U.S. Added 128,000 Jobs as Hiring Remained Resilient U.S. employers hired at a solid clip in October, showing the job market remains strong even in the face of labor strikes and trade disputes.
The economy added 128,000 jobs in October, the Labor Department reported Friday. Job creation in September and August was revised up by a net 95,000. The jobless rate ticked up to 3.6% last month from 3.5% in September.
The 40-day GM strike ended last week. The government wouldn’t have counted thousands of GM workers on picket lines last month because they were on strike the week of the employer survey. Friday’s report stated employment in auto manufacturing fell by 42,000, “reflecting strike activity.” When excluding autos, manufacturing employment increased last month.
Employers have added an average 167,000 jobs to payrolls each month this year, a slowdown from the 223,000 jobs added each month, on average, last year. Next month’s hiring will get a boost with auto workers returning to the job.
Meanwhile, wage gains continued to outpace inflation. Average hourly earnings climbed 3% from October 2018. (…)
NBF:
The U.S. labour market is more resilient than you think. That’s the message from October’s jobs reports which shrugged off talk of recession and displayed no signs of losing steam. The establishment survey not only showed a consensus-topping 128K increase but also upward revisions to prior months which added an extra 95K to non-farm payrolls. That was made possible by a rampant private services sector whose net hiring dwarfed the expected decline in factory employment due to the strike at General Motors ─ the latter will reverse, hinting that overall employment could remain strong in November. Also encouraging were wage gains which left the year-on-year print unchanged at a healthy 3%, well above inflation.
The household survey was also strong with its net job creation of 241K tilted towards generally higher-paying full-time positions. As today’s Hot Chart shows, full-time positions now account for 83% of employment, the highest since March 2008. That will help support consumer spending on durable goods and housing. True, the latter survey also showed a jobless rate creeping up slightly to 3.6%, albeit still near 50-year lows. But that was largely due to the participation rate rising to a six-year high of 63.3%, a positive development (which we explained in a Hot Chart last week). All told, this morning’s data will validate the Fed’s decision of taking a pause in its easing cycle.
ING:
(…) Nonetheless, payrolls growth remains on a softening trend. Having averaged 223,000 jobs per month through 2018, employment creation is running at a net 167,000 for 2019. Interestingly, this can be broadly seen in all components expect one – leisure and hospitality – which has recorded consecutive gains of 48,000, 45,000 and 61,000 per month. The fact that this one, relatively modest-sized component was responsible for half of all the jobs created is perhaps a signal that we shouldn’t get too excited by today’s figures (…)
Rise in U.S. Employment Costs Quickens in Q3
The employment cost index (ECI) for civilian workers rose 0.7% q/q in 2019 Q3, up from a 0.6% quarterly rise in Q2. The y/y growth of total compensation was unchanged at 2.8% in Q3, down from 2.9% in 2018 Q4 and 2019 Q1. Wage and salaries jumped up 0.9% q/q (2.9% y/y) in Q3 versus 0.7% q/q in Q2 while benefits for civilian workers picked up, rising 0.6% q/q (2.4% y/y) in Q3 versus 0.5% in Q2. Civilian workers include those in private industry and in state and local governments, but not in the federal government.
Total compensation gains in private industry quickened even more in Q3, rising 0.8% q/q (2.7% y/y) versus 0.5% q/q in Q2. This was the fastest pace of quarterly advance since 2018 Q3. The pickup in quarterly compensation growth in Q3 was concentrated in services-producing industries though the pace of compensation gains rose in both. Compensation in goods production increased 0.8% q/q, up marginally from 0.7% in Q2. Compensation in service production jumped 0.8% q/q in Q3 after having slowed sharply to 0.5% q/q in Q2. In contrast to the quarterly pattern, the y/y pace of service-producing compensation was unchanged at 2.7% in Q3 while the y/y pace for goods producing jobs jumped up to 3.0% in Q3 (the fastest annual pace since 2008 Q1) from 2.4% in Q2.
Wage and salary gains within private industry accelerated to 0.9% q/q (3.0% y/y) in Q3 from 0.6% in Q2. The quarterly pickup was led by growth in goods production, where wages rose 1.0% q/q in Q3 versus 0.7% in Q2. Wages in service production also posted a solid increase, rising 0.8% q/q in Q3versus 0.6% in Q2. Manufacturing wage growth was unchanged at 0.7% q/q in Q3 while wages in construction jumped up 1.4% q/q in Q3 after a 0.9% rise in Q2.
Private industry benefits growth rose slightly to 0.5% q/q in Q3 from a 0.4% q/q rise in Q2 with the y/y pace picking up to 2.0% from 1.8%. Annual growth in benefits in goods-producing sectors shot up to 2.3% in Q3 from 1.5% in Q3 while annual growth of service-producing benefits was unchanged at 1.9%.
This FRED chart plots QoQ growth in wages and salaries for private industries. The red lines are the year averages:
This chart contrasts the ECI for private industries YoY with Business Sales which are now running only +1.1% YoY, underscoring the margin squeeze:
U.S. Consumers Stay on a Spending Streak Households increased spending heading into the fourth quarter, suggesting consumers have continued to help prop up U.S. economic growth.5
Personal-consumption expenditures, or household spending, rose a seasonally adjusted 0.2% in September from August, the Commerce Department said Thursday. Outlays rose at a similar pace in August after growing more briskly in the first half of 2019. (…)
After the release of Thursday’s data, forecasting firm Macroeconomic Advisers lowered its estimate for fourth-quarter gross-domestic-product growth to a 1.6% annual rate from 1.7%. (…)
U.S. Inflation Remains Soft in September The personal consumption expenditures price index fell a seasonally adjusted 0.01% from August, its weakest monthly reading since January
Compared with September 2018, the index was up 1.33%, well below the Fed’s 2% target.
An index of so-called core prices, which excludes volatile food and energy components, rose 0.05% last month from August and was up 1.67% on the year. Economists surveyed by The Wall Street Journal had expected a 0.1% gain in the core index in September from August. (…)
The Labor Department said its employment-cost index, a broad gauge of compensation that measures the combined cost of wages and benefits for civilian workers, rose 0.7% in the third quarter from the previous three months and 2.8% from a year earlier. That was less than the 2.9% gain notched in the fourth quarter of 2018, suggesting that, at the very least, compensation growth isn’t accelerating. (…)
September could have been an aberration given good consumer demand and rising tariffs:
MANUFACTURING PMIs
USA: PMI rises to six-month high in October
The U.S. manufacturing sector saw a further modest improvement in operating conditions in October, supported by faster expansions in output and new business. Rates of growth in both production and new orders accelerated to six-month highs. Subsequently, employment rose at the quickest pace since May and business confidence picked up to a four-month high. Meanwhile, rates of input price and output charge inflation softened and remained subdued, with selling prices broadly unchanged during the month.
The seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) posted 51.3 in October, up slightly from 51.1 in September. The latest headline figure was the highest since April, but remained consistent with only a modest improvement in the health of the manufacturing sector. The overall rate of growth remained well below the long-run series average.
Supporting the improvement in the PMI was a faster rise in production in October. Although still moderate, the rate of expansion in output accelerated to a six-month high and was accompanied by a quicker upturn in new business. New orders across the manufacturing sector increased for the fifth consecutive month and the rate of growth quickened to the fastest since April. Firms noted that their clients were exhibiting less hesitancy in placing orders and market conditions had improved. Foreign demand also ticked up following three successive monthly contractions in new export orders, with new business from abroad rising marginally overall.
On the price front, cost burdens rose at only a modest pace at the start of the fourth quarter. Although some firms reported higher input prices stemming from the ongoing impact of tariffs, many suggested that subdued price pressures were often linked to price drops at suppliers, notably for metals. Subsequently, average factory gate charges across the goods producing sector were broadly unchanged as manufacturers only partly passed on higher costs to clients.
At the same time, greater production requirements contributed to the fastest rise in workforce numbers since May. Some firms also noted that higher staffing levels were due to the filling of previously held vacancies. Backlogs, however, were unchanged in October following a three-month sequence of decline.
In line with stronger client demand, manufacturers registered a greater degree of confidence in output growth over the coming year. More favourable market conditions partially drove optimism to its highest level since June. Nonetheless, the overall degree of sentiment was below the long-run series trend.
Finally, despite a renewed rise in input buying, the stronger increase in new business meant firms increasingly dipped into stocks to ensure new orders were fulfilled in a timely manner. Therefore, pre-production inventories fell at the quickest rate for three months and stocks of finished goods decreased slightly. (…)
However, while the outlook has improved, further growth is by no means assured. Survey respondents continue to report widespread concerns over issues such as tariffs, the auto sector’s ongoing malaise, a lack of pricing power amid weak demand and uncertainty about the economic and political situation over the coming year. While the survey data are moving in the right direction, the overall picture therefore remained one of only very modest growth and guarded optimism.
The ISM:
The October PMI® registered 48.3 percent, an increase of 0.5 percentage point from the September reading of 47.8 percent. The New Orders Index registered 49.1 percent, an increase of 1.8 percentage points from the September reading of 47.3 percent. The Production Index registered 46.2 percent, down 1.1 percentage points compared to the September reading of 47.3 percent. The Backlog of Orders Index registered 44.1 percent, down 1 percentage point compared to the September reading of 45.1 percent. The Employment Index registered 47.7 percent, a 1.4-percentage point increase from the September reading of 46.3 percent. The Supplier Deliveries Index registered 49.5 percent, a 1.6-percentage point decrease from the September reading of 51.1 percent. The Inventories Index registered 48.9 percent, an increase of 2 percentage points from the September reading of 46.9 percent. The Prices Index registered 45.5 percent, a 4.2-percentage point decrease from the September reading of 49.7 percent. The New Export Orders Index registered 50.4 percent, a 9.4-percentage point increase from the September reading of 41 percent. The Imports Index registered 45.3 percent, a 2.8-percentage point decrease from the September reading of 48.1 percent. (…)
Of the 18 manufacturing industries, five reported growth in October (…)
(ZeroHedge)
CHINA: Operating conditions improve at quickest pace since February 2017
October data showed the strongest improvement in operating conditions faced by Chinese manufacturers since February 2017. Output and new orders both expanded at steeper rates, with the latter supported by a renewed increase in export business. As a result, companies increased their purchasing activity, and at the quickest pace for 20 months. However, efforts to contain costs contributed to a further drop in staffing levels, which underpinned another solid increase in outstanding business. Prices charged by manufacturers meanwhile fell slightly due to competitive market pressures, while cost burdens rose only slightly. Business confidence regarding the 12-month outlook for output improved to its highest since April, with a number of firms optimistic that market conditions will strengthen.
The headline seasonally adjusted Purchasing Managers’ Index™ (PMI™) rose from 51.4 in September to 51.7 in October. The index has now signalled an improvement in operating conditions for three months running, with the latest improvement the strongest seen since February 2017.
Total new work received by Chinese goods producers rose solidly in October, with the rate of expansion the quickest recorded for 81 months. Companies commented on firmer underlying market conditions and improved client demand both at home and abroad. Notably, new export business increased for the first time in five months, albeit marginally. The subindex for new orders stayed in positive territory and rose to the highest level since January 2013. The gauge for new export orders returned to expansionary territory and reached the highest point since February 2018, due likely to the U.S.’ move to exempt more than 400 types of Chinese products from additional tariffs.
Greater amounts of incoming new work prompted manufacturers to expand production again in October. The upturn in output was solid overall, with the rate of growth the quickest since December 2016.
In contrast, staffing levels declined further, with the rate of job shedding quickening since September. A number of firms mentioned this was due to the non-replacement of voluntary leavers and efforts to contain costs. As a result, capacity pressures persisted, as highlighted by a solid increase in outstanding business.
Improved client demand led firms to expand their purchasing activity, with the rate of growth the quickest since February 2018. This contributed to a further rise in stocks of inputs, albeit marginal. Inventories of finished goods meanwhile declined amid reports of the greater use of stocks to fulfil orders. Average suppliers’ delivery times increased again in October, with some firms blaming this on the impact of stricter environmental protection policies.
Factory gate prices in China fell slightly at the start of the fourth quarter as firms sought to remain competitive. At the same time, average cost burdens rose only marginally.
Manufacturers expressed the strongest degree of positive sentiment towards the one-year outlook for output since April. However, confidence remained subdued in the context of historical data.
JAPAN: PMI falls to 40-month low amid strong deterioration in demand
Japan’s manufacturing economy sank deeper into contraction during October, according to the latest PMI survey. The stronger deterioration reflected a further weakening in demand conditions, with new orders falling at the sharpest pace since May 2016. Production was subsequently cut, as were inventory levels and purchasing volumes. Output charges were also discounted as firms sought to attract greater demand. That said, employment growth picked up to a six-month high, input cost inflation remained relatively subdued, and business confidence edged up slightly.
The headline Jibun Bank Japan Manufacturing Purchasing Managers’ Index™ (PMI)® fell to 48.4 in October, from 48.9 in September, its lowest mark in nearly three-and-a-half years and indicative of a stronger downturn in Japan’s goods-producing economy.
The sharper deterioration in business conditions was driven by a steeper drop in demand. Latest survey data pointed to a marked decline in new orders placed at Japanese manufacturers. According to anecdotal evidence, the month-on-month fall in sales was partly reflective of the end of last-minute purchases before the consumption tax hike, which took effect in October. That said, underlying demand from both domestic and external markets reportedly remained unfavourable. Total new orders fell at the fastest rate since May 2016, while new export business also declined for an eleventh successive month.
With inflows of new work decreasing, Japanese manufacturers cut production during October. Overall, the reduction was the strongest for seven months and broad-based across each of the three market groups. Capital goods producers observed the fastest cutback, followed by intermediate and then consumer goods makers. Panellists attributed lower output volumes to the typhoon, as well as spillover effects from trade frictions with the US and China.
In line with falling order book volumes, Japanese manufacturers trimmed their purchasing activity during October to the quickest extent in three months. A reluctance to hold items in stocks was also signalled by simultaneous draw-downs to pre- and post-production inventories during the latest survey period. In fact, rates of depletion in both cases accelerated during the month, with stocks of finished goods falling at the fastest rate since survey data were first collected 18 years ago.
Capacity pressures subsided during the latest survey period, as evidenced by a decline in backlogs of work at Japanese goods producers. Nevertheless, employment levels increased at the fastest pace in six months. Job creation was broad-based across all three manufacturing sub-categories.
On the price front, input price inflation held close to that recorded in September, which was the weakest for almost three years. Yen appreciation and drops in some raw material prices curbed cost pressures, according to some firms. In order to boost demand, firms took advantage of the low cost inflation environment and discounted charges.
Europe PMI to be released on Monday.
EARNINGS WATCH
Actual earnings growth for the 356 companies having reported so far is +1.2% on revenue growth of +4.9%. The beat rate is 76%, the surprise factor +4.6% and the blended growth rate –0.8% (+1.6% ex-Energy), down from +0.3% on July 1
By comparison, after 355 reports during Q2, the beat rate was 74%, the surprise factor +6.1% and the blended growth rate +2.5%, up from +0.3% on July 1. Actual earnings growth for the 355 companies having reported was +5.9% on revenue growth of +3.6%.
Trailing EPS are now $163.59, still down from $163.69 at the same time in Q2 and 0.5% lower than the $164.43 and $164.31 at the end of August.and September respectively.
Q4 estimates keep being ratcheted down to +1.1% (+3.3% ex-Energy from +5.0% last week). This is down from +4.1% on Oct.1. and +2.2% last Friday.
