Conference Board’s Employment Trends Index Rose in August
The Conference Board said its employment trends index rose to 134.62 in August from its revised July reading of 133.60. The August figure represents a 5.6% increase from a year ago. (…) Six of the eight components of the index were positive in August, with the percentage of respondents who say they find jobs “hard to get” contributing the largest positive reading.
U.S. Factory Orders Backpedal; Shipments Rise
Manufacturing sector orders declined 3.3% during July (+5.4% y/y) following a 3.2% June gain, revised from 3.0%. Durable goods orders reversed June’s increase with a 6.8% drop (+4.4% y/y). Transportation sector orders were off 19.2% (-1.1% y/y) due to lower commercial aircraft bookings. Durable goods orders outside of the transportation sector improved 0.5% (6.5% y/y). Computer & electronic product orders increased 2.1% (5.0% y/y). Machinery orders eased 0.9% (+9.2% y/y), while electrical equipment orders rose 2.6% (-3.4% y/y).
Total factory sector shipments gained 0.3% (5.3% y/y), but have been little changed in the first seven months this year. (…)
Unfilled orders eased 0.3% (+0.7% y/y) with the decline in aircraft backlogs. Outside of the transportation sector, unfilled orders rose 0.3% (3.8% y/y). (…)
Inventories at the factory level rose 0.2% (2.5% y/y) in July. Outside of the transportation sector, inventories also rose 0.2% (3.5% y/y). (…)
Harvey’s Destroyed Cars Give Auto Industry Hope Why insurers’ losses from Hurricanes Harvey and Irma could be Detroit car makers’ gains.
Research house Cox Automotive estimates the number of vehicles damaged by Hurricane Harvey in Texas at between 300,000 and half a million. Perhaps 20% will be repaired, and most of the rest replaced with secondhand vehicles, but at least some will drive new-car sales. On top of that there is the damage to vehicles on dealers’ lots, though Ford said last week this was less than 5,000 units for its brands, which are dominant in Texas. Hurricane Irma, which is now approaching Florida, could have a similar impact in the coming days.
Brokerage Evercore ISI puts the potential bump to 2017 new-car sales from Harvey at about 135,000, or a little under 1%. That wouldn’t be enough to restore the market to growth—sales are down 2.7% for the year through August, according to Autodata—but it would cushion the decline. The impact on profits in Detroit would also likely be greater, as Texans favor the lucrative pickups in which U.S. manufacturers specialize. (…)
Any support for used-car prices should slow this gradual erosion of the market. (…)
U.S. business activity growth hits 21-month high
August data signalled an accelerated upturn in business activity across the US service sector. New orders also expanded at a quicker rate, with growth reaching a 25-month high. Higher activity and new business prompted firms to add to their payrolls again in August, and at the quickest rate for nearly two years. On the prices front, both input costs and output charges increased again, with rates of inflation reaching 26- and 35-month highs, respectively. Meanwhile, business confidence was the strongest since January, with firms encouraged by greater client demand.
The seasonally adjusted IHS Markit U.S. Services Business Activity Index registered 56.0 in August, up from July’s reading of 54.7. The latest survey extended the current sequence of activity growth to 18 months. Moreover, the upturn was the fastest since November 2015, with a number of panellists stating that higher activity was underpinned by a greater willingness to spend among clients and improving market conditions.
Similarly, new business received by services companies increased sharply, supported by strong client demand. Furthermore, the expansion was the strongest since July 2015 and was well above the long-run series average.
Sustained growth in new orders placed further pressure on operating capacity, as shown by the level of outstanding business rising for the fourth month running in August. The pace of backlog accumulation was moderate and broadly in line with that seen in July. To accommodate greater workloads, firms hired staff at an accelerated rate. Notably, the pace of job creation was the strongest since September 2015.
Cost burdens faced by firms in the service sector continued to rise in August, extending the current inflationary trend which spans the entire series history. Notably, the pace of input price inflation was the fastest since June 2015. Panellists linked the latest increase to higher prices for raw materials and transportation. Stronger demand conditions generally enabled companies to pass on higher input prices in the form of greater output charges. Moreover, the rate of output price inflation was the fastest seen for nearly three years.
Business confidence among service providers remained robust in August, with the degree of positive sentiment reaching a seven-month high. Panellists noted that improving market conditions and forecasts of rising new orders had underpinned confidence.
The final seasonally adjusted IHS Markit U.S. Composite PMI™ Output Index rose to 55.3 in August, up from July’s reading of 54.6. The latest composite figure signalled the strongest expansion of private sector output since the start of 2017. Service sector firms reported a strong upturn in business activity, the fastest since November 2015. Conversely, manufacturers indicated a weaker increase in output, with growth edging down to a 14-month low in August.
The two PMI surveys collectively point to the fastest rate of economic expansion since January as businesses enjoyed a summer growth spurt. The strong survey data add to the expectation that the economy was picking up further momentum before hurricane Harvey hit, the impact of which is still a big unknown. While the pre-Harvey data were pointing to third quarter GDP rising at an annualised rate of 3.5%, this could now be slightly below 3.0%.
Fed’s Brainard: Weak Inflation Argues for Caution on Further Rate Rises
(…) “We have been falling short of our inflation objective not just in the past year, but over a longer period as well. My own view is that we should be cautious about tightening policy further until we are confident inflation is on track to achieve our target,” Ms. Brainard said in a speech at the Economic Club of New York. (…)
Real short-term rates have been rising amid slowing inflation. This trend is reducing the pressure on the Fed to hike further. (The Daily Shot)
Source: FTN Financial
Strong manufacturing sector underpins solid growth of euro area economy
Eurozone economic growth remained solid and steady in August. This was signalled by the final IHS Markit Eurozone PMI® Composite Output Index matching July’s reading of 55.7, down only marginally from the flash estimate of 55.8.
On current trend, output growth so far in the third quarter is slightly below its second quarter high, but remains among the best seen over the past seven years. August saw a strong expansion of manufacturing production, with the pace of increase regaining most of the momentum ceded in July.
Service sector activity growth eased to a seven month low, but remained above its long-term trend. Germany and Ireland were the only nations covered by the survey to see output growth accelerate in August. (…) The German manufacturing sector saw a robust increase in production volumes – among the best since early-2011 – whereas growth in services activity was the weakest of the five nations covered. Although rates of economic expansion eased in France, Italy and Spain, they remained solid.
Underlying the continued expansion of eurozone output was a further solid increase in new business, albeit the weakest in seven months. This in turn led to rising backlogs of work, which firms across the currency union responded to by increasing employment. (…)
Price pressures accelerated in August, with rates of increase in output charges and input costs both hitting three-month highs. However, the pace of inflation remained below peaks seen earlier in the year in both cases.
The solid PMI readings for July and August set the scene for another strong GDP number for the third quarter, with the surveys running at a level historically consistent with 0.6% growth. With such robust growth being sustained into August, the region is on course to see GDP rise by 2.1% in 2017, which would represent the best performance since 2007. (…)
Chinese business activity expands at quickest pace for six months
The Caixin China Composite PMI™ data (which covers both manufacturing and services) indicated that Chinese business activity growth picked up for the second month in a row during August. Furthermore, the latest expansion of activity was the strongest seen for six months, as shown by the Composite Output Index posting 52.4, up from 51.9 in July.
August data revealed that the latest expansion of overall business activity was underpinned by increased activity at both manufacturers and services providers. Notably, services companies registered the quickest upturn in business activity for three months. This was highlighted by the seasonally adjusted Caixin China General Services Business Activity Index rising from 51.5 in July to 52.7. At the same time, goods producers noted a further modest increase in output that was little-changed from that seen in the previous month.
In line with the trend for activity, growth in new business accelerated in the service sector midway through the third quarter. The latest increase in new work was the fastest seen in three months and solid overall, with a number of companies linking growth to improving market conditions and new marketing strategies. At the same time, new order intakes at manufacturers rose to the greatest extent in over three years. As a result, composite new business increased at the joint-quickest pace in 2017 to date.
Stronger growth of activity and new orders led service providers to expand their payrolls again in August. Notably, the rate of job creation was the fastest seen for four months. Meanwhile, manufacturers reported a further reduction in headcounts in the latest survey period, though the rate of job shedding moderated since July. At the composite level, employment stabilised in August, thereby ending a four-month sequence of decline. (…)
Prices charged by Chinese services firms declined during August amid reports of greater market competition. Though only marginal, it was the first time that prices had fallen for nearly a year-and-a-half. Manufacturers meanwhile increased their factory gate charges and at a solid rate. According to panellists, companies raised their selling prices due to greater cost burdens. At the composite level, prices charged increased at the steepest rate for five months.
China to spend over $1 trillion on planes over next 20 years: Boeing Chinese airlines are likely to buy more than 7,000 planes worth $1.1 trillion over the next 20 years, as they grow their fleets to meet robust demand for domestic and international travel, Boeing Co said in a bullish forecast on Wednesday.
CANADA
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Rate Hike Imminent as Poloz Takes Hawkish Turn
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Toronto Housing Market Slump Continues With August Drop
SEPTEMBER!
Following up on last week’s post (SEPTEMBER!), the 120 Yield Spread has clearly declined below 120:
Certainly not helping the odds here (A Powerful Combo: the Rule of 20 and the “120 Yield Spread”)