Increase in U.S. Retail Sales Last Month Signals Steady Demand
The broad-based advance in October sales and a stronger hand-off from an upwardly revised September show American consumers will continue to fuel the economy in the fourth quarter. Steady hiring, rising asset values and limited inflation are underpinning consumer spending. (…)
- Excluding automobiles and gasoline, sales rose 0.3 percent after a 0.6 percent gain
- Receipts at gasoline stations fell 1.2 percent
- Sales rose 0.8 percent at clothing vendors, 0.7 percent at furniture stores and at electronics outlets, 0.8 percent at restaurants and 1.5 percent at merchants of sporting goods
U.S. Consumer Prices Edged Up in October U.S. consumer prices rose only slightly in October, showing stubbornly soft inflation is persisting.
The consumer-price index, measuring what Americans pay for everything from cakes to phone service, advanced 0.1% in October from a month earlier, the Labor Department said Wednesday. (…) Excluding volatile food and energy costs, so-called core prices increased 0.2%.
From a year earlier, consumer prices rose 2%, the first easing of year-over-year gains since June. When excluding food and energy, prices rose 1.8% from a year earlier. That was the strongest annual gain in core prices since April. (…)
Shelter prices advanced 0.3% in October, as did medical-care services. Prices for new cars and clothes declined in October. (…)
U.S. Producer Pricing Power Strengthens Yet Again
The headline Final Demand Producer Price Index using new methodology increased 0.4% during October, the same as in September. These remain the strongest gains since April and pulled the y/y rise to 2.8%, the strongest since February 2012. A 0.1% rise had been expected in the Action Economics Forecast Survey. The PPI excluding food & energy also improved 0.4% (2.4% y/y) for a second month, twice the gain expected. Using the old methodology for the Producer Price Index, prices increased 0.2% (2.9% y/y) following a 0.8% gain. Excluding food & energy, the index rose 0.3% (2.0% y/y) after a 0.2% rise.
An updated measure of core producer price inflation is the overall index excluding food, energy and trade services. It increased 0.2% (2.3% y/y) for a third straight month.
Final demand goods prices rose 0.3% (3.2% y/y), the weakest rise in three months. The price index excluding food & energy increased 0.3% for a second month. The 2.3% y/y gain was improved versus stability in 2015.
There seems to be inflation in the pipeline. Even core goods prices are accelerating:
U.S. Household Debt Reaches New Record Flows into delinquency have risen in recent years for credit-card and auto debt
The Federal Reserve Bank of New York said Tuesday that household debt totaled $12.955 trillion last quarter, up 0.9% from the spring for a 13th straight quarterly increase. That was the most on record, though the figure wasn’t adjusted for inflation or population growth.
As a share of U.S. economic output, household debt was about 66% last quarter versus a high of around 87% in early 2009. (…)
Some 4.9% of outstanding debt was delinquent as of Sept. 30, ticking up from three months earlier. Late-payment rates on the whole remain low, but flows into delinquency have risen in recent years for credit-card and auto debt. (…)
The sharp rise in delinquency for auto loans made to subprime borrowers by auto-finance companies, usually through auto makers or dealers. The New York Fed said the low overall delinquency figure masks significant deterioration in those loans over the past few years.
The smaller number of subprime auto loans made by banks and credit unions have fared better, “in part reflecting differences in underwriting standards,†said New York Fed economist Wilbert van der Klaauw.
(…) there are over 23 million consumers who hold subprime auto loans. (…)
Auto loans outstanding jumped by $23 billion to $1.213 trillion. Auto makers in September and October reported strong sales partly because Texans, Floridians and others had to replace vehicles damaged by late-summer hurricanes. (…)
Some fresher data through October courtesy of RBC:
- Capital One: Card charge-offs increased from 4.39% in September to 4.70%, while delinquencies increased 19 bps to 4.13% from 3.94%. Auto charge-offs increased during the month, up 13 bps to 2.21%, with 30-day+ delinquencies increasing 30 bps to 6.01%. Card loans are up 3.14% YoY.
- JP Morgan: Card charge-offs increased 3 bps to 2.35% in October, while 30-day+ delinquencies increased from 1.22% to 1.24%, 90-day+ delinquencies rose 2 bps to 0.60%.
NBF:
(…) Auto debt rose faster than other debt categories, reaching a record in both absolute terms (US$1.2 trillion at the end of Q3) and relative terms (its share of household debt jumping to 9.4%). The rise of auto debt has been fueled in recent years by normal auto loans but also by sub-prime loans. While the word “subprime†tends to send shivers down the spine of many investors (particularly those who experienced the 2008/09 financial crisis), the auto variety doesn’t look all that threatening. True, sub-prime auto debt is now at a record US$282 billion, but it represents just 2% of household debt outstanding and only 23% of auto debt.
And crucially, as today’s Hot Charts show, auto finance companies (and not banks) are the most exposed to the sub-prime problem. Indeed, the banking sector accounts for just 26% of outstanding sub-prime auto debt or only US$74 billion. In other words, don’t expect rising auto delinquencies to single-handedly lead to a credit crunch and recession à la 2008/2009. That said, there may still be some mild negative consequences for the U.S. economy, such as damaged credit reports and difficulties for auto debt delinquents to borrow in the future.
But the main point is that consumer debt is way up there and its impact is masked by Fed-induced low interest rates. But that is changing rapidly. Worries on the economic impact are much more significant than on financials at this point.
High-Yield Canary Isn’t Singing About Markets Doom The selloff, mainly confined to telecoms and lower-rated bonds, should be put into perspective, investors say
(…) Yet telecom makes up a meaningful chunk of high-yield indexes and exchange-traded funds and some analysts are concerned that retail investors, whose exposure to junk bonds tends to come through passive funds, may get spooked by the selloff. In a worst-case scenario, they could then dump other riskier assets like stocks, these analysts say. (…)
But Tesla’s recent well oversubscribed $1.8B 5.3% bond offering is now trading at $94!
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Contagion worries rise after junk bond sell-off High-yield debt is heading towards its worst month since January 2016
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