U.S. Consumer Prices Posted Fourth Straight Rise in November Consumer prices rose in November for the fourth consecutive month, the latest sign of firming U.S. inflation as the Federal Reserve moves ahead with its plan to gradually ramp up short-term interest rates.
The consumer-price index, a measure of what Americans pay for everything from potatoes to prescription drugs, increased a seasonally adjusted 0.2% in November from a month earlier, the Labor Department said Thursday. (…)
Excluding the often-volatile categories of food and energy, prices also rose 0.2% from October. The rise in both overall and core prices matched economists’ expectations, though the monthly gain in core prices was a more modest 0.151% without rounding and little changed from October’s 0.149% increase. (…)
Compared with a year earlier, overall prices in November rose 1.7%, the strongest annual price growth since October 2014. Core prices were up 2.1% on the year for the second straight month. (…)
The index for medical care rose 4% on the year in November and shelter costs were up 3.6% from a year earlier. Food prices were down 0.4% from November 2015 and energy prices rose 1.1% on the year.
The Labor Department on Thursday also reported that private-sector U.S. workers saw a 0.3% decline in their inflation-adjusted weekly earnings in November compared with the prior month. Average hourly earnings fell 0.1%, prices rose 0.2% and the average workweek was unchanged from October. (…)
- Prices for goods other than food & energy declined 0.3% (-0.7% y/y) after a 0.1 rise.
- Non-energy services prices increased 0.3% (3.0% y/y), the quickest gain in three months.
- Shelter prices rose 0.3% (3.6% y/y) while owners’ equivalent rent of primary residences increased 0.3% (3.5% y/y). Rental prices of primary residences also rose 0.3% (3.9% y/y).
According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.2% annualized rate) in November. The 16% trimmed-mean Consumer Price Index also rose 0.2% (1.9% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics’ (BLS) monthly CPI report.
The Cleveland Fed also provides daily nowcasts for the core PCE and core CPI. Mid-December, the core PCE has edged up to +1.8% YoY.
- The “sticky CPI†sticks above 2.5%. The Sticky Price Consumer Price Index (CPI) is calculated from a subset of goods and services included in the CPI that change price relatively infrequently. Because these goods and services change price relatively infrequently, they are thought to incorporate expectations about future inflation to a greater degree than prices that change on a more frequent basis. One possible explanation for sticky prices could be the costs firms incur when changing price.
Home Builders’ Confidence Rises in Anticipation of Trump Boost U.S. builders’ confidence in the market for single-family homes jumped in December to the highest level in more than a decade.
(…) Builders’ confidence rose seven points this month to a reading of 70 in the first survey conducted entirely after the election. Readings above 50 indicate more builders view conditions as good than poor. Current market conditions and expectations for the next six months both significantly improved. The component measuring traffic of prospective buyers moved into positive territory for the first time in more than a decade. (…)
Builders’ hopes may be just that although traffic of prospective buyers, the only objective measure in this survey, did increase nicely last month. The Trump effect could be significantly tampered by this:
But “with nearly 1 in 4 construction workers from other countries and labor shortages a significant headwind, closed-door immigration policies could bulldoze builder confidence.â€
Mortgage rates have been historically low this year, but have risen around three-quarters of a percentage point since the election. Home-loan rates could face additional upward pressure with the Federal Reserve signally further increases to the central bank’s benchmark rate next year, after announcing a move Wednesday.
Also, consider this problem (From The Daily Shot):
Most measures of consumer confidence rose sharply post-elections. Yet:
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U.S. housing starts tumble from nine-year high U.S. homebuilding fell more than expected in November, tumbling from a nine-year high as construction activity declined broadly, which could prompt further downward revisions to fourth-quarter economic growth estimates.
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U.S. Retail Sales Increase Minimally
Total retail sales & spending at restaurants nudged 0.1% higher (3.8% y/y) during November following a 0.6% October rise, revised from 0.8%. A 0.4% increase had been expected in the Action Economics Forecast Survey. Three-month sales growth eased to 1.2%, its slowest pace since May.
A 0.5% decline (+3.3% y/y) in purchases of motor vehicles & parts held back last month’s overall spending increase. The decline roughly matched a 0.8% drop in unit sales of light vehicles. Excluding autos, overall retail sales improved 0.2% (3.9% y/y) after a 0.6% gain. That was the weakest rise in three months. A 0.5% increase had been expected.
Discretionary spending growth slowed markedly. (…) To the upside were restaurant sales. Sales at food service & drinking places rose 0.8% (4.9% y/y), a rebound after a 0.3% decline.
Sales in the retail control group, which measures nonauto sales less gasoline & building materials, inched 0.1% higher (3.4% y/y), the weakest gain in three months. Three-month growth improved, however, to 4.1%, the strongest rise since Q2. (…)
(…) Dealership sales, measured in dollars, fell a seasonally adjusted 0.5% in November from the prior month, the Commerce Department said Wednesday. Light-vehicle sales, in units, were up 0.1% through November, compared with the same period in 2015, according to Autodata Corp., but that small gain is due to increases in sales to fleet buyers, such as car-rental firms.
Manufacturing output of motor vehicles and parts fell 2.3% last month, the first pullback in six months, the Federal Reserve said on Wednesday.
With vehicle supplies outstripping demand, prices are being slashed.
Last month’s stockpile of 4 million vehicles, or a 73 days’ supply, is the highest level recorded for a November, according to WardsAuto.com. Haig Stoddard, a Wards analyst, said last week that auto makers will need a strong sales performance in December to keep first-quarter production schedules intact.
Average incentives, including rebates and discounts, reached a record $3,542 per vehicle this year, market-research firm J.D. Power said. Though transaction prices have averaged a record $31,044 in 2016—driven primarily by customer migration to pickups and SUVs from cheaper cars—the 9.9% discount offered on those vehicles exceeds the previous high set in 2008, when sales were collapsing.
In addition to conventional rebates, auto finance companies are making deals with an increasing number of buyers who have negative equity on the cars they are trading in. J.D. Power estimates that 31.3% of buyers in November were upside down—meaning they still owed more than the vehicle was worth—on their auto loan, the highest level since June 2006.
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Retailers’ Discounts Run Deeper This Holiday Season Retailers winnowed inventories in the hope that scarcity would allow them to be less promotional, but it didn’t work: Discounts are even deeper this year.
(…) According to DynamicAction Inc., which analyzed $4 billion in online transactions, the number of U.S. receipts that included promotions jumped 79% in November from the same period a year earlier. For the first week of December, the number was more than double that of a year ago. (…)
Fed Raises Rates, Boosts Outlook for Borrowing Costs in 2017
Hawkish Fed Exacerbates Dollar Fears for Emerging Markets
Chinese Consumer Inflation Heats Up
China’s consumer-price index increased 2.3% in November from a year earlier, a quicker pace than a 2.1% year-over-year gain in October, the National Bureau of Statistics said Friday. (…)
A big factor in higher prices was fresh vegetable prices, which climbed 15.8% from a year earlier last month, lifting the headline CPI figure by about 0.37 percentage point. (…)
Gasoline and diesel prices were up 4.6% and 6.0% respectively. (…)
China’s producer-price index rose 3.3% in November from a year earlier, compared with a 1.2% on-year increase in October. The PPI increased 1.5% in November from a month earlier. In October, it rose 0.7% from the preceding month. Economists’ median forecast had been for only a 2.4% increase. (…)
China Central Bank Extends Emergency Loans to Financial Firms China’s central bank extended hundreds of billions of yuan in emergency loans to financial firms on Friday and ordered some of the country’s biggest lenders to extend credit as well, as it moved to ease a liquidity crunch and continuing debt selloff.
(…) If the bond selloff accelerates, some analysts fear China could see a market crash like the one that hit stocks last year. (…)
On Friday, the PBOC tapped an emergency lending facility it created in 2014 to extend 394 billion yuan ($56.7 billion) in six-month and one-year loans to 19 banks. That pushes the net amount extended through the facility to 721.5 billion yuan so far in December, a monthly record, according to Beijing-based research firm NSBO.
The PBOC also ordered a few large banks to extend longer-term loans to nonbank financial institutions, while China’s securities regulator asked brokers tasked with making a market in bonds to continue trading and not shut any companies out of the market, according to Mr. Zheng of Dongxing Securities. (…)
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China’s Fed Hangover Will Linger If the Fed follows through with more rate increases, China’s bond markets should keep feeling the pain.
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China Halts Trading in Key Bond Futures
(…) Underscoring the skittish feeling among investors, Thursday’s selling pressure was also driven by rumors spreading through the markets. A midsize Chinese brokerage denied a report in a major Chinese newspaper that it had defaulted on a large bond payment. One of the country’s biggest fund managers, meanwhile, denied a rumor circulating on cellphone chat groups that it was facing large redemptions.
Analysts said such rumors carried weight because many fund managers are heavily in debt, making them vulnerable to declining bond prices. (…)
SENTIMENT WATCH
The Dow’s 8% gain in the five weeks after Donald Trump’s victory is the biggest surge following any U.S. presidential election in history. The rally, which has the blue-chip average on pace for its fastest 1,000-point rise ever, has been accompanied by a sharp jump in bullish sentiment.
When stocks move this far this fast, caution is usually warranted. This time, history might suggest otherwise.
There have been five other instances in which the Dow jumped at least 5% in a five-week period following a presidential election. Over ensuing six-month time frames, it continued rallying four of five times, gaining another 10%, on average.
The most recent example came in 1996. The Dow jumped 5.3% in the five weeks after Bill Clinton was re-elected and then surged another 18% over the following six months. It had similar reactions following elections in 1900 and 1924. The only time the pattern didn’t prevail was in 1952 when Dwight Eisenhower was elected. The Dow jumped 5.3% immediately after the election, but then fell 7.5% over the ensuing six months. (…)
In early November, only 23% of AAII respondents said they were bullish, among the lowest readings of the year. By Thursday, that had jumped to 45%, the third-highest reading in 2016 and one of the sharpest swings in the current bull market.
A similar move in sentiment took place in May 2013, just as stocks had rallied right before the so-called taper tantrum. Right on cue, bullish sentiment peaked in late May and stocks fell in the following weeks.
But investor sentiment is often most useful as a contrarian indicator when it hits extremes. It isn’t there now. One of the AAII’s lowest bullish readings ever came on March 5, 2009, which almost precisely marked the beginning of the current bull market. The most bullish reading was captured in January 2000, just two months before the dot-com bubble peaked.
Today, the absolute level of bullishness is still far from stretched. Bullish sentiment has remained below 50% for 102 consecutive weeks. “It has become seemingly impossible for the bullish camp to get a majority,†analysts at Bespoke Investment Group wrote Thursday.
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‘Trump trade’ drives ninth biggest weekly rush to stocks: BAML Global equity funds received $21 billion in the past week – their ninth-biggest inflow ever – as investors embraced the ‘Trump trade’, while money flowed out of bonds for seventh week in a row, Bank of America Merrill Lynch said on Friday.
Now if you missed THE TRUMP LOVE-IN yesterday, please have a look.
(…) The true danger to this latest bull run—the Trump rally—comes from itself. The genius of a matador is to wear out the bull by persuading it to keep charging, entrancing the audience in the process. The stock market has been attracted by the flourishes of Mr. Trump, the appealing prospect of tax cuts and infrastructure spending.
The question for the next month is whether the bull will be worn out before Mr. Trump even takes office.
When markets move a long way very fast, they become vulnerable. Late investors who pile on to little more than momentum have less confidence in their positions. The more momentum builds, the more it hurts if the bull trips and those momentum investors jump off.
This market has moved very fast indeed. The post-election rotation from defensive stocks to economically sensitive cyclical shares has been the biggest of any similar period since the bounce back after the Lehman crash. The 10-year bond’s losses have almost matched the selloff of the 2013 taper tantrum. And the dollar has surged 9% against the yen, taking it to its strongest since 2002 against a basket of currencies. (…)
The market is becoming ever more crowded into the Trump trade, leaving it more vulnerable to any sign that Mr. Trump might not be as effective as hoped. Those who are staying on had better hope this bull isn’t tiring.