N.Y. Fed: Business Conditions Decline Fourth Straight Month
The Empire State’s business conditions index came in at -10.7 this month, compared with -11.4 in October and -14.7 in September. (…)
Details of the report painted a mixed picture of the New York-area manufacturing sector. The new orders subindex improved to -11.82 from -18.91, while shipments improved to -4.1 from -13.61. But unfilled orders and inventories deteriorated to -18.18 and -17.27, respectively. They had been at -15.09 and -7.55.
Labor-market indicators, meanwhile, steadied slightly, consistent with the Labor Department’s recent report, with the index measuring the number of employees at -7.27, from -8.49 last month.
Given the continuing weakness, it was no surprise that manufacturers’ attitude about future conditions turned more negative. The index measuring the six-month outlook fell to 20.33 from 23.36 last month, while the gauge of future capital spending plans edged up slightly to 12.73 from 12.26. (…) (Charts from Haver Analytics)
WHERE’S WALDO? (follow up)
Following up on yesterday’s post WHERE’S WALDO? three big retailers reported this morning:
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The TJX Companies, Inc. Reports above-Plan Q3 FY16 Results with 5% Comp Sales Growth and Earnings Per Share of $.86
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Wal-Mart Tops Profit Estimates as CEO Pursues Sales Turnaround
Earnings were 99 cents a share in the period, excluding some items, the Bentonville, Arkansas-based company said in a statement Tuesday. Analysts had predicted 98 cents on average, according to data compiled by Bloomberg.
For the current quarter, Wal-Mart forecast earnings of $1.40 to $1.55 a share. Analysts polled by Thomson Reuters had forecast $1.42 in per-share profit.
The company now expects profit of at least $4.50 a share this year, up from a previous forecast of at least $4.40.
Comp sales at Walmart U.S. were positive for the fifth consecutive quarter, up 1.5%. Traffic increased 1.7%.
Home Depot Inc , the world’s No. 1 home improvement retailer by revenue, reported a better-than-expected rise in quarterly same-store sales, helped by strong demand from both retail customers and professional contractors and builders.
Richard S., a Bearnobull reader, rightly observes that many of the dinostores actually cater to the first victims of the Fed’s ZIRP.
The problem with demand is that the retirees and near retirees (the dinosaurs) aren’t buying because their interest income is zero. The stores which serve these customers are showing the impact. The FED is hurting the economy.
I don’t know Richard’s age but I am not considering myself a dinosaur, just yet anyway. 
Meanwhile, Shake Shack last week talked about “growing labor costs” and so did Panera.
U.S. Producer Prices Post a Surprising Decline
The overall Final Demand Producer Price Index fell 0.4% during October (-1.6% y/y) following an unrevised 0.5% September decline. Prices excluding food & energy were off 0.3% (+0.1% y/y) and repeated the prior month’s decline.
Final demand goods prices (35% of the total index) fell 0.4% (-4.8% y/y), down for the fourth straight month. The latest decline was led by a 0.8% drop (-4.2% y/y) in food prices. (…) Gasoline prices rebounded 3.8% (-37.9% y/y), but home heating oil prices eased 0.1% (-40.9% y/y). Residential natural gas prices also were off 0.1% (-10.8% y/y) and residential electric power costs fell 0.5% (+0.1% y/y).
Final demand goods prices excluding food & energy declined 0.3% (-0.1% y/y) after remaining steady in September. Core finished consumer goods fell 0.2% (2.6% y/y) and reversed the prior month’s rise. Core consumer nondurables costs remained steady (3.3% y/y) following a 0.2% rise, but consumer durables dropped 0.5% (+1.0% y/y). Private capital equipment costs eased 0.2% (0.9% y/y) while core goods prices for government purchases were off 0.1%, unchanged y/y. Prices of goods for export fell 0.4% (-3.5% y/y), down for the fourth straight month.
Final demand services costs (63% of the total index) declined 0.3% (+0.1% y/y) after a 0.4% fall. This was led by trade services which fell 0.7% (-0.7% y/y); trade services represent the margins charged by retail and wholesale dealers and merchants. (…)
Deeper into the red Emerging market companies under debt pressure
(…) By some estimates, $7tn of QE dollars have flowed into emerging markets since the Fed began buying bonds in 2008. Now, a year after the Fed brought QE to an end, companies in emerging markets from Brazil to China are finding it increasingly hard to repay their debts.
The excess capacity these companies created became apparent just as China’s slowing economy triggered a collapse in global commodity prices, hurting companies across the emerging world and sending Brazil’s economy into deep recession. Some experts say QE policies by the Fed and other central banks have left a legacy of oversupply from which it will take years to recover.
They also warn that the leveraging of QE money has resulted in piles of debt around the emerging world that are very hard to measure or even detect. As Carmen Reinhart, a Harvard University economist, said recently, it is often only after things go wrong that the size and destructive power of hidden debts become apparent. (…)
What is clear is that debt has risen to alarming levels. As a percentage of gross domestic product, private sector debt (households and companies) is now greater in emerging markets than it was in developed markets on the eve of the financial crisis.
Taking on more debt for productive investment may well be a good idea, but it is not what has happened. Philip Turner and colleagues at the BIS looked at leverage and profitability at 280 big EM corporate bond issuers. They found that while leverage at those companies was up, profitability was sharply down. (…)
Last week, the Institute of International Finance said bank lending conditions in emerging markets — a broad measure that includes credit demand, availability and non-performing loans — had deteriorated sharply, with some measures at their worst levels since the IIF began monitoring conditions in 2009.
Hung Tran, the IIF’s managing director, says EM companies are finding it harder to repay their debts and raise new money for investment, putting further downward pressure on growth. And he does not buy the argument that currency mismatches — especially in the overseas debts of EM governments — no longer present the danger they did in the crises of the 1990s.
“People say, this time there is no currency mismatch,” he says. “They are not wrong. But the problem now is much deeper and much more general than a currency mismatch. This is a pure and simple problem of over-indebtedness and of slowing economic growth.”
(…) too much borrowing invested in too much capacity, coming to market as demand is falling. This misallocation of capital is blowing the ill winds of deflation to the developed world. The process is not over yet: as the Fed pulls back, the ECB and BoJ are in full QE mode.
(…) He says the developed world is heading for a recession similar to the one that followed the turn of the century; if no action is taken, he expects the impact to be worse than the Asian financial crisis of the late 1990s.
“QE has made this possible,” says Luis Oganes, head of EM research at JPMorgan. “Our concern is not of a full-blown EM crisis but of the heavily indebted companies and the banks exposed to them, as they fall into a vicious circle of low profitability, higher non-performing loans and tighter credit conditions. We should not expect an investment-led recovery anytime soon.”
Chinese companies may have more immediate help. Beijing has reined in credit over the past two years to curtail overcapacity, mainly through restrictions on shadow banking. But this year, official lending has again been on the rise. (…)
SENTIMENT WATCH
- Investors continue to pull money out of equity mutual funds: -$128B out of equity mutual funds and ETFs YtD.
- Evercore ISI hedge fund survey plunged -1.1 to 47.4, “close to an outright BEARISH reading”.
Understand that hedgies are not born with a much better crystal ball than anybody else. The last time they were as bearish was in Dec. 2012…