Month: July 2019

Payroll employment increases by 224,000 in June; unemployment rate changes little at 3.7%

Total nonfarm payroll employment increased by 224,000 in June. Employment growth has averaged 172,000 per month thus far this year, compared with an average monthly gain of 223,000 in 2018. After revisions, job gains have averaged 171,000 per month over the last 3 months.

The change in total nonfarm payroll employment for April was revised down from +224,000 to +216,000, and the change for May was revised down from +75,000 to +72,000. With these revisions, employment gains in April and May combined were 11,000 less than previously reported.

The average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours in June. In manufacturing, the average workweek edged up 0.1 hour to 40.7 hours, while overtime was unchanged at 3.4 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls held at 33.6 hours.

In June, average hourly earnings for all employees on private nonfarm payrolls rose by 6 cents to $27.90, following a 9-cent gain in May. Over the past 12 months, average hourly earnings have increased by 3.1 percent. Average hourly earnings of private-sector production and nonsupervisory employees increased by 4 cents to $23.43 in June [+3.4%].

Weak Factory Orders and Shipments Data

Manufacturers’ orders declined a greater-than-expected 0.7% (-1.2% year-on-year) in May following a slightly downwardly-revised 1.2% drop in April (was -0.8%). The Action Economics Forecast survey looked for a 0.5% decrease. Factory shipments edged up 0.1% (1.4% y/y) after contracting 0.6% in April (revised from -0.5%). Shipments of nondefense capital goods excluding aircraft, also known as core durable goods, which is one of the key inputs into nonresidential equipment investment in GDP, rose 0.6% in May (+4.0% y/y) and is currently growing at 1.5% annual rate for the quarter.

Orders in the volatile durable goods sector fell 1.3% (-2.8% y/y) after dropping 2.8% in April. This decline was driven by a 4.6% collapse in orders for transportation equipment (-8.4% y/y) as civilian aircraft orders plummeted 28.2% in May. While notoriously volatile on a monthly basis, these orders have fallen 56% over two months and 66% from a year ago. Total factory orders excluding transportation edged up 0.1% (0.4% y/y). (…)

Strangely, after pointing out the growth in the important non-def cap goods ex-air series, Haver omits to signal the poor trend in new orders in same series, up only 1.4% YoY in May from +9.1% in July 2018, and up a puny 0.3% annualized in the last 4 months (down 0.8% annualized in the last 3).

Weakening new orders in the less volatile part of manufacturing is confirmed by the PMIs and Haver illustrates how this eventually feeds in economic growth:

Purchasing managers worldwide are extremely gloomy based on what they see in their daily activities managing inputs vs outputs:

June’s soft manufacturing surveys drove Goldman Sachs’ CAI to 0.7%:

  Wait, wait! Morgan Stanley will not be outdone by GS as Zero Hedge revealed last week:

Morgan Stanley’s Business Conditions Index, which captures turning points in the economy, fell by 32 points in June, to a level of 13 from a level of 45 in May. This drop is the largest one-month decline on record and the lowest level since December 2008 during the financial crisis, according to the firm.

(…) the MSBCI suggests the Mfg PMI New Orders component will fall to 40 over the next few months, which would be down approximately 25% on a y/y basis. Another way of putting it – if Morgan Stanley’s indicator is right, the world is already in a recession.

German Factory Orders Plunge Across Industries

(…) The 2.2% overall drop on the month was far worse than the 0.2% fall predicted by economists in a Bloomberg survey. The year-on-year decline of 8.6% was the biggest in almost a decade. (…) JPMorgan now predicts that Germany may have contracted in the second quarter. If that happens, it would be the third time in a year that Europe’s largest economy posted no growth at all.

Germany’s troubles, some of which are linked to the car industry, have weighed on the euro region. Governing Council member Olli Rehn summed up the mood on Thursday, saying saying that growth has “slowed significantly” and it’s no longer possible to consider the downturn as temporary. (…)

ING adds:

(…) In particular, foreign orders dropped sharply: -5.7% MoM from non-Eurozone countries and -1.7% MoM from Eurozone countries, reflecting continued global uncertainties. After four disappointing months, domestic orders increased by 0.7% MoM. Still, domestic orders have been an even bigger disappointment than foreign orders this year, having dropped by an average of 1.5% MoM since the beginning of the year. (…)

The last two times order books shrank with a similar magnitude was in 2011/12 and 2008/9. While the former fall ended mildly with a decent rebound, the latter continued and we all know how it ended. Back to the current situation, a strong inventory build-up in the automotive industry also does not bode well for the coming months and brings back the not so distant memories of last Fall. Combined with the weakest June performance of the labour market since 2002 and disappointing retail sales, today’s new orders wrap up a week to forget for the German economy. The fear factor is back.

From Markit’s June German PMI:

(…) Overall employment in Germany is now in a lower growth phase, with the service sector providing the bulk of new jobs. In a similar vein, the PMI data have shown the strongest quarterly growth performance from the service sector for almost five years, but thanks to falling manufacturing production, overall economic output looks to be expanding at only a moderate pace. (…)

Rising inflows of new work continued to form the basis for growth across the services economy. June saw new business increase at a solid rate that was quicker than that recorded in May, albeit slightly slower than April’s seven-month high. Continuing the theme of recent months, the main driver of the increase in new business was stronger demand from domestic sources. New work from abroad fell for the eleventh time in the past 12 months and at the quickest rate since January 2015. Surveyed firms partly attributed this to delayed decision-making among European clients. (…)

But the survey’s forward-looking indicator – the only one based on sentiment – raises question marks over how long the service sector can continue growing at such a pace and keep compensating for the weakness in manufacturing. Slowdown fears have weighed on service sector optimism, which is now the lowest since October 2015.

And the subsequent German Construction PMI:

(…) The latest figures show that the construction sector has lost all of its growth momentum, with the PMI slipping for the third month in a row in June to register in line with the 50 ‘no change’ mark. Only commercial activity increased, with the previously strong housing activity component having its first setback in eight months. (…)

Germany is but a microcosm of the Eurozone’s cyclical industries as Markit shows:

Markit’s Eurozone Nowcaster is pointing down:

China Reiterates Demand That U.S. Must Lift All Tariffs

On Friday, an influential blog connected to state media said the talks will “go backward again” without that step, echoing the line from Ministry of Commerce’s weekly briefing on Thursday. (…) “If the two sides are to reach a deal, all imposed tariffs must be removed,” Ministry of Commerce Spokesman Gao Feng said on Thursday. “China’s attitude on that is clear and consistent.” (…)

China laid out three red lines for a trade deal when the talks collapsed in May. As well as the removal of all the tariffs, any purchases must be in line with the country’s real demand and the deal must be based on equality and mutual respect.

Chinese purchases of U.S. agricultural products is the country’s “special chip” in the negotiation, and any imports will depend on whether the talks will be equal and mutually respectful, according to the Taoran Notes commentary.

China is apparently considering buying some agricultural goods from the U.S. as a gesture of goodwill, but so far, there has been no sign of the “tremendous” purchases that President Donald Trump said China had promised to make.

Crunch Time Looms for Trump’s New Nafta

(…) Next Tuesday is the first day Trump can send the USMCA implementing legislation to Congress, starting the clock for lawmakers to take it up. (…)

U.S. Trade Gap Widened in May Despite Tariff Moves Trade deficit in goods and services jumped 8.4% in May from a month earlier

(…) The gap widened because of the biggest monthly rise in imports in more than four years along with moderate growth in exports amid a cooling global economy.

The monthly trade figures provide a window into how U.S. trade is affecting the economy. Sarah House, a senior economist at Wells Fargo , said that a bigger trade deficit appears likely to shave around half a percentage point off economic growth in the second quarter after adding almost twice that much in the first.

Regarding U.S. trade with China, the bilateral goods deficit widened in May by 12% from the prior month to $30.2 billion, as both imports and exports rose sharply. (…)

Capital Economics said it expects gross domestic product growth in the second quarter to come in around 1.5% in annual terms, down from 3.1% in the first quarter. (…)

How the trade balance performs going forward, she said, will in part depend on whenBoeing Co. is able to resume exports of its best-selling 737 MAX aircraft, which has been grounded since March due to safety questions. Civilian-aircraft exports rose in May from April but were down 12% in the first five months of 2019 compared with a year earlier. Many economists expect aircraft shipments to decline further in the months ahead.

Imports rose 3.3% in May from April, the fastest monthly growth since March 2015, to $266.16 billion, the Commerce Department said Wednesday. The increase was led by a 7.5% rise in automotive imports, to a record $33.23 billion, as well as an 11% jump in crude-oil imports, to $13.02 billion.

Exports, meanwhile, increased 2% to $210.64 billion, the biggest monthly increase in a year. Outbound shipments were boosted by a 41% jump in exports of soybeans, which have been volatile in the past year after being targeted by China for retaliatory tariffs. (…)

Many suggest that beat-the-tariffs imports played a big role in May’s trade numbers. Perhaps, but Canada’s exports to the U.S. jumped 8.1% YoY in May without any tariff issues.

Canada Posts Unexpected Trade Surplus on Record Exports to U.S.

(…) The country ran a rare trade surplus of C$762 million ($582 million) in May, from a deficit of C$1.1 billion previously. It’s only the fourth surplus for the country since oil prices began declining in 2014, driven by a 4.6% increase in exports. (…)

Exports to the U.S. increased 3.7% [MoM] to a record C$39.3 billion, widening Canada’s trade surplus with its biggest trading partner to C$5.9 billion — the largest since October 2008.

May’s export jump comes on the heels of other strong gains, bringing the increase in merchandise shipments to 15% since December. That’s the biggest five-month gain in Canadian exports in more than a decade.

Export volumes — the variable that goes into calculations of real growth — were up 4% in May, the most since August 2016. (…) Nine of 11 sectors tracked by Statistics Canada recorded an increase in exports in May, led by a 12.4% jump in motor vehicle shipments. Non-energy exports are up 6.3% since December. (…)

Some economists now anticipate annualized growth could come in closer to 3% in the second quarter, well above Bank of Canada expectations for 1.3%.

The Peterson Institute takes a global view of trade:

Trump Has Gotten China to Lower Its Tariffs. Just Toward Everyone Else.

China increased its retaliatory tariffs hitting US exports on June 1 in response to President Donald Trump’s latest escalation of his trade war. Yet, this action is only half of the bad news for US exporters. The other half is that China has begun rolling out the red carpet for the rest of the world. Everyone else is enjoying much improved access to China’s 1.4 billion consumers, a fact that has been little noticed or reported in accounts of the US-China economic confrontation. (…)

As China’s economic growth has slowed during the trade war, its imports from both the United States and the rest of the world have also fallen (figure 4). China’s tariff reductions toward the rest of the world are likely to have helped stem the decline in imports from those countries. Nevertheless, the drop in US exports to China—due to slowing domestic demand, the retaliatory tariffs, as well as the incentive to switch to other foreign sources—is much more severe. (…)

This is not good news for US exporters. China’s retaliatory tariffs put them at a disadvantage relative to local firms, which obviously don’t have to pay any border taxes. But reducing tariffs on imports from other countries means US exporters also face an increasing disadvantage relative to competitors in Canada, Japan, Europe, and elsewhere. (…)

THERE WILL BE BLOOD

Farmers Built a Soybean Export Empire Around China. Now They’re Fighting to Save It. Trade tensions have hammered sales of soybeans to the Chinese, a major export market it took U.S. agriculture decades to create. Growers are traveling to Beijing and Washington to plead their case. “Farmers can’t say, I’ll just grow broccoli this year.”

The customer is China and the export is soybeans, of which the U.S. shipped $21 billion abroad in 2017, far more than anything else farmers grow. That marked a tripling in two decades, the fruit of a sweeping effort, by nearly every arm of U.S. agriculture, to build a once-obscure crop into a blockbuster.

Then last year, sunk by a bitter trade dispute, American soybean exports to China plunged 74% by volume. Brazil raced to fill the gap, while prices paid to U.S. farmers recently slid to a seven-year low. (…)

Last year, U.S. farmers planted soybeans on more than 89 million acres, an area roughly the size of Montana. That was more than the land planted to corn, long Midwestern farmers’ crop of choice.

Seed companies, grain traders, railroads and other businesses have all been part of the soybean-industry buildup—investing heavily, rolling out new varieties and adding rail capacity to ferry crops to market. (…)

Joe Steinkamp, an Indiana farmer and a director of the American Soybean Association, brought such a message to a recent meeting with Gregg Doud, chief agricultural negotiator for the Office of the U.S. Trade Representative. Mr. Steinkamp said he expressed concern about destroying export markets for younger farmers who are struggling with debt loads or access to credit.

“We don’t want the next generation to be scared away from agriculture,” Mr. Steinkamp said, on what was his third trip to Washington since Chinese tariffs took effect. “Markets don’t just come back.” (…)

The U.S. share of world soybean exports is expected to drop to 31% this season, the lowest on record, while Brazil’s portion is forecast to swell to 52%, which would be its largest ever.

At an agricultural forum in Beijing last fall, according to Mr. Schickler, China’s deputy agriculture minister said China would not easily forget the current standoff, and China is building alternatives for soybean imports so it will never again be so dependent on a single source.

(…) Brazil’s ambassador to China told the group his country was working to become China’s most reliable supplier.

According to Mr. Sutter, the CEO of the Soybean Export Council, Chinese companies are working to develop soybean production in Russia, where soybeans haven’t yet become a major crop.

American farmers have few easy options if Chinese demand for U.S. soybeans remains depressed. Robust world grain supplies suggest there is little need for additional U.S. corn or wheat production. Switching to a new crop would require huge investments in equipment and infrastructure, to say nothing of finding viable markets. (…)

For that reason, the U.S. soybean industry is also working intensely to woo buyers in other international markets. The largest single-country export customer after China is Mexico. (…)

Restoring trade with China remains a critical goal for the export council. “We need to be looking for a way to get out of the mess we’re in” with China, said Mr. Adams, the former American Soybean Association president. In the trade fight, in his view, “We’re going to have to blink.”

• China won’t buy US agricultural products if Americans ‘flip-flop’ in trade talks – state media

(…) “If the US flip-flops again in the negotiations, the promises to buy American agriculture products will also be overturned,” Taoran Notes said. (…) The commentary was published ahead of next week’s revival of trade talks, when American negotiators will visit Beijing.

A lot will ride on how the US government handles the supply ban on Chinese telecom giant Huawei Technologies, sources have told the South China Morning Post. (…)

Beijing remained coy on whether China would immediately resume buying American soybeans, an American source briefed about the situation told the South China Morning Post.

He said Beijing wanted first to see how – and if – the Trump administration would ease the supply ban on Huawei, as promised by Trump.

He said the White House probably would make an announcement “in the next couple of days” on the conditions under which American companies would be allowed to resume supplying the Chinese tech giant.

The Chinese would then commit to buying American agricultural products. (…)

GM’s China sales decline for fourth straight quarter amid economy woes

(…) U.S. car companies’ share of China’s passenger vehicles market has fallen to 9.6% in the first five months of this year from 10.9% in the year-ago period, according to CAAM. Over the same period, German car makers’ share has risen to 23.3% from 20.9% and Japanese auto makers’ to 21.3% from 17.3%. (…)

Samsung Electronics Expects Quarterly Operating Profit to Fall More Than 50% sluggish demand for memory chips was exacerbated by the nagging U.S.-China trade dispute.

Samsung said it expects operating profit to fall to 6.5 trillion South Korean won ($5.56 billion) from 14.87 trillion won a year earlier. Revenue is expected to fall 4.2% to 56 trillion won. The company will report final results later this month.

The Suwon, South Korea-based company’s preliminary results exceeded market expectations. Analysts expected an operating profit of 6.01 trillion won and revenue of 54.6 trillion won for the quarter, according to S&P Global Market Intelligence.

Analysts say the company benefited in the quarter from a weaker-than-expected domestic currency and what the company described as a “one-time gain related to the display business.” (…)

The South Korean tech giant could experience further geopolitical headwinds in the coming months. Earlier this week, Japan effectively placed export restrictions on South Korea for three materials used to produce semiconductors and displays. The move could affect Samsung’s production yields for chips and displays since the materials can’t be easily replaced in the production process.

Dow Industrials Close at Record High The Dow Jones Industrial Average closed at a record, its first new high in nine months and fourth straight session of gains. The Dow was the last of the three major indexes to notch a record this year.

TECHNICALS WATCH

CMG Wealth’s Trade Signals and Lowry’s Research’s analysis all suggest a positive technical picture:

• 13/34–Week EMA Trend Chart

• Volume Demand vs. Volume Supply

• S&P 500 Index 200-day Moving Average Trend

• S&P 500 Index 50-day vs. 200-day Moving Average Cross

However, the gap to the slightly rising 200dma is wide:

Mutually Assured Disruption in Silicon Valley With venture-capital funds flowing freely, everyone wants to be a disrupter; few actually disrupt

(…) The heightened competition is reflective of an era where big investors, desperate to generate returns when interest rates are low, are plowing money into startups like never before. By The Wall Street Journal’s count, as of April there were 88 still-private U.S. startups valued at $1 billion or more, up from 43 just five years earlier. (…)

Squeezed by U.S. Sanctions, Iran Shifts From Patience to Confrontation Tighter new U.S. sanctions have proven more punishing than Iran’s leaders expected, driving Tehran to hit back militarily and breach limits it had agreed to put on its nuclear program.

Well, with all the above, I hope we all have a nice weekend!