Positives
1)Payrolls in July grew by a net 943k vs the estimate of 870k but the private sector increase of 703k was exactly in line with expectations. The reason for the large public sector add was in local government education. The prior two months were revised up by a combined 119k. The household survey saw a large 1.04mm job increase and combine this with the 261k person increase in the size of the labor force resulted in a 5 tenths drop in the unemployment rate to 5.4%. The U6 rate is now down to 9.2% from 9.8% in June and 10.2% in May. Hours worked was 34.8 vs the estimate of 34.7 and last month was revised up to 34.8. Combine this with a higher than expected average hourly earnings figure of up .4% m/o/m after the same gain in June and 5.2% y/o/y saw average weekly earnings up by also .4% m/o/m and by 4.6% y/o/y. The participation rate was up a modest one tenth to 61.7% which again reflects a much tighter labor market as some are still not coming back. Specifically, the 25-54 yr old age bracket saw also just a one tenth increase to 81.8% vs 82.9% in February 2020. After losing 22.4mm jobs in March and April 2020, we’ve since recovered 16.7mm of them.
2)Initial claims totaled 385k, about as expected and down from 399k last week (1st print was 400k). The 4 week average was 394k, unchanged with the week prior as a print of 386k came out. Those filing for pandemic assistance rose by 1,500. Positively and delayed by a week in its reporting, continuing claims fell below 3mm, down by 366k w/o/w. Delayed by two weeks, those continuing to get PUA fell by 89k after rising by 112k in the week before. Those still getting the emergency kind was up by 12k.
3)The ISM services index for July fell rose to 64.1 from 60.1, well better than the estimate of 60.5 and the highest on record. Of the 18 industries surveyed, 17 saw growth. ISM said “Materials shortages, inflation and logistics continue to negatively impact the continuity of supply.” These challenges were all over the quotes from different businesses in a variety of industries.
4)Markit’s US manufacturing July PMI rose to 63.4 from 62.1 in June. This is what Markit today said in its manufacturing index on inflation: “July data signaled an unprecedented deterioration in vendor performance, as supplier delays were driven by transportation issues and severe raw material shortages. Such constraints on component deliveries and greater global demand for inputs reportedly pushed input costs up. The rate of cost inflation was the sharpest on record. Firms were, however, able to continue to raise their selling prices in July as charges also increased at record breaking pace. The uptick in output charges was overwhelmingly attributed to efforts to pass through higher costs where possible.”
5)At a snail’s pace but the Bank of England is getting closer to trimming back on its policy.
6)Not wanting to wait with fingers crossed that inflation will be temporary, the central bank in Brazil hiked its Selic rate by 100 bps last night to 5.25% as expected. It is now their 4th hike since March.
7)The Reserve Bank of Australia left policy unchanged but still expects to trim QE again in September to A$4b a week from A$5b. Governor Lowe is not letting Covid stop him, “The experience to date has been that once virus outbreaks are contained, the economy bounces back quickly.” And, “The economy is benefiting from significant additional policy support and the vaccination program will also assist with the recovery.”
8)Germany said its factory orders in June were better than expected with a 4.1% m/o/m gain, double the estimate. The strength was seen in domestic orders and within the Eurozone as orders fell slightly outside of the Eurozone. The Economy Ministry said “Incoming orders also rose in the important car and mechanical engineering sectors.”
9)The Eurozone manufacturing PMI was revised slightly higher to 62.8 from the 1st read of 62.6 but that is still down from 63.4 in June. Markit said “the July survey brought further signs that manufacturers and their suppliers are struggling to raise production fast enough to meet demand, driving prices even higher.” They said new orders are “outstripping production to an extent unprecedented in the survey’s 24 yr history.” With inflation, “price pressures meanwhile show no sign of abating, with July seeing another record increase in both input costs and prices charged for goods as demand exceeds supply, and concerns over future supply availability flare up again.”
10)The UK services PMI was revised to 59.6 from 57.8 initially but down from 62.4 in June. Markit said “Staff shortages and supply issues were a severe constraint on business capacity, which led to another strong rise in backlogs of work.” Any US company could have said the same. While the UK is fully open, “there were reports that Covid isolation rules had negatively influenced sales volumes.” With inflation, the overall rate “was the steepest since the survey began 25 years ago. A combination of rising input prices and stronger demand meant that service providers increased their average charges at a survey record pace in July.”
11)Caixin said its July China services PMI rose to 54.9 from 50.3 and that was well better than the estimate of 50.5. Caixin said “The stronger upturn coincided with the successful containment of the recent uptick in Covid cases, which in turn led to greater customer numbers and boosted new order intakes. As a result, firms registered a renewed increase in backlogs of work, which led to a slight rise in payroll numbers. Business confidence also strengthened from that seen in June.”
12)Thanks to a high vaccination rate and the easing of some restrictions, Singapore’s July PMI jumped to 56.7 from 50.1. Business confidence rose to the best since 2020 but “supply constraints and price pressures nevertheless lingered for private sector firms, constraining output growth to some extent.”
13)Taiwan’s rose to 59.7 from 57.6 as they are helped by a heavy semi presence as we know. Vietnam’s rose 1 pt but is still below 50 at 45.1. Malaysia’s was little changed at 40.1 vs 39.9 and Japan’s was revised to 53 from 52.2 initially and vs 52.4 in June. India’s jumped to 55.3 from 48.1 as their Delta spike came crashing down fortunately. India’s July services PMI rebounded to 45.4 from 41.2 as the Delta spike came crashing down but is still well below 50.
14)Tokyo in July saw true price stability as prices were unchanged y/o/y ex food and energy. This is a month though that the city was on edge with the Olympics and in the face of selective Covid restrictions. Also, a big drop in mobile phone charges was a key factor in keeping a lid on prices as they declined by 29% y/o/y, alone cutting .5 percentage points from CPI.
15)Outdoor live music is back highlighted by stadium performances by Billy Joel and Guns N’ Roses (was great last night btw). //www.youtube.com/watch?v=bTV4RNtcJZw
Negatives
1)ADP said only 330k private sector jobs were added in July, well below the estimate of 690k and that compares with 680k in June (revised down by 12k). All three sized businesses (small, medium and large) added jobs but overall the services side added 318k, about half the pace seen in June of 624k and 785k in May. The goods side hired a net 12k vs 56k last month and vs 97k in the month before.
2)Delta is creating a speed bump to the global recovery, particularly in Asia.
3)Markit said its July services PMI fell to 59.9 from 64.6 and that was the lowest since February. They said, “The upturn softened to the slowest since February, but was much quicker than the series average. Contributing to the less marked upturn in output was a softer rise in new business. Nonetheless, domestic and foreign client demand remained historically strong.” This is what they said on inflation, “input costs and output charges rose substantially despite their respective rates of inflation softening again from May’s historic highs…Service providers sought to pass on higher costs to their clients where possible in July.” With hiring, “efforts to ease pressure on capacity was hampered by reports of a shortage of suitable candidates.” As for the outlook, it remained “strongly upbeat in July” but “The degree of confidence dropped to a 5 month low, however, amid concerns about the strength of customer demand over the coming months.”
4)The July ISM manufacturing index fell to 59.5 from 60.6, 1.5 pts less than expected and the lowest since January. While 17 of 18 industries surveyed saw growth and “manufacturing performed well for the 14th straight month”, business is not easy. ISM said “Business survey Committee panelists reported that their companies and suppliers continue to struggle to meet increasing demand levels. As we enter the 3rd quarter, all segments of the manufacturing economy are impacted by near record long raw material lead times, continued shortages of critical basic materials, rising commodities prices and difficulties in transporting products. Worker absenteeism, short term shutdowns due to parts shortages and difficulties in filling open positions continue to be issues limiting manufacturing growth potential.”
5)The MBA said the average 30 yr mortgage rate slipped back under 3% at 2.97% but mortgage applications were still lower. Purchase apps fell 1.7% w/o/w and that is now down for the 5th week in the past 6 and lower by 18% y/o/y. Refi’s were also weaker by 1.7% w/o/w but after an 11.2% rise last week and the y/o/y change is down 3.2% on tough comps.
6)The Apartment List National Rent Report for July saw a 2.5% m/o/m increase, “continuing a month’s long trend of rapidly accelerating rent growth. So far in 2021, the national median rent has increased by a staggering 11.4%. To put that in context, in the pre-pandemic years from 2017-2019, rent growth from January to July averaged just 3.3%. This month’s spike continues to push rents well above where they would be if growth had remained on its pre-pandemic trend.”
7)Auto sales in July totaled 14.75mm vehicles, below the estimate of 15.1mm and down from 15.36mm in June.
8)In June the US had a record trade deficit at $75.7b. Imports grew by 2.1% m/o/m, offsetting the .6% export increase.
9)The Eurozone July services PMI was revised to 59.8 from the initial print of 60.4 and where the estimate was for no change. It still is up from 58.3 in June and this is the best since June 2006 with Spain outperforming the big economies. Said Market, “domestic and international demand combined rose at the quickest rate in 14 years. However, operating capacities were tested in July, as evidenced by a joint-record increase in backlogs of work. This encouraged the greatest expansion in employment across the eurozone service sector for almost 3 years.” The outlook remained positive but a bit less so from June. With pricing, “inflationary pressures subsided slightly during the latest survey period, with both output price and input cost inflation slowing since June. Nevertheless, rates of increase remained historically elevated.”
10)The UK manufacturing PMI was left unrevised at 60.4 but that is down from 63.9 in June. Here are the contrasting factors according to Markit, “On one hand, manufacturers are benefiting from re-opening economies. This is leading to solid inflows of new work from both domestic and overseas markets, including the US, the EU, China and the Middle East. On the other hand, the recent surge in global manufacturing growth has led to another month of near record supply chain delays, exacerbated by factories and their customers building up safety stocks. Some firms also noted that post Brexit issues were still a constraint on efforts to rebuild sales and manage supply and distribution channels to the EU.”
11)German industrial production in June was weaker than forecasted with a 1.3% m/o/m drop vs the estimate of up .5% and May was revised down by 5 tenths. This wasn’t a demand thing however as the Economy Ministry blamed the shortages of semi’s impacting auto production which we know Germany has a dominant presence in.
12)France said its June industrial production figure was as forecasted but the manufacturing component was a bit soft, likely due to supply issues rather than demand ones.
13)PPI in June in the Eurozone was as hot as it was here, rising by 1.4% m/o/m after a 1.3% jump in May, and increases of .9, 1.2, .5, 1.7 and .90 in the months before. That’s a 13.5% annualized run rate over these 7 months.
14)China’s state sector manufacturing index fell .5 pt to 50.4 where the estimate was for just a .1 pt drop. The non manufacturing index was down by .2 pts to 53.3 as expected. The private sector focused Caixin manufacturing index fell 1 pt m/o/m to 50.3. The estimate was 51. Caixin said “A key factor weighing on the headline reading was a renewed fall in total new business during July. Though only marginal, it marked the 1st decline in sales for 14 months. Some companies noted that higher factory gate prices had dampened customer demand. At the same time, new export orders rose only slightly as the pandemic continued to hinder sales overseas.” As for the outlook, “the level of confidence slipped to a 3 month low amid concerns over how long it would take to get the global pandemic under control and the ongoing supply chain disruption.”
15)Hong Kong’s July PMI was little changed at 51.3 vs 51.4 but “Firms were nevertheless cautious with hiring and purchases, particularly during a period when foreign demand remained weak, affected by lingering Covid implications. Price pressures and supply constraints sustained for firms, though overall optimism improved with better economic conditions.”
16)South Korea’s manufacturing PMI fell to 53 from 53.9 while Indonesia’s, gripped by a Covid surge, fell to 40.1 from 53.5. Thailand’s was down to 48.7 from 49.5 as only 5% of their population is fully vaccinated.
17)South Korea’s CPI for July rose .2% m/o/m and 2.6% y/o/y, both 2 tenths more than expected and the BoK is setting up the markets for a rate hike in coming months.