Positives
1)Payrolls grew by 261k in October, above the estimate of 193k and the two prior months were revised up by a combined 29k. About half of the upside surprise came from government workers. The private sector added 233k vs the forecast of 200k. The participation rate rose one tenth to 62.2% but was at 62.4% two months ago. The workweek held at 34.5 as expected. Average hourly earnings rose .4%, one tenth more than forecasted and up by 4.7% y/o/y, a slowdown from the 5%+ pace seen mostly this year BUT, the comparison is getting tougher as this figure was up 5.4% in October 2021. When combined with weekly hours, average weekly earnings were up by .4% m/o/m and 3.8% y/o/y. Smoothing out the monthly volatility puts the 3 month payroll average at 289k vs the 6 month average 347k, the 12 month average of 442k and the 2021 average of 562k.
2) Initial jobless claims were 217k, 3k below the forecast and vs 218k last week. The 4 week average was little changed at 219k.
3)The number of job openings in September totaled 10.72mm vs 10.28mm in August and about 1mm above the estimate. It is though the 2nd month below 11mm after an 8 month run above 11mm. Of note, the number of hiring’s and quitters both fell m/o/m.
4)Auto sales in October totaled 14.9mm which was above the estimate of 14.5mm, up from 13.5mm in September and vs 12.99mm in October 2021. Wards said “October’s surge was sparked by greater availability, moderation to price increases and delayed shipments from Q3. Boding well for the rest of the fourth quarter is that inventory will continue rising through November, which, if coupled with restraint on pricing, creates upside to deliveries. Challenges to the rest of the year include potentially tougher economy-related headwinds, as well as less impact from the temporary lifts that helped October.”
5)Over the weekend Apartment List.com released its November National Rent Report (covering leases for new tenants as opposed to extending expiring ones) and said “Our national index fell by .7% over the course of October, marking the 2nd straight m/o/m decline, and the largest single monthly dip in the history of our index, going back to 2017. These past two months have marked a rapid cooldown in the market, but the timing of that cooldown is consistent with a seasonal trend that was typical in pre-pandemic years. Going forward it is likely that rents will continue falling in the coming months as we enter the winter slow season for the rental market.” This said, new rents are still up 5.9% y/o/y and “continues to outpace the pre-pandemic trend, even as it has slowed significantly from last year’s peaks” but that is a sharp slowdown from the 18% y/o/y increase at this point in 2021.
6)Canada’s October job gain was much better than expected at 108.3k, well more than the forecast of up 10k. Their unemployment rate held at 5.2% as expected as the participation rose by 2 tenths to 64.9%.
7)Rate hikes were seen from the Fed, BoE, RBA, the Norges Bank and Malaysian central bank with a slower pace of increases to come and already upon us for the RBA, Norway and Malaysia.
8)Is it true that China is finally discussing a path to the end of dynamic zero covid?
9)Singapore remains a bright spot in Asia as its PMI was 57.7 from 57.5 in September. S&P Global said “growth momentum has yet to taper at the start of the fourth quarter, even as domestic covid cases rose in the early half of October. Faster business activity growth was underpinned by solid demand conditions. This included foreign demand that improved at a visibly sharper rate.”
10)India’s services PMI, another country that is a bright spot, rose to 55.1 from 54.3.
11)The UK October services PMI was revised up by 1 pt to 48.2 but which is still below 50 for the 3rd straight month and the weakest since January 2021. Political upheaval, inflation, particularly energy costs, and the higher cost of capital are the obvious reasons. The UK October manufacturing PMI was revised to a slightly better 46.2 vs the initial print of 45.8 but still down from 48.4 in September. The softness was driven by “weak demand, high inflation, supply chain constraints and heightened political and economic uncertainties,” not surprisingly at this point.
12)The Eurozone composite PMI was revised a touch higher to 47.3 from 47.1 initially but still down 6 months in a row with both components below 50.
13)Unemployment in Germany in October rose by 8k people but that wasn’t as bad as the 12.5k estimate. The unemployment rate held at 5.5% and “the consequences of economic uncertainty show that more companies than before are preparing for short time work and reducing their demand for new staff” according to the Federal Labor Agency chief.
14)The Eurozone saw Q3 GDP rise .2% q/o/q and 2.1% y/o/y, a hair above the estimate but follows an .8% q/o/q and 4.1% y/o/y increase in Q2.
Negatives
1)In contrast to the October BLS establishment survey, the household survey saw a job loss of 328k and when combined with a 22k person drop in the labor force, the unemployment rate jumped up by 2 tenths to 3.7% after falling by 2 tenths in September. The all in U6 rate rose one tenth to 6.8%. Within that household survey, the key age group of 25-54 yr olds lost 489k jobs and the important 25-54 yr participation rate though fell 2 tenths to 82.5, a 3 month low. On that establishment metric, the Birth/Death model added 455k which is almost 100k more than October 2021 print of 363k and in October 2020 of 344k. Pre-covid, it added 274k in October 2019 so assume it was overstated this month.
2)There was a 47k person rise in continuing claims to 1.485mm and that is the most since the end of March.
3)The October ISM services index fell to 54.4, the weakest since May 2020 from 56.7 in September and that was about one point below the estimate of 55.3. While the headline figure fell, the breadth was slightly better as 16 industries saw growth of the 18 surveyed vs 15 in September. The ISM’s bottom line, “Based on comments from Business Survey Committee respondents, growth rates and business levels have cooled. There are still challenges in hiring qualified workers, and due to uncertainty regarding economic conditions, some companies are holding off on backfilling open positions. Supply chain and logistical issues persist but are not as encumbering as they were earlier in the year.”
4)The S&P Global services PMI was below 50 for a 4th straight month. They said “Demand conditions were hampered by tighter financial conditions and elevated rates of inflation, leading to reports of postponements and the delayed placement of orders as customers assess their spending. Subdued demand and weaker confidence in the outlook for output led to a near-stagnation in employment. Reports of the non-replacement of voluntary leavers brought signs that firms were evaluating costs and future demand more closely before advertising vacancies and expanding staffing levels.” The positive was the moderation on the inflation side, “Hikes in costs softened, as service providers and manufacturers saw slower upticks in supplier and input prices. Meanwhile, private sector firms sought to boost demand through a slower increase in selling prices.”
5)The October ISM manufacturing index fell to 50.2, the weakest since May 2020 from 50.9 but that was a hair above the estimate of 50. Of the 18 industries surveyed, 8 saw growth vs 9 in September, 10 in August, 11 in July, 15 in the previous two months and 17 in April. That’s the least amount since May 2020. Only 5 now are paying higher prices vs 10 in September and 17 back in June. Just 3 industries saw an uptick in new orders, the same number as those seeing an increase in backlogs. Ten industries saw a contraction vs 7 in September.
6)The S&P Global US manufacturing PMI dropped for the 5th month in the past 6 to 50.4, the lowest since June 2020.
7)While the average 30 yr mortgage rate backed off by 10 bps, it still is above 7% at 7.06% according to the MBA today. Mortgage applications after the run of weakness was little changed for the week ended October 28th. Purchases fell .8% w/o/w but are still down 41% y/o/y. Refi’s were up by .2% w/o/w and lower by 85% y/o/y.
8)The October Logistics Managers Index fell to 57.5 from 61.4 in September, is the 2nd month in the past 3 below 60 and is the weakest since May 2020, though still above the breakeven of 50. LMI said “In a continuation of what we have seen for the last six months, the engine of this growth are the warehousing and inventory metrics. While we do see some evidence that firms are finally winding down their inventories, the costs associated with holding them remains high, and we continue to see a lack of available warehousing capacity…Similar to what we noted last month, inventory seems to be sitting idly clogging warehouses where retailers hope for a busy Q4. The flipside of that is that the normal peak season for carriers has not materialized, as there has been less to move than we would usually see during this time of year.”
9)US productivity in Q3 was modest, rising .3% q/o/q annualized but follows a 4.1% drop in Q2. Unit labor costs slowed to 3.5% but after two robust quarters in the first half of 2022. On a y/o/y basis, productivity was negative for a 3rd straight quarter, down by 1.4%. Unit labor costs rose by 6.1% y/o/y. For perspective, in the 20 yrs leading into covid, unit labor costs averaged 1.3% per annum.
10)The Eurozone CPI for October was up 10.7% y/o/y, 4 tenths more than expected. The core rate up by 5% was as expected but up from 4.8% in September, 4.3% in August, 4% in July and 3.7% in June. Non-energy industrial goods prices accelerated as they did for services.
11)Germany said factory orders in September fell 4% m/o/m, well worse than the estimate of down .5% and comes after a 2% fall in August. They are down 10.8% y/o/y. The German Economy Ministry said “The outlook for manufacturing activity remains gloomy in light of high energy prices, which are increasingly affecting consumers. After the surprisingly positive development of GDP in the third quarter, a weak fourth quarter looms.”
12)China’s October Caixin services PMI dropped to 48.4 from 49.3. While China’s manufacturing Caixin index and the PMI in South Korea both rose from September, they were still below 50.
13)China said its October state sector composite PMI fell below 50 at 49 from 50.9 in September with both services and manufacturing also less than 50.
14)There were PMI m/o/m declines seen in Taiwan (down to just 41.5, the lowest since 2009), Thailand, Malaysia, Vietnam and Indonesia.
15)In South Korea there was a 5.7% y/o/y drop in exports in October led by a drop of almost 16% to China and a 13.1% fall to Japan. Exports to the US and EU rose. Product wise, semi shipments declined by 17.4% y/o/y.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.