Peter Boockvar

The October Manheim wholesale used car index fell 2.2% m/o/m and is now down 10.6% y/o/y. The index itself is at the lowest since August 2021 and we know this line item of the goods inflation story has turned. New car prices though are still elevated as inventory levels are still below where they historically have been. Also of note according to Manheim, “we initially estimate that used retail sales declined 9% in October from September and that used retail sales were down 13% y/o/y.” Ahead of Thursday’s CPI, again it will be determined by the extent in which services inflation offsets the moderation in goods prices. 

Manheim Index

We’ve seen a slew of job cut announcements from anything related to tech and all those companies where labor costs got too excessive relative to revenues but at the same time seen the level of initial jobless claims remain muted. Now of course tech related industries are only a portion of the overall labor market but one of the explanations was implied in an article in the WSJ yesterday titled “Startups aim to snap up laid-off tech workers. Early stage companies, mostly spared the woes of the giants, set sights on new blood.” In the first paragraph of the piece, “Flush with investor capital, technology startups plan to scoop up software developers, engineers and marketers flooding the labor market following job cuts at Twitter, Lyft, and other larger tech employers.” We also assume that many of the laid off workers are getting severance payments to some extent that will bide them time before they file for claims. The WSJ quoted a co-founder of Streamline AI, a two yr old start up who said “There’s an abundance of talent right now, because of these layoffs. A few years ago, there was no way we could’ve attracted candidates like this.” 

Speaking of small companies, the October NFIB small business optimism index fell to 91.3 from 92.1. For comparison, this figure has averaged 92.7 this year. Hiring plans fell 3 pts m/o/m after rising by 3 pts over the past two months. At 20% it is 2 pts below the 6 month average but there was no change in job openings. While current compensation fell 1 pt, future compensation plans jumped by 9 pts to 32%, matching the highest on record dating back to 1984. Higher selling prices was down 1 pt to 50% and that is the lowest since September but is still double the 5 yr average of 25 and the NFIB said “Half of all firms are raising prices, that’s inflation.” Capital spending plans fell 1 pt while plans to increase inventories was up by 2 pts. There were declines in those that Expect a Better Economy, Expect Higher Sales and said it’s a Good Time to Expand. On the higher cost of capital that all credit dependent companies are now challenged by, Easing of Credit Conditions dropped to match the lowest since early 2013. Lastly, the earnings picture softened by 1 pt and is 2 pts below the 6 month average. 

The NFIB said, and tying in the paragraphs above on the labor market, “Owners continue to show a dismal view about future sales growth and business conditions, but are still looking to hire new workers. Inflation, supply chain disruptions, and labor shortages continue to limit the ability of many small businesses to meet the demand for their products and services.” 

We have to understand the difficulty of many service related small businesses in finding help that have to compete with the $20-$25 starting wage and a slew of other benefits that Amazon, WalMart, Target, Costco, Walgreens, CVS, Chipotle, etc… are paying people. Higher minimum wages in many states sound all well and good but the reality has made it unaffordable for many small businesses. 

NFIB

Compensation Plans

Higher Selling Prices

Dupont, a specialty chemical company whose products go into so many things, said this in today’s earnings release with respect to guidance, “For the fourth quarter, we expect demand to remain strong in most end-markets, notably water, industrial and auto adhesives, but do anticipate continued softness in consumer electronics globally and some expected slowing in customer semiconductor fab production rates.” 

One of the factors that will influence when the BoJ will widen its yield curve control band is the direction of wage growth that is now desperately needed to offset higher inflation in Japan. Today we saw September regular base pay that rose 1.3% y/o/y, a pretty lame pace but still the 2nd highest print since 1997 after the 1.5% y/o/y rise seen in August. I’m going to keep talking about Japanese JGB’s, BoJ policy and the yen because how this all plays out as we head to the end of Kuroda’s tenure next April will have major implications for the world’s bond markets. The 10 yr JGB yield was little changed but the 40 yr yield was up 2 bps and is only a few bps from a 9 yr high. The yen is up a touch. 

Base pay growth in Japan y/o/y

While challenged by falling real wages, retail sales in the Eurozone in September was better than expected when we include the upward revision to August. They are still though declining y/o/y and have so for 4 straight months. Sovereign bonds yields are little changed, with the euro dipping a touch below $1.00, and what happens in the European bond markets as the ECB gets further into its tightening cycle and possibly embarks on QT in Q1 will also have major impacts on global bond markets.