Every jobs report is of course important but with the set up of a tough Fed on the basis of wanting to aggressively tame inflation with the comfort of a strong labor market, confirmed by both Bullard and Waller yesterday, today’s number is especially relevant. If the unemployment rate starts to rise from here, I expect the Fed’s tough talk to be tempered in the months to come. Until then, at least Bullard and Waller want to get to a 3.5% fed funds rate, take a breadth and survey the landscape. As for what the markets want, I can guess. I’m sure if its weak, the initial reaction will be taking out the possibility of rate hikes above 3% rather than worry about a recession which stocks will like initially. Thereafter, we’ll see if there is follow thru on that focus or the inevitable earnings hit will turn center stage. Anything in line to better will just reinforce what the Fed wants to do as of now.
WD-40, a product likely in everyone’s home, is trading down after earnings last night. Here are a few relevant comments from their conference call: “we continue to face a challenging inflationary environment and our third quarter gross margin came in at 48% (vs 53% in the year ago quarter) reflecting significant increases to our cost of products sold. Inflationary cost pressures are broad based and continue to increase with little sign of near term relief.” In response, “we continue to actively manage our supply chain as we implement various initiatives to increase the capacity and flexibility of our supply chain for the long term. In tandem with these efforts, we have been implementing strategic price increases across all segments in response to the increased costs we continue to experience.” The bold is mine. To what extent did they raise prices in their fiscal quarter just ended? They said in their call, “we implemented a 25% price increase in the US, but the impact of that price increase will flow into our financials in the fourth quarter. We are also implementing significant price increases in Europe this summer. As a result, we will continue to see the benefits from price increases in future quarters…Make no mistake, we will continue to take measures and implement price increases to offset rising input costs.” People expecting a sharp drop in consumer goods prices rather than a more modest one, I think will be disappointed for now.
Fannie Mae yesterday released its June Home Purchase Sentiment Index and it fell 3.4 pts to 64.8, “its second lowest reading in a decade. Surveyed consumers continue to express pessimism about homebuying conditions, with only 20% of respondents reporting it’s a ‘good time to buy a home’, while the percentage of consumers who believe it’s a ‘good time to sell’ fell from 76% to 68% this month.” Also of note, “a survey high 81% of consumers believe the economy is on the ‘wrong track’ and, for the first time in nearly 7 years, a plurality of respondents said it would be difficult to get a mortgage, potentially a function of elevated home prices and higher mortgage rates.” Ahead of today’s job number, there was also this: “21% of respondents expressed job stability concerns, the highest percentage in 18 months.” This hugely interest rate sensitive part of the economy has again gone thru the Fed driven easy money boom and bust (we’ll see to what extent this time), AGAIN.
The important tech manufacturing hub that is Taiwan said exports in June rose 15.2% y/o/y as expected. Not surprisingly, the shipments of semi chips led the way. Imports were up by 19.2% but that is a moderation from the 27% increase and May and vs the estimate of up 25.5%.