Travelling week. Will post whatever, however and whenever possible. Without my own stuff, posts may not come out as usual…
U.S. Expansion Slowed in August, Survey Shows Factories and service providers are reporting sharply slower growth due to the Delta variant and troubles in hiring and shipping.
U.S. factories and service providers reported sharply slower growth in August, the forecasting firm IHS Markit said Monday in its surveys of purchasing managers.
Its index of service-sector activity, the broadest segment of the economy, fell to 55.2 in August from 59.9 in July, hitting an eight-month low. An index of factory activity dropped to 61.2, a four-month low, from 63.4 in July. A reading above 50 suggests activity—as measured by sales, output, prices and other factors—is growing.
But the surveys show that the Delta variant of the Covid-19 virus, which has led to a new wave of infections and hospitalizations and has spooked consumers, is harming the economy. (…)
The European economy also slowed during August, but less than the U.S., surveys of purchasing managers indicated. (…)
The composite Purchasing Managers Index for the eurozone fell to 59.5 in August from 60.2 in July. And for the first month since the pandemic struck, the services sector grew faster than the manufacturing sector, a sign that the Delta variant is having less of an impact on growth than the supply shortages that continue to hamper factories. (…)
By contrast, surveys of purchasing managers in Japan and Australia pointed to declines in economic activity during August, largely the result of tightening restrictions imposed by their respective governments in response to the Delta variant. Both countries lag behind the U.S. and Europe in vaccinations. The PMI for Japan hit its lowest level for a year, while the Australian measure fell to its lowest level in 15 months.
Other economies across Asia are also seeing a rapid rise in infections across thinly vaccinated populations, and that is likely to slow growth in one of the world’s main manufacturing centers. Largely in response to that development, Oxford Economics on Monday lowered its 2021 global growth forecast to 5.9% from 6.4%. (…)
The WSJ talks about “sharply slower growth”. Here’s the gist of Markit’s survey:
Private sector companies across the U.S. signalled a further strong upturn in business activity during August, however, the pace of growth slowed to an eight-month low. Capacity pressures, material shortages and the spread of the Delta variant reportedly weighed on the output expansion. (…)
Inflows of new business meanwhile also softened in August, rising at the slowest pace since December 2020, led by a marked cooling in growth of demand for services (notably in terms of exports, for which orders fell). Nonetheless, manufacturing firms reported a further marked increase in new order inflows, pointing to robust demand for goods.
Severe supply chain disruptions meanwhile led to a further robust increase in cost burdens at private sector firms midway through the third quarter. The rate of input price inflation accelerated to the second-fastest on record (since October 2009), with both manufacturing and service sectors registering a quicker rise in costs. At the same time, the rate of selling price inflation ticked higher as firms sought to pass higher input prices on to clients. (…)
From the Services PMI:
Meanwhile, input costs rose markedly and at one of the fastest paces on record amid significant hikes in supplier prices and greater wage bills. Subsequently, service providers raised their selling prices at a sharper rate.
From the Manufacturing PMI:
Contributing to the substantial rise in cost burdens during August was a marked increase in purchasing activity amid efforts to build safety stocks. The rate of input price inflation was the fastest on record (since May 2007) as suppliers hiked their charges again. Meanwhile, firms increased their own selling prices at the steepest rate in the series history in the hope of partially passing on higher costs to clients.
Full survey reports:
- IHS Markit Flash US Composite PMI
- IHS Markit Flash Eurozone Composite PMI
- au Jibun Bank Flash Japan Composite PMI
U.S. Crops Wither Under Scorching Heat Extreme heat is baking most of the U.S., causing many crops planted this spring to wilt and further pushing up already high prices for staples including corn and wheat.
Delta Variant Outbreaks in Sparsely Vaccinated Asian Countries Disrupt Production Vietnam has shut down factories and imposed strict new measures to fight a rising wave of Covid-19 after escaping largely unscathed from the first 14 months of the pandemic.
CONSUMER WATCH
Yesterday, Best Buy reported a 19.6% jump in comparable-store sales suggesting there’s still plenty of demand for the electronics that make being at home more comfortable and enjoyable.
Best Buy officers said on a Tuesday call with analysts that “Although we are seeing some shift in consumer spending occur, the impact has been less pronounced than we previously anticipated. (…) customers have an elevated appetite to upgrade due to continual tech innovations. And purchasing patterns reflecting permanent life changes, like hybrid work and streaming entertainment content.”
And as COVID cases have risen, “we’ve just seen this growth continue, honestly, in both experiences and on the retail side,”.
U.S. Existing Home Sales Rise Moderately in July
The National Association of Realtors (NAR) reported that sales of existing homes rose 2.0% (1.5% y/y) during July to 5.990 million (SAAR) following a 1.6% June rise to 5.870 million, revised from 5.860 million. The Action Economics Forecast Survey expected sales of 5.840 million in June. These data are compiled when existing home sales close.
Sales rose throughout most of the country last month. Sales in the Midwest gained 3.8% (-1.4% y/y) to 1.380 million after improving 3.1% in June. In the West, sales rose 3.3% to 1.24 million after a 1.7% June rise, but were unchanged y/y. Sales in the South gained 1.2% both m/m and y/y to 2.63 million after a 0.4% June improvement. Sales in the Northeast were unchanged at 740,000, up 12.1% y/y, after June’s 2.8% rise.
The median price of an existing home slipped 0.8% (17.8% y/y) to $359,900. The median home price was highest in the West, where it rose 0.3% (12.5% y/y) to $508,300. In the Northeast, the median price eased 0.4% (+23.6% y/y) to $411,200. The median home price in the South declined 1.7% (+14.4% y/y) to $305,200. In the Midwest, prices fell 1.1% (+13.1% y/y) to $275,300. The average sales price of all existing homes eased 0.7% last month (+12.0% y/y) to $378,700. The price data are not seasonally adjusted.
The number of existing homes on the market rose 7.3% (NSA) during July to 1.32 million, but the level was down 12.0% y/y. These figures date back to January 1999. The supply of homes on the market rose slightly to 2.6 months, but remained well below its high of 4.6 months in May of last year.
Sales of existing single-family homes rose 2.7% (-0.8% y/y) in July to 5.280 million units (SAAR) after rising 1.4% in June. Sales of condos and co-ops fell 2.7% (+22.4% y/y) to 710,000.
Chinese Factories ‘Can Hardly Find Any Workers’ Labor shortages are materializing across China as young people shun factory jobs and more migrant workers stay home, offering a possible preview of larger challenges ahead as the workforce ages and shrinks.
(…) Those trends pose a serious threat to China’s potential long-term growth rate. They will also make it harder for China to keep supplying the world with cheap manufactured goods, potentially adding to global inflationary pressures. (…)
Samsung to Invest $205 Billion in Chip, Biotech Expansion The South Korean conglomerate plans to increase investments by a third to more than $205 billion over the next three years, as it races for leadership in chip making and a bigger role in Covid-19 vaccine production
TECHNICALS WATCH
My favorite technical analysis firm noted yesterday that the last strong 2-day bounce came with total NYSE volume contracting. SentimenTrader adds this:
A New High but with Negative Breadth
Since the peak of the speculative orgy in February, we’ve been watching for major internal deterioration in the indexes. There were short bursts of unusual behavior in the months following that peak, but stocks immediately recovered.
There were more pronounced divergences during June and July, such as with the percentage of stocks holding above their 50-day moving averages. And with subsequent push to new highs, sentiment was becoming less and less enthused. Knee-jerk contrarians may take that as a positive thing, but stocks need buyers to be ever more optimistic to sustain an advance.
Investor confidence isn’t necessarily the most influenced by movements in the S&P or Dow Industrials. While they get the headlines, investors are more concerned with broader movements in stocks.
Two of our core measures for a long-term, broad look at how healthy stocks are is the NYSE McClellan Summation Index and the Net % of New Highs – New Lows. And right now, they’re signaling caution.
Despite the S&P being near its prior high, the Summation Index is negative. The worst possible combination for this indicator is when it is below zero and declining. That’s when the worst selloffs happen. There was a brief fakeout last September-October, but the current reading is already below that one.
On the NYSE, there are also now more securities falling to 52-week lows than rising to 52-week highs. When this is below zero, the S&P’s annualized return is only about a third of what it is when it’s above zero.
Out of all the times these indicators were below zero when the S&P was near a high, stocks suffered every time but once. There is a bit of boy-who-cried-wolf with this type of analysis because it hasn’t worked at all in 2021. This time, the potential difference is that it’s really the first time such broad and long-term metrics were so poor despite the major indexes holding near their highs.