U.S. Durable Goods Orders Falter; Core Capital Goods Orders Drop Again
Manufacturers’ orders for durable goods declined 1.1% (-5.4% y/y) during September following a 0.3% August rise, revised from 0.2%. A 0.9% decline had been expected in the Action Economics Forecast Survey. Orders for nondefense capital goods excluding aircraft, a key indicator of business investment plans, fell 0.5% last month after a 0.6% decline. During the past year, these orders have eased 0.8%, following double-digit y/y growth late in 2017.
The level of durable goods orders overall was pulled lower by a 2.7% decline (-14.3% y/y) in transportation sector orders. Orders for commercial aircraft & parts dropped 11.8% after a 17.8% August decline. Motor vehicle & parts orders fell 1.6% (+0.1% y/y) for the second straight month.
Orders outside of the transportation sector eased 0.3% in September and reversed the prior month’s increase. These orders were unchanged y/y compared to 9.0% y/y growth early last year. (…)
Durable goods shipments declined 0.4% (-1.0% y/y), down for the third straight month. Shipments outside of transportation held steady, and y/y growth of 0.8% compared to 8.7% as of July of 2018. Unfilled orders were fairly steady (-1.8% y/y). Order backlogs outside of transportation also were stable. Year-to-year growth of 0.5% compared to 5.6% as of August 2018. Inventories rose an accelerated 0.5% (4.7% y/y). Outside of the transportation sector, inventories held steady (1.5% y/y) with transportation sector inventories up 11.6% y/y.
- Nonresidential construction activity has been slowing. (The Daily Shot)
Source: The Daily Feather
CONSUMER WATCH
The economy is holding by the consumer nails. Employment growth is key, particularly in services:
- If Markit’s Flash U.S. PMI is right, employment growth will slow meaningfully:
However, despite business activity lifting from recent lows, the composite PMI is still running at a level that is indicative of annualised GDP growth of just under 1.5% at the start of the fourth quarter. Moreover, a near-stalling of new orders growth in October to the lowest for a decade suggests that risks are tilted toward growth remaining below trend in coming months.
An increased rate of job culling adds to the gloomy picture, with jobs being lost among surveyed companies at a rate not seen since 2009. At current levels, the survey’s employment gauge indicates non-farm payroll growth slipping below 100,000. Although manufacturing employment increased to the greatest extent for five months, service sector jobs were cut at the sharpest rate since 2009.
Looking specifically at Services, Markit said yesterday that
Staffing numbers decreased for the second month running in October. Although only modest, the rate of decline in employment levels was the largest recorded by the survey since December 2009.
- From the Challenger Report:
(…) so far this year, employers have announced plans to cut 464,869 jobs from their payrolls, 26.9% higher than the 366,058 cuts announced in the same nine months last year. It is the highest January-September total since 2015, when 493,431 cuts were announced.
- Third-quarter job cuts totaled 133,882, (…) 10.8% higher than the same quarter last year (…) and the highest third-quarter total since 2015.
- Industrial Goods manufacturers have announced 60,943 cuts, 194% higher than the 20,699 announced through the same period last year.
- Automotive companies announced 41,060 so far this year. That is 194% higher than the 13,963 announced through September 2018.
[Tellingly], Retail announced cuts of 65,358 YtD is 23.5% lower than the 85,385 cuts announced in this sector during the same period last year. [Will that hold?]
While job cuts are up in every region, companies located in the Southern United States have seen the largest jump in job cut announcements, as employers in this region have announced 65% more job cuts than through the same period last year.
- Real estate prices are dropping , existing and new:
Actually, “dropping” may be an understatement. The wealth effect for homeowners deflated by 6.0% in Q3:
- It’s a tough time to be a seller in Manhattan’s priciest neighborhoods, where declines for previously owned apartments are accelerating. Resale prices in Tribeca fell 28% year-over-year, the most for any neighborhood, to a median of $2.25 million in the third quarter, according to StreetEasy. Values in Greenwich Village and Chelsea dropped 15%. The Upper West Side and the area that includes Soho were each down 14%. Things are tough in the Hamptons, too. The supply of 1,100 high-end homes for sale at the end of September was the largest going back to 2011, and more than double the total for any quarter before this year, according to Miller Samuel and Douglas Elliman. (Bloomberg)
Robert Shiller: Recession likely years away due to bullish Trump effect
“We’re maybe in the Trump era, and I think that Donald Trump by inspiration had an effect on the market — not just tax cutting.” (…) “I think that [strong spending] has to do with the inspiration for many people provided by our motivational speaker president who models luxurious living,” said Shiller.
I’m no Nobel prize in Economics but there seems to be less and less inspiration to spend as time goes by…
…and much more inspiration to save, however unluxurious interest rates are:
BUSINESS FORMATIONS DECLINING IN THE U.S.
Biz formations spiked in 2017 but have flattened since and even declined a little, somewhat more for “high-propensity” businesses (those that have a high propensity of turning into businesses with payroll). Probably due to tax reform in large part but it raises questions on the validity of the assumptions behind the BLS “birth/death model” which estimates the effect of new establishments on employment each month. Downward revisions on payroll additions could continue.
Architecture Billings Index downturn moderates as challenging conditions continue
The Architecture Billings Index (ABI) score in September is 49.7, which improved from the August score of 47.2. However, any score below 50 indicates a decrease in billings. During September, both the new project inquiries and design contracts scores were positive, posting scores of 59.0 and 54.4 respectively.
“Though still in negative territory, the moderating billings score along with the rebound in design contracts and inquiries serve as a continued note of caution for the industry,” said AIA Chief Economist Kermit Baker, PhD, Hon. AIA. “Continued weakness in the larger economy still doesn’t bode well for future design services, which will likely see continued volatility in the months ahead.”
- Regional averages: South (52.3); West (51.3); Northeast (46.3); Midwest (45.3)
- Sector index breakdown: multi-family residential (53.2); mixed practice (53.0); institutional (48.5); commercial/industrial (45.3)
Overall pretty weak as this CalculatedRisk chart illustrates:
Businesses Fear U.S., China Won’t Reach Deal on Core Issues American companies cheered when the U.S. and China called a cease-fire in their trade war this month, but as both sides work toward drafting an initial deal some worry that a more meaningful, long-term pact may never be reached.
(…) “There is a risk that once something is announced on phase one, it is very unclear what will happen beyond that and whether there would just be continuing talks and no results,” said Christine Bliss, president of the Coalition of Services Industries, an umbrella group that includes everything from financial firms to express delivery.
Those concerns are echoed by other business groups and companies that believe U.S. companies increasingly face high hurdles in the China market.
The preliminary phase one agreement “does not address many of the fundamental issues that have led to heightened tensions” between the U.S. and China, said Libby Cantrill, head of public policy at bond manager Pacific Investment Management Co.
“It would not be surprising if the romance is short-lived and Trump returns to not only more adversarial rhetoric but also more combative actions,” Ms. Cantrill said. (…)
Vice President Mike Pence said Thursday that Beijing is continuing to allow for intellectual property violations, theft of trade secrets and trafficking in the opioid drug fentanyl, issues the U.S. wants addressed in the trade talks. (…)
Yet China hasn’t signaled much interest in making the structural changes sought by the U.S., according to people following the talks.
Quite the reverse. Since May, when Mr. Trump halted negotiations as both sides were believed to be near a deal, Western business groups note half a dozen steps Beijing has taken to limit foreign participation in information technology, telecommunications and the free flow of data in the country. (…)
In addition, China is rolling out a system for “corporate social credit” that could be used to blacklist foreign companies even if an industry is technically open to foreign investments. Under the system, an algorithm would determine to what degree companies are complying with the country’s various laws and regulations.
China has also threatened to put U.S. firms on an “unreliable entities list,” a blacklist of foreign entities that harm Chinese businesses, after the Trump administration blacklisted telecommunications giant Huawei Technologies Co. It isn’t clear if the Trump administration will issue planned licenses to do business with Huawei as part of the phase one deal.
Chinese officials say a new foreign investment law coming into effect next year addresses Washington’s demands on opening up to foreign companies. (…)
China to ask U.S. to remove tariffs in exchange for ag buys in talks Friday: sources
(…) So far, Trump has only agreed to cancel an Oct. 15 increase in tariffs on $250 billion in Chinese goods as part of understandings reached on agricultural purchases, increased access to China’s financial services markets, improved protections for intellectual property rights and a currency pact.
But to seal the deal, Beijing is expected to ask Washington to drop its plan to impose tariffs on $156 billion worth of Chinese goods, including cell phones, laptop computers and toys, on Dec. 15, two U.S.-based sources told Reuters.
Beijing also is likely to seek removal of 15% tariffs imposed on Sept. 1 on about $125 billion of Chinese goods, one of the sources said. Trump imposed the tariffs in August after a failed round of talks, effectively setting up punitive duties on nearly all of the $550 billion in U.S. imports from China.
“The Chinese want to get back to tariffs on just the original $250 billion in goods,” the source said. (…)
- The yearlong trade war has stoked a surge in Chinese nationalism and anti-U.S. sentiment that’s increasingly bleeding into marketing decisions. Companies such as Apple have seen market share in the country dwindle, and brands including Coach and Calvin Klein have rushed to issue public apologies after some of their products ran afoul of Beijing’s political sensitivities. Even if a trade truce is reached, marketing executives say lasting brand damage has been done. (Bloomberg)
WE SUCK!
“You’ve got to be kidding me.”
That was one of the comments posted on WeWork’s staff-wide communications system Tuesday, according to a Bloomberg report (paywalled link). Dozens of employees expressed indignation in messages to colleagues on internal Slack channels.
The outrage comes after Softbank agreed to provide WeWork $5 billion in new financing and up to $3 billion in a tender offer for existing shareholders. Softbank will also speed up an existing $1.5 billion financing commitment. After closing, and following the tender offer, Softbank will own approximately 80% of the co-working giant.
The deal will value WeWork at approximately $8 billion
. Ex-CEO Adam Neumann has the right to sell $970 million of shares, or roughly one-third of his stake, in the tender offer.
As Neumann walks away a billionaire, 90% of current and former employees are left holding stock options that are under water at the roughly $20-a-share valuation implied by the SoftBank deal. They’re expecting thousands of layoffs. (…)
Several employees reportedly noted the irony that WeWork could not afford severance to people it planned to lay off, but that SoftBank agreed to pay a hefty fee to Neumann. (Fortune)