Positives
1) Within the payroll number, average hourly earnings grew by .4% m/o/m, one tenth more than expected and higher by 3.4% y/o/y, the best since 2009. Average hourly earnings though were up just .1% m/o/m as hours worked fell. The y/o/y increase was 3.1%.
2) Initial jobless claims totaled 223k, 2k less than expected while last week was revised up by 1k to 226k. The 4 week average fell to 226k from 229k as a print of 235k falls out. Delayed by a week, continuing claims fell by 50k to a 4 week low.
3) The ADP jobs report wasn’t anywhere close to what the BLS said. Their report said 183k private sector jobs were added, although still a touch below the 190k estimate and small business hiring slowed sharply.
4) The February ISM services index rose 3 pts m/o/m to 59.7 and that was 2.3 pts better than expected. The index has now almost gotten back what it lost in December and January after ending November at 60.4. Breadth improved dramatically as 18 of 18 industries surveyed saw growth vs just 11 in January and 16 in December. ISM said “The non manufacturing sector’s growth rate rebounded in February after cooling off in January. Respondents are concerned about the uncertainty of tariffs, capacity constraints and employment resources; however, they remain mostly optimistic about overall business conditions and the economy.” Markit, in their survey, did raise an important question: “The worry is that the manufacturing slowdown will spill over to the service sector, damping economic growth in coming months. Companies themselves certainly appear to have become more circumspect, with business optimism cooling in February amid worries over the impact of tariffs, trade wars, higher prices and rising interest rates.”
5) The Bloomberg weekly consumer confidence index rose to the best level since 2001.
6) Productivity in Q4 rose 1.9% q/o/q annualized, 4 tenths more than expected but Q3 was revised down by 5 tenths so call it a push. From a year ago, productivity grew by 1.8%, the best since Q1 2015. This helped to keep unit labor costs in check as they rose by just 1% y/o/y. Smoothing out the quarters puts the 2018 average productivity rate up by a still mediocre 1.3% vs 1.2% in 2017.
7) January housing starts totaled 1.23mm, better than the estimate of 1.195mm but December was revised down by 41k. Single family starts rebounded sharply to 926k, the most since May and I can’t fully explain the spike other than just a bounce from the December drop. Multi family starts were little changed m/o/m. Notwithstanding the spike in single family starts, single family permits fell by 17k to 812k, the least since August 2017 while permits for multi family construction jumped to the most since July 2015.
8) French, Spanish and Italian industrial production figures beat expectations in January when combined with December revisions.
9) The February Markit German construction index rose 4 pts m/o/m to 54.7 and which is the highest since January 2018. Markit said this reflected “solid growth across all broad categories of building work…Residential building work is providing the main boost to total industrial activity, reflecting strong housing demand and support from low interest rates.”
10) The Eurozone services PMI was revised .5 pt better than before at 52.8. No change was expected. Combining with manufacturing brings its composite index to 51.9. This is up from 51 in January and follows 5 months of m/o/m declines. Markit attributed the bounce to “the further easing of one off dampening factors such as the yellow vest protests in France and new auto sector emissions rules. However, the survey remained subdued as other headwinds continued to increasingly constrain business activity. These include slowing global economic growth, rising geopolitical concerns, trade wars, Brexit and tightening financial conditions.”
11) The UK services PMI for February did increase to 51.3 from 50.1 and that was better than the feared break below 50 at 49.9. The caveat though is the Employment component fell to the lowest since November 2011. And, “Business optimism about the year ahead has sunk to the lowest ever recorded by the survey with the exceptions of the height of the global financial crisis and July 2016. Brexit concerns dominate the list of reasons cited by companies for deteriorating business performance by a wide margin.”
12) The Eurozone Sentix Investor Confidence index for March improved by 1.5 pts but to a still negative 2.2. It’s the 4th straight month below zero. All of the m/o/m gain was led by the Expectations component which rose 7 pts. The Current Situation fell by 4.5 pts to the lowest since October 2016.
13) China’s foreign exchange reserves in February ticked up a modest $2b to $3.09T where no change was estimated.
14) Japan did report a slight improvement in its services PMI for February as this index rose .7 pts to 52.3. “New business rose at the sharpest rate in almost 6 years in February” according to Markit.
15) India’s services PMI index was up slightly to 52.5 from 52.2.
Negatives
1) February payrolls grew by a net 20k, well less than the estimate of 180k and the net revisions to the two prior months were up just 12k. The private sector added only 25k vs the forecast of 170k. Also of note, hours worked ticked down to 34.4 from 34.5 led by a drop in manufacturing hours. The household survey was better as this reported a job gain of 255k but only getting back the 251k lost in January (gov’t shutdown noise likely an influence). With the size of the labor force falling by 45k, the unemployment rate ticked down by one tenth to 3.8%. The all in U6 rate plunged by 8 tenths to 7.3%, the lowest since 2001 as there was a sharp drop in those working part time for economic reasons also likely influenced by shutdown noise. The labor force participation rate held at 63.2% as did the employment to population ratio at 60.7%. Averaging job growth over the past 3 months saw an increase of 186k vs the 6 month average of 190k and the 12 month average of 209k. Job growth in 2017 averaged 179k and was 193k in 2016.
2) The December trade deficit widened to $59.8b, about $2b higher than expected and November was revised up by $1b. This is the widest trade deficit since October 2008. Exports fell 1.9% m/o/m to the least since February 2018 and reflecting the global slowdown. Imports rose 2.1% m/o/m but after falling by 2.8% in November.
3) US mortgage applications gave back some of what it gained the prior two weeks as mortgage rates ticked up a few bps. Purchases fell 2.6% w/o/w and are basically unchanged with a year ago. Refi’s were down by 2% w/o/w and 6.3% y/o/y.
4) Mario Draghi and the ECB puts another stake in the heart of banking profitability by continuing the policy of NIRP (which by the way he said is helping banks). Monetary policy is now restrictive, not accommodative. The Euro STOXX bank index is down by 6% on the week as of this writing.
5) German factory orders for January fell 2.6% m/o/m vs the estimate of up .5% but that was almost completely offset by an upward revision to December of 250 bps.
6) In the UK, its February construction PMI fell below 50 at 49.5 vs 50.6 in January. The estimate was 50.5. It’s the first time below 50 since March 2018. Markit said it was led by weakness in commercial building and civil engineering work. Residential housing was above 50. Markit said simply, “The UK construction sector moved into decline during February as Brexit anxiety intensified and clients opted to delay decision making on building projects.”
7) China’s February trade data was a disaster but we have to merge the numbers with January to get a clear view because of the timing of the Lunar holiday as January’s number surprised to the upside. Taken together, January/February 2019 China exports are down 4.5% y/o/y. Exports to the US for the first two months fell 14.6% and to the EU by 13.2% y/o/y.
8) China’s private sector weighted Caixin services index for February weakened to 51.1 from 53.6 in January and that was below the estimate of 53.5. Markit said “service providers signalled the least marked expansion of new orders since last October amid some reports of relatively muted demand conditions.” Backlogs fell to the lowest since September 2015.
9) China continued on the path of resetting its state set economic growth rate and to this time towards a range of 6-6.5%, the lowest in 30 years and vs 6.6% growth seen in 2018. In order to cushion the slowdown, they are relying on fiscal stimulus via tax cuts (which could total about $300b), with yesterday announcing a cut to its VAT for manufacturers. They are also relying on the old standby of infrastructure spending via local government financing and is focused on targeting loan growth to small and medium sized businesses. At the National People’s Congress, Premier Li said “The environment facing China’s development this year is more complicated and more severe. There will be more risks and challenges that are either predictable or unpredictable and we must be fully prepared for a tough battle.”
10) Australia said its economy grew by .2% q/o/q, one tenth less than expected. The y/o/y increase was 2.3% vs the estimate of up 2.6% and which is the slowest pace of growth since Q2 2017.
11) Australia’s February manufacturing and services composite index fell to 49.1 from the first read of 49.7.
12) Hong Kong’s PMI rose a touch to 48.4 from 48.2 but marks the 11th month in a row below 50. Singapore’s PMI slipped below 50 at 49.8 from 50.1. That’s the weakest since September.
13) South Korea’s PMI fell to 47.2 from 48.3 and that’s the weakest since June 2015. Markit said “International demand fell at the sharpest pace in 5 1/2 years during February, with weak underlying conditions reportedly compounded by rising competitive pressures…Businesses are relatively downbeat on year ahead prospects, and have moved to reduce staffing levels and discount prices to stimulate demand.”
14) Taiwan’s February PMI fell to 46.3 from 47.5. That’s a 3 1/2 year low. Markit said “The export trend was also a key point of concern, with overseas sales declining at the quickest rate since November 2011 amid reports of weak global demand conditions. Expectations that client demand, particularly from overseas, will remain subdued led to sharp reductions in purchasing activity and inventories, indicating that firms could cut production further in the months ahead.”
15) The OECD cut its 2019 global growth forecast to 3.3% from 3.5% with Europe catching the biggest cut. For Europe they expect growth this year of just 1% from their last estimate of 1.8%. German growth is forecasted to be only .7% from the last guess of 1.6% and they expect the Italian economy to contract by .2%. The UK economy is expected to grow by .8% from the last forecast of 1.4%. Their estimate of US growth is 2.6% for 2019, down one tenth from its previous forecast. It’s China estimate is 6.2%, also down one tenth from the last one.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor.