In terms of U.S. economic indicators this week, as you'll see below, the consumer remains very optimistic and, generally, employment prospects continue to improve. Growth in U.S. manufacturing remains solidly in expansion mode, however the pace has waned a bit of late.
In terms of Non-U.S. indicators (I only copy you on the U.S. highlights weekly), it's the definition of a mixed bag. For example, the Euro Zone (an area of particular interest to me at the moment) Manufacturing PMI (Purchasing Managers Index) showed December just barely in expansion mode, at 50.8 (above 50 denotes expansion). With, among the Euro Zone's heavy hitters, Spain and Germany growing at 53.8 and 51.2 respectively, and Italy and France contracting at 48.4 and 47.5 respectively. There's a growing consensus that believes the ECB will be stepping in with massive Quantitative Easing (printing Euro and buying bonds) early in the new year. This week's comments from ECB officials, as well as Chairman Draghi himself, support that belief.
From a monetary policy perspective 2015 looks to be a year where the world's central banks move in different directions; with the U.S. expected to begin tightening policy (a bit), with Great Brittain somewhere between on hold and tightening, and the Euro Zone, China and Japan expected to loosen till the cows come home, or until their economies improve.
After presenting you our lengthy year-end letter earlier this week (if you haven't yet read it, please click here and do), I owe it to you to keep this one brief. So I'll close here with this week's U.S. highlights from my economic log:
DECEMBER 29, 2014:
THE DALLAS FED MANUFACTURING SURVEY showed activity increasing again in December. The production index jumped from 6 to 15.8... Cap utilization rose, as did shipments. However demand growth moderated as the new orders component declined to 1.3 from 5.6... Optimism regarding the economy remained positive.... The company outlook index remained steady at 8.4... The general business activity index did decline from 10.5 to 4.1 however. The consensus range was from 5 to 12.5... Workeeks were unchanged. The employment index held steady with a sold reading of 9.2.... No change in hours worked...
THE FED BALANCE SHEET sits at a whopping 4.509 trillion... after increasing by 7.2 billion the week before last...
DECEMBER 30, 2014
THE ICSC RETAIL REPORT showed chain store sales flat last week. Year over year sales came in 2.2%, below the 3.1% rate the prior week. The report notes the importance of holiday gift cards and, therefore, anticipates a good January...
THE JOHNSON REDBOOK RETAIL REPORT showed year over year growth holding steady a 5.4%, was 5.3% last week. This is strongly in the range that denotes economic expansion...
THE CASE-SHILLER HOME PRICE INDEX shows home-price appreciation slowing to a 4.5% year over year rate... which was the consensus estimate... The month to month reading, however, was strong at up .8%...
THE CONFERENCE BOARD'S CONSUMER CONFIDENCE INDEX came in strong at 92.6, which is the second strongest reading of the recovery (October's was 94.4)... A negative, however, was the decline in folks expecting to buy a house, which flies in the face of my optimism over homebuilders stocks going forward... Here's Econoday's commentary:
Consumer confidence is strong especially in the assessment of current conditions which offers an indication of monthly strength for December consumer activity. The consumer confidence index rose 1.6 points to 92.6 which, outside of October's 94.4, is the strongest reading of the recovery. November's index is revised 2.3 points higher to 91.0.
The current conditions component of the index is up 5.1 points to 98.6, a convincing gain and a recovery best. The jobs-hard-to-get subcomponent shows special strength, at 27.7 percent vs November's 28.7 percent in an improvement that will lift expectations for strength in the December employment report.
Showing less punch is the expectations component which fell 8 tenths to 88.5. Weakness here, in contrast to the strength of the current jobs assessment, reflects pessimism in the jobs outlook where 16.9 percent see fewer jobs ahead vs 14.7 percent who see more opening up. Inflation expectations are steady at 5.1 percent which is soft for this reading and reflects price declines underway at the gas pump.
A negative in the report is a sizable decline in those expecting to buy a house in the next six months in what is the latest bad news for home builders. But this report on net, especially the gain for current conditions, points to extending momentum for the consumer sector which is benefiting from a healthy jobs market and easing gasoline prices.
THE STATE STREET INVESTOR CONFIDENCE INDEX shows continued optimism among institutional investors, although it did ease a bit this month to 112.1 from 113.7 in November. The strongest sentiment reading, 129.7, comes from Europe... which supports (in terms of agreement among institutional investors) my bullishness on the Euro Zone going forward...
FARM PRICES rose 1.0% after rising 2.0% the previous month. The year over year change is 2.0%...
DECEMBER 30, 2014
THE ICSC RETAIL REPORT showed chain store sales flat last week. Year over year sales came in 2.2%, below the 3.1% rate the prior week. The reports notes the importance of holidaTHE ICSC RETAIL REPORT showed chain store sales flat last week. Year over year sales came in 2.2%, below the 3.1% rate the prior week. The reports notes the importance of holiday gift cards and, therefore, anticipates a good January...
THE JOHNSON REDBOOK RETAIN REPORT showed year over year growth holding steady a 5.4%, was 5.3% last week. This is strongly in the range that denotes economic expansion...
THE CASE-SHILLER HOME PRICE INDEX shows home-price appreciation slowing to a 4.5% year over year rate... which was the consensus estimate... The month to month reading, however, was strong at up .8%...
THE CONFERENCE BOARD'S CONSUMER CONFIDENCE INDEX came in strong at 92.6, which is the second strongest reading of the recovery (October's was 94.4)... A negative, however, was the decline in folks expecting to buy a house, which flies in the face of my optimism over homebuilders stocks going forward... Here's Econoday's commentary:
Consumer confidence is strong especially in the assessment of current conditions which offers an indication of monthly strength for December consumer activity. The consumer confidence index rose 1.6 points to 92.6 which, outside of October's 94.4, is the strongest reading of the recovery. November's index is revised 2.3 points higher to 91.0.
The current conditions component of the index is up 5.1 points to 98.6, a convincing gain and a recovery best. The jobs-hard-to-get subcomponent shows special strength, at 27.7 percent vs November's 28.7 percent in an improvement that will lift expectations for strength in the December employment report.
Showing less punch is the expectations component which fell 8 tenths to 88.5. Weakness here, in contrast to the strength of the current jobs assessment, reflects pessimism in the jobs outlook where 16.9 percent see fewer jobs ahead vs 14.7 percent who see more opening up. Inflation expectations are steady at 5.1 percent which is soft for this reading and reflects price declines underway at the gas pump.
A negative in the report is a sizable decline in those expecting to buy a house in the next six months in what is the latest bad news for home builders. But this report on net, especially the gain for current conditions, points to extending momentum for the consumer sector which is benefiting from a healthy jobs market and easing gasoline prices.
THE STATE STREET INVESTOR CONFIDENCE INDEX shows continued optimism among institutional investors, although it did ease a bit this month to 112.1 from 113.7 in November. The strongest sentiment reading, 129.7, comes from Europe... which supports (in terms of agreement among institutional investors) my bullishness on the Euro Zone going forward...
FARM PRICES rose 1.0% after rising 2.0% the previous month. The year over year change is 2.0%...
DECEMBER 31, 2014
WEEKLY JOBLESS CLAIMS grew to 298k last week... Holiday weeks can be volatile for this indicator... Despite the rise, the 4-week average held stady at 290,750... Continuing claims, with a one week lag, were down 53,000 to 2.353 million... The unemployment rate for insured workers held at 1.8%, a recovery low...
THE CHICAGO PMI, like most anecdotal reports, slowed this month. The reading came in at 58.3 (still nicely in expansion mode), off of last month's 60.8... The one positive in this, as well as the other reports, remains employment. Which speaks to underlying optimism among employers...
THE BLOOMBERG CONSUMER COMFORT INDEX remained very strong last week, coming in at 42.7, just below the 7-year high of 43.1 recorded the prior week... Here's Econoday's commentary:
According to Bloomberg, more hiring and cheaper fill-ups at the gas pump combined to lift American consumers' spirits this year by the most since before the last recession.
The Bloomberg Consumer Comfort Index averaged 36.7 in 2014, the strongest in seven years. While the gauge slipped to 42.7 in the week ended December 28 from 43.1, it was the second-highest level since October 2007.
After an erratic nine months, sentiment began to steadily improve as stronger employment gains and lowest fuel costs in five years began resonating with American consumers. Households last week had the most optimistic view of the economy since the end of 2007, indicating the expansion has room to run in 2015.
The Bloomberg Comfort component measuring attitudes about the national economy climbed to 35.2 last week, the strongest level since October 2007, from 34.7. The gauge, which tends to reflect less optimism than the other two sub-indexes, is still lower than its pre-recession average of 40.1.
The Bloomberg measure of personal finances declined to 53.8, the lowest since late October, from 54.7 the week before. Attitudes about the buying climate were little changed near its highest level since April 2007.
A comfort gauge among earners making $50,000 or more advanced 59.7, the highest since August 2007 and 10 points better than this year's average.
Sentiment among 18-to-34-year olds, high school graduates, single adults, Westerners and part-time workers was the strongest since 2008.
PENDING HOME SALES gained in November, sending the index to 104.8, from 104.0 in October...
CRUDE OIL INVENTORIES fell last week by 1.8 million barrels... WTI rose initially on the report, then promptly tanked to, at one point during, nearly a 3% decline...
NAT GAS INVENTORIES fell by 26 billion cubic feet last week. Like oil, today's reported draw down did not support today's price...
JANUARY 2, 2015
MARKIT'S PMI MANUFACTURING INDEX for December came in at 53.9, which was right at the low end of consensus estimate, and down .9 from November's reading. This report is consistent with many of the other anecdotal manufacturing surveys showing sustained growth, but a softening in the rate of growth. The one indicator in this report that is inconsistent with virtually all the others is hiring growth coming in the slowest since July.
THE ISM MANUFACTURING INDEX also confirmed a slowing growth rate in manufacturing, coming in at 55.5, down from November's 58.7. A reading of 55.5, however, is a very solid expansionary number. The employment component was a positive for the report, rising 1.9 points to 56.8, a very sold number. Inventories are down, which would be a plus for both production and employment prospects going forward. Here's the "what respondents are saying" part of the report:
"Retail sales this holiday season are shaping up to be much improved over last year." (Food, Beverage & Tobacco Products)
"West Coast port issues have greatly impacted our incoming materials. We are air freighting many parts from Japan and Asia to support production while parts sit at the dock." (Fabricated Metal Products)
"Class 8 trucks and RV business is very strong." (Transportation Equipment)
"Most commodities feeling downward price pressure from crude. Rain in California driving demand for repair products through the roof." (Petroleum & Coal Products)
"Business has not slowed as of yet, but outlook is that business should start slowing, energy market related." (Computer & Electronic Products)
"Collapse of oil prices is supporting negotiations for significantly lower petrochemical related material prices. Sales are slowing down as buyers reduce inventory in anticipation of lower prices." (Chemical Products)
"West Coast ports are creating delays for imported goods." (Textile Mills)
"Energy prices falling are a blessing and a curse for us. We will experience downside as projects are canceled by energy companies, but suspect manufacturing in the US will improve driving upside in that space." (Apparel, Leather & Allied Products)
"The West Coast ports slow-down is really affecting deliveries of our Asian purchases." (Machinery)
"Currently in slow season until new year." (Primary Metals)
CONSTRUCTION SPENDING dipped .3% in November. The decrease was largely due to public outlays which dropped 1.7%. Private residential spending rose .9% (I'm bullish on home builders going forward). Private nonresidential construction spending, however, dropped .3 percent.
THE FED BALANCE SHEET declined by $11.8 billion last week, $10.5 billion of which were mortgage-backed securities. Total assets on ended the week at $4.498 trillion...
MONEY SUPPLY (M2) grew by $16.6 billion last week.
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