Sales of light vehicles reached a fifteen year high last month. At 17.79 million (AR), sales of total light vehicles in May increased 7.8% m/m (6.3% y/y) to the highest level since July 2005. Recent sales were revised slightly higher from last month’s report due to raised light truck sales.
It continues to be a market where light truck sales are relatively firm. Light truck purchases improved 5.9% versus April to 9.68 million units. The gain lifted them 12.0% y/y and left trucks share of the total vehicle market at 54.4%, slightly below the ten year record.
Auto sales increased 10.1% last month to 8.11 million but were up just 0.3% y/y.
These CalculatedRisk charts illustrate the short and long term trends:
Car sales have yet to break their previous cyclical peaks. Doug Short has a chart to help understand why:
Ward’s Automotive’s North American industry vehicle production for Q3/15, which is based on direct input from the vehicle assembly plants is expected to increase 7.1% y/y in Q3/15.
New orders in the manufacturing sector edged 0.4% lower during April (-6.4% y/y) following a 2.2% March increase, revised from 2.1%. Durable goods orders declined 1.0% (-2.8% y/y) following a 5.1% rise. The drop compared to a 0.5% easing in the advance report.
Nondurable goods orders (which equal shipments) improved 0.2% (-9.6% y/y) after a 0.4% decline.
Shipments of durable goods slipped 0.2% (+3.2% y/y) after a 1.5% rise. Transportation sector shipments eased 0.3% (+10.0% y/y) and electrical equipment shipments slipped 0.1% (+1.7% y/y). Offsetting these declines was a 0.4% rise (-1.0% y/y) in machinery shipments and a 0.1% gain (+2.2% y/y) in shipments of computers & electronic products.
Unfilled orders eased 0.1% (+7.0% y/y) following a 0.1% gain. Machinery backlogs were off 1.1% (-1.7% y/y) and fabricated metals unfilled orders fell 0.5% (+12.5% y/y). These declines were offset by a 0.6% rise (8.9% y/y) in electrical equipment and no change in transportation equipment backlogs (9.0% y/y).
The core index of the personal consumption expenditures gauge is now lagging its more popular counterpart, the consumer price index, by the most since the recession ended in June 2009. The core PCE gauge, which excludes volatile food and energy costs, increased 1.2 percent in April from a year earlier, marking the smallest 12-month gain since February 2014. The corresponding CPI measure rose 1.8 percent in April from the same time in 2014. The resulting 0.6 percentage-point difference is the biggest in almost six years. The widening spread between these two core measures makes it trickier to gauge whether the Fed officials can be “reasonably confident” — a phrase from their statement — that inflation has enough upward momentum for them to raise interest rates this year.
The divergence in the two core measures can be blamed largely on the healthcare figures. While health is typically the most significant share of the core PCE gauge, it makes up less than 10 percent of the core CPI.
The variance in how each index calculates health costs contributes to the wider gap in April. While the CPI covers Americans’ out-of-pocket spending on healthcare, the PCE measure is impacted by congressionally administered costs for Medicare and Medicaid, Paul Ashworth, chief economist at Capital Economics in Toronto, said in a research note last week.
“Over the past few months, the declines in those administered prices have been covering up a sharp pick-up in the price of out-of-pocket medical care,” Ashworth wrote May 28. “The Fed should be wary of putting too much emphasis on the PCE measure of core inflation, particularly at a time when it is being temporarily depressed by declines in government-set prices for health care.”
Medical care costs in April climbed 2.9 percent year-to-year in the CPI index, while the PCE gauge showed a 0.6 percent gain over the same period.
OECD Downgrades Global Growth Outlook The global economy will strengthen slowly in the next 18 months and growth will only approach its precrisis pace at the end of 2016, the Organization for Economic Cooperation and Development said.
The OECD cut its growth forecast for the U.S. to 2% this year from its 3.1% forecast in March and to 2.8% from 3% for 2016.
Even if the weakness in the first quarter is likely transitory, the outlook for the global economy is still unsatisfactory due to a sustained trend of low investment and low demand, the OECD said.
The OECD said the gross domestic product of its 34 members will rise 1.9% in 2015 and 2.5% in 2016. (…)
In its report, the OECD singled out investment as a key source of concern. On a global level, investment across the private and public sectors is now about 20% below what it would have been in a normal cyclical recovery, Ms. Mann said in an interview with The Wall Street Journal.
In the U.S., the fall in investment in the oil and gas sector following a decline in oil pricesis more dramatic than the OECD expected and may go on for longer. U.S. consumers are also more reticent to spend than the OECD previously thought.
There is a risk that low investment and a weak economy are locked in mutually reinforcing spiral. (…)
OPEC to pump flat-out for months more OPEC is set to carry on pumping oil nearly flat-out for months more, content that last year’s shock market therapy has revived demand and knocked back growing competition.
“There is consensus among Gulf OPEC countries, and others, to keep the ceiling unchanged,” a senior Gulf OPEC delegate told Reuters late on Tuesday after an informal meeting of the four core Gulf Arab OPEC members earlier in the day.
Iraqi oil minister Adel Abdel Mahdi said there was “optimism and general acceptance with the current situation”.
The group meets on Friday following a two-day seminar featuring the chief executives of the world’s biggest energy groups, including BP (BP.L) and Exxon (XOM.N), companies whose fortunes have been abruptly altered by OPEC’s decision to abandon efforts aimed at sustaining oil prices at more than $100 a barrel in favor of defending market share.
“Nobody wants to rock the boat,” the Gulf source said. “The meeting is expected to be smooth sailing.”
EUROZONE EQUITIES
Via FT Alphaville:
Some thoughts on the valuation of the European stock market, which Goldman Sachs points out is more than a standard deviation above the 14 year average.
It’s difficult to argue relative to history that the market isn’t stretched; only in the tech bubble period were valuations higher for any sustained length of time
The problem (or opportunity) is the failure of European companies in aggregate to grow their profits. The stock market rise has been the result of higher valuations placed on earnings, now more than 16 times what will be produced in the next 12 months, rather than any pick up in business conditions.
Opportunity, because smell the potential. From Goldman:
We continue to see value in Europe in terms of earnings catch-up and lots of recent lead indicators point to a turn in earnings (PMIs, Consumer Confidence, M1 growth). In addition margins and [Return on Equity] – which are still far below peak in Europe – are linked to improvements in economic growth.
There hasn’t actually been any earnings growth since the European debt crisis, but fingers are crossed for 5 per cent this year and double digit growth over the horizon.
From the top down perspective, Europe is still unproductive. Here’s a recent chart from Alberto Gallo at RBS:
Core PCE Lags Core CPI by Most Since June 2009