U.S. Light Vehicle Sales Falter
Total sales of light vehicles declined 1.9% during April (+0.6% y/y) to 17.15 million units (SAAR), following a 2.4% March rise, according to the Autodata Corporation. The decline placed sales 7.6% below the 18.57 million unit high reached last September. April sales have declined 4.0% since December, following a 1.7% twelve-month shortfall during 2017.
Leading last month’s decline was a 3.4% drop (-16.4% y/y) in passenger car sales to 5.42 million units. Sales of domestically made autos eased 5.0% (-17.5% y/y) to 3.90 million units, the lowest level since November 2010. Sales of imported passenger cars improved 0.9% (-13.3% y/y) to 1.53 million units.
Sales of light trucks declined 1.2% (+11.0% y/y) to 11.72 million units. Domestic light truck sales eased 3.8% (+6.9% y/y) to 9.28 million units. Sales of imported light trucks increased 9.9% (30.1% y/y) to 2.45 million units.
Trucks’ share of the U.S. vehicle market rose to 68.4% in April, up from 63.2% during all of last year and 48.8% during all of 2008.
Imports’ share of the U.S. vehicle market surged to 23.2% last month, up from 19.9% in 2015. Imports’ share of the passenger car market increased to 28.2% from 27.7% last year. Imports share of the light truck market surged to 20.9% versus 12.7% low during 2014.
Here’s a longer term chart from CalculatedRisk. No pent-up demand, rising interest rates…
U.S. Construction Spending Slumped in March, Big Upward Revisions to January and February
The value of construction put-in-place slumped in March, falling 1.7% m/m (+3.9% y/y). Unusual winter-like weather was probably at the heart of the March weakness as it was widespread across all categories–private and public, residential and nonresidential. However, the tepid readings previously reported for January and February were revised meaningfully stronger. The 0.1% m/m rise previously reported for February was revised to a 1.0% m/m increase and the unchanged reading previously reported for January was revised to a 1.7% m/m jump. So, notwithstanding the sharp monthly drop in March, for all of the first quarter, construction spending was up 3.3% q/q versus a 2.4% q/q rise in 4Q. (…)
THE PMIs
The U.S. and Japan PMI surveys were released yesterday.
Eurozone manufacturing growth slows again at start of second quarter
The start of the second quarter saw a further slowing in the rate of growth in the eurozone manufacturing sector. The final IHS Markit Eurozone Manufacturing PMI® fell to a 13-month low of 56.2 in April, down from 56.6 in March and slightly above the earlier flash estimate of 56.0. Although still signalling a solid rate of expansion, the upturn has lost noticeable momentum since the PMI hit a record high in December 2017. (…)
Sub-sector data indicated that the slowdown was mainly centred on the intermediate goods industry, although there was also a mild softening in the rate of growth at investment goods producers (which remained the top-performing sector). The rate of expansion in the consumer goods sector ticked higher, but remained below the other two categories.
The weaker growth signalled by the headline PMI was mainly due to slower (yet still robust) increases in new orders and employment. In contrast, output rose at a slightly faster pace than in March. Intakes of new work expanded to the least marked extent since November 2016, in part reflecting a slowdown in the pace of increase in new export orders (also to a 17-month low). Some firms linked this to the recent strengthening of the euro exchange rate, especially against the US dollar. Growth of new export orders slowed in almost all of the nations covered, the only exceptions being slight improvements in Germany and France.
Manufacturing employment rose for the forty-fourth month running in April. Although the rate of job creation eased to its lowest since last August, it remained well above the long-run survey average. Companies attributed the sustained increase in staffing levels to solid growth of new orders and output, alongside a continued accumulation of backlogs of work (a by-product of robust demand testing capacity). (…)
The rate of input price inflation faced by euro area manufacturers remained substantial in April, despite easing to an eight-month low. Higher costs reflected ongoing rises in commodity prices, in some cases exacerbated by supply-side constraints such as raw material shortages. These constraints also impacted on the performance of suppliers, with average vendor lead times again lengthening to one of the greatest extents in the survey history.
Part of the increase in purchase prices was passed on to clients in the form of higher output charges in April. Moreover, the rate of selling price inflation edged up from March’s three-month low. All of the nations covered registered an increase in charges, with the steepest seen in Germany and the weakest in Greece.
China PMI signals marginal improvement in operating conditions
The headline seasonally adjusted Purchasing Managers’ Index™ (PMI™) registered 51.1 in April, up fractionally from 51.0 in March. Operating conditions have now strengthened in each of the past 11 months, though the pace of improvement was only marginal.
Manufacturing production in China continued to increase during April. That said, the rate of expansion was modest, despite picking up slightly since March. According to panellists, output was raised in line with higher new order inflows. Indeed, latest data showed that total new business rose at the start of the second quarter, albeit at the slowest pace for seven months. Data indicated that weaker demand in international markets had partly weighed on overall growth, with new export sales declining for the first time since November 2016 (though only marginally).
Subdued demand conditions coincided with a further reduction in headcounts in April. A number of companies commented on the non-replacement of voluntary leavers alongside efforts to improve operating margins. That said, the rate of job shedding was only slight, having eased to the least marked for three months. Concurrently, higher new work placed further pressure on operating capacities, as highlighted by a sustained rise in backlogs of work.
Companies continued to increase their purchasing activity in response to greater new order volumes. Although improving from March, the pace of growth remained modest overall. At the same time, companies were relatively cautious with regards to inventories, with stocks of finished items and purchased inputs both rising only slightly. Delivery times for inputs at Chinese goods producers continued to increase in April amid reports of capacity pressures at suppliers. That said, the rate at which lead times lengthened was moderate.
Inflationary pressures were relatively muted in April, with the rate of input price inflation little-changed from March and output charges rising only modestly.
Confidence towards the year ahead dipped to a four-month low in April, with some firms citing concerns over future market conditions and the strength of global demand.
The Trump Effect May Finally Be Weighing on China’s Exports
WORLD GROWTH HAS BECOME ALL DOMESTIC
From the April manufacturing PMIs
- U.S.: new export sales continued to increase at a modest pace that was similar to that seen in March.
- Japan: sales to overseas clients increased at a markedly slower rate during April. The rate of new export order growth was marginal overall and the weakest observed across the current 20-month expansionary sequence.
- China: weaker demand in international markets
- Eurozone: slowdown in the pace of increase in new export orders (also to a 17-month low).
Trump’s Aggressive Trade Agenda Brings Heightened Tensions The Trump administration has set the stage for weeks of heightened trade tensions as administration officials race to meet self-imposed deadlines to complete high-stakes talks with China, Mexico, Canada and Europe.
(…) In a survey released Tuesday by the Institute for Supply Management, an executive at a manufacturing firm said that the tariff considerations, “are very concerning. Business planning is at a standstill until they are resolved.” (…)
Meanwhile,
(…) Heating, ventilation, and cooling company Lennox International Inc. said at the start of the year it expected a $40 million impact on pretax earnings from rising commodity prices. After the tariff announcement, the company lifted that projection to $50 million.
Steve Harrison, Lennox vice president of investor relations, said the company is passing the costs on to customers. It raised prices 4% to 6% at the beginning of the year, then on Friday announced another increase of 5% to 8%. His competitors are lifting prices as well, Mr. Harrison said.
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U.S. Companies Squeezed by Rising Commodity Prices Decision-makers at large U.S. companies are considering to rein in corporate spending amid rising commodity prices, reports the WSJ’s Ben Eisen. Part of the increase stems from the Trump administration’s tariffs on imports, including steel and aluminum.
- Uncertainty over trade tariffs is already putting the squeeze on U.S. companies. Tit-for-tat moves by the U.S. and China have been pushing down share prices of tariff-sensitive industrial operators, the WSJ’s Ben Eisen writes, amid fears that levies could ripple across supply chains and lead companies to put hiring or expansion plans on hold. President Donald Trump’s decision to push back deadlines to negotiate exemptions from U.S. steel and aluminum tariffs is adding to the uncertainty. The monthly Institute for Supply Management manufacturing survey found worries over trade have left business planning “at a standstill.” Companies say the prospect of tariffs is already driving up commodity prices, costs that some plan to pass on to consumers even as many manufacturers try to reconfigure their supply chains to get out of the line of fire in a trade war. (WSJ)
Lippmann of Big Short Fame Says Corporates Will Cause Next Pain
Has China Really Kicked Its Debt Addiction? After a year in which China seemed to magically balance cutting debt and boosting growth, renewed signs of corporate financial distress suggest keeping that balance in 2018 will be far trickier.
(…) Chinese property developer Zhonghong Holding Co. last week defaulted on more than $150 million of debt, raising worries that other financially strapped firms may soon follow suit, spooking global markets as happened in 2016.
As the stress mounts, investors should expect more Chinese policy easing in the months ahead. China’s central bank already unexpectedly cut banks’ reserve ratios last month, releasing about half a trillion yuan ($78 billion) of funds for lending. (…)
Regulators are now trying to crimp all forms of shadow financing. Overall lending is finally slowing, which is hitting growth: Industrial profits rose just 3% on the year in March, their worst performance since December 2016.
As companies struggle more, banks may find it hard to pass on their higher funding costs. If banks can’t make money, they will lend less—and growth will slow even further. That explains why the central bank is now moving to offset the pressure on banks’ funding costs with the big reserve requirement cut. (…)
US inflation is not a cause for alarm just yet
The Consumer Price Index May Be Getting Inflation Wrong
Climate Change May Deeply Wound Long-Term U.S. Growth, Richmond Fed Paper Finds Projected increases in average U.S. temperatures “could reduce U.S. economic growth by up to one-third over the next century,” according to a Richmond Fed paper.
Money Manager AllianceBernstein Is Moving to Nashville AllianceBernstein plans to relocate its headquarters, chief executive and most of its New York staff to Nashville, Tenn., in an attempt to cut costs.
(…) In a memo to employees, AllianceBernstein cited lower state, city and property taxes compared with the New York metropolitan area among the reasons for the relocation. Nashville’s affordable cost of living, shorter commutes and ability to draw talent were other factors.
Other money managers have also relocated staff to smaller, lower-wage cities that are emerging as unlikely hives of finance. Pacific Investment Management Co. plans to open a new office in Austin, Texas, later this year as part of a push to hire more tech-savvy workers, The Wall Street Journal reported last month. Denver, meanwhile, has been host to a growing number of Charles Schwab Corp. and Fidelity Investments employees. (…)
New York state lawmakers found a clever way for employers to help their workers circumvent a new $10,000 federal cap on state and local tax deductions. Employers, however, so far aren’t crazy about it.
The idea, which became law last month, creates a new optional payroll tax that shifts the state and local tax deduction from individuals who can no longer fully take it to businesses that can. Employers are worried about compliance costs, interactions with union contracts, complexity across state lines and the difficulty of explaining to workers how a plan that might lead to smaller pay raises still puts more money in their pockets.
“It’s a creative approach by the governor’s office, and I give them credit for thinking through issues,” said Peter Faber, a tax lawyer at McDermott Will & Emery LLP in New York who advises large corporations. “As my clients consider the practical realities of implementing the scheme, they are concerned.” (…)
Nearly 80 Percent of South Koreans Say They Trust Kim Jong Un