U.S. Factory Orders Boosted Again by Durables
Manufacturing sector orders increased 1.0% (7.3% y/y) during February following a 1.5% January increase, revised from 1.2%. Durable goods orders increased 1.8% (5.3% y/y), revised from the advance report of a 1.7% increase. Transportation sector orders gained 4.4% (6.0% y/y) with a jump in nondefense aircraft & parts, but defense aircraft & parts orders eased. Total factory sector orders excluding defense improved 1.2% (6.9% y/y) following a 1.4% gain. Orders outside of the transportation sector gained 0.4% (7.5% y/y). (…)
Unfilled orders remained unchanged (-1.3% y/y), continuing the weak trend of the last year. Transportation sector backlogs eased 0.1% (-3.1% y/y). Outside of the transportation sector, unfilled orders improved 0.3% (2.6% y/y).
So, new orders are rising briskly while shipments are not keeping pace. Yet, unfilled orders keep falling! Must be that many of these new orders eventually get cancelled.
WEAK CAR SALES
-
Economy Will Miss That New-Car Smell Slowing car sales may not be replaced by other consumer spending, which would weigh on the economy
(… ) Instead, they are more likely to save or pay down debt than spend. (…)
But it’s not what it was:
(…) “Somewhat ominously, today’s market increasingly resembles one we described in ‘A Triple Threat’ (Feb. 20, 2004),” Deutsche Bank analysts Rod Lache, Mike Levine and Robert Salmon wrote in a note on Tuesday. “In that report we highlighted the risks to the industry from rising rates, rising negative equity in vehicle loans and used vehicle-price deflation. This could lead to deteriorating affordability, delayed trade-in cycles, consumer shifts from new to used, diminishing credit availability and deteriorating mix/pricing.”
A key concern is that fewer cars are being taken off the road — scrappage has declined to about 11 million a year from about 13 million to 14 million a decade ago. While net new drivers jumped to 4 million in 2015, that may not be enough. Total vehicles in the U.S. have increased to 270 million, from 249 million at the end of 2012.
“This has led us to question whether the U.S. is broadly oversupplied, and whether trend demand in the 17 million range is fundamentally supported,” the analysts wrote. “If it is not, the oversupply should be self-correcting — the U.S. market will experience declining used-vehicle prices, pressuring new vehicle sales.” (…)
Ford Fusion: down 37 percent. Chevrolet Malibu: down 36 percent. Toyota Prius: down 29 percent.
As those grim numbers suggest, the U.S. auto industry was blindsided last month by just how fast sedans have fallen out of favor with Americans now embracing roomier sport utility vehicles. (…)
With an average sticker price of more than $38,000, a truck or SUV costs about $10,000 more than the average car. (…)
GM has already made cuts since late last year at passenger car plants in Michigan and Ohio, laying off more than 3,000 workers who build Chevy Cruze compacts and Impala sedans. Ford in January canceled plans to build a $1.6 billion factory in Mexico, after deciding it didn’t need to boost output of Focus compacts. (…)
PMIs
The seasonally adjusted Markit U.S Services Business Activity Index remained above the 50.0 no-change mark in March to extend the current period of growth to 13 months. However, the index continued to fall from January’s recent peak, reaching a six-month low of 52.8 (February: 53.8). Activity was supported through work on both new and existing business.
Levels of new orders rose again in March, although the rate of growth was modest and the slowest recorded for a year. While demand for services continued to increase, according to panellists it did so at a slower rate compared to earlier in the year. Service providers were able to cope successfully with the dual demands of working on new and existing business. This was evidenced by a decline in work outstanding for a second successive month. Although modest, the degree to which backlogs were reduced was the sharpest recorded by the survey for nine months.
Jobs growth was also sustained in March, although in line with slower expansions in new business and activity, the degree to which payroll numbers rose was modest. Latest data indicated that the net increase was actually the weakest recorded by the survey since last October.
Operating costs continued to increase during March, with inflation underpinned by rises in labour costs and higher prices for basic materials and food products. The overall increase in input costs was solid, and slightly higher than the pace seen in February.
Companies subsequently sought to pass on higher costs to their clients and this was reflected by a further (albeit modest) rise in average output charges. (…)
The final seasonally adjusted Markit U.S. Composite PMI™ Output Index eased to 53.0 during March, down from a reading of 54.1 in the previous survey period. Although solid, the latest increase in output was the lowest recorded for six months. The slowdown reflected a similar easing of growth in levels of incoming new business (also the weakest in six months). Both the manufacturing and service sectors recorded slower increases in production and new business during March.
The surveys of manufacturing and services are running at levels consistent with GDP expanding by 1.7% in the first quarter. Growth of business activity appears to have peaked in January, sliding to a six-month low in March.
The loss of momentum is linked to weaker inflows of new work, with the surveys providing some evidence that demand is being dented in part by higher prices.
The ISM non-manufacturing is also weaker in March:
-
Eurozone growth at near six-year high as Germany and France accelerate
The final Markit Eurozone PMI® Composite Output Index rose to a 71-month high of 56.4 in March, up from 56.0 in February but below the flash estimate of 56.7. The index has signalled expansion in each of the past 45 months. Output growth was registered across the manufacturing and service sectors. (…)
The rebound in French growth recently has been solid, hitting a 70-month record during the latest survey. (…)
March saw the strongest inflows of new business into the eurozone economy since April 2011. The increased pressure on capacity led to the fastest accumulation of backlogs
of work for 71 months and encouraged further job creation. Employment growth was the sharpest in over nine-and-a-half years. Rates of increase accelerated across the ‘big-four’ national economies and also remained elevated (albeit slower) in Ireland.
Price pressures remained strong in March. Input cost inflation was close to February’s 69-month record, reflecting rising global commodity prices and the historically weak euro exchange rate. The pass-through of higher costs to clients, combined with improved pricing power, meant output charges rose to the greatest extent since June 2011. (…)
The final Markit Eurozone PMI® Services Business Activity Index rose to a 70-month high of 56.0 in March, up from 55.5 in February but below the earlier flash estimate of 56.5. All of the nations covered by the survey registered increases in business activity in March. (…)
Underpinning the faster expansion of eurozone service sector activity was the strongest growth of incoming new work since April 2011. This in turn exerted pressure on capacity, leading to the sharpest accumulation of backlogs of work for 70 months. All of the nations covered saw levels of both new orders received and outstanding business rise during the latest survey month.
To ease the pressure on capacity, service providers expanded employment for the twenty-ninth straight month in March. Moreover, the rate of increase picked up to the steepest in almost nine-and-a-half years. Job creation accelerated in each of the ‘bigfour’ national service economies.
March data signalled the steepest increase in average service charges since July 2011. Selling prices were raised in Germany, Spain and Ireland to more than offset further (albeit slower) declines in France and Italy. The pass-through of rising costs to clients remained a principal factor driving up output charges. Input price inflation remained close to February’s 68-month record. (…)
The latest numbers round off the strongest quarter since the spring of 2011 and are consistent with eurozone GDP rising by 0.6% in the first three months of 2017. This is a broad-based upturn among the euro’s largest members, with 0.6% growth signalled for both Germany and France, while Spain looks set to have enjoyed 0.8-0.9% growth in the first quarter, according to the PMI data. Growth has also perked up in Italy during the first quarter despite a slight pull-back in March, with the surveys indicating a 0.3-0.4% expansion.
Gundlach, Pimco Sour on Reflation Trade as Price Pressures Peak
Pacific Investment Management Co. is scaling back its outlook for U.S. price growth, saying an increase in job-market participation will dent wage growth and oil’s pullback will also be a damper. For DoubleLine Capital LP’s Jeffrey Gundlach, inflation this year has passed its peak, meaning the reflation trade that’s dominated markets in 2017 could peter out. (…)
“Longer-term risks to inflation are skewed to the upside, but at the same time the momentum behind the recent reflation trade is likely to ebb temporarily in the near term,” Pimco’s Global Economic Advisor Joachim Fels and chief investment officer for fixed income Andrew Balls, wrote in a report dispersed via Twitter this week.
In a webcast Tuesday, Gundlach all but called time on the reflation trade, which has seen equities to emerging-market debt and raw materials rally on bets Donald Trump’s presidency will usher in a period of fiscal spending-fueled growth. (…)
“I expect a rally on the 10-year and the 30-year, to below 2-1/4 at a minimum on the 10-year, maybe a little bit lower than 2 and then it moves back up,” Gundlach, whose Los Angeles-based firm oversaw $105 billion as of March 31, said during a webcast Tuesday. “I don’t think we’re going to see 3 on the 10-year this year.” (…)
“Tax cuts are going to be really, really hard to get done,” he said. (…)
Gundlach’s full presentation can be seen here. One of his charts:
I first wrote about the synchronized acceleration on January 11.
Dimon Warns ‘Something Is Wrong’ With the U.S.
Dimon, leader of world’s most valuable bank and a counselor to the new president, used his 45-page annual letter to shareholders on Tuesday to list ways America is stronger than ever — before jumping into a much longer list of self-inflicted problems that he said was “upsetting” to write. (…)
- Re: the U.S. participation rate:
Labor force participation in the United States has gone from 66% to 63% between 2008 and today. Some of the reasons for this decline are understandable and aren’t too worrisome – for example, an aging population. But if you examine the data more closely and focus just on labor force participation for one key segment; i.e., men ages 25-54, you’ll see that we have a serious problem. The chart below shows that in America, the participation rate for that cohort has gone from 96% in 1968 to a little over 88% today. This is way below labor force participation in almost every other developed nation.
If the work participation rate for this group went back to just 93% – the current average for the other developed nations – approximately 10 million more people would be working in the United States. Some other highly disturbing facts include: Fifty-seven percent of these non-working males are on disability, and fully 71% of today’s youth (ages 17–24) are ineligible for the military due to a lack of proper education (basic reading or writing skills) or health issues (often obesity or diabetes). (via Zerohedge)
In all cases the economic benefits of moderate increases in capital levels above current levels exceed the economic costs.
–“An Empirical Economic Assessment of the Costs and Benefits of Bank Capital in the US”, Federal Reserve Board paper March 31, 2017
Trump Is Ready for Tax Cuts, but His Treasury Department Isn’t
(…) Besides Steven Mnuchin, the Treasury secretary, none of the 27 other political appointees who staff the department’s leadership have been confirmed, according to the Partnership for Public Service’s nomination tracker. Mr. Trump has announced only six other Treasury appointees and has yet to name anyone as assistant secretary of tax policy — a critical post for spearheading a rewrite of the tax code. Many important deputy under secretary roles also remain unfilled. (…)
Mr. Trump has blamed Democrats for dragging out the confirmation process on his picks, but 21 out of 28 posts have yet to be nominated. (…)
U.S. Light-Vehicles Sales Fall Third Straight Month in March
Soft vs Hard data:
