While it’s a somewhat dated labor market figure, November job openings totaled 5.52mm, about in line with the estimate and is an increase from the 5.45mm in October (revised from 5.53mm). These levels are around the most on record but seems to have topped out in 2016. See chart below. The increase m/o/m was all in the government sector as the private sector saw little change in openings. Hirings picked up by 59k but the hiring rate held at 3.6% while Separations rose too by 62k with 41k of them quitting. The quit rate though held unchanged at 2.1%.
Bottom line, the data for November was uneventful but there is still a pattern here of a high level of job openings and the lackluster supply of labor needed to meet this demand. As stated many times, the participation rate in the 25-54 yr old cohort is only at 81.5%, well below the pre recession high of 83.4%. If there is a constituency of workers that should be working it is this.
All Hail Trump! said US small businesses in December after expressing optimism too in November. The NFIB small business optimism index spiked by 7.4 pts to 105.8 after rising by 3.5 pts in November. This is the highest since 2004 and I had to go back to July 1980, 4 months before Reagan was elected but after a plunge in the months before, to find a one month gain as much as this. Some of the month to month changes in the internal components were big too. Those that Expect a Better Economy rose 37 pts to 50%, the most since March ’02. Those that Expect Higher Sales was up by 20 pts to 31% and those that said it’s a Good Time to Expand was up by 12 pts to 23%.
Digger deeper, those that Plan to Increase Capital Spending was up by 5 pts to 29%, matching the most since 2007 and of course has been a key missing piece of this mediocre recovery since 2009. Reflecting the turn up in earnings as we recycle out the sharp declines in the energy sector, Positive Earnings Trends were up 6 pts but still remain below zero at -14%. There was good news too for employees as Plans to Hire rose 1 pt to the highest level since 2006 and importantly current Compensation rose 5 pts after falling by 4 pts in November while future Compensation Plans were up by 5 pts to the most since December ’15. If there was one component that was muted, notwithstanding all the enthusiasm, it was Plans to Increase Inventory which were unchanged at 4%.
The CEO of the NFIB was effusive when she said “Small business is ready for a breakout, and that can only mean very good things for the US economy. Business owners are feeling better about taking risks and making investments.”
Bottom line, add this to the long list of rising hope for a better economy spurred on by regulatory and tax reform. In fact, the NFIB said 48% of the overall increase was driven by those that EXPECT better business conditions. Translating this optimism to reality will be the next step and hopefully the rise in capital spending plans is a sign that it has begun. I do have to tie this into the Fed and interest rates because if this optimism gets realized, the Fed will be even more woefully behind the curve in raising short rates and the 10 yr yield will be much higher than 2.35-2.40%. I mean, I still can’t get over that in the 8th year of this expansion, the Fed has hiked rates only twice to the emergency, still Defcon 1 rate of .625%.
The inflation worm continues to turn up rather sharply in China due to easy comparisons and higher commodity prices. PPI was up by 5.5% y/o/y in December, above the estimate of 4.6% and a quickened pace vs the 3.3% rise in November. After 54 straight months of declines, PPI has now grown for a 4th month y/o/y. Highlighting the influence of commodity prices, ‘mining’ prices rose 21.1% y/o/y and ‘raw materials’ prices were up by 9.8%. Capacity cuts in China was a key stated goal and at least in coal and steel there has been some success.
On the consumer side in China, CPI rose 2.1% y/o/y, a slowdown from 2.3% in November and one tenth less than expected. The moderation though was all due to a slowdown in food price gains. Non food prices picked up by 2% y/o/y vs 1.8% in November and it’s the first time at 2% since November 2011. The pick up in the inflation stats is now global but the real test will be after we adjust the base effects for energy. The market response was mixed as the offshore yuan was lower but the onshore yuan was up. Chinese bonds were down slightly and Chinese stocks were mixed with the Shanghai comp down but the H share index higher.
Is the French economy turning the corner? November IP was higher by 2.2% m/o/m, well more than the estimate of up .6% and it was driven by a 2.3% rise in manufacturing production. The gains were widespread with only weakness of note seen in construction. For the eurozone, Q4 GDP is expected to be 1.5% and for 2017 its expected to be 1.5%. Thus, improvements in the European economy are good to see but still with modest growth. With the ECB crushing profit margins for the banks, its hard to have a healthy economy without a profitable banking system. And, what will happen when the ECB backs off from QE? It will hopefully benefit banks in widening NIM spreads but the sovereign bond markets there are an accident waiting to happen.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor.