Philly Fed Exceeds Forecasts

Despite the fact that manufacturing activity in the New York area was weaker than expected, manufacturing in the neighboring Philadelphia region came in better than expected this morning.  With economists forecasting a headline reading of 10.0, the actual level came in at 16.6.  This was the highest reading since September (20.0), and the ninth highest reading since the recession ended in 2009.

Of the nine subcomponents, just three declined in April.  Meanwhile, we saw big increases in Shipments and New Orders.  The current level of the Shipments component is now at the highest level since March of 2011. Just as the weather slowed down activity in the winter, better weather now is causing a snapback effect as conditions revert back to normal.

Economy Thawing, Survey Finds The economy strengthened across a broad swath of the country in recent weeks, according to the Fed’s “beige book” of regional conditions, further evidence of the recovery springing back to life after a winter lull.

(…) Overall, the reports pointed to an economy poised for a spring breakout after an unusually cold winter, but with pockets of weakness lingering in some sectors and regions.

The Fed’s latest “beige book,” which describes economic conditions across the central bank’s 12 districts, reported a “modest to moderate” expansion in eight regions of the country, a general improvement in Chicago and rebound from bad weather in New York. However, contacts in the Cleveland and St. Louis districts reported a decline in economic activity. The compilation of anecdotes was provided to Fed officials ahead of their April 29-30 policy meeting.

(…) the survey said cars sales during the last week in March were “about as good as it gets” at a dealership in the Philadelphia region.

In Washington, D.C., tourist traffic for the National Cherry Blossom Festival was robust starting in March, even though cold weather pushed the peak bloom time to the second week of April. Ski resorts in much of the U.S. benefited from the extended snowy season.

There were also indicators of potential future growth in other sectors. Port volumes were higher, trucking traffic increased and steel production picked up, the survey said.

The survey showed “scattered reports” of mild price increases for some goods. Building material costs rose in Cleveland and Kansas City, and food prices increased modestly in Dallas and other areas. (…)

Labor-market conditions were reported as “generally positive,” but some employers cited difficulty in finding skilled workers for certain positions. Businesses in the Chicago region had an increased willingness to train workers both in-house and through partnerships with local schools.

Most areas of the country also reported improved manufacturing activity. (…)

Housing was one sector that didn’t fully break out of the frosty winter. Chicago real-estate brokers reported that home sales declined due to cold weather, but they were optimistic that activity would improve in coming months, the beige book said. Agents in Atlanta said higher home prices and limited selection hurt activity.

Workers’ Earnings Climb at Healthy Pace in First Quarter Are American workers finally starting to see some decent wage increases? A report Thursday offers hope, showing incomes picked up at a healthy pace in the first three months of the year.

The weekly earnings of the typical full-time worker rose 3% in the first quarter compared to a year earlier, the fastest pace since 2008, the Labor Department said. That translated into median earnings—the point at which half of all workers made more and half made less—of $796. When you adjust for inflation, median earnings are now at their highest level since the second quarter of 2012.

Even better is that the earnings growth far outpaced the 1.4% year-over-year rise in consumer prices, as measured by the Labor Department. Earnings that rise faster than costs mean workers will have more money to spend on discretionary purchases. Consumer spending is the biggest source of economic demand in the U.S. (…)

Bernard Baumohl, chief global economist for Economic Outlook Group LLC, says the latest wage increases indicate the labor market is tightening and firms are gaining enough confidence to boost labor costs. (…)

Tax Refunds May Fuel Retail Windfall Nearly 80% of the tax returns processed through April 4 resulted in a refund averaging $2,792. That bodes well for the nation’s retailers in the months ahead.

(…) Of the 100 million or so returns processed through April 4, nearly 80% resulted in a refund averaging $2,792. The total sum paid out was about $5 billion, or 2.5%, higher than a year earlier.

That bodes well for the nation’s retailers in the months ahead since many households treat returns as a windfall to be spent, not saved. Even better, Uncle Sam has been a lot quicker to whip out his checkbook than in 2013. Had that not been the case, retail-sales figures for the past two months might have looked different.(…)

And, although the dollar amounts were smaller, the impact of accelerated returns probably did much to offset the impact of frigid weather in February. An initial estimate of retail sales was revised higher for that month. For the week ended Feb. 7, for example, cumulative tax returns were $12.5 billion, or a whopping 24%, higher than at the same point a year earlier. By the end of February, that gain had fallen to 8.8%, and by the end of March, the difference was just 2.6%.

Last year was an entirely different story. At the end of February 2013, refunds were 14.3% lower than at the same point in 2012. That was mainly the result of administrative delays caused by the “fiscal cliff” standoff in Washington. The effect on spending was exacerbated by the expiration of the payroll-tax holiday. (…)

Wealthiest Households Accounted for 80% of Postrecession Rise in Incomes

A recent article by Labor Department senior economist Aaron Cobet highlights the sharp disparity between the wealthiest and poorest Americans in the aftermath of the 2007-2009 recession.

The economist mined Labor Department data to show that the top 20% of earners accounted for more than 80% of the rise in household income from 2008-2012. Income fell for the bottom 20%.

That had a direct impact on spending. The top households increased spending by about $2,300 from 2008-2012, notably on health care, transportation and education. The 20% of households with the lowest incomes cut spending by about $150.

“The decline in spending was due to lower expenditures on apparel—specifically women’s apparel,” Mr. Cobet said. Entertainment, housing, personal care, insurance, alcohol and reading also took a hit. (…)

Wealth Effect Failing to Move Wealthy to Spend

The wealth effect isn’t what it once was for the U.S. economy.

While the wealth of American households has jumped more than $25 trillion since early 2009 amid rising equity and home prices, the pass-through to consumer spending is lagging the $1 trillion fillip that would have been anticipated historically, according to Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York.

This means consumer spending has been exceptionally weak once wealth is accounted for, he said. With wealth gains now moderating, consumer spending could revert to what is already a weak trend, Feroli said in an April 11 report.

His calculations show that since the recession ended in 2009, households have spent 1.7 cents of every extra $1 earned in wealth. That’s less than half the 3.8-cent average implied by data between 1952 and 2009, suggesting the trend for consumer spending gains over the past three years has been less than 1 percent once the wealth effect is stripped out.

One reason for the adjustment may be that those enjoying gains in wealth are already rich, so have less propensity to increase spending incrementally. Withdrawing equity from homes has also been negative for five years.

CHINA: SLOW AND SLOWER

Home-Price Rises Slow in China Lending limits and concerns about price cuts have hit demand, analysts and property developers say.

Average new-home prices in 70 of China’s larger cities rose 7.3% from a year earlier in March, according to calculations by The Wall Street Journal based on survey data released Friday by the National Bureau of Statistics. Prices rose 0.2% on a month-to-month basis, compared with about 0.3% in February.

The year-to-year rise in February was 8.2%, down from 9% in January. This slower growth rate over the past three months compares with accelerating prices in each month of 2013. In December, for instance, the average price rise was about 9.2% compared with 9.1% in November.

Excluding public housing, prices in March rose 7.7% compared with 8.6% in February.

Housing sales for the three months ended in March fell 7.7% to 1.11 trillion yuan ($178 billion), according to official data.

Average house prices in Guangzhou rose 13.3% compared with a year earlier after jumping 15.7% in February. In Beijing prices were up 10.3% compared with 12.2% in February. Shanghai and Shenzhen gained 13.1% and 12.8% after rising 15.7% and 15.6%, respectively.

Business Insider posted some charts on China:

 

According to CEBM’s latest survey, the economy has not shown significant improvement, while upward pressure on interest rates is slowly transmitting to the real economy. Our enterprise respondents said that the interest rate of loans is quite high and it is not easy to get approved. Meanwhile, the impact of tighter mortgages is also emerging; the current decline in real estate sales is not limited to second and third tier cities. First-tier cities sales have been slowing down since the end of last year. Moreover, both manufacturing capacity utilization and enterprise ROEs have recently begun to decline again.

European Car Sales Rise But Lose Momentum

Auto registrations in Europe have risen again on a year-over-year basis, posting an increase of 1.6% over 12 months. This, however, is down from a 6.8% year-over-year gain in February and is the smallest gain since October 2013. Registrations were last weaker in September 2013 when registrations last declined. Smoothed percentage changes calculated from three-month moving averages show that year-over-year gains in overall registrations are 4.2% year-over-year. That’s weaker than the 5.9% gain from February and the weakest since November 2013, with October 2013 being the last time that the year-over-year moving average was negative.

By country, in March there were two declines in Germany and Spain. For Germany, this is the second consecutive decline in registrations. For Spain, the 8.5% drop offsets only some of the 13.7% gain in February.

The three-month percentage changes for total European sales are at a 13.2% annual rate decline, with a 16.8% annual rate decline for France; Germany shows a small increase of 0.6% at an annual rate over three months. However, Italy Spain and the UK show huge growth rates over three months.

Sequential growth rates show there is explosive growth in registrations from 12-months to six-months to three-months in Italy, the UK and Spain. However, France shows the opposite pattern of sales becoming progressively weaker. Germany shows sales remaining listless over most of those periods, shrinking in two out of three of them. For Europe as a whole, the pattern is one of decelerating growth with growth going from an annual rate of 1.6% over 12 months to 1% over six months to -13.2% over three months. Europe’s moving average echoes this trend.

While the headline, which focuses on the year-over-year growth rates, catches most of the attention, the trends should not be ignored. The trends show that there’s a great deal of loss of momentum even though some of the countries, notably the Mediterranean countries of Italy and Spain, are showing some explosive growth. The UK continues to post what are eye-popping numbers; after two months of decelerating, UK year-over-year growth patterns are back to acceleration.

Impact of Japan sales tax rise muted Most companies saw no sales drop in first 14 days of higher tax

Strange survey: one third of all respondents see lower sales but 75% of retailers, who are on the front line, are reporting sales declines. Then we learn that the tax increase has not been fully passed on yet.

(…) two-thirds of companies saying in a survey that April sales were holding steady or improving compared with the same month in 2013.

The survey, conducted by Reuters and made public on Friday, is one of the first attempts to measure Japanese business conditions since the April 1 increase, which has been the focus of widespread anxiety given its potential to deter consumer spending and reverse a more than year-long economic recovery. (…)

Unsurprisingly, the retailers were the most pessimistic, with three-quarters of respondents reporting sales declines. Many consumers stockpiled daily necessities and timed purchases of big-ticket items to beat the tax increase, creating a bump in sales for many businesses before April 1 that is now inevitably giving way to a dip.

Even so, most of the retailers who reported declines said sales were down by 10 per cent or less, a level that economists characterised as modest given the pre- buying rush.

Japan’s new VAT level of 8 per cent is still much lower than in many countries, particularly in Europe, but the increase has nonetheless caused concerns. The last increase in the tax, in 1997, contributed to a deep recession that marked the beginning of Japan’s long battle with sinking prices and wages. (…)

In the Reuters survey, a little more than half of respondents said they had raised prices to reflect the additional tax. But nearly four in 10 manufacturers and one-third of non-manufacturers said they had left their prices unchanged, in effect absorbing the tax increase themselves and accepting lower profits.