Orders for Long-Lasting Goods Rise Modestly New durable-goods orders increased by 0.4% in April, the sixth increase in seven months.
New orders for products meant to last at least three years increased by 0.4% to a seasonally adjusted $265.3 billion in April following a revised 0.6% rise in March, the Commerce Department said Wednesday. April marked the sixth increase in seven months.
Nondefense aircraft and parts orders were up 4.3%, rebounding from an 8.1% decline in March.
Excluding defense, orders of durable goods rose 0.3%. (…)
New orders for nondefense capital goods excluding aircraft, so-called core capital goods, a closely watched proxy for business investment, rose 0.3% to $73.1 billion in April compared with the previous month. (…)
U.S. Mortgage Applications Continue to Weaken
The Mortgage Bankers Association’s Loan Applications Index fell 1.2% (-54.5% y/y) in the week ended May 20 after declining 11.0% in the prior week. Applications to refinance an existing loan continued to lead the decline with 3.9% drop (-74.9% y/y) after falling 9.5% in the week earlier. Applications for purchase improved 0.2% (-16.4% y/y) after falling 11.9% in the prior week.
The share of applications for refinancing fell to 32.3% in the week ended May 20. That as half the percentage this past December and nearly the lowest reading since December 2000. The percentage that were ARMs fell to 9.4%. (…)
While on financing matters:
Fresh projections from the Congressional Budget Office show that higher interest rates could put pressure not seen in years on lawmakers’ spending plans, Axios’ Courtenay Brown writes.
As interest rates go up amid the Fed’s aggressive campaign to tamp down inflation, the cost of federal interest payments is expected to rise substantially — giving more fuel to those who want to pull back on spending. “Those are outlays that will soak up revenues, in a sense,” CBO director Phillip Swagel said at a press conference yesterday. “There are dollars going to that and not going to other uses, whether it be national security or education.”
The CBO estimates the 10-year Treasury yield will average 2.9% in 2023, almost a full percentage point higher than its last forecast a year ago.
- Interest costs will top $1 trillion by 2032, per the CBO’s projections. That would be a record-shattering 3.3% of GDP — more than double its share this year.
- The expected rise in rates accounts for about 70% of that growth in debt service costs over the next decade. The rest comes from annual deficits that are expected to add to debt levels (check out the chart above).
“Even as we see interest rates going higher, we don’t have recession in our forecast,” says Swagel. “We don’t have interest rates spiking in the way that might indicate the sort of sharp fiscal crunch. So this is a looming challenge, but we wouldn’t say it’s an immediate one.”
Data: Congressional Budget Office; Chart: Axios Visuals
The price of eggs is expected to rise as much as 21% this year, up from previous estimates of 6%–7%, new government data out today shows. (…) A bird flu outbreak that began in January has killed about 6% of commercial egg-laying chickens in the U.S., and the disease is still spreading. (…)
- Poultry prices are expected to increase between 8.5% and 9.5%. The average price of a dozen large, grade A eggs was $2.52 in April and $2.05 in March, compared to about $1.40 in the spring of 2019.
Natural gas prices soar
Dick’s Sporting Goods Cuts Outlook
Dick’s Sporting Goods Inc. cut its earnings outlook for the year after posting a decline in first-quarter sales, but executives said that demand for fitness and outdoor goods was still strong.
The sports equipment and apparel chain said same-store sales, which reflect stores open at least a year and include digital sales, dropped 8.4% in the quarter while overall sales fell 7.5% from a year earlier. The company said it is now projecting same-store sales could fall as much as 8% this year and lowered its profit outlook.
On a conference call Wednesday, executives said they were being cautious given the uncertain macroeconomic situation but that they hadn’t seen big shifts in consumer spending. Executives said they haven’t had to resort to additional discounting to sell items. (…)
Ms. Hobart said a 40% increase in inventory levels at Dick’s was healthy and there were areas where she wished the company could find even more goods to sell. “We are still chasing products in certain categories,” she said. “We are not anticipating any significant markdown risk.” (…)
Dick’s new forecast calls for same-store sales to fall between 2% and 8% this year, compared with an earlier projection of being flat to down 4%. Per-share earnings adjusted for certain items are expected to be between $9.15 and $11.70, compared with the company’s prior guidance of $11.70 to $13.10. (…)
“No big shifts in consumer spending”? Dick’s sales are down 8.4% in Q1. CPI-Sporting Goods is up 7.5%! Perhaps if they had discounted a little sales would have been a bit better. As to markdown risk, good luck with inventory up 40%.
Fed officials raised possibility of ‘restrictive’ policy to fight inflation Minutes from May meeting show US central bank considered more hawkish stance on interest rates
- Fed Minutes Show Urgency for Raising Rates to Tame High Inflation Officials at this month’s meeting were in agreement on need for further half-point increases in June and July
(…) Officials “noted that a restrictive stance of policy may well become appropriate,” the minutes said. (…)
In an interview with The Wall Street Journal last week, Fed Chairman Jerome Powell laid out a relatively high bar to slow down rate increases. “This is not a time for tremendously nuanced readings of inflation,” he said. “We need to see inflation coming down in a convincing way. Until we do, we’ll keep going.” (…)
- ECB Signals Delayed Bond Runoff, Diverging From Fed Officials at the European Central Bank say they aren’t ready to discuss shrinking their €5 trillion bond holdings
(…) “I don’t expect any discussion on that [the ECB’s bondholdings] at least for the remainder of this year and into next year. So we will focus on [interest] rates,” said Klaas Knot, who sits on the ECB’s rate-setting committee as governor of the Netherlands central bank, in a panel discussion at the World Economic Forum in Davos, Switzerland. “That will imply that we will have a large balance sheet for still some time to come.” (…)
The Bank of England, Europe’s second most important central bank, has already started to reduce its stock of government bonds. In early February, policy makers voted to stop buying new bonds to replace maturing securities, so that by the end of the first quarter the stock of government bonds owned by the central bank stood at £847 billion, equivalent to $1.06 trillion, down from £874 billion at the start of the year. At their meeting earlier this month, policy makers asked staff to draw up a plan for selling government bonds that they will consider at their August gathering. (…)
Apple Raises Salary Budget Amid Tight Labor Market The iPhone maker told employees in an email that the company is increasing its overall compensation budget, a move that comes as it faces store unionization attempts and higher inflation.
Starting pay for hourly workers in the U.S. will rise to $22 an hour, or higher based upon the market, a 45% increase from 2018. Starting salaries in the U.S. are also expected to increase. (…)
Some workers, including those hourly employees in its stores and AppleCare, were told their annual reviews would be moved up three months and that their pay increases would take effect in early July, according to a memo reviewed by The Wall Street Journal. The normal review process coincides with the end of Apple’s fiscal year in the fall.
Those workers were told the company’s increased compensation budget would be in addition to pay increases and special awards already received within the past year.
Facing a war for talent, tech companies have also seen their biggest compensation tools—stock awards—hindered by a downturn in company valuations. Apple shares have fallen 21% this year through Wednesday’s close. (…)
BTW, APPL plans to keep iPhone production roughly flat at 220 million this year, below market estimates of around 240 million, as the year turns increasingly challenging for the smartphone industry. (Bloomberg)
- This is the unions’ chance to seize control of Britain – and they’re taking it Another railway strike will trigger a new generation of mass walkouts
Late on Tuesday evening, the National Union of Rail, Maritime and Transport Workers (RMT) announced that an overwhelming majority of 40,000 rail staff had voted in favour of national strike action in the coming weeks. From the 71pc of those that took part, 89pc voted in favour of strike action and only 11pc voted against it, the RMT said.
China’s Premier Gives Dire Growth Warning in Unpublished Remarks
(…) Li told attendees that economic growth risks slipping out of a reasonable range, according to people familiar with the discussions. He said China will pay a huge price with a long road to recovery if the economy can’t keep expanding at a certain rate. That means growth must be positive in the second quarter, and the unemployment rate must drop, he said, according to the people, who declined to be identified in order to discuss official matters. (…)
Growth is the key to solving all problems in the country, such as creating jobs, ensuring people’s livelihood, and containing Covid, he said. (…)
He told local governments to make sure summer harvesting and stocking is conducted smoothly — meaning the harvest can’t stop even if there is a Covid outbreak. Local officials will be held accountable if they can’t stabilize grain production, he warned, adding that it’s their basic responsibility. (…)
The premier told officials to keep coal mines in operation as long as they meet work safety this summer, adding that energy would be in short supply no matter the state of the economy. Power cuts cannot happen, he added.
Li also highlighted the importance of manufacturing in China, which he said was a mainstay that employs as many as 300 million people, unlike developed countries where service industries make up the lion’s share of the economy. The industrial chain must be protected, he said.
That sounds like the end of “Covid-Zero”.
- Global firms warn of sluggish China demand due to lengthy COVID curbs
- China property market slumps on developers’ debt crisis, weak buyer sentiment
(…) Analysts said the national housing inventory is at a high level, particularly in tier-three and four cities which face large de-stocking pressure due to slowing demand. (…) Fitch Ratings last month lowered its forecast on the property sales by value, expecting them to fall 25%-30% in 2022, compared to a previous forecast of 10-15% fall.
Reuters Graphics
Guns now kids’ top cause of death
The leading cause of death among American children is now guns.
- Firearms passed motor vehicles as the top killer of kids in 2020, the most recent CDC data available, Axios’ Caitlin Owens writes.
Data: CDC. Chart: Thomas Oide/Axios