U.S. Shoppers Cut Back in January Larger-than-expected decline in retail sales came after a strong round of holiday shopping in December
U.S. retail sales fell a seasonally adjusted 0.8% in January from a month earlier, the Commerce Department said Thursday.
The larger-than-expected loss came after a strong round of holiday shopping in December, which the report revised to a 0.4% gain. Excluding autos, sales were down 0.6%; economists expected an increase. (…)
December and November sales were revised lower, a sign that consumer spending, while still robust, might not have been quite as strong in the fourth quarter as earlier reported. Economists at Goldman Sachs estimate that gross domestic product grew at a 3.2% annual rate in the fourth quarter, down a notch from the 3.3% the Commerce Department reported last month. In addition, the economists lowered their forecast of first-quarter GDP growth to a 2.5% rate from 2.9%.
Behind January’s weakness, two factors might have pushed the sales figures lower. The first was technical: The seasonal adjustments the Commerce Department applied to January sales were less supportive than in years past. The second was the cold weather that spread across much of the U.S. last month and might have significantly weighed on sales. (…)
Cold and wet weather in large parts of the country was likely a factor in weaker debit- and credit-card spending, economists at Bank of America Institute said in a report. Overall card spending among the bank’s customers fell 0.2% in January from a year earlier. But spending actually rose 1.7% in the Western U.S., where weather was relatively mild, and declined in the South, Midwest and East.
One indication of how weather might have weighed on spending last month: Sales at building materials and at lawn and garden stores fell a seasonally adjusted 4.1% from December. That decline “undoubtedly was driven by cold temperatures,” wrote Santander chief U.S. economist Stephen Stanley in a note.
But sales at food services and drinking establishments rose 0.7%, marking a bright spot in Thursday’s report. That could be an indication that the shift in spending away from goods away from services continues as Americans keep re-engaging with prepandemic behaviors. (…)
The data suggest the consumer lost momentum at the start of the year. On a year-ago basis, control group sales growth slipped to 2.4%, which is the slowest gain since April 2020, when the economy was in the depths of the pandemic.
Even as we expect spending will moderate this year, the January slowdown may overstate the near-term pull back in consumption. Households have benefited from a real income tailwind over the past year as inflation is slowing more than wage growth.
While the unique factors of excess liquidity and easy access to cheap credit are tales of the past in the story of consumption, a still-sturdy labor market should lead to only a gradual moderation, rather than collapse in spending this year.
Consumer resilience is positive in the sense that it helps ward off economic contraction but could be problematic if it gets in the way of the downtrend in consumer inflation. This week’s inflation data showed the consumer price index (CPI) came in hotter than expected, with the core CPI up 0.4% during the month.
The data did little to give the FOMC the “greater confidence” it needs to start imminently cutting rates, but the final mile in getting inflation back to the 2% target is expected to be bumpy. How consumer demand evolves will play a key role in continued disinflation and the pullback in January sales suggests some lost momentum.
More from the WSJ:
Economists at Goldman Sachs, for instance, said in a note that cold weather doesn’t explain a decline in e-commerce, as sales by nonstore retailers fell 0.8%. Analysts at Bank of America noted that card spending remained soft in the week ended Feb. 10, despite no big weather events that week.
Growth in aggregate weekly payrolls (black) slowed from 5.9% to 4.7% from December to January. Spending on goods (retail sales) suffered more than services if restaurant spending is any guide. We will get total consumer expenditures at the end of the month. Weakness in January and February is not very harmful.
US Factory Production Declines for First Time in Three Months
The 0.5% decrease in manufacturing output followed a 0.1% gain a month earlier, Federal Reserve data showed Thursday. Total industrial production, which includes mines and utilities, fell 0.1% in January as severe winter weather caused pullback in mining activity. (…)
Excluding autos, manufacturing decreased 0.6% from December, the most since March. It also marked the fourth-straight monthly decline.
Recent surveys, however, suggest the worst of the malaise is drawing to an end. The Institute for Supply Management’s factory index climbed to a 15-month high in January as the largest share of purchasing managers since April reported higher orders.
Separate regional surveys on Thursday showed a slower pace of contraction in New York state manufacturing in February and the first expansion in Philadelphia-area factory activity in six months. (…)
More evidence that the weather slowed things down in January, including hours worked, reversing balmy 2023 January. Note how more normal hours would have boosted aggregate income last month as both the number of employeds and wages were strong.
Fed’s Bostic Says May Take ‘Some Time’ to Hit Rate-Cut Threshold
(…) “The evidence from data, our surveys, and our outreach says that victory is not clearly in hand, and leaves me not yet comfortable that inflation is inexorably declining to our 2% objective,” Bostic said in a speech Thursday in New York. “That may be true for some time, even if the January CPI report turns out to be an aberration.” (…)
The Atlanta Fed chief said last month that he anticipates the first cut to occur in the third quarter of this year. He repeated that position Thursday and noted that he had projected two cuts for 2024 in the central bank’s last quarterly set of economic projections. Market participants are betting the central bank will lower interest rates starting in June. (…)
He also pointed to anecdotal evidence. Business contacts carry the “ring of expectant optimism — perhaps even pent-up exuberance” that could unleash a burst of demand that could reverse the progress made on inflation, Bostic warned. (…)
HERE WE GO!
Follow up on my Daily Edge post “Here We Go!” of January 12.
Finally a concrete measure to begin to really address China’s real estate problem. A Chinese version of the U.S. Resolution Trust Corporation (1989-95 savings and loan crisis) the Fed’s TARP program (2008-10 subprime mortgage crisis): the government and/or the central bank provide low cost funds to purchase vacant apartment buildings from troubled developers or, even better, from troubled LGFVs, thereby transferring bad debt up to the central government and/or the PBOC.
The key part is in bold (my emphasis).
China Revives Socialist Ideas to Fix Its Real-Estate Crisis Xi Jinping aims to put the state back in charge of the crumbling property market, part of a push to rein in the private sector.
Under the new strategy, the Communist Party would take over a larger share of the market, which for years has been dominated by the private sector. Underpinning it are two major programs, according to policy advisers involved in the discussions and recent government announcements.
One involves the state buying up distressed private-market projects and converting them into homes that the government would rent out or, in some cases, sell. The other calls for the state itself to build more subsidized housing for low- and middle-income families.
The goal, the policy advisers say, is to increase the share of housing built by the state for low-cost rental or sale under restricted conditions to at least 30% of China’s housing stock, from 5% or so today. (…)
Beijing’s economic mandarins, led by Xi’s top economic-policy aide, Vice Premier He Lifeng, are still hammering out how to execute the real-estate strategy. Economists caution that the plan could take years to achieve—if it’s achievable at all.
The cost would be huge: potentially up to $280 billion a year for the next five years, or a total of around $1.4 trillion, according to some analysts. (…)
Initial plans call for adding six million affordable housing units in the coming five years, government documents show.
The People’s Bank of China has set aside 500 billion yuan, or roughly $70 billion, in low-cost financing to policy banks to help get the strategy rolling. A handful of projects funded with that money are under way. (…)
Today, more than 90% of Chinese households own their own homes, compared with around 66% in the U.S. (…)
In internal policy discussions, Vice Premier He, one of Xi’s most trusted lieutenants, argued that getting the state more involved would be a way for the government to absorb excess home supply, put a floor under falling prices and help protect banks from having to write down hundreds of billions of dollars of property loans if the market kept getting worse. (…)
The PBOC, China’s central bank, has since allocated 70% of the roughly $70 billion it is making available to three policy banks, China Development Bank, Export-Import Bank of China and Agricultural Development Bank of China, PBOC disclosures show.
China Development Bank disclosed on Dec. 19 that it had granted a line of credit totaling 202 million yuan to the city of Fuzhou to build an affordable housing project. Upon its completion, expected in 2026, the project will have some 701 housing units, which the local government plans to sell to modest-income families at discounted prices.
The bank also extended a 10 million yuan loan to the government of Hunan, a province south of the Yangtze River, to develop government housing in a rundown inner-city district, according to information from the Hunan government.
It’s unclear how much of those funds would be used to develop new projects or to purchase and repurpose existing properties from commercial developers. The bank and Hunan’s government didn’t respond to requests for comment. (…)
Arrest the price declines, solidify the main developers, restore confidence. The cycle will gradually restart.
China steps up ‘whitelist’ mechanism for property sector
Five state-owned Chinese banks have been matched with more than 8,200 residential projects for development loans under the “whitelist” mechanism aimed at injecting liquidity into the crisis-hit sector, government-backed media The Paper reported.
The high number of projects already approved for possible support highlights the government’s efforts to free up funding for the debt-riddled industry, although it is unclear how many will secure loans.
“The progress for whitelist projects is faster than expected and it looks like regulators have put much higher pressure on banks to lend to developers this time,” said Raymond Cheng, head of China research at CGS International.
Under the “project whitelist” mechanism launched on Jan. 26, city governments are recommending to banks residential projects suitable for financial support, and are coordinating with financial institutions to meet projects’ needs. (…)
China Holiday Travel Surge Hints at Consumer Spending Pickup
More than 61 million rail trips were made in the first six days of the national new year holiday, according to official reports. That was the highest in data compiled by Bloomberg News in the last five years, and it marked a 61% increase over the same vacation period in 2023.
“The Chinese consumer is beginning to stir,” said Frederic Neumann, chief Asia economist at HSBC Holdings Plc., adding that spending indicators had exceeded expectations. He acknowledged, though, that surpassing 2023 was a “low bar” given the country was still contending with a rampant outbreak of Covid-19 at the time. (…)
Hotel sales on Chinese e-commerce platforms surged more than 60% from a year earlier, according to media reports citing the Ministry of Commerce.
Just ahead of the holiday, Shanghai reported some 8.8 million tourists, up more than 50% year-on-year, according to state broadcaster China Central Television.
The average daily consumer spending on Meituan’s online platforms during the holiday period jumped some 36% from the same period last year, according to a report from the delivery giant. The report didn’t give the actual value of consumption, but said it exceeded pre-Covid levels in 2019. There was also strong growth from restaurant spending in the first five days of the Chinese New Year break, with overall order volume from groups rising by 161% from last year.
Chinese shoppers also took their spending overseas during the long holiday week, with tourists from the country spending 70% more on food and beverages compared to 2019, according to data from fintech giant Ant Group. Among the top destinations for Chinese travelers were Hong Kong, Japan, Thailand, France and Australia. (…)
Consumer confidence in China has been weak for a range of reasons, including declines in home prices. Sales of some goods such as cars have also lost steam: Passenger car sales fell 26% in January compared to December, according to the China Association of Automobile Manufacturers. (…)
Nvidia bubble?
Source: @financialtimes Read full article
I am not a fan of these comparisons, easy to make up with time and price scales. But NVDA’s recent trends do remind me of CSCO in the late 1990s.
Using Koyfin data, current NVDA vs peak CSCO in 2000:
CSCO NVDA
Trailing P/E: 235.1 95.7
Forward P/E: 155.0 35.6
EV/EBITDA (trl): 125.6 79.8
EV/EBITDA (fw): n.a. 28.6
Those were the days, my friend, we thought they’d never end…