FAST FACTS ABOUT TODAY’S ECONOMIC DATA:
- Personal Income continues to trend lower, as interest income falls.
- Wages and Salaries have slowed for four consecutive months … hmm.
- ISM Manufacturing slows, but remains at robust levels.
- EU GDP at best pace in 6 years.
- Official China PMI indicates slow growth in July.
U.S. PERSONAL INCOME SLIPPED DUE TO LACK OF INTEREST:
The Bureau of Economic Analysis reported that Personal Income fell for the first time in seven months, down -$3.5 billion to $16.378 trillion (SAAR) in June. This is a decline -0.02% M/M and income slowed to +2.61% Y/Y (versus +2.97% Y/Y prior). Disposable Personal Income (Income less Taxes) fell -$4.2 billion (down -0.03% M/M and slowed to +2.63% Y/Y). Note that Personal Income taxes increased +0.03% M/M and +2.52% Y/Y to $2.013 trillion (versus +3.26% Y/Y prior).
WAGES AND SALARIES SLOW FOR THE FOURTH CONSECUTIVE MONTH:
In June, wages and salaries increased +0.37% M/M and +2.52% Y/Y, as private wages increased +0.39% M/M and +2.53% Y/Y and government wages increased for the 47th consecutive month, up +0.28% M/M and +2.43% Y/Y. Note that Wages and Salaries have SLOWED FOR FOUR CONSECUTIVE MONTHS (+2.63% Y/Y versus +2.81% last month and +3.83% in February). Furthermore, Supplements to Wages & Salaries increased +0.27% M/M and Rental Income increased +0.64% M/M; however, Interest & Dividend Income fell -1.78% M/M and Proprietors’ Income fell -0.09% M/M.
U.S. PERSONAL SPENDING SLOWED IN JUNE:
Personal Spending (PCE) increased for the 29th consecutive month, up +$8.1 billion to $13.305 trillion in June. Thus, spending increased +0.06% M/M and +3.82% Y/Y, which is the slowest pace since May 2016 (+4.28% Y/Y prior). Since Disposable Income lagged PCE in dollar terms, Personal Savings fell -$18.3 billion and the “Savings Rate” fell to 3.80% (from 3.93%).
NOBODY IS “SAVING” ANYTHING (EXCEPT FOR MAYBE THE WEALTHY):
As we’ve shown in prior notes, the “savings rate” is a plugged number and actually isn’t savings at all. It is defined as Income minus Spending minus Taxes. But “Income” isn’t exactly income, as it includes government transfer payments such as Medicare, Medicaid, Unemployment Benefits, and Social Security. When you factor in that individuals are receiving more in government benefits than they are paying into those programs, it becomes clear that savings isn’t actually savings; rather the government is running up the debt on our behalf. This debt is essentially an off-balance sheet item. When we add it back, we find that the true “savings rate” is actually -6.20% (far off from the +3.80% reported number)!
CORE PCE UP +1.5% Y/Y IN JUNE:
The Bureau of Economic Analysis also reported that the Fed’s preferred inflation metric (Core PCE Deflator) increased +0.11% M/M and +1.50% Y/Y in June (also +1.50% Y/Y prior). Thus, Core PCE remains at the slowest pace since December 2015. Meanwhile, the headline PCE deflator increased +0.02% M/M but slowed to +1.42% Y/Y (versus +1.53% Y/Y previously).
U.S. ISM MANUFACTURING INDEX SLOWED TO 56.3 IN JULY:
The ISM Manufacturing Index fell -1.5 points to 56.3 in July. Despite the slowdown, this is the second highest level since March and this is the 11th consecutive month of growth in the manufacturing sector (16 of the past 17 months). In the month, there were notable slowdowns in New Orders (-3.1 points to 60.4), Employment (-2.0 points to 55.2), Production (-1.8 points to 60.6), Backlogs (-2.0 points to 55.0) and Exports increased (-2.0 points to 57.5). Conversely, there were increases in Inventories (+1.0 point to 50.0) and Prices (+7.0 points to 62.0).
U.S. CONSTRUCTION DOWN -1.3% M/M IN JUNE:
According to the Census Bureau, U.S. Construction Spending declined -1.3% M/M in June to a total value of $1,205.8 billion SAAR. Note that the prior month was revised higher to +0.3% M/M versus unchanged previously reported. Thus, construction spending slowed to +1.6% Y/Y (versus +3.8% Y/Y prior). In the month, Residential Construction fell -0.3% M/M and slowed to +9.0% Y/Y (+9.7% Y/Y prior) and Nonresidential Construction fell -2.0% M/M and -3.1% Y/Y (-0.1% Y/Y prior). Lastly, Private Construction fell -0.1% M/M and slowed to +5.3% Y/Y and Public Construction fell -5.4% M/M and -9.5% Y/Y (-2.9% Y/Y prior).
EURO AREA GDP (+2.1% Y/Y) AT BEST PACE IN 6 YEARS:
According to preliminary data from Eurostat, economic growth in the Euro Area increased +0.6% Q/Q in Q2 2017 (+0.5% Q/Q in Q1). Moreover, GDP increased +2.1% Y/Y in Q2, which is the highest pace since Q1 2011 (versus +1.9% Y/Y in Q1). EU28 GDP increased +0.6% Q/Q and +2.2% Y/Y in Q1 2017 (+0.5% Q/Q and +2.1% Y/Y in Q1).
CAIXIN CHINA PMI CONFIRMS SLOW GROWTH IN JULY:
The Caixin China Manufacturing PMI increased +0.7 points to 51.1 in July, which is the highest reading since March. In the month, output and new orders increased at the fastest pace since February and export orders increased at the second fastest pace in three years. Note that it was reported recently that the official Manufacturing PMI fell -0.3 points to 51.4.
SOUTH KOREA TRADE SURPLUS REBOUNDED IN JUNE:
South Korea’s trade surplus rebounded +$5.145 billion to $10.796 billion in June, according to the Ministry of Trade, Industry, and Energy. In the month, exports rebounded +14.2% M/M and +13.5% Y/Y to $51.4 billion (vs. +13.1% Y/Y prior). Furthermore, imports increased +3.2% M/M and +19.8% Y/Y to $40.604 billion (+19.1% Y/Y prior). Note that exports to China were up on M/M basis but slowed to +5.1% Y/Y (+7.5% Y/Y prior), exports to Japan increased +10.4% Y/Y (+8.1% Y/Y prior), exports to the EU increased +21.0% Y/Y (+21.8% Y/Y prior), and exports to the US fell -1.1% Y/Y (-1.8% Y/Y prior).
RESERVE BANK OF AUSTRALIA LEAVES RATES UNCHANGED:
Once again, the Reserve Bank of Australia decided to leave its benchmark cash rate unchanged at 1.5%. It should be noted that CPI in Australia slowed to +1.9% Y/Y in Q2 2017. The RBA stated, “The Bank’s forecasts for the Australian economy are largely unchanged. Over the next couple of years, the central forecast is for the economy to grow at an annual rate of around 3 per cent… The current high level of residential construction is forecast to be maintained for some time, before gradually easing. One source of uncertainty for the domestic economy is the outlook for consumption. Retail sales have picked up recently, but slow growth in real wages and high levels of household debt are likely to constrain growth in spending.”
Once again, the Reserve Bank of Australia is concerned about household debt. In its statement, the RBA said, “There has also been some tightening of credit conditions following recent supervisory measures to address the risks associated with high and rising levels of household indebtedness. Growth in housing debt has been outpacing the slow growth in household incomes.” According to the Reserve Bank of Australia, Household Debt to Income levels increased to a record high 190.4% in Q1 2017, with Housing Debt to Income increased to a record 135.0%.
BRAZILIAN INDUSTRIAL PRODUCTION SLOWED TO +0.5% Y/Y IN JUNE:
According to the IBGE, industrial output in Brazil was flat M/M (seasonally adjusted) in June (+1.17% M/M prior). Thus, industrial production in Brazil slowed to +0.46% Y/Y (NSA) (+4.17% Y/Y prior) and year to date output is now up +0.5%. In the month, Capital Goods output increased +0.3% M/M and Intermediate Goods output increased +0.1% M/M; however, Consumer Goods output fell -1.1% M/M (led by -6.0% M/M decline in Durable Goods output).
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