of retail-sales growth by about nine months, according to his analysis. The Fed’s survey on bank loans is an important gauge of future spending trends, he said.
This gauge of lending activity increased to 10.4 percent in the quarterly survey released Wednesday. That’s up from 8.3 percent in April and 4.4 percent in January.
Are Bond Markets and the Fed on Same Page? Stubbornly low yields on long-term bonds suggest investors are worried about the economic outlook
(…) Federal Reserve Bank of Atlanta President Dennis Lockhart said in an interview with The Wall Street Journal on Tuesday that the economy is ready for the first increase in short-term interest rates in more than nine years. Mr. Lockhart, who is a voter on the Fed’s policy-setting committee this year, said it would take a significant deterioration in the data to convince him not to move in September. (…)
But softer energy prices have been heightening concerns over China’s economy while reducing U.S. inflation expectations. A stronger U.S. dollar is hurting U.S. exports and lowered prices of imported goods. These factors make the Fed more difficult to push up inflation to its 2% target in the medium term.
The 10-year break-even rate, the yield spread between a 10-year Treasury note and a 10-year Treasury inflation-protected security suggests investors expect the U.S. inflation rate to be running at an annualized 1.70% on average within a decade. A month ago it was 1.91%. (…)
Eurozone Retail Sales Fall Sharply in June Data indicate the currency area’s economic recovery remains too weak to bring down high unemployment
(…) The European Union’s statistics agency said Wednesday retail sales in the 19 countries that use the euro fell 0.6% in June from May, but were up 1.2% from the same month last year. It was the largest month-to-month fall since September 2014. Economists surveyed by The Wall Street Journal had estimated sales fell 0.2%, having seen figures from Germany that recorded a large drop.
In effect, after strong sales in January and February, core sales are unchanged during the last 4 months.
Mainly because of Germany where sales were down 2.3% from May (-1.8% in last 4 months). Spain: –0.4% (+0.7%). France: +0.1% (+0.5%).
EARNINGS WATCH
Last week was tougher on earnings and Monday continued on the slower trend.
- 402 companies (85.2% of the S&P 500’s market cap) have reported. Earnings are beating by 5.2% (5.7% last week) while revenues have positively surprised by 0.4% (0.5%).
- Beat rate is 72% (74% ex-Financials (75%))
- Expectations are for revenue, earnings, and EPS of -3.5%, 0.2%, and +1.6%. EPS growth is on pace for 2.4% (3.0%), assuming the current 5.2% beat rate for the remainder of the season. This would be 7.4% (7.9%) on a trend basis (ex-Energy and the big-5 banks). (RBC Capital)
Did you miss BAD BREADTH EQUITIES?
China’s Response to Stock Rout Exposes Disarray Conflicting moves and a lack of coordination hampered Beijing’s initial response to its stock-market rout, raising questions about whether Chinese authorities will be up to the challenge of implementing market changes.
(…) Meeting with senior financial and economic officials in Beijing on July 4, Li Keqiangcriticized them for failing to anticipate the severe market plunge, officials with knowledge of the gathering said. Then he urged them to act in a coordinated way to stanch the bleeding, these officials said.
“I want strong measures to rescue the market,” ordered the usually mild-mannered premier, according to the officials. (…)
Interviews with more than a dozen Chinese officials and advisers to the government show conflicting moves and a lack of coordination hampered Beijing’s initial response to the market rout. At one point, the securities regulator made a move that put downward pressure on the market in the same week that the central bank moved to push it up. Until July, a major source of market funding went largely untouched by regulators. The securities regulator more than once moved to trim lending to investors to buy shares, only to reverse course. (…)
Even at the July 4 meeting, officials weren’t initially on the same page, said the officials familiar with the discussion. Zhou Xiaochuan, governor of China’s central bank, and Lou Jiwei, China’s finance minister, both objected to using too-aggressive intervention because they felt it would harm China’s effort to bring more market forces into its economy, said the officials. They eventually went along with Mr. Li’s plan, which, according to the officials, was then signed off on by President Xi Jinping before he left for Russia on July 8. Mr. Xi’s endorsement underscores the leadership’s desire to restore the public’s confidence in its ability to manage the economy as well as to prevent the stock malaise from spreading to other parts of the economy.
In a statement published on the central bank’s website late Tuesday, the PBOC said it has “strengthened coordination with financial regulators…and held fast to the bottom line that no systemic or regional financial risks should occur.” (…)
Now, let’s se how they handle the economy. July’s manufacturing PMI was awful:
July data signalled that the downturn in China’s manufacturing sector intensified at the start of the third quarter. Renewed falls in both total new work and new export orders led manufacturers to cut production at the fastest rate since November 2011. Softer client demand and reduced output requirements contributed to further job shedding and lower purchasing activity, with the latter declining at the sharpest rate since January 2012.
Following a slight improvement in June, total new business received by Chinese manufacturers fell in July. Furthermore, the rate of decline was the quickest seen since March 2014. Data signalled that both domestic and foreign demand had softened in the latest survey period, as highlighted by new export work also falling in July after a slight pick up in June.
Weaker market conditions and an associated downturn in client demand contributed to a third successive monthly contraction of manufacturing production in July. Moreover, the latest reduction in output was the sharpest seen in 44 months.
Fewer new orders underpinned a renewed contraction of purchasing activity in China’s manufacturing during July. Furthermore, the rate of reduction was the sharpest seen since January 2012.
Today:
China in Rmb1tn infrastructure bonds plan Beijing pushes policy banks to plough money into domestic projects
China has authorised its policy banks to issue new bonds in order to plough money into infrastructure spending, state media has reported, as planners fret over slumping economic indicators.
A month-long stock market rout plus weak manufacturing performance has spooked Beijing. The aggressive move to push money into the real economy comes after the final reading of the Caixin/Markit purchasing managers’ index, published earlier this week, showed growth in China’s manufacturing sector slowed more than previously thought. (…)
The money raised will be invested in housing, pipeline infrastructure and other domestic projects, the report said. (…)
The move represents a shift towards direct central government backing of infrastructure investment, after years of investment at the local level resulted in excessive local government debts. Beijing’s efforts to rein in local government debt reduced the money available for infrastructure spending while many state-owned enterprises are also tapped out. (…)
