U.S. Housing Starts Rebound After Two Months of Decline
Total housing starts rose 9.2% during August (9.4% y/y) to 1.282 million (AR) from 1.174 million in July, revised from 1.168 million. That followed an 11.4% June decline to 1.177 million, revised from 1.158 million. A rise to 1.240 million starts had been expected in the Action Economics Forecast Survey.
Starts of single-family homes increased 1.9% (-0.2% y/y) last month to 876,000 units following a 1.1% July rise to 860,000. Starts of multi-family units surged 29.3% (38.1% y/y) to 406,000, the highest level since March. (…)
Building permits declined 5.7% last month (-5.5% y/y) to 1.229 million units following a 0.9% July rise. It was the lowest level of permits since May 2017. Single-family permits were off 6.1% (+2.1% y/y) to 820,000, the lowest level in twelve months. Permits to build multi-family homes dropped 4.9% (-17.7% y/y) to 409,000, the lowest level since March 2016.
Given the weakness in permits, nothing to write home about.
ATA Truck Tonnage Index Fell 1.8% in August
Thanks Craig.
American Trucking Associations’ advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index decreased 1.8% in August after increasing 1.9% in July. In August, the index equaled 112.9 (2015=100), down from 115 in July. (…)
Compared with August 2017, the SA index rose 4.5%, down from July’s 8.6% year-over-year increase. Year-to-date, compared with the same period last year, tonnage increased 7.6%, far outpacing the annual gain of 3.8% in 2017. (…)
Ed Yardeni plots the 3-m m.a. in YoY against GDP. Momentum has peaked out.
But another burst may be coming:
BOOM-BUST
China Races to Get Goods to the U.S. Before Tariffs Hit
At sea and in the sky, the U.S. president’s trade war with China has ignited a freight frenzy. Hyundai Merchant Marine Co.’s vessels leaving China for the U.S. are full, deliveries to California ports are surging, and cargo rates for journeys across the Pacific are at a four-year high.
The levies that kick in Monday have amplified the busy pre-holiday season as Chinese manufacturers rush everything from toys to bikes to car parts into American stores before tariffs hit. At Air China Ltd., freight to the U.S. is booming.
Starting Monday, a 10 percent duty applies to $200 billion of Chinese imports — Trump’s biggest salvo yet in a trade war between the world’s largest economies that now directly hits U.S. consumers. After that, American importers have until the end of the year to stockpile Chinese products before the tariff leaps to 25 percent. (…)
China Plans Broad Import Tax Cut as Soon as October
China is planning to cut the average tariff rates on imports from the majority of its trading partners as soon as next month, two people familiar with the matter said, in a move that will lower costs for consumers as a trade war with the U.S. deepens. (…)
The move comes as the nation is trying to stimulate domestic consumption to support a slowing economy, and follows similar cuts to tariffs in July on a wide range of consumer goods. (…)
Wages Are Growing: Should Investors Worry?
(…) The August [payroll] report, however, raises the possibility that Goldilocks is leaving the building.
“The current pace of job gains, coupled with a multi-decade low in unemployment claims, is more than sufficient to keep the unemployment rate trending down—which means wage pressures should intensify,” says Schwab chief investment strategist Liz Ann Sonders.
Evidence of the upward pressure on wages can be found in the National Federation of Independent Business (NFIB) survey for August. It showed that a large chunk of small businesses are reporting higher worker compensation, and the share of small businesses planning to boost pay in the next three months is at a historically strong 21%. (…)
The jury is still out on wages in spite of the continued strength in the labor market and increasingly widespread shortages. The NFIB survey covers mainly very small businesses. The various Fed districts do their own surveys summed up in the monthly Fed Beige Book. Here’s what came out of the recent Being Book covering the month of August. I also include salient comments on prices and tariffs.
BOSTON
- wage increases were mixed
- Prices were reported to be unchanged or up slightly
- Most contacts noted the tariff issue but said that, so far, the effects have been small and they did not expect too much damage if they are expanded.
NEW YORK
- wage pressures remain fairly widespread, though they have not intensified. Fewer businesses indicated planned wage increases than had been the case in recent months.
- tariffs were driving up costs, particularly in the manufacturing sector.
- As for selling prices, however, fewer businesses than in recent months said they were raising their prices—particularly in the wholesale trade sector. A number of wholesale trade and transportation contacts said they planned to hike prices in the months ahead.
PHILADELPHIA
- wage growth continued at a moderate pace. Once again, over half of the nonmanufacturing contacts reported increases in wage and benefit costs. Staffing firms reported no dramatic changes in wage trends; even in labor markets with the District’s lowest unemployment rates, wages were said to “continue to inch up.”
- Price increases remained modest for most firms but were stronger for prices faced by manufacturers. Among nonmanufacturing firms, less than one-third reported
increases for prices paid and for prices received – somewhat lower than in the prior period. One-third of the manufacturing firms continued to report increases in
prices received for their own goods; however, more manufacturers paid higher prices this period, with nearly two-thirds noting increases. Bankers and other contacts
cited labor shortages, wage pressures, and tariffs as concerns for spurring inflation, but none reported evidence of current inflation. - For those firms already impacted, contacts often cited double-digit price increases; some typical responses were that tariffs “have put us out of business” on certain products and “are a cloud on every facet of our business planning.”
CLEVELAND
- Staffing levels and wages rose moderately during the reporting period in a similar fashion to rises in recent survey periods. Overall wage pressures were in line with the moderate trends seen so far in 2018
- Both input prices and final selling prices continued to rise and anecdotes suggest price pressures were similar to those of the previous two survey periods. One retailer pointed out that the firm was beginning to see an increase in the firm’s costs because of import tariffs.
- Final selling prices trended higher. Construction firms aggressively raised their prices to pass along higher materials costs. More than half of manufacturing contacts raised their prices for a fourth consecutive reporting period. Service-sector industries reported relatively more modest price increases as firms attempted to cover rising worker compensation costs.
RICHMOND
- Wage increases remained modest, overall.
- On balance, prices grew at a moderate rate since our previous report. According to our latest surveys, manufacturing input prices rose moderately and continued to
outpace selling prices. Meanwhile, service sector firms indicated that both their prices paid and prices received grew at a moderate rate.
ATLANTA
- Contacts continued to report that wage pressure was growing; however, increases greater than 2 to 3 percent remained targeted, rather than broad-based. In response,
firms continued to approach compensation creatively (e.g., offer enhanced flexibility, use bonuses and other incentive pay, and offer profit sharing or other forms of temporary compensation that can be discontinued if necessary). - more ability to pass along these price increases than in the previous report. Anticipation of rising costs related to tariffs continued to contribute to vendor price increases for commodities. The Atlanta Fed’s Business Inflation Expectations (BIE) survey showed year-over-year unit costs were up 2.0 percent in August. Survey respondents indicated they expect unit costs to rise 2.1 percent over the next twelve months.
CHICAGO
- Wage growth remained modest overall, with wage increases most likely to be reported for managerial, professional and technical, and production workers. Most firms reported rising benefits costs.
- Prices rose modestly in July and early August, and contacts expected prices to continue to increase at that rate over the next 6 to 12 months.
ST LOUIS
- Small business contacts highlighted the tight labor market as their main challenge, citing difficulties matching compensation and benefits that larger employers offer.
Wages have increased modestly since the previous report. On net, 40 percent of survey respondents indicated that wages were higher or slightly higher than a year
ago, and 39 percent reported increases in labor costs. - Prices have continued to increase modestly since the previous report. On net, 32 percent of business contacts reported that prices charged to consumers increased
relative to a year ago, about the same share as three months prior. - On net, 33 percent of survey respondents indicated that costs were higher than the same time last year.
MINNEAPOLIS
- Wage growth was moderate to strong since the last report. An ad hoc survey of Minnesota staffing firms found average wage growth of 3 percent to 5 percent, with similar expectations for the coming year.
- Increasing entry-level wages from $11 to $13 “hasn’t had much of an impact in recruiting, but moving to over $15 has.” A North Dakota contact said wages for entry-level office jobs have risen from $12 to $14 over the past year, while those for entry-level forklift operators have gone from $14 to $16 or more
- Price pressures increased moderately relative to the previous report.
KANSAS CITY
- Wages rose modestly in most sectors, and moderate wage growth was expected in the coming months.
- Input and selling prices rose in most sectors in late July and August, and additional increases were anticipated moving forward. Selling prices in the retail sector increased
moderately compared to the previous survey period, while input prices rose robustly.
DALLAS
- Wage pressures remained elevated, with more than 60 percent of firms saying they were increasing wages and/or benefits to recruit and retain employees. Upstream
energy firms reported significant pressure to raise wages in the Permian Basin despite flattening of the rig count, and midstream and downstream energy companies also
cited rising wage pressures, particularly for personnel with less than five years of experience. A transportation services firm was offering up to $15,000 in multi-year
sign-on bonuses in some areas. Retailers noted difficulty filling lower-level positions, with several contacts reporting starting wages of $15-$16 per hour to remain competitive. - Nearly 60 percent of firms said they were unable to pass higher labor costs to customers through price increases.
- Price pressures remained elevated in part due to tariffs, although they did ease slightly over the reporting period in manufacturing and retail. Price pressures were little
changed in the service sector. Firms’ ability to pass on higher costs to customers was limited, although a few did mention plans to raise prices in the near term.
SAN FRANCISCO
- Wage growth ticked up broadly, and some businesses increased benefits in response to more labor retention challenges.
- Price inflation increased moderately over the reporting period.
With the exception of the Dallas and SF Feds’ surveys, indications are that wages and labor costs are not taking off, nor are selling prices. However, input costs are rising in manufacturing with limited pass through so far. Tariffs were not broadly cited as adversely impacting with the exceptions of steel and aluminum users.
Overall, the August Beige Book raises no loud bells on wages, inflation and profit margins. Same with recent PMI surveys.
So, why this?
Here’s a clue:
Source: Deutsche Bank Research (via The Daily Shot)
Another factor may be that we have just passed the date when corporations could contribute to their pension fund and tax deduct at their 2017 tax rate.
30’s are now 3.20%. Jeff Gundlach says a close above 3.25% is “a game changer”.
Julien Brigden: Since 1985 the 100 month moving average has held the bull trend. We have NEVER closed above. It’s now at 3.2169%.
Trump: “The OPEC Monopoly Must Get Prices Down Now!”
OECD Sees Trade Tensions Hindering Global Growth “It’s not the end of the recovery, but the risks are piling up,” says chief economist
The Paris-based research body slightly lowered its targets for global growth Thursday, saying it now expects output to rise by 3.7% in each of 2018 and 2019. In May, it had expected output to grow by 3.8% this year and 3.9% next. (…)
Alibaba’s Ma Recants Promise to Create One Million U.S. Jobs Chinese technology tycoon Jack Ma is recanting his promise to create one million jobs in the U.S., citing the trade spat between the world’s two biggest economies.
Calpers Looks to China for a New Chief of Investment An official with China’s foreign-exchange regulator is the lead candidate to become next investment chief of the largest U.S. public pension fund.
Oaktree’s Marks says Brexit makes UK too risky to invest in ‘So far no good’, says billionaire investor on progress for a deal on leaving the EU
(…) “We don’t tend to play where the probability distribution is extremely wide, or where the left hand tail goes way, way, way down” because dreadful outcomes cannot be ruled out, he said. “And Britain is that place.” (…)