The Boock Report

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Succinct Summation of the Week’s Events – 3/10

Positives

  1. February payrolls grew by 235k, 35k more than expected with the private sector adding 227k, 8k above the forecast and there was 9k gained in the revision to the prior two months but all of that was government jobs. January private sector jobs were revised down by 16k and December was lowered by 15k. Smoothing this out, private sector job adds are averaging 199k over the past 3 months vs 189k over the past 6 and 180k over the past 12. In 2015 they averaged 213k and 239k in 2014.Weather helped the gain in construction and a likely upcoming inventory build drove manufacturing. Service jobs grew at a slower pace than January with retail particularly weak. The household survey saw a gain of 447k which was above the increase of 340k in the labor force which led to a one tenth drop in the unemployment rate to 4.7% as expected. There was an increase of 181k jobs for those aged 25-54 yrs old, prime working age. The participation rate rose one tenth to 63% and up for a 3rd month to the highest level March 2016 and March 2014 before that. This coincided with a drop in the number of people Not In Labor Force by 176k to the lowest since April 2016. The U6 all in rate in turn fell two tenths to 9.2%, matching the lowest level since 2008. Wage growth was in line when taken with the January revision and at 2.8% y/o/y is just one tenth from matching the best level of the recovery.
  2. The MBA said mortgage applications to buy a home rose 1.7% w/o/w and 3.8% y/o/y. Refi’s were up by 5.2% w/o/w but still down 34% y/o/y. The average 30 yr mortgage rate was up 6 bps to 4.36% which matches a 5 week high and has shifted higher since with the uptick in US yields.
  3. Within the US factory orders number this week, core capital spending was revised to less weak at -.1% m/o/m for January vs the 1st print of -.4%.
  4. China reigned in the shadow side of loan creation in February. Aggregate financing totaled 1.15T yuan, 300b below the forecast and the shadow side of lending actually declined as bank lending totaled 1.17T, 220b yuan above the estimate. If we take the first two months of the year to smooth out the lunar holiday however, total financing was up 13.5% y/o/y which is generating growth at no more than 6.5% (and most likely less). More debt, slower growth. Money supply growth slowed to 11.1%, the slowest since July and below the forecast of 11.4%.
  5. Chinese PPI continued its sharp gains in February with a 7.8% y/o/y spike with easy comps and commodity rise being the main factors. It was though about in line. CPI was up just .8%, well below the estimate of up 1.7% but it was due to a 4.3% drop in food prices. Prices ex food and energy was higher by 1.8% y/o/y, in line with the 1.7-2.2% range over the past 6 months.
  6. Chinese exports in February fell 1.3% y/o/y, well worse than the estimate of up 14% but we need to combine the first two months of the year to smooth over the impact of the Lunar Holiday. January/February exports were up 4% y/o/y. For the same time period last year, exports fell 21% y/o/y in the midst of the dramatic slowdown in global trade. Imports are up by 26% y/o/y for the 1st two months of the year.
  7. China’s FX reserves in February got its 3 handle back with a total of $3.005T, up from $2.998T in January and $36b higher than expected. Chinese authorities have been fighting tooth and nail via a variety of capital flows to stem the search for overseas homes (literally and figuratively).
  8. Base pay in Japan in January rose .8% y/o/y, twice the pace seen in November and December which was double the rate of September and October. It still doesn’t sound like much but it’s the quickest pace of gain since March 2000.
  9. German exports grew by 2.7% m/o/m which was better than the estimate of up 2% and December was revised up. Imports also were better than expected. The trade surplus remains at a still lofty 18.5b euros but is down from recent highs and about 7% of GDP if I annualize that number.
  10. German said industrial production in January rose 2.8% m/o/m, one tenth more than expected and off a higher than expected base as December was revised up by 6 tenths. Manufacturing/mining and capital and consumer goods led the way. The German Economic Ministry said “Overall, industrial production got off to a good start into 2017.”

 

Negatives

  1. Good job growth in January and February with GDP growth for Q1 expected to be 1-1.5% implies still weak productivity growth and a negative impact on profit margins.
  2. Initial jobless claims totaled 243k, 5k more than expected and up from the holiday distorted level of 223k last week. Smoothing out last week puts the 4 week average to 237k from 234k and vs 241k in the week prior. Continuing claims, delayed by one week, fell by 6k.
  3. February import prices rose .2% m/o/m, above the forecast of up .1% and January was revised up by two tenths to a gain of .6%. This brings the y/o/y gain to 4.6% and while energy was a big factor, import prices ex fuels were up by .3% vs the estimate of up just .1%.
  4. It’s a non seasonally adjusted number but student debt keeps on exploding higher. In January, consumer debt held by the federal government, which is basically all student loans, totaled $1.077T, up $27b from December and higher by $33b from November. This is up more than $1T since 2010. The revolving credit side which is mostly made up of credit card debt saw a decline in loans outstanding of 3.8b m/o/m to a total of $995.1, a 3 month low. This could be looked at in two different ways however. Are consumers paying off debt with extra cash they have or are they reluctant to take on added debt because they are nervous about something? Revolving credit is still below its ’08 peak.
  5. To the dismay of some in the administration, the US trade deficit widened to the biggest level since 2012 in January. I believe deficits are symptoms (both good and bad) of policy and should not be directly targeted as some cause.
  6. By keeping in the wording that rates could still fall, Mario Draghi continues to believe in the effectiveness of negative interest rates. I believe it’s the dumbest idea in the history of economics.
  7. French industrial production unexpectedly fell by .3% m/o/m in January instead of rising by .5% as forecasted. December was revised down by two tenths and weakness was led by a drop in manufacturing.
  8. German factory orders in January fell 7.4% m/o/m, well worse than the estimate of down 2.5% and the y/o/y pace went negative at -.8% vs the estimate of up 4.3%. The declines vs December were in every major category but I’ll chalk it up to what is a very volatile number month to month. The Economic Ministry said “The weak start to the year should be manageable. Business confidence in manufacturing is significantly brighter than the long term average, so that a revival in manufacturing can still be expected.”
  9. Germany wholesale prices (a different methodology than PPI) rose 5% y/o/y in February, near a 6 year high.
  10. UK industrial production where the manufacturing component was soft relative to expectations, falling by .9% m/o/m vs the estimate of down .7%. It did though rise 2.7% y/o/y. We did see a commodity price led improvement in oil/gas and mining.
  11. House price growth in the UK continues to moderate though still are running well above the rate of inflation and income growth. In February prices grew 5.1% y/o/y, the slowest pace of gain in at least a year. This figure printed 10.1% last March. Halifax which releases the data said “A sustained period of house price growth in excess of pay rises has made it increasingly difficult for many to purchase a home. This development, together with signs of reduced momentum in the jobs market and squeezed consumer spending power, is expected to curb house price growth during 2017.”