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U.S. Retail Sales Rise Less Than Expected in September
Sales at retail stores and restaurants rose a seasonally adjusted 0.1% in September, the Commerce Department said Monday. That undershot economists’ expectations for a 0.7% month-over-month increase, and matched the rate of spending in August. Retail sales rose 0.6% in July. (…)
Economists attributed a sharp drop in spending on dining out to the storm. Sales at food services and drinking places fell 1.8% last month, the category’s steepest month-over-month drop in nearly two years. (…)
While motor-vehicle sales recovered in September after declining in August, sales fell 0.1% in September when excluding motor vehicles, missing economists’ expectations for a 0.4% rise and marking the biggest drop since May 2017.
Very messy picture. Nonauto sales excluding gasoline and building materials increased 0.5% in September (4.9% YoY) after little change during the prior month, a 3.0% annualized rate in the past 2 months. But that includes Food Services & Drinking Places (-1.8% MoM) which were likely impacted by hurricanes last month. If we exclude Motor Vehicles & Parts, Gasoline, Building Materials and Food Services & Drinking Places, we get “Control Sales” which feed GDP. Doug Short has the chart:
Empire State Manufacturing Index Increases; Prices Decline
The Empire State Manufacturing Index of General Business Conditions rose to 21.1 in October, reversing some of September’s decline to 19.0. This survey has been range-bound for roughly the last year.
Haver Analytics calculates a seasonally adjusted index that is comparable to the ISM series. The calculated figure increased to 56.4 from 56.0. During the last ten years, the index has had a 69% correlation with the quarter-to-quarter change in real GDP.
While the new orders and shipments readings increased — with both measures at roughly one-year highs — all of the other production-related indices declined. Most notably, unfilled orders dropped from 4.9 to -8.4, the lowest reading this year. The number of employees index decreased to 9.0 from 13.3. During the last ten years, there has been a 77% correlation between the employment index and the month-to-month change in factory sector payrolls. Just 15.1% of respondents reported increased employment, a 15-month low, while 6.1% showed a decrease. The employee workweek reading fell to 0.2 from 11.5, also a 15-month low.
The prices paid index declined to 42.0 from 46.3, its lowest level since January. Forty-five percent of respondents indicated increased prices, while just three percent reported a decrease. Prices received fell to the lowest level since December.
Intriguing report. Good new orders but a sharp drop in backlog. Weak employment, reduced workweek. Slower output inflation with lower margins. Which may explain this curious chart from The Daily Shot:
U.S. Deficit Swells in Fiscal 2018 as Tax Cuts Take Bite The federal deficit widened 17% last year amid higher government spending and flat revenues following last year’s tax cut.
The deficit totaled $779 billion in the fiscal year that ended Sept. 30, up 17% from $666 billion in fiscal 2017, the Treasury Department said Monday. The deficit is headed toward $1 trillion in the current fiscal year, the White House and Congressional Budget Office said. (…)
Interest payments on the federal debt and military spending rose rapidly, while tax revenue failed to keep pace as the Republican tax cuts for both individuals and corporations kicked in.
“The deficit is absolutely higher than anyone would like,” Kevin Hassett, chairman of the Council of Economic Advisers, said last week. He said the administration’s budget for next fiscal year will take “a much more aggressive stance” on curbing federal spending. (…)
Higher government spending and flat revenue combined to drive the deficit to 3.9% of gross domestic product, up from 3.5% of GDP the year before.
By comparison, the last time the jobless rate was below 4%, in 2000, the U.S. ran a budget surplus of 2.3% of GDP. Revenue that year rose 11% from a year earlier. And in 1969, when the jobless rate last touched 3.7%, the U.S. ran a budget surplus equal to 0.3% of GDP. Revenue was up 22% that year.
Annual economic output grew 5.4% between the second quarter of 2017 and the second quarter of 2018, not adjusted for inflation. Government revenue for the fiscal year rose 0.4% to $3.3 trillion through September, also not adjusted for inflation.
The 2018 fiscal-year results include three months—October, November and December—before the new tax law took effect, likely providing a boost to the overall revenue picture that faded as the tax cuts took effect. (…)
Last fiscal year, income taxes withheld for individuals rose 1% but corporate tax receipts fell 31%—both reflecting the broad tax overhaul enacted in December. (…)
At the same time, government spending rose 3% last year, to $4.1 trillion. Rising interest rates and the amount of total debt outstanding drove up federal interest costs 14% last year from fiscal 2017, or $65 billion. Mr. Trump has complained that Federal Reserve interest rate increases are driving up government costs. (…)
This will bite more and more as debt and rates rise:
(…)and this is rising toward $2bn per day over the coming years, see chart below. And this number could rise further as interest rates go up because of an overheating economy, more Treasury supply, and lack of demand for US fixed income from abroad because of higher hedging costs. (Deutsche Bank via The Big Picture)
Chinese Consumers Feel More Pain Than Official Data Suggests Inflation is well below the government’s 3% target, but figures fail to reflect the real rise in cost of housing, education, health care
China’s consumer inflation accelerated for the fourth straight month in September, up 2.5% year-over-year to hit a seven-month high, the National Bureau of Statistics said Tuesday, driven by gains in food prices and higher fuel prices. September’s official reading is up on the 2.3% gain in August, but slightly lower than economists’ expectations. (…)
While official data has rental costs rising by less than 3% this year, the China Real Estate Association, a government-backed industry group, says rents have soared more than 10% in the period. (…)
Nonfood prices—a main driver of CPI this year—increased 2.2% from a year earlier in September, moderating from a 2.5% on-year increase in August. Transportation fuel prices surged by 20.8% on year, extending August’s 19.4% rise and leading gains in nonfood prices, the bureau said.
Rental costs, a component of nonfood prices, rose 2.6% in September, the statistics bureau said. The China Real Estate Association’s data put last month’s growth at 16%. Analysts have said differences in sampling and statistical methods may explain the sharp discrepancy. (…)
Meanwhile, the PPI keeps moderating:
Which does not help paying down that:
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China May Have $5.8 Trillion in Hidden Debt With ‘Titanic’ Risks Further defaults may be in store, according to S&P Global Ratings.
(…) Much of the build-up relates to local government financing vehicles, which don’t necessarily have the full financial backing of local governments themselves.
OPEC urges producers to ramp up investment amid shrinking spare oil capacity
(…) The global oil sector needs about $11 trillion in investment to meet future oil needs in the period up to 2040, Barkindo said, adding that import-dependent countries such as India were concerned about future oil supply.
Crude oil demand is expected to increase by 14.5 million barrels per day (bpd) from 2017 to 111.7 million bpd in 2040, OPEC said in its September report. (…)
India is expected to account for about 40 percent of the overall increase in global demand for the period ending 2040, Barkindo said. Demand for oil in the world’s third-largest oil importer is expected to rise by 5.8 million barrels per day (bpd) by 2040. (…)
EARNINGS WATCH
Thirty reports in, 83% beat rate and a +3.3% beat factor.
SENTIMENT WATCH
