Holiday Season Retail Sales Heat Up Sales were up 4.2% from a year earlier, suggesting better footing than in 2017
Retail sales, a measure of purchases at stores, restaurants and online, increased a seasonally adjusted 0.2% in November from a month earlier to $513.5 billion, slightly exceeding economists’ expectations, according to a Commerce Department report Friday.
November sales were up 4.2% from a year earlier, signaling the holiday-shopping season began on stronger footing than last year. Excluding the volatile category of gasoline, sales climbed a solid 0.5% in November from a month earlier. (…)
Macroeconomic Advisers responded to the retail-sales report by boosting its forecast of fourth-quarter U.S. economic growth to a 2.5% annual rate from 2.1%. The firm nudged it higher later Friday, to 2.6%, after the Federal Reserve reported that U.S. industrial production surged in November due to rising utilities output. (…)
Notably, Control Sales, nonauto sales excluding gasoline and building materials, the measure that feeds into GDP, surged 0.9% (5.2% y/y) after a 0.7% October gain, revised from 0.3%. This is exceptionally strong growth, 10.0% annualized, during key months, leading into Christmas with good employment, rising wages, slow inflation and declining gas prices.
Strong sales at the important year-end means low inventories entering Q1’19 which means a decent start of the year for manufacturers and importers, keeping the economic momentum up.
Some will argue that weak restaurant sales are an indication of consumers reigning in their discretionary spending. One, this is not showing at all in total sales, two, the restaurant industry is paying the price for allowing the gap between food-at-home and food-away-from-home to widen too much. last 4 years, food-at-home: –1.3%, away: +10.2%. (See UNAPPETIZING)
U.S. Industrial Production Rebounds
Industrial production jumped a greater-than-expected 0.6% (3.9% year-on-year) during November following a downwardly revised 0.2% decline in October (was +0.1%). The 0.1% gain in September output was revised from 0.2%. The Action Economics Survey forecast 0.3% growth in November. Manufacturing activity was unchanged (1.9% y/y) during November, while the two prior months were revised lower. Utilities output generated 3.3% (4.4% y/y) while mining production fired up 1.7% (13.2% y/y). (…)
By market group, consumer goods output edged up 0.1% (1.5% y/y) in November. Meanwhile, business equipment declined 0.2% (+4.1% y/y) after strong gains in the previous three months. Construction supplies weakened 0.2% (+1.3% y/y), the third consecutive monthly decline. Production of materials jumped 1.2% (+6.1% y/y) as energy materials sizzled 2.3% (11.6% y/y).
In the special aggregate groupings, production of high technology products rebounded 1.6% (7.6% y/y) after two monthly declines. This was the result of strong gains in semiconductor & electronic components (2.1%; 10.1% y/y) and computer & office equipment (2.8%; 4.4 y/y). Factory sector production excluding the motor vehicle and high tech sectors edged down 0.1% (+1.6% y/y).
Capacity utilization increased to 78.5% in November, in line with the expectations from Action Economics Survey. Factory sector use edged down to 75.7%. Mining rebounded to 94.1%, near September’s business cycle high of 94.2%. Growth in capacity in the manufacturing sector continues to accelerate, up a cyclical high 1.3% y/y in November.
U.S. Business Inventory Accumulation Picks Up
Total business inventories increased 0.6% (5.1% y/y) during October following two months of 0.5% gain. Total business sales rose a steady 0.3% (8.0% y/y). The inventory-to-sales ratio increased minimally to 1.35, but remained below its 1.43 peak early in 2016.
Retail inventories strengthened 0.8% (3.9% y/y) in October, following a 0.1% uptick. Auto inventories improved 1.1% (8.0% y/y) after a 0.5% rise. Non-auto retail inventories gained 0.7% (1.7% y/y) after two months of slight decline. (…)
Retail sales increased 1.2% (6.0% y/y) during October following little change in the prior two months. Non-auto sales rose 1.1% (5.8% y/y), also following two months of little-change. Wholesale sector sales fell 0.2% (+9.5% y/y) after a 0.1% uptick. Shipments from the factory sector eased 0.1% (+8.3% y/y) following two months of 0.7% gain.
Note this release is for October. Total business sales in October were up 8.0% with manufacturing up 8.3% YoY. Very strong numbers, actually in line with S&P 500 revenues in Q3. We now know that November sales were very strong, auguring well for Q4 results.
$1 Billion a Month: The Cost of Trump’s Tariffs on Technology
U.S. companies paid $1 billion more in tariffs on technology products imported from China in October than a year earlier, as new duties imposed by the Trump administration took effect.
The tariff costs rose more than seven-fold to $1.3 billion, as the world’s two biggest economies became embroiled in a trade war, according to data provided by the Consumer Technology Association and analyzed by consulting firm The Trade Partnership. (…)
Dow’s Sharp Decline Puts Three Major Indexes in Correction All three major U.S. stock indexes are in correction territory for the first time since March 2016, with disappointing economic data from China and the eurozone sparking Friday’s nearly 500-point fall in the Dow.
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Small-cap S&P 600 index confirms bear market As U.S. stocks have been rocked by trade tensions and monetary policy worries, shares of small-cap companies, by one measure, have now confirmed that they are in their first bear market in three years.
The Rule of 20 P/E is now 18.3, where it bottomed in January 2016.
TECHNICALS WATCH
Lowry’s Research:
Clearly, the greatest weakness among market segments continues to be in the Small Cap Segment. As of Dec. 13th, nearly 73% of our Operating Companies Only (OCO) small cap stocks were down 20% or more from their 52-week highs. This contrasts with about 47% of mid caps and 32% of large caps down 20% or more. Weakness in small caps is not a recent development but has been ongoing for nearly 6 months.
Yet, Lowry’s still sees “signs of improving breadth and in the short-term balance of Supply/Demand appear most consistent with a market that is in the process of forming a sustainable bottom than with a market in the midst of a major downtrend.”
But its Selling Pressure Index remains above its Buying Power Index and is still rising…
Good thing earnings look ok, inflation is weakening, long-term rates have come down and the Fed seems to be concerned.
Companies Ramp Up Stock Buybacks as Market Swoon Continues
Facebook Inc., Mastercard Inc., Lowe’s Co s., AbbVie Inc., United Rentals Inc. and Pioneer Natural Resources Co. are among the companies that have unveiled bigger or resumed share buybacks this month as the S&P 500 heads toward its worst quarter since 2011. (…)
Companies in the S&P 500 spent a record amount on buybacks in the third quarter, with the total at roughly $200 billion, according to S&P Dow Jones Indices. (…)
Investors Abandon Bet Against Treasurys A recent Treasury rally has squeezed many investors
Speculators have trimmed their bets on falling U.S. government bond prices and higher yields. The size of the wager is down by nearly half from record levels reached at the end of September. Those investors held a net short position of 393,802 Treasury futures contracts as of Tuesday, according to the most recent data available from the Commodity Futures Trading Commission. That is down from a record net short position of 756,316 in late September. (…)
SENTIMENT WATCH
(…) After all, even if equities have predicted “nine of the last five recessions,” as the economist Paul Samuelson famously said, that’s a better record than a lot of humans. (…)
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Stocks Are Sounding the Alarm on Earnings Equity prices have rarely been as vulnerable to a downturn in profits as they are now.
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The Bubble’s Losing Air. Get Ready for a Crisis Investors need to focus on their response to financial stresses in an era in which policymakers will be constrained.
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What a Big Deficit You’ve Got There, Mr. President What’s going to happen when the economy finally turns south?
Note: I will be on vacation next week.