Here’s how long it will take Americans to pay off their Christmas debt

Shoppers in the U.S. racked up an average of $1,054 of debt this Christmas season — an increase of 5% over last year, according to a survey from MagnifyMoney, a personal finance website. It found 44% of shoppers racked up more than $1,000 in holiday debt, and 5% accumulated more than $5,000 in debt.

Bouncing back from those purchases won’t come quickly. Only half of those surveyed expected to repay the debt within 3 months — others (29%) said they need more than five months to pay it off, often leading to interest on the credit card debt and growing balances. In fact, 10% of people who took on holiday debt said they would only be able make minimum payments on credit cards. (…)

Same chart published Dec. 27 but up-to-date as of Dec. 20:

Wages Finally Start to Grow in Tight Labor Markets In U.S. cities with the tightest labor markets, workers are finding something that’s long been missing from the broader economic expansion: faster-growing paychecks. Businesses are raising pay to attract employees in cities such as Minneapolis and Denver, where unemployment rates stand near or even below 3%.

(…) City-level data “show the relationship between wage growth and a tight labor market still holds,” said Adam Kamins, senior economist at Moody’s Analytics. (…)  Large metro areas including Denver, San Jose, Calif., and Austin, Texas,​ also have unemployment rates below 4% and are experiencing wage growth of at least double the 2% national average. The same trend is happening in smaller areas including Fort Myers, Des Moines, Iowa, and Ogden, Utah. (…)

“As far as positions we struggle with, it’s kind of all of them actually,” he said. About nine months ago, forklift drivers were making between $12 and $13 an hour. Today, hourly pay can go as high as $16 an hour. (…)

Workers in 18 States Get Minimum-Wage Increases

The new year will bring higher minimum wages in 18 states and almost two dozen municipalities, continuing a recent trend of steady pay increases for the lowest-paid workers.

In some cases, the increases represent one of several steps in a multiyear process to slowly raise the minimum wage. Arizona, for instance, will see its pay floor rise 50 cents on Jan. 1, followed by another 50 cents in 2019 and $1 in 2020, part of a four-year process to boost the base salary for workers who don’t work for tips to $12 an hour by 2020. (…)

DECEMBER PMIs

• IHS Markit U.S. Manufacturing PMIâ„¢  December PMI signals strongest manufacturing growth since March 2015

The seasonally adjusted IHS Markit final US Manufacturing Purchasing Managers’ Index™ (PMI™) registered 55.1 in December, up from 53.9 in November. The latest index reading was the highest since March 2015 and signalled a solid improvement in the health of the sector. December data also rounded off the strongest quarterly performance since the start of 2015.

Output at manufacturers expanded at a steep pace in December, with growth reaching an eleven-month high. Panellists attributed greater production to more favourable demand conditions and increased new order volumes.

New business received by manufacturers continued to rise in December, with the rate of expansion accelerating to a ten-month high. Anecdotal evidence linked increases to greater demand from new and existing clients. Exports sales, however, grew at a marginal pace.

In line with greater production requirements, firms added to their payrolls and at the fastest rate since September 2014. Increased capacity pressures were also reflected in backlog accumulation. The upturn in outstanding business accelerated and was the quickest since October 2015.

Meanwhile, input price pressures intensified with the rate of cost inflation accelerating for the second consecutive month. Furthermore, the marked rate of increase was the second-fastest since December 2013. Panellists linked rises to higher raw material prices, which partly stemmed from supplier delays. Meanwhile, factory gate charges rose solidly, despite the rate of inflation softening since November.

• IHS Markit Eurozone Manufacturing PMI®  Eurozone Manufacturing PMI ends 2017 at series-record high

The eurozone manufacturing sector ended 2017 on a high note. Strong rates of expansion in output, new orders and employment pushed the final IHS Markit Eurozone Manufacturing PMI® to 60.6 in December, its best level since the survey began in mid-1997.

The expansion was led by the investment goods sector, where the pace of growth signalled by the PMI was also a record high. The rate of improvement in the intermediate goods sector remained close to November’s survey-record. Growth was slower in the consumer goods sector by comparison, but remained solid and well above its long-run trend.

National data signalled further broad-based growth, with business conditions improving across all of the countries covered. PMI readings were at survey record highs in Austria, Germany and Ireland, and remained close to November’s series peak in the Netherlands. Rates of expansion in France and Greece were the fastest for over 17 and nine years respectively. Growth also remained robust, albeit slower, in Italy and Spain.

Underpinning the strong headline PMI were near record increases in euro area manufacturing output and new orders, both of which rose to the greatest extents since April 2000. Domestic market conditions remained robust, while growth of new export business was only a tick below November’s survey high. New export orders rose at, or close to, record rates in Austria, Germany and the Netherlands and remained solid in of the all other nations covered. (…)

Robust intakes of new business tested capacity, leading to a further marked increase in backlogs of work. Outstanding business increased at the sharpest pace in the series history, led by marked gains in Germany, France and Austria. This in turn supported a joint-survey record increase in euro area manufacturing employment. (… )

December saw rates of inflation in output prices and input costs remain elevated, despite slowing slightly since November. Part of the increase in purchase prices reflected ongoing supply chain pressures, with average vendor lead times lengthening to one of the greatest extents on record. (…)

• Caixin China General Manufacturing PMIâ„¢ Operating conditions improve at quickest pace for four months

The headline PMI pointed to a stronger improvement in Chinese manufacturing operating conditions at the end of 2017. Latest data highlighted faster growth of output, total new work and export sales. Greater production led to a further rise in buying activity, with the rate of growth quickening to a four-month high. At the same time, capacity pressures continued to build, with backlogs rising amid a further decline in workforce numbers (albeit marginal).

Inflationary pressures remained elevated, with input costs rising sharply and prices charged increasing at a solid pace.

The seasonally adjusted Purchasing Managers’ Index™ (PMI™) posted 51.5 in December, up from 50.8 in November, to signal a further improvement in the health of the sector. Though modest, the rate of strengthening was the highest seen for four months.

Manufacturing production continued to increase across China at the end of 2017. Notably, the rate of expansion quickened to a three-month record. Improved sales and stronger underlying market demand were cited as key sources of growth in December. Furthermore, total new orders expanded at the steepest pace since August, with export sales also rising at a faster pace at the end of the year.

Despite stronger increases in output and new work, manufacturers continued to shed staff in December. That said, the rate of job losses was the weakest seen for nine months and marginal. Nonetheless, lower staff numbers contributed to another rise in outstanding business, with the rate of accumulation quickening slightly since November.

Higher production prompted firms to raise their buying activity for the seventh month running. Moreover, the rate of growth was the fastest seen since August. However, stock shortages at suppliers and delays linked to environmental inspections led to a further lengthening of average delivery times. (…)

Average input costs continued to rise sharply, despite the rate of inflation softening to a four-month low. Anecdotal evidence indicated that higher costs for a variety of raw materials drove up cost burdens. Consequently, firms increased their selling prices solidly. (…)

EARNINGS WATCH

Thomson Reuters/IBES:

• The estimated earnings growth rate for the S&P 500 for Q4 2017 is 12.0%. If the Energy sector is excluded, the growth rate declines to 9.5%.
• In the S&P 500, there have been 69 negative EPS preannouncements issued by corporations for Q4 2017 compared to 42 positive EPS preannouncements. By dividing 69 by 42 one arrives at an N/P ratio of 1.6 for the S&P 500 Index. This 1.6 ratio is below the N/P ratio at the same point in time in Q4 2016 (2.0), and below the long-term aggregate (since 1995) N/P ratio for the S&P 500 (2.8).

The first few weeks of 2018 will be important as we watch the earnings releases and the guidance for 2018 including the effects of the tax reform. So far, sell side analysts have not done much work on the new U.S. tax regime.

EUROPE?

European companies are slow reporters, possibly in no rush to disappoint, even when the economy is accelerating:

• Thomson Reuters reports that 275 companies in the STOXX 600 have reported earnings to date for Q3 2017. Of these, 48.5% reported results exceeding analyst estimates. In a typical quarter 50% beat analyst EPS estimates.
• In aggregate, companies are reporting earnings that are 4.6% below estimates, which is below the 4% long term (since 2011) average surprise factor. Now that is 4.6% below the estimate at the end of the quarter; it is some 8% below the estimates at mid-year.
• 307 companies in the STOXX 600 have reported revenue to date for Q3 2017. Of these, 45.6% reported revenue exceeding analyst estimates. In a typical quarter 54% beat analyst revenue estimates.
• In aggregate, companies are reporting revenues that are 1.9% above estimates.
• Third quarter earnings are expected to increase 1.3% from Q3 2016. Excluding the Energy sector, earnings are expected to decrease 2.6%. Third quarter revenue is expected to increase 3.8% from Q3 2016. Excluding the Energy sector, earnings are expected to increase 2.0%.

What Inflation Could Mean for the Market Even a small uptick in inflation in 2018 could catch markets off-guard. How to prepare.

(…) Such a jolt could reshuffle the market. Since 1950, stocks have traded at an average multiple of 18.1 times earnings when inflation has ranged between zero and 2%—the “sweet spot,” says SunTrust Chief Market Strategist Keith Lerner. At 2% to 4%, the multiple slips to 17.2. (…)

The producer price index, which measures the prices that goods and services producers get, rose 3.1% on a year-over-year basis in November, the fastest rate since January 2012. Lumber prices have risen this year and are expected to continue trending higher next year, potentially forcing home prices higher, too. The Federal Reserve Bank of New York introduced an inflation measure this year, the Underlying Inflation Gauge, which tracks consumer and producer prices, commodity prices, and real and financial asset prices. Based on prior data, it is at an 11-year high, near 3%. (…)

Sure looks like the Rule of 20 to me! Yet, no mention of it.

Here’s how the S&P 500 trailing P/E behaves during various inflation periods:

And here’s the Rule of 20 P/E with its stable, dependable range under all conditions:

Not only do you know what inflation can mean for the market, you can also calculate and measure the valuation risk around the “20 fair value” level. This bull is pretty normal so far having gone from deep undervaluation in 2009-10-12 to nearly full value. Since this is on trailing EPS, it would not be surprising to see valuations exceed previous highs of 23-24 if investors fully buy the profit boosts from the tax reform. That said, we know this is pretty late at the party. Three risk factors here:

• profit risk: mainly tied to recession risk given current trends and tax reform. Low risk level currently.
• inflation risk: the Fed is totally focused on 2.0%+ inflation and openly willing to allow some overshooting. Inflation going from 1.8% to 2.5% reduces the Rule of 20 “fair P/E from 18.2 to 17.5, increasing the potential downside to fair value from 13.0% to 16.5%.
• confidence risk: this risk is now at its maximum given current confidence readings and rising interest rates. A confidence shake up could be nasty given that TINA is no longer in everyone’s mind as 2Y Treasuries flirt with 2.0% yields. Buying the dips may not be as “automatic”.

If you’re wondering,

• here’s the P/E on forward earnings:

• And the Shiller P/E for the same period. Scary but not terribly credible nor useful.

The price of a digital currency called Ripple surged 50% on Friday, pushing its market valuation to a record $85 billion, second only to bitcoin among crypto-assets.

(…) Friday’s move puts it ahead of Ethereum’s $72 billion valuation, and is second to only bitcoin, currently at $244 billion. (…)

For XRP, the gains come after the latest signs that the company behind the currency, also called Ripple, has shown more progress in signing up banks to its closed-loop network, called RippleNet.

Earlier this month, the currency got a boost after a consortium of Japanese banks signed up to test its network. The company has more than 100 banks, mostly outside the U.S., signed onto its platform. It has not disclosed amounts, but has said that some of those banks have been using it in a live environment to move money, rather than just testing it as a concept.

XRP is different from other digital currencies in that its development is being guided and controlled by a single, for-profit company. Ripple the company launched its currency in 2012, as part of a plan to use the concepts behind bitcoin to build a cross-border, interbank payments and settlement network. (…)

When Ripple launched the network in 2012, it created 99 billion XRP. About 38 billion have been distributed; the company holds with rest, with plans to release them publicly over time. (…)

Happy and Healthy New Year!