Positives
- Payrolls grew by 227k, 47k more than expected. The private sector added 237k jobs, 62k more than expected. The service sector contributed 192k while the goods producing sector added 45k, 36k of which was in construction (the most since March) and 5k was from manufacturing. Smoothing out the figures has the 3 month private sector job gain at 193k vs the 6 month average at 180k and the 12 month at 182k. Job growth averaged 213k in 2015 and 239k in 2014k. The participation rose by two tenths to 62.9% and the employment to population ratio was up two tenths as well. Hours worked was 34.4 for a 2nd month vs 34.3 in the month prior.
- Initial jobless claims totaled 246k, 4k less than expected and down from 260k last week. The 4 week average though did tick up to 248k from 246k because a 237k print fell out of the calculation. Continuing claims, delayed by a week, fell by 39k after rising by 44k in the week prior.
- The ISM manufacturing index for January rose 1.5 pts to 56 which was 1 pt above the estimate. It’s at the best level since November 2014. Of the 18 industries surveyed, 12 saw growth vs 11 in December. The ISM said “comments from the panel are generally positive regarding demand levels and business conditions.”
- Productivity in Q4 grew by 1.3% annualized, a touch above the estimate of up 1%. It grew by 1% y/o/y which is the best since Q2 ’15 but it only brings the 2016 average to up .2% vs .9% in 2015. Unit labor costs were up by 1.9% y/o/y which brings the 2016 average to 2.6% vs 2.0% in 2015. Compensation per hour was up 2.9% y/o/y not much different than the 3% seen in Q3.
- Pending home sales in December rose 1.6% from November vs the estimate of up 1%. The NAR said “enough buyers fended off rising mortgage rates and alarmingly low inventory levels to sign a contract. The main storyline in the early months of 2017 will be if supply can meaningfully increase to keep price growth at a moderate enough level for households to absorb higher borrowing costs. Sales will struggle to build on last year’s strong pace if inventory conditions don’t improve.”
- The headline PCE inflation print was up .2% m/o/m as expected and up 1.6% y/o/y vs the forecast of up 1.7% (rounding difference). The core rate was up .1% m/o/m also as expected and brings the y/o/y rate of change to 1.7%, in line with November.
- In Europe, services PMI was revised to 53.7 from 53.6 and brings the manufacturing and services composite PMI to 54.4 from 54.3 in the 1st print and is unchanged from December. Markit said the eurozone, based on these figures, is growing at the quickest pace since mid 2011, equating to about 1.5% annual growth. Employment growth was a particular bright spot. The continued improvement in the European confidence stats though is coming with growing inflation as “price pressures continued to intensify…with rates of inflation in input costs and output charges both gathering pace.”
- Q4 GDP for the eurozone grew by 1.8% y/o/y and .5% q/o/q. That 1.8% figure basically matches the average pace over the past two years.
- The Euro area unemployment rate fell to 9.6% from 9.7% and that’s the lowest since April 2009.
- Both state sector weighted Chinese manufacturing and service indices were essentially unchanged m/o/m with manufacturing at 51.3 vs 51.4 and services printed 54.6 vs 54.5.
- As India tries to crawl out from under its botched currency swap, its services PMI rose to 48.7 from 46.8. Their manufacturing index got back above 50 at 50.4 from 49.6.
- Japan’s manufacturing PMI was 52.7 vs 52.4 and Indonesia’s PMI rose to 50.4 from 49.
- Japan’s jobs to applicant ratio rose to 1.43 in December, the highest since July 1991, up from 1.41. The unemployment rate held at 3.1%, one tenth off a 22 yr low.
Negatives
- The US unemployment rate in January rose one tenth to 4.8% as the household survey saw a 30k job loss (305k jobs were lost in the important age cohort of 25-54) while the labor force grew by 76k. The U6 rate rose two tenths to 9.4% as there was a rise in ‘discouraged’ workers and those working part time that want full time. Average hourly earnings were up just .1% m/o/m and 2.5% y/o/y, two tenths below the forecast. Average weekly earnings were up just .1% m/o/m and 1.9% y/o/y. This portion of the jobs data explains why bond yields are down across the yield curve notwithstanding the headline beat.
- My message to the Fed after their meeting: you are woefully behind the curve.
- My message to the BoE after their meeting: you are playing with inflation fire and crushing savers.
- The January US ISM services index was 56.5, .5 pt below the estimate and December was revised down by .6 pt to 56.6. This number has essentially flat lined after the post election bump. As seen in December, 12 of the 18 industries saw growth but 5 saw contraction vs 3 in the month before. ISM said “The non-manufacturing sector begins 2017 with a cooling-off in the rate of growth month-over-month. The sector still reflects strong growth. Respondents’ comments are mixed indicating both optimism and a degree of uncertainty in the business outlook as a result of the change in government administration.”
- Mortgage applications weakened w/o/w with purchases lower by 5.6% and are basically unchanged vs last year. Refi’s fell by 1.4% and are down 32% y/o/y. The average 30 yr mortgage rate rose by 4 bps and back to a 5 week high.
- The Conference Board’s consumer confidence index for January fell 1.5 pts to 111.8, one pt below the estimate but off a 15 year high. It’s still up 10 pts since October. The two main components were very mixed as the Present Situation rose by 6.2 pts but Expectations fell by 6.6 pts. One year inflation expectations rebounded by 4 tenths to 4.9% after falling by 3 tenths last month. Those that plan to buy a car fell 1.9 pts to the lowest level in 6 months. Those that plan to buy a home fell 1.5 pts to the weakest in 7 months.
- The overall Employment Cost Index for Q4 rose .5% q/o/q vs the estimate of up .6%. On a y/o/y basis, the gain was 2.2% which is really no different than the multi yr trend. For the private sector, which is the only thing that really matters, wages/salaries were up by 2.3% y/o/y while benefits were up by 1.8%, basically the same trend for both from Q3.
- US auto sales totaled 17.48mm SAAR according to Wards Automotive, slightly below the estimate of 17.5mm and “it was the fourth time in the past six months that volumes slumped from the prior year despite generous incentives” according to the WSJ.
- The China private sector weighted manufacturing index weakened to 51 from 51.9 which was below the estimate of 51.8. It gives back the 1 pt increase in December. Caixin said “output and new orders increased at weaker rates amid a further reduction in employment…at the same time, inflationary pressures remained sharp, with both input costs and output charges increasing at rates scarcely seen throughout the past five years.” The positive within the report was companies “expressed the highest degree of optimism towards the 12 month business outlook since July 2016.”
- Hong Kong’s PMI fell back below 50 at 49.9 from 50.3. Singapore’s PMI fell .4 pts to 51.6. Japan’s services PMI was down by .4 tp 51.9. South Korea’s manufacturing PMI fell to 49 from 49.4. Thailand’s was unchanged at 50.6.
- The UK services PMI for January fell to 54.5 from 56.2 and that was 1.3 pts below the forecast. It’s the slowest pace of gain since October but business expectations are the best since May 2016. Price pressures are near a 6 yr high and “higher costs are feeding through to increased pressure on consumer prices.”
- The UK manufacturing PMI fell a hair as expected to 55.9 from 56.1. Markit said “there were signs that the boost to export orders from the weak exchange rate was waning, as growth of new business from abroad slowed sharply.” Also, “Input cost inflation spiked to the highest seen since data were first collected in 1992. Over 55% of companies link rising costs to the exchange rate. However, we’re also seeing more companies reporting domestic supplier price hikes resulting from the rising cost of commodities such as fuel, oil, plastics and steel.”
- Blame it on energy as eurozone CPI in January jumped 1.8% y/o/y, 3 tenths more than expected and up sharply from 1.1% in December. This is a 4 yr high but the core rate held at a .9% y/o/y gain as forecasted.
- December PPI in the eurozone rose .7% m/o/m and 1.6% y/o/y vs the estimate of up .5% and 1.2% respectively. The November y/o/y rise was just .1% and the December gain is a 4 yr high. Energy prices were up 3.9% y/o/y but ex energy PPI was still up .9% vs .4% in November, zero in October and negative prints before then. The .9% ex energy gain is the most since March 2013.
- German inflation in January accelerated further to a 1.9% y/o/y pace. While that was one tenth less than expected it is up from 1.7% in December and it matches the fastest rate of change since December 2012.
- Eurozone retail sales fell .3% m/o/m in December, well below the estimate of up .3% and November was revised down by 2 tenths.