Positives
1)Payrolls in October grew by 531k, 80k more than expected and the prior two months were revised up by a total of 235k. The private sector in October added 604k jobs, well more than the forecast of 420k. The government shed 73k jobs mostly due to a decline in public education. The household survey saw a 359k job increase and with the smaller 104k increase in the labor force, the unemployment rate fell to 4.6% from 4.8%, getting closer to the 3.5% seen in February 2020. The all in U6 rate also fell by 2 tenths to 8.3% and that is the lowest since the big jump seen in March last year. It was 7% in February 2020. Average hourly earnings rose .4% as expected after a .6% gain in September. It’s up 5.4% over the past 6 months at an annualized rate. Wages in leisure and hospitality in particular were up 11% y/o/y and 1% m/o/m. Also noteworthy was the 11.5% of unemployed that are job leavers which is another form of ‘quit rate’ and that is the most since February 2020 when it was at 13.3%. Bottom line, the number of unemployed is down to 7.4mm which compares to more than 10mm job openings as of September. After losing 22.3mm jobs last March and April, the economy has added back 18.2mm jobs.
2)Initial jobless claims fell to 269k, 6k less than expected and down 14k w/o/w. Not far from the near 200k we stood at pre Covid. Also positively, continuing claims fell by another 134k to 2.1mm, another post Covid low.
3)The October ISM services index jumped to 66.7 from 61.9 and that was well above expectations of 62 and the highest on record. All 18 industries surveyed reported growth. ISM did cite the “ongoing challenges, including supply chain disruptions and shortages of labor and materials, are constraining capacity and impacting overall business conditions.”
4)And this is what Markit said in their services report that showed an increase to 58.7 from 54.9 about the outlook and I would regard as the caveat here, as seen above: “Finally, the level of optimism slipped to the lowest since February, as service providers reported ongoing concerns surrounding inflation and material shortages.”
5)The October ISM manufacturing index was 60.8, down slightly from the 61.1 print seen in September but a bit better than the estimate of 60.5. The internals were mixed. Of the 18 industries asked, 16 saw growth with wood products and nonmetallic mineral products seeing a contraction, likely due to supply problems. ISM laid out all the issues that we’ve become fully aware of where demand is still far outpacing supply for goods. “Business Survey Committee panelists reported that their companies and suppliers continue to deal with an unprecedented number of hurdles to meet increasing demand. All segments of the manufacturing economy are impacted by record-long raw materials lead times, continued shortages of critical materials, rising commodities prices and difficulties in transporting products. Global pandemic-related issues — worker absenteeism, short-term shutdowns due to parts shortages, difficulties in filling open positions and overseas supply chain problems — continue to limit manufacturing growth potential. However, panel sentiment remains strongly optimistic, with four positive growth comments for every cautious comment. Panelists are fully focused on supply chain issues in order to respond to the ongoing high levels of demand.”
6)This was from Markit’s US manufacturing report, “1 in 4 (companies) reported that demand had fallen, often as a result of customers either lacking other inputs or pushing back on higher prices.” That said, “demand growth…remains well above trend despite easing in October, hence producers saw another steep rise in backlogs of uncompleted work. This shortfall of production relative to demand was the principal driving force behind a survey record rise in manufacturers’ selling prices, suggesting that inflationary pressures continue to build and look unlikely to abate to any significant degree any time soon.”
7)While auto sales are still very depressed, they totaled 12.99mm in October at a SAAR, above the estimate of 12.5mm. It was at 16.55mm in October 2019.
8)China’s private sector Caixin services PMI for October rose to 53.8 from 53.4. Caixin said “Supply and demand both recovered as disruptions from local Covid outbreaks faded by the middle of October. The gauges for business activity and total new business both reached the highest level in three months. Overseas demand also rebounded as the measure for new export business moved into expansionary territory.” On inflation, “Prices in the services sector kept rising. Input costs increased for the 16th month in a row and rose at a faster pace than the previous month due to rising labor and raw material costs. Solid demand allowed businesses to pass part of this rise in costs downstream, leading the gauge for prices charged by service providers to reach the highest in three months.” As for business expectations, they “remained relatively optimistic, though…fell to the lowest point in four months. Some surveyed firms were worried about rising costs and the stability of supply chains.”
9)Caixin, the private sector focused manufacturing index which covers more small and median sized businesses saw a slight uptick to 50.6 from 50. Caixin said “Chinese manufacturers noted an improvement in demand during October, but power shortages and rising costs weighed on production…Limited power supply and material shortages also dampened supplier performance, with lead times increasing at the fastest rate since March 2020. As a result, inflationary pressures intensified, with average input prices rising at the sharpest rate since December 2016, while the pace of output charge inflation also accelerated notably since September.” Business expectations eased a bit.
10)Here are the other PMI’s seen today and it reflects Covid reopenings and/or lessened restrictions: Japan 53.2 vs 51.5, Australia 58.2 vs 56.8, Taiwan 55.2 vs 54.7, Vietnam 52.1 vs 40.2 (as factories reopened), Indonesia 57.2 vs 52.2, Thailand 50.9 vs 48.9, Malaysia 52.2 vs 48.1, and India 55.9 vs 53.7.
11)India’s October services PMI rose to 58.4 from 55.2 as they are gaining more success with their vaccine rollout.
12)Household spending in September in Japan fell 1.9% y/o/y but not as much as the drop of 3.5% that was forecasted.
13)Governor Philip Lowe of the RBA acknowledged that yield curve control is over and said “The decision to discontinue the yield target reflects the improvement in the economy and the earlier than expected progress towards the inflation target.” They didn’t however change their overnight rate from the very low .10% and Lowe said “the latest data and forecasts do not warrant an increase in the cash rate in 2022. The Board is prepared to be patient.”
14)The UK services PMI was revised to 59.1 from 58 initially and vs 55.4 in September. Markit said “Looser international travel restrictions and greater domestic mobility helped to lift the UK service sector recovery out of its recent malaise in October.” New orders rose and “the impact of staff shortages was another rise in backlogs of work and greater willingness to pass on higher costs to new customers.” With cost pressures, “Average prices charged increased at a survey record pace, reflecting across the board pressures on operating expenses…Record rates of input price and output charge inflation appear to have dampened business optimism, which eased to its lowest since January. Comments from survey respondents also cited worries about prolonged staff shortages and constraints on growth due to the supply chain crisis.”
15)The US and EU scraped the steel and aluminum tariffs between the two.
16)Billy Joel is back tonight at MSG for the first time since February 2020.
Negatives
1)Within the jobs report, the participation rate held at 61.6% and continues to point to a tight labor market. This was 63.3% in February 2020. For 25-54 year olds it ticked up by one tenth to 81.7%, still below the February 2020 level of 82.9%. The workweek did fall to 34.7 from 34.8.
2)While the Federal Reserve did exactly what was expected, they continue to stick with ‘transitory’ and therefore their monetary policy path from here does not align at all with a tight labor market and 5% inflation. They are instead kowtowing again to the markets and the US Treasury and Powell is so afraid of negatively impacting the demand side of the economy.
3)Apartment List published its November National Rent Report and it showed an .8% m/o/m increase in rents. While this is the slowest pace since February, they are up “a staggering 16.4%” year to date. Apartment List then said, “To put that in context, rent growth from January to October averaged 3.2% in the pre-pandemic years from 2017-2019.” The positive from the point of view of renters is that their vacancy index “ticked up for a 2nd straight month” and “While the market remains extremely tight, we’re now seeing the first signals of that pressure beginning to ease.” The problem though is that prices are already up sharply with “35 of the nation’s 100 largest cities have seen rents jump by more than 20% since the start of the pandemic. Even if rent growth is finally cooling, this year’s rent boom has already added significant housing affordability pressure for America’s renters.”
4)The BLS said productivity in Q3 fell by 5% q/o/q annualized, worse than the estimate of down 3.1%. As a result, unit labor costs jumped by 8.3% vs the forecast of up 7%. Smoothing out the quarterly noise, productivity y/o/y fell by .5% and that is the first negative print since 2016 and matches the worst productivity quarter since Q4 1993. Unit labor costs y/o/y rose 4.8%, the 3rd largest increase going back to 2012.
5)As it is so high profile because it’s a price that most everyone who drives sees every day, AAA said the average gallon of gasoline rose to the highest in 7 years. More broadly, the CRB raw industrials index closed Thursday within 1.5 pts of a record high.
6)The average 30 yr mortgage rate fell back by 6 bps off the highest since April but both purchases and refi’s fell. The purchase component declined by 1.6% w/o/w and 9.3% y/o/y. Refi’s were down by 4.3% w/o/w and lower for the 6th straight week to the lowest since January 2020.
7)In the face of 4% inflation the Bank of England decided that a .10% bank rate remains appropriate.
8)Christine Lagarde of the ECB is pushing back against the market bets for next year that short rates will get less negative. “In our forward guidance on interest rates, we have clearly articulated the three conditions that need to be satisfied before rates will start to rise. Despite the current inflation surge, the outlook for inflation over the medium term remains subdued, and thus these three conditions are very unlikely to be satisfied next year.”
9)The October Eurozone services PMI was slightly revised to 54.6 from the 1st print of 54.7. That is down from 56.4 in September and it’s the lowest since April. Markit said “New business growth slowed fractionally in October, although increased tourism and greater flexibility towards international travel reportedly boosted overseas demand.” Employment rose to the best since October 2007 and “Inflationary pressures continued to build as service providers registered the strongest increase in both costs and selling prices for just over 21 years.”
10)Markit revised its October Eurozone manufacturing PMI slightly lower to 58.3 from 58.5 initially and vs 58.6 in September. That is the weakest since February and we can attribute that to “a worsening of the supply chain situation in October, which curbed production growth sharply during the month. Average delivery times for raw materials lengthened at a rate exceeded only twice in almost a quarter of a century of survey data as companies reported demand once again running ahead of supply for a wide variety of inputs and components. Production constraints at suppliers were reported alongside a growing list of logistical issues. These include a lack of shipping containers and inadequate freight capacity, port congestion, driver shortages and broader transport delays linked mainly to the pandemic” according to Markit.
11)September PPI for the Eurozone was up 2.7% m/o/m, 4 tenths more than expected and are up 16% y/o/y.
12)The Swiss National Bank has arguably the easiest monetary policy of them all and this week we saw CPI rise .4% m/o/m, double the estimate and by 1.3% y/o/y, 2 tenths more than expected.
13)Germany and France reported September industrial production that was weaker than expected but we know the challenges with procuring parts and materials are the main reasons. The German Economy Ministry said “Supply bottlenecks for raw materials and intermediate products that have been going on for a long time are being reflected on a broader front.”
14)German factory orders in September rose 1.3% m/o/m vs the estimate of up 1.8% and August was revised down by 110 bps.
15)September retail sales in the Eurozone fell by 2.5% m/o/m rather than rise by .4% as forecasted.
16)China’s state sector weighted October manufacturing index fell further below 50 at 49.2 from 49.6 in September. Notably was the 8.6 pt increase in input prices and the 4.7 pt rise in output prices. Also, Business Activity Expectations fell to 53.6 from 56.4 and that is the weakest since February 2020. The non manufacturing PMI which also includes construction moderated to 52.4 from 53.2. Prices pressures were seen here too not surprisingly while business expectations softened a touch.
17)Singapore’s October PMI fell to 52.3 from 53.8. Hong Kong’s slipped to 50.8 from 51.7. South Korea’s PMI declined to 50.2 from 52.4.