Debate Over Electric Trucks: Let’s Get It On

In response to Can the Electric Grid Handle Self-Driving Electric Trucks? I received point and counterpoint emails, plus a request for a debate.

The debate request is not with me. Rather, reader Chris asked for a debate between someone Chris Martensen interviewed on his Peak Prosperity site and EEUI, an Electrical Engineer in the Utility Industry, someone whose comments I posted previously.

My source needs to remain anonymous so perhaps the debate needs to be on paper. Perhaps not. I will see who is willing and who isn’t.

EEUI is convinced (and so am I) that electric is going to happen, but perhaps for different reasons. EEUI writes …

As to the question of whether the grid can handle the load growth from electric long haul trucking, the answer is yes.

Nationwide, combination trucks travel about 170,000 million miles per year. At 2kWh per mile, this is a lot of load. It would increase energy sales by about 10%. Or about 30% in the rural part of the country where I work.

If energy sales magically increased by 10% tomorrow, it would cause problems in some parts of the country – mostly in areas where building transmission and distribution lines are hard because of population density. The good news is that most long haul miles are driven in rural areas. The other good news is that most parts of the country only have power supply problems for a few hours per day during a few days per year. Don’t charge the trucks in urban areas with reliability problems during those few dozen hours of the year and there will be no problems. Given that they’ll be automated, controlling when and where they recharge shouldn’t be a major problem.

In reality, the average long haul truck is used for several years before being replaced. And there is essentially zero electric truck manufacturing capacity. And they would be illegal to operate today.

A ten-year transition to full electric freight would be a major miracle. 10% load growth in ten years is well within historic norms.

The industry currently expects loads to be pretty flat for the next decade. 10% load growth over a decade would be very welcome.

For questions about transit times, I’m mostly interested in 1000+ mile trips because of my rural area. Human drivers can only legally drive 11 hours per day. A 200-mile range truck that stopped to recharge for 1.5 hours every 3 hours. 46% of the time driving vs 67%. With bigger batteries, faster chargers, battery swaps, the automated truck would eventually get to close to being on the road 100% of the time. I was just looking at what would be easily doable today.

New trucks cost about $150k. A 400kWh to get a 200-mile range costs about $80k based on Tesla’s cost claims. It is possible that an electric truck would cost about the same as a diesel. And automation might be nearly free, too. I used a 100% price increase to be safe.


Debate Request

Reader Chris wrote …

Dear Mish,

It would interesting hear a debate between the contributor to your recent article on truck electrification and Alice Friedman who ascertains that it is not currently viable to electrify trucks based on the limitations of the technology vs the efficiency of diesel engines.

Here is an Interview at Peak Prosperity.


Pragmatic Opinion

It is safe to say the EEUI, Chris Martenson at Peak Prosperity, and Alice Friedman all now far more details than I do about current technology than I do.

But I am confident that EEUI is correct. Why?

  • Many players compete in the game: Google, Amazon, GM, Ford, Tesla, Nikola, Toyota, Uber, and countless others
  • The Department of Transportation wants to make this happen
  • The rewards are huge
  • Progress grows by leap and bounds every year

My four points pertain to self-dring cars in general, not just electric, but competition ensures success on all fronts as I see it.

Fronts of Attack

The fronts of attack on the problem are immense. There will be huge winners and bankrupt ideas as a result.

But there will be winners, most likely multiple winners.

On May 16, 2016, I wrote “Nikola One” First-Ever 2000 horsepower (HP) Electric Class 8 Semi-Truck.

Nikola One Lease

Nikola seeks to use a natural gas electric hybrid as its solution. Some call it vaporware. I suggest it’s far more advanced than vaporware, but where the hell is it?

Actually, it matters not. What matters in my pragmatic view is competition is so intense, the rewards so great, that all the problems people view insurmountable will be solved by 2021 at the latest.

Mike “Mish” Shedlock.

Parent Plus Student Loans: How to Screw Parents and Kids in a Single Shot

It’s easy to get student loans thanks to the aptly named “Parent Plus” program, a subprime loan trap that ensnares parents plus their college-age children. The program was enacted by Congress in the 1980s, but president Obama promoted it heavily.

The results speak for themselves: Nearly 40% of the loans are subprime. The default rate exceeds the rate for U.S. mortgages at the peak of the housing crisis.

Kids graduate from college with useless degrees, plus parents and kids are stuck with massive bills that cannot be paid back.

It’s Easy for Parents to Get College Loans—Repaying Them Is Another Story.

Student loans made through parents come from an Education Department program called Parent Plus, which has loans outstanding to more than three million Americans. The problem is the government asks almost nothing about its borrowers’ incomes, existing debts, savings, credit scores or ability to repay. Then it extends loans that are nearly impossible to extinguish in bankruptcy if borrowers fall on hard times.

As of September 2015, more than 330,000 people, or 11% of borrowers, had gone at least a year without making a payment on a Parent Plus loan, according to the Government Accountability Office. That exceeds the default rate on U.S. mortgages at the peak of the housing crisis. More recent Education Department data show another 180,000 of the loans were at least a month delinquent as of May 2016.

“This credit is being extended on terms that specifically, willfully ignore their ability to repay,” says Toby Merrill of Harvard Law School’s Legal Services Center. “You can’t avoid that we’re targeting high-cost, high-dollar-amount loans to people who we know can’t afford to repay them.”

The number of Americans with federal student loans, including through programs for undergraduates, parents and graduate students, grew by 14 million to 42 million in the decade through last year. Overall student debt, most of it issued by the federal government, more than doubled to $1.3 trillion over that period.

The financing fueled a surge in college enrollment. Between 2005 and 2010, enrollment grew 20%, the biggest increase since the 1970s. The Obama administration supported such lending in an effort to widen access to college education.

Nearly four in 10 student loans—the vast majority of them federal ones—went to borrowers with credit scores below the subprime threshold of 620, indicating they were at the highest risk of defaulting, according to a Wall Street Journal analysis of data from credit-rating firm Equifax Inc. That figure excludes borrowers, such as many 18-year-old freshmen, who lacked scores because of shallow credit histories. By comparison, subprime mortgages peaked at nearly 20% of all mortgage originations in 2006.

Roughly eight million Americans owing $137 billion are at least 360 days delinquent on federal student loans, nearly the number of homeowners who lost their homes because of the housing crisis. More than three million others owing $88 billion have fallen at least a month behind or have been granted temporary reprieves on payments because of financial distress.

Joint Effort

In 2005, president Bush signed the bankruptcy reform act of 2005 making student loans not dischargeable in bankruptcy.

President Obama came along next and encouraged parents who had no idea what they were getting into to sign loans to put their kids through college.

Parents plus their kids are mired in debt that cannot be paid back. Thank you Congress, President Bush, and President Obama.

Surefire Way to Discharge the Loans

There is one way to get rid of these loans. Die.

Stop the Madness

Wherever government meddles, costs rise dramatically.

The solution is to stop the meddling: Stop all the loan programs, stop all the aid programs, stop insisting that everyone needs to go to college, and start accrediting programs and course offerings from places like the Khan Academy.

Not a single student aid program aided any students. Rather, escalating costs went to teachers, administrators, and their pensions as student debt piled sky high.

Mike “Mish” Shedlock

Can Macron Save the World? Save France?

The markets appear giddy today over the election prospects of Emanuel Macron in France.

Equities are up along with bond yields. Gold is down. The day is still young though.

Macron won round one of the French election yesterday and will square off against Marine Le Pen in round two on May 7. He is widely expected to win round two, becoming the next president of France.

Policy Advancement

Can Macron Save the World? Save France?

Let’s phrase this a different way. Can Macron advance his policies?

I would ask the same question if Marine Le Pen were expected to win. Macron will not have a mandate. Neither would Le Pen if she were to win.

Certainly, the EU would prefer working with Macron. With Le Pen at the helm, France could throw Brexit negotiations for a loop.

internally, Macron has his work cut out for him. Here are their policies as described by the Guardian.

Macron Policies

Remake the “failed” and “vacuous” French political system; relax labor laws; cut business taxes; reform unemployment system; encourage social mobility; cut public spending (but boost investment); shrink public sector; reduce the number of MPs; establish eurozone government; hire 10,000 more police and gendarmes.

He says: “I will work over the coming fortnight so that together we can gather as many people as possible around my candidacy. The strength of this coming together will be decisive for the government. The challenge this evening is not to vote against a person, but to decide to break completely with a system that has been incapable of responding to our country’s problems for 30 years.

Le Pen Policies

Policies: Priority for French nationals in jobs, housing, welfare; extra tax on foreign workers and imports; proportional representation in parliament; negotiate with EU for return of “full sovereignty” including the franc; in-out referendum on EU membership; cut immigration to 10,000 a year; restrict nationality rights; hire 15,000 police; create 40,000 more prison places.

She says: “The French people now have a very simple choice: either we continue on the path to complete deregulation, or you choose France.


  1. Would the French parliament go along with relaxing labor laws? Cut business taxes?
  2. Would the parliament allow a referendum on the Euro?

If the answers are no and no, then what’s changed?

The real battle over the survival of the eurozone will take place in Italy, not France.

Mike “Mish” Shedlock

Pollsters Get One Right: Macron and Le Pen Square Off in Round Two as Expected

Evening summary

Emmanuel Macron has beaten the far-right leader Marine Le Pen in the first round of the French presidential election, with a projected total of 23.7% to Le Pen’s 21.9%.

The two candidates – the first pro-European and internationalist, the other anti-EU and protectionist – will now face off in a second round run off on 7 May. Polls have consistently forecast Macron will beat Le Pen and become France’s next president.

The scandal-hit conservative candidate, François Fillon, and Socialist candidate, Benoît Hamon, both conceded defeat and called on their supporters to back Macron.

The first round result is an epochal political upheaval for France. For the first time in the nearly 60-year history of the Fifth Republic, neither of the candidates of the established parties of left and right will be in the run off.

Speaking in her home constituency of Hénin-Beaumont, Le Pen said the French people now faced a very simple choice:

“Either we continue on the path to complete deregulation, or you choose France. You now have the chance to choose real change. This is what I propose: real change. It is time to liberate the French nation from arrogant elites who want to dictate how it must behave. Because yes, I am the candidate of the people.”

Macron said that in the space of a year, since founding his En Marche! movement, it had “changed the face of French politics” and asked for a big victory for a large governing majority:

“I want to construct a majority to govern and to transform, of new talents, in which all will have their place. I will not ask where they come from, but whether they agree with the renewal of our politics, the security of the French people, reforming society and relaunching the European project. You are the face of this renewal. My fellow citizens, there is not more than one France. There is only one, ours, the France of patriots, in a Europe that protects and that we must reform. The task is immense, but I am ready, at your sides. Vive la République, vive la France.”

We are still awaiting the final interior ministry result and will bring that to you as soon as it is released.

Target2 and Secret Bailouts: Will Germany be Forced Into a Fiscal Union with Rest of Eurozone?

Project Syndicate writer, Hans-Werner Sinn, explains why the ECB’s asset purchases and Target2 imbalances constitute “Europe’s Secret Bailout”.

Under the ECB’s QE program, which started in March 2015, eurozone members’ central banks buy private market securities for €1.74 trillion ($1.84 trillion), with more than €1.4 trillion to be used to purchase their own countries’ government debt.

The QE program seems to be symmetrical because each central bank repurchases its own government debt in proportion to the size of the country. But it does not have a symmetrical effect, because government debt from southern European countries, where the debt binges and current-account deficits of the past occurred, are mostly repurchased abroad.

For example, the Banco de España repurchases Spanish government bonds from all over the world, thereby deleveraging the country vis-à-vis private creditors. To this end, it asks other eurozone members’ central banks, particularly the German Bundesbank and, in some cases, the Dutch central bank, to credit the payment orders to the German and Dutch bond sellers. Frequently, if the sellers of Spanish government bonds are outside the eurozone, it will ask the ECB to credit the payment orders.

In the latter case, this often results in triangular transactions, with the sellers transferring the money to Germany or the Netherlands to invest it in fixed-interest securities, companies, or company shares. Thus, the German Bundesbank and the Dutch central bank must credit not only the direct payment orders from Spain but also the indirect orders resulting from the Banca de España’s repurchases in third countries.

The payment order credits granted by the Bundesbank and the Dutch central bank are recorded as Target claims against the euro system.

For the GIPS countries [Greece, Italy, Portugal, and Spain], these transactions are a splendid deal. They can exchange interest-bearing government debt with fixed maturities held by private investors for the (currently) non-interest-bearing and never-payable Target book debt of their central banks – institutions that the Maastricht Treaty defines as limited liability companies because member states do not have to recapitalize them when they are over-indebted.

If a crash occurs and those countries leave the euro, their national central banks are likely to go bankrupt because much of their debt is denominated in euro, whereas their claims against the respective states and the banks will be converted to the new depreciating currency. The Target claims of the remaining euro system will then vanish into thin air, and the Bundesbank and the Dutch central bank will only be able to hope that other surviving central banks participate in their losses. At that time, German and Dutch asset sellers who now hold central bank money will notice that their stocks are claims against their central banks that are no longer covered.

One should not assume that anyone is actively striving for a crash. But, in view of the negotiations – set to begin in 2018 – on a European fiscal union (implying systematic transfers from the EU’s north to its south), it wouldn’t hurt if Germany and the Netherlands knew what would happen if they did not sign a possible treaty. As it stands, they will presumably agree to a fiscal union, if only because it will enable them to hide the expected write-off losses in a European transfer union, rather than disclosing those losses now.

Target2 Answer

I had been struggling to understand the precise relationship between Target2 liabilities, including those within the ECB itself, and the ECB’s QE program. The above explanation appears to provide the answer.

Regardless, euro-denominated debts that cannot possibly be paid back keep piling up.

Target2 Liabilities

If Greece were to leave the Eurozone and pay back its debts in Drachmas, either the ECB would have to print €71.0 billion to cover the default, or the other eurozone nations would have to split the bill based on their percentage weight in the EMU.

If Italy left the eurozone, the shared liability would be €386.1 billion.

Responsibility Percentages

That table refers to ESM commitments. Percentage responsibilities apply should there be a default.

What If?

If Italy were to default, its 17.9% would have to be redistributed proportionally to the other countries or the ECB would have to violate its treaty and print the euros.

My conclusion is not the same as  Hans-Werner Sinn who concludes “As it stands, they [Germany and the Netherlands] will presumably agree to a fiscal union, if only because it will enable them to hide the expected write-off losses in a European transfer union, rather than disclosing those losses now.”

I strongly suspect the ECB would violate the treaty agreements and print euros to cover a default. Germany and the Netherlands would go along.

Related Articles

  1. Fuse is Lit! Target2 Imbalances Hit Crisis Levels: An Email Exchange With the ECB Over Target2
  2. Dear IMF, Please Put Greece Out of Its Misery
  3. Eurozone Capital Flight Intensifies: Target2 Imbalances Widen Again

Mike “Mish” Shedlock

Can the Electric Grid Handle Self-Driving Electric Trucks?

In response to some of my recent posts on self-driving and electric vehicles, several readers asked if the electric grid could handle the increase. Other readers flat out stated the electric capacity was insufficient.

What’s the real story?

An electrical engineer in the utility industry emailed his thoughts in a pair of emails yesterday.


I agree with you 100% about autonomous trucking. The driver plus insurance represent 39% of the cost per mile of operating a truck, according to the ATRI.

Something you might consider is that autonomous trucking will make electric trucks inevitable. It is easy to build a 200-mile range electric truck today. There are a few on the market. Driving this across the country makes no sense if you’re paying a driver to sit around for 1.5 hours every 200 miles (based on a 400kWh battery and a 350kW charger). Once autonomous trucks work, only electric makes sense. The value of fuel savings is much more than the lost productivity from frequent stops.

Electric trucks require 2kWh/mi to operate and will have dramatically lower repair and maintenance costs. ATRI says a diesel truck’s fuel plus R&M is 58.3c/mi plus 15.8c/mi. At the national average 10c/kWh and 90% lower R&M costs, the electric truck fuel plus R&M will be 70% cheaper.

If you are concerned about battery life replacement costs, Tesla has already demonstrated that properly operating a battery can dramatically reduce degradation. They see about 5% of range loss per 100k miles of operation. Some of this is related to aging and some to use. Either way, oversizing the battery pack so it provides a reasonable range for its life is pretty economic.

With reasonable assumptions, autonomous driving will make freight 40% cheaper per mile. Autonomous electric will be 55% cheaper per mile compared to today.

I asked the responder what his background was, whether or not I could quote him, and whether or not he had any links or supporting evidence to back his claims.

He said the company he worked for would not like the publicity but he had a link and a personal spreadsheet to back his claims.

I said I would call him EEUI (Electrical Engineer Utility Industry).

Second Email from EEUI

I’m an electrical engineer in the utility industry. I’ve been studying this question from an electric load growth perspective. Electrifying overland freight in my part of the world would increase our load by about 30%. Maybe more, if the cost reductions resulted in more freight being hauled.

Check out the ATRI report on Operational Costs of Trucking. The relevant information is on page 17:

The attached are my numbers. All numbers are in dollars per mile. WAG stands for wild ass guess. I assume that automation increases the equipment cost by 20% and electrification by another 80%.

You’re welcome to use my numbers but I work in an industry that prefers to avoid publicity.


Truck Costs From ATRI

$23.61 in driver wages and benefits will largely vanish. That’s a 34.7 % reduction in costs rights there assuming all driver miles vanish (which they won’t).

But insurance costs will drop as will maintenance costs. Electric vehicles have far fewer parts to wear out and things like braking will be much smoother.

That’s how I saw things before looking at EEUI’s spreadsheet.

EEUI Spreadsheet

EEUI estimates an operating saving of 36% with diesel and 57% with electric.

My assumption is that EEUI is on the high side, perhaps by a lot, especially with electric. But that is not what matters. A savings of 20% is enough to guarantee automation. An additional savings of another 15% or less is enough to make electric happen.

Move to Driverless Accelerates

Study Says by 2030 1/4th of Miles Driven will be Driverless. I expect 85 percent of miles driven will be driverless by 2030.

For further discussion, please consider Second-Order Consequences of Self-Driving Vehicles.

Also consider Portland Says Yes to Testing Driverless Cars, Other Cities Will Follow: Mass Adoption When?

The move to driverless is clearly accelerating and for numerous good reasons. Savings will force the industry in these directions, far sooner than most believe.

Mike “Mish” Shedlock

Project Fear in France: Will the Terrorist Ambush Affect the French Election on Sunday?

French voters go to the voting booths tomorrow. No campaigning can take place today, nor can any election polling.

The final polls show a small bounce for Marine Le Pen. One of the polls has Le Pen back into a tie with Macron.

In the wake of the terrorist gun ambush on April 20 that killed one policeman and injured two others, one has to wonder if and how the attack might impact the elections.

From Eurointelligence, by email:

Will project fear work, and if so for whom?

The gunman on the Champs-Elysées, killing one policeman and wounding two others, forced the presidential candidates last night to change their discourse on live television. Will it be a defining moment for the elections? The underlying question is whether project fear works under these circumstances. And, if so, which of the candidates will benefit?

The shooting had all the signs of a terrorist attack. It happened one hour into a live TV emission where each of the candidates had 15 minutes to explain their presidential bid. Emmanuel Macron was the first one to comment as the news came in, declaring in a solemn voice his solidarity with the victims. But he was also quick to argue against fear-mongering, saying that this is a trap by the attackers.

François Fillon, by contrast, went full-on, calling off his campaign meetings for today. Later he even suggested for the whole election campaign to be suspended on this last day of campaigning. Le Pen canceled her meetings too, Macron followed their move later in the night.

Fillon’s speech followed the one of Marine Le Pen, focusing on terrorism, security, French identity, and education. By calling for campaign suspension, Fillon bet on the emotional aspect of the attack. With this move he made it to the most cited on social media, followed by Marine Le Pen. Will this be enough to propel him into the second round?

Before the attack, however, there was clear momentum for Emmanuel Macron. The polls show him leading, ahead of Marine Le Pen. Dominique de Villepin backed Macron officially, and Nicolas Sarkozy will instruct his people to vote for him if he reaches the second round. In the news kiosks, pictures of Macron were on many magazine front pages. The media talked about his telephone conversation with Barack Obama. Many commentators see in him the only one who can muster a majority to prevent Marine Le Pen from winning. After all, who can guarantee that the left would come to vote for the much-hated Fillon, or the right for Jean-Luc Mélenchon, if they end up facing Le Pen in the second round?

The campaign officially ends at midnight tonight. No more polls or declarations until 20h on Sunday.

Final Polls

Assuming one believes the polls, there was a small but noticeable shift towards Le Pen and away from Fillon in the two most recent polls compared to two polls taken April 18-20. This could be noise or it could be real.

Media Backs Macron

The French media is clearly behind Macron. Does that help?

Project fear did not help in Brexit nor did a pro-Hillary media deliver the blue ribbon to her.

The four polls are all within the margin of error. It should not be a shock to see any individual candidate bumped out.

We find out on Sunday, perhaps Monday if the results are extremely close.

Prediction Poll

Related Article

April 20: Paris Policeman Killed, ISIS Claims Responsibility, Fillon Calls For Election Suspension: Election Impact?

Mike “Mish” Shedlock

Reader Asks: Can the Bubbles Last Forever?

Reader Bob wants to know if the Fed can keep various bubbles levitated forever. Here is his specific question followed by my response.

Hi Mish,

Thanks for the great website. I read it every day. With the changes in the rules of the Fed from TARP, I have come to question how things will ever change. I believe the Fed will never raise interest rates (of any consequence). I think the Fed will buy assets in any crash in stocks, bonds, real estate, etc.

What if a law required that no real estate be sold for less than 10% of its purchase price? [Mish note: Bob said 10% but I think he means 110%. Alternatively, he does not want homes to sell for more than 110% of the previous sale to stop bubbles. I address both possibilities.]

Is anything wrong with my thinking? Can anything end this? I am an average income guy paying my bills.

Thanks for any insight.



Can this go on forever? That’s a question I get asked all the time.

Many seem to think so. The same attitude prevailed in 1929, 2000, 2007, and 2017. That’s 3 bubbles in 17 years. Each bubble is of bigger amplitude.

No one thought Japanese stocks could or would fall from 39,000 to 7,000 over 20 years but that happened. Could we see the same in the US? Why not?

Central Banks Omnipotent?

If central banks were omnipotent there would not have been a crash in Japan. If central banks were omnipotent there would not have been a global crash in 2000 or 2007.

Can central banks prevent crashes or declines forever? History says no. Does QE make things any different? Why? Is the Fed going to own everything?

I am sure the Fed will not own everything. Will another round of bond buying ignite the markets again? Why would it?

Market Timing

Yet, I have not provided any insight as to when this ends. I cannot. Nor can anyone else. Conventional wisdom says “you cannot time the market”. Arguably that’s true.

But history also says overpaying for assets will eventually set someone back for years, perhaps decades. Look at Japan. Even in the US there are good times to buy and poor times to buy.

2000 and 2007 were exceptionally poor times to buy in the US. In the US, normalized P/Es suggested 1998, 2005, and 2015 were poor times to buy. The stock market went up anyway, in all three instances.

Those investing in 1998 got two more years of mania. So did those in 2005. So did those in 2015. Might we see two more years of mania? Sure, why not? But history also says it will all be taken back and much more.

Fair market value on the S&P 500 is probably in the range of 1200 to 1400. That’s a long way down.

Don’t Overrule Free Markets

As for your suggestion on real estate, please don’t go there. The distortions would be perverse in unpredictable ways. If rules mandate people must pay more than they believe homes are worth, there will be no sales.

If you mean people could not bid more than 10% above the previous price (to stop bubbles from growing), one of two things might happen

One possibility would be Joe sells to Sue who sells to Mark who sells to Jim in house flipping schemes to drive up prices before the final sale to a “real” buyer.

Another possibility is no sales take place at all as people view their asset as worth more than they can get.

We are in this mess because the Central Bank wizards believe they know where interest rates should be. Three bubbles in 17 years prove central bankers are clueless.

When does the mania end? I don’t know, nor does anyone else. But it will.

Mike “Mish” Shedlock

ISM-PMI Divergence Widens: Markit Estimates 2nd Quarter GDP at 1.1%, Says Profit Squeeze Underway

Unlike their counterparts at the ISM, Markit sees growth in both services and manufacturing weakening with U.S. private sector growth at a seven-month low in April.

Markit notes that a profit squeeze on businesses. Input prices are rising faster than final prices on goods and services.

Markit’s chief economist keeps his 1st quarter GDP estimate at 1.7% but estimates the 2nd quarter will get off to a rocky start at 1.1%.

Key Findings

  • Flash U.S. Composite Output Index at 52.7 (53.0 in March). 7-month low.
  • Flash U.S. Services Business Activity Index at 52.5 (52.8 in March). 7-month low.
  • Flash U.S. Manufacturing PMI at 52.8 (53.3 in March). 7-month low.
  • Flash U.S. Manufacturing Output Index at 53.4 (54.3 in March), 7-month low.

At 52.7 in April, down from 53.0 in March, the seasonally adjusted Markit Flash U.S. Composite PMI Output Index signaled a further slowdown in private sector output growth. The latest reading pointed to the weakest rate of expansion since September 2016.

April data also revealed the weakest rise in private sector payroll numbers since February 2010, driven by a softer pace of staff hiring among service providers.

There were signs of a squeeze on operating margins in April, as input price inflation reached its strongest since June 2015. At the same time, prices charged by U.S. private sector firms increased only marginally and at the slowest pace since November 2016.

April data signaled a sharp and accelerated rise in average cost burdens across the manufacturing sector. The rate of input cost inflation was the fastest since December 2013, which survey respondents linked to rising commodity prices (particularly metals). Meanwhile, pressure on
margins from higher input costs contributed to the strongest increase in factory gate charges for almost two-and-a-half years.

Comments by Chris Williamson, Markit Chief Economist

  1. “The PMI data suggest the US economy lost further momentum at the start of the second quarter. The surveys are signaling a GDP growth rate of 1.1% after 1.7% in the first quarter.”
  2. “The vast services economy saw the weakest monthly expansion for seven months and the manufacturing sector showed signs of growth
    slowing further from the two-year high seen at the start of the year, despite export orders lifting higher.”
  3. “The labor market also continued to soften. The surveys signaled a marked step-down in the pace of hiring in March which has continued into April. The latest survey data are consistent with only around 100,000 non-farm payroll growth.”
  4. “The survey responses indicate that some froth has come off the economy since the post-election bounce seen at the end of last year. However, with inflows of new business picking up slightly in April and business optimism about the year ahead also brightening, there’s good reason to believe that growth could revive again in coming months.”

Business Optimism

My only quibble with Williamson’s comments is in regards to business optimism in point four above.

At best, business optimism is a spillover Trump effect but more likely it is a strong contrarian indicator as well.

Divergence with ISM Grows

The ISM did not forecast second quarter GDP yet but its first quarter estimate is a fairy tale 4.3%, well above any other forecast I have seen.

There should not be a huge difference between the ISM reports and the Markit reports because both companies survey the same industries, but there is.

For further discussion, please see my April 5 column, Another ISM/PMI Divergence: Non-Manufacturing.

Is there a reason to believe Markit over ISM? Yes. Markit is more in line with actual hard economic numbers whereas ISM matches sky-high sentiment numbers.

Related Articles

  1. Fantasyland Reality Check: Fed’s Beige Book Makes Absurd Claims in at Least 3 Places
  2. Kansas City Fed says Rate Hikes “Necessary” as Weakness is “Transient”: June Rate Hike Odds Sink
  3. Leading Economic Indicators: More Soft Data Silliness
  4. Too Hot to Handle Twist: Econoday “Thankful” for Empire State Manufacturing Cooling

Mike “Mish” Shedlock

Existing Home Sales Best Since February 2007: Good as it Gets?

Existing home sales beat expectations with a climb to 5.71 million units, seasonally adjusted annualized (SAAR).

Econoday calls this an acceleration, is that what’s happening?


The resale market, after a period of steady sales, is now accelerating to new expansion highs. Existing home sales rose a very sharp 4.4 percent to a higher-than-expected annualized rate of 5.710 million. This is the best rate since February 2007. Both components show strength with single-family sales up 4.3 percent to a 5.080 million rate and condo sales up 5.0 percent to a 630,000 rate. And year-on-year sales are moving higher, up 5.9 percent divided between 6.1 percent for single-family homes and 5.0 percent for condos.

The month’s gains aren’t tied to concessions as the median price rose 3.6 percent to $236,400 for a year-on-year rate of 6.8 percent that matches well with the sales trend. Supply, up 5.8 percent in the month to 1.830 million, moved into the market but was absorbed by rising sales which kept supply relative to sales unchanged at 3.8 months. The lack of supply and heated sales pace are reflected in days on the market which are down to 34 from 45 in the prior month and 47 days a year ago.

Housing contributed to last year’s economy but never kicked into top gear, which is what this report is hinting at. Watch on Tuesday’s calendar next week for new home sales which in the previous month shot higher much like today’s report.

Steady Upward Trends Since January 2014

Unfortunately, the data on Fred, the St. Louis Fed repository, only goes back to 2012.


Acceleration is best thought of as an increase in the rate of change. Race car driving provides a nice example as does gravity (the speed at which an object falls over time). Other than random fluctuations, there is no acceleration, just a steady linear trend.

Sales in February 2007 were at a rate of 5.79 million units according to Mortgage News Daily.

Thus, after 10 years, we are back to pre-recession levels.

Comments from Lawrence Yun, NAR Chief Economist

  • “The early returns so far this spring buying season look very promising as a rising number of households dipped their toes into the market and were successfully able to close on a home last month,” he said. “Although finding available properties to buy continues to be a strenuous task for many buyers, there was enough of a monthly increase in listings in March for sales to muster a strong gain. Sales will go up as long as inventory does.”
  • “Bolstered by strong consumer confidence and underlying demand, home sales are up convincingly from a year ago nationally and in all four major regions despite the fact that buying a home has gotten more expensive over the past year.”
  • “Last month’s swift price gains and the remarkably short time a home was on the market are directly the result of the homebuilding industry’s struggle to meet the dire need for more new homes. A growing pool of all types of buyers is competing for the lackluster amount of existing homes on the market. Until we see significant and sustained multi-month increases in housing starts, prices will continue to far outpace incomes and put pressure on those trying to buy.”

Real Homes of Genius

The “dire need for new homes”, if indeed accurate, which I doubt, can be attributed to the fact that builders cannot build and price cheap houses to make a profit.

Dr. Housing Bubble provides an excellent example in Real Homes of Genius, including pictures of tiny homes listed for close to $500,000 in the Los Angeles area.

Today we salute you Los Angeles with our Real Homes of Genius Award. When half a million dollars isn’t worth moving a trash bin:

3525 Portola Ave, Los Angeles, CA 90032
2 beds 1 bath 572 sqft
This place is tiny. 572 square feet.

I actually like the trash can being left in the picture overfilled with crap to show you a better perspective on how small this place is. The ad is written in beautiful prose that really makes your heart jump with joy:

“Why Rent when You Can Buy! This House Features 2 Bedrooms and 1 bathroom with lots of potential especially for a First Time Home Buyer. Great Location close to Downtown Los Angeles, centrally located near Schools, Parks and Shopping. This house has been nicely upgraded.”

So let us take a Google Street View here:

More trash cans! One trash can looks like it is crossing the road or gearing up to strike a pose for another realtor’s ad. Now some might say “hey, this is a working class neighborhood!” And to that I would say, of course it is! That is why it is so mind numbing to see this tiny place listed at $470,000.

Top Gear? As Good as it Gets?

Econoday says the report hints at being in the “top gear”

If this is the “top gear”, is this as good as it gets?

Let’s hope so!

Those paying crazy prices will regret it every bit as much as they did in 2006.

Miek “Mish” Shedlock