1) September hiring totaled 134k, 50k less than expected but that was completely offset and then some by the 87k person upward revision to the two previous months. After shedding 423k jobs in the household survey in August, 420k were added back in September. As that rose above the 150k increase in the size of the labor force, the unemployment rate fell 2 tenths to just 3.7%, the lowest since December 1969. The participation rate held at 62.7% and the employment to population ratio was up one tick to 60.4%. There was another increase in those not in the labor force and the percentage of job leavers fell back to 12.2% from 14% which was the highest since late 2000. Average hourly earnings rose .3% m/o/m as expected but August was revised down by one tenth to a .3% gain too. The y/o/y gain of 2.8% was as expected and with hours worked at 34.5 as estimated, average weekly earnings rose by 3.4% which matches the best level since August 2007. I believe this continues to understate the wage gains as the number of job gains for those aged 16-19 yrs old rose by 202k and those aged 20-24 yrs old was up by 185k. Those aged 25-54 saw a job gain of just 40k and those over the age of 55 saw a rise of 67. At an education level, those that only have a high school diploma saw a job gain of 174k and those that have only SOME college saw a job rise of 252k. For those with a college degree or higher saw a job loss of 328k. These people of course get paid less and thus lowers AVERAGE hourly earnings. Smoothing out the noise puts the 3 month job gain average at 190k vs the 6 month average of 203k and the 12 month average of 211k. In 2016 is was 195k and in 2015 it was 226k.
2) Initial jobless claims totaled 207k, 8k less than expected and down from 215k last week. This however keeps the 4 week average at 207k because a 205k print fell out. Continuing claims, delayed by a week, fell 13k to just shy of the lowest level in a very long time.
3) Amazon helps to confirm the higher wage story with a hike in its minimum wage paid.
4) The new US/Canada/Mexico trade deal now only needs to be ratified.
5) The September ISM services index jumped to 61.6 from 58.5. That was well more than the estimate of 58. Go back to August 1997 the last time it was higher. Of the 18 industries surveyed, 17 saw growth vs 16 in August. ISM said “Overall, respondents remain positive about business conditions and the current and future economy. Concerns remain about capacity, logistics and the uncertainty with global trade.” In what will be the case in many economic statistics in coming months until the new tariffs on China kick up to a 25% rate from 10%, Anthony Nieves from the ISM said “businesses in the services sector were increasing inventories, importing and exporting in anticipation of coming trade actions” according to the WSJ. They also said local municipal spending was ramped up ahead of the end of budget fiscal year.
6) With the average 30 yr mortgage rate holding just below 7 1/2 yr highs, mortgage applications w/o/w were unchanged after last week’s fence sitter jump. Purchases rose by .1% w/o/w and up 3% y/o/y. Refi’s were down by .1% from last week and remain down 33% vs last year.
7) The US trade deficit in August at $53.2b was a touch less than expected but still the widest since February. Exports fell for a 3rd straight month to the least since February.
8) In August in Japan, regular base pay grew by 1.4% y/o/y. That is the best rate since 1997 and they rose by 2.8% for part time workers.
9) The QE tapering in Japan continues with its monetary base up by 5.9% y/o/y in September, down from the 6.9% pace seen in August. That rate is the slowest since November 2012.
10) The Chinese state sector weighted services PMI which gained .7 pts to 54.9, above the forecast of 54.
11) South Korea’s manufacturing PMI got back above 50 m/o/m and rose a hair in Malaysia, Thailand India, and the Philippines.
12) German factory orders in August rebounded by 2% m/o/m, better than the estimate of an .8% rise. It comes after declines in 3 of the prior 4 months. All of the gain however came from outside of the region as orders domestically and within the eurozone was down. The Economic Ministry said helping orders was a clearing of a bottleneck in the auto sector that came from new pollution standards. They also said “The strong increase in orders from non European countries proves that German industrial products remain in demand worldwide, regardless of trade conflicts.”
13) The Eurozone services PMI for September was left unchanged at 54.7 as expected and is up from 54.4 in August. The combined manufacturing and services composite index though was 54.1 and which does match the lowest since November 2016. Markit said “The most worrying signs come from exports. Trade flows have more or less stalled, which represents a marked contrast to the record rate of export growth seen at the end of last year. While service sector growth remained resilient in September, it would be unusual for this to be sustained in the absence of improved manufacturing growth.”
14) The UK manufacturing PMI rose .8 pts to 53.8 and that was better than the estimate of 52.5. Markit said “September saw a mild improvement in the performance of the UK manufacturing sector. Domestic market demand strengthened, while increased orders from North America and Europe helped new export business stage a modest recovery from August’s contraction…Despite these causes for short term optimism, conditions in manufacturing are still relatively lackluster overall.”
15) The August unemployment rate for the Euro area did fall one tenth to 8.1% as expected and that’s the lowest since November 2008.
16) Dealing with a tough set of cards with its slumping housing market, the Reserve Bank of Australia kept rates unchanged at its record low of 1.50% and while sounding upbeat about growth and inflation, they gave no hint as to when rates would rise.
1) Interest rates break out to the upside above key levels for a variety of reasons. There is no greater input into a credit and debt dependent economy.
2) Coincident with the rise in crude oil, the average price of gasoline at the pump according to AAA has risen for 10 straight days in the past 11 and that other day it was unchanged. It’s at the highest in almost 4 months and up by 15% y/o/y.
3) Markit in contrast to the ISM said its measure of the September US service sector declined to 53.5 in September from 54.8 in August. That’s the lowest since January. They still categorize growth as “relatively solid” though as “some of the slowdown can be traced to capacity constraints.” With respect to price pressures, “the rate of inflation was steep and accelerated from August’s recent low…the pace of selling price inflation accelerated to the fastest in the 9 year series history.” Markit’s read on US manufacturing saw a .9 pt increase after 4 months of m/o/m declines.
4) The September ISM manufacturing index was 59.8, a hair below the estimate of 60 and down from 61.3 in August. This level is about the same as the average year to date of 59.4. Of the 18 industries, the number seeing growth slowed to 15 from 16 and that is the least since it printed 15 in February and 14 in January. Of note in some of the specific components, just 12 of 18 industries saw an increase in growth in new orders, matching the least since November 2016. Three are seeing an outright contraction. ISM said the “export index remains strong, but only two of the six big industry sectors contributed during the period, down two from the previous month.” The ISM summed up the report by saying “Demand remains robust, but employment resources and supply chains continue to struggle, but to a lesser degree. Respondents are again overwhelmingly concerned about tariff related activity, including how reciprocal tariffs will impact company revenue and current manufacturing locations.”
5) In the final factory orders figure, non defense capital goods orders ex aircraft, aka core durable goods orders, was revised down to a decline of .9% from the initial print of down .5% for August.
6) The JPM Global manufacturing and composite index for September fell for a 3rd straight month to 52.8. That is the lowest level in two years.
7) The Chinese state sector weighted manufacturing PMI fell .5 pt to 50.8 and that was below the estimate of 51.2. That is a 7 month low and of note, the export component fell to 48, the weakest since February 2016. The mostly private sector Caixin index fell to 50 from 50.6, the lowest since May 2017.
8) The quarterly Japanese Tankan index for large businesses fell to 19 from 21 and that is below the estimate of 22. The services component was down too. The data was more steady for smaller businesses. Capital spending plans grew by a solid 13.4% but that was slightly below the estimate and down from the prior quarter.
9) Hong Kong’s September PMI index fell more below 50 at 47.9 from 48.5 in August. Markit said “Hong Kong’s private sector suffered a further deterioration in business conditions in September as rising trade tensions continued to weigh on demand…Notably, new business to China shrank markedly.”
10) The Japanese PMI services index for September fell to 50.2 from 51.5. That is the lowest level in 2 years. Notwithstanding this, Markit remains positive that the moderation is temporary. “New business and employment both increased at rates which were broadly in line with their respective current expansionary period averages…This suggests the anemic output growth observed in September should be transitory, as robust demand pressures and job creation should continue to drive stable growth in business activity.”
11) Singapore’s PMI fell below 50 at 59.6 from 51.1 in August. That is the weakest since April 2016. Export orders fell to a 3 month low as “ongoing challenges surrounding global trade conditions are a key concern.” The positive was “business confidence about output over the next 12 months remained upbeat, with the Future Output Index unchanged at a one year high.”
12) Manufacturing PMI’s fell in Taiwan, Vietnam and in Indonesia in September.
13) South Korea exports were weaker than expected, falling by 8.2% y/o/y, more than the 5.5% decline that was anticipated. The decline y/o/y was mostly due to more holidays this year compared to last. The Trade Ministry in South Korea said “extension of trade conflict between Washington and Beijing and growing volatility following rate hike of the US are downside pressure of exports.” Their broken English, not mine.
14) With its currency continuing to weaken, the Reserve Bank of India should have raised rates to stabilize it, especially in the face of the continued rise in oil prices which they import much of.
15) Germany also also reported PPI for August which rose 3.1% y/o/y, above the estimate of up 2.9% and from 2.9% in July and that matches the quickest rise since April 2017. It was driven by higher energy prices as PPI ex that was up 1.8%, the same pace as July.
16) German retail sales in August fell .1% m/o/m vs the estimate of a gain of .5%.
17) The eurozone PPI jumped more than expected in August. It rose by .3% m/o/m and July was revised up by 3 tenths to a .7% gain. The y/o/y rise was 4.2% vs 4.3% in July. These prints are just off 7 year highs and is mostly energy driven. PPI ex energy was up a much more modest 1.5% y/o/y.
18) The UK PMI services index fell to 53.9 from 54.3 in August and 53.5 in July. The estimate was a hair above at 54. Markit said service sector growth was “solid” but “Brexit worries continue to dominate the outlook, however, keeping business optimism firmly anchored at levels which would normally be indicative of an imminent slowdown.”
19) Italian yields continue higher over worries with their budget deficits in coming years notwithstanding some attempt at relieving concerns. The European bank stock index is less than 1 pt from a 2 year low.
20) From a contrarian standpoint, according to II, those expecting a stock market correction fell to the lowest level in 6 ½ years.