Succinct Summation of Week’s Events 5.7.6

Succinct Summation of Week’s Events:

Positives:

1) Within the payroll data, average hourly earnings rose by .3% m/o/m, in line with the estimate but due to rounding the y/o/y gain of 2.5% was one tenth better. As hours worked also rose to 34.5 from 34.4, average weekly earnings were up by 2.5% y/o/y, matching the best since October ’15.

2) ISM services index for April rose to 55.7 from 54.5 in March and that was better than the estimate of 54.8 and is the best level of the year. New orders improved to 59.9 from 56.7 last month and that is the highest since October. Of those industries asked about new orders, 15 saw growth vs 10 in March. Similar to what was said in March, the ISM said “The majority of the respondents’ comments reflect optimism about the business climate and the direction of the economy.”

3) Final eurozone manufacturing PMI for April was 51.7, up a touch from the initial print of 51.5 and up slightly from 51.6 in March. The estimate was 51.5. The figure remains just below the 6 month average of 52.1. Manufacturing in Spain and Italy improved m/o/m while French manufacturing remains in the doldrums at 48 while Germany’s index was 51.8 vs 50.7 in March. Markit said this about the European manufacturing sector, “conditions in the eurozone manufacturing sector remained lackluster at the start of Q2, as rates of expansion eased for both production and incoming new orders.”

4) After reporting a strong GDP figure last week for Q1 (up .8% q/o/q), Spain’s industrial production in March rose 1.2% m/o/m, four times better than the estimate with the y/o/y gain at 2.8%.

5) South Korea’s manufacturing PMI rose to 50 from 49.5. Indonesia’s PMI rose to 50.9 from 50.6.

Negatives:

1) Payrolls in April grew by a net 160k, 171k of which was from the private sector as the government shed jobs. That was well below the headline estimate of 200k and 195k for the private sector. The two prior months were revised down by a total of 19k. The 3 month average is now 200k vs the 6 month average of 220k, 12 month average of 224k and compares to the average of 251k in 2014. The unemployment rate rose one tenth to 5% as the household survey saw a job loss of 316k (284k jobs lost in 25-54 yr category) and also a drop in the labor force by 362k (the first drop since September ’15). Also of note, the participation rate fell back by two tenths to 62.8% and ends the 6 month streak where it either was up or flat. The all in U6 rate in contrast to the U3 fell one tenth to 9.7% but the amount of those Not in Labor Force rose by a sharp 562k to 94mm, back near record highs. With the positive on wages seen above with no productivity growth combined with a bottom in commodities and steady services inflation, smell the subtle tinder of a stagflationary scent.

2)Initial jobless claims totaled 274k, 14k more than expected and up from 257k last week and vs just 248k in the week prior. This brings the 4 week average to 258k from 256k last week which was last seen in the early 1970’s. Continuing claims, delayed by a week, fell another 8k to the lowest since 2000.

3) ISM manufacturing April index fell 1 pt to 50.8 and was below the estimate of 51.4. Of the 18 industries surveyed, 11 saw growth vs 13 in March.

4) MBA said mortgage applications to buy a home fell for the 4 th week in the past 5 although just by .1% w/o/w. The y/o/y gain of 13.4% is still pretty good but a slowdown from 14.5% seen last week, 17.2% in the week prior and 23.6% in the week before that. Applications to refi fell 5.5% w/o/w after a 5% drop last week. The y/o/y gain is 15.1%.

5) US trade deficit narrowed in March to $40.4b from $47b in February and that was about $800mm less than expected but the mix was not good. The main reason for the m/o/m fall was the 3.6% drop in imports to the lowest level since February 2011. The import weakness was mostly across the board (oil imports rose) which matches up with modest consumer spending and still excessive inventory levels relative to sales. Exports were lower by .9% to just above the lowest level since June 2011.

6) While slightly better than feared, this belongs in the Negative column. Productivity in Q1 fell 1% q/o/q annualized vs the 1.3% expected decline and Q4 was revised to less worse than last printed. Productivity rose .6% from Q1 last year, unchanged with the level seen in Q4 and Q3. This brings the last four quarter average to just .675% which is anemic and explains why GDP has had a 2 handle on it instead of one with a 3 and we may be headed to a 1 handle in 2016. Productivity has averaged 1.9% since 1981 and 2.1% up until 2008.

7) Vehicle sales in April totaled 17.32mm at a SAAR vs the estimate of 17.4mm but this is a rebound from the 16.5mm seen in March. Timing of Easter and an extra weekend in April helped. The average of the two months is 16.9mm vs 17.43mm seen in February and 17.46mm in January.