Positives
1) Payrolls expanded by 223k in May, 33k more than expected and the two prior months were up a revised 15k. The unemployment rate fell another tenth to just 3.8% as the household survey showed a job gain of 293k at the same time the size of the labor market rose just 12k. The U6 unemployment rate is now down to 7.6% which is the lowest since May 2001. Rising wages were evident as average hourly earnings rose .3% m/o/m and 2.7% y/o/y. Average weekly earnings, which I prefer as a stat, rose .3% m/o/m too and 3% y/o/y which is near the best in 7 years. Average weekly hours were unchanged at 34.5. Reflecting the ever shrinking bench of willing labor, the pool of available workers fell by another 213k. While the participation rate did tick down one tenth to 62.7%, matching the lowest level since May 2016, the employment to population ratio was up one tenth to match the best since January ’09 at 60.4%. Job leavers as a percent of the unemployed rose to the highest since 2000, evidence of confidence in switching jobs. The average duration of time of those unemployed is just shy of the lowest since 2009. Smoothing out the monthly volatility in the data has the 3 month average at 172k vs the 6 month average of 199k, the 2017 average of 182k, the 2016 average of 195k and 2015 of 226k.
2) Initial jobless claims totaled 221k, 7k less than expected and down from 234k last week.
3) The ISM manufacturing index in May was .5 pt above the forecast at 58.7, up 1.4 pts m/o/m after a 2 pt drop in April. Of the 18 industries surveyed, 16 saw growth vs 17 last month. ISM said “Demand remains robust, but the nation’s employment resources and supply chains continue to strong. Respondents say price pressures at their companies is causing price increase discussions as we prepare to enter H2…The increases in prices across all industry sectors continues. The Business Survey Committee noted price increases in metals (all steels, steel components, aluminum and copper), corrugate, freight, electronic components, wood and some chemicals. Shortages continue in electronics components, with steels, steel-based products, electrical components, aluminum and freight added to the list this month.”
4) Personal income rose as expected in April, up .3% m/o/m. The private sector wage and salary gain of 5% y/o/y was the best in 5 months. Spending improved by .6% m/o/m, two tenths more than expected. The savings rate fell to 2.8% from 3%, a 4 month low.
5) The goods trade balance was about $3b less than expected which has led to a rise in Q2 GDP estimates. The Atlanta Fed is up to 4.8% from 4.1% a few days ago. The NY Fed is at 3.3% from 3% last week.
6) The Conference Board Consumer Confidence index for May was 128, as expected and compares with the initial print of 128.7 in April but which has been revised down to 125.6. While the headline index is 2 pts below the high in this cycle, the Present Situation component did rise to a 17 year high. Expectations remain about 3 ½ pts below its recent high. Those that said jobs were Plentiful rose 4.2 pts to the highest level since March 2001. Notwithstanding the rise in confidence m/o/m, spending intentions all weakened. One year inflation expectations rose to 5% from 4.7% last month. That matches the highest print since October 2015.
7) Putting aside what comes next in terms of policy, Italy at least has formed their 65th government in 70+ years. While still much higher than where they stood two weeks ago, Italian bond yields are down sharply from their spike high.
8) China’s state sector weighted manufacturing index for May did improve by .5 pt to 51.9 and better than the expectation for no change. It is the best level since September. The services PMI was up a hair, by .1 pt m/o/m to 54.9 which is a 4 month high.
9) Retail sales in Japan in April rose 1.4% m/o/m, better than the up .5% predicted.
10) The Japanese labor market remained tight as a drum in April with the unemployment rate holding at 2.5% as expected, just off the lowest level since 1993. The jobs to applicant ratio held at 1.59, the highest since 1974.
11) Industrial production in South Korea jumped 3.4% m/o/m, well better than the estimate of up .9%. South Korea is always a good proxy on the global economy.
12) There were manufacturing PMI gains for South Korea (though is still below 50), Vietnam, Thailand (back above 50) and the Philippines in May.
13) German April retail sales surprised to the upside with a 2.3% m/o/m gain, well more than the forecast of up .5%.
14) The Eurozone May economic confidence index fell a touch to 112.5, a 9 month low from 112.7 in April and down for a 5th straight month but that was above the estimate of 112. There was little change in confidence in Germany but declined in France, Italy and Spain.
15) The UK PMI rose .5 pt to 54.4, better than the estimate of 53.5. It follows 5 straight months of m/o/m declines. Markit was not impressed with the rebound. “A slowdown in new order inflows meant the expansion in production was achieved only by firms working thru their backlogs of work. Weaker than expected sales meanwhile led to the largest rise in unsold stock in the survey’s 26 yr history.” Cost pressures rose and “average vendor lead times, a bellwether of supply side constraints, deteriorated to the greatest extent during 2018…May saw output charges rise for the 25th successive month, with solid increases across the consumer, intermediate and investment goods sectors. That said, the rate of selling price inflation eased to its weakest since last August.”
Negatives
1) There was another record high in the number of those not in the US labor force.
2) Headline PCE inflation in April rose 2% y/o/y for a 2nd straight month for the 1st time since Jan/Feb 2017. The core rate was higher by 1.8% for a 2nd month and thus another rate hike by the Fed will still have real interest rates at zero.
3) Pending home sales fell 1.3% m/o/m vs the estimate of a rise of .4%. Sales fell in 3 out of the 4 regions and the one that didn’t fall (Northeast) saw no change. The blame again from the NAR was supply but also “The combination of paying extra at the pump, while also needing to save more for a down payment because of higher rates and home prices, may weigh on the psyche of those looking to buy.”
4) Mortgage apps to purchase a home fell for the 5th straight week, down by 1.9% w/o/w. It’s down by 7.5% over this time frame and is at the lowest level since early March. They do remain though up by 2.3% y/o/y. Refi’s fell 4.7% w/o/w and by 27% y/o/y. They are lower for 6 straight weeks and the index level sits at the lowest level since December 2000.
5) This is a clear positive for those that own a home but for those that don’t and want to buy, the average home according to CoreLogic rose 6.8% y/o/y in March. Add the rise in rates and we’ve seen a clear moderation in the pace of transactions.
6) Eurozone CPI jumped to 1.9% y/o/y from 1.2% in April and that was three tenths more than expected. Inflation ex food, energy, alcohol and tobacco rose 1.1% from .7% and was one tenth above the forecast. CPI ex just food and energy was up by 1.3%.
7) The EU unemployment rate in April did hold at 8.5%. The forecast was for a one tenth drop but it still is the lowest level since December 2008.
8) The eurozone manufacturing PMI for May was left unrevised at 55.5 but that’s down from 56.2 in April and is at the lowest level since February 2017. Markit said “Some of the weakness may have been related to higher than usual number of holidays during the month, but risks appear tilted towards growth remaining subdued or even cooling further in coming months.”
9) A Socialist takes over in Spain.
10) April money supply growth (M3) in the Eurozone was up by 3.9% y/o/y as forecasted, a bit quicker than the 3.7% pace seen in March (was above 5% all last year) but still near the slowest since 2014. Loan growth to households and businesses grew at the same pace as in March.
11) French consumer spending declined by 1.5% m/o/m. The estimate was for a rise of .2%. Much of this was energy/utility related however.
12) Brazil’s economy is taken hostage by union strikes across the country.
13) Hong Kong exports in April rose 8.1% y/o/y, a similar pace as seen in March but a bit below the estimate of up 9.2%. Exports to the US rose 11.7% y/o/y and were up 13% to China. Imports grew by 11.1%, also around the gain seen in March and also slightly below the forecast of up 11.9%.
14) Japan’s PMI index fell 1 pt m/o/m to 52.8, matching the lowest since August. Taiwan and India also saw m/o/m declines.