Positives
1)The BLS said 4.8mm jobs were added back in June, well above the estimate of 3.23mm and the two prior months were revised up by a total of 90k. The biggest factor in the upside surprise was the almost 2.1mm jobs in leisure and hospitality that were brought back after an increase of 1.4mm in May and which followed a decline of 7.57 in April and drop in 743k in March. The household survey said 4.9mm jobs were gained after 3.8mm in May and after a decline of about 25mm in the prior two month. As this well more than offset the increase in the labor force, the U3 unemployment rate fell to 11.1% from 13.3%. The BLS said this could be 1 percentage point higher “If the workers who were recorded as employed but absent from work due to ‘other reasons’ had been classified as unemployed on temporary layoff.” The all in U6 was higher by 18%. The offset to the job spike was the reduction in hours worked to 34.5 from 34.7 but that was as expected. Combining this with average hourly earnings saw average weekly earnings down by 1.7% m/o/m but up by 5.3% y/o/y due to mix. After losing 22.16mm jobs in March and April, the economy has since added back 7.5mm as the economy has reopened.
2)The ISM June manufacturing index recovered to 52.6 from 43.1 in May and that is better than the estimate of 49.8. New orders drove the bus here as it spiked by 24.6 pts m/o/m to 56.4. Of the 18 industries surveyed, 13 saw growth while 4 saw a contraction. One saw no change. This compares to 6 that saw growth in May and 11 saw a decline in business. The ISM said succinctly, “the growth cycle has returned after three straight months of Covid disruptions.”
3)The June Conference Board consumer confidence index jumped to 98.1 from 85.9 in May. That was almost 7 pts better than expected. One year inflation expectations now stand at 6.7% vs 6.4% in May, 5.4% in April and 4.5% in March. The m/o/m improvement is coincident with the economy reopening as the answers to the labor market questions got better. Spending intentions were mixed. The Conference Board said “The reopening of the economy and relative improvement in unemployment claims helped improve consumers’ assessment of current conditions, but the Present Situation Index suggests that economic conditions remain weak. Looking ahead, consumers are less pessimistic about the short term outlook, but do not foresee a significant pickup in economic activity.”
4)Pending home sales in May bounced strongly from the April weakness with a 44.3% m/o/m gain after the 22% drop in the month prior and 21% decline in March. For perspective though, the index level of 99.6 compares with 111.4 in February and 108.9 in January. The NAR said “More listings are continuously appearing as the economy reopens, helping with inventory choices. Still, more home construction is needed to counter the persistent underproduction of homes over the past decade.”
5)The Eurozone June manufacturing PMI was revised to 47.4 from 46.9 initially and that is up 8 pts m/o/m to the highest since January as factories reopen. Markit said “Expectations for the year ahead have also rebounded sharply as hopes grow that the economy will continue to find its feet again in the coming months. However, even with these gains, production and sentiment remain below pre-pandemic peaks, and persistent weak demand combined with ongoing social distancing measures are likely to act as a drag on the recovery.”
6)In Europe, the June Economic Confidence index bounced to 75.7 from 67.5 but that was below the estimate of 80. All of the confidence components, including manufacturing, services, consumer, retail and construction rose m/o/m. For perspective, this figure was 103.4.
7)The June UK manufacturing PMI was left unrevised at 50.1 but that is up 9.4 pts from May.
8)German unemployment in June rose by 69k people but that wasn’t nearly as bad as feared with the estimate up 120k. The unemployment rate, thanks to the payment program of keeping employees on the payroll, rose just one tenth to 6.4% from 6.3%.
9)French consumer spending in May bounced back by 36.6% after falling by 19.1% in April and 16% in March.
10)China’s private sector weighted Caixin June PMI rose .5 pt to 51.2. The estimate was 50.5. Caixin said this increase was “as most of the country had the epidemic under control and the economy continued to recover.”
11)China’s state sector weighted June manufacturing PMI rose to 50.9 from 50.6 and that was a bit above the estimate of 50.5. The China services PMI increased to 54.4 from 53.6 and that matches the highest since March 2019.
12)China auto sales rose 11% y/o/y in June according to the China Association of Automobile Manufacturers.
13)South Korea’s mfr’g PMI 43.4 vs 41.3, Japan’s 40.1 vs 38.4, Australia, 51.2 vs 44, Taiwan 46.2 vs 41.9, India 47.2 vs 30.8, Thailand 43.5 vs 41.6, Indonesia 39.1 vs 28.6, Malaysia 51 vs 45.6, Vietnam 51.1 vs 42.7, and Philippines 49.7 vs 40.1.
Negatives
1)The Fed begins buying individual investment grade corporate bonds and thus reduces inventory for private buyers who are in a desperate search for safe yield. Explaining why purchasing the bonds of Coca Cola, McDonalds, Apple and Walmart to name a few is a stimulant to economic activity is a tough sale. Not just that, this is a dangerous slippery slope to go down in private markets.
2)Mortgage apps fell for a 2nd week with purchases down 1.3% w/o/w and refi’s lower by 2.2% w/o/w. As for purchases, it’s still been a good run as the gain y/o/y is still 15.2%. Refi’s are up 74% y/o/y.
3)South Korea’s exports in June fell 10.9% y/o/y vs the estimate of down 9.1%. This though follows a 23.6% fall in May. Exports increased to China but was offset by declines to the US, EU and Southeast Asia. Imports were lower by 11.4% vs the forecast of down 10.1%.
4)Japan’s quarterly Tankan report for Q2 was weak but about as expected for both manufacturing and services and for both big and small companies. Capital spending plans were up a bit more than expected.
5)Japan’s unemployment rate in May rose to just 2.9% from 2.6% in April but that still is the highest in 3 years and demand for fresh labor is weak as the jobs to applicant ratio fell to 1.20 from 1.32. If we look to include those employed but not working, the rate is 10% vs 11.6% in April.
6)Hong Kong exports in May fell 7.4% y/o/y vs the estimate of down 5.5%. They rose .3% y/o/y to China as that economy was earlier than most in reopening but fell 14.4% y/o/y to the US. Exports to the rest of Asia and Europe fell too. Imports were lower by 12.3% y/o/y, more than the estimate of down 8.5%.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor.