1) October payrolls grew by 250k, 50k more than expected and there were no net revisions over the two prior months. The household survey reported a big number with a 600k increase in new jobs but because the labor force grew by a whopping 711k, the unemployment rate held at 3.7% while the U6 fell one tenth to 7.4%. Positively, most of these household job gains was in the important 25-54 yr demo. And, most had a college degree or higher, in contrast to the biggest contribution in the prior few months where those with only high school degrees saw the biggest job gains. The participation rate rose two tenths to 62.9% which helped to bring more people into the labor force and this matches the best in a year. The employment to population ratio also ticked higher by two tenths to 60.6%. The pool of available labor did rise off a multi year low and there was a fall in those not in the labor force. There was little change in those Job Leavers for greener and more lucrative pastures. Average hourly earnings rose .2% m/o/m and 3.1% y/o/y and average weekly earnings, with 34.5 hrs worked as expected, was up by 3.4% y/o/y, matching the best since 2010. Today’s jobs upside brings the 3 month average gain to 218k which compares to the 6 month average of 216k and the 12 month average of 210k. Thus, solid but about on trend.
2) Hopes are raised that the Trump/Xi meeting in a few weeks will be fruitful. BN reports that “Trump said to ask cabinet to draft possible trade deal with Xi.” CNBC then said according to their sources, that was not the case. Hopefully the most important beef we have is addressed because if China doesn’t give on the technology protection side and a deal is just an announcement that China will buy more of our goods, then what a giant waste of time this whole tariff spat was and which was highly disruptive to American business. Going after China like the US is doing now against Fujian Jinhua Integrated Circuit for stealing IP from Micron is the right way to go instead. The WSJ opinion today said it well, “the export restrictions and indictments have the advantage of focusing on the culprits, while tariffs spread economic damage to innocent consumers.”
3) The Q3 Employment Cost Index, the preferred measure of labor costs, rose .8% q/o/q, one tenth more than expected. An .8% gain was also seen for private sector wages and salaries. Importantly is the 3.1% y/o/y growth rate in wages/salaries for private sector workers which is the best since Q1 2008.
4) The slowdown in the pace of housing transactions is now being reflected in slower home price gains. According to S&P CoreLogic’s 20 city composite index, prices rose 5.5% y/o/y in August, the slowest since December 2016. I say that is a good thing because we’ve priced out too many interested buyers.
5) The Conference Board’s October consumer confidence index was 137.9, 2 pts above expectations and up from 135.3 in September which was revised down by 3 pts. This October print is the best since September 2000 with both present situation and expectations higher m/o/m. A strong labor market with higher wages was the main catalyst. Reflecting the record high in job openings, those that said jobs were Plentiful rose 1.8 pts to the best level since January 2001. Those expecting an Increase in Income rose to the 2nd best level since 2001. Big ticket buying intentions though were little changed but It is vacation time as October saw the 2nd best print since this question was first asked in 1978 of those intending to take a vacation. One year inflation expectations rose one tenth to 4.8%. The recent high was 5% back in July.
6) The September PCE headline inflation figure was up .1% m/o/m as expected and .2% at the core level which was one tenth more than forecasted. Versus last year, both were up 2% y/o/y, magically at the Fed’s target. The story remains the same in that services inflation (up 2.7% y/o/y) helped to offset durable goods deflation (down 1.6% y/o/y). Food prices were up .5% y/o/y while energy was higher by 5.1% y/o/y.
7) While personal spending in September was as expected and August was revised up by 2 tenths, the savings rate fell for the 5th straight month to 6.2%, matching the lowest since March 2013. Income, when including the August revision, was a touch below the forecast. Following a .5% m/o/m rise in private sector wages/salary growth in August, they rose by .2% in September and up 5% y/o/y. it’s the 7th straight month with 5%ish wage/salary growth but 5% is the slowest of the 7.
8) Q3 productivity grew by 2.2% q/o/q annualized, one tenth more than expected while the y/o/y 1.3% rise was the same pace seen in Q2. While the last few years saw productivity growing above 1% after years below, we still await a quicker acceleration. Unit labor costs were a touch less than expected.
9) South Korean exports in October did jump by 22.7% y/o/y, above the estimate of up 18%. The caveat though was the annual 3 day Chuseok holiday was in October last year but in September this year. If we combine the September-October time frame, exports were up 5.7% y/o/y vs a 6.6% gain in January thru August y/o/y.
10) Manufacturing PMI gains were seen in Vietnam (53.9 from 51.5 and maybe a beneficiary from shifting Chinese supply chains), India (53.1 from 52.2) and in Japan (52.9 from 52.5 as “foreign demand improves for first time in 5 months).
11) Japan’s unemployment rate fell one tenth to 2.3%. That’s one tenth from matching the lowest level since 1993. Importantly too, the participation rate rose to the best level since 2001. Also, the jobs to applicant ratio rose to 1.64, a level last seen in 1974.
12) Japan reported September retail sales and it fell .2% m/o/m as expected after a .9% rise in August but the y/o/y gain of 2.1% is still the 2nd best this year. Negatively impacting sales during the month vs the prior one were a few typhoons and an earthquake.
13) The unemployment rate in the Euro area did hold at 8.1% for a 3rd month as expected at the lowest since November 2008. On a harmonized basis, Germany’s held at 3.4% while Italy’s rate rose 3 tenths m/o/m to 10.1%. French unemployment held at 9.3%.
14) Notwithstanding the economic slowdown in Germany, it hasn’t impacted their labor market yet. The October unemployment rate held at 5.1%, the lowest since Checkpoint Charlie fell and the number of unemployed fell by 11k as expected. It’s the 16th straight month of a drop in those unemployed.
15) Brazil repudiates the Workers party and gives Jair Bolsonaro a shot to reform the pension system and crack down on everyday violence that makes it a very dangerous country.
16) Some Friday humor:
1) Seen in so many company earnings reports, the WSJ highlights the issue: “US companies are raising prices on everything from plane tickets to paint, passing on to customers higher costs for fuel, metal and food after years of low inflation.”
2) Jobless claims totaled 214k, 2k more than expected and little changed with 216k last week. Because a 207k print dropped out of the survey, the 4 week average rose to 214k from 212k and which while very low, is the most since August 10th. Continuing claims, delayed by a week, fell by 7k to a fresh 45 yr low.
3) The ISM October manufacturing index fell 2.1 pts to 57.7 from September and that was below the estimate of 59. That also is the slowest pace of activity since April. New orders fell 4.4 pts to 57.4, the least since April 2017. Backlogs were little changed. Export orders dropped almost 4 pts to 52.2, the lowest since November 2016. There was also a drop in the breadth of the growth as 13 industries saw an increase in business of 18 surveyed vs 15 last month. That is the least since January 2017. Of 18 industries surveyed, 17 said they are paying higher prices.
4) With the average 30 yr mortgage rate holding at a 7 1/2 year high of 5.11%, mortgage applications weakened further. Purchase applications dropped by 1.5% w/o/w and are now down a touch y/o/y, by .4%. Refi’s fell by 3.8% w/o/w and are down 32% y/o/y.
5) The state sector weighted Chinese manufacturing PMI fell to almost flat line at 50.2 from 50.8. The estimate was 50.6 and that is the weakest since July 2016. Export orders in particular softened deeper below 50 at 46.9, below 50 for the 5th straight month. New orders dropped by 1.2 pts to 50.8 and backlogs fell to just 44.3.
6) The Chinese services PMI was down by 1 pt to 53.9 to the lowest since August 2017. New orders are now seeing no growth with this component down to 50.1.
7) China’s private sector Caixin manufacturing PMI was basically unchanged at 50.1 from 50 in September. Of note, “Subdued sales were partly linked to weaker foreign demand, with export sales declining for the 7th month in a row.”
8) PMI declines m/o/m were seen in South Korea (51 from 51.3), Taiwan (below 50 at 48.7 from 50.8), Malaysia (also below 50 at 49.2 from 51.5), Thailand (below 50 at 48.9 from 50), and Indonesia (50.5 from 50.7).
9) In Japan, industrial production in September fell 1.1% m/o/m, well more than the forecast of a decline of .3%. The y/o/y fall of 2.9% is the biggest drop since July 2016. Natural disasters were certainly a negative headwind however but not the only one.
10) Consumer confidence in Japan fell to the lowest level since December 2016. The Income Growth component also dropped to the least since then.
11) South Korea said its industrial production figure in September was down by 2.5% m/o/m, 5 times more than expected. The y/o/y drop was 8.4%. I did see one quote from an economist in Seoul that said “Overall, it is difficult to say the economy is doing well.”
12) The UK manufacturing PMI for October slipped to 51.1 from 53.6 and that was 2 pts less than expected. New orders and employment dropped below 50 for the first time since mid 2016 right after the Brexit vote “as domestic and overseas demand were hit by a combination of Brexit uncertainties, rising global trade tensions and especially weak demand for autos.” The positive was that price pressures eased “with input cost inflation dipping to its lowest for over two years as many global commodity prices fell.”
13) Inflation did creep higher in the Eurozone in October as expected. The headline gain was 2.2% y/o/y, up one tenth and that is the most since October 2012 with higher energy prices a big contributor. The core rate was up by 1.1% y/o/y, matching the quickest since August 2017. Of note, services inflation was higher by 1.5% and that’s a 5 month high.
14) Inflation in Germany in October was up by 2.4% y/o/y, the highest since February 2012. They still have negative interest rates.
15) The rate of growth for the eurozone in Q3 slowed to 1.7% y/o/y, one tenth less than expected and the weakest pace of gain since Q4 2014. It follows 7 straight quarters with a 2 handle. The q/o/q growth rate was just .2%. Italian growth went to zero q/o/q and was up just .8% y/o/y. The French economy grew by 1.5% y/o/y in Q3 as expected, the slowest since Q1 2017. Spain was a bright spot with its 2.5% growth.
16) The Euro area October Economic Confidence index fell to 109.8 from 110.9. That was a hair below the estimate of 110. That is the lowest since May 2017 with the components of manufacturing, services, retail and construction all falling. Consumer confidence was the only one that saw a slight gain but remains below zero.
17) Germany reported a softer than expected retail sales figure in September which rose just .1% m/o/m. The estimate was up .5% and August was revised down by 2 tenths.
18) The UK CBI retail sales index fell to just 5 from 23. The estimate was 20. That’s the lowest since April and CBI said “Retail sales have begun to cool, as the boost from the summer heatwave and World Cup celebrations fades away. It’s clear the challenges facing the retail sector are significant. The double whammy of the sluggish recovery in household incomes and digital disruption is making trading conditions tough, and prompting a deeper structural shift in business models.”
19) The BoE and BoJ both left policy unchanged as expected but while both have started to back off from extreme easing, they still have emergency monetary policy in place which leaves them powerless to face any challenges that might come their way.