Month: August 2022

Note: I am travelling (ancient word: “go from one place to another, typically over a distance of some length”) in Europe until August 23rd. Postings will thus be erratic, limited and time-zones impacted.

Strasbourg resembles me: a modern mind within a medieval body . The city is marvellously charming. Our hotel has superbly merged modernism and comfort in a 1528 house. Magnificent!

JOLTS: Job Openings & Hiring Decline in June

Job openings fell 5.4% to 10.698 million (+8.6% y/y) during June from 11.303 million in May, revised from 11.254 million according the Bureau of Labor Statistics’ Job Openings and Labor Turnover report. This was the third consecutive monthly decline, down 9.8% during that period. The job openings rate (job openings as a percentage of the sum of establishment employment plus openings) fell to 6.6% in June from 6.9% in May. The series high was 7.3% in March.

New hires retreated 2.0% (-0.6% y/y) to 6.374 million from 6.507 million in May, revised from 6.489 million. It was the fourth straight month of decline for new hires and the hiring rate, which eased to 4.2% from 4.3%. The hiring rate hit a peak of 4.5% in February.

The total number of job separations fell 1.4% (+2.4% y/y) to 5.931 million from 6.017 million in May, revised from 5.983 million. Quits dipped 1.2% (+5.0% y/y) to 4.237 million from 4.274 million in May. It was their lowest level since October of last year. Fewer quits indicate that jobs are becoming less readily available. The quit rate held steady at 2.8%, down from 3.0% six months earlier. Layoffs and discharges, involuntary separations, declined 6.3% in June (-2.5% y/y) to 1.327 (-2.5% y/y) from 1.416 million in May. They have been trending sideways since April 2021.

Private-sector job openings fell 5.0% (+9.0% y/y) to 9.766 million, down for the third straight month. The private-sector job openings rate declined to 7.0%, the lowest level in 12 months. The largest monthly drops in job openings occurred in trade, transportation & utilities (+10.9% y/y) as well as construction (+4.0% y/y) & manufacturing (-11.5% y/y).

Total hires in the private sector fell 2.3% (-0.9% y/y) to 5.957 million in June while total private-sector separations weakened 1.8% (+1.2% y/y) to 5.547 million.

U.S. Light Vehicle Sales Rise Modestly in July

The Autodata Corporation reported that light vehicle sales during July rose 2.2% (-8.8% y/y) to 13.51 million units (SAAR). Sales were roughly one-quarter below the April 2021 peak. Vehicle sales comprise roughly four percent of real consumer expenditures.

Sales of light trucks led last month’s overall improvement by rising 2.9% (-5.1% y/y) to 10.69 million units following a 3.3% June gain. Despite the gains, truck sales remained 11.6% below their January peak. Purchases of domestically-produced light trucks improved 4.0% last month (-2.3% y/y) to 8.32 million units after rising 1.1% in June. Sales of imported light trucks eased 0.8% to 2.37 million units and were off 13.2% y/y.

Trucks’ share of the light vehicle market rose to 79.1% in July but remained down from the 80.4% share nine months earlier.

Auto sales eased 0.4%, off 20.6% y/y, to 2.82 million units after rising 0.7% in June. Purchases of domestically-made autos fell 3.0% in July to 1.95 million units, off 15.2% y/y. Sales of imported autos improved 7.3% (-29.6% y/y) to 0.88 million units.

Imports’ total share of the U.S. vehicle market fell m/m to 24.1% and remained below February’s 25.4% share. Imports’ share of the passenger car market rose to nearly one-third, but remained down from the September 2021 high of 38.1%. Imports’ share of the light truck market fell to 22.2%.

• In Japan:

Credit card spending binge

Data: Federal Reserve Bank of New York. Chart: Skye Witley 

Credit card balances are ballooning at the quickest pace in decades, reflecting higher prices and more open accounts than ever before, Axios Macro co-author Courtenay Brown writes.

Two fresh stats — courtesy of the New York Fed — tell the story:

• Credit card debt surged by $46 billion last quarter — a 13% jump from the prior year that marks the biggest increase in over 20 years.
• Americans opened 233 million new accounts in the April-June period, the most since 2008.
• Credit card delinquency rates remain historically low, but they are rising — particularly among those in the poorest zip codes, according to the New York Fed. “The recent uptick in delinquencies in some households suggests that many communities or individuals are experiencing the economy differently,” researchers wrote.

EARNINGS WATCH

We now have 320 companies in (not counting yesterday’s), a 78% beat rate and a +5.5% surprise factor.

Estimates are for Q2 EPS to rise 8.1%, -2,5% ex-Energy. Revenues: +12.5%, ex-E + 7.4%. Q3e: +7.2%, +0.6% ex-Energy. Q3 revenues: +10.1%, ex-E +6.8%. Estimates are beginning to come down.

Robinhood Lays Off 23% of Staff as Users Drop The job cuts mark the second round of layoffs for the online brokerage, which exploded in popularity during the Covid-19 pandemic.

(…) The job cuts mark the second round of layoffs this year at Robinhood, which in April reduced its staff by about 9%. Together, the two rounds have cut more than 1,000 jobs from the company. (…)

Robinhood also moved up the release of its second-quarter results a day earlier than scheduled, reporting its monthly active users tumbled to 14 million, down 34% from a year earlier. Revenue fell 44% to $318 million. (…)

By the second quarter of last year—Robinhood’s best, according to public filings—the company boasted more than 21 million active users, who flocked to the app to trade flashy meme stocks, options and cryptocurrencies. (…)

Note: I am travelling (ancient word: “go from one place to another, typically over a distance of some length”) in Europe until August 23rd. Postings will thus be erratic, limited and time-zones impacted.

Strasbourg resembles me: a modern mind within a medieval body . The city is marvellously charming. Our hotel has superbly merged modernism and comfort in a 1528 house. Magnificent!

MANUFACTURING PMIs

USA: PMI at lowest for two years as output and new orders fall in July

The US manufacturing sector registered a further weak improvement in operating conditions during July, according to latest PMI^TM data from S&P Global. Contributing to subdued conditions was the first drop in output since June 2020 which reflected weaker demand conditions, as new orders fell at the fastest pace for over two years. Nonetheless, backlogs of work continued to increase as labor and material shortages hampered efforts to process incoming new work.

On the price front, rates of input cost and output charge inflation softened again in July. Although still substantial in the context of their respective series histories, the increases were the slowest for over a year.

The seasonally adjusted S&P Global US Manufacturing Purchasing Managers’ Index™ (PMI™) posted 52.2 in July, down from 52.7 in June and broadly in line with the earlier released ‘flash’ estimate of 52.3.The latest index reading was the lowest for two years and signalled a muted improvement in the health of the manufacturing sector.

The decrease in the headline figure was in part linked to a renewed drop in production during July. Output fell for the first time in just over two years, albeit only fractionally. Lower production levels were often attributed to weak client demand and a further fall in new orders. Companies also noted that challenges finding suitable candidates for vacancies and raw material shortages also hampered production.

New orders fell for the second month running in July,with the pace of decline modest but the steepest seen since 2009 with the exception of pandemic lockdown months. Panellists stated that further supply chain disruption and hikes in prices weighed on customer spending. Similarly, foreign client demand weakened at the start of the third quarter. New export orders fell at the fastest rate since May 2020.

Meanwhile, input prices paid by manufacturers rose markedly again in July. The increase in cost burdens was attributed to greater transportation, fuel and raw material prices. That said, the pace of cost inflation softened to the slowest since March 2021 as some components reportedly fell in price.

Firms continued to pass-through higher costs to clients, as output charges rose at an historically elevated pace. In line with the trend for input costs, however, the rate of inflation eased and was the softest since February 2021.

The decrease in new order inflows was accompanied by a weakening of payroll growth to the lowest for six months, albeit with some firms continuing to hire additional staff to fill
long-held vacancies. Challenges finding suitable candidates hampered the overall pace of job creation, however.

Pressure on staff capacity was met by further reports of material shortages. Although lead times lengthened to the least marked extent since November 2020, supplier delays and material shortages remained substantial. As a result, firms recorded another monthly rise in backlogs of work.

Difficulties sourcing raw materials led firms to expand their input buying, following broadly unchanged levels of purchasing in June. Efforts to secure stock were reflected in a further rise in pre-production inventories, albeit only fractional. Stocks of finished goods were broadly unchanged on the month amid supplier and shipping delays, but also in part reflecting lower than expected sales to customers.

Finally, firms’ expectations regarding the outlook for output over the coming 12 months remained at their lowest since October 2020 amid inflation and supply chain concerns, as well as a gloomier global economic outlook.

From the ISM survey (here):

• The New Orders Index registered 48 percent, 1.2 percentage points lower than the 49.2 percent recorded in June.
• The Employment Index contracted for a third straight month at 49.9 percent, 2.6 percentage points higher than the 47.3 percent recorded in June.
• Many customers appear to be pulling back on orders in an effort to reduce inventories.

Eurozone manufacturing downturn worsens in July as recession risks intensify

(…) Another major drag on output was demand, with new orders falling sharply. In fact, excluding declines seen throughout the pandemic, manufacturing order book volumes decreased at the strongest rate since the eurozone sovereign debt crisis in 2012. Survey respondents frequently highlighted the destructive impact that inflation was having on their new business receipts.

Sufficient inventory levels at clients due to past stockpiling efforts also weighed on demand conditions, according to some companies. New export orders similarly fell, and at a sharper rate during July.

Meanwhile, latest survey data highlighted stronger stockpiling at the start of the third quarter, with both pre- and post-production inventory levels rising at faster rates. In fact, stocks of finished goods rose at the fastest rate in 25 years of data collection during July. However, anecdotal evidence suggests these increases were not fully intentional, with firms mentioning order cancellations from clients and the delivery of items with long lead times.

Purchasing activity was subsequently reduced, marking the first decrease in input buying in just under two years. (…)

China: Business conditions improve marginally in July

(…) Weighing on the headline index was a softer rise in overall new business in July. Total new orders rose only slightly, following a mild increase in June. While a number of firms mentioned that the ongoing recovery from the latest wave of the pandemic had supported higher sales, others commented that demand conditions were relatively subdued. New export business likewise expanded only marginally in July.

Japan: Manufacturing PMI slips to ten-month low in July

(…) There were renewed declines in both production and new order volumes at the start of the third quarter. Firms often attributed this to rising inflationary pressures and raw material shortages, which led to both output and demand falling for the first time in five and ten months, respectively.

At the same time, new export sales continued to fall in July, extending the current sequence of decline to five months. That said, the latest contraction was the softest in the current sequence and only modest. Foreign sales were reportedly hindered by weakened demand in key export markets across the Asia-Pacific region, particularly China and South Korea.

Demand is clearly waning. Corporate execs are focusing on margins: “There are real concerns that our productivity as a whole is not where it needs to be for the head count we have.” (Alphabet CEO Sundar Pichai to Google employees in an internal meeting, according to CNBC.)

German retail sales fall by largest rate on record Retail sales volumes dropped 8.8% YoY in June. Inflation in Germany is at a multi-decade high of 8.5 per cent.

US to Stop TSMC, Intel From Adding Advanced Chip Fabs in China

Manchin Spending Deal Includes Billions in Taxes on Oil Sector

The climate and tax spending deal announced last week by Senate Majority Leader Chuck Schumer and Senator Joe Manchin could cost the oil industry $25 billion in new taxes.

The legislation, which may get a Senate vote as soon as next week, would reinstate and increase a long-lapsed tax on crude and imported petroleum products to 16.4 cents per gallon, according to a summary of the plan released Sunday by the Senate’s tax-writing committee. (…)

The Superfund tax, which previously stood at 9.7 cents per barrel until it lapsed at the end of 1995, is paid by refiners and other importers to help fund the clean-up of hazardous waste sites. In addition to increasing the tax, the Senate proposal would index the fee to inflation. (…)

It remains to be seen whether the legislation will be backed by the full Democratic caucus in the 50-50 Senate. It would also have to pass the House, where progressives sought a much more expansive plan.

John Authers: It’s Far Too Risky to Assume That the Bottom Is In

Great article. Some extracts:

(…) The following chart maps the S&P 500 after its recent high in January, and after the peaks before the great bear markets that started in 2000 and 2007. Even after the hot July, this selloff is still somewhat more intense than either of those:

(…) As I covered yesterday, forward earnings estimates tend to have come down a lot from their peak by the time the market can make a navigable low. That absolutely hasn’t happened yet, and the process of downgrading appears only to have just started. These charts from Societe Generale’s chief quantitative strategist Andrew Lapthorne tell the story.

Nasdaq profit forecasts for every quarter out to the second quarter of next year have been cut, and suffered a particularly sharp cut in the last few days, while the buoyancy of the energy sector hides the fact that for the rest of the S&P 500, the earnings growth forecast for this year is teetering close to zero. As it would be unusual to suffer an economic recession or equity bear market without an outright fall in profits, this suggests more to come:

(…) There is at least one very promising item in the regular data download that accompanies the beginning of the month. The ISM Manufacturing survey for the US regularly asks purchasing managers about prices paid. That number topped 90 at one point last year. Now, after a sharp and unexpected fall last month, it’s back to 60. That’s encouraging for inflationistas because over time it’s been a pretty good leading indicator of producer price inflation. The following chart shows the Prices Paid index, with the year-on-year producer price index lagged by six months:

(…) Looking at the yield curve, it suggests growing conviction that a recession is imminent (and also by extension belief that inflation will soon be licked). (…)

Then there is the strange behavior of inflation breakevens. The five-year/five-year breakeven, much beloved of the Fed and measuring the market’s judgment of the likely average inflation rate for the five years that start five years hence, has risen sharply in the US in the last few days. It’s still below its peak from earlier in the year, but it’s heading in a direction that suggests the Fed will be outright lenient. And judging by the equivalent breakeven for Germany, where the possibility of a return of inflation suddenly took hold of the imagination a few months ago and receded as soon as forecasts managed to exceed those for the US, it looks as though this is an American phenomenon. While much of the market is positioned for a hawkish mistake by the Fed, breakevens suggest there’s more of a risk of a dovish one:

(…) To contradict the bond market, it’s now time to pour gasoline on the fire. The generic gasoline future contract moved over to a new month today, so the sharpness of Monday’s fall could be overstated — but somehow the futures price of gasoline is back where it was on the eve of the Ukraine invasion. Prices at the pump tend to follow with not much lag:

• Speculation the Fed will soon get inflation under control is unfounded and counterproductive, Bill Dudley writes. Inflation is too high, the labor market is too tight and the Fed must respond—most likely by pushing the economy into a recession. Wishful thinking in markets makes the job harder.

ANALYSTS MAKING LARGER CUTS THAN AVERAGE TO EPS ESTIMATES FOR S&P 500 COMPANIES FOR Q3

Beijing Bets the House on Infrastructure As Chinese factories and the housing market stumble again, the silence from Beijing is deafening.

• Evergrande Told to Cough Up $1.1 Billion for Previously Undisclosed Guarantees The world’s most indebted property developer said it has been told to honor the financial obligation, adding to creditors’ woes.