Retail Sales Increase for First Time in Three Months
The 0.3 percent advance followed a 0.6 percent drop in January that was larger than initially reported, Commerce Department figures showed today in Washington. The rebound in demand was broad-based with nine of 13 major categories showing increases.
The reading for January was revised down from an initially reported 0.4 percent decrease. December sales were also weaker, now showing a 0.3 percent drop compared with a previously reported 0.1 percent decrease. (…)
For those curious just how much real “growth” there is in retail spending, here is the annual change in the control group, which excludes food, auto dealers, building materials and gas stations, and feeds directly into GDP: it rose 0.3% from January, even as January was sharply revised from -0.2% to -0.6%, meaning net impact on GDP for Q1 is negative!
Cars and light trucks sold at a 15.3 million annualized pace in February compared with a 15.2 million rate in January, according to data from Ward’s Automotive Group.
U.S. auto retailers have 3.76 million units sitting in their showrooms, about 87 days of inventory for the big three U.S. automakers, which is well above 65 days considered manageable within the industry. The inventory-to-sales ratio on the broader auto industry has jumped to 0.25 in February 2014 from 0.20 at the
beginning of 2013.Given sluggish gains in real disposable income and the slowdown in residential investment, which is strongly linked with light truck purchases, it will probably take several months to bring sales into alignment with inventories. The result may be slowing durable goods orders, which would reinforce the reality that the weaker
pace of growth in the current quarter may not solely attributable to bad weather.
Goldman Cuts Q1 GDP Forecast To 1.5% On Weaker Retail Sales; Half Of Goldman’s Original Q1 GDP Forecast
From Goldman:
BOTTOM LINE: Although February retail sales rose a bit more than expected, negative back revisions more than offset the front-month surprise. Separately, initial and continuing jobless claims both fell more than expected. Import prices rose more than expected in February, but declined on a year-on-year basis. We reduced our Q1 GDP tracking estimate by two-tenths to 1.5%.
As a reminder, Goldman’s original Q1 GDP forecast, as recently as a month ago, was for a growth of 3%. How things change when weathermen, pardon economists, are shocked to find it gets cold in the winter…
So, bonds up or bonds down? (BloombergBriefs)
Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., cut Treasuries and U.S. government-related debt in February. “Sell
what the Fed has been buying because they won’t be buying them when taper ends in October,” Gross wrote on Twitter last week.Jeffrey Gundlach, founder of Double Line Capital LP, said 10-year Treasury yields will slide to 2.5 percent this year. Borrowing costs will decline as the Fed tapers its bond purchases amid a slowing global economy, he said.
U.S. import prices post largest gain in a year
The Labor Department said on Thursday import prices increased 0.9 percent last month, the biggest rise since February last year. January’s import prices were revised to show a 0.4 percent increase rather than the previously reported 0.1 percent gain.
Import prices excluding petroleum rose 0.2 percent in February after advancing 0.4 percent the prior month. Compared to February last year, they were down 0.6 percent. Petroleum prices rose 4.4 percent, the largest rise since August 2012.
Ex-oil, import prices are up 0.6% in 2 months, +3.7% a.r.
China Shows Fresh Signs of Economic Weakness
Industrial output rose 8.6% year-over-year in the January-February period, down from a 9.7% increase in December, data from the National Bureau of Statistics showed Thursday. The rise in the two months—combined to adjust for distortions from the Chinese Lunar New Year holiday—is the slowest since 2009.
Growth in fixed-asset investment also eased to 17.9% year-over-year, the weakest pace since 2002, down from 19.6% last year as a whole.
Retail sales rose 11.8% year-over-year in the January-February period, down from 13.6% year-over-year growth in December. Construction starts, a key driver of growth in recent years, fell by 27% in area terms.
Despite the fact that data were combined for the two months, analysts say the economic figures so far this year may still include distortions from the period when many factories close down and migrant workers return to distant villages for the new year celebration.
“Usually the March data would be slightly better than the first two months,” said Ma Xiaoping, an economist at HSBC in Beijing.
Hmmm, please keep reading:
CHINA NOT SPRINGING BACK JUST YET
CEBM Research March survey reveals that:
- The overall performance of steel market was below expectations in February. Generally, end demand remained weak post-Festival, the traditional start of
industrial activity for the year. - 31% of responders reported cement sales were lower than their forecasts, higher than January by 24%.
- The machinery tool manufacturers said that the demand remains at a low level; the construction machinery manufacturers and dealers said the potential buyers hesitate about the construction project starts.
- The February CEBM Auto Sales vs. Expectations Index was -50% and the passenger vehicle sales in February saw both a decline in Y/Y and M/M growth, showing that sales conditions were below market expectations this month.
- Container exports index is slightly below the expectation in February, and all respondents reported that shipment volume decreased after the Chinese New Year due to seasonality. The shipping fees dropped simultaneously with volume, and US routes decreased more than the Southeast Asian routes.
- The textile exports are lackluster after the Spring Festival, leading to a pessimistic outlook in 2014.
- Over two-thirds of our survey respondents told that department store sales adjusted for Chinese New Year effect were weaker-than expected. Moreover, majority of them expressed worries about sales in March, suggesting that weakness would probably persist for a prolonged period.
But, even though Premier Li said that the economy faces “severe challenges”, don’t get overly worried; like in the U.S., forward guidance is flexible!
(…) As to what comes next, Premier Li Keqiang’s press conference today following the closing of the National People’s Congress was instructive. Mr Li sounded relaxed and keen to emphasize that the “about 7.5%” GDP growth target was flexible. Asked to clarify, Mr Li simply said that GDP growth “needs to sustain ample employment and income growth.”… Further ahead, the government does have room to act if growth slows towards, say, 7%. Its fiscal position is strong and there are no immediate constraints on credit growth. (Mark Williams and Julian Evans-Pritchard, Capital Economics via WSJ)
In Chinese politics, this is all one needs to know: “growth needs to sustain ample employment and income growth.”. Otherwise, the people may not be happy and a bunch of unhappy Chinese is a big, big bunch…
Despite Low Inflation, China Has Little Room to Cut Rates
(…) The 7-day repo rate, a benchmark of interbank interest rates, fell to 2.2% this week, the lowest in almost two years. Weak growth also could induce the government to cut banks’ reserve requirement ratios later this year, according to Shen Minggao, head of China research at Citigroup, freeing up more money for lending.
But there are signs that this easing is of limited use and carries serious risks. The 2008 stimulus never really stopped, and the country’s overall debt load grew to 213% of gross domestic product last year, according to Standard & Poor’s rating agency. That compares with 140% of a much smaller GDP in 2007.
Worse, it’s not clear that all that lending is going where it’s most needed. China’s banks direct much of their lending to big industrial players or local governments, which are seen as having an implicit guarantee from the aloof but more solvent national government in Beijing.
Meanwhile, small private-sector businesses have never had an easy time getting credit, in spite of government initiatives to support them. Banks are not keen on lending to new customers. According to the most recent China Beige Book, a survey of the private sector carried out four times a year, only 14% of bankers said that more than 30% of their loans went to new customers. Much credit simply went to rolling over old loans.
Tied in knots by years of these distortions, China’s financial system is doing a poor job of sending money where it’s needed. Lower interest rates would leak into financing for property developers and heavy industry, despite the government’s best efforts to channel money away from those industries.
“If money gets cheaper, it’s possible that less productive local governments and SOEs will end up sucking up more liquidity,” Mr. Shen said. “There’s a crowding-out effect.”
In most economies, low inflation would give policy makers a license to start easing monetary policy. But in China, things aren’t so simple.
Li says China defaults ‘unavoidable’ Premier says government will ensure failures no risk to economy
Two good charts from Ed Yardeni:
OECD LEADING ECONOMIC INDICATORS 
New Zealand raises interest rates First developed nation to tighten since US began taper
(…) The Reserve Bank of New Zealand moved to lift interest rates by 0.25 per cent to 2.75 per cent on Thursday, having stuck at a record low of 2.5 per cent since March 2011, a month after a devastating earthquake in Christchurch killed 185 people.
Graeme Wheeler, reserve bank governor, noted the bigger than expected climb in economic growth and said inflationary pressures were increasing. The economy grew by 3.3 per cent in the year to the end of February, above the Bank’s previous estimate of 2.8 per cent growth.
“While headline inflation has been moderate, inflationary pressures are increasing and are expected to continue to do so over the next two years,” he said. “In this environment it is important that inflation expectations remain contained.” (…)
Mr Wheeler said the cash rate may be increased by a total of 125 basis points in 2014, depending on economic data, to move average inflation close to its 2 per cent target. (…)
I. Bernobul
- From Zacks Research:
- From Factset
Do Not Believe It
The decline the last two days is reminiscent of the beginning of the year. That is when everyone expected stocks to just keep pushing higher and higher only to get served a nasty pullback.
Now is no different. And it deserves no more thought or consideration because as soon as you believe this is a real problem and sell your shares, that is exactly when the market will bounce.
Solution = Just hold on to your favorite top ranked stocks and load up more on the dips. (Zacks Research)
The current forward 12-month P/E ratio is above both the 5-year average (13.2) and the 10-year average (13.8). The P/E ratio has been above the 5-year average for more than a year (since January 2013), while it has been above the 10-year average for the past six months. With the forward P/E ratio well above the 5-year and 10-year averages, one could argue that the index may now be overvalued.
On the other hand, the current forward 12-month P/E ratio is still below the 15-year average (16.0). During the first two years of this time frame (1999 – 2001), the forward 12-month P/E ratio was consistently above 20.0, peaking at around 25.0 at various points in time. With the forward P/E ratio still below the 15-year average and not close to the higher P/E ratios recorded in the early years of this period, one could argue that the index may still be undervalued.
It is interesting to note that the forward 12-month P/E ratio would be even higher if analysts were not projecting record-level EPS for the next four quarters. At this time, the Q4 2013 quarter has the record for the highest bottom-up EPS at $28.78. However, starting in Q2 2014, industry analysts are projecting EPS for each of the next four quarters to exceed this record amount. In aggregate, they are calling for 11.3% growth in EPS over the next four quarters (Q214 – Q115), compared to the previous four quarters (Q213 – Q114).
Good grief! Now, even fairly respectable organizations are sending it. Zacks’ may not be too bad (what should we think about?) but Factset is downright misleading with its 16.0x 15-year average P/E beginning in 1999. Fact-set!!!!