1) The US economy added a net 213k jobs in June, 18k more than expected and the two prior months were revised up by 37k. Manufacturing jobs surprised to the upside by 21k and were key reason for June upside as was government hiring at the state and local level which added the most jobs since August 2017. The household survey said 102k jobs were created and with the 601k person increase in the size of the labor force, the unemployment rate rose 2 tenths to 4%. The participation rate was also up by 2 tenths while the U6 unemployment was up by the same amount to 7.8%. The employment to population ratio though was unchanged at 60.4%. While average hourly earnings grew one tenth less than expected, it still held at 2.7% y/o/y which is the best since January and average weekly earnings grew by 3%, the same pace as May. I’m convinced that mix reasons (more younger people entering labor force that are paid less) is what is keeping a lid on aggregate wage growth stats. The three month average job gain is now 211k vs the 6 month average of 215k and 12 month average of 198k. I don’t believe company responses to tariffs which seem inevitable have yet to be reflected in the data. The coming months will be a better tell.
2) The ISM services index for June rose .5 pt to 59.1 and that was .8 pts above the forecast. New orders rose but backlogs fell as did employment. Supplier deliveries and prices paid were lower m/o/m. 17 of 18 industries saw growth vs 14 in May and 18 in April. “Respondents continue to be optimistic about business conditions and the overall economy. There is a continuing concern relating to tariffs, capacity constraints and delivery.”
3) The June ISM manufacturing index rose 1.5 pts m/o/m to 60.2 and that was above the estimate of 58.5. The components though were more mixed. New orders, backlogs and employment all fell. Inventories at both the manufacturing and customer level were little changed m/o/m. What held up were exports that rose .7 pts but after falling by 2.1 pts last month. Stress on the supply chain was clearly evident as Supplier Deliveries jumped 6.2 pts to the highest level since 2004. ISM said “Lead time extensions, steel and aluminum disruptions, supplier labor issues, and transportation difficulties continue.” Off the highest level in 7 years, prices paid fell 2.7 pts but 100% of industries reporting said they paid higher prices vs 94% in the 4 prior months. Of the 18 industries surveyed, 17 saw growth vs 16 in May and 17 in March and April. ISM summed up the report by saying “Demand remains robust, but the nation’s employment resources and supply chains continue to struggle. Respondents are overwhelmingly concerned about how tariff related activity is and will continue to affect their business.”
4) The unemployment rate in the Euro area in May was 8.4%, the lowest since December 2008 and we continue to get closer to the pre recession low of 7.3%. Also positively, youth unemployment (a seemingly perpetual problem in Europe) fell to 16.8%, the least since September 2008. It peaked at 24.7% in February 2013.
5) Angela Merkel has come to an agreement with her coalition partners on the migrant problem.
6) After a string of crappy numbers, Germany industry rebounded in May with both factory orders and industrial production well exceeding expectations.
7) The eurozone retail PMI rose a hair in June to 51.8 from 51.7. The high this year was 52.3.
8) The JPM Global Services PMI in June rose .3 pts to a 4 month high.
9) The Eurozone services PMI rebounded to 55.2 in June from 53.8. It still remains below the high this year of 58 back in January.
10) The UK services PMI in June rose 1.1 pts to 55.1 where no change was expected. This is the best level since October.
11) The Chinese Caixin services PMI in June rose 1 pt to 53.9, a 4 month high and better than the estimate of 52.7.
12) The Japanese services PMI was up by .4 pts m/o/m to 51.4 and vs 52.5 in April. The one in India rose as well m/o/m to back above 50.
13) The Japanese worker is finally getting a good raise. Regular pay in May jumped 1.5% y/o/y, the most since 1997.
1) The new tariff threats (after actual tariffs on steel, aluminum, washing machines and solar panels on them and others on us) between the US and China are now real and implementation has begun. With this ramp up in global taxes, are we any closer to a resolution on what the initial end goal was? I wish we knew.
2) QT is now running at $40b per month and with the ECB adding just $35b, the two banks combined are now draining liquidity from the financial system.
3) The US yield curve continues to flatten and continues to send a message that is quite different than the recent US economic data as it’s more worried about negative #1 and #2 than the stock market is. The 2s/10s spread is down to 28 bps vs 33 one week ago and 45 bps four weeks ago. The 5s/30s spread is at 21 bps vs 25 bps one week ago and 31 bps four weeks ago.
4) Initial jobless claims rose 4k m/o/m to 231k and that was 6k more than expected. This lifted the 4 week average to 225k from 222k.
5) The JPM Global manufacturing PMI in June is at the lowest level since July 2017 at 53.
6) The May eurozone PPI was up 3% y/o/y, well more than the estimate of up 2.7%. An almost 8% jump in energy prices vs last year was the main reason. PPI ex energy was up a more modest 1.4%.
7) Retail sales in the eurozone in May slightly missed expectations as they were unchanged m/o/m, one tenth less than forecasted and April was revised down by one tenth. The 1.4% y/o/y increase matches the lowest increase since last October.
8) In Japan, the Q2 Japanese Tankan large company manufacturing index fell to 21 from 24 and vs the forecast of 22. That is the lowest since Q2 2017 when it printed 17. This was partially offset by the outlook which rose 1 pt. The services component did improve by 1 pt as did the outlook. With respect to small companies, both manufacturing and services indices dropped q/o/q. The bright spot within the data was the capital spending component which was strong at 13.6% growth vs the estimate of 9.3%. That’s the biggest quarterly expectation since Q4 1990.
9) Household spending in May in Japan fell 3.9% y/o/y, well worse than expectations of down 1.5%. It’s the worst print since August 2016. Bad weather and a one day holiday are being blamed for most of the weakness.
10) The PMI in Singapore and Hong Kong both fell m/o/m as did the services PMI in Australia.
11) Mexico elected a pretty vocal socialist.