Chicago Purchasing Managers Index (Business Barometer)

 

chicagologo

 

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The MNI Chicago Business Barometer rose to 67.6 in December, up from 63.9 in November, closing at it’s highest level since March 2011.

Q/Q, the Barometer rose to 65.9 in Q42017 from 61.0 Q32017, as like the annual print the Q/Q data showed the best performance since Q12011. The report from the ISM noted that this is only the second time in the last decade there has been three consecutive above-60 readings in the Oct-Dec period.

Both output and demand showed strong gains in December, with each rising to multi-year highs. The Production indicator rose to a level last seen higher 34 years ago, while the New Orders Indicator hit a three-and-a-half year high. As for the other three indicators that comprise the Barometer, Order Backlogs also grew, but Employment and Supplier Deliveries fell on the month.

Firms’ unfulfilled orders edged slightly higher in December, but remained below the levels recorded in October, when businesses grappled with the worst of the recent, challenging weather conditions. Also reflecting the better logistical environment, supplier delivery times shortened in December. The associated indicator fell to the lowest level since April but remained comfortably above the 50-neutral mark.

Companies did, however, keep increased quantities of stock at hand. After hitting an eight-month high in November, the Inventories indicator rose to fresh 3-year high in December. There was evidence of firms carrying a larger level of stock to support stretched lead times and in preparation for product launches scheduled for the New Year.

Despite decreasing in December, the Employment indicator remained in expansionary territory. On a 12-month average basis, 2017 was the best year the indicator has had since 2014, slipping below the 50 on only four occasions.

Inflationary pressures at the factory gate remained high in December, though did edge down to the lowest level since August. The upswing in global demand, along with input shortages induced by this year’s hurricanes, saw prices elevated throughout the year.

 

Chicago Purchasing Managers Index (Business Barometer)

Market Sensitivity: Medium.

What Is It: Measures business activity in the Midwest region.

Most Current News Release on the Internet: www.ism-chicago.org

Home Web Address: www.ism-chicago.org

Release Time: 9:45 a.m. (ET); released on the final business day of the month being covered. (Subscribers get this report several minutes before the public release.)

Frequency: Monthly.

Source: National Association of Purchasing Management, Chicago affiliate.

Revisions: The only revision comes from changes in seasonal adjustment factors, and it is made every January.

Bernard Baumohl. The Secrets of Economic Indicators

 

Market Impact
The Business Barometer report is one of those unfortunate releases whose time in the spotlight is short-lived because it’s quickly overshadowed by the national ISM story, which comes out the next business day. If the two reports diverge, market participants lean more on the ISM for the latest assessment of industrial activity in the country.

Bonds

Bond traders can be highly sensitive to this report because it is a brief forerunner to the ISM manufacturing survey. An unexpected surge in the Business Barometer will likely cause bond prices to fall in anticipation that the national survey might show similar results. Another reason for its importance is that the Federal Reserve monitors this report to study conditions in the manufacturing sector and check for signs of production imbalances.

Stocks

Aside from the insight one might gain into auto industry activity from this report, equity investors are not inclined to adjust their portfolios in response to it. Obviously, if both the Chicago and the ISM reports register hefty increases, the stock market might be more confident that corporate profits are on the rise. However, if the economy is already well into its expansion phase, stocks could respond perversely and retreat as expectations rise that the Fed will lift interest rates to slow the economy.

Dollar

Foreign investors usually do not take major currency positions on the basis of just the Chicago index.

 

-R.W.N II

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International Trade in Goods and Services & Wholesale Inventories

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This Morning the U.S. Census Bureau reported on November 2017 advance statistics for international trade, wholesale inventories, and retail inventories. The details of each are as follows:

Advance International Trade in Goods

The international trade deficit was $69.7 billion in November, up $1.6 billion from $68.1 billion in October. Exports of goods for November were $133.7 billion, $3.8 billion more than October exports. Imports of goods for November were $203.4 billion, $5.4 billion more than October imports.

Advance Wholesale Inventories

Wholesale inventories for November, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $610.2 billion, up 0.7 percent (±0.4 percent) from October 2017, and were up 3.8 percent (±0.7 percent) from November 2016. The September 2017 to October 2017 percentage change was revised from down 0.5 percent (±0.4 percent) to down 0.4 percent (±0.4 percent)*.

Advance Retail Inventories

Retail inventories for November, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $619.1 billion, up 0.1 percent (±0.2 percent)* from October 2017, and were up 1.9 percent (±0.5 percent) from November 2016. The September 2017 to October 2017 percentage change was unrevised at virtually unchanged (±0.2 percent)*.

 

Exhibit 1. U.S. International Trade in Goods and Services

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Exhibit 2. U.S. International Trade in Goods and Services—Three-Month Moving Averages

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Market Sensitivity: Medium.

What Is It: A monthly report on U.S. exports and imports of goods and services.

Most Current News Release on the Internet:www.bea.gov/newsreleases/international/trade/tradnewsrelease.htm

Home Web Address: www.bea.gov

Release Time: 8:30 a.m. (ET); data is released the second week of the month and refers to trade that occurred two months earlier.

Frequency: Monthly.

Source: Census Bureau and Bureau of Economic Analysis, Department of Commerce.

Revisions: Each release comes with revisions that go back several months to reflect more complete information. Changes are usually small in magnitude, though they can be sizable at times. The annual benchmark revisions normally come out in June and can span several years.

Bernard Baumohl. The Secrets of Economic Indicators

Market Impact
Financial-market reaction to the monthly trade data is tough to predict. Everyone recognizes the growing importance of international commerce to the U.S. economy and how flows of imports and exports can tip off investors to domestic demand, industry earnings, pricing power, and potential changes in currency values. What lessens the value of the international trade report is its late arrival. The trade balance is the last economic release by the Census Bureau each month, and it reports on activity that took place two months back. So it’s hard to get worked up when this report comes out. One factor that might provoke a sharp reaction is if the trade numbers significantly diverge from what the market or policymakers expected that month. Sudden changes in export or import flows could have implications for GDP growth estimates and the dollar, and that could startle market participants.

Bonds

Anticipating how bond investors might respond to trade data can be very tricky. There’s no consistent pattern of response because much depends on the factors behind the latest trade news. Let’s take a look at a sample of the scenarios investors might face.

If the monthly trade deficit turns out to be smaller than expected, this could be viewed as good news for fixed incomes. The reason? The dollar often rallies in such cases because foreign investors prefer to see the U.S. trade gap shrink. A stronger dollar will help reduce inflation pressures in the U.S., and this can lift bond prices.

Note, however, that the same report can also be viewed negatively by bondholders, because a shrinking deficit can boost GDP growth. Greater exports or fewer imports—both of which can reduce the red ink in trade—means that less is subtracted from the GDP account. If the cause is a surge in exports, this will further pump up the U.S. economy, and that can unnerve fixed-income investors and lead to a sell-off in bonds. On the other hand, if the reason for the smaller deficit turns out to be a drop in imports, it suggests that the U.S. economy might be weakening. This is considered good news for bond investors.
Now suppose that the trade deficit suddenly balloons. You might conclude that is bad news for bond investors. After all, this would normally put downward pressure on the dollar, which might raise both inflation and interest rates in the U.S. An increase in the trade shortfall means that the U.S., which is already the world’s largest debtor nation, will have to borrow even more money from foreign investors to finance these additional deficits. Ah, but there might also be good news here for bonds. A higher trade deficit could also mean less economic growth, because a jump in imports will subtract from the GDP account.

With such a dizzying assortment of possible outcomes in the bond market, what is one to do? First, don’t just look at the headline trade figures, but focus instead on the dynamics going on behind the scenes. If the trade balance improves, bond investors prefer the reason to be a fall in imports rather than a surge in exports. If the deficit climbs, traders hope the cause is a plunge in exports, which would at least ease economic output.

Stocks

This is not an easy call for equity players either. Basically, they prefer to see the deficit shrink as a result of vibrant demand for exports. That will keep U.S. factories humming, improve the outlook for corporate profits, and bolster the dollar’s value. The only wrinkle here would come from the bond market. Should export growth be so strong that it heightens fears of inflation, interest rates would edge higher and spoil the party for stock investors. In the final analysis, though, stocks tend to do better if the trade balance improves due to an increase in sales overseas.

Dollar

While investors in the bond and stock markets agonize over how to respond to the latest international trade figures currency traders take a more direct approach. Unless caused by a deep recession in the U.S., any improvement in the trade balance is viewed favorably for the dollar. The more goods and services foreigners buy from the U.S., the more dollars they’ll need to pay for these American products.
In contrast, a worsening trade deficit can undermine the dollar. To purchase foreign goods and services, Americans have to sell dollars so they can pay for these products in local currencies. The problem is that foreign exchange traders are already swimming in a sea of surplus dollars. Flooding the market with even more dollars can only further depress the greenback’s value.

 

Wholesale inventories in the United States increased by 0.7 percent month-over-month to USD 610.2 billion in November 2017, following a downwardly revised 0.4 percent drop in the previous month and beating market expectations of a 0.4 percent gain, the preliminary estimate showed. Year-on-year, wholesale stocks were up 3.8 percent. Wholesale Inventories in the United States averaged 0.38 percent from 1992 until 2017, reaching an all time high of 2.10 percent in October of 2010 and a record low of -2 percent in March of 2009.

-Trading Economics

 

united-states-wholesale-inventories

Business Inventories
(FORMALLY KNOWN AS MANUFACTURING AND TRADE INVENTORIES AND SALES)

Market Sensitivity: Low to medium.

What Is It: Tracks total U.S. business sales and inventories.

Most Current News Release on the Internet: www.census.gov/mtis/www/mtis.html

Home Web Address: www.census.gov

Release Time: 10:00 a.m. (ET); released six weeks after the month ends.

Frequency: Monthly.

Source: Census Bureau, Department of Commerce.

Revisions: Tend to be small. Annual benchmark changes come out in the spring or summer and can cover several years.”

Bernard Baumohl. The Secrets of Economic Indicators

 

Market Impact

Financial markets and the press react mildly to this report because so much of the data has already been put out in separate releases. It’s also hard to get excited about economic events that took place nearly two months ago. Still, on a slow business news day, the retail inventory series might draw some attention, particularly if the economy is reaching an inflection point.

Bonds

Faster-than-expected growth in retail inventory can upset traders in fixed-income securities because it adds to GDP growth and can put upward pressure on interest rates. A fall in inventory investment subtracts from economic output, which is positive for bonds.

Stocks

Rarely does the stock market get excited by this release. Though a slowdown in sales and production displeases equity investors because of its implications for earnings, chances are that most investors have already seen and reacted to similar evidence weeks earlier.

Dollar

The main question for foreign exchange traders is how the news on retail inventories will influence interest rates in the U.S. For them, a jump in the I/S ratio (with inventories rising at a faster pace than sales) is symptomatic of an economy in the process of slowing down. That eventually portends lower interest rates, which translates into a smaller payback for international investors. Currency traders generally look at the dollar more favorably if both sales and inventories are rising at the retail, wholesale, and manufacturing level.

-R.W.N II

 

 

 

Pending Home Sales Index (PHSI)

 

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Pending Home Sales in the United States increased 0.80 percent in November of 2017 over the same month in the previous year. Pending Home Sales in the United States averaged 1.08 percent from 2002 until 2017, reaching an all time high of 30.90 percent in October of 2009 and a record low of -24.30 percent in April of 2011.

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The chart below is from Hedgeye’s Morning Macro Deck. I’ve been glued to the developments transpiring in the housing market due to my family building a new home. Makes the subject come alive, more so when you have some skin in the game. I think that’s true in all aspects of life.

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Nevertheless, I can’t understand viewing one’s home an investment. I depreciation alone would eliminate the carry on such an investment. Here’s Robert Schiller to explain more:

 

Saw this while waiting for the PHSI to be reported. lol.

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See you there!

Market Sensitivity: Medium.

What Is It: Measures monthly sales of previously owned single-family homes.

Most Current News Releases on the Internet:

Existing Home Sales: www.realtor.org/topics/existing-home-sales/data

Pending Home Sales: www.realtor.org/topics/pending-home-sales 

Housing Affordability Index: www.realtor.org/topics/housing-affordability-index

Home Web Address: www.realtor.org

Release Time: 10:00 a.m. (ET); published four to five weeks after the month being reported ends.

Frequency: Monthly.

Source: National Association of Realtors.

Revisions: Monthly revisions tend to be small. Annual revisions due to seasonal adjustment factors take place in February and can cover the preceding three years.”

Bernard Baumohl. The Secrets of Economic Indicators

 

Market Impact
Bonds

Reaction to existing home sales is muted unless the economy is edging closer to over-drive and facing an eruption of inflation pressures. Any unexpected jump in existing home sales could easily scare away bond investors, a scenario that will lower bond prices and raise yields.
A sudden plunge in sales might foreshadow a slowdown in economic activity in the months ahead, which would support higher bond prices and lower rates. Thus, to a large extent, the response to this release really depends on the economic backdrop.

Stocks

From the standpoint of corporate profits, investors prefer to see existing home sales stay at a high level. Housing is a major industry upon which many other businesses rely. A strong report will buoy stock values, whereas a weak report might undermine them. However, if strength in housing fires up inflation, the Federal Reserve will eventually intervene with higher rates, and such a prospect can upset the equity market.

Dollar

Foreign investors monitor existing home sales because it is one of the dominant indicators of consumer spending and can potentially influence interest rates. Generally, the dollar will remain firm or appreciate as long as existing home sales do not stumble into an extended downswing. A sluggish housing market would lower rates and raise uncertainties about future stock prices, both of which can weaken demand for U.S. currency.

 

-R.W.N II

The Johnson Redbook Index

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Great holiday same-store sales figures as reported by comparable store sales at chain stores, discounters, and department stores.

Redbook Index in the United States increased by 5.70 percent in the week ending December 23 of 2017 over the same week in the previous year. Redbook Index in the United States averaged 2.28 percent from 2005 until 2017, reaching an all time high of 7.60 percent in March of 2005 and a record low of -5.80 percent in July of 2009.

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What Is It: A quick glance at weekly sales at key department and chain stores.

News Release on the Internet: No free access. Available only to paid clients. See press stories for the latest chain store sales.

Home Web Address: www.redbookresearch.com

Release Time: 8:55 a.m. (ET) every Tuesday for the week ending the prior Saturday. The monthly report is released the first Thursday of the new month.

Frequency: Weekly.

Source: Redbook Research.

Revisions: Not on weekly figures. Redbook does release a monthly report in which the numbers are revised as more data arrives.”

Bernard Baumohl. The Secrets of Economic Indicators

 

Market Impact
Bonds

Participants in the fixed-income market monitor, if casually, the Redbook and the ICSC-GS chain store sales reports because they are a good finger-in-the-wind measure of consumer spending behavior. If you know what consumers are doing at shopping malls, it tells you something about their appetite to spend. Strong department store sales can make bond investors queasy because of their implications for the economy and inflation. On a slow financial news day, such a report can depress bond prices and cause yields to creep higher. However, traders are usually looking at other larger economic or political news, so the chain store sales report often slips into the background.

Stocks

Investors in equities pay more attention to chain store numbers than their colleagues in the bond market. The weekly and monthly sales figures can set the tone for the retail industry as a whole. Healthy chain store sales growth could result in bigger corporate profits, and that often translates into higher stock prices. Second, these statistics provide some insight into which retailers are doing well and which are ailing, allowing investors with exposure in the retail sector to shift their money accordingly.

Dollar

Currency markets do not react to the chain store sales numbers.

 

-R.W.N II

Consumer Confidence Index

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The COnsumer COnfidence Index fell in December after a slight improvement in November. Today’s report from the Conference Board stated that Consumer confidence now stands at 122.1 (1985=100); November’s print was 128.6. “Reflation’s Rollover” early indicator.

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Ms. Lynn Franco, Director of Economic Indicators at The Conference Board, had this to comment.

“Consumer confidence retreated in December after reaching a 17-year high in November. The decline in confidence was fueled by a somewhat less optimistic outlook for business and job prospects in the coming months. Consumers’ assessment of current conditions, however, improved moderately. Despite the decline in confidence, consumers’ expectations remain at historically strong levels, suggesting economic growth will continue well into 2018.”

Consumers’ appraisal of present-day conditions was slightly more positive in December. The percentage saying business conditions are “good” increased marginally from 35.0 percent to 35.2 percent, while those saying business conditions are “bad” decreased marginally, from 12.3 percent to 12.1 percent. Consumers’ assessment of the labor market was mixed. Those claiming jobs are “plentiful” decreased from 37.5 percent to 35.7 percent, while those claiming jobs are “hard to get” also decreased, from 16.8 percent to 15.2 percent (a 16-year low).

Consumers’ optimism about the short-term outlook declined sharply in December. The percentage of consumers anticipating business conditions to improve over the next six months declined from 23.1 percent to 20.2 percent, while those expecting business conditions to worsen increased from 6.7 percent to 9.2 percent.

Consumers’ outlook for the job market was also less upbeat than in November. The proportion expecting more jobs in the months ahead decreased from 21.3 percent to 18.4 percent, while those anticipating fewer jobs rose from 12.1 percent to 16.3 percent. Regarding their short-term income prospects, the percentage of consumers expecting an improvement increased from 20.3 percent to 22.3 percent, while the proportion expecting a decrease also rose, from 7.6 percent to 8.9 percent.

 

Market Sensitivity: Medium, but can be high at turning points in the economy.

What Is It: Examines how consumers feel about jobs, the economy, and spending.

Most Current News Release on the Internet: www.conference-board.org/data/consumerconfidence.cfm

Home Web Address: www.conference-board.org/

Release Time: 10:00 a.m. (ET); announced the last Tuesday of the month being surveyed.

Frequency: Monthly.

Source: The Conference Board.
Bernard Baumohl. The Secrets of Economic Indicators

 

Market Impact

Bonds

Though questions abound regarding its efficacy as a predictor of household spending, a sharp and sustained rise in consumer confidence is nevertheless worrisome to fixed-income investors. This could lead to an acceleration in borrowing and shopping, factors that can fuel faster economic growth and stoke inflation. Bond traders prefer to see consumer confidence less ebullient about the future or an outright decline in the index. This would suggest a retrenchment in spending and more modest economic activity ahead.

Stocks

Crumbling confidence by consumers is not favorable to equities because it can presage declining business sales and fading profits. Shareholders hope consumer confidence stays high to encourage more spending, which is bullish for stocks.
Dollar

A depressed consumer makes foreign investors with exposure in the U.S. markets a bit nervous. It raises the prospects of falling interest rates and a weakening business climate, both of which bode ill for the dollar’s value. Foreign investors might sell the U.S. currency in search of higher yields and a stronger economy elsewhere. On the other hand, an upbeat consumer can lift U.S. interest rates and stock market returns to levels that promise a higher return relative to other regions in the world. This normally has the effect of increasing demand for dollars.

 

-R.W.N II