U.S. Light Vehicle Sales Remain Firm
Sales of light vehicles eased 0.2% (-0.8% y/y) during November to 17.49 million units (SAAR), but remained near the highest level in twelve months.
Passenger car sales declined 4.8% (-14.5% y/y) last month to 5.37 million units and reversed the modest increase during October. (…) Light truck sales increased 1.9% in November to 12.12 million units and reversed the prior month’s decline. Sales were nearly at the record high and up 6.8% y/y. (…) Sales of imported light trucks improved 0.8% (17.6% y/y) to a new record of 2.41 million units. Imports share of the light truck market was little changed at 19.9% which remained near the cycle high, up from the low of 12.7% in 2014.
Trucks’ share of the U.S. vehicle market reached a record 69.3% last month. This compared to 47.3% at the low during all of 2009. (…)
-
Trump Seeks to End All Electric Car Tax Credits, Kudlow Says President Trump’s top economic adviser said the administration is looking to eliminate subsidies on electric cars, which could hamper the auto industry’s push to broaden the market for battery-powered vehicles.
(…) “As a matter of our policy, we want to end all those subsidies,” Lawrence Kudlow said on Monday. “And by the way, other subsidies imposed during the Obama administration—renewables, etc. We are a free market.” (…)
On Monday, Mr. Kudlow said the president was referring to an Obama-era stimulus package that created a $7,500 consumer tax credit for the purchase of electric cars. He said the president’s considerations about revoking subsidies may not be directed specifically at GM, noting, “legally, you really can’t.”
It is unclear whether the president has the authority to take this type of action because the stimulus package was created by legislation. (…)
GM is nearing a sales cap of 200,000 electric cars per manufacturer, which begins a phaseout of the tax credit for its customers. Tesla hit the 200,000-vehicle limit in recent months, which means new Tesla buyers will get smaller tax credits in coming quarters before the incentive goes away entirely.
Other auto makers such as Volkswagen AG and Ford Motor Co. have said they plan to introduce many electric car models in coming years. If the tax credit remains in place, their customers would be eligible for the $7,500 incentive while GM’s and Tesla’s wouldn’t.
“If the president took a more drastic step and eliminated the credit for the entire industry…this could possibly even give GM an advantage,” Edmunds.com analyst Jeremy Acevedo said. (…)
U.S. Construction Spending Continues to Weaken
The value of construction put-in-place eased 0.1% (+4.9% y/y) during October. The weakening was the same as in September, revised from no change. It followed a 0.4% August decline, revised from +0.8%. A 0.4% increase had been expected in the Action Economics Forecast Survey.
In the private sector, activity fell 0.4% (+3.9% y/y) and reversed a 0.4% September gain. Residential building activity deceased 0.5% (+1.8% y/y) following a 0.1% uptick. Single-family construction fell 0.5% (+2.4% y/y), down for seven months in the last eight. Multi-family construction improved 1.0% (3.2% y/y) after a 7.1% surge. Home improvement activity fell 0.9% (+0.4% y/y) and has been falling all year.
Nonresidential construction in October fell 0.3% (+6.4% y/y) after a 0.7% rise. (…)
THE “INCREDIBLE” DEAL!
Trump’s Advisers Struggle to Explain Deal He Claims He Cut With Xi
‘He Said, Xi Said’
(…) Officials in Washington and Beijing gave sharply different takes on what Trump and Xi had agreed to during their two-hour steak dinner in Buenos Aires, and there was no joint statement afterward in English and Chinese. (…)
Dan Clifton of Strategas Research says in a note to clients today that presidents become more pro-growth after midterm elections:
We noticed President Trump’s tone towards China started to become more constructive on November 1st. This is consistent with previous presidents who suffer setbacks postmidterm election and begin to worry about their own re-election. In the past we have seen presidents throw out long-held ideological beliefs to get GDP higher ahead of their own re-election. Just think about President Obama almost to the day eight years ago agreeing to extend all of the Bush tax cuts past his reelection after years of promising to get rid of those tax cuts. Trump has long-held beliefs on China and wants structural reforms. But the President also needs cap ex to boost growth ahead of the election and this allows for a more flexible position on China ahead of the presidential election. If progress is being made in the discussions we could see the 90 day deadline extended.
Matthews Asia’s Andy Rothman shares this view:
(…) Trump appears to have abandoned, at least for the moment, his isolationist path. This change is presumably motivated by the realization that a trade war with America’s largest trading partners would damage the U.S. economy and equity markets, and thus the president’s re-election chances. (…)
Trump will have to accept that the U.S. must share economic and strategic power with a rising China, while continuing to take steps to help shape how Beijing uses its influence. Washington will also have to accept that while the past three decades of economic engagement have promoted significant change within China—from no private sector, to an economy where 85% of urban employment is with small, entrepreneurial firms; accompanied by a broad expansion of personal freedom—fundamental changes to China’s political structure cannot be dictated by outsiders, but are very likely to evolve as the country becomes wealthier.
The Xi administration will have to accept that along with its professed desire to use its rising power within the existing global infrastructure, comes a responsibility to follow the rules of that system and to be transparent. Xi will also have to accept that his policies have consequences outside of China, and take responsibility for them. For example, just as the U.S. had to consider the impact of China’s new WTO commitments in the 1990s on its then-impoverished northeastern rust belt, Beijing must deal responsibly with the impact of its industrial policies on employment in developed countries.
In short, the two leaders will have to agree that rising competition between the two nations does not have to be a zero-sum game, and that it is cooperation and concessions, rather than confrontation, that will leave both sides better off. (…)
Here’s the rub:
Trump Names Lighthizer to Run U.S.-China Negotiations President Trump tapped Robert Lighthizer, a China hard-liner, to lead the next round of U.S.-China talks, after the sides agreed to a trade truce.
(…) Mr. Kudlow said China had committed to roll back tariffs on automobiles and agricultural goods. He also claimed the two sides were “pretty close to some agreements “ on two of their most intractable issues—protection of intellectual property and halting alleged Chinese pressure on U.S. companies to transfer technology to their Chinese partners.
Others with knowledge of the matter, however, said China hadn’t made firm commitments to act before negotiations were complete. They said the administration is looking for signs of China’s intentions over the next few weeks. Chinese Vice Premier Liu He, who has been China’s main negotiator with the U.S., is considering leading a 30-member delegation to Washington in the coming weeks, people familiar with the matter said. (…)
The two sides even disagree whether there is a deadline for talks. At the Saturday meeting, Mr. Trump agreed to suspend a planned Jan. 1 increase in tariffs on $200 billion in Chinese goods to 25%, from 10%, as the two sides negotiate over Chinese economic policies.
The U.S. said it would “endeavor” to wrap up talks in 90 days. In Buenos Aires, Chinese officials made no mention of any deadline, and were angered when told about the U.S. claims.
Mr. Kudlow seemed to be giving China more wiggle room in his remarks. At first, he said the 90-day clock on tariffs would begin Jan. 1, not immediately, as earlier suggested. Later, the White House corrected those remarks and returned to the Dec. 1 start date.
For other trade issues, he didn’t name any deadline. “We’ll have to set up a timetable for the timetables,” he said. Others involved in the talks, though, said the U.S. would insist on a 90-day period. (…)
Good thing we’re not talking about anything too important here…
Lighthizer Has Long Seen Chinese Trade Policy as Unfair to U.S.
The 71-year-old Mr. Lighthizer, a former steel-industry lawyer, has told colleagues he took the trade-representative job mainly to try to reorient China policy. In op-ed columns dating back to 1997, Mr. Lighthizer opposed China’s entry into the World Trade Organization under the terms being negotiated. Mr. Trump has called the WTO a “disaster for this country.”
He grew up in the Lake Erie port city of Ashtabula, Ohio, which was battered by imports. He sees himself as blue-collar even though he is a doctor’s son who once raced around West Virginia in sports cars. (…)
In trade circles, he is well known for tough tactics. In the mid-1980s, as a U.S. Trade Representative official who negotiated with Japan, he once grew so frustrated he took a Japanese proposal, turned it into a paper airplane and floated it back at the Japanese negotiators. In Japan, he became known as “the missile man.”
He has regularly warned Mr. Trump that Beijing was “playing him” with offers to which he felt Beijing wouldn’t carry out. The two men value tariffs as ways to pressure countries into concessions.
In a summer interview with The Wall Street Journal, he said: “We have a [Chinese] system that’s been very effective in building its own industrial base largely at the expense of us and others.”
(…) “I will be formally terminating Nafta shortly,” he told the press on Air Force One, referring to the current pact that is still in force until Congress approves the new deal with Mexico and Canada that Mr. Trump signed Friday. “And so Congress will have a choice of the [new] USMCA or pre-Nafta, which worked very well.”
By “pre-Nafta” he means the continental trade rules in force before 1994. That would mean the immediate reimposition of tariffs and import restraints on a vast amount of trade. It would be an economic shock that could well send the economy into recession.
As a political matter it amounts to Mr. Trump holding a gun to his own re-election chances and daring Democrat Nancy Pelosi to let him pull the trigger. Mr. Trump seems to think that the chances of passing new Nafta improve if he presents Democrats with the ultimatum of voting for new Nafta or confronting the damage of terminating current Nafta.
That isn’t how Democrats are likely to see it. They’ll claim Mr. Trump negotiated a bad deal and demand changes knowing that if Nafta blows up and the economy suffers, a President always gets most of the blame. The media will naturally echo the Democratic view.
Mr. Trump needs the current Nafta in place as insurance in case Mrs. Pelosi and House Democrats decide to defeat, or perhaps even fail to take up, the new Nafta deal. Democrats will be only too happy if Mr. Trump blows up old Nafta before a new one passes.
U.S. Factory-Sector Growth Accelerated in November
The Institute for Supply Management on Monday said its manufacturing index rose to 59.3 in November from 57.7 in the previous month. (…) Tim Fiore, who oversees the ISM survey of factory purchasing and supply managers, said companies last month had been “moving very aggressively getting material delivered for the first quarter before Dec. 31” due to expected tariff increases in January. (…)
Low customer inventories, which fell in November, also mean the “future is looking more positive,” Mr. Fiore said, as companies will have to restock to keep up with demand. (…)
Here’s the more dependable Markit report:
U.S. manufacturing output expands at joint-weakest rate since September 2017
November survey data signalled a solid improvement in operating conditions across the U.S. manufacturing sector, despite the headline PMI dipping to a three-month low. The upturn was supported by the fastest increase in new orders since May and a sharp rise in employment. Output also rose solidly, despite growth easing to the joint-weakest in over a year. Capacity pressures were also evident through a further rise in backlogs. Panellists continued to highlight stockpiling activity amid expectations of further rises in raw material prices, with input buying increasing strongly. Cost burdens rose markedly as shortages at suppliers and tariffs pushed up input prices.
The seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) posted 55.3 in November, down slightly from 55.7 in October. Although the headline figure dipped to a three-month low, it indicated a solid improvement in the health of the sector that was above the series trend.
Production continued to increase in November. The rise in output was solid overall, albeit the joint-slowest in over a year. Nonetheless, panellists commonly reported on more favourable demand conditions.
Conversely, new orders increased at a sharp and accelerated pace in November. The rise in new business was the quickest since May and was often linked to increased client demand and new product launches. Foreign demand also picked up, with new export orders expanding at the fastest pace for nine months.
Firms registered a further rise in employment in November, with many noting that greater production requirements had prompted them to hire additional workers. The rate of job creation was sharp and the second-fastest in the year-to-date. Nonetheless, panellists reportedly struggled to cope with the steep increase in new orders, despite higher staffing levels, as backlogs of work continued to increase. The level of work-in-hand grew at one of the fastest rates in over three years.
In response to higher amounts of new and unfinished work, manufacturing firms registered a strong expansion in buying activity. Input purchases also rose due to concerns of further tariffs and resulting increases in raw material costs. Stockpiling activity was linked to a sharp deterioration in vendor performance, as demand for inputs continued to outstrip supply.
Subsequently, cost burdens faced by goods producers rose further. Although the rate of inflation was slower than those seen earlier in the year, it remained marked. A combination of tariffs and supplier shortages were linked to higher raw material prices. Firms were reportedly able to partly pass greater cost burdens on to clients through higher output charges.
Business confidence dipped to the weakest since September 2017. Although optimism stemmed from stronger demand, some raised concerns surrounding the sustainability of the current sequence of new order growth.
(…) The survey acts as a reliable guide to the official manufacturing data, and suggests that factory output is growing at an annualised rate of around 1.5% so far in the fourth quarter, providing a material but by no means impressive contribution to GDP. As such, the data corroborate the flash PMI’s signal that the economy will likely see growth slow to a 2.5% rate in the fourth quarter.
In a further sign that growth has peaked, business optimism about the year ahead waned to the lowest for over a year, albeit with the proportion of companies expecting output to be higher in a year’s time outnumbering those expecting a decline by 36% to 3%.
Canadian manufacturing PMI hits three-month high, driven by survey-record rise in employment
November data pointed to a positive month overall for the Canadian manufacturing sector, although growth rates for output and new orders remained softer than seen on average in the third quarter of 2018. The most encouraging aspect of the latest survey was a strong and accelerated upturn in job creation, which manufacturers attributed to rising business investment in plant capacity.
Additionally, input cost inflation moderated in November, with lower oil-related prices helping to offset higher costs for imported materials (particularly metals).
The headline seasonally adjusted IHS Markit Canada Manufacturing Purchasing Managers’ Index® (PMI®) registered 54.9 in November, up from 53.9 in October, to signal the sharpest improvement in business conditions since August.
Manufacturing production growth edged up from October’s 22-month low, helped by a stronger upturn in new order books. Latest data also signalled a solid rise in export sales, with survey respondents mainly commenting on rising sales to U.S. clients. Nonetheless, the overall rate of new export order growth remained much softer than seen in the first half of 2018.
Despite a slowdown in demand conditions relative to earlier in the year, manufacturers reported a renewed acceleration of employment growth in November. The latest expansion of payroll numbers was the fastest since the survey began in October 2010. Anecdotal evidence suggested that efforts to alleviate capacity constraints had encouraged greater business investment and additional staff recruitment.
Intense supply chain pressures continued in November, as signalled by another sharp lengthening of delivery times for raw materials. Survey respondents cited low stocks among suppliers and ongoing shipping delays for items imported from Asia. Concerns about raw material availability led to another moderate increase in stocks of purchases across the Canadian manufacturing sector during November. However, latest data signalled the weakest rise in input buying since the end of 2017, partly reflecting more subdued projections for client demand.
Manufacturers remain optimistic overall about their growth prospects for the next 12 months. However, the degree of confidence was up only slightly since October and still among the weakest seen over the past two years. Some firms noted that slower economic growth in Europe had weighed on business sentiment in November. (…)
Canada’s auto sales fell for the eighth straight month in November, as a rise in interest rates dampened demand for new cars. Total auto sales tumbled 9.4 per cent to 143,668 units according to a report by Global Automakers Canada (GAC). (…)
Global manufacturing remains subdued in November
Conditions in the global manufacturing sector remained lacklustre in November. The J.P.Morgan Global Manufacturing PMI™ – a composite index produced by J.P.Morgan and IHS Markit in association with ISM and IFPSM – posted 52.0, unchanged from October’s 23-month low as growth of output and new orders remained below their respective long-run averages. (…)
New orders rose at a pace unchanged from October’s 25-month low, with international trade flows the main drag. The level of incoming new export business fell for the third
straight month in November. Developed nations registered (on average) a marginal increase, as gains in the USA and Japan offset reductions in the euro area and the UK.
Emerging markets saw a reduction for the eighth straight month, mainly due to ongoing declines in China. (…)
Big Fracking Profits at $50 a Barrel? Don’t Bet on It The rapid decline of U.S. oil prices will test the claim of fracking companies that they can prosper at $50 a barrel or less, a price level they have found challenging in the past.
(…) From 2012 to 2017, the 30 biggest shale producers lost more than $50 billion. Last year, when oil prices averaged about $50 a barrel, the group as a whole was barely in the black, with profits of about $1.7 billion, or roughly 1.3% of revenue, according to FactSet. (…)
Estimates by consulting firm R.S. Energy Group peg break-evens excluding land costs and overhead at about $37 for the Permian Basin of West Texas and New Mexico, $42 for the Eagle Ford in South Texas and $47 for the Bakken in North Dakota. (…) All-inclusive break-evens are about $51 in the Permian, $57 in the Eagle Ford and $64 in the Bakken, according to R.S. Energy. (…)
Generally, because of sunk costs, drilling additional wells made sense. But many of the companies curtailed drilling to their choicest acreage, which caused the break-even figures to fall significantly in 2016, and helped create the impression that shale companies could generate overall profits even at lower prices. (…)