Positives
1)The headline gain in payrolls for July far exceeded expectations with a 528k gain, more than double the estimate of 250k and the two prior months were revised up by a combined 28k. The household survey said 179k jobs were added after losing 315k in June. Combine that with the drop of 63k in the labor force and the unemployment rate fell one tenth to 3.5%, matching the low pre Covid. The all in U6 held at 6.7%.Wages exceeded the estimates with a .5% m/o/m increase for average hourly earnings and by 5.2% y/o/y, the same pace seen in June. Combine this with the unchanged hours worked at 34.6 and average weekly earnings were up .5% m/o/m and 4.6% y/o/y. The % of job leavers of those unemployed jumped to 14.8% from 14% and that is the most since February and just off the highs in this cycle.
2)The July ISM services index rose to 56.7 from 55.3 and that was better than the estimate of 53.5. It compares with 55.9 in May and 57.1 in April. ISM highlighted the headline number in its summary but laid out the risks we’re well aware of, “Availability issues with overland trucking, a restricted labor pool, various material shortages and inflation continue to be impediments for the service sector.”
3)The July ISM manufacturing index fell a hair to 52.8 from 53, a touch above the estimate of 52 but the lowest since June 2020.
4)The average gallon of gasoline according to AAA fell to the lowest since April at $4.11.
5)With the Freeport LNG export facility giving approval to come back on line in October, Europe and Asia can start shipments again soon from here. Dutch TTF natural gas price though unchanged on the week.
6)With the 30 bps drop in the average 30 yr mortgage rate to 5.43%, the lowest in two months, mortgage applications rose slightly. Purchases were up 1% w/o/w but remain down 16% y/o/y. Refi’s grew by 1.5% w/o/w but are lower by 82% y/o/y.
7)The BoE, RBA and RBI all raised interest rates by 50 bps as finally they aren’t dilly, dallying anymore with rate hikes. The Brazilian central bank also raised its Selic rate by 50 bps but they are so far already ahead of the game after many years of experience.
8)Wages in Japan are improving but are still not keeping pace with inflation. Base pay went up 1.3% y/o/y in June. That doesn’t sound that much to you and me but it matches the fastest pace of growth since 1997.
9)The July Eurozone services PMI was revised to 51.2 from the initial print of 50.6 but below the 53 seen in June. Markit said “A fading post-pandemic restrictions bounce and cooling demand pressures reportedly drove the weaker expansion at the start of the third quarter.” New orders fell below 50 for the first time since April 2021 and “Panel members frequently commented on higher prices as a reason for lower demand.”
10)The July Eurozone manufacturing PMI was revised up to 49.8 from the initial print of 49.6 but still down from 52.1 in June and 54.6 in May. Markit said “The downturn strengthened amid a reduction in new orders which, aside from those seen during the pandemic restrictions, was the sharpest since the Eurozone sovereign debt crisis in 2012 as steep inflation squeezed demand.” The UK manufacturing PMI was revised to 52.1 from 52.2 initially and down from 52.8 in June and 54.6 in May.
11)Both Germany and France surprised to the upside with their June industrial production figures.
12)Germany factory orders in June were not as bad as feared when including the May downward revision. Their statistics office cited what is clear, “In view of the increased uncertainty caused by the war and an impending gas shortage, demand development remains weak. The outlook for industrial activity remains restrained as the business climate has cooled.”
13)China’s private sector July Caixin services PMI was up 1 pt to 55.5. The estimate was for a drop to 53.9. Covid restrictions are still obvious but less so and that is why we saw the bounce. On pricing, “Input costs and prices charged were stable. Overall, cost pressures grew marginally as food prices and wages increased, although the prices of some bulk commodities fell.” On the outlook, “Business owners held a more positive outlook. The gauge for future activity expectations hit its highest point in 8 months. However, concerns over the possibility of future Covid outbreaks remained.”
14)Singapore’s July PMI rose to 58 from 57.5 while Hong Kong’s was little changed at 52.3. Markit said this on the Singapore figure, “Rapid expansions in output and new orders largely underpinned overall sector growth and reportedly stimulated increased purchasing activity and pre-production inventory building…That said, a few factors have the potential to dampen future demand and subsequent expansion across Singapore’s private sector. Production capacities may start to become constrained as a result of declining employment levels whilst more worryingly demand may start to decline as a result of sustained inflationary pressures.”
15)July manufacturing PMI’s rose m/o/m in India, Thailand, Malaysia and Indonesia.
Negatives
1)Disappointingly within the July payroll report, the participation rate fell again to 62.1%, the lowest since December. The important 25-54 yr old cohort saw a 3 tenths drop in participation to 82.3%, the lowest since February. And, with GDP declining at the same time we have this level of hiring’s, productivity is falling fast.
2)Initial jobless claims were 260k, right in line with expectations and vs 254k last week which was revised down by 2k. The 4 week average now sits at 255k vs 249k last week and vs 243k in the week before. That’s the most since November. Also of note, continuing claims rose by 48k to 1.416mm and that is the highest since early April.
3)While the headline number improved in the ISM services index, the breadth of growth deteriorated as 13 industries of 18 asked saw growth vs 18 in June, 14 in May and 17 in the two months before that. Three industries saw a contraction, including retail and finance/insurance.
4)While the headline ISM manufacturing figure was barely down, the breadth deteriorated here too as only 11 industries of 18 surveyed saw growth vs 15 in the two prior months and 17 in April. ISM said “There are signs of new order rates softening – cited in 16% of general comments, compared with 17% in June – as panelists are increasingly concerned about excessive inventories and continuing record high lead times. Employment activity remained strongly positive in spite of the uncertainty with new order rates.”
5)Markit’s US services PMI for July is in contraction at 47.3, the weakest since June 2020.
6)Wards said that July vehicle sales totaled 13.35mm at a SAAR, a touch below the estimate of 13.4mm and that compares with 14.75mm in July 2021, 14.52mm in July 2020 and 16.82mm in July 2019.
7)The Logistics Managers Index for July declined to 60.7, down 4.3 pts from June. It’s the lowest print since May 2020 and they blamed the Transportation metrics. They saw “levels of growth in available Transportation Capacity that we have not seen since April of 2019. Interestingly, the downshifts we observed in transportation metrics were much more muted in the last week of July, leaving open a possibility for a bit of recovery as we move towards peak season. Warehousing and Inventory metrics continue to buoy the logistics sector. Inventory levels remain high, and warehouses continue to struggle to hold and manage the volume.”
8)US job openings in June fell under 11mm for the first time since November at 10.7mm. The hiring rate fell to 4.2% and that matches the lowest since January 2021.
9)Canada said it lost 30.6k jobs in July, well worse than the estimate of a gain of 15k. Their unemployment rate though did tick down to 4.9% but coincident with a drop in the participation rate.
10)India’s services PMI dropped to 55.5 from 59.2. Markit blamed “competitive pressures, elevated inflation and unfavorable weather” for the m/o/m decline.
11)China’s state sector July manufacturing and services composite index fell .5 pt to 52.4 with both components down m/o/m.
12)China’s private sector manufacturing July PMI was down 1 pt from June to just above 50 at 50.3. Caixin said “overall growth momentum softened since June amid slower upturns in output and total new work. Relatively subdued demand conditions and efforts to contain costs led to another decline in employment, while firms were able to further reduce backlogs of work. Cost pressures meanwhile eased notably on the month, with average input costs rising at the weakest rate since last December, while prices charged were cut for the 3rd month running.” The estimate was 51.
13)Taiwan’s July manufacturing PMI fell all the way down to 44.6 from 49.8. Markit said “Weaker global demand conditions and rising costs weighed on performance, according to panelists, which led to sharp drops in purchasing activity and inventories. Moreover, when assessing the 12 month outlook, for output, firms were the most downbeat for over two years.”
14)South Korea, saw its July PMI fall below 50 at 49.8 from 51.3. Markit said “Sustained price and supply pressures continued to hinder the South Korean manufacturing sector at the start of the 3rd quarter of 2022. Output volumes fell at the fastest pace for 9 months as manufacturers continued to report that material shortages and rising costs had impacted demand in the sector and placed additional strains on capacity.” Also, new orders fell below 50 for the first time since September 2020 and business confidence fell to the lowest since October 2021. The hope here too is that inflation pressures are peaking as “delivery times lengthened at the 2nd softest rate for almost a year.”
15)PMI’s in Vietnam and in the Philippines fell m/o/m too.
16)Reflecting the inflation stress, retail sales in June in the Eurozone fell 1.2% m/o/m, worse than the estimate of no change and they are down 3.7% y/o/y.