Personal Income and Outlays, October 2019
Personal income increased $3.3 billion (less than 0.1 percent) in October according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) decreased $12.6 billion (-0.1 percent) and personal consumption expenditures (PCE) increased $39.7 billion (0.3 percent).
Real DPI decreased 0.3 percent in October and Real PCE increased 0.1 percent. The PCE price index increased 0.2 percent. Excluding food and energy, the PCE price index increased 0.1 percent.
First glance: weakening trends.
- real disposable income growth was +1.9% a.r. in last 5 months, +1.8% in last 4, and zero in last 2.
- real spending: +2.4% a.r. in last 5 months, +2.4% in last 4, and +1.8% in last 2.
Trump Says China Deal in ‘Final Throes’ as Top Officials Speak
President Donald Trump declared Tuesday that talks with China on the first phase of a trade deal were near completion after negotiators from both sides spoke by phone, signaling progress on an accord in the works for nearly two years.
“We’re in the final throes of a very important deal,” Trump told reporters at the White House. “It’s going very well.” (…)
“I’m holding it up because it’s got to be a good deal,” he said in the interview for O’Reilly’s website. “We can’t make a deal that’s like, even. We have to make a deal where we do much better, because we have to catch up.” (…)
Negotiators are “getting really close” to completing the first phase, White House counselor Kellyanne Conway said on Fox News early Tuesday. She told reporters that the sides continue to negotiate sticking points including forced technology transfer and alleged theft of intellectual property, adding that “things like this take awhile.”
In a statement, China’s Ministry of Commerce said officials “reached consensus on properly resolving relevant issues” and agreed to stay in contact on the remaining points in phase one. (…)
The U.S. Commerce Department on Tuesday released new proposed rules that would give it the power to restrict U.S. imports of foreign technology and their use in domestic supply chains and infrastructure.
From the South China Morning Post:
Global Times, the nationalist tabloid published under the auspices of Communist Party mouthpiece People’s Daily, offered a positive take on the potential deal’s progress, saying that “broad consensus” had been reached while “differences over the scale of tariff removals” remained to be resolved before it could be signed.
U.S. Consumer Confidence Declines Further
The Conference Board’s Consumer Confidence Index for November eased 0.5% (-8.0% y/y) to 125.5 after a little-revised 0.2% October decline. It was the fifth decline in the last six months and left the confidence level 9.1% below its expansion peak reached in October of last year. (…) During the last 20 years, there has been 72% correlation between the level of confidence and the y/y change in real consumer spending.
The decline in confidence reflected a 3.8% shortfall (-3.4% y/y) in the present situations reading to 166.9, the lowest level since June. The expected situations reading improved 3.6% (-12.8% y/y), the first m/m increase since July.
An improved 40.2% of respondents felt that business conditions were good, but that remained below the 42.0% high reached last November. Jobs were viewed as hard to get by an increased 12.7% of respondents, the most since June. A lessened 44.8% felt that jobs were plentiful. On the expectations front, an increased 21.8% thought that income would increase for six months, but that remained below July’s high of 24.9%. A greatly lessened 17.2% of respondents thought that business conditions would improve in six months, down from the October 2018 high of 26.3%. A significantly reduced 15.7% of respondents expected more jobs in six months, down from 22.6% in June of last year. (…)
A greatly reduced 0.7% of respondents planned to buy a new home and a lessened 48% planned to purchase a major appliance.
Confidence amongst survey respondents under age 35 weakened 10.9% (-19.5% y/y) in November. The index level remained sharply below its peak twelve months ago. Confidence amongst respondents aged 35-54 fell 4.4% (-4.0% y/y), the third decline in four months. Confidence amongst respondents over age 55 improved 8.7% (-4.6% y/y) to a six-month high.
Consumer confidence is, at best, a coincident indicator. Some interesting charts from Ed Yardeni:
This chart plots the Conf. Board’s Confidence Index with the U. of Michigan’s Sentiment Index:
Good thing inflation is slow…
It rarely gets better than now, and when it does…
EARNINGS WATCH
We now have 488 company reports in. Actual earnings growth for the 458 companies having reported so far is –0.4% on revenue growth of +3.8%. The beat rate is 75%, the surprise factor +4.5% and the blended growth rate –0.4% (+2.2% ex-Energy), down from +0.3% on July 1
Excluding the effect of buybacks, Refinitiv estimates that Q3 net income declined 2.4% on revenues up 3.8%, a marked deterioration from Q2 when net income rose 2.0% on revenues up 4.7%. Q4 net income is currently expected to decline 2.5% on revenues up 3.9%. This revenue growth estimate looks on the high side given the decelerating GDP growth rate and soft inflation numbers.
On the other hand, buybacks will boost EPS by 2.4% in Q4 and 2.1% in the first half of 2020 from +2.1% in Q3’19 and +1.2% in Q2’19.
Trailing EPS are now $163.87, down 0.3% from $164.43 and $164.31 at the end of August and September respectively.
Q4 estimates keep being ratcheted down to –0.1% (+2.2% ex-Energy from +5.0% 2 weeks ago). This is down from +4.1% on Oct.1.
E PLURIBUS UNUM?
Goldman Sachs’ David Kostin presented his 2020 US Equity Outlook last week, titled “United We Fall, Divided We Rise”. Here’s why:
- Wide spread between high and low valuation stocks
- Wide valuation dispersion suggests Value outperformance
- High dividend yield stocks trade at near-record discount
- Valuation gap suggests strong 12-month forward return
- Dividend Yield & Growth trades at 35% valuation discount Higher yield (3% vs. 2%), faster growth (9% vs. 5%), lower P/E (12x vs. 18x)
Following up on TIME TO GET SCARED?:
