8/6/2019 MfM Jul 15 2011
1/13
MACRO FOR MARKETS
mfglobal.com
Still Expecting H2 Pickup, but Growth Forecast TrimmedAs suggested last week, we have cut our estimate for Q2 real GDP growth following the release
of several key sets of input data. We now estimate a 2.3% q/q annualized rate, slightly better
than the 1.9% pace in Q1 but down from our earlier estimate of 3.5%.
Whats next? On the positive side, we continue to believe recent weakening has been
exaggerated by factors that will fade or reverse: gasoline prices have declined, auto production is
scheduled to rebound by enough to add a point to Q3 growth, and claims are showing tentative
signs of improvement. More broadly, some of the headwinds that have been holding back the
recovery appear to be lessening over time. In the other direction, business and consumer
confidence continues to be fragile, with risk aversion after the crisis more persistent than weanticipated. In part, that pattern reflects financial markets and fiscal policy concerns, some of
which should fade. The net result: we still see the recovery improving over time, but we are
trimming our GDP growth forecasts for coming quarters by around 0.5 point at an annual rate.
We now expect real GDP to increase at a 3.5% pace over the next year and a half. We expect
the unemployment rate (currently 9.2%) to be 9.0% in Q4 of 2011 (instead of 8.8%) and 8.3% in
Q4 of 2012 (instead of 7.9%). We now forecast the first Fed rate hike in June 2012 (instead of
March), with the funds rate up to 1.0% at the end of 2012 (instead of 1.5%).
Preview: More Clarity on Fiscal Issues?A key focus in coming weeks will be how fiscal policy negotiations evolve. While the debt limit
impasse does not appear to have directly affected financial markets significantly, we suspect the
threat of default and a rating downgrade have weighed on consumer and business confidence.
In a light week for data, we forecast near-flat readings for housing starts, existing home sales, the
housing market index, and the FHFA home price index. We expect the current activity index in
the Philadelphia Fed survey to show a reversal of some of last months weakening. We forecast
little change in jobless claims after last weeks large drop.
Jobless claims may be starting to decline again.
Source: Department of Labor and MF Global
Economic Analysis | US
JAMES F. OSULLIVAN STEPHANIE S. CHENG
Chief Economist Economist
+1 212 589 6479 +1 212 589 6373
[email protected] [email protected]
CONTENTS
Pg. 2 | Still Expecting H2 Pickup,but Growth ForecastTrimmed
Pg. 7 | Forecast Summary
Pg. 8 | Data Preview
Pg. 13 | Calendar
JULY 15, 2011 INSTITUTIONAL USE ONLY MF Global Weekly Report
270
370
470
570
670
Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11
4-week average Weekly
in itial claims, 000s, sawr
Jul 9
8/6/2019 MfM Jul 15 2011
2/13
Economic Analysis | US
7/15/2011 |MACRO FOR MARKETS
STILL EXPECTING H2 PICKUP, BUT GROWTH FORECASTTRIMMED
As suggested last week, we have cut our estimate for Q2 real
GDP growth following the release of several key sets of input
data. We now estimate a 2.3% q/q annualized rate, slightly better
than the 1.9% pace in Q1 but down from our earlier estimate of
3.5%. (See details on page 7.) Some other data have looked
even weaker in recent months, most notably the last two
employment reports.
Whats next? On the positive side, we continue to believe recent
weakening has been exaggerated by factors that will fade or
reverse.
Real spending power is being boosted by a drop in gasoline
prices.
After being depressed by Japan supply-chain effects, auto
production is scheduled to rebound by enough to add about apercentage point to annualized Q3 GDP growth.
Jobless claims are showing tentative signs of improvement.
More broadly, we continue to believe that some of the headwinds
that have been holding back the recovery since it began are
lessening over time (e.g., banks have begun to ease lending
standards, commercial construction is stabilizing, and the drag
from household sector deleveraging appears to be moderating).
In the other direction, business and consumer confidence
continues to be fragile, with risk aversion after the crisis more
persistent than we anticipated. In part, that pattern reflects
financial markets and fiscal policy concerns, some of whichshould fade.
The net result: we still see the recovery improving over time, with
employment growth accelerating and unemployment trending
lower, but we are trimming our GDP growth forecasts for coming
quarters by around 0.5 point at an annual rate.
For real GDP, we now forecast a 3.5% pace in the second half
of 2011 (instead of 4.0%), and 3.5% on a Q4/Q4 basis in 2012
(instead of 3.9%). That is still somewhat stronger than
expected by the consensus (3.2% in H2 11 and 3.0%, on
average, in 2012according to Bloombergs survey). Growth
averaged an estimated 2.7% pace in the first eight quarters ofthe recovery (including our 2.3% estimate for last quarter).
We now expect the unemployment rate to drop to 9.0% in Q4
of 2011 (instead of 8.8%) and 8.3% in Q4 of 2012 (instead of
7.9%). At 9.2%, the June 2011 level was up from 8.8% three
months earlier but still down from 9.6% in Q4 of 2010 and
10.0% in Q4 of 2009.
U.S. vehicle production dropped from 8.4 million units at an
annual rate in Q1 to 7.9 million in Q2. It is scheduled to rebound
to a 9.4-million pace in Q3.
millions of units, saar, unless noted otherwise
LEVEL %q/q, saa
10Q3 8.1 33.5
10Q4 7.8 -15.8
11Q1 8.4 36.7
11Q2 7.9 -23.9
11Q3-scheduled 9.4 103.9
LEVEL %m/m, sa
JAN 11 8.0 4.4
FEB 11 8.5 6.0
MAR 11 8.8 4.0
APR 11 7.9 -10.8
MAY 11 7.9 0.9
JUN 11 7.8 -1.5
JUL 11 scheduled 9.3 19.3
AUG 11 scheduled 9.6 2.7
SEP 11 scheduled 9.4 -1.8
Source: Federal Reserve Board, Ward's Automotive, and MF Global
The scheduled increase in auto production, if realized, would
likely add a full point to annualized GDP growth in Q3.
Source: Federal Reserve Board, Bureau of Economic Analysis, Ward's Automotive,and MF Global
-2.8
-1.4
0.0
1.4
2.8
-2
-1
0
1
2
06 07 08 09 10 11 12
Con tribution to real GDP growth (l)
Chan ge in U.S. motor vehicle production (r)
pct. pts , q/q, saar
Q3
millions of uni ts, ch, q/q, saar
Q1
productionschedule
Q2
8/6/2019 MfM Jul 15 2011
3/13
Economic Analysis | US
7/15/2011 |MACRO FOR MARKETS
Despite the lowering of growth projections, we have raised
slightly our inflation forecasts for 2011, mainly reflecting the
pickup in recent months, including a second consecutive 0.3%
m/m rise in the core CPI in June (more below). On a Q4/Q4
basis, we now forecast a 3.0% rise in the total CPI and a 2.0%rise in the core CPI in 2011 (instead of 2.8% and 1.8%,
respectively). We have not changed our 2012 forecast (2.1%
total, 2.0% core). For core PCE prices, we now forecast a
1.7% rise in 2011 (up from 1.5%) and 1.7% again in 2011 (as
before).
The change to the inflation forecast partly offsets the monetary
policy implications of the change in the growth forecast, but we
have pushed back the first Fed rate hike to June 2012 from
March 2012, with the funds rate now expected to be 1.0% at
the end of 2012 instead of 1.5%. (Fed funds futures contracts
are currently priced for a 0.4% funds rate at the end of 2012.)
Some tightening in 2012 will likely also come via balance sheetshrinkage. (We do not expect any new stimulus initiatives this
year, with Fed officials effectively freezing their balance sheet
through Q1 of next year.)
The sharp drop in vehicle sales in May and June was
concentrated in the Japanese brands, consistent with much of
the weakening being due to inventory shortages related to
supply-chain effects.
*Estimated by MF Global, applying same seasonal adjustment factors to Japanesebrand sales as used by the Bureau of Economic Analysis for total sales.Source: Bureau of Economic Analysis, Automotive News, and MF Global
The architects billings index for commercial and industrial
activity has been signaling a fading of weakness in private
nonresidential construction. The plunge in construction in Q1
GDP was likely weather-related.
Source: Bureau of the Census and American Institute of Architects
The Feds Senior Loan Officer Opinion Survey has been
showing an easing of lending standards on most categories of
loans, including commercial and industrial (C&I) loans (below).
The main exception has been residential mortgages.
Source: Federal Reserve Board
-30
0
30
60
90
90 92 94 96 98 00 02 04 06 08 10
Large and medium Small
Net percentage of d omestic respondents tightening standardsfor C&I loans, by size of business seeking loan
Apr
26
38
50
62
74
-50
-25
0
25
50
98 00 02 04 06 08 10 12
Private n onresidential construction (l )AIA commercial and industrial billings index (r)
% from 3 months ago, saar index,sa
May
2
4
6
8
10
Jan-08 Jul -08 Jan-09 Jul -09 Jan-10 Jul -10 Jan-11
U.S. light vehicle sales: Japanese brands*
U.S. light vehicle sales: ex-Japanese brands*
millions of un its, saar
Jun
8/6/2019 MfM Jul 15 2011
4/13
Economic Analysis | US
7/15/2011 |MACRO FOR MARKETS
Still Waiting for More Clarity on Fiscal Issues
Apart from the data, a key focus in coming weeks will be how
fiscal policy negotiations evolve. We are assuming that the debt
limit impasse will be resolved before it leads to any missed
payments on principal or interest. (We expect the Treasury toprioritize those payments if needed.) We are also assuming that
any new deficit reduction measures are spread out over many
years, with only minimal impact prior to 2013, and that this years
temporary payroll tax cut, and also extended unemployment
benefits, will be renewed for another year. We are still allowing for
some tightening of fiscal policy in the coming year, reflecting the
phasing down of the 2009 stimulus package and the FY11 cut in
budget authority for discretionary spending (which will be
reflected in budget outlays with a lag). Our call for somewhat-
above-trend growth in 2012, despite that drag, reflects our
expectation that the private sector recovery will continue to gather
momentum.
While the debt limit impasse does not appear to have directly
affected sentiment in financial markets significantly (with Treasury
yields remaining low), we suspect the threat of default and a
sovereign rating downgrade have weighed on business and
consumer confidence. In turn, the brinkmanship has likely
compounded the slowing in growth recently. The Michigan
sentiment index fell in June and again in early July, mirroring
weakness in the Rasmussen index. Other factors have clearly
also affected confidence, including the weaker than expected
employment data, but we believe resolution of the debt limit
impasse would remove one important source of anxiety for
consumers and business leaders.
The household sector financial balance is down only marginally
over the past year, although even a flattening in that measure is
consistent with a fading of the drag from deleveraging.
Note: Shaded bars represent periods of recession.Source: Federal Reserve Board, Bureau of Economic Analysis, and MF Global
Business sector as well as consumer confidence has weakened
recently.
Source: National Federation of Independent Business (NFIB) and The Conference
Board
The weakening in the Michigan sentiment index mirrors the
pattern in the daily Rasmussen index.
Source: University of Michigan and Rasmussen Reports
-7.0
-3.5
0.0
3.5
7.0
10.5
60 65 70 75 80 85 90 95 00 05 10
Househ old sector financial balance
% of disposable income
11Q1
20
30
40
50
60
70
80
80
85
90
95
100
105
110
81 84 87 90 93 96 99 02 05 08 11 14
NFIB optimism index (l)
Con ference Board CEO confidence index (r)
ind ex, both scales
Q2
50
65
80
95
50
60
70
80
Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11 Jul-11
Uni versity of Michigan sentiment index (l)Daily Rasmussen consumer index (r)
index, monthly index, daily
Jul 15
Julprelim
8/6/2019 MfM Jul 15 2011
5/13
8/6/2019 MfM Jul 15 2011
6/13
Economic Analysis | US
7/15/2011 |MACRO FOR MARKETS
Claims dropped from 427,000 to 405,000 in the first full week of
July. Moreover, the latest reading included an 11,500 boost from
budget-dispute-related furloughing of state workers in Minnesota.
Unfortunately, the claims data are especially volatile and
unreliable in early July, reflecting seasonal adjustment challengesrelated to annual summer shutdowns in the auto industry. While
we expect claims to trend lower this quarter, we caution against
extrapolating yet.
Pickup in Core Inflation Makes QE3 Highly Unlikely
As noted, the core CPI continued to show acceleration in June,
despite the weaker growth data recently. The 0.3% m/m increase
boosted the 2011-to-date increase (June vs. December) to 2.5%
at an annual rate from 2.4% through May and 2.1% through April.
The core CPI rose just 0.8% in 2010 (December to December).
Some of the recent pickup in core inflation has reflected factors
that have also contributed to the slowing in growth, notably Japansupply-chain effects (which led to inventory shortages and a
sharp pickup in new and used vehicle prices) and higher
commodity prices (which likely led to some pass-through effects
on core items). In turn, core inflation is likely to slow significantly
in coming months as those sources of acceleration fade or
reverse. Even so, the net result is likely to be a clear pickup for
2011 as a whole; the pickup so far this year has been fairly broad-
based.
The pickup in inflation makes a third round of asset purchases by
the Fed highly unlikely, in our view, unless the recovery truly
falters. Indeed, while the Fed chairman raised the possibility of
more stimulus in his testimony on July 13 and 14, he also madeclear that new stimulus would require a significant reversal of the
recent pickup in inflation and not just weakness in growth. Here is
what Mr. Bernanke said in response to a question:
I think the important point to make is that the situation today is
somewhat different than it was in August of 2010, when we began
to initiate discussion of further purchases of securities. At that
time, inflation was dropping, inflation expectations were dropping.
It looked like deflation was becoming a potential risk to the
economy and a serious risk. At the same time, over the summer
the recovery looked like it was stalling
Today, the situation is more complex. Inflation is higher. Inflation
expectations are close to our target. We are uncertain about the
near-term developments in the economy, we'd like to see if in fact
the economy does pick up as we are projecting. And so, you
know, we're not prepared at this point to take further action.
The core CPI shows a 2.5% annual rate so far this year (June vs.
December), up from 0.8% in 2010 (December to December).The
pickup has been fairly broad-based, although three categories
have been especially important contributors: shelter (mainly
rents), vehicles (new and used), and apparel.
% ch, annual rate,unless noted
2010*2011THRU
JUNE**
ACCEL/DECEL.(2011 vs.
2010,pct pcts)
CONTRIBUTTO
ACCEL/DECEpct pts.)
CORE CPI 0.8 2.5 1.7 1.
SHELTER (41.6%) 0.4 1.6 1.1 0.
RESIDL RENT (7.7%) 0.8 1.5 0.7 0.
OER (32.4%) 0.3 1.3 1.0 0.
LODGING (1.0%) 2.5 11.6 9.1 0.
FURNISH/OPS (5.9%) -2.5 0.8 3.3 0.
APPAREL (4.8%) -1.1 4.8 5.9 0.
NEW VEHICLES (5.6%) -0.2 8.3 8.5 0.
USED VEHICLES (2.6%) 3.7 9.4 5.8 0.
AIRFARES (1.0%) 5.8 4.4 -1.4 0.
MEDICAL CARE (8.4%) 3.3 3.1 -0.2 0.
RECREATION (8.3%) -0.8 1.3 2.0 0.
EDUC, COMMUN (8.3%) 1.3 1.5 0.2 0.
OTHER (4.5%) 1.9 0.7 -1.2 -0.
*December 2010 vs. December 2009 (nsa)**June 2011 vs. December 2010 (sa)Source: Bureau of Labor Statistics and MF Global
Along with the core CPI, the core PCE price index has also beenaccelerating. Inflation expectations indicators have shown little
net change from average levels in recent years; although last
years drop in breakeven inflation rates priced into Treasury
Inflation-Protected Securities (TIPS) has been reversed.
Source: Bureau of Economic Analysis, Bureau of Labor Statistics, Federal ReserveBoard, and MF Global
01
1
2
2
3
3
4
4
0
1
2
3
4
07 08 09 10 11 12Core PCE prices (y/y)Core CPI (y/y)Mich igan median 5-10 year inflation expectationsTIPS 5-year, 5-year fo rward inflation compensation
%
Julprelim
Jul 12
May
Jun
8/6/2019 MfM Jul 15 2011
7/13
Economic Analysis | US
7/15/2011 |MACRO FOR MARKETS
MF GLOBAL U.S. ECONOMIC FORECAST SUMMARY
% change from previous period, annual rate (ar), except where noted;forecasts in bold
2010 2011 CALENDAR AVERAGE Q4/Q4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2010 2011 2012 2010 2011 EAL GDP 3.7 1.7 2.6 3.1 1.9 2.3 3.5 3.5 2.9 2.6 3.4 2.8 2.8
FINAL SALES 1.1 0.9 0.9 6.7 0.6 2.0 3.6 3.8 1.4 2.6 3.5 2.4 2.5
DOMESTIC FINAL SALES 1.3 4.3 2.6 3.2 0.5 1.1 3.4 3.6 1.9 2.1 3.2 2.9 2.1
NET EXPORTS (pct pt contr) -0.3 -3.5 -1.7 3.3 0.1 0.9 0.0 0.0 -0.5 0.4 0.2 -0.6 0.3
INVENTORIES (pct pt contr) 2.6 0.8 1.6 -3.4 1.3 0.4 -0.1 -0.3 1.4 0.0 0.0 -0.3 0.3
CONSUMPTION 1.9 2.2 2.4 4.0 2.2 0.5 3.2 3.2 1.7 2.4 3.1 2.6 2.3
BUSINESS FIXED INVESTMENT 7.8 17.2 10.0 7.7 2.0 6.9 8.9 11.3 5.7 7.3 8.2 10.6 7.2
STRUCTURES -17.8 -0.5 -3.6 7.7 -14.8 7.0 3.0 4.0 -13.7 -1.2 4.4 -4.0 -0.6
EQUIPMENT & SOFTWARE 20.5 24.8 15.4 7.7 8.7 7.0 11.0 14.0 15.3 10.5 9.5 16.9 10.2
RESIDENTIAL INVESTMENT -12.3 25.6 -27.3 3.3 -1.9 1.0 5.0 7.0 -3.0 -1.3 9.0 -4.6 2.7
EXPORTS 11.4 9.1 6.7 8.6 7.7 9.0 8.0 8.0 11.7 8.1 9.3 8.9 8.2
IMPORTS 11.2 33.5 16.8 -12.6 5.1 2.0 6.0 6.0 12.6 3.9 6.4 10.9 4.8
GOVERNMENT -1.6 3.9 3.9 -1.7 -5.8 0.1 1.5 0.9 1.0 -0.8 0.3 1.1 -0.9
INVENTORIES (ch $bil ar) 44 69 121 16 56 68 65 55 63 61 58 16 55
PI 1.3 -0.5 1.4 2.6 5.2 4.1 1.4 1.2 1.6 3.0 2.0 1.3 3.0
CORE CPI 0.0 0.8 1.1 0.6 1.7 2.5 2.1 1.6 1.0 1.6 2.0 0.7 2.0
ORE PCE PRICES 1.2 1.0 0.5 0.4 1.6 2.3 1.8 1.3 1.3 1.3 1.9 0.8 1.7
NEMPLOYMENT (%, level) 9.7 9.6 9.6 9.6 8.9 9.1 9.1 9.0 9.6 9.0 8.5 9.6 9.0
EDERAL BUDGET BAl($bil, fy) -1294 -1350 -1050
% OF GDP -9.2 -8.9 -6.5
NTEREST RATES (%, level, eop) End of year
FED FUNDS TARGET 0.13 0.13 0.13 0.13 0.13 0.13 0.13 0.13 0.1 0.1 0.6 0.13 0.13
2-YEAR TREASURY 1.0 0.6 0.4 0.6 0.8 0.5 0.9 1.2 0.7 0.8 1.9 0.6 1.2
10-YEAR TREASURY 3.8 3.0 2.5 3.3 3.5 3.2 3.5 3.8 3.2 3.5 4.0 3.3 3.8
Source: Bureau of Economic Analysis, Bureau of Labor Statistics, US Treasury, Federal Reserve Board, and MF Global
FORECAST SUMMARY
As discussed on page 2, we continue to forecast that the recovery
will improve over time, although we have trimmed our growth
projections somewhat. We expect real GDP growth to average
3.5% at an annual rate from Q3 of 2011 through Q4 of 2012.
Growth averaged an estimated 2.7% annual rate in the first two
years of the recovery (including our 2.3% estimate for last
quarter).
The weakening in employment growth in May and June followed
a clear pickup in the first four months of the year. We expect
momentum to pick up again soon, consistent with at least a
gradual downtrend in the unemployment rate. Although the
unemployment rate rose in Q2, the 9.2% level in June was down
from 9.6%, on average, in 10Q4, and 10.0% in 09Q4.
While we believe ample slack will keep inflation fairly tame, even
core inflation has moved higher this year. We expect the pace in
the core PCE price index to move up from 0.8% in 2010 to 1.7%
in both 2011 and 2012 (Q4/Q4). Overall inflation will likely be
higher than core inflation this year, due to a net rise in food and
energy prices.
A still-high (but declining) unemployment rate and still-tameinflation will likely allow the Fed to be patient in unwinding
stimulus; we forecast a still-low 1.0% funds rate at the end of
2012, with the first increase in June 2012. Some tightening in
2012 will likely also come via Fed balance sheet shrinkage; we
expect Fed officials to hold the balance sheet constant through
Q1 of next year. We expect Treasury yields will rise, with 10-year
yields up to 3.8% at the end of 2011 and 4.1% at the end of 2012.
8/6/2019 MfM Jul 15 2011
8/13
Economic Analysis | US
7/15/2011 |MACRO FOR MARKETS
DATA PREVIEW
TREASURY INTERNATIONAL CAPITAL SYSTEM (MON, JUL 18, 09:00)billions of dollars, nsa FEB MAR APR MAY
TOTAL NET INFLOWS 83.4 127.1 68.2
NET LONG-TERM SECURITIES 27.2 24.0 30.6
NET FOREIGN, US RESIDENTS* -5.5 -30.7 -14.2
NET BY NON-US RESIDENTS 32.6 54.7 44.8
TREASURY BONDS & NOTES 30.6 26.8 23.3
PRIVATE 14.7 19.9 -1.0
OFFICIAL 15.9 6.8 24.4
GOVT AGENCY BONDS -1.5 9.5 7.5
PRIVATE -7.3 6.9 5.8
OFFICIAL 5.8 2.6 1.7
CORPORATE BONDS -2.5 3.8 -3.8
PRIVATE -1.6 3.2 -2.8
OFFICIAL -0.9 0.5 -1.0
EQUITIES 6.1 14.7 17.8
PRIVATE 6.6 14.8 16.6
OFFICIAL -0.5 -0.1 1.2
OTHER LONG-TERM SECURITIES -11.1 -12.3 -11.7
SHORT-TERM SECURITIES -1.8 -18.3 -8.0
TREASURY BILLS -9.3 -21.9 -13.4
CHANGE IN BANKS' NET
LIABILITIES69.2 133.7 57.4
*Negative sign for outflow. Source: Treasury Department
Net inflows into long-term U.S. securities have averaged $34.3
billion per month so far in 2011, down from $65.2 billion, on
average, in 2010. Much of the dropoff has been in long-term
Treasury securities: to $31.8 billion per month so far this year
from $58.8 billion, on average, last year. Consistent with that
pattern, long-term Treasury yields rose in Q1. However, yields
began to fall in April and then dropped sharply in May.
HOUSING MARKET INDEX (HMI) (MON, JUL 18, 10:00)
JUL EST
APR MAY JUN CONS MF
HOUSING MARKET INDEX 16 16 13 14 14
CURRENT SALES 15 15 13
EXPECTED SALES 22 19 15
HOMEBUYER TRAFFIC 13 14 12
Source: National Association of Homebuilders, Bloomberg, and MF Global
The housing market index (HMI) had been at either 16 or 17 in
each of the seven months prior to the drop to 13 in June. We
expect at least some of that weakening will be reversed in the
upcoming report. The S&P 500 homebuilding index fell in early
June but has risen, on balance, since then.
The trend-setting housing market index has been close to flat at
a low level since early 2009, although it fell a bit more in last
months report.
Source: Bureau of the Census and National Association of Home Builders
The homebuilder portion of the S&P 500 is up, on balance, since
early June.
Source: Standard & Poors and National Association of Home Builders
4
22
40
58
76
250
550
850
1150
1450
03 04 05 06 07 08 09 10 11 12
New single-family home sales (l)
Housing market index (r)
000s, saar index, sa
MayJun
080101 090101 100101 110101
100
200
300
400
500
08 09 10 11
7
12
17
22
27
Housing market index (r)
S&P 500: homebuilding index (l)
ind ex, both scales
Jun
Jul 14
8/6/2019 MfM Jul 15 2011
9/13
Economic Analysis | US
7/15/2011 |MACRO FOR MARKETS
WEEKLY STORE SALES (TUE, JUL 19, 07:45/08:55)
JUN 25 JUL 2 JUL 9 JUL 16
WEEKLY ICSC,
%w/w, sa2.9 1.5 0.4
WEEKLY ICSC, %y/y 3.0 3.5 5.5
REDBOOK, %y/y 2.5 5.2 5.4
MAY JUNJUL THRU
9JUL THRU
16
WEEKLY ICSC,
%m/m, sa-2.3 0.1 2.9
REDBOOK, %m/m, sa -2.7 0.9 0.6
MONTHLY ICSC,
%m/m, sa-2.6 1.8
WEEKLY ICSC, %y/y 3.0 2.7 5.5
REDBOOK, %y/y 3.9 3.8 5.4
MONTHLY ICSC,
%y/y5.4 6.9
Note: monthly data are based on the retail industry's fiscal calendar, the fiscal monthof July ends on July 30.Source: International Council of Shopping Centers, Instinet, and MF Global
Both weekly store sales have accelerated in recent weeks,
consistent with spending power being boosted by a reversal of
some of the recent surge in gasoline prices. However, such a
pickup was not evident in the June retail sales report, which
showed sales excluding autos, gasoline, and building materials
up just 0.1% m/m after 0.2% m/m in May.
HOUSING STARTS AND PERMITS (TUE, JUL 19, 08:30)JUN EST
000s, saar MAR APR MAY CONS MF
STARTS 593 541 560 575 560
SINGLE-FAMILY 418 404 419
MULTIFAMILY 175 137 141
PERMITS 574 563 609 597 575
SINGLE-FAMILY 392 395 406
MULTIFAMILY 182 168 203
Source: Census Bureau, Bloomberg, and MF GlobalStarts rose in January (20.9% m/m), fell in February (-18.6%
m/m), rose in March (14.5% m/m), fell in April (-8.8% m/m), and
then rose in May (3.5% m/m). Through the volatility, the trend still
looks roughly flat. Starts averaged a 570,000-unit annual rate in
the first five months of this year, up marginally from the 562,000-
unit pace in the second half of 2010. Permits also averaged a
570,000-unit pace in the first five months of the year, down
marginally from 577,000 in the second half of last year.
The recovery in starts has been and probably will continue to be
restrained by still-high inventories of vacant existing homes; we
estimate the excess is currently just under three million homes
(based on the differential with the average vacancy rate in the
1990s). Those inventories are likely to trend lower in coming
quarters. The current trend in starts is probably close to one
million (at an annual rate) below the long-term trend based on
household formation and replacement building. The lack ofdecline through Q2 of last year, despite that arithmetic, reflected
what appeared to be a largely cyclical slowing in household
formation (consistent with weakness in the labor market). While
the data have been volatile, household formation shows a net
pickup since mid-2010. In turn, housing vacancies excluding
seasonal use homes show a net decline of 150,000 in the last
three quarters. We expect the rate of decline to pick up
significantly in coming quarters.
Housing starts have shown little net change since early 2009.
Source: Census Bureau
MORTGAGE APPLICATIONS (WED, JUL 20, 07:00)
MBA indexesPURCHASE
INDEXREFI INDEX 30-YEAR
MORTGAGERATE %WKLY
4-WKAVG
WKLY 4-WK AVG
JUN 17 185.8 187.8 2675.2 2619.4 4.57
JUN 24 180.3 185.0 2604.4 2659.8 4.46
JUL 1 188.9 186.5 2363.6 2631.7 4.69
JUL 8 183.9 184.7 2217.3 2465.1 4.55
JUL 15
Source: Mortgage Bankers' Association
The purchase index continues to show little net change,
consistent with a near-flat trend in home sales. It averaged 189.4
in Q2 following 186.4 in Q1.
400
900
1400
1900
2400
05 06 07 08 09 10 11
Housing starts Housing permits
000s, saar
May
8/6/2019 MfM Jul 15 2011
10/13
Economic Analysis | US
7/15/2011 |MACRO FOR MARKETS
EXISTING HOME SALES (WED, JUL 20, 10:00)JUN EST
MAR APR MAY CONS MF
TOTAL (000s, saar) 5090 5000 4810 4950 4810
%m/m 3.5 -1.8 -3.8 2.9 0.0
%y/y -6.4 -13.8 -15.3 -8.0
MONTHS' SUPPLY 8.3 9.0 9.3
MEDIAN PRICE (%y/y) -5.8 -6.5 -4.6
Source: National Association of Realtors, Bloomberg, and MF GlobalAfter rising in March, existing home sales fell in April and May.
Through the volatility, the trend continues to look close to flat. Our
4.810 million-unit-pace forecast for June is down marginally from
the 4.908 million total for 2010.
The level of existing home sales is still down sharply from theannual peak of 7.076 million in 2005. Moreover, post-2007 data
are likely to be revised down soon (probably next month) to
account for apparent double-counting. The expected revision will
likely not affect the most recent trajectory significantlyjust the
levels.
Existing home sales have been exceptionally volatile during the
last two years, likely reflecting tax credit and weather effects. The
net result has been a near-flat trend: sales totaled 4.9 million in
2008, 5.1 million in 2009, and 4.9 million in 2010.
Source: National Association of Realtors
JOBLESS CLAIMS (THU, JUL 21, 08:30)
NEW CLAIMS (000s, sa) CONTINUING CLAIMS (000s)
WKLY4-WKAVG
REGULAR EXTENDED* TOTA
sa nsa sa** sa**
JUN 11 420 426 3714 3935 4186 7900
JUN 18*** 429 426 3724 3847 4079 7803
JUN 25 432 428 3712 3831 3999 7711
JUL 2 427 427 3727
JUL 9 405 423
JUL 16*** CONS 410 418
MF 405 417
*Sum of federal extended and emergency claims**Using seasonal factors for regular continuing claims***Sample week for employment reportSource: Department of Labor, Bloomberg, and MF Global
The 405,000 reading for new claims in the latest report was down
sharply from 427,000, on average, in the prior four weeks.
Moreover, the latest reading included an 11,500 boost from
temporary furloughs of state workers in Minnesota (related to a
budget dispute). Unfortunately, the claims data are especially
volatile and unreliable in early July (including the period covered
by the upcoming report), reflecting seasonal adjustment
challenges related to annual summer shutdowns in the auto
industry. While we expect claims to trend lower this quarter, we
caution against extrapolating yet.
Jobless claims may be starting to decline again.
Source: Department of Labor and MF Global
3700
4430
5160
5890
6620
7350
70
82
94
106
118
130
01 02 03 04 05 06 07 08 09 10 11 12
PHSI (l) Existing home sales (r)
ind ex, sa 000s, saar
May
270
370
470
570
670
Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11
4-week average Weekly
in itial claims, 000s, sawr
Jul 9
8/6/2019 MfM Jul 15 2011
11/13
Economic Analysis | US
7/15/2011 |MACRO FOR MARKETS
Along with new claims for unemployment benefits, the total
number receiving unemployment benefits may be starting to
signal some improvement again. (See regular +
emergency/extended continuing claims series in the chart
below.)
Note: extended claims are seasonally adjusted using seasonal factors for regularcontinuing claims.Source: Department of Labor and MF Global
FHFA HOUSE PRICE INDEX (THU, JUL 21, 10:00)MAY EST
FEB MAR APR CONS MF
PURCHASE-ONLY INDEX
%m/m, sa -1.5 -0.4 0.8 0.1 0.0%m/m, nsa -1.0 -0.3 1.8 0.5%y/y -5.6 -6.2 -5.7 -6.1
Source: Federal Housing Finance Agency, Bloomberg, and MF Global
Home price indexes may be starting to stabilize after several
months of declines.
Home price indexes have weakened over the past year,
although they had risen in the prior year and net changes since
mid-2009 have generally been modest. Prices may be starting to
stabilize.
*FHFA and S&P/Case Shiller through April; Radar Logic through mid-May;CoreLogic through May.Source: CoreLogic, Federal Housing Finance Agency, Standard & Poor's, Fiserv,MacroMarkets LLC, and Radar Logic
The weakening in home prices recently has been concentrated
in distressed-sale homes.
Source: CoreLogic
61
72
83
94
105
06 07 08 09 10 11
FHFA ho use price index (purchase only, sa)
S&P/Case Shi ller index (composite 20, sa)
CoreLogic home pr ice index (nsa)Radar Logic house price index (nsa)
index, June 2006 = 100
Apr/May*
130
150
170
190
210
05 06 07 08 09 10 11 12
CoreLogic home price index: total
CoreLogic home price index: excluding distressed sales
index, January 2000=100, nsa
May
J J J J J J J J
2
5
8
11
14
17
2
5
8
11
14
17
Jan-08 Aug-08 Mar-09 Oc t-09 May-10 Dec-10 Jul-11
Regular continuing claimsRegular + emergency/federal extended continuing claimsTotal unemployed in employment report
millions, sa
Jun
Jul 2
Jun 25
8/6/2019 MfM Jul 15 2011
12/13
Economic Analysis | US
7/15/2011 |MACRO FOR MARKETS
LEADING INDICATORS (THU, JUL 21, 10:00)JUN EST
MAR APR MAY CONS MF
LEADING INDEX(%m/m, sa) 0.7 -0.4 0.8 0.2 0.3
%y/y 5.2 4.8 5.2 5.7
COINCIDENTINDEX (%m/m, sa)
0.2 0.1 0.1 0.1
%y/y 2.4 2.0 1.8 1.7
Source: Conference Board, Bloomberg, and MF Global
The index of leading indicators appears to have risen modestly in
June, with boosts from the yield curve and money supply more
than offsetting drags from the stock market, housing permits, and
consumer expectations components.
PHILADELPHIA FED MANUFACTURING SURVEY (THU, JUL 21, 10:00)JUL EST
indexes, sa APR MAY JUN CONS MF
CURRENT ACTIVITY 18.5 3.9 -7.7 2.0 2.0
NEW ORDERS 18.8 5.4 -7.6
EMPLOYMENT 12.3 22.1 4.1
PRICES PAID 57.1 48.3 26.8
PRICES RECEIVED 27.5 16.8 4.4
6-MONTH OUTLOOK 33.6 16.6 2.5
6-MONTH CAPEX PLANS 20.0 23.1 12.9
Source: Federal Reserve Bank of Philadelphia, Bloomberg, and MF Global
The national ISM index showed improvement in June, in contrast
to the sharp weakening in the New York and Philadelphia Fed
surveys. To some extent, the contrast may have reflected
momentum turning from negative to positive during the month
since the sample cutoff point came later in the ISM survey than in
the New York and Philadelphia Fed surveys. Meanwhile, the New
York survey showed only a slight fading of weakness in early
July, with the current activity index rising to -3.7 from -7.8 in June.
We expect the Philadelphia Fed report to show a bit more
improvement, with more help from a rebound in auto production
than in the New York Fed survey.
FED BALANCE SHEET (THU, JUL 21, 16:30)
billions of dollars unless noted, nsa JUN 29 JUL 6 JUL 13 JUL 20
TOTAL FED ASSETS 2869 2874 2882
%y/y 22.9 23.1 22.9
SECURITIES HELD OUTRIGHT 2643 2648 2654
US TREASURIES 1617 1625 1630
FEDERAL AGENCY 117 115 115
MORTGAGE-BACKED 909 909 909
OTHER LOANS 13 13 13
PRIMARY CREDIT 0 0 0
TALF 13 12 12
MAIDEN LANE LLC (I*, II**, &
III***)61 60 60
CENTRAL BANK LIQY SWAPS 0 0 0
OTHER ASSETS 153 153 155
MONETARY BASE (2-wk avg) 2629 2694 2694
% y/y 31.9 34.8 34.8
* Bear Stearns assets. ** AIG CDO assets. *** RMBS assets.Source: Federal Reserve Board
Fed officials have been assuming that every $200 billion increase
in total Fed assets provides stimulus equivalent to 25 bps on the
funds rate. Based on that arithmetic, the $2 trillion increase since
2008 has provided stimulus equivalent to around 250 bps on the
funds rate. (See our Taylor Rule analysis in the June 24, 2011
issue.)
MONETARY AGGREGATES (THU, JUL 21, 16:30)
JUN 20 JUN 27 JUL 4 JUL 1
M1 (billions of $, saar) 1940 1949 1998
%ch from 13 weeks ago, saar 10.9 10.3 21.8
%y/y 12.4 12.3 15.9
M2 (billions of $, saar) 9088 9165 9253
%ch from 13 weeks ago, saar 8.0 11.7 14.8
%y/y 5.7 6.3 7.9
Source: Federal Reserve Board
At 7.9%, the y/y change in M2 is up sharply from 4.3% in Q1 and2.3% in all of 2010. The recent acceleration has reflected
renewed inflows into money market funds and a pickup in inflows
into demand and savings deposits. To some extent, the pattern
likely reflects increased risk aversion.
8/6/2019 MfM Jul 15 2011
13/13
Economic Analysis | US
7/15/2011 |MACRO FOR MARKETS
July 11Aug 5MONDAY TUESDAY WEDNESDAY THURSDAY FRIDAY
11
(11:00) Fed purchase op(11:00) 4-wk BillAnnouncement(11:30) 3- & 6-mth Bill Auction
12
(07:30) Jun NFIB(07:45/08:55) Store Sales(08:30) May Foreign Trade(10:00) Jul IBD/TIPP(10:00) May JOLTS(11:30) 4-wk Bill Auction(13:00) 3-yr Note Auction(14:00) FOMC Minutes
13
(07:00) Mortgage Apps(08:30) Jun Imp Prices(09:10) Boston FedsRosengren(10:00) Fed ChairmanBernanke to deliver semi-annual monetary policyreport testimony to theHouse Financial ServicesCommittee(13:00) 10-yr (r) Note Auction(13:20) Dallas Feds Fisher(14:00) Jun Budget(14:00) Month-aheadTreasury purchase opschedule from NY Fed
14
(08:30) Initial Claims(08:30) Jun Retail Sales(08:30) Jun PPI(10:00) May Inventories(10:00) Fed ChairmanBernanke to deliver semi-annual monetary policyreport testimony to theSenate Banking Committee(11:00) 3- & 6-mth Bill and 10-yr TIPS Announcement(13:00) 30-yr (r) Bond Auction
15
(08:30) Jun CPI(08:30) Jul NY Fed(09:15) Jun Indust Prod(09:55) Jul prelim Michigan(11:00) Fed purchase op
18
(09:00) May TICS(10:00) Jul NAHB HMI 14e(11:00) 4-wk BillAnnouncement(11:30) 3- & 6-mth Bill Auction
19
(07:45/08:55) Store Sales(08:30) Jun Starts/Permits
Starts 560KePermits 575Ke
(11:00) Fed purchase op(11:30) 4-wk Bill Auction(14:00) Discount RateMinutes(19:30) KC Feds Hoenig
20
(07:00) Mortgage Apps(10:00) Jun Exist Home Sales
4810Ke/0.0%m/m
21
(08:30) Initial Claims 405Ke(08:30) Chicago Feds Evans(10:00) May FHFA 0.0%e(10:00) Jun Lead Ind 0.3%e(10:00) Jul Phil Fed 2.0e(10:00) Fed ChairmanBernanke testifies onEnhanced Oversight afterthe Financial Crisis(11:00) 3- & 6-mth, & 1-yr Bill,and 2-yr, 5-yr, & 7-yr NoteAnnouncement(13:00) 10-yr TIPS Auction
22
(11:00) Fed purchase op
25
(10:30) Jul Texas Mfg.(11:00) 4-wk BillAnnouncement(11:30) 3- & 6-mth Bill Auction
26
(07:45/08:55) Store Sales(09:00) May S&P/CS(10:00) Jul Cons. Cof.(10:00) Jul Richmond Fed(10:00) Jun New Home Sales(11:00) Fed purchase op(11:30) 4-wk and 1-yr BillAuction(13:00) 2-yr Note Auction
27
(07:00) Mortgage Apps(08:30) Jun Durables(13:00) 5-yr Note Auction(14:00) Beige Book
28
(08:30) Initial Claims(10:00) Jun PHSI(11:00) Jul KC Fed(11:00) 3- & 6-mth BillAnnouncement(13:00) 7-yr Note Auction(12:45) Richmond Feds Lacker(14:30) SF Feds Williams
29
(08:30) Q2 GDP (1st
est),including annual revision(08:30) Q2 ECI(09:45) Jul Chicago PMI(09:55) Jul Michigan(10:00) Jul Milwaukee PMI(10:00) Q2 HousingVacancies(11:00) Fed purchase op(15:15) Atlanta Feds Lockhartand St. Louis Feds Bullard
1(10:00) Jun Construction(10:00) Jul Mfg ISM(10:00) Jul Help Wanted(11:00) 4-wk BillAnnouncement(11:30) 3- & 6-mth Bill Auction
2(07:45/08:55) Store Sales(08:30) Jun Personal Income,including annual revision(11:30) 4-wk Bill Auction
Jul Lt Vehicle Sales
3(07:00) Mortgage Apps(08:15) Jul ADP(08:30) Jul NonMfg ISM(10:00) Jun Factory Orders
4(08:30) Initial Claims(11:00) Fed purchase op(11:00) 3- & 6-mth BillAnnouncement
Jul Chain Store Sales
5(08:30) Jul Employment(15:00) Jun Consumer Credit
MARKET LETTER DISCLAIMER (this is not a research report): This market letter was prepared for informational purposes only. It is based upon information generally available to the public from source
believed to be reliable, but MF Global Inc. makes no representation that it is accurate, complete, current, or that any returns indicated or projections made will be achieved. MF Global is not responsible fo
any errors or omissions in this market letter. Changes to assumptions may have a material impact on projections or returns contained or made herein. Furthermore, past performance is not necessaril
indicative of future results. Additional information regarding the information contained in this market letter is available from MF Global upon request. This market letter is neither an offer to sell nor solicitatio
of any offer to buy a security, nor does it take into consideration the financial status, investment objectives or financial experience of any particular recipient. Because MF Global provides such information a
part of a general information service and without regard to an investors particular circumstances, neither it nor its subsidiaries and/or affiliates shall be liable for any loss or damages arising directly or
indirectly out of any inaccuracy in the market letter or the use of such information. Copyright by MF Global Inc. (2011) 717 Fifth Avenue New York, NY 10022. MF Global Inc. is a registered futures
commission merchant, a member of the NFA, and a registered broker-dealer and member of the CBOE, FINRA, NYSE, and SIPC.