Global Turmoil Saps U.S. Job Growth The U.S. economy posted another month of weak job growth in September—adding 142,000 positions—suggesting global economic turmoil is sapping momentum from the U.S. expansion.
Job growth was also weaker earlier this summer than previously thought. Payrolls increased 136,000 in August instead of the initially reported 173,000. They grew 223,000 in July, down from the previously reported 245,000. (…)
Private-sector payrolls grew by just 118,000, with the government accounting for the rest of the gains. (…)
The unemployment rate remained at 5.1% last month after falling in August. (…)
U.S. job growth has averaged 167,000 over the past three months. Last year, job growth averaged 260,000 a month. (…)
Wages dipped last month after accelerating in August. The average hourly earnings of private-sector workers fell a penny to $25.09. They were up 2.2% from a year earlier, consistent with the sluggish trend throughout the expansion.
The labor force participation rate, already hovering near the lowest level since the 1970s, fell to 62.4% from 62.6%.
Looking at the internals of this month’s report showed little in the way of bright spots. The only category which increased this month was Customer Inventories, which suggests that ‘product’ isn’t exactly flying off the shelves. This month’s increase in that category puts it at its highest level since January 2009. On the downside, the biggest decline came in Backlog Orders and Production. On a year/year basis, every category besides Customer Inventories also declined with Prices Paid and Production seeing the largest declines. Based on where the indices for each category currently stand, New Orders is at its lowest level since November 2012 and Export Orders are at their lowest level since April 2009. The decline in Export Orders once again illustrates how the strong dollar and weak global economies are hurting demand for US exports.
Based on a WardsAuto estimate, light vehicle sales were at a 18.03 million SAAR in September. That is up almost 10% from September 2014, and up 1.7% from the 17.7 million annual sales rate last month.
Labor day was included in September this year, and that probably pushed sales over 18 million.
(…) Chinese exports tumbled 5.5 percent in August from a year earlier, while those of the U.S. fell 3.5 percent. South Korea and Singapore witnessed double digit declines.
Reflecting such weakness, the World Trade Organization this week cut its forecast for trade this year to 2.8 percent from 3.3 percent. It acknowledged its new prediction may be “over optimistic.”
Such rates fall short of the 5 percent average of the past two decades. Also gone are the 1990s and early 2000s when trade grew twice as fast as economic growth — 2015 is set to be the fourth consecutive year in which the two expand around the same speed.
More worryingly, Carl Weinberg, chief economist at High Frequency Economics in Valhalla, New York, points out that total world exports as of June were running below their year-ago levels at an annualized rate of $1.6 trillion, the equivalent to 2.1 percent of global gross domestic product.
That extended the decline in exports during the first six months of the year to 11 percent from the previous year, enough to fret about stagnation in the global economy given Weinberg’s estimate that there is a 70 percent correlation between expansion and export shifts.
“The contraction of world trade has yet to show a bottom,” said Weinberg. “This could be more than an economic headwind, it could be a tornado.” (…)
At 50.6 in September, down from 50.7 in August, the J.P.Morgan Global Manufacturing PMI™ posted its lowest reading since July 2013. The average PMI reading over the third quarter (50.8) was also the weakest outcome since the second quarter of 2013.
The US and the European Union (EU) remained positive contributors to global manufacturing growth in September. Within the EU, almost all of the nations covered by PMI surveys reported expansions (the sole exception being Greece).
The Asia region remained one of the weaker points in the global manufacturing sector during September. The China PMI slipped to a six-and-a-half year low of 47.2, while headline indices also signalled contractions in South Korea, Taiwan, Indonesia, Vietnam and Malaysia. Although Japan and India were plus points for the region, rates of expansion in these two nations slowed to three and seven-month lows respectively.
Brazil and Greece, meanwhile, remained in severe downturns. Contractions were also signalled by the Russian, Canadian, Turkish and Swiss PMI indices.
Global manufacturing production rose at the slowest pace in almost two-and-a-half years in September, while growth of new orders remained in line with the lows seen during the second quarter. International trade flows continued to weaken, with new export business falling for the third straight month. New export orders rose in the US, the eurozone, the UK, Mexico, the Czech Republic, India, Turkey, Malaysia and steadied in Brazil and Canada.
Yesterday’s regional PMI surveys provide an unbiased view of what’s going on in the Chinese economy in September:
- South Korea: “Continuing the trend observed since March, new orders from abroad decreased. According to a number of survey respondents, reduced trade volumes with China led to a reduction in exports, while some commented on poor global economic conditions.”
- Taiwan: “(…) new export work fell sharply over the month (…)”
- Vietnam: “(…) new export orders fell for the fourth successive month, and at the second-fastest pace in the series history. Some panellists mentioned particular demand weakness from other countries in the region.”
- Indonesia: “New business from abroad continued to decline, with almost one-quarter of survey participants signalling lower foreign orders. There were mentions of weaker demand from clients based in Asia as well as those in Europe.”
- India: “New business from abroad expanded at the slowest pace in the current 24-month sequence of growth and one that was marginal overall. Panellists reported softer global demand for their goods.”
- Russia: “International demand, in contrast, continued to deteriorate, as highlighted by a fall in new export orders for a twenty-fifth successive month. The rate of contraction was again solid, but nonetheless the slowest since June.”
Beijing is clearly worried. ISI calculates that there have been 20 fiscal stimulus measures announced in China in September, more than 2x the number in any prior month in 2015.
Beijing’s intervention to prop up equity prices on July 4, markets are down another 17-20% and are 32% below Beijing’s earmarked 4500 SHComp level commanding no selling any lower.
Importantly, the 5th Plenum CPC (Party) meeting will be held in a 2 weeks. Remember that in China, the Party decides and dictates. The Government then executes as directed. Employment conditions are worsening in China…
Apartment Boom Levels Out Increasing supply sent vacancy rate higher in third quarter, according to new figures, suggesting the boom of the past several years is topping out.
Increasing supply sent the vacancy rate up to 4.3% in the third quarter from 4.2% in the second quarter, which matched the lowest since the recession.
With some 200,000 additional rental units expected to hit the market this year, economists expect higher vacancy rates in coming quarters. (…)
Average effective rents rose 4.2% from the same quarter last year to $1,166, the first time since 2007 rents have risen more than 4%.
Rents can continue rising even as vacancies tick up because new rental units coming onto the market usually bring higher rents, boosting the average. For example, the vacancy rate in San Jose, Calif., jumped to 3.3% from 2.7% in the previous quarter, while Seattle’s vacancy rate rose to 5.1% from 4.7%. But rents in San Jose and Seattle increased 8.5%, to $2,023 and $1,299, respectively.
Still, rising supply is beginning to take a toll. In some markets, landlords are being forced to offer concessions. (…)
Nationwide, the vacancy rate remains well below the historical average of about 5.5%, according to Reis. In the third quarter of last year the rate stood at 4.3% before dropping to 4.2% in the first and second quarter of 2015. (…)
ECB President Draghi Says Eurozone Returning to Growth European Central Bank President Mario Draghi said in a speech the eurozone has become more resilient and growth is picking up, the latest indication he thinks the central bank’s accommodative monetary policy is working.
Eurozone Producer Prices Fall Sharply The decline in eurozone producer prices accelerated in August, putting further pressure on the European Central Bank to stem the risk of deflation.
Prices at the eurozone’s factory gates fell 0.8% on the month, their steepest monthly fall since January, the European Union’s statistics agency said Friday. Producer prices slumped 2.6% from August last year, their steepest annual fall since February. (…)
But even excluding energy, producer prices in August dropped 0.2% on the month, falling 0.5% from August last year.
Japan’s household spending rose in August for the first time in three months and the availability of jobs improved to its best in more than two decades, which could temper concerns that the economy has fallen into a recession.
The 2.9 per cent annual increase in household spending in August was more than the median estimate for a 0.4 per cent year-on-year increase and followed a 0.2 per cent annual decline in July as consumers bought more cars. (…)
The gains in auto sales are particularly encouraging, because it suggests this category has finally recovered from a tax increase that triggered a slump in compact car sales, Miyagawa also said.
In addition to higher car sales, many consumers bought new domestic air conditioners during a spell of unusually hot weather, a government official said.
Government data showed the jobs-applicants ratio rose to 1.23 in August, which is the highest since January 1992. The jobless rate was 3.4 per cent in August, slightly more than the median estimate of 3.3 per cent. (…)
Crude oil production in the U.S. increased by 94,000 bpd in July from June, driven entirely by Gulf of Mexico production, as lower 48 production continued to decline. Monthly crude oil production averaged 9.358 MMbpd in July, up from the newly revised June figure of 9.264 MMbpd (which was revised lower by 32,000 bpd). Analysts calculate that lower-48 crude oil production actually declined by 55,000 bpd in July on top of a revised 71,000 bpd decline in June. Since its March peak, lower-48 crude production has declined by nearly 300,000 bpd.
Total product demand was estimated at 20.0 MMbpd for July, up from 19.6 MMbpd in June. Gasoline demand increased by 0.5% sequentially to 9.44 MMbpd (+2% YoY). YtD gasoline demand has increased 2.9%.
Vehicle utilization is accelerating sharply in the U.S. Based on preliminary reports from the State Highway Agencies, travel during June 2015 on all roads and streets in the nation changed by 4.2%. Cumulative Travel changed by 3.6% YtD and 3.2% on a moving 12-month basis.
Russia’s oil output in September rose to an average of 10.74 million barrels a day, government data showed on Friday. Oil production increased 0.4% from August.
The record-high Russian output adds to an already oversupplied global oil market. It is also the latest indication that Russia, one of world’s biggest oil producers along with Saudi Arabia and the U.S., isn’t prepared to join the Organization of the Petroleum Exporting Countries in trimming production to prop up prices. OPEC has indicated that it will only consider a cut if other big suppliers, like Russia, join it and several OPEC members have tried to woo the country. (…)
The government has said because of the geology and harsh climate, Russian companies can’t adjust oil output as easily as in other producing nations. Also, the depreciation of the ruble makes it relatively cheaper to produce oil in Russia, helping to preserve oil-company margins. (…)
Also consider that selling oil is the only major source of USD for Russia.
Bank Earnings May Leave Investors Feeling Spooked Third-quarter results for big banks may be more downbeat than the market expects
(…) The quarter’s tailwinds include the Federal Reserve’s decision not to raise rates in September and a flattening of the yield curve. This is likely to put further pressure on net-interest margins.
And investors may still be too optimistic about that gauge of bank profitability. After the pace of margin compression slowed at a number of banks during the second quarter, many analysts had expected it to further stabilize in the third quarter.
If anything, though, the era of compression may be back upon banks. And tighter lending margins could sap any improvements to earnings that are expected from the steady, if not impressive mid-single digit loan growth expected during the quarter. Even that growth could prove lackluster if the need for income becomes even more urgent, causing competition for loans to increase further, and pricing to erode. (…)
Non-interest income may also disappoint. The Mortgage Bankers Association forecasts an 8% decline in home-loan originations versus the second quarter. Data this week form the Federal Housing Finance Agency indicated mortgage rates and average loan amounts both fell in August, which may have added to further downward pressure on mortgage-related fees.
Several banks have signaled trading revenue will also fall by around 5% compared with a year ago. Equities revenue is expected to have improved, thanks to volatile markets, but not enough to offset falls in fixed-income, currency and commodities trading. (…)