Positives
1)The household survey in stark contrast to the BLS establishment survey saw a large 1.136mm job gain and combined with the increase in the labor force of 594k, the unemployment rate fell 4 tenths m/o/m to just 4.2% vs 4.4% in March 2020 and 3.5% in the two months before that. The U6 rate declined by 5 tenths to 7.8% vs 8.8% in March 2020 and 7% in February 2020. The participation rate ticked up by two tenths to 61.8% and that is the highest since March 2020 when it was at 62.6% and vs 63.3% in February 2020. The employment to population ratio jumped by 4 tenths to 59.2%, getting close to the March 2020 level of 59.9% and February 2020 at 61.1%. The workweek also rose one tenth unexpectedly to 34.8 and likely why average hourly earnings missed the estimate by one tenth, although it was still up .3% m/o/m and 4.8% y/o/y. Combining the two saw average weekly earnings higher by .5% m/o/m and 4.8% y/o/y. Wages for leisure/hospitality workers continue to rise sharply, up .8% m/o/m and 15% y/o/y. Further evidence of people leaving for ‘greener’ pastures, the percentage of job leavers rose to 12.5% from 11.5% and that is the most since February 2020 when it was at 13.3%.
2)Initial jobless claims totaled 222k, 18k less than expected after the big surprise last week which saw a revised print of 194k from 199k. Smoothing out the influence of the seasonal adjustment issues around the holidays, the 4 week average fell to 239k from 251k and continues to creep to its pre Covid levels. Delayed by a week, continuing claims fell another 107k to below 2mm at 1.956mm.
3)Jay Powell has waved the white towel on inflation after a while believing initially in the influence of base effects and then sticking to transitory and has endorsed a quicker taper.
4)I know we need more info but it seems the early results show that while Omicron might be more contagious, it might be more mild in its impact.
5)The ISM November services index rose to 69.1 from 66.7. The estimate was for a decline to 65. All 18 industries saw growth. ISM said “Demand continues to outpace supply that has been impacted by capacity constraints, shortages of labor and materials, and logistical challenges. This has also caused demand pull inflation that is affecting overall business conditions.”
6)The November ISM manufacturing index was up slightly at 61.1 vs 60.8 in October. That was about in line with the estimate of 61.2. Of particular note, 13 industries of 18 saw growth vs 16 in October, 17 in September and vs 15 in August likely due to continued supply side challenges. Two saw contraction, printing and primary metals. Only 10 industries saw growth in new orders but all 18 saw higher prices. The ISM said “The US manufacturing sector remains in a demand driven, supply chain constrained environment, with some indications of slight labor and supplier delivery improvement. All segments of the manufacturing economy are impacted by record long raw materials and capital equipment lead times, continued shortages of critical lowest tier materials, high commodity prices and difficulties in transporting products. Coronavirus pandemic-related global 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 10 positive growth comments for every cautious comment. Panelists remain focused on the importance of improving supply chain issues to respond to ongoing high levels of demand.”
7)The MBA said purchases rose 5.1% w/o/w and likely driven in part by some wanting to lock in the rise in rates, just before they fell with the Omicron news. They remain down 8% y/o/y.
8)Pending home sales in October rose 7.5% m/o/m, well better than the estimate of up 1% and follows a 2.4% drop in September. All 4 regions were higher with the Midwest and South leading the way. The NAR is saying that they think “fast rising rents and the anticipated increase in mortgage rates” are spurring purchase decisions.
9)China said its state focused November manufacturing PMI rose to just above 50 at 50.1 from 49.2. The non manufacturing component was little changed at 52.3 from 52.4
10)South Korea’s PMI rose to 50.9 from 50.2, Japan’s up to 54.5 from 53.2, Vietnam’s was little changed at 52.2 vs 52.1, Malaysia’s to 52.3 from 52.2, India’s rose to 57.6 from 55.9 while the Philippines was up to 51.7 from 51 and Hong Kong’s November PMI rose to 52.6 from 50.8.
11)South Korean exports rose 32% in November, above the estimate of 27.2%. Imports jumped by 43.6% vs the forecast of up 39.6%.
12)With Vietnam factories back open (for now at least), exports jumped 18.5% in November y/o/y and that was well better than the estimate of up 7%. Exports of machinery/equipment, textile/clothes and computer/electronics led the way. Imports were higher by almost 21% vs the forecast of up 8%.
13)The UK manufacturing PMI was left little changed at 58.1 vs the initial read of 58.2 but up from 57.8 in October. The wording was similar to what was said for the Eurozone but also partly UK specific, “Manufacturers are facing a challenging backdrop, with rising supply chain disruptions, staff shortages and inflationary pressures stifling growth while ongoing difficulties caused by Brexit and logistical headaches restrict opportunities to expand into overseas markets.” On inflation, “Firms costs meanwhile continue to surge relentlessly higher, rising at the steepest pace in the three decades of survey history. Stretched supply chains, component shortages and a vast mismatch between demand and supply are all exerting massive upwards pressure on input costs. This is also filtering through to prices charged at the factory gate, which rose at a rate close to October’s record high.”
Negatives
1)November payrolls grew by just 210k, well less than the estimate of 550k and only partly offset by an upward revision of 82k to the two prior months. Of this, the private sector added 235k vs the forecast of 536k and vs 628k last month.
2)With the average 30 yr mortgage rate rising by 7 bps in the week into November 26th (obviously before the sharp Omicron driven decline), refi’s fell 15% w/o/w and are down by 41% y/o/y.
3)The September S&P CoreLogic home price index rose 19.5% y/o/y after a 19.8% increase in August. Plug that into CPI and you have a 10% y/o/y rate. Leading the gains was the 33% price increase in Phoenix, followed by 28% in Tampa and 25% in both Miami and Dallas. At the bottom was the 12% price gain in Chicago, almost 13% in Minneapolis and around 14% for both DC and Cleveland.
4)The November Conference Board’s consumer confidence index fell to 109.5 from 111.6 in October. Both the Present Situation and Expectation components were lower m/o/m. One year inflation expectations jumped by 5 tenths to 7.6%, the highest since June 2008 and is the 2nd highest print since this question was first asked in 1987. The labor market answers is why this index is outperforming the UoM index. Those that said jobs were Plentiful rose 3.2 pts m/o/m to the highest level since this survey began in 1967. Those that said jobs were Hard to Get was little changed at 11.1, just off a multi year low. Employment expectations for more jobs gave back 2.3 pts of last month’s 3.1 gain. Those expecting an increase in Income fell .5 pt after rising by 1.5 pts last month. What was similar to the UoM survey was the sharp drop in spending intentions because of higher prices. Those that plan on buying a car fell to the lowest level since October 2010. Those that plan on buying a home declined to just .1 pt from the lowest since 2015. Expectations in buying a major appliance is at the lowest since May. The bottom line from the Conference Board was this: “Concerns about rising prices – and, to a lesser degree, the Delta variant – were the primary drivers of the slight decline in confidence.”
5)November vehicle sales totaled 12.86mm at a SAAR. That was below the estimate of 13.45mm. These are recessionary figures but we know because of the lack of supply.
6)In response to last week’s news that the Commerce Department is doubling the average tariff on Canadian softwood lumber to 17.9%, lumber prices this week spiked by 21%. While they are well over their high, they are still triple their low and continues the cost pain for both builders and home buyers.
7)China’s Caixin manufacturing PMI fell to 49.9 from 50.6. Caixin said “Output rose for the 1st time in four months as disruption to production schedules from power supply issues eased, but total new business fell slightly. As a result, capacity pressures subsided, with backlogs rising only slightly, while softer demand conditions also contributed to a further drop in staff numbers. Prices data meanwhile showed notable slowdowns in the rates of both input cost and output charge inflation.” Lower coal, steel and iron prices were likely key reasons here. Caixin said added this to the price comments, “While many firms commented on higher raw material and transportation costs, others indicated that some materials had fallen in price. Subsequently, the rate of output charge inflation also slowed considerably on the month.”
8)The China private sector focused Caixin November services index slipped to 52.1 from 53.8 and that was below the estimate of 53. Caixin is blaming the fall on Covid but “firms were strongly upbeat regarding the 12 month outlook for activity, and continued to increase their staffing levels.” With respect to pricing, “Higher labor, raw materials and energy costs all drove a sharper rise in input costs, however, which contributed to a further increase in output charges.”
9)Taiwan’s manufacturing PMI slipped to 54.9 from 55.2, Thailand fell to 50.6 from 50.9 and Indonesia’s declined to 53.9 from 57.2. India’s services PMI held at a high level at 58.1 but fell from 58.4.
10)Singapore’s PMI fell to 52 from 52.3. Markit said, “Demand and growth continued to improve, while foreign demand surged, which had been a positive sign for Singapore. Issues of supply constraints remained prevalent, however. Anecdotal evidence suggested that purchasing activity and staffing levels were affected by Covid cases. As a result, delivery times lengthened and backlogged work accumulated.”
11)After the Bank of Korea hiked rates another 25 bps last week, this week we saw that the South Korea November CPI rose .4% m/o/m instead of falling by 2 tenths as forecasted. Prices are up 3.7% y/o/y (estimate was 3.1%) with a core rate higher by 2.3% (estimate was 2.2).
12)Somewhat dated, Japan’s unemployment rate fell to 2.7% from 2.8% in October but for the wrong reasons as both the size of the labor force and number of employed fell as did the participation rate. Also, the jobs to applicant ratio fell to 1.15 from 1.16.
13)The Eurozone November services PMI was revised down to 55.9 from the initial read of 56.6 but that is still up from 54.6 in October but below the 56.4 print in September. Markit said “new orders from foreign clients rose, albeit only marginally…capacity pressures continued to build, while firms hired additional staff to support the provision of their services.” On inflation, “prices data showed accelerated increases in both output charges and input costs. In both cases, rates of inflation reached new survey highs.”
14)The November Eurozone manufacturing PMI was revised slightly lower to 58.4 from the 1st print of 58.6. That compares with 58.3 in October. Markit said “Although demand remains strong, as witnessed by a further solid improvement in new order inflows, supply chains continue to deteriorate at a worrying rate. Shortages of inputs have restricted production growth so far in the 4th quarter to the weakest seen over the past year and a half.” Production was inhibited particularly in Germany, France and Austria with better performances in Italy, Ireland and the Netherlands. On inflation, “With demand once again outstripping supply, November saw a continuing sellers’ market, pushing prices charged for manufactured goods higher at a rate surpassing anything previously recorded in almost two decades. Higher factory gate prices suggest consumer inflation has further to rise.”
15)The November UK services PMI was left little changed at 58.5 vs the 1st print of 58.6 and down from 59.1 in the month before. Markit said “Surging price pressures have done little to dent business and consumer spending across the UK economy…New order growth hit a 5 month high in November, job creation remained strong, and backlogs of work built up due to supply issues.”
16)The November Economic Confidence index out of the European Commission saw a dip to 117.5 from 118.6 but that was in line with the consensus. A drop in consumer confidence was the main reason for the m/o/m decline due to Covid worries as manufacturing was little changed and services, retail and construction were all higher. The challenge overall remains inflation. “Selling price expectations in all surveyed business sectors (i.e. industry, services, retail trade and construction) shot up further, reaching new all time highs. Consumer price expectations remained broadly stable” said the EC.
17)The Eurozone November CPI rose 4.9% y/o/y, up from 4.1% in October and above the estimate of up 4.5%. The increase from last month was .5% vs the forecast of up .1%. The core rate accelerated to a 2.6% gain vs 2% last month and 3 tenths more than expected. A 27.4% jump in energy prices led the headline gain but non energy industrial goods prices rose 2.4% y/o/y and service prices increased by 2.7% y/o/y.
18)While dated since we already saw the November CPI, the October PPI out of the Eurozone saw a 5.4% m/o/m increase after a 2.8% jump in September. Versus last year, PPI is up 21.9% y/o/y.
19)German November CPI surprised to the upside with a .3% m/o/m and 6% y/o/y gain vs the estimate of down .2% and up 5.5% respectively.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor.