NEW$ & VIEW$ (14 JUNE 2013)

Consumers Power Past Headwinds U.S. consumers demonstrated a renewed ability to spend in May despite higher taxes and a still-soft labor market, easing fears of a slowdown heading into the summer.

Overall retail sales increased 0.6% last month, putting them 4.3% higher over the past year, the Commerce Department said Thursday. The strong gain after two sluggish months returned consumer spending to a pace that has helped power much of the four-year-old recovery.

High five  However, note that the YoY growth rates are against the weakest period in 2012. Monthly sequential growth rates tell a less buoyant story (last 3 months a.r.)

  • Total Retail Sales and Food Services: +1.6%
  • Ex-Autos: 0%
  • Ex-Autos less gasoline and building supplies: +2.8%

Weekly chain store sales show a similar trend: the YoY growth is accelerating against a weak base while sequential sales are dropping.

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Remember the close relationship between retail sales and employment income as this chart from Moody’s shows:

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Meanwhile, oil prices are going the wrong way:

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Industrial output flat in May

Industrial production was unchanged in May, the Federal Reserve said on Friday, compared with forecasts for a light increase after gains in manufacturing and mining were offset by a sharp drop in the output of utilities.

Analysts had expected a 0.2 percent rise in May industrial output following a revised 0.4 percent decline the previous month. Factory output rose 0.1 percent, matching expectations, while mining advanced 0.7 percent. But utilities output slumped by 1.8 percent.

Euro-Zone Risks Return to Fore

The turbulence rattling global bond markets is unmasking an unpleasant notion in Europe: The euro zone’s problems aren’t solved.

[image]Government bonds have recently taken a hit around the world, now that investors are preparing for the possible end of central banks’ boundless economic stimulus. And those bonds of the weakest euro-zone countries have shown some of the biggest drops.

That suggests that the bonds of Spain, Italy, Portugal and Greece might be susceptible to bigger swings in the future, as the flood of cash that has poured into financial markets recedes, leaving their economic warts more exposed, market participants say. (…)

Behind the problem is a macroeconomic euro-zone picture that has deteriorated, not improved, during the period of falling yields. (…)

Norway Ready With Stimulus as Europe’s Recession Hurts

Norway’s $480 billion economy, which emerged as haven as Europe struggled with excessive debt, is starting to feel the pain as the euro-area’s economy contracts for a second year. Unemployment in Norway has risen to the highest since May 2010 as companies grapple with a surging krone and manufacturing labor costs that are almost 70 percent higher than the average in the European Union.

The mainland economy, which excludes income from oil and shipping industries, will grow 2.4 percent this year and 3 percent next year, down from 3.5 percent in 2012, Statistics Norway forecast on May 30. Mainland exports are estimated to be unchanged in 2013 after rising 2.6 percent last year.

Pointing up  China debt auction failure sparks liquidity fears
Cash becoming increasingly tight as economy slows

The finance ministry sold only Rmb9.5bn ($1.5bn) of the Rmb15bn in government debt on offer, the first time in nearly two years that Beijing has fallen short of its target bond sale. The failure stemmed from a jump in money market rates that has occurred because the central bank has refused to pump liquidity into the economy despite signs of stress in the banking system.

Analysts said the sudden tightness in China’s financial system was the latest indication of how the government appears willing to tolerate slower growth to control some of the risks that have built up in the economy.

U.S. HOUSING

 

Housing-Inventory Crunch Could Be Easing

Housing inventory has jumped by 25% so far this year, outpacing normal seasonal increases, according to figures released Thursday by Realtor.com.

There were some 1.85 million homes listed for sale at the beginning of May, which is still historically low. May’s listings rose by 5.8% from April’s level but stood 10% below year-earlier levels. They were still the lowest for the month of May since Realtor.com began its count in 2007.

(…) So far this year inventories have increased by around 375,000 through April compared to increases of just 45,000 for the same period in 2011 and 108,000 in 2012. (…)

A separate report released Thursday from Zillow showed that inventories at the beginning of June were down 12.2% from one year ago, compared to a year-over-year drop of 17.5% in January. (…)

A survey released earlier this week by Fannie Mae found that 40% of Americans believed it was a good time to sell, up from 30% in April. That was the highest reading since Fannie began its survey three years ago (…)

Doc Copper Looking Bearish, Global Slowdown Ahead?

Copper has formed a “Bearish Descending Triangle” of late!

Click to View

Punch  If you don’t think Ascending/Descending triangles are important, think again! Silver has rallied between 31% and 148% on bullish ascending triangles and fell sharply of late when support broke on a descending triangle in the chart below (see triangle post here).

Click to View

EARNINGS WATCH

Pointing up  Behind the Profits: A Tax Break

Strong first-quarter corporate profits may not be quite as good as they look, an analysis by The Wall Street Journal shows, because the extension of a big tax credit quietly boosted profits of dozens of companies.

Under accounting rules, the companies reported a year’s worth of benefits from the research-and-development tax credit in their first-quarter results, lifting profits for many of them by more than 10%.

With first-quarter results nearly complete, 465 participants in the Standard & Poor’s 500-stock index cumulatively reported that revenue increased 2.1% from the same period a year earlier. Expenses grew slightly faster, so pretax profit rose only 0.9%, according to the Journal’s analysis.

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But the S&P-500 companies also set aside 5.6% less money for taxes, and that helped their cumulative profits grow a robust 6.7%, the Journal found.

The biggest reason they took that action: the extension of the research credit and other tax breaks in January, said Jeffrey Hoopes, a lecturer in accounting at Ohio State University whose recent doctoral dissertation examined the issue. (…)

The previous extension expired at the end of 2011, meaning that companies couldn’t claim the credit last year. That quietly increased tax rates—and hurt earnings—last year. Under the measure approved in January, the research credit will again expire at the end of this year, raising the prospect of future distortions in corporate earnings.

Research-heavy technology and pharmaceutical companies benefit most from the credit. In 2009, the latest year for which statistics are available, the Internal Revenue Service said that more than half the $7.7 billion in credit was claimed by companies in three industries: computer and electronics manufacturing, chemical and pharmaceutical manufacturing, and transportation manufacturing. (…)

Looking ahead, the unusual benefit from extension of the tax credit won’t help corporate profits for the rest of this year. (…)

 
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