Edge and Odds

The enemy of knowledge is not ignorance, it’s the illusion of knowledge (Stephen Hawking)

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so (Mark Twain)

Edge and Odds

Invest with smart knowledge and objective odds

NEW$ & VIEW$ (1 JUNE 2016)

U.S. Consumer Spending Climbed at Fastest Pace in Nearly Seven Years Consumer spending advanced at the fastest pace in nearly seven years in April—jumping 1.0%— in the latest sign the economy is improving after a sluggish start to the year.

Consumption had climbed 0.2% in February and was flat in March. (…)

Consumer spending on durable goods was particularly robust in April, likely reflecting healthy auto sales during the month.

Personal income, including earnings from wages and other sources, rose 0.4% in April. (…) The personal saving rate in April was 5.4%, down from March’s 5.9% and the lowest level of the year. (…)

The personal-consumption expenditures price index, the Fed’s preferred inflation measure, rose 0.3% in April from the prior month, the firmest reading since May 2015. From a year earlier, the index climbed 1.1%, undershooting the Fed’s 2% target for the 48th straight month.

So-called “core” prices, which exclude the volatile categories of food and energy, rose 0.2% from the prior month and 1.6% from a year earlier. (…)

Adjusted for inflation, consumer spending rose 0.6% and disposable personal income—income after taxes—rose 0.2%.

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The FT this a.m.:

US consumer spending confirms rebound Buoyant household sentiment adds to case for interest rate rise

Sorry to interrupt the party. Just to warn on a few things:

  • The consumer has yet to show clear trends, away from the on and off patterns of the last 2 years.
  • Car sales were indeed strong in April but that was after a very bad March. Car sales remain in a clear downtrend looking at the last 6 months.
  • April’s 1.0% jump in nominal expenditures is great but public retailers don’t seem to have noticed it.
  • Revisions can be brutal. January was first released as +0.5%. It’s now +0.1%.
  • Easter fell in March this year and there were 5 shopping weekends in April vs 4 in March. I am not sure the seasonal adjustments adjusted well for these anomalies. (Chart from Haver Analytics)

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BTW, re. the “Buoyant household sentiment”:

U.S. Consumer Confidence Continues Lower

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And from Bespoke Investment:

053116 Consumer Confidence Income
U.S. Home Prices Jump as Supply Pinch Plays Out Home prices across the U.S. rose sharply in early spring amid rising demand and supply constraints, a sign that the lopsided housing-market recovery of the past five years is gaining strength.

The S&P/Case-Shiller national home-price index, released Tuesday, has clawed its way back to within 4% of its 2006 peak, a steep rise from the near 30% decline at the bottom in 2012. (…)

The S&P/Case-Shiller national index rose 5.2% in March. But that is mainly because of a lack of inventory, economists said. When adjusted for inflation the S&P/Case-Shiller index remains about 20% below its peak reached in 2006. (…)

The S&P/Case-Shiller index covering the 20 largest U.S. cities rose 5.4% in the 12 months ended in March, outpacing the overall market.

In the hottest regions in the country, primarily on the West Coast, prices rose at a double-digit pace in March, with Portland, Ore., reporting a 12.3% year-over-year gain, Seattle showing a 10.8% gain and Denver logging a 10% increase. (…)

Japan PM delays sales tax hike, puts fiscal reform on back burner
Governments must boost spending to escape ‘low-growth trap’: OECD Ensnared in a “low-growth trap”, the world economy will meander along at its slowest pace since the financial crisis for a second year in a row in 2016, the OECD forecast on Wednesday, urging governments to boost spending.
SENTIMENT WATCH
BlackRock Downgrades Global Stocks, Citing Valuations

BlackRock, the world’s largest asset manager has downgraded U.S. and European stocks to neutral, citing elevated U.S. valuations and the higher probability of a midyear interest-rate increase by the Federal Reserve. (…)

BlackRock would be more bullish if it saw evidence of reflation and an emphasis on expansionary fiscal policy and structural reform over monetary policy globally, Turnill says.

EUROZONE MANUFACTURING PMI AT 51.5 ON WEAK ORDERS

May PMI data signalled a further growth slowdown in the eurozone manufacturing sector, as inflows of new business from both domestic and export markets continued to rise at lacklustre rates.

The final Markit Eurozone Manufacturing PMI® posted a three-month low of 51.5 in May, unchanged from the earlier flash estimate and the second-weakest reading since February 2015.

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imageSix out of the eight nations included in the eurozone manufacturing survey reported expansions during May. The Netherlands, in first position of the PMI growth rankings, and third-placed Germany were the only countries to report faster rates of growth. Italy saw its pace of expansion ease to a three month low, while growth in Spain and Ireland was the weakest since October 2015 and July 2013 respectively. The Austrian PMI held steady at April’s subdued (albeit above euro area average) level of 52.0. PMI readings for France and Greece remained in contraction territory, both posting 48.4.

Eurozone manufacturing production increased for the thirty-fifth successive month in May, albeit to the least marked extent since February. Underlying the latest slowdown in output growth was a weaker increase in new work received.

The pace of increase in new business eased to a 15-month low. Panellists reported that conditions remained highly competitive in both domestic and export markets. New export business rose at the weakest pace since January 2015.

Only Germany, Italy, Spain and the Netherlands saw increases in new export business, although all reported slower expansions than in the prior month.
May data provided further evidence of price discounting to support sales efforts and combat competitive pressures. Average selling prices fell for the ninth straight month, with none of the nations covered by the survey reporting an increase. However, the rate of charge deflation eased further from March’s six-year record to a five-month low.

Average purchasing costs, meanwhile, fell for the tenth month running in May. However, the rate of decrease eased to its weakest since the start of this sequence, in part reflecting recent firming of certain commodity prices (notably for oil).

Eurozone manufacturing employment rose again during May. The rate of jobs growth eased slightly and was a touch below the average for the current 21-month sequence of increases. Part of the expansion of capacity reflected a further accumulation of backlogs of work.

In line with the trend in production, staffing levels rose in all of the nations covered except France and Greece. Employment fell slightly in Greece, whereas France reported the steepest job cuts since August 2014. Among the nations reporting an increase in headcounts, only the Netherlands saw an improved pace of growth.