U.S. New Home Sales Increase To 2008 High
New home sales during December increased 11.6% to 481,000 (AR) from 431,000 in November, initially reported as 438,000. The latest figure was the highest since June 2008 and pulled the average sales volume for last year to 437,000, also the highest since 2008.
Consumer Confidence Surges
The Conference Board, a private research group, said its index of consumer confidencejumped to 102.9 in January from a revised 93.1 in December, first reported as 92.6.
The index is at its highest since August 2007, the report said. Economists surveyed by The Wall Street Journal had forecast the latest index to rise to a more modest reading of 95.1.
The present situation index, a gauge of consumers’ assessment of current economic conditions, rose to 112.6 in January from a revised 99.9 in December, first put at 98.6.
Consumer expectations for economic activity over the next six months increased to 96.4 from an unrevised 88.5.
Earlier in January, the University of Michigan said its own consumer sentiment index in early January was the highest in 11 years.
The share of respondents anticipating more jobs in the next six months rose to 16.7% this month from 14.6% saying that in December. The share anticipating fewer jobs fell to 15% from 16.5%.
Income expectations surged. The survey showed 20% of households in January expect their incomes to rise in the next six months, up from only 16.2% saying that last month. January’s share is the highest since December 2007, just as the last recession started. Another 11.3% think their incomes will decline in the next six months, up slightly from 10.2% saying that in December.
I generally don’t make much of consumer sentiment indices since they are mostly coincident and often heavily influenced by gas prices and jobs (charts from BloomberBriefs and Ed Yardeni).
However, the recent surges are significant for the housing and auto industries which need hopeful consumers if they want to sell their long instalments.
Mortgage purchase applications: is this for real? (Chart from CalculatedRisk)
Also consider this chart from Evercore ISI which assumes average hourly earnings increases +2.0% YoY and CPI declines 4.0% YoY in March:
Does the FOMC see that? Margin squeeze coming?
U.S. Durable Goods Orders Are Depressed by Fewer Aircraft Bookings
New orders for durable goods declined 3.4% during December (+0.3% y/y) following a 2.1% November drop, revised from -0.7% reported initially. The latest decline was the fourth in the last five months. A 55.5% collapse (-64.5% y/y) in commercial aircraft bookings provided the impetus for the outsized shortfall. New orders beyond the transportation sector slipped 0.8% (+3.8% y/y), the third consecutive monthly decline. Orders were expected to rise 0.4% in the Action Economics Forecast Survey. During the last ten years, there has been an 88% correlation between the y/y change in orders and the change in real GDP.
The decline in aircraft orders during December was accompanied by a 2.7% rise (10.0% y/y) in motor vehicles & parts orders. Bookings were mixed outside of the transportation sector. To the downside, machinery orders fell a sharp 3.7% (-6.2% y/y), the fourth consecutive monthly decline. Primary metals bookings fell 1.5% (+2.6% y/y), down for the third straight month. Computers & related products orders declined 10.4% (-23.5% y/y), continuing their sharp downtrend. Communications equipment orders fell 1.6% (-6.7% y/y) after a 9.8% rise.
Orders for nondefense capital goods were pulled 9.7% lower (-12.2% y/y) by the drop in aircraft. Orders outside of the aircraft sector fell 0.6% (+1.7% y/y), the fifth decline in the last six months.
That said, the basic trend remains up as this Doug Short chart shows…
…but oil will be a drag for a while:
Cenovus slashes 2015 spending by additional $700-million on low oil
In December, Canada’s second-biggest independent oil producer chopped spending by 15 per cent to about $2.6-billion for 2015 and warned of possible further cuts.
Since that time, oil prices have continued their downward slide and the outlook for 2015 is poor, Cenovus said Wednesday.
So it is now targeting capital spending of between $1.8-billion and $2-billion and says it will closely monitor the situation with “the ability to make further budget adjustments.â€
Still, Markit’s flash Manufacturing PMI remains comfortably in growth territory and new orders keep rising albeit at a slower pace.
Markit’s report reveals that weaknesses are centered in export and energy markets:
Reports from survey respondents suggested that improving domestic economic conditions continued to boost new order levels, but overall export demand remained lacklustre. Meanwhile, some manufacturers noted that reduced spending among clients operating in the oil and gas sector had weighed on new order volumes during January.
OPEC’s El-Badri: $200 Oil Possible If No One InvestsGermany Raises 2015 Growth Forecast
The economics ministry increased its forecast for economic growth this year to 1.5% from an earlier forecast of 1.3%, according to its annual report. The economy grew by 1.5% last year.
The higher forecast was widely expected because analysts think the slide of both oil prices and the euro will give a growth stimulus to Europe’s largest economy. What’s more, Germany’s labor market has continued to boom over the past months, resulting in higher-than-expected tax revenues that helped the government to balance its federal budget last year, one year earlier than planned.
The ministry expects 170,000 new jobs to be created this year, with the workforce reaching a record high of 42.8 million.
The ministry expects exports to rise by 3.6% this year, from 3.7% last year, while imports are seen increasing by 4.1% from 3.3% in 2014.
A Midsummer Disinflation Nightmare for the Fed? How transitory is the inflation impact of plunging oil prices? The answer to that question could hold the key to whether the Federal Reserve raises interest rates in midyear, as many economists still expect, or waits until September or later, just to make sure inflation is rising toward the central bank’s 2% goal.
Fake disinflation?
(…) How can we tell what is behind the recent spate of disinflation? One way is to decompose the price statistics into the components that more closely track domestic demand versus those affected by global factors. (…) Goldman recently did this for the euro area and the UK and this is what they found:
The red and pink bars mostly reflect global factors and local tax policies. By contrast, the height of the big grey bars is determined exclusively by local forces. The charts above show that this measure of domestic inflation pressures has been remarkably stable over the past few years and that basically all of the observed “disinflation†has come from lower costs paid by consumers for food and energy. That’s good news!
Meanwhile, a comparable measure for the US shows that domestically-determined inflation has been remarkably stable ever since the end of 2011:
(…) However, the evidence does seem to suggest that fears of disinflation, much less outright deflation, are overdone.
Singapore Pulls Trigger in Deflation Fight The Monetary Authority of Singapore said it would slow the Singapore dollar’s rise against a basket of currencies, making the city state the latest country to ease monetary policy as inflation slows across much of the world and growth prospects dim.
EARNINGS WATCH
This is the typical headline and narrative this a.m.:
Strong Dollar Squeezes U.S. Firms The stronger dollar is slicing sales and profits at big American companies, prompting them to put renewed emphasis on cost cutting and cramping the broader U.S. economy.
The currency effects are hitting a wide swath of corporate America—from consumer products giant Procter & Gamble Co. to technology stalwart Microsoft Corp. to pharmaceuticals company Pfizer Inc. Those companies and others have expanded aggressively overseas in search of growth and now are finding that those sales are shrinking in value or not keeping up with dollar-based costs. (…)
Expectations for the quarter, already low among investors and analysts, have worsened as the results have rolled in. Analysts now expect companies in the S&P 500 index to post a scant 0.5% in sales growth, with per-share profit gains of 3.3%, according to financial data firm Thomson Reuters. The figures reflect actual results for 119 companies and analysts’ estimates for the rest of the index. As recently as Jan. 1, analysts were expecting sales growth of 1.3% and earnings growth of about 4.2%. (…)
Meanwhile, at the other end of the stick:
Weaker Yen Boosts Canon Profit Canon said its net profit rose 6% in the October to December period as a weaker yen enhanced the value of its overseas earnings, outweighing falling demand for digital cameras.
But here’s what you are not reading elsewhere this a.m.:
Beyond the earnings headlines…
… there are the hard facts on the whole market. This is as of last night per RBC:
- 130 companies (41.6% of the S&P 500’s market cap) have reported. So far, earnings are beating by 4.2% while revenues have surprised by 0.8%.
- Expectations are for revenue, earnings, and EPS growth of 0.7%, 2.4%, and 4.4% (was +3.2% last Friday). Excluding Energy, these numbers are 3.9%, 5.6%, and 7.7% (was +6.3% last Friday), respectively. This excludes the likelihood of continued beats which RBC estimates at 3.0%.
- Earnings for foreign-oriented companies are expected to be flat, the result of a higher dollar and weaker foreign demand. However, these companies are beating by a greater margin than more domestically-oriented names (6.2% versus 3.4%) on lower expectations.
This Zerohedge post is worth reading in spite of its typical sensational headline. China rapidly slowing to 3% GDP growth would in effect have consequences as Obama would say:
“Equities Will Be Devastated” Crispin Odey Warns, Looming Recession Will Be “Remembered For 100 Years”
BTW last night:
- China’s official Leading, Coincident and Lagging Indicators all ticked down in Dec; all at their lowest levels since 2009. Their Business Cycle Signal was flat – below its
2009 low. No upturn.