EDGE AND ODDS’ Almost DaiLY CHAT (a totally AI generated chat on the day’s post courtesy of Google’s NotebookLM): October 18, 2024
American shoppers and diners closed out the summer without much sign of cutbacks—fresh evidence of how strong consumer spending has helped insulate the economy from a downturn.
Sales for retailers and eateries grew by 0.4% in September from a month earlier, according to advance data from the Census Bureau, an acceleration from 0.1% growth in August and a higher pace than economists had been expecting. (…)
Over the past 12 months, retail sales have climbed 1.7%, not adjusting for inflation. (…)
“Not adjusting for deflation” would be more appropriate. My calculation of the U.S. retail sales deflator is at –1.5% YoY in September, unchanged from August but down from –0.6% in July.
This puts real retail sales up 2.9% YoY in September (+3.0% in August, +2.7% in July and +1.7% in June) indication that real expenditures on goods will also come in near 3.0% YoY.
On a quarterly basis, real retail sales jumped 1.7% QoQ in Q3 after +0.4% in Q2 and zero in Q1. That’s a 7.0% annualized rate!
Wells Fargo:
If you were looking for a sign that consumer spending was slipping, today’s retail sales report for September was not it.
The headline increase of 0.4% for September was just a bit ahead of the 0.3% increase that had been expected, but the real upside was in the core measures of spending. Excluding sales at auto dealers and gas stations, retailers notched a solid 0.7% increase which was more than double the 0.3% gain that had been expected.
These gains came despite the fact that August’s sales numbers were revised higher.
Control group sales, which tends to line up with personal consumption spending in the GDP report, also came in much stronger than expected with 0.7% gain. That is the biggest gain in three months and the third largest monthly gain of 2024. (…)
The upshot is that despite hand-wringing over the state of the labor market, U.S. consumers Just. Keep. Spending.
U.S. Department of Commerce, U.S. Department of Labor and Wells Fargo Economics
- The [Atlanta Fed] GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2024 is 3.4 percent on October 17, up from 3.2 percent on October 9.
After recent releases from the US Census Bureau, the US Bureau of Labor Statistics, and the Federal Reserve Board of Governors, the nowcast of third-quarter real personal consumption expenditures growth increased from 3.3 percent to 3.6 percent, while the nowcast of third-quarter real gross private domestic investment growth decreased from 3.3 percent to 3.1 percent.
And if you wonder about labor demand, Indeed Job Postings have really stabilized after its steep decline since early 2023. Still 12% above pre-pandemic levels.
Initial jobless claims fell 17,000 in the week ended October 12 to 241,000 (sa). The impact of hurricanes and manufacturing layoffs amid strikes were expected to spur more jobless claims. Indeed, the largest increases on a state-by-state basis were in rust-belt states and those hit by Hurricane Helene (i.e., Michigan, North Caroline, Ohio, and Florida). Today’s report shows that the jobs market broadly remains on solid footing. (Ed Yardeni)
- “… we have seen upward revisions to GDI, an increase in job vacancies, high GDP growth forecasts, a strong jobs report and a hotter than expected CPI report… I view the totality of the data as saying monetary policy should proceed with more caution on the pace of rate cuts than was needed at the September meeting.” (Federal Reserve Governor Christopher Waller,
October 14, 2024.)
The People’s Bank of China disclosed more details of its measures to boost capital markets minutes after authorities released figures showing China’s slowdown deepened in the third quarter. At a separate event in Beijing, PBOC Governor Pan Gongsheng flagged the real estate and stock markets as key challenges in the economy that require targeted policy support. (…)
China’s benchmark CSI 300 Index of onshore stocks rebounded from earlier losses to close up 3.6% higher, after the central bank kicked off a re-lending facility for listed companies and major shareholders to buy back shares. Stocks also got a boost from President Xi Jinping’s call for efforts to achieve the year’s economic goals and financial support for technology, with chipmaker Semiconductor Manufacturing International Corp. gaining 20%.
Gross domestic product increased 4.6% in the July-to-September period from a year prior, data released by the National Bureau of Statistics showed, bringing growth for the first nine months to 4.8% — the lower end of China’s annual growth goal.
Things appeared to take a turn for the better during the last stretch of the period, with retail sales accelerating in September to grow 3.2% after expanding 2.1% the prior month.
The better-than-expected consumption gauge likely received a boost from government subsidies for upgrading consumer goods. Home appliances saw a 21% surge in sales from a year ago, picking up from a 3% gain in the previous month. Increased subsidies for car purchases also paid off, with auto sales snapping a six-month declining streak.
The appliance and goods trade-in program is part of China’s stimulus measures including interest rate cuts, with the elite Politburo led by Xi supercharging the push with a vow to stabilize the beleaguered real estate sector.
The slate of measures prompted a historic stock rally and led banks including Goldman Sachs Group Inc. to upgrade their forecasts for China’s growth. But skepticism has grown over whether authorities are willing to deploy greater fiscal firepower to turn around the economy and markets.
Investors now expect Chinese lawmakers to approve additional budget or debt sales to fund public spending in a meeting as soon as this month after authorities promised fiscal support.
At a Beijing forum, PBOC’s Pan reiterated that the monetary authority will make a reasonable rebound in prices a key policy consideration. A broad measure of prices fell for a sixth quarter, data showed Friday, extending the economy’s deflation streak, the longest since 1999.
Apart from retail sales, industrial production and fixed-asset investment also picked up in September, and jobless rate fell to 5.1%, the lowest since June.
New home prices, however, fell for a 16th month, dropping at almost the same pace as in August.
The NBS said there’s reason for caution despite improvements in the main indicators as the stimulus measures are rolled out, citing an “increasingly complex and grim” external environment and a need to strengthen the economy’s foundation. (…)
Beijing is clearly focused on the stock market, throwing money to “listed companies and major shareholders to buyback shares”, minutes after releasing “grim” economic data.
Some more data:
- GDP rose 0.9% QoQ in Q3 after +0.5% in Q2 (revised from +0.7%) per Goldmans Sachs numbers. Annualized: Q3 was +3.6% after Q2 at +2.0%. Nice acceleration but nowhere near 5%. Bloomberg consensus was +1.1% QoQ non-annualized.
- Retail sales got a nice prop from the consumer goods trade-in program which strongly boosted home appliance and automobile sales. Time will tell if this is sustainable but sequential sales are flat nonetheless.
- The grim and complex environment is best seen in real estate. Property sales declined -11.0% in volume terms and -16.3% in value terms (-6.3% deflation). New home starts growth fell to -19.9% YoY in September vs -16.7% in August. New home completions contracted -31.5% YoY in September, nothing to help the inventory clearance effort. Floor space under construction declined -12.2% YoY in September.
- “China’s housing ministry said it would redevelop one million homes in rundown urban shantytowns and said it would prod banks to double the loans on offer for developers to around $500 billion, part of a broader attempt to complete unfinished homes.” (WSJ) But most developers are already technically bankrupt!
- “New-home prices in 70 cities, excluding state-subsidized housing, dropped 0.71% from August, largely in line with a 0.73% decline a month earlier, National Bureau of Statistics figures showed Friday.” (Bloomberg)
- Existing-home prices decreased 9%.
China hedge funds caught out by abrupt market surge
China’s abrupt and ferocious stock market rally has slammed some of the country’s biggest hedge funds, forcing them to hastily cover short positions and take losses on their bets in the heavily regulated derivatives market.
Beijing X Asset Management, Techsharpe Quant (Beijing) Capital Management and Shenzhen Chengqi Funds are among the funds sideswiped when China’s struggling stocks recovered a quarter of their value in less than a week in late September, following a raft of stimulus measures.
Their losses stemmed from short positions in China’s stock index derivatives, which market-neutral fund strategies use to hedge equity holdings.
Market euphoria as China showed serious intent to fix its ailing economy drove futures prices up sharply, causing losses on those positions that could not be offset by gains in cash holdings.
British hedge fund giant Winton’s trend-following strategy was also upended by China’s unexpected market reversal, forcing the firm to quickly unwind its bearish bets.
Regulators have clamped down on data-driven quant funds and tightened curbs on stock short-selling this year, rendering the market prone to wild swings, said Hu Bo, fund manager at Shanghai Professional Fund Management Co. (…)
EQUITIES
Here is a look at equity valuations across US and international markets. (The Daily Shot)
Source: Goldman Sachs; @MikeZaccardi
