Positives
- The March household survey said 472k new jobs were created and because the size of the labor force grew by 145k, the U3 unemployment rate fell to 4.5% from 4.7%, the lowest since May 2007 and is just one tenth from matching the low in the mid 2000’s expansion. The U6 all in rate was down by 3 tenths to 8.9%, the lowest since December ’07 and not far from the 7.9% low in ’06. The participation rate held at 63% while the employment/population ratio did rise one tenth to 60.1%, the most since February ’09 but still remains well below the ’06 peak of 63.4. Lock in that June rate hike as labor market further tightens.
- Initial jobless claims totaled 234k, 16k less than expected and down from 259k last week and 261k in the week before. The 4 week average was 250k vs 255k last week and 247k in the week before. Continuing claims, delayed by a week, fell 24k after last week’s rise of 65k.
- The FOMC deepens its discussions on shrinking their bloated balance sheet. While I have no doubt whatsoever that the process will be messy, there is no messy free way out of normalizing monetary policy and don’t be under any illusions that there is.
- With mortgage rates little changed w/o/w, mortgage applications to buy a home was up a hair with a .7% rise but that is still higher by 7.5% y/o/y as we get to the heart of the spring selling season.
- The ISM manufacturing index in March fell to 57.2 exactly as expected from 57.7 in February. Similar to the trend we saw in February, 17 of 18 industries surveyed saw growth and all 18 saw growth in new orders.
- Wholesale inventories in February rose .4% as expected and the inventory to sales ratio held at 1.28 due to a .6% rise in sales.
- Construction spending in February was higher by .8% m/o/m, two tenths less than expected but more than offset by a 6 tenths upward revision for January to a drop of .4%. Private residential construction jumped by 1.8% but commercial real estate was down for a 2nd month and I believe we can call a top in CRE as loan access is now getting more difficult, particularly for developers.
- China’s FX reserves in March totaled $3.009 Trillion, a touch below the estimate of $3.011 Trillion but up $40mm from February. This follows the yuan which was basically unchanged vs the US dollar in the month of March but was helped slightly by the US dollar weakness against China’s other FX holdings.
- The Markit services index for Japan rose to the best level since August 2015. With respect to prices, “the latest survey indicated that average operating costs continued to rise in March, led higher by increased prices for fuel and labor. Input prices have now been rising continuously for close to 4 ½ years, although the latest rate of inflation was a 5 month low.” Output prices for services companies though rose at the quickest pace since October 2015 while manufacturing output prices were little changed m/o/m.
- Japanese consumer confidence in March rose to the best level since September 2013 with the Income Growth component at the highest level since 2007.
- As India gets out from underneath its bungled cash swap plan, its manufacturing PMI rose to 52.5 from 50.7 in February. It bottomed at 49.6 in December. The services index rose to 51.5 from 50.3.
- PMI’s rose m/o/m in Taiwan, Indonesia, Singapore and Hong Kong.
- German industrial production rose 2.2% m/o/m in February which was much better than the expected decline of .2% with a partial offset from a 6 tenths downward revision to January. Exports grew by 2.2% m/o/m in February and 2.5% y/o/y vs the forecast of down -.2% and up .5% respectively. January though was revised lower by 5 tenths on both. The German factory orders figure for February rose 3.4% m/o/m after a 6.8% decline in January. Combining the revision with the new number has it around in line with expectations.
- In the UK, its services PMI rose almost 2 pts to 55, above the estimate of 53.4 and that’s a rebound after 2 months of declines off the 56.2 level seen in December. Markit said “average prices charged by service sector companies increased at the fastest rate for 8 ½ years in March. This was overwhelmingly linked to higher input costs during recent months. Survey respondents also noted that resilient demand had provided scope to pass on some of their increased costs to clients.”
- The final European March manufacturing PMI was no different than the first one at 56.2 which is what was expected and is at multi year highs. The unemployment rate for the euro area ticked down by one tenth to 9.5% also as expected and puts it at the lowest level since April 2009 as it continues its slow crawl lower. Pre recession it got as low as 7.3% and peaked at 12.1% in April 2013.
- Eurozone retail sales in February were above expectations.
Negatives
- March payrolls grew by just 98k, almost half the estimate of up 180k and the two prior months were revised down by 38k. Of this, the private sector added just 89k jobs vs the estimate of up 170k. Hourly wages were higher by .2% m/o/m and 2.7% y/o/y as expected and weekly earnings were up by .2% m/o/m and 2.4% y/o/y, pretty much in line with the modest trend. Hours worked was 34.3 and last month was revised lower by .1 to this level. The service side was where the real weakness was as just 61k private sector jobs here were created vs 125k in February and 153k in January. Retail, not surprisingly but distressing to see, shed 30k jobs after losing 31k in the month prior. The ‘information’ sector hasn’t seen net job growth since September. In stark contrast to what ADP said, just 6k construction jobs were added and 11k were added to manufacturing. Weather wasn’t much of a factor as 164k people with a job but not at work due to weather compares with 192k in the same month last year. Bottom line, while disappointing, the 3 month trend of 178k is really not much different than the 187k average seen in 2016 and just confirms the slowing we’ve seen over the past few years. Monthly job gains averaged 226k in 2015 and 250k back in 2014. Late economic cycle behavior.
- Notwithstanding another sharp increase in incentives, Wards said the March vehicle sales SAAR was 16.53mm vs the estimate of 17.3mm and down from 17.5mm in February. That is the slowest pace of sales since February 2015. Edmonds last week estimated that inventories are at the highest level since 2004. We’ve pulled forward a lot of sales since 2009 and are now left with $1.1 Trillion of auto debt, falling used car prices, soon to be higher lease rates due to lower residual values, a drop in new sales, a rise in delinquency rates and now a higher funding cost to buy a car.
- The ISM services index for March moderated to 55.2 from 57.6 in February and is below the estimate of 57.0. It’s now at the lowest level since October when it was at 54.6 just before the election. Of the 18 industries surveyed, 15 saw growth vs 16 in February. The ISM said “The sector continues to reflect growth; however, the rate of growth has declined since last month. The majority of respondents’ comments indicate a positive outlook on business conditions and the overall economy. There were several comments about the uncertainty of future government policies on health care, trade and immigration, and the potential impact on business.”
- Refi’s fell for a 3rd straight week and are down by 4.2% w/o/w and 33% y/o/y.
- The private sector weighted Chinese Caixin services PMI in March fell .4 pts to 52.2 and which is a 6 month low. Caixin describes this level as “only a modest rate of increase.” Caixin summed up the report by saying “Weaker increases in new business have clouded the economic outlook, and investors should watch closely for signs of a turning point in the second quarter.”
- Japanese regular pay in February disappointed with a .2% y/o/y gain after a .6% gain in January. Helping the headline cash earnings boost of up .4% was a rise in overtime and bonus’ but this was still below the estimate of up .5% and January was revised down by two tenths. Real earnings continue to do no better than the modest rise in inflation.
- The Japanese Tankan business confidence indices improved q/o/q but were mostly below expectations. The headline manufacturing index for Q1 rose 2 pts to 12 but expectations were for a print of 14. At the peak of Abenomics enthusiasm it touched 17 in Q1 2014. The outlook was higher by 3 pts to vs the estimate of 13. On the services side the index was up by 2 pts to 20 and that was 1 pt above the forecast but the outlook was unchanged instead of rising by 3 pts as was expected. For small companies we saw improvements in all major categories but were mixed too relative to expectations. Overall capital spending plans were a bit above expectations for Q1 with a .6% gain vs the estimate of down .3% but this compares with an increase of 5.5% in Q4.
- South Korea’s manufacturing PMI fell to 48.4 from 49.2, Japan’s final read was 52.4 vs 53.3 and down from 52.6 initially, Thailand’s fell .4 pts to 50.2 while Malaysia’s was little changed at 49.5.
- French IP disappointed in February with an unexpected 1.6% m/o/m drop in IP after a .2% fall in January. The estimate was for a bounce of .5% and manufacturing weakness and a drop in utility output (mild winter) led the way.
- UK IP in February fell .7% m/o/m vs the estimate of up .2%, also both driven by weak manufacturing and a drop in utility output.
- Positive for buyers after years of price inflation but not as much for homeowners, UK home price gains slow to 3.8% y/o/y for the 3 months ended March. It ran at a 10% run rate a year ago.
- The manufacturing PMI in the UK in March fell to 54.2 from 54.5 last month. The estimate was for a rise to 55. This is the 3rd month in a row of declines and is basically no different than it was 6 months ago. Markit said “the domestic market remained the primary source of new business wins for manufacturers.” Markit also said the survey “shows that high costs and weak wage growth are sapping the strength of consumers, with rates of expansion in output and new orders for these products slowing further.” Price pressures were mixed m/o/m with input prices down while output prices were up but overall with price gains, “it remained among the steepest recorded in the 25 yr survey history.”
- Mario Draghi continues to believe in overdosing the patient as his obsession with higher inflation remains persistent, “We have not yet seen sufficient evidence to materially alter our assessment of the inflation outlook, which remains conditional on a very substantial degree of monetary accommodation” he said this week in Frankfurt.
- Markit reported its March final read of its services index for the Eurozone which was 56 vs the initial print of 56.5 and the estimate of 56.5. The composite index which includes manufacturing though is near a 6 yr high. The gains were led by Germany and France while we saw dips in Italy, Spain and Ireland. Employment was a particular bright spot at the best level in more than 9 ½ years. Hey Mario, “Price pressures remained strong in March. Input cost inflation was close to February’s 69 month record, reflecting rising global commodity prices and the historically weak euro exchange rate. The pass thru of higher costs to clients, combined with improving pricing power, meant output charges rose to the greatest extent since June 2011” said Markit.
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