Paulo's Econ Watch

Showing all posts tagged #kmsg:

US Univ. of Michigan Sentiment: Consumers Unabated

Posted on January 15th, 2016

Main takeaways:

Preliminary Michigan Sentiment in January at 93.3, up 0.7 points from December.
Sentiment rebounded sharply from Sep/15 low.
The recovery in Oct/Dec was led by poor households ("felling better about current situation"), contrasting with concerns among rich households ("worried about the future").
January was the first month in which the increase in Sentiment was led by the rich ("all the gain was recorded among households with income above $75k")...
...despite they being aware of the stock price declines and weak global economy.
Current level of Sentiment is associated with real consumption growing at 3.4%.
Historical episodes show that real consumption grows in the 2.5%-4.5% range while Sentiment is near current levels.
5-year inflation expectation ticked up to 2.7%.

Additional highlights in the report:

"Consumer confidence inched upward for the fourth consecutive month due to more positive expectations for future economic growth"
"All of the early January gain was recorded among households with incomes above $75k"
"Stock price declines and a weakened global economy were spontaneously mentioned by nearly one-third of all households with incomes in the top third, identical to the levels following the August plunge in stock prices"
"Nonetheless, households held more favorable prospects for the national economy than in the closing months of 2015"
"Buying conditions for household durables were rated favorably by 81% of all consumers for the past two months, the highest level since January 2006"

Preliminary Michigan Sentiment in December at 93.3, up 0.7 points from the December estimate.

Looking closer at the relationship between Michigan Sentiment and household consumption:

The chart below plots the 3mma of Michigan Sentiment in the x-axis and real consumption (3mma, YoY) in the y-axis. The vertical black line shows the most recent monthly print. The expected growth rate of consumption based on the latest Sentiment reading would be close to 3.4%.

Perhaps even more important, the current level of Sentiment is compatible with consumption growth in the 2.5%-4.5% range, with a few outliers above this range and no episode of real consumption growth below 2% in the vicinity of the current level for Michigan Sentiment.

Inflation expectations ticked up to 2.7%.

US: December was a really bad month for retail; but trend is unchanged

Posted on January 15th, 2016

Main takeaways:

December was a really bad month! But followed a strong November...
The numbers:
- advance retail sales dropped 0.1%mom, in line with market consensus; gave back part of the 0.4%mom gain in November;
- excluding gasoline stations, sales were flat in the month (vs. +0.5%mom in November);
- control group dropped 0.3%mom well below +0.3% consensus; gave back part of the 0.5%mom gain in November.
However, despite monthly disappointment, trend growth remains unchanged:
- 12-month growth of total retail sales ex gasoline stations increased from 4.4% to 4.6%.
- 12-month growth of the 'control group' slowed from 3.4% to 3.3%.
- Both trends are very close to the 4-year growth pace: consumers remain resilient!
- Recall that retail prices have trended slightly down -- so the above growth rates understate volume growth!
Despite all the headlines of an inventory problem in the retail sector, inventory-to-sales ratio remained roughly flat (excluding gasoline).

The overall trend for retail sales excluding gasoline at gas stations increased slightly to 4.6% in the last 12 months (from 4.4%). This trend is broadly unchanged compared to the longer (4 year) trend of 4.5% nominal growth.

The chart below compares total retail sales with retail excluding gasoline sales. It is clear that most of the slowdown in retail sales since mid-2015 was due to falling gasoline prices.

Looking at the "control group" (total retail excluding auto dealers, bldg materials, gas stations) a similar growth picture emerges: 3.3% growth in the last year and 3.0% in the last 4 years.

Excluding residual gasoline sales that are inside the control group (fuel dealers) shows a better picture, with adjusted-control sales growing one percentage point faster than the number reported.

Also, it is important to recall that (control group) retail prices have been trending down in the last year...

...which results in a very healthy growth rate in retail volumes.

Inventories: stable if one excludes gasoline sales (latest: November)

Extra charts

The charts below show retail and food services by kind of business. The red line is an index in log (averages zero in the period) so that a number 10 in the scale means sales are 10% higher than the period average. The red dashed line is the trend in the last 12 months and the blue bars (right scale) are the monthly percentage change. The headline is how the slope of the red dashed line has changed compared to last two months.

Last 12 months trend moved from 6.7% to 6.4% to 7.2%

Last 12 months trend moved from 5.5% to 5.8% to 6.5%

Last 12 months trend from -3.8% to -1.8% to -2.6%

Last 12 months trend moved from 3.4% to 3.0% to 3.9%

Last 12 months trend moved from 1.9% to 1.8% to 1.5%

Last 12 months trend moved from 4.0% to 3.8% to 4.4%

Last 12 months trend moved from -14.2% to -11.6% to -8.8%

Last 12 months trend moved from 2.6% to 1.8% to 1.7%

Last 12 months trend moved from 6.0% to 7.0% to 8.4%

Last 12 months trend from 2.0% to 2.9% to 2.1%

Last 12 months trend moved from 3.9% to 2.9% to 2.9%

Last 12 months trend moved from 6.7% to 7.2% to 7.2%

Last 12 months trend from 5.6% to 5.9% to 6.4%

US External Trade likely to be a drag on growth again in Q4

Posted on January 6th, 2016

Main takeaways:

Net exports likely to be a drag on growth again (~0.4pp).
Real imports dropped in the last three months, but the trend in the last 12-months is still a healthy 4.6% growth pace.
Weak US exports hit by strong dollar and sluggish global trade.

Real non-petroleum exports are down 2% in Oct/Nov vs Q3 and imports are down 0.6% in the same comparison. Excluding petroleum, exports volume contracted by 1.6% and imports by 0.4%.

Trade results for October/November, if repeated in December, would lead to another negative contribution of external trade to growth of around 0.4pp. But negative contribution from external trade to growth, per se, does not imply overall GDP growth will be weak (see for instance the negative contributions from net exports to growth in the 1997-2005 period)

The charts below show the volumes of non-petroleum exports and imports. Exports volume is flat while imports volume is growing at around 5%.

Last 20 years (trend shows last 2 years)
Last 3 years (trend shows last 12 months)
YoY growth

The jump in import growth precedes the stronger USD and coincides with an upturns in job creation and consumption that happened in 2014 -- therefore not likely to be a strong consequence of the currency strength and import substitution (although it may play some role).

The slowdown in exports, however, happened at the turn of the year, and therefore could potentially be a quick response to the strenghtening of the dollar that started in mid-2014.

However, the chart below shows that US exports are moving roughly in tandem with world exports. US exports relative to world exports dropped since the start of 2015, but the size of the adjustment does not suggest that the dollar strengthening is playing a major role for weak US exports.

Of course it could be just a matter of time for US exports to shrink relative to world exports, but the recent weak performance seems more likely a result of sluggish world trade rather than dollar strength.

Meanwhile, the ISM export orders improved a bit but still do not suggest upside in the near term.

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