Pending Home Sales Fall for Third Straight Month
The latest index unexpectedly fell to 76.5, representing a 2.7% decrease from last month. This is the third consecutive month pending home sales has dropped and is lower than the expected 0.2% increase. Pending home sales are down 22.2% compared to one year ago. (…)
Q1 GDP Third Estimate: Real GDP at 2.0%, Stronger Than Expected
Real gross domestic product increased at an annual rate of 2.0% in Q1 2023, according to the third estimate. This is slower than the Q4 2022 GDP third estimate of 2.6% growth but faster than the initial estimate of 1.1% growth and the second estimate of 1.3% growth.
Bank Stocks Lead Market Higher After Clearing Fed Tests The biggest lenders led the charge on Thursday after passing the Federal Reserve’s annual stress tests. JPMorgan Chase, Goldman Sachs Group and Bank of America all rose more than 2%, and the financials sector was the S&P 500’s biggest gainer with a 1.7% rise.
However, the latest Fed data on credit trends are now deteriorating. The bars below are for biweekly changes in loans and leases through June 26. The red bar on the far right is total loans and leases, down during the last 2 periods. But notice the weak lending at large (black) and medium size banks since mid-May. Curiously, small banks have kept lending. Not critical yet and there may be seasonal factors but this needs monitoring.
American States Once Awash In Cash See Their Fortunes Suddenly Reversed
Thanks to the booming tech industry and federal money during the pandemic, California was spending record amounts and still ran a surplus — almost $100 billion last year. That’s when Newsom, a rising star in the Democratic party, sent checks of up to $1,050 to millions of residents. The Los Angeles Times in an editorial declared him the luckiest governor in its history.
Now, following the tech bust and the end of Covid funding, the surplus has been replaced with a $32 billion deficit, forcing lawmakers to trim the state’s lofty climate change program, delay funding and increase internal borrowing.
(…) revenue in 16 other states is down this fiscal year through April, according to the Urban Institute, partly reflecting the volatility in markets and population shifts. Over in Florida and Texas — red states where levies are primarily collected through sales rather than income — it’s a different picture. While the pace of tax collections has slowed, they are among about a dozen states seeing revenue grow 5% or more this year as consumers keep spending. (…)
California and New York saw their populations shrink by about 294,000 residents in the year through July 1, 2022, while Florida and Texas added about 888,000 residents collectively, according to Census Bureau data. (…)
California’s personal income tax collections are its largest revenue source and about half comes from the top 1% of earners. That leaves the budget especially susceptible to financial shocks impacting this small subset of taxpayers.
Other states with high income tax levies are also seeing revenue pressures. In Hawaii, which has a top rate of 11%, the governor cut $1 billion from the budget in order to balance it in June.
Total state tax revenue declined 25% in April, a key month for such collections, according to the most recent data available from the Urban Institute. Thirty-seven states saw revenue fall that month.
Meanwhile, Florida and Texas rely on taxes on sales, which have held up well as Americans keep spending, to the surprise of economists. Those levies have also been bolstered by inflation. (…)
Of course, US states — from California to North Carolina — have never been better prepared for a downturn. They built up record rainy day fund balances.
California, known for booms and busts, has a $38 billion reserve, believed to be the largest of any state in U.S. history, according to a legislative budget committee report. The report said the state’s treasury has “never” had as much cash and resiliency as it has in 2023. (…)
- Six fast-growing states in the South—Florida, Texas, Georgia, the Carolinas and Tennessee—are contributing more to US GDP than the Northeast for the first time in data going back to the 1990s. Some 2.2 million people moved to the Southeast in just over two years, bringing $100 billion in new income to the region.
America may need to start caring about the deficit again
Back in 2017, net interest costs for the U.S. government were only 1.4% of GDP. In 2023, with a higher debt load and higher interest rates, that is on track to be 2.5% of GDP.
- It is forecast to rise steadily from there, implying trillions in government payments to bondholders that would crimp other national priorities.
- Net interest reaches an astounding 6.7% of GDP in 2053 in the CBO projections, though interest costs rising according to the projections would almost certainly generate a course-correction long before then. (Axios)
Data: Congressional Budget Office; Chart: Axios Visuals
China’s Economy Shows New Signs of Weakness Manufacturing contracted for a third straight month, and employment looks weaker, prompting calls for more aggressive government support
China’s manufacturing sector contracted for a third straight month in June and the nonmanufacturing sector weakened, with new orders falling for both, the country’s official statistics agency said Friday. Employment declined across both broad sectors, an indication that a nagging jobs shortage—particularly for young people—is worsening. (…)
China’s official manufacturing purchasing managers index rose slightly to 49 in June from 48.8 in May, not enough to get over the 50 mark that separates expansion from contraction, the National Bureau of Statistics said. (…)
A subindex on employment shrank to 48.2 in June, in contraction for a fourth straight month, highlighting the continuing stress in the labor market. The unemployment rate among workers aged 16 to 24 rose to a record of 20.8% in May, in part due to evaporating jobs in the manufacturing sector. (…)
The new export orders component of June’s manufacturing PMI continued to decline to a five-month low of 46.4. The index for new orders overall remained in contraction at 48.6.
Meanwhile, activities in the services sector, a key driver of China’s postpandemic recovery, softened further in June to 52.8 from 53.8 in May, according to the statistics bureau. (…)
An index of nonmanufacturing sector employment came in at 46.8, registering a fourth straight month of contraction. The index for new orders, at 49.5, showed contraction for the second month in a row.
Another subindex tracking construction activities pulled back to 55.7 in June from 58.2 in May, a six-month low, as a short-lived rebound in housing activity continued to fizzle. (…)
The elephant in the Chinese economic house is real estate. We seem to be entering the last phase of the cycle: rising supply amid tepid demand and shaky confidence. Sellers are testing the market, unprepared to take losses just yet. The risk is that it finally unravels…
- China’s Property Market Enters Troubling New Phase Real-estate demand appears to be waning as more supply hits the market, raising fresh risks for an already-fragile economy.
(…) Shoring up the market is crucial for Beijing: Real estate accounts for as much as a quarter of economic activity in China. It is also the primary source of wealth for everyday Chinese.
If sentiment weakens more, it could further set back an economy that has stalled in recent months, after an initial burst of activity following the end of zero-Covid controls late last year.
Property sales enjoyed a brief uptick at the beginning of 2023. But more recently, sales have been falling in major cities including Shanghai, and prices have been dropping in a majority of Chinese markets.
Adding to the concern now is that more people than usual are putting their apartments up for sale, pushing the tally of new listings to multiyear highs.
In 13 major cities including Shanghai, Beijing, Guangzhou and Hangzhou, the number of listings for existing homes grew by 25% in May from last December, with listings surging 82% in Shanghai and 72% in Wuhan, according to data collected by E-house China Research and Development Institution, a research agency. (…)
One seller in the coastal city of Qingdao told the Journal she had to slash her asking price several times before finally finding a buyer in early June.
She initially listed her home for $126,000 but had to settle for around $97,000. (…)
Average existing-home prices fell 0.7% across 100 major Chinese cities over the past year, according to Zhuge.com, an online real-estate platform. (…)
Local governments in China have taken steps to put a floor under prices over the past year, including banning developers from offering steep discounts. (…)
In February, sales of new homes in 30 major cities rose above 2019 levels but then dropped to around 77% of 2019 levels in May, according to data from Wind, a financial-data provider.
Economists from investment bank Nomura say demand levels are especially worrisome in what are normally considered China’s top four real-estate markets: Shanghai, Beijing, Shenzhen and Guangzhou. All recorded population declines in 2022 for the first time in decades as expatriates left and longstanding demographic challenges deepened.
Demand for existing homes also appears to be fading. In Shanghai, secondhand home sales fell to 15,300 units in May, down 13% from April and well below a minimum of 23,000 units each month between 2019 and May 2022, according to Centaline Property.
Month-over-month declines in average prices for existing homes in 100 major cities have accelerated since February, according to data from China Index Academy, a real-estate research firm. (…)
More Chinese are seeing their incomes dropping now and expect housing prices to fall in the coming three months, a worrying sign for the struggling economy as it will likely undermine housing demand and hurt construction activity.
A gauge measuring how people felt about their income fell to 49.7, with about a sixth of the respondents saying they earned less money in the current quarter than in the first three months of the year, according to a regular survey of depositors conducted by the central bank. The gauge slumped last year as the country went into lockdown before rebounding again in the January-March period.
Almost 17% of people expect housing prices to fall in China next quarter. That was higher than 14.4% of people who said that in the survey last quarter. About 16% of people see home prices rising, down from 18.5% last quarter, while 54.2% see them being unchanged, basically the same as last quarter. (…)
Euro-Area Core Inflation Quickens Again in Setback for ECB Underlying consumer prices grew 5.4% from year ago
(…) The euro-zone measure of price growth in [services] quickened to 5.4% in June from 5% the prior month.
New Chinese Law Raises Risks for American Firms in China U.S. counterintelligence officials say the revised Chinese law potentially turns normal business activities into espionage.
A bulletin being issued Friday by the National Counterintelligence and Security Center and viewed by The Wall Street Journal warns that the revised law is vague about what constitutes espionage and gives the government greater access to and control over companies’ data, potentially turning what would be considered normal business activities into criminal acts.
The amended counterespionage law, which takes effect Saturday, has unsettled foreign businesses in China. The publication of those revisions this spring came amid a wave of raids, inspections and other acts by Chinese authorities against foreign, chiefly American businesses, as tense U.S.-China relations deteriorated further.
The revised law expands the definition of espionage without defining terms in a way that is “deeply problematic for private sector companies,” said Mirriam-Grace MacIntyre, who leads the counterintelligence center. (…)
China’s government has said that the rights of foreign businesses are protected under Chinese law. “As long as one abides by laws and regulations, there is no need to worry,” a Chinese Foreign Ministry spokeswoman said this week in response to a question about whether the updated counterespionage law would affect foreign journalists and researchers. (…)
The revised law expands the definition of espionage from state secrets and intelligence to any “other documents, data, materials, or items related to national security,” center officials said. The law also imposes new exit and entry restrictions for people deemed to present national security threats, they said, and raises legal risks for U.S. companies, journalists, academics and researchers.
The revised Chinese counterespionage law is among a raft of national, cybersecurity and data privacy laws and regulations that collectively expand Beijing’s oversight of foreign companies operating in China, the counterintelligence center’s bulletin said. (…)