Positives1) Job growth in July of 255k was well above the estimate of 180k. The private sector added 217k of the jobs vs the estimate of 170k thus a key surprise was also the hiring jump within government, particularly at the local level. Government hiring has grown by 71k over the past two months vs the average of about 10k per month over the prior 12 months. The 3 month average of private sector job growth is 158k vs 169k over the past 6 months and vs 221k in 2015 and 240k in 2014. The slowing trend remains in place. The household survey saw a nice bounce of 420k jobs after seeing just 67k in June and with the labor force increasing by a similar 407k, the unemployment rate held at 4.9%. The participation rate rose one tenth to a still anemic 62.8% as did the employment ratio to 59.7% and the U6 all in rate rose one tenth to 9.7%. The workweek improved by one tenth to the most since January and wages were up by .3% m/o/m and 2.6% y/o/y. That y/o/y gain matches the most since ’09 but average weekly earnings still remains modest at 2.3%.
2) Vehicle sales in July rose by 17.77mm SAAR, above the estimate of 17.3mm but only thanks to a ramp up in incentives and fleet sales.
3) While the US trade deficit widened to $44.5b in June, $1.5b more than expected and up from $41b in May, exports did rise by .3% m/o/m after the decline of .1% in May. Imports were up by 1.9%.
4) The headline PCE inflation deflator rose .9% y/o/y, unchanged with May while the core rate grew by 1.6% y/o/y (in line). You can now drive a truck between core PCE and the 2.3% core CPI print. The gap is the widest since 2002. Message to Fed: please explain why you only look at PCE and not CPI.
5) Europe’s manufacturing PMI in July was revised to a hair better read of 52 vs the first print of 51.9 but remains down from 52.8 in June. Markit said that most of the growth is being seen in Germany only “while growth has almost stalled in both Italy and Spain and contractions are being seen in France and Greece.”
6) The services PMI for Europe was revised to 52.9, a touch better than the first read of 52.7 and is up .1 from June but that was the slowest pace of expansion since January ’15. This brings the services and manufacturing composite index to 53.2 from 53.1 in June.
7) The Markit eurozone retail PMI for July rose a touch to 48.9 from 48.5 in June. It does though mark the 7th month in the past 9 being below the breakeven of 50.
8) Japan’s services index rose 1 pt to barely back above 50 at 50.4. Hong Kong’s PMI rose 1.8 pts but to only 47.2 as the Chinese slowdown continues to weigh. India’s services bounced 1.6 pts to 51.9.
9) China’s state sector weighted services PMI rose .2 pts to 53.9 which is the best level of the year.
10)Taiwan’s manufacturing PMI rose .5 pt to just above 50 at 51.
Negatives
1) We don’t have to wait for the Fed to raise interest rates again to see a rise in interest rates. Due to the change in money market reg’s, 3 month LIBOR rose another 3 bps on the week, is higher by 16 bps over the past 6 weeks and is up by 47 bps over the past year, almost twice as much as the Fed rate hike. I saw a stat from back in 2012 that more than $10T of loans are priced off LIBOR for companies, credit cards, car loans, student loans, and mortgages. I’m searching for an updated total.
2) Initial jobless claims rose 3k w/o/w to 269k which was 4k above the estimate. As a 254k print dropped out of the 4 week average, the new 4 week average rose to 260k from 257k. Continuing claims, delayed by a week, fell 6k after rising by 12k last week.
3) The July ISM services index fell 1 pt to 55.5 which was a touch below the estimate of 55.9 but is still above the average year to date of 54.6. This compares with the 2015 average of 57.2. Similar to June, 15 industries saw growth of the 18 surveyed. The ISM summed up the report by saying “the majority of the respondents’ comments reflect stability and continued growth for their respective companies and a positive outlook on the economy.”
4) The July ISM manufacturing index fell .6 pts to 52.6 which was a touch below the estimate of 53.0 and down from 53.2 in June which was a jump from 51.3 in May. Of the 18 industries surveyed, 11 saw growth vs 13 in June.
5) Mortgage applications to buy a home fell 2.4% w/o/w and are down for three straight weeks and the y/o/y rise slowed to 6%. The housing recovery continues but still in a choppy fashion. The index is at the lowest level since February. Refi applications fell 4.2% w/o/w, down for a 3rd week but are still higher by 56% y/o/y.
6) June spending rose .4% m/o/m, one tenth more than expected while income grew by .2%, one tenth less than expected. This led to a two tenths drop in the savings rate to 5.3% which is the lowest since October. Spending would have went into the positive column if it was driven by faster income growth instead of a lower savings rate.
7) Mark Carney is falling into the same trap as his peers in believing that doing even more after so many years of so much will somehow help alter behavior and lift growth. Rates have never been lower in the 300+ year history of the BoE and what emergency are we in? The rewards of more easing are specious, the risks are now huge such as the damage being done to pension funds, banks, insurance companies, retirees, and capitalism generally in addition to the furtherance of asset bubbles everywhere. Joining the ECB in buying corporate bonds is essentially a step to nationalizing their corporate bond markets.
8) The UK services PMI for July, a post Brexit print, fell to 47.4 from 52.3. Markit said “Services output and new business both fall at the fastest rates since March 2009” and “expectations fall to the weakest since February 2009.”
9) The UK July PMI fell to 48.2 from 49.1 and vs the estimate of no change. Markit said “the pace of contraction was the fastest since early 2013 amid increasingly widespread reports that business activity has been adversely affected by the EU referendum…The downturn was felt across industry, with output scaled back across firms of all sizes and across the consumer, intermediate and investment goods sectors, although exporters did report a boost from the weaker pound.”
10) The July UK construction index from Markit remained well below 50 at 45.9, little changed from June but that was better than the feared 44 print that was estimated. “UK construction firms frequently cited ongoing economic uncertainty as having a material negative impact on their order books.” The weaker pound isn’t helping either, “Meanwhile, exchange rate depreciation resulted in sharper input cost inflation and there are concerns that additional supplier price rises for imported materials could be around the corner.”
11) Retail sales in the Euro region in June was flat m/o/m, in line with the estimate and the y/o/y gain of 1.6% matches what was seen in May.
12) German factory orders fell .4% m/o/m in June instead of rising by .5% as expected.
13) Industrial production in Italy, Spain and the Netherlands all missed expectations.
14) China’s state sector weighted manufacturing PMI essentially flat lined at 49.9 vs 50 in June and the estimate of 50. The private sector weighted index did as well at 50.6 but that was up 2 pts m/o/m and above the forecast of 48.8.
15) China’s private sector weighted services PMI index fell 1 pt to 51.7 which is about in line with the year to date average of 51.9. Caixin said this about the services sector, “All of the index categories showed signs of deterioration, with employment falling back into the territory of contraction after 3 consecutive months of growth.”
16) Base pay in Japan grew just .1% y/o/y in June. The total cash earnings figure grew by 1.3% boosted by a 3.3% rise in bonus’.
17) Japanese consumer confidence fell .5 pt to 41.3 with the Income Growth component falling to a 5 month low. Abe took office in September in 2012 and this index was at 40.2. Thus, after jumping in 2013 on the initial honeymoon love affair, confidence is now up a whopping 1 pt over the past 4 years.
18) Manufacturing PMI in South Korea fell .4 pts to just above the breakeven at 50.1. Indonesia’s PMI fell back below 50 while Malaysia’s remained below 50. India’s was little changed at 51.
19) South Korea’s exports fell 10.2% y/o/y in July, more than the estimate of down 6.7%. This is now negative for the 19th straight month as exports fell to China, the US, Japan, the EU and to Latin America. Imports fell by 14% vs the forecast of down 10.5%.