Manufacturers Face New Threat From Fracking Slump Slowing shale-drilling activity is the latest damper on U.S. manufacturers that had come to rely on a booming domestic energy market.
(…) The oil-and-gas industry bought $48 billion worth of manufactured products in 2018, the U.S. Bureau of Economic Analysis said, four times as much as was purchased in 2009.
The boon has left manufacturers more vulnerable to the energy industry’s next slump. Manufacturers have reported sales declines in recent weeks as lower energy prices prompted a slowdown in domestic production growth. The number of new wells in the U.S.—known as the drilling-rig count—fell by 20% in October from last year, hitting a two-year low. (…)
The falling rig count also has choked demand for steel pipe for drilling and casing inside those wells. The U.S. average price for a ton of well-site pipe is down 17% from a year ago, according to market consultant Pipe Logix. (…)
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Natural-Gas Prices Fall on Milder Weather
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US manufacturing limps into fourth quarter, but underlying trend is improving
(…) Macroeconomic Advisers estimate that, outside of autos, manufacturing growth has been trending higher since May.
This tentatively brighter picture tallies with the IHS Markit Manufacturing PMI™ survey, from which the output index rose for a third successive month in October to reach a six-month high of 52.4. The survey’s forward-looking new orders-inventory ratio also rose in October, reaching the second-highest since November of last year. New orders inflows picked up and stronger than expected demand contributed to a reduction in warehouse inventories; all of which bodes well for production in November.
That’s not to say the survey data are pointing to a manufacturing revival: a straightforward linear regression model suggests that the current IHS Markit manufacturing PMI output index is indicative of production falling at a quarterly rate of 0.3%, an improvement on the 0.8% rate of decline signalled in July and August but clearly still negative.
The IHS Markit PMI survey is, however, considerably more upbeat that the ISM survey. Again using regression analysis to determine an implied three-month-on-three month growth rate for manufacturing output, the ISM survey’s output index, at 46.2, is indicating a 2.0% decline in October. (…)
Goods barometer suggests world trade to remain below trend as tensions take toll
World merchandise trade is expected to remain below trend into the fourth quarter of 2019, according to the WTO’s latest Goods Trade Barometer. The indicator’s reading of 96.6 marks a slight improvement compared to the 95.7 registered in August, but it remains well below the index’s baseline value of 100, signalling below average growth.
The Goods Trade Barometer provides “real time” information on the trajectory of world merchandise trade volumes relative to recent trends. Some components of the barometer have stabilized since the last reading in August, while others remain on a downward trajectory reflecting heightened trade tensions and rising tariffs in key sectors.
Indices for export orders (97.5), automotive products (99.8), and container shipping (100.8) have firmed up into on-trend territory. However, the indices for international air freight (93.0), electronic components (88.2), and raw materials (91.4) have all deteriorated further below trend. Electronic components trade was weakest of all, possibly reflecting recent tariff hikes affecting the sector.
Official data confirm the loss of momentum in goods trade foreseen by the Goods Trade Barometer earlier this year. According to the latest WTO quarterly trade volume statistics, merchandise trade rose by only 0.2% year-on-year in the second quarter of 2019, compared with 3.5% in the same quarter of last year. (…)
Investors Parse Mixed Signals Ahead of Retail Earnings Some analysts think the next batch of retail earnings could beat expectations
This week brings earnings reports from Home Depot Inc. HD 0.66% and Kohl’s Corp. KSS -1.15% on Tuesday; Target Corp. on Wednesday; Macy’s Inc. and Nordstrom Inc. on Thursday; and others. Analysts, noting last week’s rosy report from Walmart Inc., and the government’s October retail-sales report, expect other retailers will outperform as well.
“October retail sales showed acceleration,” Nomura Instinet analyst Michael Baker wrote in a note. In fact, he said, over the last three full months the Commerce Department’s numbers were the best since the second quarter of 2018. (…)
Yesterday’s Daily Edge actually showed how weak sequentially the last several months have been. This chart plots Control Sales (MoM%) which feed directly into GDP:
BTW, the rest of the WSJ article deals with factors suggesting that retail demand is weak…
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Home Depot cuts 2019 sales forecast, shares fall
Home Depot Inc (HD.N) cut its full year sales forecast on Tuesday, saying it was taking longer than expected for its investments to integrate its online and in-store shopping experience to pay off.
The home improvement chain’s shares fell 8% in pre-market trading.
Same-store sales at Home Depot rose 3.6% in the third quarter ended Nov. 3, below expectations of a 4.7% increase, according to IBES data from Refinitiv.
Home Depot said it expected its fiscal 2019 sales to rise about 1.8%, compared to a prior forecast of a 2.3% increase.
This is from Refinitiv/IBES as of yesterday:
Retailers reporting Q3 earnings are worried about Chinese tariffs and warning us not to expect much from them in the upcoming quarters. To date, there have been 22 negative EPS pre-announcements for Q4 2019 compared to 7 positive pre-announcements. Accordingly, analysts polled by Refinitiv have been lowering Q4 estimates.
From SentimenTrader:
(…) when we look at the S&P’s returns through Friday’s close, it has gone through 222 trading days in 2019. Its rolling 222-day return had recently spiked because of the trouble near the end of last year, yet it’s year-over-year change in operating earnings is, indeed, negative.
Below, we can see that over the past 20 years, it’s unusual to see divergences like this. The S&P’s rolling return over that long of a time frame correlates closely with year-over-year changes in earnings per share for companies in the index.
SentimenTrader explains that such divergence doesn’t happen very often so there isn’t enough data conclude anything going forward although “the instances most like the current environment showed at least some shorter-term weakness, despite what should have been positive seasonality, so it’s a minor worry.”
Lowry’s Research points out that “once again, there was little support for the price gains in terms of Demand or market breadth. Specifically, Up Volume was 38% of total NY Up/Down Volume while Advances were 43% of total Adv/Dec Issues.”
