Small Business Optimism Continues to Defy Expectations
The Optimism Index rose 1.4 points to 104.7, an exceptional reading. Seven of the 10 components advanced, two fell, and one was unchanged. This is confirmation that small business owners remain very optimistic about the economy despite all the talk about “slowing.”
Expectations for business conditions, real sales, and expansion posted solid gains. Plans to create new jobs and make capital outlays also advanced. Plans to order new inventories posted a solid gain, although there were lingering signs of the excess inventory built in the second quarter. Earnings trends improved, supported by a solid improvement in sales trends. Few owners credited price change (up or down) for changes in earnings. After surging last month, reports of higher average selling prices stabilized, no evidence of a pickup in inflation.
Sales are hanging in:
CPI for all items rises 0.3% in July as gasoline, shelter indexes increase
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in July on a seasonally adjusted basis after rising 0.1 percent in June, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.8 percent before seasonal adjustment.
Increases in the indexes for gasoline and shelter were the major factors in the seasonally adjusted all items monthly increase. The energy index rose in July as the gasoline and electricity indexes increased, though the natural gas index declined. The index for food was unchanged for the second month in a row, as a decline in the food at home index was offset by an increase in the food away from home index.
The index for all items less food and energy rose 0.3 in July, the same increase as in June. The July rise was broad-based, with increases in the indexes for shelter, medical care, airline fares, household furnishings and operations, apparel, and personal care all contributing to the increase. The index for new vehicles was one of the few to decline in July.
The all items index increased 1.8 percent for the 12 months ending July, a larger increase than the 1.6-percent rise for the period ending June. The index for all items less food and energy rose 2.2 percent over the last 12 months, slightly more than the 2.1-percent increase for the period ending June. The food index rose 1.8 percent over the last year while the energy index declined 2.0 percent.
Core CPI is up 0.3% two months in a row, a 3.6% a.r. following +1.4% in the previous 5 months. Core Goods is also up 3.6% a.r. in June-July vs –1.0% in the previous 5 months. Something just changed…and seemingly not in a transitory fashion… Core Services keep inflating at a steady rate well above 2.0%. So total CPI is up 1.8% YoY when Energy is down 2.0%. Last 3 months, total CPI is up 2.0% a.r. when Energy is down 6.5% a.r..
(…) Average prices for consumer goods rose 2.3% in the first six months of 2019, according to data tracker Nielsen, the fastest pace in several years. Walmart said it saw “modest” inflation in the first quarter, but it has heated up lately, and a Walmart shopping trip was 5.2% more expensive in June compared with a year earlier, according to Gordon Haskett Research Advisors. (…)
10% Tariffs Were Manageable. At 25%, Businesses Are Squirming. An importer of vinyl flooring spends “nearly 100% of my energy” trying to defray the cost of Washington’s levies on Chinese products. How these decisions get made, across the economy, will help determine how higher costs get distributed and their effects on sales.
Good WSJ piece on the chaos stemming from tariffs.
Germany confronts growing risk of economic slowdown Fears that manufacturing dip will hit jobs and services prompt stimulus debate
German recession fears, should we blame the Chinese car market?(…) The Chinese market is the most important market for the majority of German car manufacturers. In 2018, almost one-quarter of all cars sold in China were German. BMW and Daimler sold more than one-third of their total car sales in China. For Volkswagen, the share is even bigger at 40%.
Looking ahead, things aren’t looking too good for German car manufacturers. New car sales in China have fallen for 13 months in a row, a slump that started in the second half of 2018 when the trade war between China and the US began to heat up. (…)
Given that some German car manufacturers actually export US-produced cars to China, there has been a clear and direct impact of the trade conflict on the German car industry. Having said that, the larger impact seems to be coming indirectly from lower Chinese consumer confidence. According to media reports, BMW and Mercedes car exports from the US to China have suffered due to the tariff hikes, which is probably why BMW has started to manufacture locally in China.
Another factor, which is well known in Europe and has probably weighed more heavily on sales in recent months, is the switch to the new emission standard. By July 2020, all light vehicles in China need to comply with the China 6a emission standard, based on European and US regulations. But many provinces rushed ahead and made the new standard mandatory a year earlier to comply with environmental protection campaigns.
In Europe, the impact of adopting this new standard placed a huge strain on the passenger car market last year such that new passenger car registrations fell more sharply (in absolute terms) than during the global financial crisis.
In China, although car dealers substantially discounted prices for China 5-standard vehicles before the deadline, consumers were reluctant to make purchases, probably waiting for passenger cars with the new emission standard instead. Automotive retail sales saw a surge only in June, with car dealers offering heavy price reductions. The destocking of China 5-emission standard vehicles might be responsible for lower orders from dealers too. But with the new standard now in place, a rebound in car sales might be round the corner. (…)
Alongside cyclical developments, there are also structural changes in the Chinese automotive market affecting German car sales. China is already the largest ride-hailing market in the world, with over 459 million customers and a turnover of around US$ 53 billion. In the US, there are currently 66 million users generating US$ 49 billion in turnover. To put things into perspective, one-third of the Chinese population already uses alternative mobility solutions, while in the US the figure is around 20 percent and in the EU it is just 18 percent – a trend that is likely to grow in the coming years. Admittedly, it’s impossible to tell whether users are exclusively using ride-hailing or whether it is complementary to owning a car.
To date, forecasts of the Chinese car market have assumed that low ownership rates offer sufficient growth potential in the coming years, but it’s quite possible that this growth potential will be impaired by ride-hailing and/or car-sharing.
Another structural change is the transition towards electric car production and sales, which the Chinese government is supporting. Indeed, sales of electric cars in China are still going strong, increasing by 50 percent in the first half of 2019 compared to 1H18, but the subsidies in this segment will be phased out between 2020 and 2021.
Related:
FIBER: Industrial Commodity Prices Post Broad-Based Declines
The Industrial Materials Price Index from the Foundation for International Business and Economic Research (FIBER) declined 3.1% during the last four weeks. The price index was down 13.0% y/y and has fallen to the lowest level since June 2016. Prices declined broadly amongst product categories. (…)
