Positives
1) April payrolls grew by 263k, well more than the estimate of 190k and there were upward revisions of a net 16k to the prior two months. The government added the most amount of jobs since August 2018. Looking at the private sector only saw a job gain of 236k vs the estimate of 188k. Average wage growth for non supervisory production workers held at 3.4% y/o/y and the employment to population ratio was unchanged at 60.6%. To remove the influence of the jump in government workers we’ll smooth out just the private sector figure to gauge the trend. The 4 month private job gain is 190k (I’m using 4 months instead of 3 to smooth out the noise in January and February) vs the 6 month average of 197k and the 12 month average of 208k.
2) On a y/o/y basis (how I like to look at productivity), Q1 productivity jumped by 2.4%, the best since Q3 2010. While there was an improvement in output, coincident with the 3.2% GDP print, we did see the smallest ‘employee hours’ worked since Q3 2017. Because of the higher level of productivity, unit labor costs rose just .1% y/o/y, well below trend.
3) I think the Fed and Jay Powell did a good job of crafting the statement and telling the markets that they are not going to alter policy just because the PCE gauge has fallen the past few months. Also, he highlighted that the PCE is not the only inflation gauge that exists and they watch. The Dallas Fed’s trimmed mean (which Powell specifically mentioned), the NY Fed’s Underlying Inflation gauge, the Cleveland Fed’s trimmed mean and the good old fashioned consumer price index are all at or above 2%.
4) Pending home sales in March jumped by 3.8% m/o/m after declines in 7 of the previous 8 months. That was above the estimate of a gain of 1.5%. I’ll harp AGAIN on the impact of the SALT cap as sales in the Northeast was the particular weak spot, falling 1.7% m/o/m and down for the 3rd month in the past 4. It was more than offset by many likely moving down South and out West.
5) The Conference Board’s consumer confidence index for April rose 5 pts m/o/m to 129.2, 2.4 pts better than expected but follows a 7.2 pt drop in March. The 6 month average smoothing this out is 128.3. Both the Present Situation and Expectations components were higher m/o/m. One yr inflation expectations fell one tenth to 4.5% m/o/m but after rising by 3 tenths in March. Helping were the answers to the labor market questions. Those that said jobs were Plentiful jumped by 4.3 pts to match the most since January 2001. Those that said jobs were Hard to Get fell .5 pt but after rising by 2.1 pts in March. Notwithstanding the headline gain in confidence, spending intentions weakened. Those that plan on buying a vehicle fell .6 pts m/o/m. Even with the jump in pending home sales, those that plan on buying a house fell 1.4 pts to the least since June 2016. Those that plan on buying a major appliances dropped to the least since July 2018.
6) The Q1 Employment Cost Index rose .7% q/o/q as expected and which is the same pace of growth seen in Q4. Private sector wages and salaries rose 3% y/o/y, the 3rd quarter in a row with a 3 handle with many previous quarters with a 2. It is though down from 3.1% in the prior quarter.
7) The S&P CoreLogic 20 city home price index for February saw home price gains slow to 3% y/o/y, the slowest since September 2012. As stated before, I view this as a good thing so we can bring more first time buyers back to the market.
8) Good for a consumer driven economy, the March PCE inflation index rose .2% m/o/m, one tenth less than expected and was higher by 1.5% y/o/y. The core rate was unchanged m/o/m and the y/o/y gain slowed to 1.6% from 1.7%. Again, we have services inflation and durable goods deflation. Services prices rose 2.3% y/o/y while goods prices fell by .3% y/o/y with the durables component down by 1.4% y/o/y.
9) March US personal spending jumped .9% m/o/m in March, two tenths more than expected.
10) Markit very slightly revised the Eurozone manufacturing PMI to 47.9 from the initial print a few weeks ago of 47.8 basically as expected. This is a modest gain from last month’s near 6 yr low of 47.5 but with both below 50 and thus reflecting a contraction. The weakness was led by Germany and whose manufacturing PMI sits at just 44.4 while France is exactly at 50. Spain is above 50 while Italy is below. Greece happened to be a particular bright spot “with growth reaching its highest level in nearly 19 years” according to Markit. Overall Markit said this, “The manufacturing sector remained deep in decline at the start of the 2nd quarter…The survey’s output index is indicative of factory production falling at a quarterly rate of approximately 1%, setting the scene for the goods producing sector to act as a major drag on the economy in the 2nd quarter…The surveys continue to see widespread concerns over weak global demand as well as reports of businesses struggling amid rising trade protectionism, Brexit and the subdued auto sector.” There is some hope though that maybe things will get better in coming months as “forward looking indicators such as future expectations, new order inflows and the orders to inventory ratio” have come off their lows.
11) The initial print for the Eurozone economy for Q1 is growth of 1.2% vs the estimate of 1.1%. That though is the slowest rate of growth since Q4 2013.
12) The March Euro area unemployment rate fell by one tenth to 7.7% and that is the lowest since September 2008 and is creeping closer to the pre recession low of 7.3% in 2007.
13) The German April unemployment rate held at 4.9%, the lowest since reunification and there was a drop of 12k in the number of unemployed, more than the estimate of down 7k.
14) German retail sales in March were about in line with expectations when taking the downward revision to February into account.
15) The UK April services PMI rose back above 50 to 50.4 from 48.9 and that was a hair above the estimate of 50.3.
16) Hong Kong exports fell 1.2% y/o/y vs the forecast of a decline of 2.6%. Imports were basically unchanged, down by .1% vs the forecast of a drop of 4.3%.
17) South Korea’s manufacturing PMI in April got back above 50, barely, at 50.2 from 48.8. Thailand’s rose .7 pts to 51. Vietnam’s was up .6 pts to 52.5 and who is a beneficiary of supply chains leaving China. Malaysia’s rose 2.2 pts but is still below 50 at 49.4.
18) South Korean exports in April fell again y/o/y, down for 5th straight month, but the decline was not as soft as expected. Exports were down by 2%, driven by a drop in semi shipments (down 13.5%) vs the estimate of a decline of 5.9%. Imports rebounded with a 2.4% increase vs the forecast of a decline of 1%.
Negatives
1) While the unemployment rate fell to 3.6% it was because the Household survey saw a job decline of 103k, the 3rd month in the past 4 with losses and the size of the labor force fell by a large 490k as the participation rate fell two tenths to 62.8%, the lowest since September. The average workweek fell .1 and that led to a slower pace of average weekly earnings to 2.9%.
2) Initial jobless claims totaled 230k for the 2nd straight week and that was 15k more than expected. Last week I blamed the Good Friday holiday, this week there was no distortion. This brings the 4 week average to 213k from 206k and that is the most in 4 weeks. Continuing claims, delayed by a week, rose by 17k.
3) The ISM services April index fell to 55.5 from 56.1, 1.5 pts below expectations and matches the lowest print since July 2017. Of 18 industries surveyed, 15 saw growth vs 16 in March. The ISM summed up the report by saying “The non manufacturing sector has experienced an uptick in business activity, but in general, there has been a leveling off. Respondents are still mostly optimistic about overall business conditions, but concerns remain about employment resources.”
4) Markit’s US services index fell to the lowest since March 2017. They said “While the first quarter saw factory weakness being offset by a robust service sector, both manufacturing and services have now shifted into a lower gear. An additional concern is that business optimism about the year ahead has slumped to its lowest since mid 2016, reflecting widespread reports from companies that weaker economic growth will likely further dampen business activity in coming months.”
5) The April ISM manufacturing index fell to 52.8 from 55.3 in March and that was below expectations of 55.0. That also marks the softest print since October 2016. In particular, export orders fell by 2.2 and are now below 50 at 49.5 for the 1st time since February 2016. ISM said “Many respondents reported Europe as a source of lower demand.” Imports also fell below 50 to 49.8. Of the 18 industries surveyed, 13 saw growth vs 16 last month. Five saw a contraction vs just 2 in March. The ISM said “The PMI trade elements (exports and imports) are in contraction territory. The PMI has been inching down since November 2018. The manufacturing sector is expanding, but at recent historic lows.”
6) A 4 bp dip in the average 30 yr mortgage rate to 4.42% did nothing to help mortgage applications. Purchase apps in this important selling season fell 3.7% w/o/w after a 4.1% drop last week and are now basically flat y/o/y, up just .8%. They are now at a 6 week low. Refi applications also got no help from the drop in rates as they fell 5% w/o/w, lower for the 4th week and up now by 11.2% y/o/y, down from 12.9% y/o/y growth seen last week and 26.4% in the week prior.
7) US private sector wages and salaries in March rose 4.4% y/o/y, the same pace seen in February but matching the slowest since last year. The savings rate fell to 6.5%, the least since November and down sharply from the 7.3% rate seen in February.
8) Canada’s economy contracted in February m/o/m by .1%. The estimate was for no change. The y/o/y increase was 1.1%, the 2nd slowest since August 2016.
9) The Eurozone Economic Confidence index in April fell to 104 from 105.6 and that was 1 pt less than expected. That’s the weakest since September 2016 with manufacturing confidence a particular soft spot, still. Consumer confidence, construction and retail also fell. Services confidence was unchanged m/o/m.
10) Lending growth in the Eurozone slowed in March according to ECB data. Loans to businesses rose 3.5%, a step down from 3.8% growth in February. The peak this cycle was 4.3% in September. Household loans grew by 3.2% vs 3.3% in March. Money supply growth though did pick up to a 4.5% y/o/y growth rate so we’ll see if that leads a pick up in lending growth in coming months.
11) Likely somewhat impacted by the timing of Easter, Eurozone CPI rose 1.7% y/o/y up from 1.4% in March and one tenth more than expected. The core rate was higher by 1.2% y/o/y, up 4 tenths from March and two tenths more than expected. As European bond yields are flat on the day, they certainly don’t think the uptick is sustainable. If it becomes so, an earthquake would hit their bond market.
12) Two countries that can’t get off the NIRP addiction saw manufacturing weakness. Switzerland’s PMI fell to 48.5 from 50.3 and Sweden’s dropped to 50.9 from 52.5.
13) The BoE remains stuck because of Brexit with its policy rate well below the inflation rate.
14) In the UK, the April manufacturing PMI weakened 2 pts m/o/m to 53.1 as expected and follows the March 3 pt inventory build driven jump. Markit said “Growth of output and new orders slowed, leading to job cuts for the 3rd time in the past 4 months. The trend in new export business was especially weak, as high stock holdings at clients and slower global economic growth led to reduced demand from key markets such as the European Union, the US and China. There were also reports of overseas clients acting now to re-route their supply chains away from the UK in advance of Brexit.”
15) The China state sector weighted April manufacturing PMI fell to 50.1 from 50.5. The estimate was for no change. New orders, employment, inventories, backlogs and business expectations all fell. Export orders did rise by 2.1 pts but still remain below 50 at 49.2. The private sector weighted manufacturing Caixin index also fell to around flat line, down by .6 pts m/o/m to 50.2. The estimate was for a slight rise to 50.9. New orders fell, export orders dropped back below 50 as did employment.
16) As for the Chinese services side, the state sector weighted index fell too m/o/m. It dropped by .5 pt to 54.3 vs the estimate of 54.9. New orders, backlogs, export orders and future business expectations all were lower from March.
17) From the same quarter last year, the Hong Kong economy barely grew in Q1, rising by .5% y/o/y after a 1.2% growth performance in Q4. The government said “Total exports of goods weakened further in the first quarter, similar to the situation in many other Asian economies. Exports of services also recorded decelerated growth, yet sustained expansion of inbound tourism continued to provide support.”
18) Taiwan’s manufacturing PMI fell to 48.2 from 49. Indonesia’s dropped to 50.4 from 51.2. India’s and the Philippines PMI’s both were down m/o/m to just above 50.
19) Industrial production in South Korea in March rose 1.4% m/o/m, a touch better than the estimate of up 1% but the February figure was revised down by 8 tenths.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor. Each day The Boock Report provides summaries and commentary on the macro data and news that matter, with analysis of what it all means and how it fits together.