Succinct Summation of Week’s Events 7.8.16

Succinct summation of events for the week ending on July 8 2016.

Positives:

1. Job growth rebounded to +287k in June, a big upside surprise. Labor force increase of 414k puts the unemployment rate up by two tenths to 4.9%.Labor Force Participation Rate also ticked up to 62.7%.

2. Jobless claims totaled 254k, 15k less than expected and down from 270k last week. The 4 week average for claims is now down to 265k – the lowest in two months. Continuing claims fell by 44k, and are approaching the lowest level since 2000.

3. Mortgage rates are at a hard to fathom three year low: A fixed 30 year mortgage will now cost you somewhere around 3.25%. These low rates drove a 21% jump in applications to refinance and is now up a whopping 114% year over year. Purchases rose 4.3% w/o/w after 3 weeks of declines and are up 22.6% y/o/y

4.Wages rose 2.6% on a year over year bases (but were up only 0.1% m/o/m). Average weekly earnings were also up by 2.3% y/o/y.

5. U6, the broadest read of Unemployment, fell to 9.6% vs 10.5% in June 2015. Note this has fallen from a peak of 17.1% in 2010.

6. ISM services index for June rose to 56.5, up from 52.9 in May and 3.2 pts above the estimate of 53.3. It’s the best level since November and compares with 55.7 back in April. ISM said “respondents’ comments were mostly positive about business conditions and the economy. Overall, the report reflects a strong rebound from the ‘cooling off’ of the previous month for the non manufacturing sector.”

Negatives:

1. Job growth is slowing: 3 month job growth average at 172k for 2016. This compares with 229k in 2015 and 251k in 2014.

2. May NFP revisions were down to just 11k; prior month also revised downwards, part of either a slowing trend in job growth or full employment.

3. May US factory orders fell by 1% m/o/m and grew just .1% ex transports and down 3.4% y/o/y. (Silver lining: Core capital spending was revised up by two tenths, but still shows two months of declines in a row and a 3.8% drop y/o/y.

4. The May US trade deficit widened to $41.1b from $37.4b in April and that was a touch above the estimate of $40b. Exports fell .2% m/o/m while imports were up by 1.6%.

5. Markit index for the state of US services was 51.4, barely above 50 and below the average of 55.9 seen last year. Business expectations for the year ahead also continued to soften, with service providers indicating the lowest degree of optimism since the survey began in October 2009. (Note this is inapposite to ISM surveys, and why we find surveys generally unreliable).

6. Abenomics continues to run into a rough patch, as Labor cash earnings fell 0.2% in May y/o/y, much lower than the estimate of up 0.5% Regular base pay, the key component within this data point, fell .1% y/o/y after no change in April.

Thanks, Pete!