Succinct Summation of the Week’s Events:
Positives,
1)The household survey said 139k net jobs were created and when combined with a reduction in the size of the labor force of 43k, the U3 unemployment rate fell to 3.4% from 3.5% and matches the January multi decade low. The all encompassing U6 rate was down by one tenth to 6.6%. Hourly earnings were up .5% m/o/m, two tenths more than expected. Versus last yr they are up by 4.4% vs 4.3% in March, 4.7% in February and 4.4% in January. Combining hours worked and hourly earnings puts the average weekly earnings at up .5% m/o/m and 3.8% y/o/y. The participation rate held at 62.6% and remains below the 63.3% in February 2020. Importantly though, the rate for 25-54 yr olds rose to 83.3% from 83.1% and that is the best since January 2007.
2)ADP said 296k private sector jobs were added in April, double the estimate and a pick up from the 142k seen in March. That’s the biggest one month job print since last July. Small and medium sized businesses drove most of the hiring. Because of the volatility of the ADP data I’ll smooth this out and we see a ytd monthly job gain of 205k vs 306k in 2022.
3)The April ISM services index rose .7 pts m/o/m to 51.9 about as expected. This compares with 55.1 in February and 55.2 in January. Of the 18 industries surveyed, 14 saw growth vs 13 in March. Three experienced a contraction (the other one saw no change) vs 5 in March. This was the bottom line from the ISM, “The majority of respondents are mostly positive about business conditions; however, some respondents are wary of potential headwinds associated with inflation and an economic slowdown.”
4)The S&P Global services PMI was 53.6, up 1 pt m/o/m. They said “Companies have reported an improvement in confidence compared to the gloomier picture seen late last year, with service sector companies also benefiting from a post-pandemic tailwind of spending shifting from goods to services, notably among consumers.” They did however include the caveats though that we are all growing well aware of, “Headwinds from higher interest rates and the increased costs of living, combined with the winding down of household savings, suggest the upturn could lose steam in the months ahead.”
5)The S&P Global manufacturing PMI which includes small and medium sized businesses got back above 50, barely, at 50.2 after 5 straight months below. They said “Client demand remained muted despite new orders returning to expansion territory, as inflation concerns remain apparent…The uptick in demand was centered on the domestic market, as new export orders contracted further.” Their employment component improved to the best since September 2022. “Cost burdens rose at the sharpest pace for three months, as selling prices also increased at an accelerated rate.”
6)April auto sales totaled 15.91mm, above the estimate of 15.1mm and that is up from 14.3mm in April 2022. Wards said “Higher interest rates, elevated prices and fear of recession undoubtedly are pushing some consumers out of the market, but pent-up demand (especially from fleets), increased availability and an economy still seeing job growth and wage increases are offsetting the headwinds. Incentives are rising from rock-bottom lows, which helps, but those gains are more in line with what would be expected as inventory rises from historic lows rather than from automakers simply reacting to consumer pullback.”
7)I don’t know whether this is a positive or negative at this point but the ECB raised rates 25 bps as expected. That said, they still have rates well below the rate of inflation. The same with the RBA which surprised us with another rate hike to 3.85%.
8)The April Eurozone services PMI was revised slightly lower to 56.2 from its initial print of 56.6 but still a bright spot relative to manufacturing. The UK services PMI was revised up by 1 pt to 55.9 and the same came be said for the UK.
9)Singapore’s April PMI rose to 55.3 from 52.6 and S&P Global said “The upturn was driven by a sharp and accelerated rise in new work, which in turn was supported by a renewed improvement in overseas sales, as companies reported an improvement in customer spending.”
10)India’s economy continues to be a standout and the S&P Global services PMI for April rose to 62 from 57.8.
11)Indonesia’s manufacturing rose to 52.7 from 51.9.
12)Hong Kong’s Q1 GDP surprised to the upside with a 5.3% q/o/q increase, above the estimate of 3%. Private spending led the way, jumping by 12.5% and helped by tourism.
Negatives,
1)I believe the Fed made a mistake in raising rates again, rather than being patient and seeing how things play out from here. The cumulative amount of tightening, assuming 50 bps due to the bank turmoil, is now 100 bps SINCE Silicon Valley Bank went down. Recession roulette.
2)Payrolls in April grew by 253k, about 65k above the estimate but offset by a downward revision of 149k over the two prior months. Hours worked remained at 34.4 as expected but that matches the lowest since April 2020 and it was at that same level of 34.4 in February 2020. Of note and an historically leading indicator of job growth, temp jobs were shed for a 3rd straight month and in the 5th month in the past 6. In April, the birth/death model added 378k jobs vs 323k in April 2022 and vs 281k in April 2019. So, likely overstating reality. Smoothing out the last 3 months has the average payroll gain at 222k vs the 6 month average of 278k and vs the 2022 average trend of 399k. Of note, the diffusion index, measuring sectors adding and those shedding jobs, was just 57.4 vs 57 in March which was the lowest since Covid.
3)Initial jobless claims were about as expected at 242k vs the estimate of 240k and that is up from 229k last week and vs 246k in the week before. The 4 week average rose to 239k from 236k. Continuing claims fell to 1.805mm from 1.843mm and that was 60k less than expected but above 1.8mm for the 7th straight week.
4)The Challenger job layoff report said cuts totaled 67k in April vs 90k in March. Retail job cuts led the way in April followed by technology. Year to date, job cuts total 337k vs hiring plans of 94k. Specifically with hiring plans Challenger said “It is the lowest number of announced hiring plans through April since 2016.”
5)Job openings in March shrunk for a 3rd straight month to 9.59mm. That’s the least since April 2021 as the economy was then reopening. It remains well above the February 2020 level of about 7mm but that was before the whole work from home trend.
6)The April ISM manufacturing index was 47.1, remaining below 50 for the 6th straight month. It compares with 46.3 in March, 47.7 in February and 47.4 in January. Of the 18 industries surveyed, just 5 saw growth vs 6 in March. It was last September the last time even half of the 18 industries saw growth. The ISM said “The US manufacturing sector contracted again…New order rates remain sluggish as panelists remain concerned about when manufacturing growth will resume. Panelists’ comments registered a 1 to 1 ratio regarding optimism for future growth and continuing near term demand declines…73% of manufacturing GDP is contracting, up from 70% in March.”
7)US productivity in Q1 fell .9% y/o/y and is the 5th quarter in a row of declining productivity. Unit labor costs were up 5.8% y/o/y and the combination helps to explain the continued degradation in corporate profit margins.
8)With an average 30 yr mortgage rate of 6.50% vs 6.55% last week and 6.43% in the week prior, purchase applications fell 2% w/o/w after rising by 4.6% last week. They are lower by 32% y/o/y. Refi’s were up .8% w/o/w but still down by 51% y/o/y.
9)In the Fed bank data seen last Friday for the week ended 4/19, C&I loans outstanding shrunk by $5.3b. It’s now down about $58b since the aftermath of SVB and just above the lowest since last September.
10)China’s April private sector Caixin services PMI fell to 56.4 from 57.8 but still up from 55 in February, 52.9 in January and 48 in December. Caixin noted the slight moderation but said “Higher activity levels were frequently linked to the return to more normal operating conditions as the impact of the pandemic continued to fade, leading to firmer demand and higher customer numbers.”
11)China’s private sector weighted Caixin manufacturing PMI fell .5 pt to 49.5 where no change was expected. Caixin said “Domestic demand became a main drag, as the subindex for total new orders fell back into contraction. The gauge for new export orders remained stable as more Covid restrictions were lifted, but external demand remained limited.”
12)China’s state sector focused composite PMI fell to 54.4 from 57. The manufacturing component fell below 50 at 49.2 from 51.9 as it is being weighed down by slow global trade. Services remained well above 50 but slipped a bit to 56.4 from 58.2.
13)Hong Kong’s April PMI was 52.4 vs 53.5. Vietnam’s manufacturing fell 1 pt to 46.7. Taiwan’s was 47.1 vs 48.6. South Korea’s 48.1 vs 47.6. Malaysia 48.8 vs 48.8.
14)April Eurozone CPI rose 7% y/o/y, one tenth more than expected and up from 6.9% in March. The core rate was higher by 5.6% y/o/y as forecasted and down one tenth from the month before. The prices of non-energy industrial goods was up by 6.2% y/o/y vs 6.6% in March while services inflation continues to accelerate, up by 5.2% y/o/y.
15)The final April Eurozone manufacturing PMI was well under 50 at 45.8, up a touch from the initial read but down from 47.3 in March and its the 10th straight month below 50. The final UK manufacturing PMI was also less than 50 at 47.8.
16)Germany’s March factory orders badly missed expectations with its drop of 10.7% m/o/m vs the forecast of down 2.3%. Particular weakness was seen in auto, ships and aircraft.
17)The ECB released its Bank Lending Survey and said “In the April 2023 BLS, euro area banks indicated that their credit standards for loans or credit lines to enterprises tightened further substantially in the first quarter of 2023. From a historical perspective, the pace of net tightening in credit standards remained at the highest level since the euro area sovereign debt crisis in 2011.” As for households, “Banks also reported a further substantial net tightening of credit standards for housing loans in the first quarter of 2023, while the net tightening became less pronounced for consumer credit.”
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