1) July payrolls grew by 157k, 25k below expectations but was more than offset by a combined upward revision in the two prior months of 59k. The private sector added 170k, 20k less than expected but June alone was revised up by 32k. I did forget to mention in my previous note on this though, the service sector added the least amount of jobs since December of just 118k. Manufacturing continues to be a bright spot but hiring will be tested with the tariff concerns. The household survey said 389k new jobs were created (very volatile month to month) which combined with the 105k increase in the labor force led to a one tenth drop in the unemployment rate to 3.9%. The all in rate called U6 dropped 3 tenths to 7.5%, a new low for this cycle.
2) Challenger, Gray released its July job cuts data and the number fortunately dropped to the “lowest monthly total in 20 months.” They said 70 jobs have been lost related to the steel tariffs, of course extremely modest as of yet as “Nearly 90% of companies recently polled by Challenger are either actively hiring or in retention mode. Companies are not letting go of their workforces right now.”
3) Initial jobless claims totaled 218k, 1k less than expected and little changed with 217k last week. The 4 week average falls to 215k from 218k and just off the lowest level since 1969.
4) The Conference Board Consumer Confidence index for July rose a touch to 127.4 from 127.1 in June and vs 128.8 in May and that was 1.4 pts above the forecast. All of the gain was in the Present Situation component which rose 4.2 pts from June to the best level since 2001. On the other hand, the Expectations component fell to the weakest level since December. Those that said jobs were Plentiful jumped almost 3 pts to the best level since February 2001 while those that said they are Hard to Get were little changed. Notwithstanding the headline improvement in confidence and the solid labor market, spending intentions remained pretty muted. One year inflation expectations rose two tenths to 5.1% and that matches the most since March 2015.
5) The employment cost index was up by .6% q/o/q annualized, one tenth less than expected. Most importantly though, private sector wages and salary growth held at 2.9% y/o/y, the quickest pace of gain since Q3 2008. Also of note, private sector benefits jumped 2.8% y/o/y, the biggest gain since Q1 2012.
6) The June PCE inflation deflator rose .1% m/o/m and 2.2% y/o/y while the core rate was higher by also .1% m/o/m and 1.9% y/o/y. The m/o/m numbers were as expected while the y/o/y gains were one tenth less than expected due to rounding but unchanged with May.
7) Income and spending both rose .4% m/o/m as expected. Specifically, private sector wages and salaries grew by .4% m/o/m. Spending on services led the headline spending report as spending on goods fell m/o/m. Due to the upward revision in the 5 yr benchmark revisions, the savings rate is now at 6.8% all because income was adjusted upward due to a rise in unincorporated business income.
8) Pending home sales rose .9% m/o/m which was better than the estimate of little change, up .1%. It follows two months of declines. All four regions saw sales gains. The NAR said “The positive forces of faster economic growth and steady hiring are being met by the negative forces of higher home prices and mortgage rates. Even with slightly more homeowners putting their home on the market, inventory is still subpar and not meeting demand. As a result, affordability constraints are pricing out some would-be buyers and keeping overall sales activity below last year’s pace.”
9) Talks between Treasury Secretary Mnuchin and Chinese Vice Premier Liu are supposedly about to take place.
10) The FOMC meeting was uneventful but another rate hike comes next month.
11) The BoJ gives the yield curve a bit more breathing room. Japanese bank stocks celebrate.
12) With inflation running north of 2% for two years now, the Bank of England raises rates by 25 bps to .75%. At a ‘gradual’ pace more will come.
13) The Reserve Bank of India raised rates by 25 bps as expected in response to recent uptick in inflation.
14) The unemployment rate in June for the Euro area was 8.3% as expected and matches the lowest level since November 2008.
15) The Economic Confidence index for the Euro area in July fell a touch to 112.1 from 112.3 but that was a touch above the estimate of 112.0.
16) The Japanese labor market got even tighter in June as the jobs to applicant ratio rose to 1.62 from 1.60, the highest since 1974.
1) European and US interest rates jump following the rise in Japanese interest rates as another central bank pulls in the reigns (however slight).
2) Just as we cheer high level talks are about to take place between the US and China, we threaten a 25% tax tariff on a possible upcoming $200b of tariffs up from 10%. I assume though just noise and remain hopeful on the talks.
3) The US ISM manufacturing index for July moderated by 2.1 pts to 58.1 which is a 3 month low and puts it below the average year to date of 59.1. Of note, new orders fell 3.8 pts to 60.2, the lowest since May 2017, backlogs dropped by 5.4 pts to 54.7, the least since November 2017 and export orders fell 1 pt to the slowest since October 2017. While we did see the headline drop, the number of industries reporting growth did remain at 17 of 18 surveyed. The ISM summed up the report with the positives and negatives that we are all aware of, “Demand remains robust, but the nation’s employment resources and supply chains continue to struggle. Respondents are again overwhelmingly concerned about how tariff related activity, including reciprocal tariffs, will continue to affect their business.”
4) The JPMorgan Global Manufacturing PMI for July fell for the 6th month in the past 7 to 52.7, the lowest in a year.
5) The 7 bps w/o/w rise in mortgage rates to 4.84% to just below a 4 year high, because of the rise in Japanese yields that lifted US rates, led to a 3.1% w/o/w drop in mortgage purchase applications to buy a home and which are up just 1.2% y/o/y. Refi’s fell 1.7% w/o/w and are lower by 29% y/o/y.
6) Vehicle sales in July totaled 16.8mm, down from 17.2mm in June, in part due to the first monthly fall in incentives in about 4 1/2 years. Edmonds said because of rising interest rates “It’s getting more expensive to offer these deals.”
7) Core capital goods orders for June were revised down to a .2% m/o/m gain from the initial print of up .6%.
8) China’s private sector weighted Caixin manufacturing PMI fell to 50.8 from 51. That is the slowest in 8 months and Caixin said “Notably, new export orders fell at the steepest pace for 25 months” and “Optimism towards the year ahead remained subdued amid concerns surrounding tough market conditions, strict environmental policies and the potential impact of the US-China trade war.”
9) The July European manufacturing PMI was left unrevised at 55.1 vs 54.9 in June and 55.5 in May. Similar to what China is experiencing, “July saw new export business increase at the slowest pace since August 2016.”
10) The UK manufacturing July PMI fell a touch to 54 from 54.3. The estimate was 54.2. The services PMI dropped to 53.5 from 55.1 and 1.2 pts below the forecast.
11) The Eurozone CPI for July printed up 2.1% y/o/y and the core rate (ex food, energy, alcohol and tobacco) was higher by 1.1% y/o/y, both one tenth more than expected. The core rate ex just food and energy was higher by 1.3%. Headline inflation is now running at the quickest pace since December 2012 and the core rate is one tenth from matching the most since 2013.
12) Eurozone June PPI rose 3.6% y/o/y, one tenth more than expected, up from 3% in May and that is the quickest pace of gain since April 2017.
13) The European economy grew by 2.1% y/o/y in Q2, one tenth less than expected, down from 2.5% in Q1 and is the slowest rate of growth since Q1 2017. It is though still a good pace for Europe.
14) The Eurozone services PMI was revised lower to 54.2 from 54.4 initially and compares with the estimate of no change. That is the 2nd slowest rate of gain since January 2017.
15) The German unemployment rate held at 5.2% in July as expected and the number of unemployed fell by 6k people but not as much as the 10k drop that was forecasted.
16) The Japanese unemployment rate did rise by 2 tenths to 2.4% as there was a drop in the number of employed. They also reported a big 2.1% m/o/m drop in industrial production for June, well more than an expected fall of .3%.
17) China’s private sector weighted services PMI fell to 52.8 from 53.9. The estimate was 53.5 and it’s the lowest since March.
18) The services PMI fell m/o/m in Japan and Singapore. It rose in Hong Kong but only by .5 pt and remains below at 48.2.