NEW$ & VIEW$ (3 MAR. 2015): U.S. Consumer + and – ; U.S. Investors + and -

U.S. Personal Income Increase Continues to Outpace Spending

Personal income rose an expected 0.3% during January (4.6% y/y) following an unrevised 0.3% December increase. Wages & salaries strengthened 0.6% (4.9% y/y) following a 0.1% uptick. (…)

Personal consumption expenditures declined 0.2% (+3.6% y/y) following an unrevised 0.3% decline. Personal spending has fallen at a 0.1% annual rate during the last three months

The PCE chain price index fell 0.5% (+0.2% y/y) following two months of 0.2% decline. As a result, the y/y gain of 0.2% was the weakest since October 2009.

Real disposable income increased 0.9% (4.2% y/y) following two months of 0.5% rise. Real personal spending gained 0.3% (3.4% y/y) after a 0.1% slip.

The strength in income accompanied by the weakness in spending lifted the personal savings rate to 5.5%, the highest level since December 2012. Personal saving rose 18.0% during the last twelve months.

The 0.5% decline in the chain price index reflected a 10.4% drop (-21.2% y/y) in energy prices while food prices edged 0.2% lower (+2.7% y/y). Durable goods prices were off 0.3% (-2.8% y/y) and nondurable goods prices fell 2.3% (-3.7% y/y) with lower gasoline costs. Services prices ticked 0.1% higher (2.0% y/y) for the second straight month. The price index excluding food & energy edged up 0.1% m/m (1.3% y/y) following no change.


Lots of interesting stuff in this report:

  • Nominal Personal income has risen at a 4.0% annualized rate in the last 3 months.
  • Wages & salaries have exploded at a 6.5% annualized rate.
  • After tax, nominal disposable income is up 4.0% annualized since November (+4.8% in January).
  • Declining prices (-3.6% annualized in last 3 months) are boosting all the above numbers in real terms.
  • Yet, Consumption expenditures have actually declined 0.1% in nominal terms in the last 3 months (+3.2% annualized in real terms).
  • All this stuff about the newly frugal consumer now saving most of the the oil windfall is exaggerated by many media:
    • Real expenditures on automobiles is up 10.6% YoY;
    • Real expenditures on Furnishings and Appliances is up 9.2% YoY;
    • Real expenditures on Recreational goods and vehicles is up 12.9% YoY;
    • Real expenditures on Restaurants and hotels is up 6.2% YoY, +9.0% annualized in last 2 months.

imageTo be sure, indebted Americans are using the windfall to catch up. Statistically, debt reduction is a rise in savings. The reality is that the oil dividend trickles in incrementally in small amounts. The large annualized saving is but a statistic, useful for economists, but largely immaterial for most people in the early months, until it has accumulated at the bank or has helped pay down credit card balances.

Another factor is that official national accounts stats are likely fooled by the significant cross-currents in inflation rates among various goods and fail to adequately catch the most recent trends.

The important data, in my view, is nominal Wages and salaries which reflect what is happening at work and which is more sustainable for the average American.


Oups! There is also this minor thing pointed out by Ed Yardeni:

The latest data through January show that the percentage of current-dollar consumption for gasoline plunged from last year’s high of 3.2% to 2.1% in January. Consumers saved $133 billion (saar) on gasoline over this period.

On the other hand, the percentage of their outlays for health care goods and services rose from last year’s low of 20.0% during March to 20.6% during January.(…)Health care consumption includes spending paid for by both insurance and government programs, as well as out-of-pocket costs. Presumably and anecdotally, the latter have risen sharply. However, that wouldn’t necessarily bloat overall spending, though more out-of-pocket outlays would depress spending on other goods and services.

Why Stocks Aren’t Due for a Steep Near-Term Pullback Stocks are staging an impressive run with few immediate roadblocks poised to derail their course.

Yes, an increase in rates is looming. And yes, valuations remain elevated on a price-to-earnings basis. But an initial rise in short-term borrowing costs is expected to be minimal, and other valuation gauges – beyond price-to-earnings – aren’t worrisome for all of Wall Street.

“On Price to Free Cash Flow, Price to Normalized Earnings—a more predictive valuation metric—and EV/EBITDA, the S&P 500 still looks attractive,” wrote Bank of America Equity Strategist Savita Subramanian in a note titled “10 reasons to stay long the S&P 500.”

According to the bank’s data going back nearly three decades, price-to-free cash flow is 22% below its mean, and trailing normalized price-to-earnings is 2% below its average. Enterprise value-to-EBITDA, which accounts for healthy corporate balance sheets and high margins that S&P 500 companies are basking in, is on par with where the ratio has spent the past nearly 30 years. (…)

High five Wait, wait! Zerohedge won’t let you sleep well:

US Macro Weakest Since July 2011 As Goldman Affirms Global Economy In Contraction

Goldman’s Global Leading Indicator (GLI) final print for February affirms the global economy has entered a contraction with accelerating negative growth. Just six months after “expansion”, the Goldman Swirlogram has collapsed into “contraction” with monthly revisions notably ugly and 9 out of 10 components declining in February. Some have suggested, given US equity’s strong February (buyback-driven) performance, that the US economy will decouple from the world… or even drive it.. but that is 100% incorrect. US Macro data has fallen at its fastest pace in 3 years and is at its weakest level since July 2011 as 42 of 48 data items have missed since the start of February.

With 9 of 10 components negative in February, Goldman’s Swirlogram has collapsed from expansion to contraction within just 6 months…

First negative print since 2012 – indicating global industrial production is set to contract…

What is the GLI: The Global Leading Indicator (GLI) is a Goldman Sachs proprietary indicator that is meant to provide an early signal of
the global industrial cycle on a monthly basis. There is an Advanced reading for each month, released mid-month, followed by the Final reading, released on the first business day of the following month.

(…) The Bloomberg US Macro Surprise Index just dropped – after today’s dismal data showing – to its lowest absolute level since July 2011. The last 3 months have seen it fall at the fastest pace sinceJuly 2012. Notice the lower peaks and lower troughs on each cycle since 2012…

Note: this index tracks not just miss/beat but absolute positive or negative data items – key to the cyclical aspect is the over-optimism and over-pessimism of economist’s forecasts. The last 3 years (lower peaks and lower troughs) suggest economists are strongly biased to over-optimistic forecasts and normally this kind of drop would have stopped but economists continue to look for hockey-sticks which, perhaps, in this case will be absent (and have been for a month).

But of course that doesn’t matter…



Growth in the U.S. manufacturing sector gathered momentum in February, with output and new orders both rising at sharper rates than seen at the start of the year. Input costs decreased marginally for the second month running, but firms continued to raise their output prices. Meanwhile, delays in the delivery of items contributed to an accumulation of backlogs of work and a record increase in finished goods stocks.

The final seasonally adjusted Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) rose to 55.1 in February from 53.9 in the previous month. The reading signalled the most marked improvement in business conditions in the sector since October 2014.


Manufacturing production growth quickened to the sharpest in four months during February, with firms linking higher output to increases in new business. This was highlighted by a marked rise in total new orders. As with production, the rate of growth in new business was the fastest since last October. Meanwhile, new export orders continued to rise, albeit only modestly.

Higher new orders was one factor leading to an accumulation of backlogs of work in February, while supplier delivery delays had also contributed to rising outstanding business. Delivery times lengthened to the greatest extent since February 2014, with firms reporting adverse weather conditions in some parts of the country. Meanwhile, stocks of finished goods increased at the sharpest pace since the series began.

Manufacturers raised employment, as has been the case in each month since July 2013. That said, the rate of job creation eased to the slowest in seven months. Higher levels of new work and the replacement of leavers contributed to the latest expansion of staff numbers.

Input prices at manufacturing firms decreased for the second successive month, albeit only marginally. The latest fall in costs was partly linked to reduced prices for steel and other commodities.

Although input costs declined, firms continued to raise their output prices in February. The rate of inflation remained modest, but picked up to a three-month high. Charges have been raised in each month since September 2012.

A solid increase in purchasing activity was recorded amid reports of greater production requirements. That said, the rate of expansion eased to the slowest since January 2014.

Strong improvements in business conditions were seen across small, medium and large companies during February. Meanwhile, SMEs posted a faster rate of job creation than large companies. The medium sizeband was the only one to see a fall in input prices during the month.

Rates of improvement were broadly consistent across market groups, with the greatest strengthening of operating conditions at investment goods firms. Data suggested that the overall fall in input prices was centred on intermediate goods producers.

NEW$ & VIEW$ (2 MAR. 2015): Stronger Wages; Weaker China; Weaker Earnings

U.S. Pending Home Sales Rose 1.7% in January A forward-looking gauge of U.S. home purchases rose in January to its highest level in nearly a year and a half, a sign of firming demand in the housing market.

The National Association of Realtors said Friday that its pending home sales index, which is based on contract signings for purchases of existing homes, increased 1.7% to a seasonally adjusted level of 104.2 in January from an upwardly revised reading of 102.5 in December.

The index rose 8.4% in January from a year earlier and reached its highest level since August 2013, when home sales were tumbling after a jump in mortgage rates.

According to Friday’s report, pending sales of existing homes rose 3.2% in the South last month from December, and climbed 2.2% in the West. Pending sales ticked up 0.1% in the Northeast and fell 0.7% in the Midwest.

U.S. Growth Poised to Pick Up Sluggish end to 2014 belies consumer and business strength

Gross domestic product, the broadest measure of goods and services produced across the economy, expanded at a 2.2% annual rate in the fourth quarter, the Commerce Department said Friday, weaker than an earlier 2.6% estimate.The latest figures show the 5% pace in the third quarter and 4.6% in the second quarter were unsustainable.

For 2014 as a whole, GDP expanded 2.4%, slightly better than the average 2.2% growth of 2010-13. By comparison, the economy grew an average 3.4% a year during the 1990s.

Still, Friday’s report showed that consumer spending, which accounts for about two-thirds of output in the U.S., matched its fastest pace since early 2006 during the fourth quarter. Personal consumption expenditures advanced 4.2%. (…)

Elsewhere in Friday’s GDP report, the picture was mixed. Companies didn’t stockpile as many goods as initially thought, a short-term drag that may signal slightly better growth at the start of 2015.

Business investment decelerated from the third quarter but was stronger than first reported, offering some support for GDP.

Government outlays and trade, meanwhile, weighed on growth. The trade figures, while a hit for headline GDP, in part reflect the stronger dollar and domestic demand for more imports. (…)

Business investment—which reflects spending on software, research and development, equipment and structures—grew at a 4.8% rate, a slowdown from the third quarter but significantly better than the initially reported 1.9%.

Click to View(Doug Short)

Wages Rise at Restaurants as Labor Market Tightens Wage growth is breaking out in an unexpected corner of the U.S. economy: the nation’s restaurants and bars. Food-service employment has surged since the recession ended six years ago.

Food-service employment has surged since the recession ended nearly six years ago, growing twice as fast as overall payrolls. But those gains had largely failed to translate into better wages in the sector, until recently. Restaurant wages zoomed up to an annualized pace of more than 3% in the second half of last year from below a 1.5% pace in the first half of 2013, according to the Labor Department. Private-sector wages across the overall economy have grown at about a 2% pace for the past five years. (…)

“A lot of new [establishments] are popping up and those restaurants want experienced people,” said Patrice Rice, chief executive of Patrice & Associates, a restaurant staffing firm. “There is fierce competition.” Some of her clients are offering significant raises, paid vacation time and even free meals for spouses to attract workers. A national pizza franchise recently paid her $5,000 per position to place managers. Her fees are up 25% from a year ago. (…)

Food-service pay is also bolstered by 17 states increasing the minimum wage in 2014, including a 12.5% jump in California. Even more states raised pay at the start of this year. Nearly half of minimum-wage workers are employed in food service, according to the Labor Department.

The Teamsters union extended its influence in Silicon Valley’s service sector Friday evening, as drivers for shuttle buses to five tech companies voted to support representation by the union. The tally was 104-38 in favor of the union, the Teamsters said.

The 158 affected drivers are employed by Compass Transportation, which provides shuttle service for Apple, eBay , Genentech, Yahoo and Zynga . (…)

Rome Aloise, president of Local 853, said the drivers “voted to be part of a rising tide to improve wages, benefits and working conditions of those who support the tech industry.” (…)

Last weekend, drivers for Facebook — who became the first tech shuttle drivers to vote for Teamster representation in November — voted to accept a contract the Teamsters negotiated for them with Loop Transportation.

That contract will raise their pay, on average, to roughly $24.50 an hour, from $18, over three years. Drivers will get additional pay for working split shifts, and the contract allows them to decline such shifts. Teamsters leadership said that contract should be a basis for shuttle drivers’ contracts throughout Silicon Valley.

Union representation is rare in Silicon Valley, and service workers’ wages have lagged far behind those of tech workers. A report this month from think tank Joint Venture Silicon Valley found that the median annual income for high-skilled workers in the region is about $119,000, while the median income for low-skilled workers is about $27,000.

After Yellen Testimony, Fed Officials Beat Rate-Hike Drum Federal Reserve officials fanned out to drive home the message that they are likely to start raising short-term interest rates later this year, reinforcing Chairwoman Janet Yellen’s remarks to Congress during this past week.

(…) Seven of the Fed’s current 17 members have now said they at least want the option of a June tightening on the table, or have pushed in general for an earlier increase amid an expectation that wages and inflation will turn higher.

By contrast, there’s a dwindling core of officials who say publicly that the economy and labor markets in particular still have a long way to go — only four Fed members have in recent weeks clearly said that rate hikes won’t be appropriate until much later in the year or even into 2016.

The five members of the Fed’s Washington-based board of governors, including Yellen, have spoken less definitively, though governors including Jerome Powell have said they expected strong job growth to continue. Not all of the seven who point to June vote this year on the Fed’s ten-member policy setting committee, but all participate in policy discussions. (…)

Expectations vs reality: are we at the low point?:image

China New-Home Prices Fall

Sequentially, average new-home prices fell 0.2% in February, reversing the 0.2% advance recorded in January, which had been the first increase in nine months, data provider China Real Estate Index System said Saturday.

On an annual basis, average new-home prices fell 3.8% in January, a steeper decline compared with the 3.1% fall in January and the 2.7% drop in December.

Of the 100 cities surveyed, 61 showed a sequential decline in home prices, compared with 56 recorded in January. Average new-home prices in the remaining 31 cities rose.

China Central Bank Cuts Interest Rates China cut interest rates for the second time in four months in a fresh sign of Beijing’s concern over slowing growth.

China’s central bank said Saturday evening that it would reduce its benchmark lending rate and deposit rate each by 0.25 percentage point to lower domestic companies’ borrowing costs. The People’s Bank of China said in a statement it would lower its one-year lending rate to 5.35% from 5.6% and its one-year deposit rate to 2.5% from 2.75%

The moves are effective Sunday.

It also said it would raise the maximum interest rate on bank deposits to 130% of the benchmark rate from 120%.

From the WSJ:

For much of last year, the PBOC, under long-serving Governor Zhou Xiaochuan , insisted on targeted efforts rather than broader moves like rate cuts out of concern that broadly easing credit would worsen debt problems. The central bank is acceding to demands from the Chinese leadership to reduce financing costs for businesses and bolster growth, according to officials and advisers to the bank. A rate cut in November was the first such move in two years and was followed last month by an across-the-board measure lowering the amount of money banks need to hold in reserve, thereby freeing up more funds for lending. Mr. Zhou, an advocate for market-oriented reforms, is expected to step down soon, according to officials at the central bank. At 67, he has already passed the retirement age of 65 for senior Chinese officials. The Wall Street Journal reported in late September that Chinese leaders were discussing replacing Mr. Zhou amid disagreements over the direction of financial policy. Attempts to reach Mr. Zhou weren’t successful. The latest slew of easing measures is “a clear reversal of what Zhou has long insisted on,” a central bank official said.

Ninja BTW, did you notice that the February PMIs revealed that manufacturing exports rose in Japan and Europe but declined in China…I bet that Beijing did notice it.

Emerging-Market Currencies Tumble on Growth, Stimulus Prospects Yuan, rupiah and real hit multiyear lows while Turkish lira slumps to record

In Asia, China’s yuan fell to the weakest level against the U.S. dollar in more than two years while Indonesia’s rupiah hit the weakest point in more than 16 years. Elsewhere, Turkey’s lira slumped to a record low in early New York trading, while Brazil’s real touched the weakest level in more than a decade before reversing the losses. (…)

The bout of selling is the latest tumble for currencies from developing nations that are struggling with falling commodity prices, declining inflation and softening growth expectations. Many countries have cut interest rates or taken other measures that have devalued currencies, a move that can help growth by making exports cheaper to overseas buyers. (…)

Central banks are behind many of the currency moves. Israel’s shekel, one of the recent top-performing currencies, fell more than 3% for the week against the dollar after the central bank surprised the markets with another cut to its benchmark rate.

On Friday, the People’s Bank of China helped guide the yuan lower, setting the daily fixing rate at 6.1475 to the dollar, marking the weakest fix for the yuan since November 2014. The PBOC allows the yuan to trade 2% above or below the daily reference rate. (…)

Eurozone Consumer Prices Fall Again

The European Union’s statistics agency on Monday said prices were 0.3% lower than in February 2014, having fallen 0.6% in January. The December decline in prices was the first since late 2009.

The core rate of inflation—which excludes items such as food and energy—was unchanged at 0.6%, a very low level that will concern ECB policy makers.


High five Interestingly, the All-Items HICP rose 0.6% MoM and core CPI rose 0.5% MoM from January.


A Reuters survey of shipping data and oil companies found that oil output from the Organization of the Petroleum Exporting Countries fell in February, as bad weather in southern Iraq delayed tanker loadings and sailings. The estimated output of 29.92 million barrels a day was lower than the cartel’s official target of 30 million barrels a day and the lowest level since last June, when the market collapse began.

Oil prices might still drift lower in the short term as supply-side support to prices wanes in the weeks to come, JBC Energy said.

“Iraqi shipments for March should see a considerable lift as several February cargoes are deferred into March with plenty of vessels already in place to haul the crude. In the same vein, basically all onshore production in Libya was shut in following the sabotage of a key pipeline. Thus, it seems likely that any potential production and export volume changes will be to the upside,” analysts at JBC wrote in a note. (WSJ)


This is from Factset. S&P has yet to update its spreadsheet.

With 485 companies in the S&P 500 reporting actual results for Q4 to date, the percentage of companies reporting actual EPS above estimates (76%) is above the 5-year average, while the percentage of companies reporting actual sales above estimates (59%) is equal to the 5-year average. In aggregate, companies are surpassing earnings estimates by 3.8%.

As a result of these upside earnings surprises, the blended earnings growth rate for the fourth quarter is 3.7% this week, up from 3.5% last week. This growth rate is above the estimate of 1.7% at the end of the fourth quarter (December 31).

If the Energy sector is excluded, the blended earnings growth rate for the S&P 500 would jump to 6.9% from 3.7%.

As a result of upside revenue surprises, the blended revenue growth rate for Q4 2014 is now 2.1%, which is above the estimate of 1.1% at the end of the fourth quarter (December 31).

If the Energy sector is excluded, the blended revenue growth rate for the S&P 500 would jump to 4.8% from 2.1%.

Remarkably, only 3 sectors did worse than expected in Q4 (Energy, Telecoms, Financials).


Looking at the first half of 2015, analysts are now projecting year-over-year declines in both earnings and revenues for both Q1 2015 and Q2 2015, compared to expectations for earnings and revenue growth for both quarters back on December 31. Most of these downward estimate revisions have occurred in the Energy sector. Despite the estimate reductions in the first half of 2015, analysts are looking for record-level EPS in the second half of 2015. Analysts also expect net profit margins to rise (based on per-share estimates) starting in Q2 2015.

For Q1 2015, 81 S&P 500 companies have issued negative EPS guidance and 15 have issued positive EPS guidance. The percentage of companies issuing negative EPS guidance for Q1 2015 is 84%, which is above the 5-year average of 68%.

Guidance is pretty much in line with last year at the same time. Yet, Q1’15 estimates are down measurably in ALL sectors with 6 of the 10 sectors expected to report down earnings this quarter.image


The growth rate of the eurozone manufacturing sector remained lacklustre in February. At 51.0, the final seasonally adjusted Eurozone Manufacturing PMI® was unchanged from January’s six-month high and below the earlier flash estimate of 51.1. The rate of expansion in manufacturing production was also the same as in the prior month, despite a slight uptick in growth of new order inflows to a seven-month high. However, the rate of increase in total new business remained only moderate, as subdued domestic market conditions offset accelerated growth in new export orders.


Manufacturing employment edged higher for the sixth straight month in February, with the rate of jobs growth the best during that sequence. Subsequently, backlogs of work were broadly unchanged over the month.

Price pressures remained on the downside during February. Lower oil prices continued to filter through to costs, leading average purchase prices to decline
sharply again. Indeed, the rate of deflation in average input costs was only moderately less steep than January’s five-and-a-half-year record. Meanwhile, average selling prices decreased for the sixth straight month, mainly due to lower costs, subdued market conditions and rising competition.

(…) Output growth in Spain slowed slightly over the month but, with new order inflows improving, companies were still encouraged to raise employment for the fourteenth straight month. The other nations to signal improved manufacturing performances in February were Italy, Germany and the Netherlands. All three countries reported modest growth of production. Rates of output expansion slowed in Germany and the Netherlands, although Germany registered a slight acceleration in new order growth. Output rose at the fastest pace for eight months in Italy, as new order inflows returned to growth principally led by a strong export performance.

Manufacturing employment rose only marginally in Germany and fell in the Netherlands, but grew in Italy at the quickest pace since last April.

PMI readings for France, Greece and Austria all signalled contractions in February, with France sinking back to the bottom of the eurozone PMI ranking table. These nations also reported concurrent declines in production and new orders, leading to further job losses in France and Austria. The news on the employment front was slightly better for Greece, with workforce numbers rising for the third successive month.