ADVANCE MONTHLY SALES FOR RETAIL AND FOOD SERVICES, MAY 2019
Advance estimates of U.S. retail and food services sales for May 2019, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $519.0 billion, an increase of 0.5 percent (±0.5 percent)* from the previous month, and 3.2 percent (±0.7 percent) above May 2018. Total sales for the March 2019 through May 2019 period were up 3.6 percent (±0.5 percent) from the same period a year ago. The March 2019 to April 2019 percent change was revised from down 0.2 percent (±0.5 percent)* to up 0.3 percent (±0.1 percent).
Retail trade sales were up 0.5 percent (±0.5 percent)* from April 2019, and 3.1 percent (±0.7 percent) above last year. Nonstore retailers were up 11.4 percent (±1.4 percent) from May 2018, while sporting goods, hobby, musical instrument, and book stores were down 4.2 percent (±2.5 percent) from last year.
US retail sales heading higher
The above chart is from ING this morning. I would have titled differently…
China Factories See Slowest Growth Since 2002 The trade war is biting hard in China.
Industrial output rose 5% from a year earlier, while fixed-asset investment expanded 5.6% in the first five months. Both were slower than in April and below expectations. Retail sales was a bright spot, expanding 8.6% compared to May last year, partly because a longer May Day holiday encouraged more tourism and spending. (…)
While property investment slowed, it still grew 11.2 percent in the first five months of the year, with that sector remaining a prop for the broader economy. (…)
A Morgan Stanley economic indicator just suffered a record collapse
Morgan Stanley’s Business Conditions Index, which captures turning points in the economy, fell by 32 points in June, to a level of 13 from a level of 45 in May. This drop is the largest one-month decline on record and the lowest level since December 2008 during the financial crisis, according to the firm.
“The decline shows a sharp deterioration in sentiment this month that was broad-based across sectors,′ economist Ellen Zentner said in a note to clients. “Fundamental indicators point to a broad softening of activity, but analysts did not widely attribute the weakening to trade policy.”
June’s conditions index reading showed notable declines in hiring, hiring plans, capex plans and business conditions exceptions, Morgan Stanley said.
The manufacturing subindex business conditions fell sharply to zero, “a decline that was likely exaggerated by the recent turn lower in oil prices, while marking the lowest level for the subindex on record,” Zentner said.
The services subindex also fell to 18 from 35.
This echoes the latest Markit PMIs and GS’ CAI:
Trump Could Retaliate if Xi Balks at Trade Meeting, Kudlow Says President Trump could take further action against China if President Xi doesn’t agree to a meeting at the Group of 20 summit in Japan, the White House’s top economic adviser said.
“President Trump has indicated his strong desire for a meeting, but the meeting is not yet arranged formally,” Larry Kudlow said at the Peterson Institute for International Economics, a Washington think tank. “He’s also indicated that if the meeting doesn’t come to pass, there may be consequences.”
The remarks followed comments by Mr. Trump on Monday. “We are expected to meet. If we do, that’s fine and if we don’t, that’s fine,” Mr. Trump said on CNBC. (…)
On Thursday, Costco Wholesale Corp. , Target Corp. , Walmart Inc. and more than 600 other companies and trade associations signed a letter to Messrs. Trump and Kudlow and other economic officials urging the administration to “get back to the negotiating table” to avoid raising tariffs on Chinese goods and work with allies so that U.S. businesses don’t suffer disproportionately. (…)
Bloomberg says that
Trump on Monday said he could impose tariffs “much higher than 25%” on $300 billion in Chinese goods if Xi doesn’t meet him at the upcoming Group of 20 summit in Japan.
So, in one corner, we have China saying it will not accept being bullied into a deal that does not meet its 3 basic requests (removal of tariffs, realistic U.S. demands and preservation of its sovereignty and dignity). In the other corner, we have Trump saying he won’t do a deal unless Beijing returns to terms negotiated earlier in the year that Xi and the Politburo rejected when shown the draft copy. And now we have Trump telling Xi that tariffs will be “much higher than 25%” if he does not accept to see him at the G20.
Can Xi accept to feed Trump’s narcissism and allow himself to be openly bullied into a meeting with a line in the sand he and the Politburo have already refused to cross?
Click on the headline link to access David Kotok’s latest commentary which includes 2 links well worth using. The link to Bloomberg’s “Xi Has Few Good Options After Trump’s Ultimatum on G-20 Meeting” may only be accessible by BB subscribers. However, Kotok made this great Friedman piece available (accessed through Kotok’s commentary): The Fog of Trade War: Can China Outlast the US?
INFLATION/DEFLATION
(…) Nonpetroleum import prices eased 0.3% (-1.4% y/y), the third consecutive month of weakness. (…)
More data for the data-dependent Fed. Weak demand and a strong dollar. However, U.S. export prices are also weak. Prices excluding oil fell 0.3% (-1.8% y/y).
- This is the price index for US imports from China. Note that these indicators do not include tariffs. (The Daily Shot)
This chart from Geopolitical Futures referred to above shows that inflation in tariffs impacted goods has been rising as also mentioned yesterday.
Markit’s PMI surveys show that input prices have been weaker than the CPI in May (Input cost pressures cooled in both manufacturing and services) …
…but
One of the clearest indications of lower price pressures from the PMI surveys was a near-stagnation of average selling prices for goods and services. This gauge had been signalling a marked rate of selling price inflation as recently as February, but recent months have seen the rate moderate considerably, with an especially marked lurch down in May. Average prices charged for services in fact fell in May (albeit only marginally) for the first time since February 2016. Goods producers meanwhile reported the smallest rise in prices levied at the factory gate since November 2016.
One of the factors driving the slide in price pressures has been a swift reversal of demand conditions, with strongly rising demand seen from late-2016 through to early 2019 fading in recent months. The IHS Markit PMI surveys showed new orders across both manufacturing and services rising in May to the second-weakest extent seen this side of the global financial crisis.
Manufacturing fared worse than services, with factory new orders declining for the first time since August 2009. However, the survey also brought signs of weakness spreading to the service sector, where new business growth slumped in May to one of the weakest rates since the global financial crisis.
We use two survey gauges to assess the impact of weakened demand growth on the inflation picture.
First, suppliers’ delivery times reveal to what extent suppliers are struggling (or not) to provide goods on a timely basis. Longer deliveries tend to result in higher prices, as demand outpaces supply. Such a situation was evident up to early-2019, but in recent months there are signs that supply has come into line with demand for many products, reducing suppliers’ pricing power. May saw the lowest incidence of supplier delays since December 2016.
A similar situation is evident in the surveys’ backlogs of work indices. At times of demand exceeding supply, backlogs of work tend to accumulate in companies, which often means firms are more confident to ask higher prices to new customers. Again, such a situation was evident in early-2019 but is now showing signs of reversing. The May surveys saw no change in backlogs, with stagnation seen in both manufacturing and services.
A combined capacity indicator gauge – which is derived from the PMI’s suppliers’ delivery times index and backlogs of work index and provides an accurate guide to underlying inflationary trends – fell in May to its lowest since December 2016.
The data therefore suggest that a weakening of underlying inflationary pressures could exert further downward momentum on consumer prices in coming months.
Transitory?
Oil Demand Takes a Hit From Cooling Economic Growth IEA downgrades its forecast for global oil demand for a second straight month
In its closely watched oil-market report, the IEA downgraded its forecast for global oil demand for a second straight month, to 1.2 million barrels a day from 1.3 million barrels a day the previous month. (…)
The release marked the third significant oil market report this week to take a more bearish stance on oil demand, after the Energy Information Administration released downbeat demand numbers Tuesday and the Organization of the Petroleum Exporting Countries echoed that negativity on Thursday.
While the rise of demand is softening, “meeting the expected demand growth is unlikely to be a problem,” the IEA said, pointing out that the U.S. is set to contribute 90% of the 1.9 million barrel-a-day increase in non-OPEC supply growth. (…)
Numerous Saudi officials have signaled the country’s desire to extend the cut into the second half of 2019, and the IEA reported that the kingdom’s compliance rate with the cut in May was 290% as it reduced supply by 110,000 barrels a day. That contributed to the lowest OPEC supply since 2014, with U.S. sanctions on Iran aiming to cut the country’s oil exports to zero.
OPEC compliance has been inconsistent, though, with Iraq increasing supply by 130,000 barrels in May.
Extending the output reduction largely depends on Russia, analysts say, with senior oil industry figures expressing concern about losing market share to the U.S. Russian output fell 120,000 barrels a day in May, although the IEA attributed that to outages following the contamination of the Druzhba pipeline. (…)
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U.S. Says Tehran Is to Blame for Attacks on Fuel Tankers The Trump administration has concluded that Iran is responsible for attacks Thursday on two tankers in the Gulf of Oman.
Canada: Debt service burden highest on records
A record share of disposable income now goes towards servicing Canadian household debt. Just-released first quarter data indeed shows debt servicing (interest and capital repayments) accounting for 14.9% of disposable income. As today’s Hot Charts show, that was largely due to increases in interest payments which topped capital repayments for the first time since 2013Q1. (…)
On a positive note, however, capital repayments as a % of disposable income remain near all-time highs for both non-mortgage and mortgage debt. The latter is particularly encouraging with regards to stability of the housing market and hence financial system as a whole. Thanks to aggressive mortgage capital repayments, a massive 92% of Canadian homeowners have at least 25% equity in their homes according to Mortgage Professionals Canada, something that reduces the probability of tactical defaults should there be a housing downturn in the future. (NBF)
Valuing Beyond Meat
John Neff Outperformed the Stock Market for Three Decades Manager of Windsor Fund shunned fads and prized companies that were misunderstood or overlooked
(…) Mr. Neff, who died June 4 at age 87, shunned fads, such as the “go-go” stocks of the 1960s or the “nifty fifty” of the 1970s. Instead, he looked for stocks that were “overlooked, misunderstood, forgotten, out of favor,” as he put it. He favored steady performers and aimed to pay a low multiple of annual earnings. (…)
Though he was known as a contrarian, he warned, “do not bask in the warmth of just being different. There is a thin line between being contrarian and being just plain stubborn.” (…)
“You can diversify yourself into mediocrity,” he wrote. (…)