The Boock Report

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Succinct Summation of the Week’s Events – 2/2/18

Positives

  1. The BLS said payrolls grew by 200k in January, 20k more than expected offset by a 24k downward revision to the two prior months. There were also annual benchmark revisions which didn’t move the needle much. The household survey added 409k jobs and combined with a similar rise in the labor force of 518k, the unemployment rate was unchanged at 4.1%. The participation rate held at 62.7% and the employment to population ratio was also unchanged at 60.1%. The all in U6 unemployment rate was up one tenth to 8.2% as there was a pick up in the number of people working part time because they can’t find full time work. Maybe this was due to the weather but there was a .2 drop in hours worked but average hourly earnings did rise by .3%, one tenth more than expected and the prior month was revised up by one tenth. The y/o/y gain is now 2.9% which is the best since April 2009. Smoothing out the monthly volatility in the payroll prints combined with the benchmark revisions puts the 3 month job growth average at 192k vs the 6 month average of 180k and the 2017 average of 181k. This compares with the average job gain of 195k in 2016, 226k in 2015 and 250k in 2014.
  2. The Q4 Employment Cost Index said private sector wages and salaries rose 2.8% y/o/y, the best since Q2 2015.
  3. The December PCE headline inflation index rose one tenth m/o/m and .2% at the core as expected. The headline y/o/y gain was 1.7% and 1.5% ex food and energy. That core rate holds at the most since April.
  4. Personal income was up by .4% m/o/m in December, one tenth better than expected with a .5% gain specifically for private sector wages and salaries which brought a 5.2% y/o/y gain, the best in a while. Spending rose .4% m/o/m as expected but off a higher base as November was revised up by 2 tenths. The rise was led by spending on durable goods and services as non durable goods spending fell.
  5. The January US ISM manufacturing index was .5 pt above expectations at 59.1 but down a touch from 59.3 in December. The January print is exactly in line with the 6 month average of 59.1. Of the 18 industries surveyed, 14 saw growth vs 16 in December. Four reported a contraction. Of note, all 18 industries reported “paying higher prices.”
  6. Initial jobless claims totaled 230k, 5k less than expected and little changed with last week’s 231k. The 4 week average did drop to 235k from 240k and that is a 12 week low. Continuing claims, delayed by a week, rose by 13k.
  7. Pending home sales in December rose .5% m/o/m as expected but are down 1.8% y/o/y with 3 of the 4 regions seeing declines. The NAR is optimistic for the industry but highlighted a few caveats. “Buyers throughout the country continue to be hamstrung by record low supply levels that are pushing up prices, especially at the lower end of the market.” And they expect “overall price growth to shrink, with some states even experiencing a decline, because of the negative effect the changes to the mortgage interest deduction and state and local deductions under the new tax law.”
  8. The Conference Board Consumer Confidence index for January rose to 125.4 from 123.1 and that was 2.4 pts better than expected. The peak in this cycle was 128.6 back in November. All of the gain m/o/m was in the Expectations component which rose almost 5 pts while the Present Situation was down by 1.2 pts. One year inflation expectations fell two tenths to 4.6% after rising by 3 tenths in December. The answers to the labor market questions were mixed as were spending intentions.
  9. The final UoM Consumer Confidence index for January rose to 95.7 vs the preliminary print of 94.4 and above the estimate of 95. It is though down a touch from 95.9 in December and vs the average in 2017 of 96.8.
  10. The Atlanta Fed raised its Q1 GDP forecast to 5.4% from 4.2% while the NY Fed’s Nowcast is at 3.1%.
  11. Japan’s PMI rose to 54.8 from 54 and that’s a multi year high. In a country whose central bank desperately wants higher inflation, Markit said this: “On the price front, purchase costs increased during the latest survey period, maintaining an inflationary run that started in November 2016. Firms noted that the higher oil price was a key source of cost pressures. In turn, output charges were raised to partly offset the squeeze on profit margins. Output price inflation accelerated to the sharpest extent since October 2008.”
  12. The China private sector weighted Caixin manufacturing index was unchanged at 51.5 as expected but holds at the best level since August and the one year outlook rose to a 4 month high. The state sector weighted services PMI was up by .3 to 55.3 and little change was expected.
  13. South Korea’s PMI got back above 50 at 50.7 from 49.9. Taiwan’s PMI rose a touch to 56.9 from 56.6. Gains m/o/m were also seen in Vietnam, Indonesia and Thailand.
  14. South Korean exports in January rose 22.2% y/o/y, a bit above the estimate of up 21.5% and imports also surprised to the upside with a 20.9% y/o/y jump. Leading the export growth were semi’s, machinery and chemicals and geography wise, they were strongest within the Asian region.
  15. The January Eurozone manufacturing PMI was left unchanged with its initial print of 59.6 vs 60.6 in December which was a record high reflecting the best economic growth the region has seen since 2007. Even the Greece PMI rose to 55.2. On my inflation theme, “Inflationary pressures picked up at the start of 2018, with both output charges and input prices rising at faster rates. Output price inflation accelerated to an 80 month high. Purchasing costs rose to the greatest extent in over 6 1/2 years, reflecting higher commodity prices and greater pricing power at vendors.”
  16. Eurozone headline January CPI rose 1.3% y/o/y, one tenth more than expected but down from 1.4% in December. The core rate was higher by 1% as expected and up from .9% last month.
  17. The Eurozone economy grew by 2.7% y/o/y in Q4 vs 2.8% in Q3. This caps the best economic growth year since 2007.
  18. The Eurozone unemployment rate held at 8.7% as expected in December, the lowest since December 2008.
  19. Let’s wish the new Fed Chair Jerome Powell the very best. He’ll need it.

 

Negatives

  1. In a world that has feasted on rates that haven’t been seen in 5000 years of interest rate history, are we entering a new interest rate landscape, aka higher? Yes.
  2. The BoJ had to twice jump in the pool and sit on that interest rate beach ball to keep it under water.
  3. The negative within the payroll number, along with the drop in hours worked, was another rise in the number of people not in the labor force which hit a record high at 95.67mm.
  4. With spending rising faster than income growth (augmented by higher credit card debt), the US savings rate is down to just 2.4% in December from 2.5% in November and 3% in October. September 2005 was the last time it was this low.
  5. US productivity in Q4 fell .1% q/o/q annualized vs the estimate of a gain of .7%. Productivity was up 1.1% y/o/y and gives us a full year 2017 average of 1.25% which doesn’t sound like much but it is the best since 2010. With the weaker than expected productivity print, unit labor costs rose 2% q/o/q annualized vs the estimate of up .9%. Versus last year, unit labor costs rose 1.3% which is the most since Q3 2016.
  6. With the highest average 30 yr mortgage rate since March 2017 at 4.41% (and moving higher still), purchase applications fell 3.4% w/o/w but is still up 10% y/o/y. Refi apps were down by 2.9% w/o/w but still up 3.2% y/o/y.
  7. US auto sales totaled 17.07mm at a SAAR in January, below the estimate of 17.2mm and down from 17.76mm in December. Weakness with US auto makers offset strength with Japanese brands (led by fleet sales).
  8. In the Eurozone in December PPI rose .2% m/o/m and 2.2% y/o/y as expected. This marks every month in 2017 where PPI has been above 2%.
  9. The UK manufacturing PMI fell to 55.3 from 56.2 and that was 1.2 pts below the forecast. That’s the slowest since June 2017. The pace of growth is still good with an improvement in export orders. On inflation, “One consequence of the upturn was an upsurge in price pressures. On the cost side, increased demand for inputs led to improved supplier pricing power and shortages of raw materials, resulting in a marked acceleration in input cost inflation. Purchase prices rose at the fastest rate in 11 months and to one of the greatest extents in the survey history. Companies reported a wide range of raw materials and commodities as up in price, including chemicals, food products, metals, oil, paper and plastics. Part of the increase in costs was passed on to clients in the form of higher selling prices. January saw the steepest increase in output charges since April of last year.”
  10. Euro area economic confidence did moderate a touch in January as this index fell to 114.7 from 115.3 and that was below the forecast of a rise to 116.2. A decline in the services component was the main reason along with a drop in retail. Manufacturing held steady, construction and consumer confidence rose.
  11. UK mortgage approvals in December fell to the weakest level since February 2015.
  12. The China state sector weighted manufacturing PMI fell slightly to 51.3 from 51.6 where the estimate was for no change. This is the weakest level since May.
  13. India saw a decline to 52.4 from 54.7.
  14. South Korea’s IP in December fell .5% m/o/m vs the forecast of up .1%.
  15. While the Japanese unemployment rate ticked up by one tenth to 2.8% off the lowest level since 1993, their labor market is getting to the point where it’s almost impossible to fill job openings. The jobs to applicant ratio rose to 1.59 from 1.56, above the estimate of 1.57 and reflects the most amount of job openings relative to labor supply since 1974. It’s tough to grow if one can’t find bodies to hire.
  16. Reflective of the euphoric state of sentiment on US stocks, II said Bears fell to just 12.6%, a 32 year low while Bulls are at 66%, just below a 32 year high. Also, dating back to a question first asked in early 1987, the Conference Board Consumer Confidence survey revealed that a record number of respondents think stocks will be up in the coming year. The UoM today in their survey also said there was a record number of people who said the stock market will be up this year at 66.1%. This question was first asked in 2002.