Investors today are anxious to see updated manufacturing and jobs data as the Q2 earnings deluge continues. Economic data recently has painted a "goldilocks" picture of growth slowing enough to pull back inflation but not so much that it hurts the labor market.
The manufacturing sector has been in a slump since November of last year when the ISM Manufacturing Index dipped into contraction territory, which is a read below 50.
The slowdown has helped to deflate factory gate prices but has also helped fuel recession fears. Most bulls believe the slump is just part of the post-pandemic normalization process while bears warn the extended slowdown is a recession "red flag" that will eventually translate to job losses as high borrowing costs continue to undermine manufacturing demand.
The June Job Openings and Labor Turnover Survey (JOLTS) will also be closely watched today with Wall Street looking for another slight decline in job openings to around 9.65 million, down from 9.824 million in May.
The May results marked a decrease of about half a million job openings and was the third time this year that the number of job openings has fallen below 10,000.
Cooling the job market remains a priority for the Federal Reserve which has repeatedly pointed to a tight labor supply and rising wages as a main source of "sticky" inflation. Construction Spending for June is also due today.
Earnings of note today are due from Advanced Micro Devices, AIG, Altria, BP, Caterpillar, Electronic Arts, Marathon Petroleum, Marriott International, Merck, Pfizer, Pioneer Natural Resources, Starbucks, and Uber. About one-third of S&P 500 companies report earnings this week, a list that include companies from every single sector.
There are some worries that Q2 earnings season could end on a sour note as big retailers will feature prominently during the last half of August. Results from consumer goods manufacturers have already revealed struggles to increase sales volumes as pricing power is quickly eroding.
Retailers have made great strides over the past few quarters in bringing inventory levels down, which are expected to help boost results. However, some economists worry that the "deflation" trend threatens to offset those gains and could be a greater source of margin erosion than many on Wall Street are anticipating.
61% of Americans Now Living Paycheck to Paycheck: More than half of all U.S. consumers currently live paycheck to paycheck, according to a new report. The number of Americans who say they are stretched thin has remained stubbornly high despite recent signs that inflationary pressures are cooling. Lower-income workers have been the hardest hit by price spikes, particularly for food and other staples since those expenses account for a bigger share of the budget. Roughly three-quarters of consumers annually earning less than $50,000 and 65% of those earning between $50,000 and $100,000 were living paycheck to paycheck in June. Source CNBC
Zillow Believes U.S. Home Prices Have Bottomed and Just Issued Bullish Calls in 48 Markets: In February, Zillow economists made a bold call that U.S. home prices had bottomed and would proceed to climb 0.5% over the next 12 months. In the months that have followed, U.S. home prices as tracked by the Zillow Home Value Index have stopped falling, and between February and June rose +4.8%. That rebound coincided with Zillow repeatedly revising its home price forecast upward. Its latest revision predicts that U.S. home prices will rise +6.3% between June 2023 and June 2024, above the 5.5% annual increase that national home prices have averaged since 1975. The second quarter is traditionally the hottest time of year for the for-sale housing market, and that rule proved true in 2023, but what comes next is less certain, as buyer demand typically begins to wane in the summer. But this year, like a test of the classic unstoppable force meets an immovable object paradox, that trend will be set against incredibly scarce new listings," wrote Zillow economist Jeff Tucker in his latest report. While Zillow economists expect national home prices to rise +6.3% over the coming 12 months, their forecast model predicts that 48 of the nation's 200 largest housing markets will see increases of +7.0% or greater over the next 12 months. And why is Zillow bullish on these 48 regional housing markets? There isn't just one unifying factor as these 48 housing markets are located all over the country.
Iowa Named Best State to Retire: Bankrate recently released its report on the best states to retire in for 2023. Multiple factors were considered, including affordability, overall well-being, weather, quality and cost of healthcare, and crime. Iowa ranked as the best state to retire in thanks to its high affordability and low levels of crime. Alaska ranked as the worst state to retire in due to its weather and high crime rate. Below is a list of the top states for retiring. Source Bankrate
Fed Says US Banks Tightened Credit Further in Wake of Failures: The Federal Reserve said that banks reported tighter standards and continued weak demand for loans in the second quarter, extending a trend that began before recent stresses in the banking sector emerged. The proportion of US banks tightening terms on commercial and industrial loans for medium and large businesses rose to 50.8%, up from 46% in the first quarter, according to a Fed survey of lending officers released Monday. The survey also showed low demand for credit persists despite some improvement. The share of banks reporting weaker demand for commercial and industrial loans among large and mid-sized firms fell to 51.6%, from 55.6% in the first quarter. The figures in the survey are calculated as net percentages, or the shares of banks reporting tighter conditions or stronger demand minus the proportion of banks reporting easier standards or weaker demand. The poll — known as the Senior Loan Officer Opinion Survey, or Sloos — showed banks expecting to further tighten standards on all types of loans, citing a less favorable or more uncertain economic outlook and expected deterioration in collateral values and the credit quality of loans as reasons. There was a particular concern by banks over commercial real estate following struggles by office-building owners. Source Bloomberg
EVs are Upending the 100-Year-Old Auto Supply Chain: Companies that make parts for internal combustion engines are facing a harsh future. Revenues for internal combustion engines, as well as fuel and exhaust systems, are expected to decline -44% through 2027, according to the 2023 Deloitte Automotive Supplier Study. Meanwhile, revenues for electric drivetrains and batteries or fuel cells are expected to rise +245%, the study found. While the supply chain is shifting away from parts, the total powertrain part supply pie is also shrinking. An internal combustion powertrain has about 2,000 parts. Battery electric vehicle powertrains have about 20, sometimes less. Automakers are also finding new ways to more efficiently manufacture parts through methods like giga casting. There are thousands of parts in cars that come from companies all over the world, many of which are small, family owned firms that have been around for decades. But even the large, publicly traded suppliers such as Bosch, Denso, Magna, and ZF are affected. Bigger firms are either spinning out their internal combustion divisions or just winding them down to pivot toward EVs. But smaller suppliers often don’t have the capital to make those kinds of pivots. Source CNBC
Fox to Wind Down Sports-Betting Site "Fox Bet": Fox is closing Fox Bet, the broadcaster’s sports-betting venture, after it failed to grow as quickly as more dominant competitors in the nascent U.S. online-gambling market. Fox and its partner, FanDuel owner Flutter Entertainment, said Monday that they would wind down Fox Bet between July 31 and Aug. 31. Fox Bet said it had stopped accepting bets. The decision to shut Fox Bet comes amid a reckoning among sports-betting companies that are under pressure to turn a profit. Companies are cutting costs after years of extensive spending on marketing campaigns as new states legalized sports betting. Sports-betting app FanDuel, which leads the U.S. in market share, has become a prized asset for global gambling company Flutter, while Fox Bet has struggled to attract customers. FanDuel and its rival DraftKings have more than 70% of the online sports-betting market, according to Eilers & Krejcik Gaming, an industry consulting firm, leaving little room for other companies. Source WSJ
SA Review Finds Clear Practices Vulnerable to Identity Fraud: A US government probe has found flaws in airport fast-track service Clear Secure Inc.’s process for speeding customers through security lines, leaving the company to defend its business against the agency responsible for guarding the country’s skies. The Transportation Security Administration investigation into Clear’s methods determined its facial-recognition system to enroll new members was vulnerable to abuse, said people familiar with the review, who asked not to be identified discussing security-sensitive information. The computer-generated photos of prospective customers at times captured blurry images that only showed chins and foreheads, or faces obscured by surgical masks and hoodies. That’s how, last year in July, a man slipped through Clear’s screening lines at Reagan National Airport near Washington, before a government scan detected ammunition — which is banned in the cabin — in his possession. When police were called in to investigate, officials discovered something altogether more troubling: the man had almost managed to board a flight under a false identity. The security scare, the details of which haven’t been previously revealed, set in motion an extensive TSA investigation into Clear’s methods. The dispute could threaten Clear’s business proposition: speeding people through airport. Source Bloomberg
Starter Homes Cost +45% More Than They Did Pre-Pandemic: In order for a first-time homebuyer to afford a typical starter home in the U.S., they must earn about $64,500—an increase of +13% from a year ago, according to a new study from Redfin. Starter home prices continue to rise because of the low housing inventory—new listings for starter homes fell -23% from last June, marking the biggest decline since March 2020—which leads to competition and price gouging for the houses that do go to market, Redfin analysts said. The median starter home price in June was $242,000—a +2.1% increase from last year and up more than +45% since the pandemic. Average monthly mortgage payments have increased to about $1,610 this year—almost double what it was before Covid-19. More than one-third (36.6%) of the country’s starter homes were purchased in cash in May, down just slightly from the previous month’s decade-high and up from 35.2% a year earlier. Note that this all-cash data is from May, the most recent month for which data is available, while the other data is from June. Real estate investors are buying up a sizable chunk of today’s affordable homes. A record 41% of investor purchases were small homes–those with 1,400 or fewer square feet–in the first quarter, up from 37% a year earlier. Source Redfin
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