Economics | Weekly Economic Report
Monday, June 18, 2018Ed [email protected]
Stan [email protected]
Dick [email protected]
Jaewoo [email protected]
Sean [email protected]
An Unusually ImpressiveWeek For U.S. Economic Data
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An Unusually Impressive Week
For U.S. Economic Data
Eurozone data were on the weaker side.
China data were mixed in our view.
But US data were impressive, eg, retail sales,
Consumer Sentiment, NFIB, Empire mfg index, and
EVRISI company surveys.
US real GDP in 2Q is tracking over +4% q/q a.r. and
+3% y/y.
If these real GDP figures work out, then productivity
in 2Q could have a +2% handle and be essentially
the strongest since 2004! Productivity in 1Q was
+1.3% y/y, essentially the strongest since 2007.
Over the past month, oil prices have declined -$8
and bond yields -10bp. These declines in our view
are positive given the positive economic backdrop
outlined above. But that’s not to overlook that their
declines are related to trade-war concerns.
June 18, 2018
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Thanks for looking over the following SUMMARY.
Call me anytime: 646-287-7242
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212-446-5617
646-287-7242
June 18, 2018
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SUMMARY
Last Week’s Events
More tariffs.
Fed hike.
Trump/Kim
US homebuilders down -3.4%.
Greek bond yields plunged -52bp.
June 18, 2018
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EVRISI Company Surveys
Consistent With +3.5% Growth
Our company surveys moved up again last week to
a level consistent with +3.5% real GDP growth or
more.
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EVRISI Company Surveys
Consistent With +3.5% Growth Contd
The strength has been widespread, eg, retailers,
restaurants, temp & perm employment agencies,
and truckers, which have the highest correlation with
GDP of any single sector survey.
June 18, 2018
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EVRISI Company Surveys
Consistent With +3.5% Growth Contd
The strength in EVRISI retailers survey fits with the
strength in retail sales reported last week. Real
retail sales with revisions were up a strong +0.7%
m/m in May.
June 18, 2018
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EVRISI Company Surveys
Consistent With +3.5% Growth Contd
The Empire mfg index strength in June increases
the odds that the natl mfg PMI increases in June.
June 18, 2018
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EVRISI Company Surveys
Consistent With +3.5% Growth Contd
Consumer Sentiment moved up in 1H of June to a
level it first moved up to in 1997, which was in the
middle of a string of years with +4% real GDP
growth. Consumer confidence surveys are of
particular interest because they cut across all
income groups (equally weighted) and all regions,
and they are not revised, and they are timely.
June 18, 2018
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EVRISI Company Surveys
Consistent With +3.5% Growth Contd
The Business Roundtable, reported week-before-
last, was in record high territory. It reflects big
companies. Last week, NFIB’s surveys of small
businesses showed moon shots! For example,
small business profits surged. This suggests that
S&P earnings in 2Q will be another blowout.
The NFIB report had this commentary regarding
profits:
“Although the new tax law will impact this year, much
of the current improvement to date has been due to
gains in operating profits and stronger sales.”
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And as if we needed more stimulus, Federal outlays
in May were up +6% y/y.
June 18, 2018
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Productivity in 2Q Likely to be +2%
Productivity in 1Q was +1.3% y/y, essentially the
best since 2007 when productivity was +1.6%.
The whole point of the above section is that real
GDP in 2Q is on track to be +4% q/q a.r. and +3%
y/y. These metrics could give a productivity reading
of +3% q/q a.r. in 2Q and +2% y/y.
These readings would be essentially the best
productivity readings since 2004!
After the stronger retail sales report, GDPNow
moved up to +4.8%! That’s the strongest GDPNow
reading on record for the 14th day of the third month
of a quarter.
June 18, 2018
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Productivity in 2Q Likely to be +2% Contd
And GDPNow for the 14th day of the third month of
the quarter for the past four quarters has had a
tracking error of zero! GDPNow a year ago for June
14th of 2017 was +3.2%. The actual turned out to be
+3.1%.
Stan Shipley thinks 2Q real GDP will be +4.2%,
slower than the +4.8% GDPNow reading, but still a
big number.
Estimate as of: GDPNow Actual Error
Jun 14, 2017 +3.2% +3.1% +0.1%
Sep 14, 2017 +3.0% +3.2% -0.2%
Dec 14, 2017 +3.3% +2.9% +0.4%
Mar 14, 2017 +1.9% +2.2% -0.3%
Average +2.9% +2.9% 0.0%
Jun 14, 2018 +4.8% ? ?
June 18, 2018
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Productivity in 2Q Likely to be +2% Contd
Output, which is used to calculate productivity, has
been running faster than GDP. For example, output
in 1Q was +3.6% y/y versus GDP of +2.8%.
So if GDP in 2Q is say +3% y/y, then output is likely
to be +3.5% or more. Given that, productivity would
likely be +2.0%.
Output is “business GDP”, and is about 75% of total
GDP. Stay tuned.
June 18, 2018
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“Inflation Moving Up but Not Sharply”
Until inflation moves up sharply, the Fed is unlikely
to be aggressive, and the odds of a recession are
low.
Of course, if productivity were to increase +2% per
year, then even +4% wage increases would lift unit
labor costs only +2%. Stay tuned on this.
Last week’s inflation news was on the “Moving Up”
side (see further below), but there were still
“Not Sharply” developments.
Looking abroad, China’s headline CPI in May was
up just +1.8% y/y and the Eurozone’s core CPI was
just +0.8%.
Over the past month,
oil prices have declined -$8.
June 18, 2018
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“Inflation Moving Up but Not Sharply” Contd
And again last week there were a number of
examples of technology putting downward pressure
on inflation:
E-Commerce slows pace of inflation.
Amazon expanding its Prime discounts at Whole
Foods stores to 10 new states.
Citigroup suggests it will shed 10,000 tech and
operation staff as machines supplant humans.
Microsoft takes on Amazon at the checkout line.
Robots shift from factories to „new jobs‟.
June 18, 2018
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“Inflation Moving Up but Not Sharply” Contd
And U of Mich’s consumer inflation expectations
survey has edged up, but not sharply:
However, there was a significant package of
evidence on the “Inflation Moving Up” side.
June 18, 2018
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“Inflation Moving Up but Not Sharply” Contd
The headline PPI accelerated to +3.1% y/y and the
headline CPI accelerated to +2.7%. In addition, the
core PCE deflator probably accelerated to +1.86%
y/y in May.
June 18, 2018
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“Inflation Moving Up but Not Sharply” Contd
NFIB’s compensation survey increased to a record
high, increasing the odds that AHEs continue to
accelerate, and perhaps at a faster pace.
NFIB’S prices survey continued to move higher in
May.
June 18, 2018
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Money, Money, Money!
Again last week, there was evidence on many fronts
that the system is flooded with liquidity:
Comcast offers $65b for Fox.
CATL soars during IPO valuing company at
$12.3b.
Envision $9.9b leveraged buyout by KKR.
CKI launches $9.8b bid for Australia‟s top gas
transporter.
Toyota plans billion-dollar investment in ride-
hailing startup Grab.
Salesforce announces $2.5b investment in the
UK.
HSBC investing $17b in technology.
Adyen shares soar 80% on first day of trade in
IPO as valuation tops $14b.
Roger Federer could sign a $29m-a-year,
decade-long deal with Uniqlo.
Dropbox jumped 32% last week.
Apple signs Oprah to make programs.
June 18, 2018
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Money, Money, Money! Contd
Charitable giving increased +5.2% in 2017 to
$410b.
Blackstone raises $9.4b for Asia real estate
funds.
June 18, 2018
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The S&P Typically Peaks
After the Fed is Done Tightening
One of the big events last week was the Fed hike to
2.00% with a signal of more on the way.
As shown below, the S&P has moved up during fed
hikes until the tightening cycle is over (2001), or
even reversed (1991 and 2007).
June 18, 2018
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Flattening Yield Curve a Concern
But Not Yet a Problem
Even though the yield curve flattened during the
1995-1998 expansion years, growth averaged
almost +4%. Similar to today, inflation remained low
during 1995-1998, namely +2.5%. And today,
German bond yields at just 40bp are restraining US
bond yields.
We doubt the US yield curve will invert, but if it does
we will change our forecast.
The Fed probably won’t invert the curve.
That is, for example, if fed funds were 3.25% and
bond yields were 3.35%, the Fed would probably not
hike to 3.50%.
June 18, 2018
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Eurozone Economy Weakening
EVRISI company survey of Europe sales is
confirming other weaker data, eg, the German ZEW,
Eurozone IP, and France business sentiment.
June 18, 2018
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Positive Signs for Asia
There was a significant package last week of weaker
data for China, eg, bank loans, retail sales, IP, and
FDI.
In addition, the SHCOMP was down -1.5% last week
and down -3.5% ytd. (The S&P is up +4.0% ytd.
This disparity suggests the US may be perceived to
be “winning” the trade war.)
June 18, 2018
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Positive Signs for Asia Contd
However, there was a package of positive signs for
Asia:
CHINA MANPOWER JAPAN MACH ORDERS
CHINA LEI INDIA LEI
June 18, 2018
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We’re Watching This Closely
The global composite PMI increased +0.2% in May
but remained below its recent peak. Investors worry
that it’s headed back down.
The US Empire mfg index for June was strong (see
above).
June 18, 2018
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We’re Also Watching This Closely
US credit spreads have widened, but they are still
historically narrow.
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June 18, 2018
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Housing Key This Week This week market participants will receive several critical releases concerning
housing: NAHB, housing starts, existing home sales, and FHFA house prices. In
addition, the LEI likely posted another good gain in May. The Markit PMI also likely
slipped lower.
Overseas, Europe’s business confidence is critical: It likely fell further in June.
Stan Shipley 06/18/18 Consensus Evercore ISI Actual
Monday, June 18
UNITED STATES Apr May
1. NAHB Survey 70 70 72
Monday, June 19
UNITED STATES Apr May
2. Housing Starts 1.287 1.312 1.335
Building Permits 1.352 1.350 1.340
Wednesday, June 20
UNITED STATES Apr May
3. Existing Home Sales 5.46 5.53 5.60
Thursday, June 21
UNITED STATES Apr May
4. LEI +0.4% +0.4% +0.5%
June 9 June 16
5. Unemployment Claims 218 220 225
4 Wk. Avg. 224 221 222
Friday, June 23
UNITED STATES May June
6. Markit Mfg Flash PMI 56.4 56.3 56.0
CANADA Apr May
7. CPI Y/Y % +2.2% +2.5% +2.6%
Mar Apr
8. Retail Sales +0.6% -0.3% -0.2%
EUROZONE May June
9. Markit Composite PMI 54.1 54.0 53.6
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2
Mon
June 18 Economic Estimates
1 of 1 Stan Shipley
212 446 9474
917 463-6773
Jun 19 Jun 20 Jun 21 Jun 22
NAHB 10:00 HOUSING STARTS 8:30 8:30 MARKIT MFG PMI 9:45
May 70 Apr 1.287 June 9 218 May 56.4
June 72 E 70 C May 1.330 E 1.318 C EXIST HOME SALES 10:00 June 16 225 E 220 C Jun 56.0 E 56.5% C
BUILDING PERMITS Apr 5.46 MARKIT SVC PMI
Apr 1.352 May 5.65 E 5.53 C May 56.8
May 1.340 E 1.345 C Jun 56.8 E
CURRENT ACCOUNT PHIL FED SURVEY 10:00 MARKIT COMP PMI
May +34.4 May 56.6
June +22.0 E +25.0 C Jun 56.6 E
LEI 10:00
Apr +0.4%
May +0.5% E
Jun 26 Jun 27 Jun 28 Jun 29
NEW HOME SALES10:00 CASE-SHILLER 10:00 8:30 PERSONAL INCOME8:30
Apr 0.662 Mar +0.5% June 16 225 E 220 C Apr +0.3%
May 0.655 E 0.670 C Apr +0.5% E DURABLE GOODS 8:30 June 23 225 E May +0.4% E +0.4% C Apr -1.6% CONS SPENDING
TEXAS MFG INDEX10:30 RICHMOND MFG 10:00 May +0.4% E -0.2% C Apr +0.6%
May +26.8 May +16 EX TRANS May +0.5% E +0.4% C
Jun +22.0 E +24.0 C Jun +16 E +15.0 C Apr +0.9% REAL GDP 8:30 CONS PRICE DEFL
May +0.8% E +0.5% C 18:1Q +2.2% Apr +0.2%
CONS CONF 10:00 18:1Q +2.2% R +2.2% C May +0.2% E +0.2% C
May 128 PENDING HOME 10:00 GDP PRICE DEFL
Jun 127.5 E Apr -1.3% 18:1Q +1.9% CONSUMER SENT 10.00
May +2.0% E +1.0% C 18:1Q +1.9% R +1.9% R June 1H 99.3
June 2H 98.0 E
FARM PRICES
CHICAGO PMI 9:45
KANSAS CITY MFG ACTIVITY Apr 62.7
May 60.0 E 60.8 C
MORTGAGE APPS
Monday Jun 18
Monday Jun 25
CONSUMER COMFORT
UNEMP CLAIMS MORTGAGE APPS
CONSUMER COMFORT
UNEMP CLAIMS
June 18, 2018
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