U.S. Job Openings Rose in April, Reversing Three Months of Decline Employers’ postings topped 10 million and layoffs fell
Employers reported a seasonally adjusted 10.1 million job openings in April, the Labor Department said Wednesday, up from a revised 9.7 million in March. April’s increase reversed three months of declines. Layoffs fell to 1.6 million in April, from 1.8 million in March.
Openings have decreased from the record 12 million recorded in March 2022. But they remained well above the 5.7 million people looking for work in April—pointing to a solid labor market more than a year after the Federal Reserve began aggressively lifting interest rates to cool the economy and tame inflation.
“Demand is still strong and the labor market is very active,” said Dawn Fay, operational president at job recruiting firm Robert Half. “Everyone is still looking to hire, it seems, whether they’re small businesses or large businesses. We’re not really seeing any pockets of weakness.”
Job openings increased for positions at retailers, warehouses, healthcare businesses and transportation. Vacancies declined at factories, real-estate firms, and state and local governments. (…)
Looking at the Indeed Job Postings, the downward trend on Job Openings seems intact, albeit slowing from Q1.
- The Great Resignation is over (Axios)
Even leisure and hospitality workers — once the poster child for the quits boom — are returning to pre-pandemic norms. The quits rate in this segment hit 4.6% in April — close to the January 2020 rate of 4.4%, and well below the peak 5.8% last summer.
Data: Labor Department. Chart: Axios Visuals
US Economy Has Signs of Cooling as Hiring and Inflation Ease, Fed’s Beige Book Shows
“Employment increased in most districts, though at a slower pace than in previous reports.” the Fed said Wednesday in the report, published two weeks before each meeting of the policy-setting Federal Open Market Committee. “Prices rose moderately over the reporting period, though the rate of increase slowed in many districts.”
The survey showed economic activity was little changed overall in April and early May. (…)
“Overall, the labor market continued to be strong, with contacts reporting difficulty finding workers across a wide range of skill levels and industries,” the report stated. “That said, contacts across districts also noted that the labor market had cooled some, highlighting easier hiring in construction, transportation, and finance.” (…)
Most districts in the report said residential real estate activity picked up, though the office market continued to show weakness.
Some districts noted weaker demand for transportation, especially trucking. (…)
Fed Sets Up June Pause, Hike Later Two Federal Reserve officials framed a potential decision to forgo a rate increase as a chance to assess more economic information, then possibly raise rates later this summer.
(…) “A decision to hold our policy rate constant at a coming meeting should not be interpreted to mean that we have reached the peak rate for this cycle,” Fed governor Philip Jefferson said in a speech Wednesday in Washington. “Indeed, skipping a rate hike at a coming meeting would allow the committee to see more data before making decisions about the extent of additional policy firming.”
Jefferson’s comments were notable because President Biden nominated him in May to serve as the Fed’s vice chair, a position that typically aids the Fed chair in shaping the policy agenda ahead of the central bank’s rate-setting Federal Open Market Committee meeting.
Philadelphia Fed President Patrick Harker, a voting member of the FOMC this year, also endorsed holding rates steady in June. “I think we can take a bit of a skip for a meeting and, frankly, if we’re going to go into a period where we need to do more tightening, we can do that every other meeting,” he said Wednesday at a conference in Philadelphia.
Fed Chair Jerome Powell laid the foundation for skipping a rate increase during a public appearance on May 19.
“We’ve come a long way in policy tightening, and the stance of policy is restrictive, and we face uncertainty about the lagged effects of our tightening so far and about the extent of credit tightening from recent banking stresses,” he said. “Having come this far, we can afford to look at the data and the evolving outlook to make careful assessments.”
Some central-bank officials, including two committee voters and two nonvoters, had recently signaled support for continuing to raise rates because inflation and economic activity haven’t slowed sufficiently.
Two other voters had indicated they would be open to either an increase or a skip. “I can make the argument either way,” said Minneapolis Fed President Neel Kashkari in a May 19 interview. “I would object to any kind of declaration that we’re done.” (…)
Investors saw a roughly 35% chance of a June rate increase after Jefferson and Harker spoke Wednesday, down from 70% right before, according to CME Group. (…)
The remarks hinted at potential Fed discomfort with how investors had begun to anticipate a rate rise next month. Forgoing an increase that had become widely anticipated by investors would risk sending a confusing signal about the Fed’s resolve to bring down inflation.
“If a rate increase is priced at 60% or 70% on the day of the meeting, then it would be a bit of a narrative challenge” to not raise rates, said Hatzius. “That’s probably not a comfortable place to be.” (…)
Banking stresses have calmed in recent weeks, and economic activity hasn’t shown much evidence so far of any fallout from tighter lending standards. (…)
On Wednesday, investors saw a 65% chance that the Fed would raise rates at least once by July. (…)
- The case for higher US interest rates is compelling, Bill Dudley writes. The Fed, no longer woefully “behind the curve,” must weigh a deep economic recession against out-of-control inflation. The labor market remains too tight, meaning any pause will probably be short-lived.
- Cooling Eurozone Inflation Opens Path for ECB Rate Pause Consumer prices in the eurozone were 6.1% higher in May than a year earlier. A pause after an expected rate rise in June would give the central bank time to study the impact of its recent tightening.
- Euro-Area Core Inflation Eases But Won’t Stop ECB Hiking Lagarde says “no clear evidence” that it’s peaked and ‘we still have ground to cover’ on rates
MANUFACTURING PMIs
Eurozone: Production and new orders fall at strongest rates in six months, driving factory gate prices lower for first time since September 2020
The HCOB Eurozone Manufacturing PMI®, compiled by S&P Global, fell from 45.8 in April to 44.8 in May. Below the crucial 50.0 threshold which separates improvement from deterioration, the latest results signalled a further decline in the health of the eurozone manufacturing sector, and one that was the steepest in three years.
Of the eight eurozone countries monitored by the survey (which account for an estimated 89% of total manufacturing activity), Greece was once again the only member state to register an improvement in operating conditions since April. That said, the upturn here slowed and was only modest. Elsewhere, with the exception of France, manufacturing sector downturns worsened compared to the prior month. In many cases, rates of deterioration were the sharpest seen since the height of the initial COVID-19 outbreak in May 2020.
May survey data revealed a stronger downturn in factory production volumes across the euro area. The decline in output was solid and the quickest since last November. Falling new sales was a notable headwind to manufacturers midway through the second quarter, with new order inflows dropping sharply and at the quickest pace in six months. Surveyed companies highlighted a growing challenge in enticing new business from foreign clients as the downturn in new export orders accelerated to a steep rate. In fact, May’s deterioration in external demand was among the sharpest on record (since June 1997).
With the decrease in overall new business inflows outpacing that of production yet again in May, eurozone factories worked through their backlogs to help prop up output levels. The amount of orders pending completion fell for the twelfth month in succession during May, with the rate of depletion the fastest since last October. Eurozone manufacturers continued to recruit additional staff, extending the current sequence of job creation to 28 months. However, the rise in workforce numbers was modest and the joint-weakest over this period.
The latest survey results showed a persistence of inventory drawdowns, with stocks of purchases falling for a fourth month running and to the greatest extent since October 2019. Indeed, eurozone manufacturers cut their purchasing activity sharply once again midway through the second quarter as firms showed a preference to use up existing materials where possible. Stocks of finished goods were broadly unchanged since April.
Rapidly improving supply chain conditions also justified businesses’ destocking efforts, with average input lead times shortening drastically once again during May. Subsequently, surveyed firms recorded the strongest decrease in their input costs since February 2016 amid reports of falling supplier charges, as well as decreases in energy prices. Lower operating expenses allowed firms more flexibility over their pricing strategies. For the first time since September 2020, the price of goods leaving the factory gate declined during May.
Looking ahead, despite the prevailing business environment worsening, eurozone manufacturers were optimistic regarding the 12-month outlook. That said, the level of positivity was subdued by historical standards and eased to a five-month low.
China: Manufacturing output growth improves to 11-month high
The headline seasonally adjusted Purchasing Managers’ Index™ (PMI™) picked up from 49.5 in April to 50.9 in May. Crucially, the latest reading was above the neutral 50.0 level to signal the first improvement in the health of the manufacturing sector since February. Though mild, the pace of improvement was stronger than the post-pandemic average.
Helping to push the headline index higher was a strong and accelerated rise in production during May. Notably, the rate of growth picked up from April’s three month low and was the best seen since June 2022.
Greater intakes of new business was central to the latest improvement in output. Though modest, the rate of new order growth was the second-quickest seen over the past two years, with a number of firms noting firmer demand conditions and new customer wins. New export business increased at a slightly faster pace. (…)
The improvement in supply chains led to a further easing of cost pressures in May. In fact, average input costs fell solidly for the second month in a row. Manufacturers noted that prices had fallen for a variety of inputs, notably metals, food and fuel. However, intense market competition often led firms to share cost savings with clients, with companies cutting their selling prices at a solid rate.
Although firms registered improvements in output and demand in May, business confidence regarding the 12-month outlook for production slipped to a seven month low. (…)
Japan: Manufacturing output returns to growth in May
At 50.6 in May, up from 49.5 in April, the headline au Jibun Bank Japan Manufacturing Purchasing Managers’ Index™ (PMI) registered above the neutral 50.0 value for the first time since October 2022. The latest reading was broadly in line with the long-run series average (50.7) and signalled a modest overall improvement in operating conditions.
May data pointed to a rise in output levels for the first time since June 2022 and, although only marginal, the rate of expansion was the fastest for one year. Renewed growth of manufacturing production was attributed to improving domestic economic conditions and a subsequent turnaround in client spending.
Total new work increased at the fastest pace since April 2022, albeit only marginally overall. Greater business and consumer confidence had helped to lift overall customer demand, according to survey respondents. That said, a number of firms noted that overstocked clients had acted as a headwind to new business growth in May. Lower export sales, especially to China, also held back total new order growth during the latest survey period. (…)
An improved balance between demand and supply helped to moderate overall input price inflation across the manufacturing sector. The latest rise in average cost burdens was the slowest since April 2021. Efforts to pass on higher raw material prices, energy bills and staff wages meanwhile led to another robust rise in output charges during May, but the rate of inflation eased to a three-month low.
Bank of Mexico Raises Growth Estimate for 2023 The Bank of Mexico projects the country’s economic output to grow 2.3% in 2023, more than the 1.6% the central bank previously estimated, after a stronger-than-expected start to the year.
Traders Unfazed by Potential OPEC Production Cuts Oil prices have slid to a critical level for Saudi Arabia, setting up a showdown between the cartel and speculators.
Oil traders are betting prices will continue to drop despite the best efforts of producing countries to boost them.
Prices have slid since the Organization of the Petroleum Exporting Countries and its allies, the coalition known as OPEC+, jolted markets in October by cutting production by 2 million barrels a day. A February vow from Moscow to curtail another half-million barrels and a voluntary April move by eight OPEC+ members to cut 1.2 million barrels more haven’t stopped the slide.
Futures for Brent crude oil, the international benchmark, have lost more than 20% since the October cuts, settling at $72.66 a barrel on Wednesday. That is below the estimated $81 that Saudi Arabia—the de facto leader of OPEC—needs to balance its budget.
The cuts have been countered by new petroleum from non-OPEC+ countries, by the prospects of economic slowdown and crisis, and by Russia’s unexpectedly robust oil exports despite Western sanctions. Bullish analysts have repeatedly lowered their forecasts. Bullish traders have been repeatedly burned. (…)
With Russia’s priorities now shifted by war and Western sanctions, some analysts said that OPEC+ is effectively defunct and that Saudi Arabia, the world’s second-largest oil producer behind the U.S., is essentially on its own. (…)
A few surging stocks haven’t helped “average” investors
A couple of times in recent weeks, we’ve looked at the rally’s primary drivers in the world’s most benchmarked index. It’s no secret that a handful of behemoth Technology stocks are a major driving force behind this year’s gains.
So far in 2023, the S&P 500 index that everyone watches is showing a respectable gain. The equal-weighted version of the index, which weights each of the 500+ stocks equally, is struggling to hold any year-to-date gains at all. (…)
The 3-month rate of change in the ratio of the equal-weight to cap-weight versions plunged 8%, among the worst declines since the 1990 inception of the equal-weight index.
A few times, the decline didn’t quite reach the -8% threshold. Two coincided with an imminent turn in the ratio, with the equal-weight version outperforming the cap-weight version for a couple of years afterward.
After big declines in the ratio, the average stock shined
The table below shows returns in the cap-weight version (the standard one that everyone watches) after the few times the ratio declined at least 8% over three months. Two preceded mediocre returns over the next few months, and one was at the low during the pandemic.
The equal-weight version of the index performed better after these signals. The six- and twelve-month returns were excellent, with minimal drawdowns though the volatility in 2008 was uncomfortable. (…) Over the following year, the equal-weight version of the S&P 500 outperformed by more than 10% after each signal. (…)
The hand-wringing over a handful of stocks driving major indexes higher this year doesn’t have a lot of empirical support. It’s hard to find evidence that such behavior is necessarily bad for markets. What it has clearly done, however, is frustrate those who don’t want to have outsized exposure to a handful of stocks. With a relatively short history and the necessary limitation of looking at extremes, it’s hard to place much weight on extremes like we’re seeing now. Still, the history we do have suggests that declines like this in the equal-weight S&P 500 should be reversed in the months ahead. Those betting on 500 stocks performing better than 5 have some support for their view.
This Ed Yardeni chart shows that the S&P 500 P/E ex-IT was 16.4x on May 25:
The red line below is at 16.4:
- BofA’s private clients have been selling stocks.
Source: BofA Global Research (via The Daily Shot)
Profit Numbers Get Spruced Up as Business Slows Reallocate costs. Unwind charges. Delay depreciation. Companies are using nontraditional ways to boost the bottom line as slowing business makes it harder to meet earnings expectations.
Business slowed last year for Google’s parent, Alphabet GOOG -1.02%decrease; red down pointing triangle. The tech giant still beat earnings expectations in this year’s first quarter, in part because it said that its computer servers would last longer than expected.
The company’s filings noted two material changes in its accounting that helped boost the bottom line.
First, the company revised its estimates on the useful life of its server infrastructure, saying it would last up to six years instead of four. The change, the second such extension in two years, added 6 cents a share of earnings, according to the company. The change mirrored similar moves by competitors.
Separately, the company said it was shifting its stock-compensation awards for employees from January to March, resulting in the company recognizing less expense in the first quarter relative to the rest of the year.
The company’s filings didn’t disclose the precise impact of the move on first-quarter earnings but mentioned it several times as a material offset to expenses. In a filing, the company said the move was due to a previously announced change to employee evaluations. (…)
Google isn’t alone in boosting its earnings in surprising ways. When business slows, companies often try to make their numbers look better. That appears to be happening now, from tech giants to used-car dealers. (…)
Businesses’ nontraditional earnings metrics are beating reported earnings by a lot more than last year, and a measure of the likelihood of earnings manipulation is at its highest level in about 40 years. (…)
One way companies are trying to make their results look better is to provide numbers that don’t adhere to accounting standards—what are often referred to as pro forma measures—alongside the official data.
A report published Thursday by research firm Calcbench compared the net income based on accounting standards for 200 randomly selected companies in the S&P 500 with their adjusted net income, which can include or exclude items that would normally be counted. The adjusted numbers were higher by $1.1 billion on average last year, an increase of more than 130% over a similar sample from the year prior.
Another measure used to predict the likelihood of earnings flattery is the Beneish M-score, named for its creator, Indiana University accounting professor Messod Beneish. Recently, academics found the aggregate score of a sample of nearly 2,000 companies was at its highest level in more than 40 years, the most recent data shows. Historically, the aggregate score peaks ahead of a downturn. (…)