Positives
- July payrolls surprised with a headline print of 209k vs the estimate of 180k. The private sector added 205k of this. The household survey added 345k jobs, about the same as the 349k increase in the labor force but the U3 unemployment rate did tick down by one tenth to 4.3%, matching the lowest level since February 2000. The U6 rate held at 8.6%. Hours worked were unchanged at 34.5 and with average hourly earnings up .3% m/o/m and 2.5% y/o/y, average weekly earnings were up by 2.8% y/o/y, matching recent highs at the most in 6 years. The labor force participation rate and employment to population ratio’s were each up one tenth. The pool of available labor is at the lowest level since February 2008. Not only will we see QT initiated in September, if labor data like this continues, expect a December rate hike too.
- US Initial jobless claims totaled 240k, down 5k from last week and that was 3k less than expected. The 4 week average did tick down to 242k from 244k. Continuing claims, delayed by a week, rose by 3k after falling by 12k last week.
- Headline inflation in June as measured by the PCE was flat m/o/m as expected but due to rounding the y/o/y print of 1.4% was one tenth more than expected. The core rate of up .1% m/o/m was as expected and the y/o/y increase of 1.5% was also one tenth above the forecast due to rounding. Services inflation again offset a drop in the prices of goods.
- In contrast to what ISM said below on US services, Markit’s index for July was 54.7 from 54.2 and it’s at a 6 month high. They said, “solid increase in business activity, new business expands at quickest rate for two years, workforce numbers increase at fastest pace in 2017 so far.”Input costs fell from a 2 year high but “the pace was solid overall, with firms stating that higher demand for raw materials at suppliers had often pushed purchase costs up.” Prices received slowed but “notably, panelists stated that increased client demand had enabled some firms to raise their charges in July.”
- Pending home sales rose 1.5% m/o/m, above the estimate of up 1%. The NAR is again blaming low inventories as “holding back activity” with the most severe shortage at the lower end of the market. They went on to say “It appears the ongoing run up in price growth in many areas and less homes for sale at bargain prices are forcing some investors to step away from the market.”
- PMI’s in Hong Kong and Singapore were up slightly and both sit at a touch above 50 at 51.3.
- With inflation dropping and real rates still high, the Reserve Bank of India took advantage and cut rates by 25 bps as expected to 6%.
- In July, Japanese consumer confidence did rise .5 pt to 43.8 which is just shy of the best level in 4 years but has still not regained its 2013 post Abe euphoria. The Income Growth component was up .1 pt to 41.7 and which is still below the 2013 peak too.
- Japanese industrial production in June rose 1.6% m/o/m, a touch above the estimate of up 1.5%.
- South Korean exports jumped 19.5% y/o/y in July, above the forecast of up 15.9%. Big gains were seen in two of their specialties, ships and semi’s.
- China’s private sector weighted Caixin manufacturing index was up by .7 pts to 51.1 while the estimate was for no change. Caixin said “Companies indicated that both output and new orders rose at the fastest rates for five months, helped by a solid upturn in new export sales.” Price pressures picked up to 4 month highs, “however, companies maintained a relatively cautious stance towards employment” as this component fell. Also of note, there was a “subdued level of confidence towards the business outlook, with optimism towards the year ahead dipping to an 11 month low.”
- Manufacturing PMI gains were seen in Taiwan and Malaysia.
- The European services PMI for July was left unrevised at 55.4 as expected and it’s the 2nd straight month at this level which is still very good (relatively speaking for Europe) but is the lowest since January. As for the combined manufacturing and services composite index, Markit said “The surveys indicated a slight cooling in the pace of growth in July, but this is still an encouragingly upbeat picture of business conditions.” In terms of pricing and the ECB, “Input prices and output charges continued to rise in July. However, rates of increase eased to eight and six-month lows respectively.” Within manufacturing, price pressures eased in July but Markit said “companies continued to struggle to meet order book growth, with capacity constraints both at factories and their suppliers becoming increasingly widespread in recent months.”
- Wholesale prices in the Eurozone in June fell .1% m/o/m as expected but were still up by 2.5% y/o/y. Wholesale prices were running 4% higher just a few months ago on oil base effects but it was also falling by 4% last year for the opposite reason.
- The eurozone economy grew by .6% q/o/q and 2.1% y/o/y as expected and follows .5% and 1.9% in the prior quarter. On a y/o/y basis this was the quickest pace of growth since Q1 2011.
- The June unemployment rate fell one tenth to 9.1% which is the lowest rate since February 2009.
- Core eurozone inflation in July ticked up by one tenth to 1.2% y/o/y, was the quickest pace of increase since May 2013 if we don’t include the timing of Easter distortion of a few months ago and was one tenth higher than forecasted. Services inflation has been the main driver of the core uptick and it was up 1.5% y/o/y, though down a tenth from June. Non energy industrial prices were up by .5% y/o/y, matching the most since February 2016. See chart on core rate. The headline increase was 1.3% as expected.
- German retail sales jumped 1.1% m/o/m in June, well above the estimate of up .2%.
- Eurozone retail sales rose .5% m/o/m in June, higher than the forecast of no change.
- The UK services PMI was up by .4 pts to 53.8 and was .2 pts above the forecast. Employment rose to the best level in 17 months and “input cost inflation remained strong in July, driven by rising food prices, energy bills and salary payments.”
- The UK manufacturing PMI in July was up almost 1 pt to 55.1 and above the forecast of 54.5. This level is about in line with the year to date average of 55.3. Strong export growth led the gains but “the domestic market also remained a positive contributor to order books, although not to as a great an extent as signaled earlier in the year.” There was some relief on the price side as both input and output prices fell.
- Germany said the number of unemployed fell by 9k, 4k more than expected while their unemployment rate held at 5.7% as forecasted, the lowest since reunification.
- German factory orders rose 1% m/o/m in June, double the estimate but it was all due to domestic activity as foreign exports fell 1.5% m/o/m (impact of stronger euro? Too early to say) and Eurozone exports obviously immune to euro changes was down by 2.4%. Domestic orders were up by 5.1% m/o/m.
Negatives
- The July ISM manufacturing index fell to 56.3 from 57.8 and that was a hair below the estimate of 56.4. Notwithstanding the 1.5 pt m/o/m drop, 15 of 18 industries surveyed saw growth in July, the same as seen in June. In terms of labor and cost issues, ISM said, “Business Survey Committee Members are beginning to mention an increase in turnover, with employees leaving for other opportunities. Overall, labor issues are becoming more prevalent…Many Business Survey Committee Members are commenting on suppliers struggling to keep up, largely due to labor retention, recruitment and stability issues.”
- The ISM services index for July fell 3.5 pts m/o/m to 53.9, 3 pts below expectations and is at the lowest level since August 2016. Business activity, new orders, backlogs, employment and export orders all fell. Prices paid rose 3.6 pts to a 5 month high. ISM said “The non manufacturing sector did not sustain the previous rate of growth and cooled off in July.” 15 industries saw growth vs 16 in June.
- While the average 30 yr mortgage rate held at 4.17% for a 2nd week, mortgage applications to buy a home fell 2% w/o/w and marks the 3rd week in the past 4 with declines. It is now at the lowest level since mid March but still are up almost 9% y/o/y. The CEO of CoreLogic said this just a few days ago, “Home prices are marching ever higher, up almost 50% since the trough in March 2011…“With no end to the escalation in sight, affordability is rapidly deteriorating nationally and especially in some key markets such as Denver, Houston, Miami and Washington.” Refi applications fell by 3.8% w/o/w and are down by 41% y/o/y.
- Auto sales in July totaled 16.69mm at a SAAR and marks the 5th straight month of below 17mm in sales with much of that reason being a large slowdown in fleet sales. JD power said while usually incentives cool after July 4th, “this year elevated inventory levels coupled with the sales slowdown, have compelled them to maintain aggressive discounts throughout July.” Leasing made up 29% in July vs last year’s peak of 32%.
- Construction spending unexpectedly contracted in June by 1.3% m/o/m vs the estimate of up .4%. This was only partially cushioned by a 3 tenths upward revision to May. Private residential construction was negative for all 3 months of Q2. Nonresidential construction rose one tenth but is down for 4 of the past 6 months.
- Income in June did not change vs May whereas the estimate was for a gain of .4%. However, digging within the data showed private sector wages/salaries did rise by .4% m/o/m. Spending was mediocre as it rose by just .1% m/o/m as expected but May was revised up by one tenth.
- Due to benchmark revisions where income was revised down and spending was revised up, he savings rate fell one tenth to 3.8% and is hovering near the lowest level in nearly 10 years and is well below the 10 year average of 5.5%.
- Fitch said net charge offs for the large US credit card issuers rose to 3.29% in Q2, the most in 4 years. The CEO of Discover this week said “The overall environment is deteriorating” and is “not quite as favorable as it was over the past few years…It is hard in the short term to grow earnings when credit is moving against us.”
- The BoE continues to roll down that highway at 100 mph on a speed limit of no more than 55 mph. Yes, they did verbally talk about raising rates at some point but Brexit has completely overwhelmed their decision making process while real wages suffer and real rates sit at near -3%.
- The Markit UK July construction PMI fell to a one year low. Both commercial and residential construction fell and Markit said “Worries about the economic outlook and heightened political uncertainty were key factors contributing to subdued demand.”
- Japan’s services PMI fell 1.3 pts to 52 which is a 5 month low.
- China’s Caixin private sector focused services PMI was basically unchanged m/o/m at 51.5 vs 51.6 last month. This matches the lowest level since May 2016.
- The Chinese state sector focused manufacturing index fell .3 pts to 51.4, a hair under the estimate of 51.5 and remains around the 51.5 average seen year to date. All the growth is coming from large businesses (aka, state owned enterprises) as the components measuring medium and small enterprises both dropped and are below 50. Output, new orders, backlogs and new export orders all fell m/o/m while employment was up a touch but still remains below 50. Both input and output prices charged rebounded. Business expectations looking forward did rise to a 5 month high. The services PMI fell .4 pts to 54.5 which is smack in line with the year to date 7 month average. New orders, backlogs, and employment all fell while business activity expectations were flat. Prices rebounded too for both those incurred and charged.
- India’s services PMI tanked to 45.9 from 53.1 and that was in response to the introduction of the new Goods and Services tax which created chaos in terms of compliance. Evidence that the negative impact will only be short lived, one year business expectations are at the highest level in a year.
- South Korea’s manufacturing PMI fell 1 pt and is back below 50 at 49.1, India’s fell 4 pts to 47.9, Indonesia’s was down by .9 pts to 48.6, Thailand fell by almost 1 pt to back below 50 at 49.6, Vietnam’s fell by .8 pts to 51.7 and was down too in the Philippines. Japan’s final read after last week’s initial was down at 52.1.
- I’m beginning to sour on the new South Korean President. He wants to hike capital gains, personal income and corporate tax rates (to 25% from 22% just as the rest of the world has and is trying to lower theirs and some of their regional peers have rates below 20%). He also is intent on ramping up public sector jobs. After rising by 18% this year, I’m taking my chips off my bullish stance on South Korean stocks.
- Thanks to a 1.5% y/o/y drop in bonus’ paid, Japanese earnings fell .4% y/o/y but regular pay was still up .4%. This is still very lame wage growth but about in line with the trend seen. The BoJ wants to see higher wages to drive higher inflation but instead they should want low inflation in light of the modest wage gains.
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