1)The September household survey within the BLS report said 526k were added and combined with the drop of 183k in the size of the labor force and the unemployment rate now has a 4 handle for the 1st time since pre Covid at 4.8%. The comprehensive U6 rate fell to 8.5% from 8.8% and that compares with 8.8% in March 2020 and 7% in February 2020. On the wage front, average hourly earnings rose .6% m/o/m, two tenths more than expected but August was revised down by 2 tenths. The work week improved to 34.8 hours and thus average weekly earnings spiked by 1.2% m/o/m after a modest .1% rise last month. Versus last year, both average hourly and average weekly earnings grew by 4.6% and both the quickest since pre Covid. Average hourly earnings are running at a 6% annualized pace over the past 6 months. The employment to population ratio did tick up by 2 tenths.
2)Initial jobless claims totaled 326k, 22k less than expected and follows two weeks where we saw above expectation prints. Last week was revised up by 2k to 364k. Smoothing this all out puts the 4 week average at 344k vs 341k last week as a print of 312k drops out. Continuing claims, delayed by a week, and now capturing any behavioral changes with back to school and the end of bonus unemployment benefits, fell to 2.71mm from 2.81mm in the week prior and that is 50k less than expected. This does match the lowest since Covid ramped up the count.
3)The September ISM services PMI rose a touch to 61.9 from 61.7 in August. That was 2 pts better than expected and this compares with the six month average of 62.4. Of the 18 industries surveyed, 17 saw growth, the same number for a 3rd month running. The ISM said simply, “The slight uptick in the rate of expansion in the month of September continued the current period of strong growth for the services sector. However, ongoing challenges with labor resources, logistics, and materials are affecting the continuity of supply.”
4)The UK September services PMI was revised up to 55.4 from the initial read of 54.6 and compares with 55 in August. It did peak this year though at 62.9 in May. Markit said “The supply chain crisis put a considerable brake on the recovery in the UK service sector during September. Survey respondents widely noted that shortages of staff, raw materials and transport had resulted in lost business opportunities. Consequently, new orders expanded at the slowest pace since the end of the winter lockdown, while backlogs of work accumulated as service providers struggled to find candidates to fill vacancies.”
5)The Caixin China September services PMI jumped to 53.4 from 46.7 and that was well better than the estimate of 49.2 but seems mostly due to a relaxing of Covid restrictions. “At the same time, confidence towards the 12 month outlook improved, and firms expanded their staffing levels slightly. There were signs of stronger inflationary pressures, however, as both input costs and output charges rose at faster rates compared to August” Caixin said.
6)Singapore saw its September PMI rise to 53.8 from 521. Markit said “Demand and output grew at stronger rates than in August, though buying activity and employment levels remained subdued, affected by the virus. Supply constraints meanwhile lingered alongside stronger price pressures for private sector firms in September, but overall sentiment remained positive.”
7)Taiwan said its exports grew by 29.2% y/o/y, above the estimate of up 25% and boy do we need their products, especially semi’s.
8)The Reserve Bank of New Zealand raised interest rates by 25 bps to .50% as expected and laid the groundwork for more, “it is appropriate to continue reducing the level of monetary stimulus so as to maintain low inflation and support maximum sustainable employment.”
9)The Reserve Bank of India surprisingly ended QE cold turkey with no taper. This is a country that is highly sensitive to inflation with its low per capita income.
10)Putin to the European energy rescue!?
11)The NY Jets actually won a game.
1)The September headline payroll number totaled just 194k which was about 300k less than expected but partly offset by a combined upward revision to the two previous months of 169k. Most importantly, within the private sector there were 317k new net jobs vs the estimate of 450k but August was revised up by 89k and July revised up by 8k. Thus, the private sector print was only about 36k less than expected. The labor force participation rate continues to be a big disappointment, falling to 61.6% from 61.7% in August. There were expectations for a rise to 61.8%. Specifically for the all important 25-54 yr old cohort, the participation rate fell to 81.6% from 81.% and that is a 4 month low. It was 83% in January 2020.
2)According to the Manheim Used Vehicle Index, prices went up 5.3% m/o/m in September and is up 27.1% y/o/y. The index is at a fresh record high.
3)With another tick up in the average 30 yr mortgage rate to 3.14%, the highest since early July but still so historically low, mortgage apps fell by 7%. Purchases were down by 1.7% w/o/w and 12.6% y/o/y while refi’s were lower by 9.6% w/o/w and 16% y/o/y.
4)The US Markit services PMI for September and capturing more small and medium sized businesses fell for the 4th straight month to 54.9 and that is the lowest since December 2020. Markit said “labor shortages hampered output growth.” Also, “Total sales were weighed down by the spread of Covid and a faster decline in new export orders.” On pricing, “cost pressures built for a 2nd month running as input prices rose at a steep rate. Firms continued to pass on higher costs to clients, but at the slowest pace for five months.” With respect to those input prices they “were commonly attributed to greater supplier and transportation costs, alongside an increase in wage bills.” On the drop in output charges, Markit said it was used by “some firms to attract new business by waving certain fees.”
5)A few days after we saw September auto sales total just 12.2mm vehicles on a seasonally adjusted annualized rate because of the lack of cars/trucks and which is not much more than what we saw in March 2020, class 8 truck orders fell 12% y/o/y in September, also because of a shortage of parts. Daimler Trucks CEO said this on its business, “We will certainly be delivering less than we could have sold, and that also applies to next year. It’s a fight over every chip.” PACCAR, another big truck maker said this week that Q3 truck deliveries will total about 33k vehicles vs 40k in Q2. They repeated their belief though that “Global demand for the new Kenworth, Peterbilt and DAF trucks is very strong.”
6)The Atlanta Fed’s GDPNow Q3 forecast is now down to 1.3%. It was 6% two months ago.
7)According to an Atlanta Fed report this week, the median income household would have to have 32% of its income to cover monthly mortgage payments on a median price house. According to the Department of Housing and Urban Development, anything above 30% is referred to as “cost burdened.”
8)The US trade deficit in August rose to a record $73.3b, above the estimate of $70.8b. Imports were up by 1.4% m/o/m while exports grew by .5%.
9)In Europe, we saw a tiny revision to the European services PMI to 56.4 vs the 1st print of 56.3 but which is down from 59 in August. Stagflation was the message as Markit said “The current economic situation in the Eurozone is an unwelcome mix of rising price pressures but slower growth. Both are linked to supply shortages, especially in manufacturing, which has seen a steeper fall in output growth than services.” There is confidence for the services sector looking ahead but less so, “Service providers remained strongly optimistic that activity levels would rise over the coming 12 months as global economies recover from the pandemic. However, the degree of positivity slid to a 6 month low.”
10)German industrial production fell by 4% m/o/m in August, well below the estimate of down .5%. The Economy Ministry said simply what we all know, “Manufacturers continue to report production constraints due to supply shortages of intermediate products.”
11)German factory orders fell by 7.7% in August which was well worse than the forecast of a drop of 2.2% and was only slightly offset by a 150 bps upward revision to July. We know what we can blame here.
12)The Sentix Investor Confidence index for October fell to 16.9 from 19.6 and vs the estimate of 18.6. It’s the 3rd month in a row of declines and Sentix said “The momentum of the economic recovery in the Eurozone continues to slow down.” We know though that much of this is because of the problems on the supply side but now joined by spiking energy bills.
13)Pointing to more rate hikes, South Korea said its September CPI rose .5% m/o/m after a .6% rise in August. That was one tenth more than expected and up 2.5% y/o/y. The core rate was higher by 1.9% y/o/y.
14)The September Hong Kong PMI fell to 51.7 from 53.3. Blame the strict Covid restrictions but also the supply chain constraints. On pricing, “Although firms continued to share these cost burdens with clients, overall input price inflation continued to exceed that of output charges, indicating pressure on the margins.”
15)Tokyo said its CPI for September rose .3% y/o/y, well above the estimate of down .1% and after falling by .4% in August. Most of that was energy and hotels prices on easy comps while the core/core rate was down .1% y/o/y as expected and continued to be pressured by falling mobile phone fees. A decline in these fees of 45% takes about 100 bps off the headline figure.
16)India’s services PMI for September fell to 55.2 from 56.7.
17)While I never personally knew Tobias Levkovich, I feel like I did after seeing, hearing and reading his market thoughts for decades and with great respect.