THE DAILY EDGE: 2 JULY 2019

US economic expansion becomes longest in history July is 121st month since end of the last recession, eclipsing Nineties boom

• Rich get richer, everyone else not so much in record U.S. expansion

(…) Welcome to the longest U.S. economic expansion in history, one perhaps best characterized by the excesses of extreme wealth and an ever-widening chasm between the unfathomably rich and everyone else. (…)

The number of billionaires in the United States has more than doubled in the last decade, from 267 in 2008 to 607 last year, according to UBS. (…)

The wealthiest fifth of Americans hold 88% of the country’s wealth, a share that has grown since before the crisis, Federal Reserve data through 2016 shows. Meanwhile, the number of people receiving federal food stamps tops 39 million, below the peak in 2013 but still up 40% from 2008 even though the country’s population has only grown about 8%. (…)

“The benefits of this long recovery are now reaching these communities to a degree that has not been felt for many years,” Federal Reserve Chairman Jerome Powell said last week. “Many people who in the past struggled to stay in the workforce are now getting an opportunity to add new and better chapters to their life stories. All of this underscores how important it is to sustain this expansion.” (…)

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• American Pride Hits New Low; Few Proud of Political System

As Americans prepare to celebrate the Fourth of July holiday, their pride in the U.S. has hit its lowest point since Gallup’s first measurement in 2001. While 70% of U.S. adults overall say they are proud to be Americans, this includes fewer than half (45%) who are “extremely” proud, marking the second consecutive year that this reading is below the majority level. Democrats continue to lag far behind Republicans in expressing extreme pride in the U.S. (…)

U.S. Construction Spending Declines; Public Sector Building Trends Higher

Global Manufacturing PMI at lowest level since October 2012

Production fell for the first time since October 2012, as new order contracted at the fastest pace for almost seven years. Business optimism slumped to a series-record low. At 49.4 in June, the J.P.Morgan Global Manufacturing PMI™ – a composite index1 produced by J.P.Morgan and IHS Markit in association with ISM and IFPSM – fell to its lowest level for over six-and-a-half years and posted back-to-back sub-50.0 readings for the first time since the second half of 2012.

Of the 30 nations for which a June PMI reading was available, the majority (18) signalled contraction. China, Japan, Germany, the UK, Taiwan, South Korea, Italy and Russia were among those countries experiencing downturns. The US, India, Brazil and Australia were some of the larger industrial nations to register an expansion.

Sub-sector data indicated that operating conditions deteriorated again in the intermediate and investment goods industries. The consumer goods category fared better in comparison, despite seeing growth ease to a three-year low.

The trend in international trade flows continued to weaken at the end of the second quarter. June saw new export business decline for the tenth straight month and at the joint-fastest pace for six years. Among the largest industrial economies covered, declines were registered in the euro area, China and Japan. Increases were seen in the US and India. (…)

Inflationary pressures remained contained in June. Rates of increase in input costs and output charges both ticked lower and remained below their respective long-run averages. Average vendor lead times (a bellwether of supply-chain price pressures) also improved for the first time in six years as purchasing activity among manufacturers fell for the fifth straight month.

Cornerstone Macro (@csm_research) has this LT chart:

Markit illustrates how weak the Eurozone manufacturing sector is:

A key gauge of underlying price pressures from the survey is the suppliers’ delivery times index. By providing a measure of how busy suppliers are, this index gives insight into their pricing power. Whereas the delivery times index was indicating widespread supply delays and a commensurate build-up of price pressures throughout last year, recent months have seen a swing to a buyers’ market as demand has weakened. Supplier lead-times in fact shortened in June to the greatest extent since 2009. In this environment, suppliers have been increasingly reported to have been offering discounts to boost sales, suggesting prices could fall further in coming months.

Jim Bianco (@biancoresearch) shows that U.S. manufacturers are also feeling pain:

China Accelerates the Opening of Its Financial Sector to Foreigners China will speed up the timeline for opening its financial sector, Premier Li Keqiang said, an effort to attract more business and investment as the trade dispute with the U.S. continues.

U.S. Threatens Further Tariffs on $4 Billion of EU Goods

The Office of the U.S. Trade Representative said Monday that as part of a long-running dispute over aircraft subsidies it would consider tariffs on an additional 89 items with an annual trade value of $4 billion, including cheese, pasta and Scottish and Irish whiskies as well as chemicals and metals. The U.S. in April began the process of imposing tariffs against the EU pending the resolution of a WTO case that found the aircraft manufacturer has received unfair governmental support. The EU has proposed tariffs against the U.S. over a companion case regarding U.S. subsidies of Boeing Co.

The announcement expands the USTR’s earlier threat, and now leaves items with a trade value of about $21 billion a year under consideration for tariffs, according to the statement. The Trump administration has largely sought to portray these tariffs as separate from their other trade efforts, saying that these tariffs are part of a distinct dispute over aviation subsidies, and not part of the overall effort to apply pressure to the EU to negotiate a broad trade deal.

Airbus on Tuesday said “this only adds to the trade tensions but in reality does not change anything.” The level of retaliation is set by the WTO, the European plane maker said, adding the U.S. move made negotiating a solution harder and could result in a “lose-lose situation” for industries on both sides. (…)

The WTO has found that both sides unfairly subsidize their aircraft and may make a decision later this year that would allow the U.S. and EU to impose tariffs as countermeasures to these unfair subsidies. (…)

Experts on the WTO’s litigation process don’t expect the final scale of tariffs to be as large as that proposed by the U.S. and EU. (…)

Best June In Decades

The S&P 500 enjoyed its best June gain since 1955, with 1999 being the only other year with more than a 5% gain. It also managed to hit a multi-year high during the month.

Since 1928, this has had a strong tendency to lead to a good start to July, but not so much after that. For the Nasdaq Composite, it was the 3rd best June in its nearly 50-year history. Like the S&P, big gains tended to bleed into the beginning of July, then got more difficult.

Decline in Share Buybacks Deals Blow to Stock Market Share repurchases by companies contracted for the first time in seven quarters for the three months ended in March, and some say the trend may continue.

Share repurchases contracted for the first time in seven quarters, with S&P 500 companies spending $205.8 billion to buy back stock in the first three months of the year, according to the latest S&P Dow Jones Indices data. While still robust, that is down from a record $223 billion in the fourth quarter, and analysts say the contraction could continue as companies show signs of tightening their purse strings. (…)

Industrial companies in the S&P 500 spent $19.4 billion on buybacks earlier this year, down from $23 billion in the fourth quarter, while consumer discretionary companies spent $17.7 billion through the first three months of the year, down from $25.7 billion at the end of 2018, according to S&P’s data. Communication, financial, real estate and energy companies also trimmed their buyback spending.

Technology firms, meanwhile, increased their spending on buybacks, totaling nearly $68 billion in the first quarter. Apple Inc., the biggest share re-purchaser last year, led the S&P 500 in buybacks in the first quarter, spending $23.8 billion, followed by $10 billion from Oracle Corp. (…)

One other fact is that the number of shares outstanding declined again in Q1, indicating that more shares were bought at lower prices as corporations took advantage of the weak market in January.

Another fact is that companies took advantage of the tax reform to restore some financial ratios.

On a YoY basis, 5 of the 11 S&P 500 sectors showed positive growth in shares outstanding in Q1, each continuing an already established pattern: Materials, Energy, Real Estate, Communication Services and Utes.

Refinitiv numbers indicate that buybacks boosted EPS by 2.4% in Q1. The boost should be 1.8% in Q2, 2.4% in Q3 and 2.7% in Q4 based on recent trends. U.S. banks just got permission to increase buybacks substantially.

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