Positives
- With the parabolic move in Bitcoin, family and friends are now asking me about it (and I’m sure you all can share stories similar to this) and are at least getting educated on its concept, cryptocurrencies generally, the thought process on what spawned them and the technology of blockchain.
- November payrolls grew by 228k, 33k more than expected with a net upward revision for the two prior months of 3k. The private sector added 221k of the 228k jobs vs the estimate of 195k. Manufacturing was the main area of upside as 31k jobs were created vs the forecast of 15k. Also of note, the average workweek increased to 34.5 from 34.4 and that matches the most since January 2016. The household survey added just 57k jobs and with the labor force rising by 148k, the unemployment rate held at 4.1%. The all in U6 rate ticked up by one tenth to 8%, still near the pre recession low as the participation rate held at 62.7%. Wages were again mixed as average hourly earnings rose .2% m/o/m, one tenth less than expected and October was revised down by one tenth. The y/o/y gain was 2.5% BUT average WEEKLY earnings did pick up to a 3.1% y/o/y pace because more hours were worked. That’s the most since August. Construction hiring picked up post hurricanes. Retail hiring resumed, temp hiring remained good and education and health was the main job creator on the service side as gains here were 30k m/o/m to 54k. The negative was there is a new record high in the number of people not in the labor force but also a drop in the number of those that want a job. There was also a pick up in part time workers for economic reasons but more due to slack work rather than due to the inability of finding full time work. We must smooth out all the post storm disruptions. This give us a 3 month average monthly job gain of 170k, a 6 month average of 178k, and a year to date average of 174k. These numbers compare with average job growth of 187k in 2016, 226k in 2015 and 250k in 2014. Again, the slowdown in job creation is a natural outgrowth of the stage of the economic cycle we are in where it gets more and more difficult finding the right supply of labor.
- Initial jobless claims totaled 236k vs 238k last week. The estimate was 240k. While things are definitely improved in Puerto Rico and the US Virgin Islands in terms of claims processing, the Labor Department said there are still issues. Either way, the level of firing’s remains historically low. The 4 week average fell slightly to 242k. Continuing claims, delayed by a week, fell by 52k after two weeks of gains.
- The MBA said purchases rose 2.4% w/o/w and refi’s were up by 9% (after two weeks of declines). Likely in response to the persistent rise in short term interest rates, adjustable rate mortgages as a percent of total loans fell to 5.7%, the lowest since January.
- Non defense capital goods orders ex aircraft for October was revised to a gain of .3% m/o/m from the first print of -.5%. Shipments were also revised up.
- Ahead of next week’s full NFIB small business optimism index, they released this week the labor market data. Plans to Hire jumped by 6 pts to 24%, the most EVER, dating back to 1973. Where they will find all these employees I don’t know but Positions Not Able to Fill did fall 5 pts after rising by 5 pts in October. Current compensation plans were unchanged but unfortunately future compensation plans fell by 4 pts after gaining 3 pts in October.
- The China Caixin private sector weighted services PMI did rise to 51.9 from 51.2 and that’s the best since May.
- China’s FX reserves rose for the 10th straight month and by $10b m/o/m to $3.119T. That is the most since last October. A weaker US dollar in November helped to revalue higher the PBOC holdings of non dollar currencies and that was the main reason for the increase in the value of the reserves.
- Chinese exports in dollar terms were higher by 12.3% y/o/y vs the forecast of 5.3% and reflecting the improvement in global trade we’ve seen this year. Exports to the US in particular jumped by 15.2%. Imports jumped by 17.7% vs the estimate of up 13%. Helping to boost imports was a jump in commodity imports. Imports of copper, soybeans, steel, iron ore, natural gas (record high), fuel oil, crude oil (2nd largest on record), refined products and coal all rose m/o/m.
- November consumer confidence in Japan rose .4 pts to 44.9 as expected but that is the best level since September 2013. The Income Growth component in particular rose .5 pt to 43, the best since May 2007.
- For the 2nd straight month Japanese workers got better news on the wage front. Regular pay in October rose .7% y/o/y, the same level as September but that matches the quickest pace of gain since March 2000. We know the BoJ desperately wants 2% consumer price inflation but message to Kuroda, it was 1994 the last time Japan saw y/o/y wage gains of 2%. If both inflation and wages got there, real wage growth would still be zero. There was a .5% y/o/y decline in bonus pay but that comes after rising by 10.6% in September.
- The Markit Retail PMI for Europe improved m/o/m to 52.4 in November from 51.1 in October. Markit said “The latest data point a generally robust picture of the eurozone retail sector…Rises in purchasing activity and employment, combined with the strongest degree of business confidence since early 2016 bodes well for future growth over the coming festive period.”
- The Eurozone services PMI for November was left unrevised at 56.2, the best since May.
- German factory orders in October rose .5% m/o/m, well more than the estimate of down .2%. The Economy Ministry described the growth in orders as “very brisk” with orders up both domestic and foreign.
- French industrial production in October was well ahead of forecasts.
- The Greek unemployment rate in September fell to 20.5% from 20.7% in August. It still is painfully high but is at the lowest level since October 2011. It peaked at 27.9% in July 2013 but was at just 7.3% pre crisis in 2008. Q3 GDP rose for a 3rd straight quarter both q/o/q and y/o/y.
- It looks like the EU and the UK have finally ironed out a roadmap for Brexit.
- Australia’s services PMI rose 1 pt in November. Singapore’s was up by 1.2 pts while Hong Kong’s rose a bit further away from 50 at 50.7 from 50.3. Malaysia’s went to 52 from 48.6 and Indonesia’s was higher by .3 pts to 50.4.
- With the revision to Q2, Australia’s Q3 GDP gain of .6% q/o/q and 2.8% y/o/y were about as expected. The complexion was mixed though as the industrial/export/investment side was good but the consumer was weak.
- Brazil cut its Selic rate by 50 bps to a record low of 7% (dating back to 1999). The RBA, BoC and RBI all left rates unchanged as expected.
- The new Basel III rules announced won’t lead to any major need for more bank capital to be raised. European bank stocks are having a big upside day.
Negatives
- The price of Bitcoin is in an epic mania where historically speaking when it pops, whenever that might be but it will, the price typically gives back almost all of the recent gain. I’ll throw out a range as to what that means, $1000-3000 which would still be well above the level of January.
- While a natural response to the rise in short term interest rates, US dollar 3 month LIBOR is above 1.50% for the first time in 9 years.
- The ISM services index for November fell to 57.4 from 60.1 and that was 1.6 pts below the estimate. It is also a 3 month low but comes off the best level since 2005 last month. Notwithstanding the headline drop m/o/m, 16 of 18 industries surveyed saw growth, the same pace as in October. That said just 12 of 18 industries saw new order growth, 7 saw backlog growth and only 11 reported employment growth and 5 saw firing’s. The ISM said “The rate of growth has lessened in the non-manufacturing sector after two very strong months of growth. Comments from the survey respondents indicate that the economy and sector will continue to grow for the remainder of the year.”
- C&I loan growth reported late last Friday for the week ended November 22nd rose by .8% y/o/y and that is similar to the continued weakened pace of one week prior.
- There was no change in the q/o/q annualized Q3 productivity gain of 3% vs the estimate of 3.3% but it’s the best since Q4 ’13. The y/o/y gain of 1.5% is the highest since Q1 ’15. Unit labor costs fell .7% y/o/y vs the initial print of -.01%. For both, I’m sure the hurricanes had its influence in terms of output and hours worked.
- The October US trade deficit widened more than expected. At $48.7b, it’s the most since January. Exports were flat while imports rose by 1.6% m/o/m.
- As of October US consumer credit outstanding now stands at $3.8T, 43% above the last peak seen in 2008. Revolving credit at $1.01T is just below its 2008 peak while non revolving credit outstanding, consisting largely of student and auto loans, is approaching $2.8T. Total consumer credit outstanding as a percent of disposable income is now at 26%, a record high. It touched 24% in December 2007 and 22% in September 1999 in the previous peak. As a percent of GDP it stands at 19%, also a record high.
- The UoM consumer confidence index for December moderated to 96.8 from 98.5 and that was below the estimate of 99. The components were mixed though as Current Conditions went to 115.9 from 113.5 but Expectations fell by 4.3 pts to 84.6. There was a notable 3 tenths rise in one year inflation expectations to 2.8%, matching the highest since March 2015. The real positive within the overall number was the 10 pt rise in those expecting Higher Income to the best level since May 2000. This though did not flow thru to those expecting an improvement in household finances because maybe people want to be shown the money first. Business expectations moderated m/o/m. Those expecting lower unemployment over the coming year did fall by 4 pts.
- The balance sheet of the ECB got a bit junkier in their corporate bond sleeve as their holding of a bond issued by Steinhoff International Holdings NV falls by 1/3 in price. Their holdings of ‘fallen angels’ into junk land continues to grow. It’s irrelevant with the size of their large balance sheet but the optics are not pretty.
- German industrial production in October fell 1.4% m/o/m vs the estimate of a rise of .9%. This was only partially offset by a 7 tenths upward revision to September. The y/o/y gain of 2.7% slowed from 4.1% in September. The German Economic Ministry is blaming the miss on two extended weekends that many employees in German industry were given in October. German exports unexpectedly fell by .4% m/o/m instead of rising by 1% as expected.
- Retail sales in the euro area in October fell 1.1% m/o/m, weaker than the forecast of down .7%. The y/o/y gain of .4% was the slowest since last July. I saw someone blame warm weather as there was a 3.1% m/o/m drop in ‘textiles, clothing and footwear.’
- The UK services PMI fell to 53.8 from 55.6 and that was 1.2 pts below the estimate but follows a 2 pt rise last month. Markit said “Uncertainty about the economic outlook, linked commonly to Brexit worries, continued to permeate the business mood in November. However, for now, the survey data indicate a sufficient degree of optimism in pockets of the economy, notably financial services, tourism, manufacturing and house building, is helping the economy as a whole to sustain steady growth.”
- The Japanese services PMI for November fell 2.2 pts to 51.2 after rising by 2.4 pts last month. Markit though was optimistic, “weaker activity growth did not coincide with a slowdown in demand however. Relative to historical data, incoming new business increased at a marked rate. Concurrently, businesses remained optimistic that activity would rise in the future, as confidence strengthened to a 6 month high.”
- The producer price index in Europe rose .4% m/o/m and 2.5% y/o/y, about in line with expectations. Higher energy prices were a key contributor but even ex energy prices grew by 2.3% y/o/y.
- India’s services PMI fell to 48.5 from 51.7.
HERE IS A SPECIAL SECTION ON THE ANECDOTAL COMMENTS SEEN THIS WEEK ON WHAT I BELIEVE IS BUBBLING CYCLICAL INFLATION:
- From Markit on US services inflation: “Average prices charged for services increased further in November, with the rate of inflation accelerating. Panelists stated the rise was due to higher input costs which were passed on to clients. Cost burdens faced by service providers rose at a strong rate that was slightly below the sales trend. Panel members noted that the increase in input costs was primarily due to higher goods prices.”
- From Markit, “Japanese service sector firms were faced with intensifying cost pressures in November. Input price inflation accelerated for the 4th month in succession to the joint sharpest since August 2008, on a par with September of that year. Panel members cited higher labor expenses as key driver behind greater cost burdens. Higher input prices and strong demand encouraged firms to raise output charges, albeit moderately. Although moderate, the rate of inflation quickened to a 28 month high.”
- WSJ article from last weekend titled “Japan Firms End Years Long Price Freezes.” In the first paragraph, “Even in deflation racked Japan, some companies believe conditions are strong enough to raise prices. Torikizoku Co, a budget restaurant chain offering sticks of yakitori grilled chicken, lifted prices for the first time in nearly 30 years in October. It now charges the equivalent of $2.65 for a two skewer plate, up from $2.49 before. It was egged on by a shortage of part time staff, which forced it to pay higher wages, a spokesman said.”
- From Hong Kong’s PMI: “Strong appetite for inputs placed further pressure on supply chains. Average lead times worsened for an 8th successive month, with the rate of deterioration at one of the lowest seen for over a year. Anecdotal evidence revealed that suppliers had difficulty sourcing raw materials such as paper and copper due to supply shortages. As a result, input prices increased further in November. The rate of total input cost inflation remained solid, though easing from a multi yr peak in October. Notably, prices paid for input purchases accelerated, with the degree of inflation the sharpest since September last year…Despite higher costs, firms only raised their selling prices modestly due to high competition.”
- In Singapore, “Greater demand for inputs placed further pressure on supply chains, with vendor performance deteriorating for a 4th successive month and at the steepest rate since July last year. Delivery delays were commonly associated with higher costs as demand for inputs exceeded supply. As a result, purchase cost inflation rose to the sharpest degree since February. At the same time, wage inflation remained sharp, rising to the highest for 14 months, and contributed to overall cost increases. To protect profit margins, firms raised selling prices for a 3rd consecutive month. Notably, output charges increased at a faster pace than input prices as strong client demand accorded firms with greater pricing power.”
- From Markit on the Eurozone: “Price pressures intensified in November, with inflation of both input costs and output charges at or near to 6 ½ year highs. Both price measures were substantially higher in the manufacturing sector than at service providers.” Still for service companies, “Input cost inflation rose to a 9 month high…Meanwhile, output charge inflation across the euro area service sector held steady at October’s 7 month high. Increased output prices were registered in almost all of the nations covered, the exception being Italy.”
- From Eurozone retail PMI: “Gross margins faced by eurozone retailers were squeezed further in November. The rate of decline was the softest recorded since June, but remained marked nonetheless…eurozone retailers continued to be faced with rising input costs in November. Although weakening from October’s 57 month peak, the rate of inflation remained marked and greater than the long run series average. Prices rose to the greatest extent in Germany, followed by Italy and then France.”
- In the UK services PMI note, “average cost burdens increased at a sharp and accelerated pace in November. The current phase of input price inflation remains the strongest since the 1st half of 2011, with survey respondents linking higher operating expenses to increased costs for energy, food, fuel, imported items and staff salaries. Efforts to alleviate pressures on margins resulted in the fastest rise in prices charged by service providers since February 2008. Moreover, the rate of prices charged inflation was the 2nd fastest recorded since the survey began in 1996.