1) March payrolls grew by 196k, 19k more than expected while the two prior months were revised up by 14k. The private sector component though had less of an upside print as jobs here rose by 182k, 5k more than expected. The household survey saw a loss of 201k jobs after a gain of 255k in the month prior. Because the labor force shrunk by 224k, the unemployment rate held at 3.8% (thus, not for the right reasons). Manufacturing shed jobs (and also with trade and transport) while an increase in government hiring helped the headline beat. Education/health was a bright spot for hiring. Temp jobs though were lost. Smoothing out the headline figure brings the 3 month average to 180k vs the 6 month average of 207k, the 12 month average of 211k. The average in 2018 was 223k. Thus, at least in 2019, the pace of job growth is slowing.
2) The March ISM manufacturing index rose 1.1 pts to 55.3 off the lowest level since November 2016 and that was above the estimate of 54.5. After falling by 2.7 pts in February, new orders rebounded by 1.9 pts to 57.4. Backlogs though did the reverse in giving back what it gained last month. Backlogs are just above 50 at 50.4. Export orders weakened by 1.1 pts to 51.7, the lowest level since October 2016. Employment was a particular bright spot as it jumped by 5.2 pts to 57.5, a 4 month high (but not confirmed by ADP and BLS). Of the 18 industries surveyed, 16 saw growth, the same number as seen in February.
3) With another 9 bps decrease in the average 30 yr mortgage rate to just 4.36%, down a huge 30 bps in March alone, the MBA said refi’s skyrocketed by 39% w/o/w which brings the y/o/y gain to 58%. Purchases applications to buy a home rose 3.4% w/o/w and I have to say, I expected more. The y/o/y gain though is up 10% which we’ll take. Of note, 9.5% of total mortgage loans were ARMS which is the most since July 2008.
4) Auto sales in March totaled 17.5mm at a SAAR, well above the estimate of 16.8mm but the upside was driven by fleet sales. Record high vehicle prices and higher interest rates are weighing on retail auto sales.
5) The Eurozone services PMI for March was revised up to 53.3 from the initial print of 52.7 and is up from 52.8 in February. The improvement was led by Germany, Spain, Ireland and Italy. France’s services PMI fell below 50. Markit said “The service sector has managed to sustain a relatively resilient rate of growth but has also lost momentum in recent months. This should come as no surprise as history tells us that robust service sector growth usually depends on a healthy manufacturing economy.”
6) The UK manufacturing PMI was a positive, jumping 3 pts to 55.1 and that was well better than the forecast of 51.2. However, Markit attributed it to mostly stockpiling which hit a fresh survey record ahead of a possible no deal Brexit. Markit then went on to say “The stock building boost introduces a major headwind for demand, output and jobs growth moving forward. Manufacturers are already reporting concerns that future trends could be constrained as inventory positions across the economy are unwound.”
7) The German industrial production February figure rose .7% m/o/m, two tenths more than expected and January was revised up by 8 tenths. Manufacturing though fell .2% as a jump in construction (thanks to no interest rates and tame weather according to the Economy Ministry) offset it. The Economy Ministry said “The industrial sector is expected to remain subdued given the weak development in orders and the gloomier business climate.”
8) The Euro area unemployment rate held at 7.8% in February and the consumer price index moderated to an increase of 1.4% from 1.5%. The core rate slowed to a gain of .8% from 1% in February.
9) The China state sector weighted manufacturing PMI rose 1.3 pts to slightly above 50 at 50.5. The estimate was 49.6. A key goal of the PBOC has been to encourage more bank lending to small and medium sized businesses and that is where the confidence rose. Manufacturing for large companies fell.
10) The China services component was higher by .5 pt to 54.8 and .4 pts higher than forecasted. New orders rose but backlogs were unchanged as was employment and business expectations fell. Combining manufacturing and services puts the composite index at 54 from 52.4 and that’s the highest since September.
11) The private sector weighted Caixin March manufacturing index was higher too. It went to 50.8 from 49.9. The estimate was 50. Caixin said “Firms signaled slightly quicker rises in output and overall new work, while employment increased for the first time in over 5 years.” Acknowledging the improvement was not organic, Caixin summed up the report by saying “Overall, with a more relaxed financing environment, government efforts to bail out the private sector and positive progress in Sino-US trade talks, the situation across the manufacturing sector recovered in March.”
12) The China Caixin March services index jumped by 3.3 pts to 54.4 and that was above the estimate of 52.3. We’re not out of the woods just yet though as “The measure for business expectations rebounded slightly from the previous month, but still signaled relatively weak confidence.”
13) Australia’s services index rose .6 pts in March but is still below 50 at 49.3 and the gain follows 3 months in a row of declines.
14) Singapore’s PMI bounced back above 50 at 51.8, up 2 pts. This follows 3 months of declines totaling 4 pts.
15) South Korea’s manufacturing PMI did improve by 1.6 pts but is still below 50 at 48.8.
16) Taiwan’s manufacturing PMI did rise almost 3 pts but is still below 50 at 49. Thailand’s PMI was up by .4 pts to a still flat line 50.3. Indonesia’s PMI was up by 1.1 pts to 51.2. Vietnam, benefiting from a shift of manufacturing out of China saw its PMI rise to .7 pts to 51.9.
18) While I’m not a fan of the political pressure, the Reserve Bank of India trimmed interest rates by 25 bps as expected as inflation has been low and real rates are still very positive.
Negatives
1) Within the payroll report, wages disappointed with a .1% m/o/m increase, two tenths less than expected and which brings the y/o/y increase to 3.2% from 3.4%. That matches the slowest since September. As hours worked ticked up to 34.5 as expected, average weekly earnings grew by 3.2% which is around the recent trend but also showing no signs of further acceleration that I’ve been looking for. oth the participation rate and employment to population ratio fell m/o/m but the U6 unemployment rate held at 7.3%.
2) After the February 3 pt jump in the ISM services index to 59.7 as the government reopened and followed two months of declines from 60.4 in November, this index fell to 56.1 for March and that was 2 pts less than expected. That’s the lowest print since August 2017. After seeing all 18 industries surveyed seeing growth in February, 16 reported growth in March. ISM said “The non manufacturing sector’s growth cooled off in March after strong growth in February. Respondents remain mostly optimistic about overall business conditions and the economy. They still have underlying concerns about employment resources and capacity constraints.”
3) Markit also said its services PMI in March fell m/o/m. At 55.3, it’s down .7 pts from February but still up from 54.2 in January. As for the outlook, “Although service sector firms were buoyed by hopes of further new business growth, they highlighted concerns surrounding uncertainty regarding global trade tensions, economic growth worries and more intense competition. The level of optimism dropped to the lowest since December 2017 and was muted overall.”
4) Core February durable orders were a touch less than expected when we include the January revision. Non defense capital goods ex aircraft fell .1% m/o/m and that was 2 tenths less than forecasted but January was revised up by one tenth to a gain of .9%. Core shipments, plugged into GDP, was slightly better and that could lead to a slight tweak up in the Q1 GDP estimates. Core durable goods orders thru February have fallen in 5 of the previous 7 months with the absolute level of orders at the same level as last July. Core orders are down 3.4% over the last 3 months annualized.
5) February retail sales fell across the board unexpectedly but upward revisions to January helped to offset most of the weakness. For the core rate of spending which excludes auto, gasoline and building material sales, they fell .2% in February vs the estimate of up .3% but January was revised up by 6 tenths, so a push. If we take out just auto’s and gasoline, sales were a miss relative to expectations even with the upward revision. They fell .6% instead of rising by 3 tenths as forecasted and January was revised up by 5 tenths. The reason for the miss here was the 4.4% m/o/m drop in building material sales but which follows a 4.4% rise in January. Versus last year, sales in this key category are up just 1.5%. Sales in dollars ex auto’s and gasoline are no higher than they were in July. Core retail sales which also takes out building materials are where they were in October and the y/o/y gain of 2.9% is the 2nd slowest since June 2017.
6) According to Miller Samuel Inc. and broker Douglas Elliman, Manhattan residential real estate transactions in Q1 fell to 2,121, the least in 10 years and down 5.2% y/o/y in part due to the cap on the SALT deduction. Remember back what Q1 2009 was like. It’s also the 6th straight quarter that purchases have fell so there is a supply issue here as well and a general slowing anyway.
7) The US Citi Surprise index falls to the lowest level since mid 2017. The Major Economy index near a 7 year low.
8) The Eurozone manufacturing PMI for March was revised down a hair to 47.5 from 47.6. Germany’s PMI was revised down to just 44.1 from 44.7, deeply below 50. France came in at 49.7 and Italy was at 47.4. Spain was a bright spot, rising 1 pt and back above 50 at 50.9. Markit said “The March PMI data indicate that the Eurozone’s manufacturing sector is in its steepest downturn since the height of the region’s debt crisis in 2012. The survey is indicative of output falling at a quarterly rate of approximately 1% in March, suggesting that the January rebound from one off factors last year seen in the latest official data is likely to prove short lived.”
9) German factory orders in February fell by 4.2% m/o/m, well worse than the estimate of a slight increase of .3%. January was revised up by 5 tenths. On a y/o/y basis, orders fell by 8.4%, the 9th month in a row of declines and that is the most since 2009. The German Economy Ministry spokesman said they expect orders will “continue to be subdued in the coming months, particularly due to a lack of foreign demand.”
10) The UK services PMI fell below 50 at 48.9 from 51.3 in February. The estimate was 50.9 and the March print is the worst since July 2016. Markit said “Service sector order books have contracted at the steepest rate since the height of the global financial crisis in 2009 so far this year, with companies reporting that Brexit uncertainty has dampened demand and led to cancelled or deferred spending, exacerbating a headwind from slower global economic growth.”
11) The March Markit construction PMI remained below 50 for the 2nd straight month for the first time since mid 2016 “amid subdued inflows of new work.” It did though creep up to 49.7 from 49.5 but “Brexit related uncertainty continued to generate indecisiveness, ultimately hitting order book volumes.” Internally, “Another fall in commercial work and civil engineering activity more than offset a modest upturn in residential building.”
12) Japan’s services index fell to 52 from 52.3 as business confidence fell to an 18 month low. The new worry is whether the VAT will be hiked as planned this October.
13) Japan’s Q1 manufacturing Tankan report saw a 7 pt q/o/q decline to 12. The estimate was 13. The outlook also fell by 7 pts to just 8, 4 pts below the estimate. There was also weakness in services. The manufacturing indices for small companies also deteriorated. Also, capital spending plans slowed to almost nothing, up by 1.2%.
14) The upward wage momentum seen last year has completely disappeared in Japan. Regular pay in February fell .1% y/o/y after a .6% drop in January. The hopeful caveat is the Labor Ministry changed its methodology in calculating the number and that resulted in an aberration.
15) Hong Kong’s PMI fell to 48 from 48.4 and has yet to see a spill over from the increase in confidence on the Mainland. Markit said “Business conditions continued to deteriorate in March amid a worsening demand environment.”
16) India’s PMI for March fell to 52.6 from 54.3. Markit said “Although global headwinds and a general slowdown in trade present some concerns for the future health of Indian manufacturers’ order books, so far companies have been able to weather the storm and secure healthy inflows of new work from abroad.”
17) Malaysia’s PMI fell .4 pts to 47.2. The Philippines index was down by .4 pts to 51.5.
18) South Korea said its March exports fell by 8.2% y/o/y, a slightly deeper fall than the drop of 7% expected. Imports fell almost 7%.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor.