All three economic releases out today showed continued growth. 

Richmond Fed

Manufacturing activity continued to expand in June according to the Federal Reserve Board of Richmond.  Increases in shipments, new orders and employment contributed to the composite manufacturing index increasing to 20 in June from 16 in May.  Backlogs remained strong and hit the highest level of the year. 

Expectations point towards continued growth:

Expectations	Jun-18	May-18	Apr-18
Shipments	46	41	39
Volume of New Orders	45	34	36
Backlog of Orders	28	15	14
Capacity Utilization	36	32	25
Vendor Lead Time	23	16	12
Local Business Conditions	40	25	34
Capital Expenditures	33	24	30

Employment, both current and future expectations, remained strong.  Employers continued to express concerns about obtaining qualified skilled labor.  Current available skills decreased to -14 from -3 and expectations of available skills declined to -6 from -2.  Wages were little changed, while average workweek increased as did the number of employees.     

Although prices paid increased in June, manufacturers expect both prices paid and received to moderate over the next six months.

Case-Shiller

Home prices continued moving higher according to today’s release of the S&P CoreLogic Case-Shiller Indices.  The national price index on an annual basis showed a gain of 6.4% in April, down from 6.5% in the twelve months ending in March.  The 20-City Composite posted a 6.6% year-over-year gain, down from 6.7% in the previous month. Las Vegas, Seattle and San Francisco continued posting the largest price gains, 12.7%, 13.1% and 10.9%, respectively.  

At current levels, the national index is 8.8% above the peak level in 2006 and 49.9% from the trough in 2012.  Adjusted for inflation, the picture changes; the national index is 14% below its peak.    

Summing up the report, “The favorable economy and moderate mortgage rates both support recent gains in housing. One factor pushing prices up is the continued low supply of homes for sale. The months-supply is currently 4.3 months, up from levels below 4 months earlier in the year, but still low.”

Low inventory levels, and rising construction cost, continue to appear in various economic and company reports. 

Consumer Confidence

Consumers remain positive on the U.S. economy according to the Conference Board’s consumer confidence index for June.  The index was slightly below May’s reading coming in at 126.4 compared to 128.8 in May. Consumer confidence remains near its 18-year high of 130 set back in February.  Expectations were the main driver behind the decline, dropping from 107.2 to 103.2, as concerns about the threat of tariffs softened enthusiasm.  This is contradictory to manufacturers forward looking expectations in the Richmond Fed Survey (see above). 

Crude Spurts (US zero tolerance on Iran Oil Exports) 

West Texas Intermediate (WTI) crude oil got a boost this morning after comments from the State Department lead to a spike in prices.  A senior State Department official told reporters that, “Companies who buy Iranian crude oil must completely cut those exports by the start of November or else they will face powerful U.S. sanctions.”  Buyers of Iranian crude expected the U.S. was going to allow them time to reduce their oil imports, by issuing sanctions waivers for nations that made significant efforts to cut their purchases.  But the senior State Department official said the administration doesn’t plan to issue waivers and would instead be asking the Middle Eastern crude exporters to ensure oil supply to global markets.  WTI was trading @ $68.15 before the news and is currently @ $70.59.  That’s a 3.55% spike to the highest level since December 2014.     

The beaten down consumer staples group is attracting interest today as the rumor mill has Conagra (CAG) interested in purchasing Pinnacle Foods (PF).  This is on top of yesterday’s rumor of Kraft Heinz (KHC) acquiring Campbell Soup (CPB).   

Comments

Plain as the nose on your face. President Trump got the tax reform to strengthen the American economy. Now he is using our economic clout to change our enemies bad behavior. As he said there will be short term pain for long term gain. Stick with the markets and you will be rewarded. Larry Leonard on 6/26/2018 3:03:30 PM

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