The Boock Report

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11/4 – Succinct Summation of the Week’s Events

Positives

  1. Within the jobs report and positive for employees, average hourly earnings grew by .4% m/o/m which brought the y/o/y increase to 2.8%. That y/o/y gain is the best since June ’09. Average weekly earnings were up by 2.5% matches the best since October ’15 where hours worked were unchanged m/o/m.
  2. In the income and spending numbers seen Monday, private sector wages and salaries were up by 4% y/o/y and continues a steady trend. Personal spending rose .5% m/o/m in September, one tenth more than expected but August was revised down by one tenth. Spending on goods rebounded after a drop in August. Spending on services rose as well. The savings rate fell by one tenth to 5.7%.
  3. Q3 productivity grew by 3.1% annualized, 100 bps better than expected and it helped to lower unit labor costs to .3% from 3.9% in Q2. BUT, looked at on a y/o/y basis saw zero productivity growth and has essentially been unchanged over the past four quarters. Unit labor costs were up 2.3% y/o/y and has averaged 2.5% over the past 4 quarters vs 2% seen in 2015.
  4. The ISM manufacturing October index was 51.9, a touch above the estimate of 51.7 and up from 51.5 in September. This brings the 3 month average to 50.9, the 6 month average to 51.7 and the 12 month average to 50.6. Notwithstanding the gain in the headline figure, the internals were pretty mixed. Of the 18 industries surveyed, 10 saw growth vs 7 that said the same in September. Eight saw a contraction vs 11 last month. The ISM said “Comments from the panel are largely positive citing a favorable economy and steady sales, with some exceptions.”
  5. Total vehicle sales in October totaled 17.9mm at a SAAR, above the estimate of 17.6mm and is the best level since November. JD Power said while incentives in October of $3,726 per unit was below the record high of $3,921 in September, they are still up 12% y/o/y.
  6. The eurozone economy grew by .3% q/o/q in Q3 and 1.6% y/o/y as forecasted. This brings the y/o/y average gain to 1.63% vs 2% in 2015 and 1.2% in 2014.
  7. The UK’s manufacturing PMI index fell to 54.3 from 55.5 which was a 2 yr high. The economic give and take of a weaker pound was clearly evident as input costs rose as did export orders. Input prices had “one of the steepest rises in purchasing costs in the near 25 yr survey history. Around 90% of companies offering a reason for increased costs made some reference to the sterling exchange rate.”
  8. The October UK services PMI rose by 1.9 pts to 54.5 which was 2 pts more than expected. That is the best level since January but came with the “strongest input price inflation since March 2011.”
  9. German unemployment fell by 13k in October, well more than the estimate of a drop of 1k. This drove a one tenth drop in their unemployment rate to 6%, the lowest since reunification.
  10. The China state sector weighted October manufacturing PMI rose .8 pts to 51.2 vs the estimate of 50.3. While barely above 50 it is at the best level since July 2014 driven mainly by output and new orders. Exports though fell. The China services PMI was up a touch to 54 from 53.7 in September.
  11. The Caixin Chinese manufacturing PMI rose 1.1 pts to 51.2, above the estimate of 50.1. Here, the improvement was also domestically based as export sales fell. The private sector weighted October China PMI services index rose a touch m/o/m to 52.4 from 52. This is the best since June but referred by Caixin as “modest growth.” As for the outlook, “service providers remained generally positive that business activity would increase over the next year. Furthermore, the level of confidence improved to its 2nd strongest in eight months.”
  12. India services index rose 2.5 pts to 54.5 which brings its combined manufacturing and services composite index up by 3 pts to 55.4, the highest in almost 4 years.
  13. BoJ Governor Kuroda is waving the white flag on his grand QE, NIRP experiment. Good riddance. The BoJ is still the 800 pound gorilla in their markets but now a bit less so. Emphasis on ‘bit’.
  14. Congrats to the Cubbies. It’s about freaking time!!!

Negatives

  1. US private sector job gains were just 142k, 28k less than expected with only a 9k upward revision to the two previous months combined. This brings the 3 month average to just 154k vs a similar level over the past 6 months but below the 12 month average of 179k, the 2015 average of 22k1 and the 2014 average of 240k. Government jobs drove the 161k headline print vs the estimate of 173k and were also the main reason for the upward revision of 44k in the two prior months. The household survey showed a fall of 43k after a spike of 354k in September which combined with a drop of 195k in the size of the labor force led to a decline of one tenth in the unemployment rate to 4.9%. The U6 rate fell two tenths to 9.5% but for the same wrong reasons as the U3. The participation rate and employment population ratio each fell by one tenth. The goods producing sector added zero jobs. Also negative, the profit margin squeeze continues with the rise in labor costs as measured by the hourly and weekly earnings data.
  2. Jobless claims rose by 7k w/o/w to 265k and that was 9k more than expected. That’s the highest print since early August and brings the 4 week average to 258k from 253k. Continuing claims, delayed by a week, fell another 14k to a fresh 16 year low.
  3. Headline PCE rose .2% m/o/m and 1.2% y/o/y as expected. This y/o/y gain is the quickest since November 2014 due to the change in energy prices. The core rate was up by .1% m/o/m and 1.7% y/o/y. The y/o/y rate was unchanged from August but remains at the highest level since August 2014.
  4. The apolitical FOMC was clearly political for not raising rates this week. Eric Rosengren the flip flopper, what you say? Let’s get rid of the November meeting right before a Presidential election.
  5. The October ISM services index fell to 54.8 from 57.1 in September. That was 1.2 pts below the forecast but follows a 5.7 pt jump last month. Smoothing out the volatile few months puts the 3 month average at 54.4 which is basically the same as the 6 month average of 54.7 and the 12 month average of 54.8. Of the 18 industries surveyed, 13 saw growth and 5 saw contraction vs 14 that saw gains in September and the 4 that saw declines. The ISM said “There has been a slight cooling off in the non manufacturing sector m/o/m, indicating that last month’s increases weren’t sustainable. Respondent’s comments remain mostly positive about business conditions and the overall economy. Several comments were made about the uncertainty on the impact of the upcoming US presidential election.”
  6. Mortgage applications were little changed w/o/w. Purchase applications fell just .4% but sit at the lowest level since January. They still though are up 9% y/o/y. With the average 30 yr mortgage rate at the highest level since late June, refi’s fell 1.6% w/o/w and have fallen for the 4th straight week. They remain up 23% y/o/y when the average 30 yr rate was 25 bps higher.
  7. Construction spending in September fell .4% m/o/m instead of rising by .5% as expected. A large 10% drop in public residential construction was the key culprit but private commercial real estate construction also fell by 1% only partially offset by a .5% rise in private residential real estate.
  8. The eurozone manufacturing and services composite index was 53.3 in October vs the initial print of 53.7 where the estimate was also 53.7 but is still up from 52.6 in September. Markit was positive saying “The eurozone manufacturing sector made a positive start to the final quarter. Output, new orders and new export business all rose at some of the fastest rates achieved over the past three years, building on the solid increases in quarter three and underpinning the steepest jobs growth since mid 2011.” This also came with price pressures as “input costs rose at the quickest clip in 15 months on the back of increased commodity prices, especially for energy and oil related products.”
  9. The eurozone CPI for October rose .5% y/o/y as expected, up from .4% in September. This is the quickest pace of gain since June 2014 as they continue to recycle thru the declines in energy prices. To highlight, energy prices fell .9% y/o/y vs a 3% drop in September, a 5.6% fall in August and a 6.7% decline in July. Their core rate was higher by .8% y/o/y for a 3rd straight month.
  10. The European unemployment rate held at 10%, the lowest since 2011, below the 2013 peak of 12.1% but still stubbornly above the pre recession low of 7.2% in early 2008.
  11. German retail sales in September were weak, falling by 1.4% m/o/m instead of rising by .2% as expected and down for a 2nd straight month.
  12. As we finish the 4th year of Abenomics, Japanese consumer confidence is up all of 2 pts over this time frame. In October it fell by .7 pts to 42.3 which puts it just 1 pt above the 4 year average. The Income Growth component, which was a must have piece as part of the 2% inflation goal, is at 41. It was at 39.6 in September 2012 right before Abenomics began in earnest. Overall Livelihood fell to 41.4 in October. It was at 40.6 in September 2012. Lastly, Willingness to Buy Durable Goods dropped to 41.9 vs 42.3 in September 2012.
  13. Japan said industrial production in September was unchanged m/o/m, below the estimate of up .9% and follows a 1.3% rise in August.
  14. The October Singapore PMI fell to 50.5 from 52.9 and Hong Kong’s PMI was down to 48.2 from 49.3. Manufacturing PMI’s in Indonesia, Malaysia, Vietnam and Japan all fell m/o/m. They remained unchanged but below 50 in Thailand and South Korea’s PMI was up .4 pts but stuck below 50 at 48.
  15. South Korean exports in October fell y/o/y for the 21st month in the past 22.