U.S. Personal Income Increase Lags Gain in Spending
Personal income rose 0.2% (4.4% y/y) during September following a 0.4% August increase, revised from 0.3%. A 0.4% gain was expected in the Action Economics Forecast Survey. (…)
Personal consumption expenditures rose 0.4% last month (5.5% y/y) after a 0.5% increase, revised from 0.3%. A 0.4% improvement had been expected. A 1.4% jump (4.7% y/y) in spending on durable goods led last month’s rise as it followed a 0.6% gain. It was powered by a 2.3% increase (2.1% y/y) in purchases of motor vehicles and a 1.7% (7.0% y/y) strengthening in recreational goods & vehicles buying. (…)
The personal savings rate eased to 6.2% from 6.4%. It has been falling steadily since the February high of 7.4%. The level of personal savings fell 0.2% y/y.
The personal consumption chain price index inched 0.1% higher (2.0% y/y) for the fourth straight month. The durable goods price index fell 0.4% (-1.6% y/y), down for the sixth month this year. Motor vehicle prices were off 0.8% (-0.3 y/y). The nondurable goods price index gained 0.1% (1.4% y/y). Clothing prices increased 1.1% (-0.3% y/y) following a 1.6% decline. Services prices rose 0.2% (2.7% y/y) for the fifth month in the last six. Health care costs improved 0.1% (1.9% y/y).
Two significant stats:
- real spending is booming at a 4.1% annualized rate, led by durable goods up at a whopping 12.1% annualized rate in Q3 (+21.6% in September!). Americans are on a spending spree leading to Thanksgiving and Christmas.
- inflation is slowing: total PCE inflation was only 1.2% annualized in Q3 with 4 consecutive +0.1% monthly increases. Core PCE inflation is also at +1.2% annualized in Q3, down from +2.0% in Q2. This means much less pressure on long term rates, on the Fed and on P/E multiples, for a while at least.
Treasury Expects to Issue Over $1 Trillion in Debt in 2018 The U.S. Treasury Department estimates it will issue more than $1 trillion in debt this year as higher government spending and stagnant tax revenues push the deficit higher.
The Treasury said Monday it expects net marketable debt to total $425 billion in the fourth quarter, which would bring total debt issuance in 2018 to $1.338 trillion, compared with $546 billion in 2017. That would be the highest annual debt issuance since $1.586 trillion in 2010, when the U.S. economy was still crawling out of a recession.
The Treasury’s fourth-quarter borrowing estimate of $425 billion is $15 billion less than it estimated in July. That would be the most for any fourth quarter since 2008, at the height of the financial crisis, though the figures can be volatile from quarter to quarter. The Treasury also plans to borrow $356 billion in the first quarter of 2019, compared with $488 billion in the first quarter of 2018. (…)
U.S. Plans More China Tariffs If Trump-Xi Meeting Fails, Sources Say
China Sets Official Yuan Rate at Weakest in a Decade China guided the yuan to its weakest official level in a decade on Tuesday—a move that could fuel expectations of a further, self-reinforcing slide.
(…) On Tuesday, the central bank set the dollar’s reference rate at 6.9574 yuan, putting the Chinese currency at its weakest since May 2008. The yuan slid to a decade low once mainland trading started 15 minutes later, with one dollar buying as many as 6.9724 yuan, according to Wind. (…)
The yuan’s move against the dollar this year has partly been driven by the broader strength of the greenback: against a basket of 24 currencies, the yuan has declined by just 2.7% this year, compared with a fall of 6.7% against the dollar. (…)
Chinese commercial banks sold a net $17.6 billion of foreign exchange in September, the most in 15 months, official data showed last week, adding to signs of increasing capital outflow pressure.
U.S. to Restrict Chinese Chip Maker From Doing Business With American Firms Washington raises the stakes in a battle with Beijing over intellectual property
Citing national and economic security concerns, the Commerce Department said Monday that it will begin restricting American companies from selling software and technology goods to Fujian Jinhua Integrated Circuit Co., a semiconductor startup into which the Chinese government has been pouring money as part of an effort to build its own chip industry. The decision has the potential to cause significant damage to the new chip maker, which still relies on U.S. technology to produce its own chips. (…)
Yet experts said the Commerce Department move against Jinhua sets a new precedent by punishing a foreign firm for allegedly stealing U.S. intellectual property. The announcement was also unique in the way that it invoked concerns about U.S. companies’ long-term ability to compete in the chip industry. (…)
The Commerce Department took the action after Micron, the U.S.’s largest memory-chip maker, filed a lawsuit in December in a California federal court alleging Jinhua stole its technology. Jinhua then sued Micron in January in a court in China’s Fujian province—whose government partly controls Jinhua—and won a temporary order blocking some Micron units from selling products in China on which each company claims patents. (…)
In a recent quarterly filing, Micron warned: “The activities by the Chinese government may restrict us from participating in the China market or may prevent us from competing effectively with Chinese companies.”
For its part, Jinhua has accused Micron of being part of an “international oligopoly” trying to block the rise of Chinese chip producers. In a July statement, it said Micron “recklessly” infringed on its patents. (…)
EARNINGS WATCH
We now have 242 companies in, a 79% beat rate and a big +6.6% beat factor. Q3 earnings are now expected up 25.3% (22.4% ex-Energy) while Q4 are seen up 19.3% (16.6% ex-E).
- Nearly half of US stocks are in bear market. (The Daily Shot)
Source: Morgan Stanley, @tracyalloway