Unemployment Claims Drop to Lowest Level Since September 2022

In the week ending January 13, initial jobless claims were at a seasonally adjusted level of 187,000, a decrease of 16,000 from the previous week’s revised figure. The latest reading is lower than the forecast of 207,000 and marks the lowest level for initial jobless claims since September 2022.

The 4-week moving average was 203,250, a decrease of 4,750 from the previous week’s revised average.

The dash line is 2019 average:

• Jobless Claims (LEADING Indicator!!!) posts its 2nd strongest reading since the 1960s!! Yet, #economists continue to discuss “landing.” (@RBAdvisors)

Single-Family Trending Up as Multifamily Downshifts

Total housing starts declined 4.3% to a 1.46 million-unit pace in December. A monthly drop in starts was widely expected given November’s surprising surge in activity that looks to have been a result of unseasonably warm weather pulling forward activity into the month. The payback in December occurred from a dip in single-family starts, while multifamily starts registered a solid gain.

Through the monthly volatility, multifamily construction is moving to a lower gear as apartment market fundamentals soften. By contrast, single-family construction still looks to be improving on trend as builders become more optimistic about future sales on account of lower mortgage rates and brightening economic growth prospects. Although multifamily construction looks set to remain sluggish, another solid gain in single-family permits during December and a jump in builder confidence suggest single-family activity should continue to gradually march higher in coming months.

  

China’s Travelers Stay Home, Draining $130 Billion From Global Tourism

Chinese travelers, once the biggest spenders on overseas trips, have been staying close to home since the country reopened its borders 12 months ago from the Covid-19 pandemic.

Outbound airline capacity from China stood at about 60% of 2019 levels during the fourth quarter, based on figures from aviation analytics firm Cirium. That’s a much slower recovery than in the US or UK — something that has disappointed airline executives, tourism officials and luxury store owners alike.

Chinese travelers made 170 million trips outside of its borders in 2019, according to the China Outbound Tourism Research Institute. The $248 billion they lavished on items from plane tickets to hotel rooms and designer brands made up 14% of the globe’s foreign-travel spending, based on World Travel and Tourism Council data.

The Chinese pullback has erased $129 billion from global tourism, a loss being felt from Taipei noodle shops to Paris boutiques. China’s network of international airline routes has retracted by 43%, according to Cirium. Forty-five foreign destinations are no longer served by direct flights at all. (…)

With the economy struggling, Chinese officials have prioritized local tourism over distant trips – adding duty-free shopping on the island of Hainan, for example, and opening new concert venues. The government has also pushed travel to a handful of spots like Saudi Arabia, a key partner in China’s One Belt One Road initiative. (…)

Carriers in the US, Canada and the European Union, for example, can no longer traverse Russia — making flights with Asia longer, costlier and less attractive. (…)

China’s Mutual Funds Implode at Fastest Pace in Five Years as Stocks Sink Fund closures quicken as assets shrink, redemptions rise

About 240 local mutual funds were liquidated last year, according to Bloomberg-compiled data dating back to 2014. That’s the most since 2018, when stricter asset management rules triggered a major industry shakeup. Among the closed funds, four out of five had a stock-focused mandate, which was a record.

The trend has continued into this year, with another 14 funds already liquidated and two dozen more warning of imminent closures, according to Bloomberg calculations of official data.

China’s mutual fund industry is confronting a double whammy as the country’s stock selloff intensifies, with the surge in product closures coinciding with a plunge in the amount of new subscriptions to a decade-low. The fund liquidations have accelerated the downward spiral in the world’s second-largest stock market, forming a vicious cycle as retail investors abandon their once-preferred product for the safety of cash. (…)

Actively managed mutual funds, once a favored investment tool among Chinese retail investors, are fast losing their appeal: a gauge of stock-focused mutual funds has declined 7.7% this year, according to China Securities Index Co. Meantime, investors also are falling out of love with exchange-traded funds that drew record subscriptions last year but now suffer a supply glut, said Morningstar’s Li. (…)

“The market also is aware that there has been a lot of redemption. There are funds that were set up three years ago and now we have come to the end of that lockup,” said Nicholas Yeo, head of China equities at abrdn at a briefing Thursday. “So there is a concern about short-term pressure on selling and that’s why domestic investors are not willing to go into the market right now.”

Also:

Asian fund managers have cut their allocation to China by 12 percentage points to a net 20% underweight, the lowest in more than a year, according to the latest Bank of America survey.

Managers of benchmark-tracking funds have sold a net $300 million of shares traded in mainland China and Hong Kong this month, according to a Morgan Stanley analysis. That’s a reversal from the last half of 2023, when they bought $700 million on a net basis even as stock indexes declined.

• Chinese stock rout accelerates as foreign investors sell out

FYI from Ed Yardeni:

The S&P 500 Semiconductors stock price index jumped to another record high (chart). It is back to the pre-pandemic uptrend. The industry’s forward earnings is at a record high too. The forward P/E is also high at 25, up from 15 in early October 2022. Chips aren’t cheap, but they are hot.

How the American Shopper Silenced Doubters U.S. consumers propelled the economy forward in 2023. They aren’t done yet.

The Commerce Department on Wednesday reported that retail sales rose a seasonally adjusted 0.6% in December from a month earlier, putting them 5.6% higher than a year earlier. The report was stronger than many economists had estimated, leading them to raise their estimates of fourth-quarter gross domestic product. (…)

Retail sales data are not inflation adjusted so, when looking at the Wells Fargo table, remember that CPI-Durables declined in each of the past 7 months (-0.5% in December) and are down 1.7% YoY.

Control Group sales surged 0.8% MoM in December after an upwardly revised +0.5% in November.

The biggest monthly gains, in fact, were reserved for some of the categories that comprise holiday shopping. The biggest percentage gainer was department stores where cashiers rang up 3.0% more sales in December. Clothing stores tied for second place with a 1.5% increase in December. Clothing store sales were up 4.3% over the past year which means that more than a quarter of all last year’s sales at clothing stores occurred in December, at least in dollar terms. (…)

Total retail sales growth is back in line with aggregate weekly payrolls (employment x hours x wages), up 5.4% YoY in December, suggesting that Americans keep buying goods even as they shift towards services. The continued momentum in labor income suggests that the U.S. consumer is not about to retrench soon.

Indeed, hourly earnings rose 5.4% annualized in December…

… helping aggregate weekly payrolls rise 5.4% YoY in December and 5.2% in Q4, only slightly slower than the 5.7% gain in Q3. Consumption expenditures should thus keep rising nicely given PCE inflation well below 3% in Q4.

All this tightening, and demand remains strong.

• According to CivicScience, “consumers ended 2023 feeling increasingly optimistic about the short-term future of their overall financial health.” (The Daily Shot)

Source: @CivicScience

The strong retail sales caused the Atlanta Fed’s GDPNow estimate for Q4’s real consumer spending to rise from 2.6% to 2.8%, taking the Q4 GDP growth estimate to 2.4%:

And BTW, goods deflation should continue for a while as Ed Yardeni explains:

China’s recent GDP, retail sales, and bank loan reports all confirm that China’s economy is weak, which helps to explain why the price of oil isn’t soaring. China continues to export deflation to the US and the rest of the world. Today’s report on import prices showed that these prices for Chinese goods fell 3.0% y/y during December, weighing on the core CPI for goods in the US.

The very strong retail sales at the end of the year are setting the stage for a better 2024 for manufacturing as merchants’ inventories, boosted by double and triple ordering during the pandemic years, have likely been reduced at yearend.

This should help gradually revive new goods orders and production.

Excluding the automotive sector, whose production was disrupted by the UAW strike, US factory output contracted for a sixth consecutive quarter in Q4. As today’s Hot Chart shows, this is one of the longest contractions recorded since these data began to be compiled in the late 1960s. It’s also worth noting that, with the exception of 2015-16, such long-lasting contractions have only been observed during recessions. (NBF)

Also helping China, BTW. We might have had a first indication of that in S&P Global’s PMI release last month:

The slight uplift in the headline index was partly due to a stronger rise in new orders during December. Although modest, the latest increase in overall sales was the quickest recorded since February. Companies often mentioned that improved market conditions and greater client spending had supported the latest rise in new work. At the same time, the downturn in new foreign sales moderated in December, with new export business declining at a marginal rate that was the weakest in six months. Higher amounts of new orders led manufacturers to raise output for the second straight month in December. The rate of growth was the most pronounced in seven months, albeit modest overall.

Europe Car Sales Drop in December Led by EV Slump New-vehicle registrations fall for the first time in 17 months

New-vehicle registrations declined 3.8% to 1.05 million units last month, the European Automobile Manufacturers’ Association said Thursday. Sales slumped nearly a quarter in the region’s biggest market Germany after EV incentives ran out, weighing on growth in other key countries.

Elevated borrowing costs, a sluggish economy in parts of Europe and growing pessimism around EVs are clouding the industry’s outlook. Bloomberg Intelligence is predicting sales growth this year to slow to 5%, from 14% in 2023. (…)

Tesla Inc. slashed prices for its best-selling Model Y in markets including Germany, France and Norway this week. The US carmaker is planning to temporarily halt production of the vehicle at its plant near Berlin, citing logistics issues sparked by the fighting in the Red Sea. Last month, Audi said it’s paring back its EV rollout.

The strong decline in Germany, where EV registrations nearly halved last month, outweighed growth in markets including the UK, Spain and France.

EV sales rose 28% last year in the region, but slumped by a quarter in December amid falling registrations for battery-powered cars also in Sweden, the Netherlands and Croatia. The European Union recorded its first monthly drop in EV sales since April 2020, the height of the pandemic. (…)

A wave of 35 new battery-powered models to be introduced this year will provide customers with a more affordable choice, possibly allowing carmakers to bolster their brand and market position, the Bernstein analysts said. (…)

John Authers: That Thunder Out of China Is Loss of Confidence

(…) As this chart from Oxford Economics’s Louise Loo shows, the property sector has been by far the weakest link in China’s investment:

(…) Property weakness makes consumers reluctant to spend their money and attacks confidence. (…)

As it is, China’s consumers have increased their savings rate again, less than a year after the economy reopened from the draconian Covid-Zero lockdowns. Falling property prices, making people feel less financially secure, may be to blame. That’s illustrated by Oxford Economics: (…)

But we should not lose confidence on the Chinese consumers. They have restored their balance sheet and they have a lot of cash:

  

Chinese authorities seem to be finally properly addressing the real estate problem. A slow process that will eventually restore Chinese confidence and make them spend and invest again.

Investor confidence could then return. Meanwhile, this is a cheap market with no momentum in search of catalysts. Whether China is morally or ethically investable is another question being asked by more and more people…

• Dimon Says China Risk-Reward Equation Has ‘Changed Dramatically’
• China Downplays Big Stimulus in 2024, Testing Investor Patience

Chinese Premier Li Qiang gave his clearest signal yet that Beijing won’t resort to huge stimulus to revive growth amid the worst bout of deflation in decades. Another batch of troubling data is testing the patience of investors who worry Beijing is behind the curve.

(…) In portraying the economy’s trajectory as a success, Li stressed that officials did “not seek short-term growth while accumulating long-term risk” — a veiled reference to Beijing’s old methods of powering growth by borrowing heavily and funding the now-overheated real estate sector. (…)

Arab nations develop plan to end Israel-Hamas war and create Palestinian state Deal would establish formal ties between Israel and Saudi Arabia

• Pakistan carries out strikes on suspected militant bases in Iran