U.S. Retail Sales Post Biggest Gain in Eight Months U.S. retail sales climbed 0.7% in November from a month earlier, as Americans stepped up their shopping amid lower gasoline prices and brisk job growth.
The 0.8% drop in Gasoline Stations looks pretty low to me given the decline in gas prices. This is a reminder that this is the first estimate for Retail Sales, to be followed by 2 revisions. Lance Roberts discovered that November’s seasonal adjustment for retail sales was the third largest on record. Interestingly, revisions to Retail Sales have been mainly on the plus side this year as Doug Short shows:
Anyway, there was strength across the board as Doug Short illustrates with “Control Sales”:
This series excludes Motor Vehicles & Parts, Gasoline, Building Materials as well as Food Services & Drinking Places. I’ve highlighted the values at the start of the two recessions since the inception of this series in the early 1990s.
The average price of a gallon of regular gasoline has fallen by more than a dollar since mid-June. That has freed up billions of dollars collectively for consumers to spend on other goods. Families on average had $42 more to spend in October compared with June thanks to the drop, Bank of America Merrill Lynch economists estimate.
U.S. Import Prices Drop Prices of imported goods posted their biggest drop in nearly two and a half years in November, more evidence that falling oil prices, slow growth abroad and a strong dollar are holding down inflation in the U.S.
Import prices fell 1.5% from October, the Labor Department said Thursday. Compared to one year earlier, prices were down 2.3%, the biggest year-over year drop since the spring of 2013. (…)
Thursday’s report said petroleum import prices fell 6.9% in November from the previous month and were down 12.3% on the year. Excluding petroleum, import prices declined 0.3% from the previous month and are up only 0.1% from a year earlier.
(…) the stronger dollar, which in part reflects the relatively robust performance of the U.S. economy compared to Europe, Japan and some emerging markets, makes foreign goods less expensive for American importers. The dollar is up almost 10% against the euro and more than 13% against the yen so far this year. (…)
BTW, nonpetroleum import prices have declined each of the last 3 months: from September to November: –0.1%, –0.2%, -0.3% (-2.5% annualized since September). Check out these two charts from Evercore ISI:
Hmmm…
China’s Industrial Growth Slows China’s economy showed fresh signs of weakness in November as industrial output growth slid to a three-month low, missing expectations, as investment extended its sluggish trend.
Industrial production growth slumped 7.2% from a year earlier in November, which was below market expectations and down from an increase of 7.7% in October.
“The November data was widely expected to be bad,” said HSBC economist Ma Xiaoping. “The APEC factory closings affected a lot of heavy industry.” Ms. Ma estimates that the closings shaved 0.4 percentage point from industrial output for the month.
The National Bureau of Statistics bureau also said fixed-asset investment in nonrural areas rose 15.8% in the January-November period, down from a gain of 15.9% in the first 10 months. (…)
In November, housing sales totaled 633.7 billion yuan ($102.4 billion), down 12.0% from a year earlier, compared with the 3.1% fall recorded in October and the 10.3% decline recorded in September, according to calculations by The Wall Street Journal. On a month-to-month basis, though, sales in November were up 8.2% from October’s 585.9 billion yuan. The statistics bureau doesn’t give data for individual months.
The weak data was released by the government a day after the nation’s policy makers, winding up a key meeting to set economic priorities for next year, said they would try to balance steady economic growth with a wide program of structural reforms. While the government didn’t announce a growth target for next year, it is widely expected to be below this year’s level of about 7.5%.
Retail sales in China provided the one bright spot for the economy, showing a slight improvement to a year-over-year 11.7% in November, accelerating from an 11.5% year-over-year increase in October.
Euro-Area Industrial Output Grows a Less-Than-Forecast 0.1% Euro-area industrial production barely grew in October, indicating a weak start to the fourth quarter as the European Central Bank considers new ways to revive the economy.
According to Eurostat, the drop in production in November was led by energy, down 1.9 percent, and capital goods, which fell 0.2 percent. It said output declined in France, Spain and Italy, while it stagnated in Germany, the region’s largest economy.
Falling Oil Prices Threaten African Growth
(…) Cheaper fuel will help many African countries suppress inflation by keeping energy import costs down. But the continent’s biggest economies have staked their futures on robust prices for oil and gas. Pumping high-price crude has generated rapid economic growth and spending that spilled across borders.
Now, those flows are set to slow sharply. Capital Economics says falling commodity prices will cut growth across sub-Saharan Africa by one percentage point next year, to around 4%, the slowest rate since the late 1990s. (…)
Another good chart (http://alphanow.thomsonreuters.com/2014-charts-year/):
Americans’ Debt Levels Off U.S. families’ debt burdens have settled at their lowest level in over a decade, putting the economy on a stronger footing relative to global rivals going into 2015.
Oil Rout Continues Oil extended its slump, hitting levels not seen since the depth of the global recession in 2009, on fears about slowing global demand after the IEA cut its demand forecast.
The IEA lowered its 2015 oil demand growth forecast by 230,000 barrels a day to 0.9 million. Its highly-anticipated monthly market report also said that the oil price rout wouldn’t boost demand as analysts had hoped.
“As for demand, oil price drops are sometimes described as a tax cut and a boon for the economy, but this time round their stimulus effect may be modest,” the IEA wrote.
Ordinarily, lower prices should encourage greater consumption, but the pain that oil-exporting economies are already feeling because of the price slump, combined with a sluggish global economy, is expected to offset any positive demand impact from the weak market, the IEA said.
Demand in Russia, a major oil producer, is expected to be particularly hard hit next year as a combination of western sanctions and sliding oil prices pummel the country’s economy.
Despite a slide of more than 40% in oil prices since June, the Paris-based energy watchdog said it still expects a robust increase in production from nations outside the Organization of the Petroleum Exporting Countries next year.
Meanwhile, although oil companies are already slashing spending in response to lower prices, many of the projects expected to fuel higher production next year have already been paid for, pushing any impact on output into the future, the IEA said.
In the U.S., where high-cost shale projects are coming under intense scrutiny as oil prices plummet, there should be no production impact in the short term so long as producers maintain access to financing, the IEA said. Booming shale oil output is expected to push non-OPEC supply growth to a record high of 1.9 million barrels a day this year and though that will slow next year to 1.3 million barrels a day, that is not because of the lower price environment.
Analysts continued to slash their oil-price forecasts. ANZ Research cut its oil-price forecasts by an average of 24% in 2015 and now expects WTI to average $68 a barrel and Brent to average $71 a barrel in 2015.
None of these analysts saw the current situation coming…
In response oil futures extended losses to hit fresh five-and-a-half-year lows. Brent for January delivery was down 1.3% at $62.83 on ICE in London, while WTI was down 1.8% at $58.89 in electronic trading on the New York Mercantile Exchange.
Epsilon Theory: Narrative Uber Alles
Climax time for oil? Be Hunt catches the media all wrapped up in the same dominant narrative:
Yesterday the Wall Street Journal ran a front page story titled “OPEC Sees Less Demand for Its Oil in 2015”, as well as another article with the following quote: “OPEC’s output exceeded its quota by 50,000 barrels a day in November, the group said.”
That’s all true, and all supportive of today’s dominant Narrative that OPEC is broken and oil is now in free fall.
Wanna know what else is true? November OPEC production was down 390,000 bbls/day from October and down 510,000 bbls/day from September. But, hey, we can’t have crucial facts get in the way of a dominant Narrative, now can we?
And here’s another thing that’s true. That horrific “demand reduction” that OPEC is forecasting for 2015? If you’re talking about global demand for crude oil, OPEC reduced its 2015 forecast by 120,000 bbls/day on an aggregate forecast of 91.1 million bbls/day, which is all of a 13 basis points reduction and still includes demandgrowth of close to 1 million bbls/day. Yes, OPEC reduced projected 2015 demand for its oil by 300,000 bbls/day (about 1% of current production targets), but that’s agood thing for oil prices if it’s the rationale required for further production cuts within OPEC.
And because I can’t help myself, here’s one more thing that’s true. You won’t find that sentence about exceeding the quota – which was a main thrust of the original story – because it’s been eliminated in the afternoon revisions. Flushed down the memory hole. After the markets close. After the Narrative damage is done.
Not trying to pick on the WSJ here, as every media mouthpiece is doing exactly the same thing. Reuters report on the monthly OPEC news release spoke only to the reduced demand forecast and “hefty oversupply” with zero mention of the production cuts. Bloomberg did the same, with a 1,000 word article on the oversupply “paradigm shift” and a tacked-on sentence noting the production cuts in passing. Some of the media headlines were downright schizophrenic. My personal fave was from USA Today, with an article titled “OPEC Slashes Oil Production Estimate” – as if that were a bad thing for oil prices! – and that this is why crude was down because … well … because … you know … if we use the word “slash” it must be a bad thing.
Sigh. After a 25-year professional career of studying media Narratives and their amazingly powerful impact on investor and voter behavior alike, you’d think that I’d be numb to this stuff. But it never ceases to amaze me.
Details for November production decline: OPEC production was down 390,100 Bopd in November to 30.0 MMBopd (-117tbd in October). The biggest decrease was in Libya, -248,300 Bopd (+104tbd), followed by Saudi Arabia, -60,100 Bopd (-23tbd), Kuwait, -59,400 Bopd (-47tbd) and Angola, -41,800 Bopd (-21tbd), offset by an increase in Iraq, +50,800 Bopd (-18tbd).
Junk Bond Funds See $1.9 Billion Outflow
Investors pulled nearly $1.9 billion from funds dedicated to low-rated corporate bonds in the past week, extending a retreat from risky debt amid a free fall in the price of crude oil. (…)
Tremors from the slide in oil prices that initially hit energy bonds are now being felt across the broader $1.3 trillion junk-bond market, investors and analysts said, causing hesitation among would-be buyers and a hurried reshuffling of bond portfolios as funds look to raise cash to meet redemptions. (…)
The oil rout has put a dent in issuance volumes, causing a handful of energy companies to delay or cancel their borrowing plans. The issuance boom had helped a host of energy companies fund their business plans by borrowing heavily on the back of investor demand for higher yielding debt. Energy companies used the reach for yield among debt investors to line their pockets for new projects, equipment and acquisitions.But those energy bonds were sold when commodity prices and energy stocks were riding high, implying more favorable economics for the energy industry. (…)
Energy bonds constitute 14% of the U.S. high-yield bond market.
This week, even nonenergy high-yield bonds have been hit as investors rushed to sell whatever debt they could to raise cash. Goldman Sachs Group Inc. is forecasting further downside in prices and lingering price volatility. (…)
I have been warning about excessively low yield spreads. This Evercore ISI chart might entice you to jump on the junk bond bandwagon…
…but here another perspective (from Moody’s) to help you better appreciate where we are:
