Positives
1)Helped by weather and the construction trade, payrolls in January grew by a net 225k, 60k more than expected and the two prior months were revised up by a total of 7k. The private sector added 206k of that. On the flip side, the household survey saw a net loss of 89k led by jobs lost in the key 25-54 age group and when combined with the 50k person increase in the labor force, the unemployment rate ticked up by one tenth to 3.6% off its 50 year low. The U6 rate also rose to 6.9% from 6.7%. Positively, the participation rate and employment to population ratio’s did increase both by two tenths m/o/m and the percentage of job leavers remained high but down slightly from December. Hours worked remained unchanged at 34.3 as expected but average hourly earnings missed expectations with its .2% rise vs the estimate of up .3%. Combining the two puts average weekly earnings higher by 2.5% y/o/y, a modest rate. Smoothing out the monthly noise has the 3 month average at 211k vs the 6 month average of 206k and which compares to the 2019 average of 175k, the 2018 average of 193k and the 2017 average of 176k.
2)Initial jobless claims totaled 202k, 13k less than expected and down from 217k last week. This lowers the 4 week average to 212k from 215k and that is the least since last April. Continuing claims, delayed by a week, did lift to a 3 week high.
3)The January ISM services index was a touch above expectations at 55.5 vs the estimate of 55.1 and up from 54.9 in December. The internals though were mixed with new orders up but backlogs fell to the lowest since July 2012. Employment moderated by 1.7 pts to 53.1 and that is the lowest since September. Of note, only 6 of 18 industries surveyed said they increased payrolls, down from 10 in December and 13 in November. In terms of breadth, of the 18 industries surveyed 12 saw growth vs 11 in December and 12 in November. Six saw a contraction, the same number seen in December.
4)The January ISM manufacturing index got back above 50 at 50.9, up from 47.8 in December and that was better than the estimate of 48.5. New orders also got back above 50 for the first time since July, rising to 52 from 47.6. Backlogs remained punk at 45.7 but that is up 2.4 pts from December. Export orders rebounded by 6 pts to 53.3, the best since September 2018. Employment rose 1.4 pts but is still below 50 at 46.6 and hasn’t been above 50 since July. In terms of breadth, of the 18 industries surveyed, 8 saw growth vs 3 in the month prior which matched the least since 2009. Versus 15 in December, 8 saw a contraction. The ISM said “Comments from the panel were positive, with sentiment improving compared to December…Global trade remains a cross industry issue, but many respondents were positive for the first time in several months.”
5)The average 30 yr mortgage rate fell 10 bps w/o/w to 3.71%, the lowest since October 2016. This only helped refi’s though this past week as they jumped 15.3% w/o/w and are higher by 183% y/o/y. Purchase applications fell 9.5% w/o/w but are still up 11% y/o/y.
6)While the Fed’s balance sheet rose by almost $6b on the week, it’s no higher than it was in late December after having peaked in mid January.
7)Hong Kong’s PMI got less worse, rising to 46.8 from 42.1. Markit said “that prolonged political turmoil continued to impact on the performance of Hong Kong’s private sector, solace can be taken from the slowdown in rates of contraction in sales, output and input buying…Worryingly, however, companies remain downbeat regarding the year ahead outlook for business activity, with many expecting that political headwinds, social unrest and trade disputes will continue to harm output.”
8)Singapore, a great proxy for both economic activity in Asia and global trade, saw its PMI little changed in January, rising to 51.4 from 51. New orders picked up but “economic and political uncertainty overseas led to a further sharp reduction in export sales and kept business confidence at a subdued level.”
9)Japan’s services PMI rose to 51 from 49.4 but that was a bit less than the initial print of 52.1. Markit said “Looking ahead, while business remained optimistic of output growth in the coming year, the degree of confidence fell to a 29 month low. Concern towards the ageing society and weak economic conditions all weighed on the outlook.”
10)India’s services PMI in January improved to 55.5 from 53.3.
11)Taiwan’s manufacturing PMI in January improved by 1 pt to 51.8, India’s jumped to 55.3 from 52.7 and the Philippines went to 52.1 from 51.7. Japan’s was revised to 48.8 from 49.3 initially but that is up slightly from the 48.4 print in December.
12)Quantifying the major disruptions seen in Hong Kong, Q4 GDP there contracted by 2.9% y/o/y and .4% q/o/q, not as bad as the 3.9% and 1.5% decline that was expected. On a q/o/q basis, this is the 3rd straight quarter of declines.
13)The Eurozone services PMI came in at 52.5 vs the initial print of 52.2 but that is down slightly from the 52.8 seen in December. There was weakness in France and Spain and better growth elsewhere. Combining with the manufacturing sector has the composite index at 51.3 vs 50.9 in December. While it remains to be seen what the impact the renewed China slowdown will have in the short term, these numbers have stabilized. “However, the pace of output growth is still subdued, and firms remain concerned by existing headwinds as well as fresh risks. Although US-China trade war tensions have cooled, US trade rhetoric has now turned to Europe, with the auto sector looking especially vulnerable to tariff threats. Similarly, while the UK has formally left the EU, trade discussions will no doubt cause an air of uncertainty to hang over the continent. The Wuhan coronavirus meanwhile represents a new potential disruptor to business and trade” according to Markit.
14)The Eurozone manufacturing PMI for January was basically left alone at 47.9 from the initial print of 47.8 but which is up from 46.3 in December. This is now 12 months in a row of below 50 reads but the best print since early 2019 has given hope to green shoots. Markit said, “Most encouragingly, order books moved closer towards stabilization, falling to the smallest extent since late 2018. With the survey indicating the steepest fall in warehouse stocks since September 2016, the new orders to inventory ratio, a key forward looking indicator for factory production, surged to its highest for nearly 1 1/2 years.”
15)The UK services PMI rose to 53.9 from 50 in December and this is another confidence data point reflecting the post election bounce in sentiment. Markit said “A solid return to growth in the service sector was the main factor behind the recovery in the UK economy, with survey respondents commenting that a rebound in sales inquiries had quickly translated into rising workloads so far this year.”
16)The UK manufacturing PMI was revised to 50 from 49.8 prior and up 2.5 pts from December. That’s the 1st time it has a 5 handle since April 2019 “as receding levels of political uncertainty following the general election aided mild recoveries in new order intakes, employment and business confidence.”
17)The UK January Markit construction index while still below 50 was up 4 pts m/o/m to 48.4, 1.3 pts above the estimate. That’s the smallest print below 50 since May 2019. Commercial work showed the least slowest pace with residential also showing some signs of improvement.
Negatives
1)The corona virus continues to spread and a huge chunk of the 2nd largest economy is literally shut down, dramatically disrupting global supply chains, tourism, travel, etc…
2)Markit also reported its US January manufacturing index and said this in their release: “US manufacturing limped into 2020, with falling exports dampening output growth and causing a pull back in hiring. The survey data are consistent with factory production falling moderately…Weakness looks broad based. Rising demand from households has helped support production in recent months, but January saw a marked slowing in new orders for consumer goods.” On the bright side, “More encouragingly, business expectations for the year ahead perked up, coinciding with an easing of trade tensions and the signing of new North American and Chinese trade deals.”
3)After seeing the December US trade data, we see for 2019 that exports fell .1% from 2018 while imports were lower by .4%.
4)China’s January Caixin index, not including the influence of the virus, fell to 51.1 from 51.5. Caixin said simply, “Manufacturing demand continued to grow at a slower rate, while overseas demand was subdued.” There was though some light on the hopes that the US/China trade deal would result in clarity, “business confidence continued to improve, with the gauge for future output expectations on the rise and tending to recover after two years of depression, due chiefly to the phase one trade deal.”
5)China’s private sector services PMI from Caixin fell to 51.8, a 3 month low from 52.5 and that was just below the estimate of 52. Optimism though from here picked up to the best since September 2018, “thanks to the phase one trade deal.”
6)South Korea’s January manufacturing PMI fell to 49.8 from 50.1, Indonesia dropped to 49.3 from 49.5, Vietnam’s slipped to 50.6 from 50.8, Thailand’s fell to 49.9 from 50.1 and Malaysia was down to 48.8 from 50.
7)The impact of the VAT hike really showed up in Japanese household spending in December which fell 4.8% y/o/y, well worse than the estimate of down 1.7%. Sorry to be a broken record here but this is the result of higher ‘inflation’ (this time tax induced) as consumers spend less when their cost of living goes up, especially faster than their wages.
8)With respect to Japanese wages, regular base pay rose just .4% y/o/y which is below the rate of inflation and inflation is still about half what the BoJ wants it to be.
9)German factory orders fell 2.1% m/o/m rather than rising .6% as expected, partially offset by a 5 tenths upward revision to November. Orders were particularly weak within the Eurozone, falling by 14% while domestic orders and non Eurozone orders rose. The Economy Ministry said simply “Overall, the outlook for the industrial economy remains subdued.”
10)Still reflecting nonexistent global trade growth as of December, German exports rose .1% m/o/m, below the estimate of up .5%.
11)German industrial production in December fell 3.5% m/o/m, well below the estimate of down .2%. Yes, the trade deal left better sentiment for what’s to come but when the 2nd largest economy essentially shuts down, that will now have to be delayed.
12)French IP in December badly missed expectations too falling 2.8% m/o/m vs the estimate of down .3% driven by a 2.6% decline in manufacturing production.
13)Spain’s industrial output in December fell 1.4% m/o/m, more than the estimate of down .9%.
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.