Succinct Summation of the Week's Events

Succinct Summation of the Week’s Events:

Positives,

1)The October US PMI rose a touch from September to 54.3 from 54. Manufacturing remained below 50 but was up at 47.8 from 47.3. Services continue to hold everything up at 55.3 vs 55.2 but does not include retail. Also of note for both, "confidence in the longer, year ahead, outlook has improved as companies hope that a stabler post election environment is more conducive to growth. This is especially so in the manufacturing sector, where factories hope that the current soft patch in production and sales will reverse as the uncertainty caused by the political environment passes."

2)Off the mostly hurricane influenced lift in initial jobless claims in the prior two weeks, they fell back to 227k for the week ended 10/19, 15k below expectations and compares with 242k last week, 260k in the week before that and 225k before then. The 4 week average was 239k vs 237k last week. 

3)The final October UoM consumer confidence index rose to 70.5 from 68.9 initially and up from 70.1 in September. While still well off its early 2020 highs, it is the highest since April. The internals were mixed as Current Conditions rose m/o/m but Expectations slipped a touch. One year inflation expectations were unchanged at 2.7% from September but off the preliminary 2.9% print. The 5-10 yr guess was 3% vs 3.1% last month. Spending intentions improved for a major household item and for home buying but fell for buying a vehicle.

4)New home sales totaled 738k in September, 18k more than expected and vs 709k in the month before, though revised down by 7k. The drop in mortgage rates in the month likely helped. Sales in the South drove about all of the upside and m/o/m gains. Prices are very volatile because mix is a huge driver. They were up 3.7% sequentially and 1.2% y/o/y. Months' supply was 7.6 months vs 7.9 in August and 7.6 in July.

5)In September, non-defense capital goods orders ex aircraft, aka core durable goods, rose .5% m/o/m, above the estimate of up .1% and after a .3% gain in August. The internals though were mixed as while orders rose for metals, both primary and fabricated, they fell for computers/electronics and machinery and saw no change for electrical equipment. After three months of declines, orders for vehicles/parts rose 1.1% m/o/m.

6)The October Philly non-manufacturing index rose to +6 from -6.1.

7)The October Richmond manufacturing index remained deeply negative but less so at -14 vs -21 in September. The KC regional index was -4 vs -8 in the month before.

8)The Shanghai to NY route saw prices fall by $343 w/o/w to $5,266. That's well off its high this summer of $9,612 but still almost double where they started the year at $3,074. Prices fell too with the Shanghai to Rotterdam and Shanghai to LA trips.

9)From Sonic Automotive: "Elevated used retail prices remain a challenge for consumers, contributing to affordability concerns amid the current interest rate environment. However, the return to normal seasonal trends in used vehicle wholesale pricing are positive for our business outlook. And when combined with potential further interest rate cuts should begin to benefit affordability and used vehicle sales volume in 2025."

10)From Tesla: What does Elon expect for 2025? "I do want to give some rough estimate, which is I think it's 20% to 30% vehicle growth next year. You know, notwithstanding negative external events, like if there's some portion, mature events like some big war breaks out or interest rates go sky high or something like that, then we can't overcome massive force majeure events. But I think with our lower cost vehicles with the advent of autonomy, something like 20% to 30% growth next year is my base case."

11)From Texas Roadhouse: "we believe the .9% menu price increase will allow us to maintain our value proposition and our traffic and mix levels. Additionally, we continue to see a steady to more positive outlook for inflation within commodities and labor. Commodity inflation driven by lower than forecasted beef costs was once again below our guidance in the third quarter...At this time, we are updating our full year commodity inflation guidance to less than 1%." Also, their October comps are tracking a bit better than September.

12)From IBM: "Technology spending remains strong. Businesses view technology as a source of competitive advantage, allowing them to scale operations, improve productivity, and drive growth.” 

13)From Nucor: “several markets do remain quite healthy. For example, construction related to semiconductor factories, advanced manufacturing facilities, data centers and institutional buildings are still very strong.”

14)From GM: “We’ve been able to achieve these market share gains with significantly lower incentives than our competitors. For example, in the third quarter our US incentives were approximately 2.4 percentage points lower than the industry average, a gap that has widened from last year’s third quarter where we were 1 percentage point below the industry.”

15)From Robert Half: "While client budgets remain constrained and decision cycles extended, business confidence levels are improving, aided by continuing progress on inflation and the beginning of a global rate cutting cycle. This is reflected in our most recent weekly sequential results, which have been stable and consistent for the past 12 to 14 weeks."

16)From Fifth Third Bank: While there is no loan growth, on credit quality net charge offs and delinquency rates did tick down sequentially. They said, "Overall, we are not seeing any broad credit weakening across industries or geographies."

17)Only in the future we’ll we know if the deceleration in inflation is sustainable but some central banks are not waiting to find out. For now I’ll give the BoC a positive for the 50 bps cut but this becomes more precarious from here I believe in the dance between inflation and growth.

18)The October German IFO business confidence index to 86.5 from 85.4 (which matched the lowest since the Covid shutdowns) and that was above the estimate of 85.6. Both the Current Assessment and Expectations components were higher m/o/m. The always succinct bottom line from the IFO, "The German economy stopped the decline for the time being." With manufacturing, the current situation worsened but business was less pessimistic about the future. The service sector did see a bounce, "especially in logistics, tourism and IT." Trade "rose somewhat" but construction "worsened."

19)Australia's was little changed at 49.8 vs 49.6 with both components little changed with manufacturing at 46.6 and services at 50.6. 

20)The bright spot around the world continues to be India with manufacturing at 57.4 and services at 57.9. 

21)As we look to China to see if the policy steps to put a floor under their residential real estate market is gaining any traction, this is from the South China Morning Post, "Average weekly and monthly sales this month have risen substantially vs volumes before Beijing's September 24 rescue package...Transactions involving new homes in 15 Chinese cities surged 24% to 24,287 units last week from the preceding seven days, according to data tracked by the Lingping Real Estate Data research Institute. Secondary home transactions increased 20% to 20,724 units across 10 major cities, it added. This is a marked improvement over this year's average sales of 15,497 units per week leading up to Beijing's stimulus announcement late last month."

Negatives,

1)From the Fed’s Beige Book: In summary of the 12 Districts, "On balance, economic activity was little changed in nearly all Districts since early September, though two Districts reported modest growth." This was said of the biggest component of GDP, "Reports on consumer spending were mixed, with some Districts noting shifts in the composition of purchases, mostly toward less expensive alternatives."

2)Offsetting the still benign pace of firing's seen in initial claims and notwithstanding the two week jump, is the continued elevated level of continuing claims which rose to 1.897mm, up 28k w/o/w and that is the most since November 2021.