Non-Farm Payroll Job Growth Estimates Rising
From Lehman: “We are revising our June Payroll estimate to 175K from 125K on the back of the recent claims data.”
From Morgan Stanley: “+175k preliminary forecast for payrolls…”
From JP Morgan: “Given the significant drop in initial claims, our preliminary forecast is for an increase in May nonfarm payrolls of 150,000 and a 4.5% unemployment rate.”
From Merrill Lynch: “Not at work due to bad weather in the 4-months of 2007 was the 3rd highest in 22 years. More to the point, the two years that were more severe had weather disruptions concentrated in one or two months (1996, 1994), and NOT SPREAD Over the ENTIRE Winter as in 2007!!!! So, with relief finally here, economic activity is picking up sharply in 2Q-2007, job growth should improve as well, and, with the economy's 4Q-06 an 1Q-07 inventory correction largely complete, and with motor vehicle production ramping ahead of September's sensitive contract negotiations, we look for job growth to be very resilient this summer, averaging near +130k per month.”
Objectivity and Reliability of Rating Agencies Under Scrutiny
From The Financial Times: “Confidence in the ratings agencies to get it right has been shaken recently by a number of missteps and controversies. Moody's and S&P, for example, have had to downgrade dozens of newly-issued securities backed by US subprime home loans as late mortgage payments and defaults by borrowers have spiked more severely than the agencies initially expected -suggesting the assumptions underlying the ratings might have been flawed…Moody's, for example, made 44 per cent of its revenue last year from structured finance deals. Such assessments also command more than double the fee rates of simpler corporate ratings, helping keep Moody's operating margins above 50 per cent. The potential for conflicts of interest in the agencies' "issuer pays" model has drawn fire before, but the scale of their dependence on investment banks for structured finance business gives them a significant incentive to look kindly on the products they are rating, critics say.”
Utilities Face Shortage of Employees - Slowing Growth Below Potential
From USA Today: “The nation faces a shortage of utility workers just as it gears up for the biggest wave of construction in decades to meet soaring power demand. The crunch is already affecting many cities — slowing new hookups for electric service, delaying post-storm power restorations and forcing utilities to skimp on maintenance. It cuts across job categories, from line workers and plant operators to senior engineers. "It's creating a real serious crisis…Everything in this country runs on electricity." About half the USA's 400,000 power industry workers, largely baby boomers, are eligible to retire in the next five to 10 years… The industry already has shed about 40% of its workforce since 1990 in response to deregulation… A bigger worker crunch looms. With power demand expected to soar 50% by 2030, utilities are planning hundreds of plants and thousands of miles of transmission lines. The surge is due to population and business growth and bigger homes brimming with computers and plasma TVs. Yet there may not be enough welders, plant operators and other skilled workers to build and run all the new facilities. Especially affected is the nuclear power industry, which is girding for a revival after a decades-long construction hiatus following the 1979 Three Mile Island partial meltdown. The 33 nuclear reactors on the drawing board "will not get built as quickly as we want," says Dale Klein, chairman of the Nuclear Regulatory Commission. "You'll see regions where there are shortages of electricity" that trigger blackouts or brownouts.”
MISC
From Dow Jones: “A fifth consecutive drop in weekly jobless claims sent Treasurys prices into a sharp decline early Thursday [10y Treasury +4bp to 4.75% yield]… The dollar gained [DXY +.17]… U.S. stocks were lower Thursday [Dow -11]… Crude oil futures jumped more than $2 a barrel…”
From RBSGC: “Former Fed Chairman Greenspan offers cautious comments on housing, noting subprime worries are hurting housing recovery and 'can't say' how the housing market will turn out. Bernanke says housing had a 'further step-down' in first-quarter, but suggests there is no serious spillover from the subprime problems. The Chairman sees an increase in foreclosures and delinquencies in 2007 and 2008.”
From Bloomberg: “U.S. Treasury bills surged, pushing the three-month security's yield to a one-year low, amid expectations for reduced sales. Growth in U.S. tax revenue has exceeded forecasts, reducing the Treasury's need to borrow. To ensure a liquid market for longer-maturity notes and bonds, the government normally reduces bill sales as a first step…. The three-month Treasury bill's yield declined 9 basis points, or 0.08 percentage point, to 4.73 percent …The yield was the lowest for a three-month bill since April 2006. …The rally drove the three-month bill's yield, which has exceeded the 10-year yield since July, to within a basis point…. ``The bill market is now showing the first signs that it is becoming too small for the demand…There's a whole investor class out there that needs short-term money rates, and the bill market is their vehicle of choice.''”
From Merrill Lynch: “First quarter earnings were better than expected, again. The majority of companies within the S&P 500 Index exceeded earnings expectations in 1Q, with the index in aggregate delivering 8.6% year-over-year quarterly growth. While growth blew away the consensus estimate of 3.6% going into the …earnings failed to break the 10% growth mark for the first time in fifteen quarters.”
From Dow Jones: “Manufacturing activity in the Philadelphia area expanded at a somewhat faster pace in May, with growth in the sector coming in modestly above expectations…. “Indicators for general activity, new orders, shipments, and employment all showed some improvement this month, following several months of nearly flat activity. Cost pressures continue to be reported by a significant share of the firms, but only slightly more firms reported higher prices for their own manufactured goods than reported price decreases,” the bank said in its report.”
From AP: “Buyers in India, the world's largest consumer of gold, devoured 50 percent more gold in the recent quarter than they did a year ago amid robust economic growth and a strong start to the wedding season. Chinese consumption jumped by nearly a third amid robust buying during the New Year's celebration's in mid-February. Gold demand for industrial applications and dental fillings increased 18 percent to $2.34 billion. Meanwhile, investor interest in gold fell 13 percent … as last year's excitement about gold investment subsided.”
Thursday, May 17, 2007
Slowing Housing Market Negatively Impacts Leading Indicators
Leading indicators, a measure of expected future growth over the next 3-6 months, unexpectedly weakened in April, falling -.5% (consensus 0% change). It has now fallen in three of the last four months. The only two categories showing strength were stock prices and money supply growth. Higher unemployment and falling building permits were especially heavy drags this past month.
Initial Jobless Claims Drop Again
Initial jobless claims unexpectedly declined again this week, to 293k (consensus 315k). Last week initial claims fell to the second lowest level in the last year at 297k (revised to 298k). This puts jobless claims at their lowest level in four months, and lowered the four week moving average by 12k to 305.5k, the lowest level in a year. The number of states filing more new jobless claims equaled the number recording fewer claims last week.
Continuing claims also fell more than expected, to the lowest level since the end of January. The insured unemployment rate held steady at 1.9%, and is considered a good predictor of the U.S. jobless rate.
The presumption is that the supply of skilled labor remains lean, and demand remains strong, pointing to strength in the labor market. Companies continue to add workers as the economy cools, and others are delaying lay-offs as long as possible because they worry about being able to replace the lost workers quickly.
Continuing claims also fell more than expected, to the lowest level since the end of January. The insured unemployment rate held steady at 1.9%, and is considered a good predictor of the U.S. jobless rate.
The presumption is that the supply of skilled labor remains lean, and demand remains strong, pointing to strength in the labor market. Companies continue to add workers as the economy cools, and others are delaying lay-offs as long as possible because they worry about being able to replace the lost workers quickly.
Wednesday, May 16, 2007
Today's Tidbits
Why Food Prices Have Been Rising
From the Los Angeles Times: “Nationally, food prices rose 3.9% in April compared with the same month in 2006, and the outlook is equally chilling wherever you shop. It is happening for many reasons: inflation, drought, freezing weather, even the rising cost of corn — highly sought after not only as ingredients for thousands of food products but also to make ethanol. Food prices in 2007 are increasing at their highest rate in years. "We are going to see grocery store prices show one of the most rapid increases in the last 15 years or so," said Patrick Jackman, an economist at the U.S. Bureau of Labor Statistics…Hard freezes in California, Florida and other southern states are one contributor to the rapid increase in prices, especially for produce, but that's easing as farmers plant new vegetable crops to replace what was damaged. The real problem, according to food manufacturers and supermarket executives, is the run up in fuel prices and the cost of grain, which has soared as an ever-growing amount of corn is diverted to make ethanol to mix with gasoline…The price of a bushel of corn has jumped 46% to $3.66 over the last 12 months and earlier this year topped $4…corn was the culprit for his estimate that food inflation will reach the 4% to 4.5% range this year, the highest since 1990. That's because corn is the building block for much of the American food supply. It is what dairy cows eat to make milk and hens consume to lay eggs. It fattens cattle, hogs and chickens before slaughter — depending on the animal it takes 2.5 pounds to 6 pounds of feed corn to produce a pound of meat. Corn syrup is the third-largest ingredient in Heinz ketchup and is the sweetener that goes into soda pop and hundreds of other food items. Corn also is the building block of the 7 billion gallons of ethanol made in the U.S. this year…Ethanol now gobbles 18% of the domestic corn supply, up from 10% in 2002…As farmers discover just how golden corn has become, they are replanting fields formerly devoted to wheat, soy and other foods with corn, driving up the price of even more food commodities. Soy is up 28% to $7.41 a bushel from May 2006… Meanwhile, smaller-than-expected crops in the U.S. and Australia have pushed the price of wheat up 22% to $4.80 a bushel from a year ago. That's why shoppers are paying more for bread and other baked goods. At the same time, food companies "are getting more aggressive" about raising prices to improve profit margins…Major manufacturers pushing through price increases include Coca Cola Co., Kraft Foods Inc. Kellogg Co., Hershey Co. and Tyson Foods Inc. Prices are going to continue to rise in coming months as companies such as Tyson, one of the nation's largest providers of beef, pork and chicken, pass what they are paying for corn down the food chain to consumers, said Richard Bond, the company's chief executive.”
Refinery Infrastructure Not Keeping Up With Rising Demand for Gasoline in U.S.
From USA Today: “Record gasoline prices have exposed the shortcomings of the aging U.S. refining system, but there are no quick fixes, a panel of energy experts told lawmakers Tuesday. That suggests gas prices will be vulnerable to refinery outages through the summer. And one expert said gas shortages are possible…"The U.S. petroleum industry's infrastructure is unable to cope with increasing demand," Guy Caruso, administrator of the government Energy Information Administration, told members of the Senate Energy and Natural Resources Committee. "The only pressure-relief valve is price."… Building refineries, factories that turn crude oil into gasoline, takes years and costs billions of dollars… oil companies were losing money as recently as 2002, providing a disincentive for investments. Plus, there's a shortage of energy workers, prices are high for raw materials for building, such as steel, and local opposition is often strong. The push for alternative fuels, such as ethanol, is leading firms to question whether gas demand will still be there by the time they get a refinery up and running…There were 149 U.S. operating refineries 2006, down from 216 in 1986. Companies have expanded existing refineries in that time and have found ways to increase the amount of gasoline they squeeze out of a barrel of oil, according to the American Petroleum Institute, the oil industry's trade group. But although gasoline production has risen, it is still falling short of demand, according to the EIA. The gap is filled by imports.”
Greenspan to Advise PIMCO
From The New York Times: “Alan Greenspan, the former Federal Reserve chairman whose pronouncements continue to jolt world markets, has signed a consulting deal with Pimco, the giant bond management firm. Mr. Greenspan, 81, will meet with executives of Pacific Investment Management Company once a quarter to discuss economic trends and has agreed to discuss Fed policy — but only behind closed doors, an associate with knowledge of the deal said. Mr. Greenspan will also hold periodic telephone and video conferences with senior executives, this person said. It is his first client since leaving the Fed…Until now, Mr. Greenspan has insisted that he would not talk about Fed policy or about the outlook for interest rates, because he did not want to appear to be second-guessing Mr. Bernanke. But his associate said last night that he would talk about those topics within the confines of Pimco, at least on occasion. “It would be a very small part of what he talks about,” the associate said. That could cause heartburn for Mr. Greenspan and Mr. Bernanke, because most of his recent comments about the economy have been behind closed doors, and have still made headlines.”
MISC
From Dow Jones: “…the 10-year note was unchanged…The dollar gained steadily… climbing to a two-and-a-half month high against the yen…U.S. stocks …making new highs…Crude oil futures stretched their losses…”
From UBS: “…[House building] permits were at their lowest since June 1997, and have fallen in ten out of the last twelve months [in April]…”
“Excluding autos, manufacturing output began Q2 up at a 3.7% rate, following a 1.5% pace in Q1 and -1.5% in Q4.”
From Merrill Lynch: “If we had told you six-years ago that the price of oil would triple, the CRB would nearly double, copper would surge six-fold, corn would jump over 100% and that the DXY would slide 25%, would you have predicted that by April 2007 the headline inflation rate (which includes food and energy, by the way) would be 2.6% year-over-year…Contrary to popular opinion, there is obviously still a strong disinflationary undertow in the retail arena where competitive pressures flourish, but pricing power flounders…”
From Dow Jones: “Merrill Lynch’s fund manager survey for May showed that investors are expecting that corporate profits will rise in May, although they also believe that inflation is likely to increase. The survey, which questioned a total of 201 investors managing $586 billion in funds, found that the net respondents expecting global corporate profits to rise was minus 12%, down from minus 32% in April. However, the net balance of investors expecting higher inflation rose to 34% in the month, from 27% in April, with a net 17% of respondents saying that global monetary policy is too stimulative, compared to 15% taking this view a month ago…Consequently, respondents expecting short-term interest rates to be higher in 12 months’ time rose to 29% from 12% a month ago.”
From The Financial Times: “The Euro zone’s robust economic growth rate slipped only modestly in the first three months of the year and still comfortably outpaced the US as the damaging impact of higher German VAT failed to live up to expectations.”
From the Los Angeles Times: “Nationally, food prices rose 3.9% in April compared with the same month in 2006, and the outlook is equally chilling wherever you shop. It is happening for many reasons: inflation, drought, freezing weather, even the rising cost of corn — highly sought after not only as ingredients for thousands of food products but also to make ethanol. Food prices in 2007 are increasing at their highest rate in years. "We are going to see grocery store prices show one of the most rapid increases in the last 15 years or so," said Patrick Jackman, an economist at the U.S. Bureau of Labor Statistics…Hard freezes in California, Florida and other southern states are one contributor to the rapid increase in prices, especially for produce, but that's easing as farmers plant new vegetable crops to replace what was damaged. The real problem, according to food manufacturers and supermarket executives, is the run up in fuel prices and the cost of grain, which has soared as an ever-growing amount of corn is diverted to make ethanol to mix with gasoline…The price of a bushel of corn has jumped 46% to $3.66 over the last 12 months and earlier this year topped $4…corn was the culprit for his estimate that food inflation will reach the 4% to 4.5% range this year, the highest since 1990. That's because corn is the building block for much of the American food supply. It is what dairy cows eat to make milk and hens consume to lay eggs. It fattens cattle, hogs and chickens before slaughter — depending on the animal it takes 2.5 pounds to 6 pounds of feed corn to produce a pound of meat. Corn syrup is the third-largest ingredient in Heinz ketchup and is the sweetener that goes into soda pop and hundreds of other food items. Corn also is the building block of the 7 billion gallons of ethanol made in the U.S. this year…Ethanol now gobbles 18% of the domestic corn supply, up from 10% in 2002…As farmers discover just how golden corn has become, they are replanting fields formerly devoted to wheat, soy and other foods with corn, driving up the price of even more food commodities. Soy is up 28% to $7.41 a bushel from May 2006… Meanwhile, smaller-than-expected crops in the U.S. and Australia have pushed the price of wheat up 22% to $4.80 a bushel from a year ago. That's why shoppers are paying more for bread and other baked goods. At the same time, food companies "are getting more aggressive" about raising prices to improve profit margins…Major manufacturers pushing through price increases include Coca Cola Co., Kraft Foods Inc. Kellogg Co., Hershey Co. and Tyson Foods Inc. Prices are going to continue to rise in coming months as companies such as Tyson, one of the nation's largest providers of beef, pork and chicken, pass what they are paying for corn down the food chain to consumers, said Richard Bond, the company's chief executive.”
Refinery Infrastructure Not Keeping Up With Rising Demand for Gasoline in U.S.
From USA Today: “Record gasoline prices have exposed the shortcomings of the aging U.S. refining system, but there are no quick fixes, a panel of energy experts told lawmakers Tuesday. That suggests gas prices will be vulnerable to refinery outages through the summer. And one expert said gas shortages are possible…"The U.S. petroleum industry's infrastructure is unable to cope with increasing demand," Guy Caruso, administrator of the government Energy Information Administration, told members of the Senate Energy and Natural Resources Committee. "The only pressure-relief valve is price."… Building refineries, factories that turn crude oil into gasoline, takes years and costs billions of dollars… oil companies were losing money as recently as 2002, providing a disincentive for investments. Plus, there's a shortage of energy workers, prices are high for raw materials for building, such as steel, and local opposition is often strong. The push for alternative fuels, such as ethanol, is leading firms to question whether gas demand will still be there by the time they get a refinery up and running…There were 149 U.S. operating refineries 2006, down from 216 in 1986. Companies have expanded existing refineries in that time and have found ways to increase the amount of gasoline they squeeze out of a barrel of oil, according to the American Petroleum Institute, the oil industry's trade group. But although gasoline production has risen, it is still falling short of demand, according to the EIA. The gap is filled by imports.”
Greenspan to Advise PIMCO
From The New York Times: “Alan Greenspan, the former Federal Reserve chairman whose pronouncements continue to jolt world markets, has signed a consulting deal with Pimco, the giant bond management firm. Mr. Greenspan, 81, will meet with executives of Pacific Investment Management Company once a quarter to discuss economic trends and has agreed to discuss Fed policy — but only behind closed doors, an associate with knowledge of the deal said. Mr. Greenspan will also hold periodic telephone and video conferences with senior executives, this person said. It is his first client since leaving the Fed…Until now, Mr. Greenspan has insisted that he would not talk about Fed policy or about the outlook for interest rates, because he did not want to appear to be second-guessing Mr. Bernanke. But his associate said last night that he would talk about those topics within the confines of Pimco, at least on occasion. “It would be a very small part of what he talks about,” the associate said. That could cause heartburn for Mr. Greenspan and Mr. Bernanke, because most of his recent comments about the economy have been behind closed doors, and have still made headlines.”
MISC
From Dow Jones: “…the 10-year note was unchanged…The dollar gained steadily… climbing to a two-and-a-half month high against the yen…U.S. stocks …making new highs…Crude oil futures stretched their losses…”
From UBS: “…[House building] permits were at their lowest since June 1997, and have fallen in ten out of the last twelve months [in April]…”
“Excluding autos, manufacturing output began Q2 up at a 3.7% rate, following a 1.5% pace in Q1 and -1.5% in Q4.”
From Merrill Lynch: “If we had told you six-years ago that the price of oil would triple, the CRB would nearly double, copper would surge six-fold, corn would jump over 100% and that the DXY would slide 25%, would you have predicted that by April 2007 the headline inflation rate (which includes food and energy, by the way) would be 2.6% year-over-year…Contrary to popular opinion, there is obviously still a strong disinflationary undertow in the retail arena where competitive pressures flourish, but pricing power flounders…”
From Dow Jones: “Merrill Lynch’s fund manager survey for May showed that investors are expecting that corporate profits will rise in May, although they also believe that inflation is likely to increase. The survey, which questioned a total of 201 investors managing $586 billion in funds, found that the net respondents expecting global corporate profits to rise was minus 12%, down from minus 32% in April. However, the net balance of investors expecting higher inflation rose to 34% in the month, from 27% in April, with a net 17% of respondents saying that global monetary policy is too stimulative, compared to 15% taking this view a month ago…Consequently, respondents expecting short-term interest rates to be higher in 12 months’ time rose to 29% from 12% a month ago.”
From The Financial Times: “The Euro zone’s robust economic growth rate slipped only modestly in the first three months of the year and still comfortably outpaced the US as the damaging impact of higher German VAT failed to live up to expectations.”
Industrial Production and Capacity Utilization Bounce Back
Industrial production rose twice as fast as expected in April, at +.7% MoM (consensus +.3%). This follows a revision lower to -.3% MoM from -.2% in March. High tech and motor vehicle demand helped support the rise in industrial production in April. Lower than normal temps in April helped utility output rise 3.5% MoM. Industrial production is now up +1.9% YoY.
All major market sectors showed growth in April. Consumer goods rebounded to offset the loss of the prior month. Business equipment demand grew +.9% MoM, the third straight rise. Construction supply output grew +.4% MoM. Manufacturing output rose +.5% MoM, on a gain in durables production, and accounts for about 80% of total industrial production.
Capacity utilization rebounded strongly to 81.6% (consensus 81.5%) from a revised lower 81.2% in March. The 1972-2006 average for capacity utilization is 81. Capacity utilization rates rose at least +.5% MoM for all stages of production from crude processing to finished goods.
Rising industrial production and capacity utilization are hopeful signs of returning strength in the manufacturing sector, as inventories fall back to more comfortable levels.
All major market sectors showed growth in April. Consumer goods rebounded to offset the loss of the prior month. Business equipment demand grew +.9% MoM, the third straight rise. Construction supply output grew +.4% MoM. Manufacturing output rose +.5% MoM, on a gain in durables production, and accounts for about 80% of total industrial production.
Capacity utilization rebounded strongly to 81.6% (consensus 81.5%) from a revised lower 81.2% in March. The 1972-2006 average for capacity utilization is 81. Capacity utilization rates rose at least +.5% MoM for all stages of production from crude processing to finished goods.
Rising industrial production and capacity utilization are hopeful signs of returning strength in the manufacturing sector, as inventories fall back to more comfortable levels.
Housing Starts Unexpectedly Strengthen, but Permits Fall Dramatically
Housing starts unexpectedly rose in April, after March's figure was revised lower. Starts rose 2.5% when the market expected them to fall 3.5% in April. The number of new starts was evenly split between single and multi-family categories, but on a percentage basis, multi-family starts grew 6.3% versus 1.6% MoM for single-family homes. Starts held steady in the South, but fell 14% MoM in the Midwest. Starts rose a substantial 31% MoM in the Northeast, and 8% in the West.
Housing permits fell 9%, based on the revised higher level of March. Again,the actual decline in number of permits was fairly evenly split between single- and multi-family starts, but multi-family permits fell -16.4% MoM versus -6% for single-family permits. All regions saw declines in permit demand in April, the West leading the decline at -14% MoM, followed by the Midwest and South at about half the pace of decline in the West, followed by the Northeast at -5.4% MoM.
Housing under construction and completed both continue to slowly decline, as existing projects are finished and new projects grow more scarce.
Over the past year, housing starts are down -16.6% YoY, primarily due to a -19.6% YoY decline in single-family starts. Multi-family starts are only down -1.6% YoY. Housing permits are now down a much more substantial -27.6% YoY, and are more evenly split between single- and multi-family construction. Homes under construction are down -15% YoY. Completed homes awaiting buyers have declined -25.5% YoY, but are at a 27 year high based on the current sales rate.
The softening in permits is probably a good sign of continuing resolve at reduction of inventory overhang in the future, as starts are likely to decline in the next few months. Inventories are expected to remain high through the remainder of this year though.
Housing permits fell 9%, based on the revised higher level of March. Again,the actual decline in number of permits was fairly evenly split between single- and multi-family starts, but multi-family permits fell -16.4% MoM versus -6% for single-family permits. All regions saw declines in permit demand in April, the West leading the decline at -14% MoM, followed by the Midwest and South at about half the pace of decline in the West, followed by the Northeast at -5.4% MoM.
Housing under construction and completed both continue to slowly decline, as existing projects are finished and new projects grow more scarce.
Over the past year, housing starts are down -16.6% YoY, primarily due to a -19.6% YoY decline in single-family starts. Multi-family starts are only down -1.6% YoY. Housing permits are now down a much more substantial -27.6% YoY, and are more evenly split between single- and multi-family construction. Homes under construction are down -15% YoY. Completed homes awaiting buyers have declined -25.5% YoY, but are at a 27 year high based on the current sales rate.
The softening in permits is probably a good sign of continuing resolve at reduction of inventory overhang in the future, as starts are likely to decline in the next few months. Inventories are expected to remain high through the remainder of this year though.
Tuesday, May 15, 2007
Foreign Official Demand for Agency Debt Reaches New High in 1Q07
Long-term purchases of U.S. securities rose almost $9 billion in March versus February, due to greater demand for agencies and Treasuries. But, total demand for long and short-term securities fell by over 50% between February and March. Total net TIC flows were revised higher in February to $101.5 billion (from $94.5 billion previously), but fell to $45 billion in March.
Net purchases of notes, bonds, and equities rose to $67.6 billion in March from $58.1 billion in Feb. But when Treasury bill and other short-term securities are included, net demand fell to only $45 billion in March.
Bond and note demand was supported by the belief that U.S. interest rates are likely to fall in the future as the U.S. economy slows. U.S. T-note and T-bond demand more than doubled to $35.1 billion from $16.9 billion the prior month. Agency debt holdings rose $2 billion to $15.5 billion. Demand for U.S. corporate bonds fell almost 7% MoM to $42.4 billion. Foreign purchases of stocks rose $1.3 billion to $14.8 billion versus the previous month.
Both public and private demand by foreigners rose in March by over $20 billion each. Japan, China, the U.K. and oil exporters all increased their U.S. Treasury holdings in March. U.K. holdings rose a substantial $26 billion in March, the Caribbean added $18 billion (presumed to be hedge funds), and Brazil added $10 billion. China lagged at $4 billion.
U.S. investors bought a record $32.2 billion of foreign bonds in March, which doubled the total purchases of overseas assets by U.S. investors to $40.b billion in March from $19.8 billion in Feb.
Foreign demand for U.S. assets rose in the first quarter of 2007 versus the fourth quarter of 2006. Private sector foreign demand for U.S. Treasuries and Equities were relative strong in the first three months of this year, but private demand for agency securities has slowed. Luckily, central bank demand for agencies rose to a record high $33 billion during the first quarter of 2007.
Foreign flows continue to remain sufficient to cover the U.S. current account gap.
Net purchases of notes, bonds, and equities rose to $67.6 billion in March from $58.1 billion in Feb. But when Treasury bill and other short-term securities are included, net demand fell to only $45 billion in March.
Bond and note demand was supported by the belief that U.S. interest rates are likely to fall in the future as the U.S. economy slows. U.S. T-note and T-bond demand more than doubled to $35.1 billion from $16.9 billion the prior month. Agency debt holdings rose $2 billion to $15.5 billion. Demand for U.S. corporate bonds fell almost 7% MoM to $42.4 billion. Foreign purchases of stocks rose $1.3 billion to $14.8 billion versus the previous month.
Both public and private demand by foreigners rose in March by over $20 billion each. Japan, China, the U.K. and oil exporters all increased their U.S. Treasury holdings in March. U.K. holdings rose a substantial $26 billion in March, the Caribbean added $18 billion (presumed to be hedge funds), and Brazil added $10 billion. China lagged at $4 billion.
U.S. investors bought a record $32.2 billion of foreign bonds in March, which doubled the total purchases of overseas assets by U.S. investors to $40.b billion in March from $19.8 billion in Feb.
Foreign demand for U.S. assets rose in the first quarter of 2007 versus the fourth quarter of 2006. Private sector foreign demand for U.S. Treasuries and Equities were relative strong in the first three months of this year, but private demand for agency securities has slowed. Luckily, central bank demand for agencies rose to a record high $33 billion during the first quarter of 2007.
Foreign flows continue to remain sufficient to cover the U.S. current account gap.
Consumer Prices Rose Less Than Forecast in April
April headline consumer prices rose +.4% MoM (consensus +.5%) and +2.6% YoY (down from +2.8% YoY in March). Excluding food and energy, the core CPI rose +.2% MoM, as expected, and softened to +2.3% YoY (consensus +2.4% YoY) from +2.5% MoM in March. This was the smallest annual increase in core inflation in a year.
Unfortunately, when you look at just the first four months of 2007 versus the same period in 2006, the annualized CPI has risen to 4.8% this year versus 2.5% last year, mainly due to higher food and energy costs. Total energy costs have risen at an annual rate of 25% in 2007, with petroleum products alone rising 40% annualized. Food prices have risen at an annual rate of 6.7% in the first four months of 2007. But, when food and energy costs are excluded, core inflation has actually fallen to 2.2% annualized in the first four months of 2007, versus +2.2% at the same point in 2006.
Energy prices rose a more modest +2.4% MoM in April, versus +5.9% MoM in March. Gasoline prices rose a stronger +4.7% MoM in April, to the highest level at the pump since hurricane Katrina in 2005. Food price gains accelerated in April to +.4% MoM. Energy represents almost 9% of the overall index, while food accounts for almost 14%.
Housing costs are showing signs of moderating, increasing only +.2% MoM for the second month in a row. Owner's equivalent rent, and true rents, both slowed to +.2% MoM, as vacancy rates rise. Hotel visits increased +1.9% MoM, after falling -2.3% in March. Housing costs represent 43% of the total CPI index, with owner's equivalent rent alone accounting for 24% of the total. CPI excluding shelter costs is now down to +1.2% YoY, from a peak of +2.1% YoY last August.
Medical costs re-accelerated to +.4% MoM, while clothing expenses continued to contract (-.3% MoM) but at a slower pace. New vehicle costs fell -.1% MoM. Education costs continue rising, gaining +.4% MoM. Personal computer costs remain the biggest deflators, falling -8.4% YoY.
The CPI is the government's broadest inflation measure, and includes both goods and services for end-users. Services comprise approximately 60% of the index and include everything from seeing the doctor to going to a movie. The index is based on a sampling of goods and services the government believes are bought by most households in their day-to-day activities. The survey covers 87 urban areas, 50k households, and 23k retail businesses, based on personal visits and phone calls. The price changes for individual items are weighted in the overall index by their importance in regard to total spending, which is periodically re-evaluated. Taxes are included.
Technical Note - The CPI data now goes to three decimal places rather than one, which will impact rounding.
Net - Core inflation appears to be easing, as housing cost gains slow, but steadily rising food and energy prices are keeping headline inflation elevated.
Unfortunately, when you look at just the first four months of 2007 versus the same period in 2006, the annualized CPI has risen to 4.8% this year versus 2.5% last year, mainly due to higher food and energy costs. Total energy costs have risen at an annual rate of 25% in 2007, with petroleum products alone rising 40% annualized. Food prices have risen at an annual rate of 6.7% in the first four months of 2007. But, when food and energy costs are excluded, core inflation has actually fallen to 2.2% annualized in the first four months of 2007, versus +2.2% at the same point in 2006.
Energy prices rose a more modest +2.4% MoM in April, versus +5.9% MoM in March. Gasoline prices rose a stronger +4.7% MoM in April, to the highest level at the pump since hurricane Katrina in 2005. Food price gains accelerated in April to +.4% MoM. Energy represents almost 9% of the overall index, while food accounts for almost 14%.
Housing costs are showing signs of moderating, increasing only +.2% MoM for the second month in a row. Owner's equivalent rent, and true rents, both slowed to +.2% MoM, as vacancy rates rise. Hotel visits increased +1.9% MoM, after falling -2.3% in March. Housing costs represent 43% of the total CPI index, with owner's equivalent rent alone accounting for 24% of the total. CPI excluding shelter costs is now down to +1.2% YoY, from a peak of +2.1% YoY last August.
Medical costs re-accelerated to +.4% MoM, while clothing expenses continued to contract (-.3% MoM) but at a slower pace. New vehicle costs fell -.1% MoM. Education costs continue rising, gaining +.4% MoM. Personal computer costs remain the biggest deflators, falling -8.4% YoY.
The CPI is the government's broadest inflation measure, and includes both goods and services for end-users. Services comprise approximately 60% of the index and include everything from seeing the doctor to going to a movie. The index is based on a sampling of goods and services the government believes are bought by most households in their day-to-day activities. The survey covers 87 urban areas, 50k households, and 23k retail businesses, based on personal visits and phone calls. The price changes for individual items are weighted in the overall index by their importance in regard to total spending, which is periodically re-evaluated. Taxes are included.
Technical Note - The CPI data now goes to three decimal places rather than one, which will impact rounding.
Net - Core inflation appears to be easing, as housing cost gains slow, but steadily rising food and energy prices are keeping headline inflation elevated.
Monday, May 14, 2007
Economic Calendar - May 14 – 18, 2007
Monday, 5/14
No Data
Dallas Fed President Fisher on Importance of Service Sector
Tuesday, 5/15
April Consumer Price Index
MoM 0.50% 0.60% - YoY 2.60% 2.80%
Core CPI (Ex-Food and Energy)
MoM 0.20% 0.10% - YoY 2.40% 2.50%
Higher gasoline prices expected to push up consumer inflation
Core CPI at +2.4% YoY will be at an 11 month low
Tenant rent and OER both expected to rise +.3% MoM
Hotel prices were unusually weak last month which is unlikely to persist
Tuition costs continues to rise rapidly
Apparel and recreation costs likely to be subdued
May Empire Manufacturing
Consensus 8 Prior 3.8
ISM manufacturing rose in April
March Total Net TIC Flows Prior $94.5B
Net Long-Term TIC Flows $73.2B $58.1B
1Q07 inflows are likely to exceed 4Q06, but fall below longer-term trend
May NAHB Housing Market Index
Consensus 33 Prior 33
National Association of Homebuilders optimism has fallen over last few months on softer sales
Fed Chairman Bernanke and Atlanta Fed President Lockhart speak at Atlanta Fed Conference entitled “Credit Derivatives: Where’s the Risk?”
Boston Fed President Mindhan and Governor Mishkin Moderate a Panel on Derivatives
Fed Governor Kroszner Speaks on International Capital Flows in Argentina
NY Fed President Geithner speaks at Atlanta Fed Conference in Sea Island, GA
Kansas City Fed President Hoenig Speaks on Monetary Policy and the Economic Outlook
Wednesday, 5/16
April Housing Starts
Consensus 1480k Prior 1518k
Housing starts are expected to decline by 3.5% MoM
Inventories remain elevated
Likely to see payback from 45% growth surge last month in Midwest
All other regions were weaker in March
April Building Permits
Consensus 1525k Prior 1564k
Building permits are expected to fall 2.5% MoM
April Industrial Production
Consensus MoM 0.30% Prior -0.20%
Electricity output is expected to rebound after falling -5.4% in April
Manufacturing output likely to show very modest growth of +.1% MoM
Manufacturing workweek fell -.4%
April Capacity Utilization
Consensus 81.50% Prior 81.40%
Expected to hold steady at 81.5%
Reached 82.4% last summer, the highest level since 2000
Troughed at 73.6% at the end of 2001
Philadelphia Fed President Plosser Moderates Panel on “Credit Derivatives: Macro-Risk Issues” at Atlanta Fed’s Conference
Fed Vice-Chairman Kohn Speaks on Financial Stability and Policy Issues w/Q&A
Fed Governor Kroszner Speaks on “Globalization and Capital Markets: Implications for Inflation and the Yield Curve”
Dallas Fed President Fisher Speaks on Globalization and the Economic Outlook
Thursday, 5/17
Initial Jobless Claims
Consensus 310k Prior 297k
Fell to second lowest level in a year last week at 297k (range 287-356k)
The 4 week moving average is 317k
The 52 week moving average is 319k
April Leading Indicators Consensus MoM 0% Prior 0.10%
May Philadelphia Fed
Consensus 3 Prior 0.2
Relatively strong relationship to ISM manufacturing
Survey has stabilized near zero for last three months
Greenspan Speaks at a Business Breakfast in Atlanta
Chicago Fed President Moskow Speaks at Chicago Fed Conference on “The Mixing of Banking and Commerce”
Fed Chairman Bernanke Speaks at Chicago Fed on “Subprime Mortgage Markets and Regulations”
Friday, 5/18
Preliminary May U. of Michigan Confidence
Consensus 86.5 Prior 87.1
Likely to soften slightly as gasoline and food prices continue to rise
Strengthening equities helping to offset weaker employment data
Inflation expectations rose to +3.3% for the next 12 months, and +3.1% over the next five years, in the April survey. Rising energy costs will sustain rising inflation concerns
No Data
Dallas Fed President Fisher on Importance of Service Sector
Tuesday, 5/15
April Consumer Price Index
MoM 0.50% 0.60% - YoY 2.60% 2.80%
Core CPI (Ex-Food and Energy)
MoM 0.20% 0.10% - YoY 2.40% 2.50%
Higher gasoline prices expected to push up consumer inflation
Core CPI at +2.4% YoY will be at an 11 month low
Tenant rent and OER both expected to rise +.3% MoM
Hotel prices were unusually weak last month which is unlikely to persist
Tuition costs continues to rise rapidly
Apparel and recreation costs likely to be subdued
May Empire Manufacturing
Consensus 8 Prior 3.8
ISM manufacturing rose in April
March Total Net TIC Flows Prior $94.5B
Net Long-Term TIC Flows $73.2B $58.1B
1Q07 inflows are likely to exceed 4Q06, but fall below longer-term trend
May NAHB Housing Market Index
Consensus 33 Prior 33
National Association of Homebuilders optimism has fallen over last few months on softer sales
Fed Chairman Bernanke and Atlanta Fed President Lockhart speak at Atlanta Fed Conference entitled “Credit Derivatives: Where’s the Risk?”
Boston Fed President Mindhan and Governor Mishkin Moderate a Panel on Derivatives
Fed Governor Kroszner Speaks on International Capital Flows in Argentina
NY Fed President Geithner speaks at Atlanta Fed Conference in Sea Island, GA
Kansas City Fed President Hoenig Speaks on Monetary Policy and the Economic Outlook
Wednesday, 5/16
April Housing Starts
Consensus 1480k Prior 1518k
Housing starts are expected to decline by 3.5% MoM
Inventories remain elevated
Likely to see payback from 45% growth surge last month in Midwest
All other regions were weaker in March
April Building Permits
Consensus 1525k Prior 1564k
Building permits are expected to fall 2.5% MoM
April Industrial Production
Consensus MoM 0.30% Prior -0.20%
Electricity output is expected to rebound after falling -5.4% in April
Manufacturing output likely to show very modest growth of +.1% MoM
Manufacturing workweek fell -.4%
April Capacity Utilization
Consensus 81.50% Prior 81.40%
Expected to hold steady at 81.5%
Reached 82.4% last summer, the highest level since 2000
Troughed at 73.6% at the end of 2001
Philadelphia Fed President Plosser Moderates Panel on “Credit Derivatives: Macro-Risk Issues” at Atlanta Fed’s Conference
Fed Vice-Chairman Kohn Speaks on Financial Stability and Policy Issues w/Q&A
Fed Governor Kroszner Speaks on “Globalization and Capital Markets: Implications for Inflation and the Yield Curve”
Dallas Fed President Fisher Speaks on Globalization and the Economic Outlook
Thursday, 5/17
Initial Jobless Claims
Consensus 310k Prior 297k
Fell to second lowest level in a year last week at 297k (range 287-356k)
The 4 week moving average is 317k
The 52 week moving average is 319k
April Leading Indicators Consensus MoM 0% Prior 0.10%
May Philadelphia Fed
Consensus 3 Prior 0.2
Relatively strong relationship to ISM manufacturing
Survey has stabilized near zero for last three months
Greenspan Speaks at a Business Breakfast in Atlanta
Chicago Fed President Moskow Speaks at Chicago Fed Conference on “The Mixing of Banking and Commerce”
Fed Chairman Bernanke Speaks at Chicago Fed on “Subprime Mortgage Markets and Regulations”
Friday, 5/18
Preliminary May U. of Michigan Confidence
Consensus 86.5 Prior 87.1
Likely to soften slightly as gasoline and food prices continue to rise
Strengthening equities helping to offset weaker employment data
Inflation expectations rose to +3.3% for the next 12 months, and +3.1% over the next five years, in the April survey. Rising energy costs will sustain rising inflation concerns
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