On the road again!
Autos: August 2018 SAAR at 16.7mm mostly in-line; trucks strong
The August 2018 US light-vehicle SAAR came in at ~16.72mm (16.58mm last year), slightly below RBCe/Bloomberg consensus of 16.8mm. August sales of 1.48mm units were largely flat y/y (no days adjustment necessary). (…)
Sales flat despite Hurricane Harvey impact in the comp. In August 2017, sales were negatively impacted by Hurricane Harvey, particularly during the final week of the month in the Houston area. The fact that sales didn’t grow greater may raise some eyebrows as to underlying demand trends. Also, be mindful that the comp gets tougher next month, as replacement demand boosted sales in September 2017. (…) (RBC)
U.S. Factory Sector Clocks Strongest Growth in 14 Years Analysts had expected a slowdown given rising trade tensions
The Institute for Supply Management on Tuesday said its manufacturing index rose to 61.3 in August, the highest level since May 2004, from 58.1 in July. Sales of factory-made products, or new orders, output and employment all grew at a faster pace in August. (…)
“The last time we have seen something akin to the current run late in an expansion occurred in†the late 1980s, when the Federal Reserve had to raise the fed funds target rate to almost 10% to tamp down inflation, according to Stephen Stanley, chief economist at Amherst Pierpont Securities. (…)
WHAT RESPONDENTS ARE SAYING
- “Busy for new orders, but the cost of raw material chemicals keeps going up.†(Chemical Products)
- “We have seen a slight uptick in international business. Suppliers do not seem to know how to handle the recently imposed tariffs. Most are waiting to re-evaluate potential price increases until September.†(Computer & Electronic Products)
- “Generally high levels of demand continue, and [we are] planning for this elevated rate through the rest of the year.†(Transportation Equipment)
- “Suppliers appear to be bracing us for cost increases, given increased talk of tariffs and inflation. We are budgeting for 2019 accordingly.†(Food, Beverage & Tobacco Products)
- “The toughest thing we deal with is the unknown. Dealing with tariffs on steel purchases and not knowing if or when they will end makes planning difficult. We are entering the period when we begin our pricing negotiations for next year and will likely treat the tariffs as if they will be here for the entire year. It’s challenging, but not insurmountable.†(Fabricated Metal Products)
- “Business is positive, new equipment sales and inquiries are strong, and the parts business is strong. Raw material costs, especially steel, appear to be leveling off. Cost of manufactured components has also leveled off. Most suppliers are willing and able to suppress cost increases. Tariff impacts are still a concern.†(Machinery)
- “Business continues to be strong. We anticipate growth in the next few months.†(Plastics & Rubber Products)
- “Business conditions are strong. Orders are up. Purchase prices are up. Unemployment is down.†(Miscellaneous Manufacturing)
- “Continued strong demand has most locations in a sold-out market, putting pressure on our facilities to produce and have strong uptime. Purchasing is under pressure to provide critical parts in a market where lead times have increased.†(Nonmetallic Mineral Products)
- “Steel tariffs and their threats are putting upward pressure on downstream materials.†(Petroleum & Coal Products)
There seems to be a rush to boost inventories given extended lead times and potential tariffs and cost increases (chart from Haver Analytics).
This is also bizarre:
Amongst the other ISM series which are not in the composite, the export order series eased to a ten-month low of 55.2, down from February’s high of 62.8. The imports index fell to 53.9, nearly the lowest level in nine months, but up from the December 2015 low of 46.
Manufacturing PMIs Go Their Own Way… at Different Speeds Too
Recall that Markit’s U.S. PMI reading was not showing any acceleration:
Markit’s PMI has been more on the actual mark lately:
U.S. Construction Spending Unexpectedly Weak in July
The value of construction put-in-place improved 0.1% (5.8% y/y) during July following a 0.8% decline in June, revised from -1.1%. (…)
Bullard Says Fed Shouldn’t Raise Rates Right Now
Federal Reserve Bank of St. Louis President James Bullard called for his colleagues to hold off on raising rates again, but appeared to acknowledge that a move higher this month is pretty much a done deal.
Given where the economy is right now, “we’ve got a pretty good policy right now and we should stay where we are and see how the data come in,†said Mr. Bullard on Tuesday, in a transcript of an interview on Fox Business Network. (…)
Mr. Bullard again noted that the bond market, where the difference between short- and long-dated yields has narrowed considerably, is arguing against raising rates. That is because more rate rises could well cause that relationship to turn negative, and if it did, that is a strong signal a recession may follow.
“We’re in pretty good shape and I think what we could do is take signals from financial markets that are telling us that we’re about where we need to be right now,†Mr. Bullard said. “Yield curve, for instance, is very flat. I’d rather not see an inverted yield curve in the U.S. That’s usually a harbinger of a slowdown ahead,†he said.
U.S. Trade Gap Widens Most Since 2015; Record China Deficit The latest figures show how President Donald Trump’s tariffs may start to weigh on the economy.
The U.S. trade deficit widened in July by the most in three years and the gap with China hit a record as the Trump administration imposed tariffs on a range of Chinese goods, prompting retaliatory levies from Beijing.
The gap increased 9.5 percent to $50.1 billion, the biggest since February, from a revised $45.7 billion in the prior month, Commerce Department data showed Wednesday. Exports fell 1 percent, driven by steep drops in shipments of aircraft and soybeans, while imports rose 0.9 percent in a broad-based gain. (…)
Net exports added 1.17 percentage point to GDP growth in the April-June period, the most since 2013. That helped GDP grow at a 4.2 percent annualized pace, the best in almost four years, which Trump credited to his policies.
Analysts see the reverse happening on trade in the third quarter. Silver expects net exports to subtract about 1.3 percentage point from the annualized pace of growth in the period, while Capital Economics sees a drag of “a bit more than†1 point.
SENTIMENT WATCH
Goldman Sachs Joins Citigroup in Flashing Warnings on S&P 500 When investor optimism over U.S. stocks is on the rise, so are warnings from Wall Street.
(…) It doesn’t mean the bull market will end soon. But after a 9 1/2-year rally where the S&P 500 rose 19 percent annually, investors should be prepared for lower returns in coming years, according to Goldman Sachs strategists led by Peter Oppenheimer. The firm’s bull/bear market indicator has shown a close relationship with the S&P 500’s forward returns since 1955, with peak readings coinciding with the start of the last two bear markets. Right now, it’s “flashing redâ€, said the strategists.
The warnings mark a turnaround from last month, when persistent stock gains prompted at least two strategists to raise their year-end forecasts for the S&P 500.
“Typically, high valuations – or an extended level of this index – imply the risk of a bear market or a period of low returns over the next five years,†the strategists wrote in a note late Tuesday. “This time we think that lower returns are more likely than an impending sharp bear market.†(…)
Citi’s panic/euphoria model, tracking everything from margin debt to options trading and newsletter bullishness, just showed sentiment climbed to extreme levels for the first time since January. Such readings have preceded equity losses over the following 12 months 70 percent of the time since 1987, more than three times the random probability.
Here’s GS Bull/Bear Indicator over the long-term:
