U.S. Light Vehicle Sales Fall Back During May
The Autodata Corporation reported that light vehicle sales during May declined 7.8% (+41.5% y/y) to 17.09 million units (SAAR) following two months of increase to 18.54 million units, the highest level since July 2005.
Sales of light trucks declined 9.1% (+39.2% y/y) in May to 13.03 million units from the record 14.33 million in April. Purchases of domestically-made light trucks fell 10.0% (+39.2% y/y) to 9.87 million units. Sales of imported light trucks were off 6.0% (+39.2% y/y) from the record 3.36 million in April.
Trucks’ share of the light vehicle market fell to 76.2% last month but remained near the record.
Passenger car sales fell 3.3% (+49.6% y/y) in May to 4.07 million units. Purchases of domestically-produced cars weakened 6.2% (+40.2% y/y) to 2.58 million units. Bucking the downward movement, sales of imported autos improved 2.1% (69.3% y/y) to 1.49 million.
Imports’ share of the U.S. vehicle market increased last month to 27.2%, up from this year’s low of 23.9% in January. Imports’ share of the passenger car market rose to 36.6% in May. Imports’ share of the light truck market improved to 24.3%.
May sales (red dot) were somewhat above their pre-pandemic levels in spite of shortages and rising prices. Last 3 months: 17.9M vehicles on average, 5% above the 2019 total.
Meanwhile, MAGA is not working in automotive:
The Chase consumer card spending tracker stayed very firm through May 29:
Most spending categories are now back to their Jan. 2019 level except Airlines and Hotels:
The latest data from the TSA reveals that over the Memorial Day weekend (Friday to Monday, inclusive) more than 7.1 million travelers passed through an American airport checkpoint. Those numbers are the highest that the TSA has reported since early March 2020, before the pandemic ground the industry to a halt. (Chartr)
(Goldman Sachs)
COMPOSITE PMIs
A resurgent services economy helped to drive private sector growth higher during May. After accounting for seasonal factors, the IHS Markit Eurozone PMI® Composite Output Index recorded 57.1, up from 53.8 in April. Not only did May mark a third successive month of expansion, but the best recorded since February 2018.
The upturn in the index was driven in the main by a noticeable acceleration of growth in services activity. May’s data indicated a second successive monthly rise in service sector output, and the best recorded for nearly three years. Nonetheless, despite seeing the slowest growth for three months, manufacturing output continued to a rise at a sharper rate than services activity.
At the country level, Ireland led the way, with growth here reaching its highest level in just over 21 years of data collection. Spain also performed strongly, registering its best performance in fourteen-and-a-half years, whilst growth in France hit a ten-month high.
Germany saw growth improve slightly, but it was Italy that recorded the weakest net rise in private sector output despite enjoying the sharpest growth in over three years.
Thanks to continued strength in demand for manufactured goods and a noticeable improvement in services new business, private sector new work rose to the strongest degree since June 2006.
Sales growth was also broad-based by demand source, with gains recorded in both domestic and international markets. New export business rose for a sixth successive month, with the net increase the sharpest since composite data were first available in September 2014.
Such was the rise in new work that companies struggled to keep on top of overall workloads, as evidenced by a rise in backlogs of unfinished business for a third month in succession. The rate of growth also accelerated, reaching its highest level in over 18 years of data availability.
This encouraged companies to take on additional staff for a fourth successive month. The net rise was the sharpest recorded by the survey in over two-and-a-half years, with growth led by Germany and Ireland.
Confidence in the outlook also improved during May, hitting its highest level since comparable data were first available in mid-2012. That was despite signs of continued cost pressures. Input prices overall increased to the sharpest degree in over a decade.
Efforts to pass on higher input costs to clients in the form of increased output prices meant that output prices rose at the strongest rate in the series history.
May’s IHS Markit Eurozone PMI® Services Business Activity Index jumped to its highest level for just under three years in May, recording 55.2, up from 50.5 in the previous month.
All nations recorded an improvement in activity since April, albeit with some considerable differences in growth rates. Ireland and Spain led the way, followed by France. Germany recorded the slowest expansion.
The improvement in overall regional activity coincided with the easing of COVID-19 restrictions across a number of nations during May, which helped not only support output growth, but also a rise in volumes of new business for the first time since last July. Growth was also sharp, and the best seen for 40 months.
Backlogs of work increased as a result, rising for a second month in succession and encouraging companies to take on additional staff for the fourth month running. Overall employment rose solidly and at the strongest rate since February 2020. Positive projections for activity in line with expectations of the successful rollout of vaccination programmes also supported hiring activity. Sentiment was the highest recorded by the survey for over 17 years.
Operating expenses meanwhile rose at the greatest rate for over a decade, as pipeline price pressures were felt in the service sector. Although output charges rose again, the rate of inflation was relatively modest despite hitting a 25-month high.
Chris Williamson, Chief Business Economist at IHS Markit:
(…) The service sector revival accompanies a booming manufacturing sector, meaning GDP should rise strongly in the second quarter. With a survey record build-up of work-in-hand to be followed by the further loosening of covid restrictions in the coming months, growth is likely to be even more impressive in the third quarter.
A growing area of concern is capacity constraints, both in terms of supplier shortages and difficulties taking on new staff to meet the recent surge in demand. This is leading to a spike in price pressures, which should ease as supply conditions improve, but may remain an area of concern for some months, especially if labour shortages feed through to higher wages.
May data pointed to another strong performance of China’s service sector. Business activity and new orders both rose sharply, despite rates of expansion softening since April, while firms continued to add to their staffing levels. However, the latest survey also showed a sharp and accelerated rise in input costs, which in turn led to a steeper increase in prices charged. Business expectations for the year ahead remained strongly positive in May, though the overall degree of optimism edged down to a four-month low.
At 55.1 in May, the headline seasonally adjusted Business Activity Index slipped from April’s four-month high of 56.3, but remained firmly above the neutral 50.0 level to signal a marked increase in activity. The latest upturn in output also extended the current sequence of rising activity to 13 months.
Higher levels of business activity were supported by a sustained increase in sales. In line with the trend for activity, the rate of growth was not as quick as that seen in April, but nonetheless sharp. According to panel members, customer demand continued to recover due to the successful containment of COVID-19 in China, while there were also reports of new product offerings boosting sales. The resurgence of the virus in other regions across the world weighed on new export business, however, which fell for the third time in four months (albeit only slightly). Employment across China’s service sector rose for the third consecutive month, with a number of firms adding to their payrolls due to rising sales. That said, the rate of job creation softened slightly since the previous month.
At the same time, there was a renewed upturn in backlogs of work, with firms often commenting that growth of new orders placed pressure on operating capacities. Though modest, the rate of accumulation was the steepest recorded for over a year.
Cost pressures at Chinese service providers continued to build in May amid reports of higher prices for raw materials, energy, staff and transport. Notably, the rate of inflation was the quickest recorded since last November and sharp.
As part of efforts to alleviate pressure on margins, prices charged by services companies increased again in May. The rate of inflation was the quickest recorded in 2021 to date and solid.
The 12-month outlook for service sector activity remained strongly positive midway through the second quarter, with optimism often linked to expectations of firmer client demand both at home and abroad, and new product releases. However, there were concerns over how long the global economy will take to recover from the pandemic, which led the overall degree of positive sentiment to dip to a four-month low.
The Composite Output Index fell from 54.7 in April to 53.8 in May,to signal a softer expansion of overall Chinese business activity.Nonetheless, the rate of growth was solid and quicker than the series average (52.6). Service providers continued to register a stronger expansion of output than manufacturers, though both sectors saw rates of growth ease since April.
Composite new orders also rose solidly in May, with the rate of increase little-changed from the previous month, as an acceleration of growth at goods producers largely offset a softer rise at services companies.
Total employment rose for the third month running, albeit modestly.Prices data meanwhile pointed to the quickest rise in composite input costs since December 2016, which led to the steepest increase in output charges since February 2011.
Inflation readings from the PMIs:
Australia is one of the most advanced country in its re-opening. Here’s the latest findings from Markit’s PMI surveys on inflation:
- Services PMI: “higher cost burdens were borne by service providers in May due to price increases across an array of items such as power bills, transport expenses and rising wages. Overall, input price inflation was the fastest on record. In turn, firms continued to direct part of these price increases to customers, sending average selling prices up at the fastest rate in the five-year series history.
- Composite PMI: Inflationary pressures remained for private sector firms with input cost inflation accelerating to the fastest ever level in May. An array of items from raw material prices to wage costs contributed to higher cost burdens for businesses which were reportedly passed on to clients wherever possible. Output price inflation likewise soared to the sharpest on record.
So far, Markit’s PMI surveys in Europe and North America have not singled out wages as a problematic cost item. It was mentioned in today’s China Services PMI and more emphatically in Australia’s. Contrary to cost inflation on materials and logistics, wage inflation is less likely to prove transitory.
The most recent FED Beige Book has lots of mentions on staff cost inflation with businesses willing to pay up knowing they can raise their own prices amid strong demand:
- U.S. Economic Activity Picked Up in Spring, Fed Beige Book Says Businesses reported issues with supply constraints, worker shortages and higher prices
The U.S. economy continued to pick up speed in the spring, as consumers, many of them newly vaccinated and flush with federal stimulus cash, returned to restaurants, hotels and retail stores, the Federal Reserve said Wednesday.
But businesses told the Fed that ongoing supply-chain disruptions and an acute labor shortage have made it difficult for them to meet demand and have caused them to raise prices. (…)
Manufacturers and home builders reported that materials and workers were in short supply. Companies also struggled with delivery delays, the report said. Car dealerships said sales were strong but inventories tight, partly due to the global chip shortage. Transportation companies said they saw exceptionally strong demand.
Prices rose more rapidly than earlier in the year, the Fed said, as businesses passed on rising material and freight prices to consumers.
“Contacts anticipate facing cost increases and charging higher prices in coming months,” the report said.
Some companies said labor and inventory shortages were holding back business. In the Philadelphia area, “manufacturers have stated that their production would be higher but for labor shortages and supply-chain disruptions,” the report said. (…)
Companies said lack of child care, lingering concerns about getting sick and expanded federal jobless benefits were keeping some job applicants at home.
In response, businesses across the country and across industries said they planned to raise wages or offer bonuses.
One manufacturer in the Boston region was looking to hire 10,000 people. A manufacturer in the Minneapolis region raised wages by $3 an hour and saw the number of applicants jump significantly.
A staffing company in the Cleveland Fed district reported turning away clients who offered less than a $13-an-hour starting wage because it wouldn’t be able to find anyone at that wage.
Overall, the report suggested Americans are eager to leave their homes and spend money, particularly on trips, meals and houses. Restaurants and hotels said demand from domestic leisure travelers was getting stronger. Realtors said they had seen bidding wars for homes. Construction companies said they were struggling to meet demand.
In the Dallas area, some builders had stopped building completed houses and were instead selling empty lots or partly built houses to the highest bidder. Some even worried about running out of land.
Rents were also starting to pick up, following declines during the height of the pandemic.
How about that now? In the USA!
- Labor Shortage Draws Attention of U.S. Lawmakers Congressional lawmakers from both parties are considering incentives such as providing federal funding to pay for hiring bonuses for workers and expanded tax credits for employers.
A handful of states are moving to implement such programs on their own, without waiting for action from Washington. (…)
On the Republican side, Rep. Kevin Brady of Texas and Sen. Mike Crapo of Idaho have proposed allowing states to use federal jobless aid to make one-time payments of between $600 and $1,200 for people who find a job after receiving unemployment benefits. (…)
Republican governors in several states, including Montana, Arizona and New Hampshire, have also moved to offer hiring bonuses to workers on unemployment rolls who find jobs, using money received from the $1.9 trillion Covid-19 relief law Congress enacted in March. (…)
New Hampshire will pay a $1,000 hiring bonus to full-time workers—$500 for part-timers—who earn less than $25 an hour and stay on the job for at least eight weeks. The state has committed $10 million to the bonus program, which is available until funding runs out. (…)
Bill Dudley: U.S. Inflation Isn’t Scary Yet, But It Could Be
(…) For the temporary price acceleration to become persistent, three things must happen. First, employers must demand more workers, in a big and sustained way. Second, the increased demand for labor must push up wage inflation to the point where it cannot be absorbed by higher productivity growth or lower profit margins. Third, people’s expectations for future inflation must climb further. Without such an increase in inflation expectations, a tight labor market alone would be insufficient to trigger an upward spiral in which rising wages and prices reinforce one another. (…)
Demand for labor has been increasing, but remains below its pre-pandemic level: As Fed officials like to point out, payroll employment is still more than 8 million jobs short of the peak reached in February 2020. (…)
Wage inflation isn’t too troubling, either. Increases have been modest, and the rise in wage inflation has been confined mainly to the past few months. (…)
Finally, inflation expectations have moved up, but not enough to be alarming. Prices in the Treasury market suggest investors expect inflation to average a bit more than 2% over the five years starting in mid-2026. (…)
All this strongly suggests that the current sharp rise in inflation will subside over the next year as supply-chain issues get resolved. That said, there’s reason to be concerned that the temporary nature of the spike will also prove to be transitory.
In the longer term, the country still faces the confluence of expansionary fiscal and monetary policy. The Biden administration is pursuing an infrastructure bill and other legislation that will pile on added stimulus. Households have done enough saving during the pandemic to sustain spending long after the fiscal impulse ends. And the Fed has committed to keeping short-term interest rates at zero until the economy has achieved maximum employment and inflation has reached at least 2% and is expected to stay above 2% for some time.
In other words, the Fed — according to its own policies — is likely to act too late to prevent the economy from overheating. So no matter what prices do this year, the risk of higher inflation down the road remains elevated.
Fed’s Harker: It May Soon Be Time to Think About Tapering Bond-Buying “We’re planning to keep the federal-funds rate low for long, but it may be time to at least think about thinking about tapering our $120 billion in monthly Treasury bond and mortgage-backed securities purchases
And “unrelated” but related:
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Fed to Sell Corporate Bonds, ETFs Acquired During Covid-19 Crisis The central bank under Jerome Powell made the purchases to shore up liquidity in debt markets after the pandemic hit in early 2020.
The Federal Reserve will soon begin selling off the corporate bonds and exchange-traded funds it amassed last year through an emergency-lending vehicle set up to contain the Covid-19 pandemic’s economic fallout.
The vehicle, known as the Secondary Market Corporate Credit Facility, or SMCCF, held $5.21 billion of bonds from companies including Whirlpool Corp. , Walmart Inc. and Visa Inc. as of April 30. In addition, it held $8.56 billion of exchange-traded funds that hold corporate debt, such as the Vanguard Short-Term Corporate Bond ETF.
The sales, which should be completed by the end of this year, are unrelated to monetary policy, a Fed official said. Net proceeds will be remitted to the Treasury Department, which funded the facility’s creation.
The SMCCF’s corporate-debt holdings are distinct from the more than $7.3 trillion of Treasury debt and agency mortgage-backed securities on the Fed’s balance sheet. The central bank under Chairman Jerome Powell is continuing to purchase those types of assets to the tune of at least $120 billion a month to hold down long-term borrowing costs until the economy recovers further from the pandemic. (…)
In testimony before the House Financial Services Committee last June, Mr. Powell suggested the central bank would likely hold the individual corporate bonds until they matured, rather than selling them back into the market. “We are generally a hold-to-maturity entity,” Mr. Powell said in response to a lawmaker’s question about the Fed’s plans for the SMCCF. “It may be that we sell some back into the secondary market down the road, but ultimately, we’re a buy-and-hold buyer,” Mr. Powell added. (…)
Maybe the Fed, and many others, could learn to use this trick:
Italian Artist Sells Invisible Sculpture For Real Money (NPR)
An Italian artist, Salvatore Garau, recently sold his latest invisible sculpture, a work titled “I Am.” It isn’t. The art does not exist except in the imagination of the artist. Garau says the sculpture may be displayed in any light since it’s not there. The buyer gets a stamped certificate in exchange for payment of $18,000, assuming they can’t just imagine they paid.
According to the news outlet, the artist was adamant that while sculpture doesn’t physically exist, that doesn’t mean that it’s nothing. Instead, he prefers to think of it as a vacuum.
Newsweek reports that he told reporters, “The vacuum is nothing more than a space full of energy, and even if we empty it and there is nothing left, according to the Heisenberg uncertainty principle, that ‘nothing’ has a weight. Therefore, it has energy that is condensed and transformed into particles, that is, into us.” (…)
This is not the first immaterial sculpture that Garau has created, although it is reportedly the first that he has sold.
Who said NFTs (non-fungible assets) could not be improved? As to the Ledger, no worry, “It is”.