Slowing Job Growth Tests Economy U.S. employers sharply slowed hiring in March to the weakest pace in more than a year, the latest sign the economy stumbled in early 2015. Unemployment was flat at 5.5%.
From various media:
Friday’s report from the Labor Department showed growth in nonfarm payrolls slowed in March to a seasonally adjusted 126,000, the weakest hiring in 15 months.
The pace of February job creation was downwardly revised to a 264k job increase from a previous estimate of 295k and January was similarly revised lower to 201k from 239k. Net back revisions totaled minus 69k.
With hiring estimates for January and February revised down, job growth averaged 197,000 a month during the first quarter, down from an average of 324,000 in the final three months of 2014 and eerily similar to hiring in the first quarter of last year, when economic activity contracted for the first time since 2011. (…)
The sudden downturn in hiring could complicate the Federal Reserve’s plans on when to raise short-term interest rates. Central-bank officials have said continued improvement in labor markets would be a key factor in their thinking on rates, and so Friday’s report reduces the chances of a rate increase at the Fed’s June policy meeting. (…)
The slowdown was broad-based, with just a few exceptions. Private payrolls rose 129k (versus 264k previous) and government jobs declined outright by 3k. Within private payrolls, goods-producing jobs declined by 13k, of which 11k came out of the mining sector (the same as last month). This is consistent with a slowdown in energy producing industries. Meanwhile, construction and manufacturing each declined by 1k, whereas previously construction rose by 29k and manufacturing rose by 2k. The outright contraction in the goods sector weighed on private services, suggesting the latter may not be able to remain immune to a factory stall. In private services, transportation (41k versus 52k prior), wholesale trade (6k versus 10k prior), and retail trade (26k versus 32k) all slowed. Financial activities were little changed (8k versus 7k), as were overall professional business services (40k versus 42k). However, the latter category was supported by a significant rise in temporary help services (11k versus minus 8k), which might actually be a sign of weaker labor demand as employers again shy away from permanent hires.
Beyond the weakness in manufacturing payrolls (minus 1k), there were other compelling signals of a factory sector stall. Weekly hours in the manufacturing sector declined a tenth, which resulted in aggregate hours in the manufacturing sector falling by 0.3 percent. The weakness in the manufacturing labor data dovetail on evidence of slack demand in the manufacturing ISM, weak durable goods orders over the past few months and slipping manufacturing industrial production.
Weather may also have been a small factor in the March weakness. Labor Department data show 182,000 employees could not make it to work in March because of bad weather. That’s about 30,000 more than the average of the previous 10 Marches.
The high number of people unable to get to work probably explains why the average workweek declined by six minutes.
However, even if we account for inclement weather, David Rosenberg reckons that this would have only tacked on 42k to the number of jobs.
The labor-force participation rate ticked down in March to 67.8%, matching its lowest level since 1978. Average hourly earnings rose 0.3% from February, but annual wage growth remained muted at 2.1% and the typical weekly paycheck edged down slightly due to a shorter average workweek. (…) The 0.3% increase, which was a bright spot in a broadly weak jobs report, followed a tepid 0.1% rise in February.
Fact is that the average wage growth rate is held down by a few large sectors (WSJ):
While the YoY change in average hourly earnings was 2.2% in March, the six-month trend accelerated to a 2.5% annual rate and the three-month trend to 4.0%.
YoY employment growth has accelerated sharply:
So is full time employment:
The March Jobs Report Was a Wake-Up Call About the Impact of the Strong Dollar
(…) While some economists will be quick to attribute this to port disruptions and weather, it is the view of Bloomberg Economics that this is the broader impact from a stronger dollar hurting the export sector as well as domestic industry.
Plenty of other data series have supported this notion recently. The downshift in service sector hiring provides a troubling sign that if the factory sector stumbles, it risks dragging many service sector categories with it — the broader economy will not be able to remain immune. In the bigger picture, this may serve as a wakeup call to policy makers who have been dismissive of the impact of the strong dollar on portions of the economy outside of the export sector.
RAIL DERAILED
U.S. carloads excluding coal and grain were down 2.8% (17,484 carloads) in March 2015 from March 2014, only their third such decline since November 2009. May have been due to West coast port strikes, but also to strong dollar and weaker demand…
China Economic Activity Stays Very Weak
The NBS China Manufacturing PMI continued to edge up in March. However, compared to the same time period in previous years, actual activity has been weak. During 1Q15, the average of the official Manufacturing PMI and Service PMI readings was consistently lower than during the same months in 1Q14. Moreover, signals of a rebound on the horizon are scant.
The CEBM adjusted PMI new order index has fallen to the low end of its 3-year range. Lunar New Year disturbances probably contributed to this weakness, as migrant labor was slow to return to factories in March following the Lunar New Year holiday in February.
In the light of the persistently weak economic conditions, a series of policy loosening measures including lifting property purchase restrictions, coupled with benchmark interest rate cuts and one RRR cut have been introduced since in 2H14. These measures so far have failed to generate growth momentum. Given these observations, we believe that this round of decelerating growth is unlikely to approach a turning point in 2Q15.
The GDP acceleration during 2009-2011 was driven by a huge expansion in property related and infrastructure related debt. The slowdown since 2012 is a reflection of the slower debt expansion and a government-induced slowdown in property investment. Looking ahead, the economy still faces significant headwinds, including continued weakness in property investment and the lagged effect on exports from the real effective strengthening of the RMB exchange rate.
For those who do not trust in China’s official GDP statistics, we suggest looking at the PBoC’s quarterly published 5000 Industrial Enterprise Survey. This survey is the longest dating survey data series among all China surveys. We trust this survey provides an accurate read on economic activity in China. The 1Q15 reading is lower than the lowest reading during the global financial crisis in 2008-2009. This indicates that many manufacturing businesses are experiencing a tougher environment than that of during the financial crisis. The order index, which provides a forward look into 2Q15, does not show any positive signals that policy easing is starting to take effect –the domestic new order index is much weaker than in 1Q15.
OIL
Oil up more than $1 after Saudi’s Asia price hike
Oil futures climbed more than $1 a barrel on Monday, after Saudi Arabia raised its prices for crude sales to Asia for the second month running, signaling improved demand in the region. (…)
International benchmark Brent regained ground after tumbling as much as 5 percent on Thursday, when a preliminary nuclear deal was finally reached between world powers andIran. More Iranian oil could enter global markets if that is followed by a comprehensive deal by June.
But expectations of an immediate increase in supply have been tempered as analysts warned a ramp-up in exports could take months and would likely not happen before 2016. (…)
Meanwhile in the U.S., it looks like oil production is actually declining:
U.S. rail carloads of petroleum and petroleum products fell 7.0% in March 2015 from March 2014, the first year-over-year carload decline for this category since January 2010, a period of 62 months. For U.S. railroads, crude oil is probably slightly more than half of this category, give or take (…). Canadian carloads rose 10.7% in March. (AAR)
Libya’s Biggest Oil Port May Reopen as Groups Vie for Buyers
Libya’s biggest oil port may reopen in two weeks as fighting in the area recedes amid increasing competition between the divided North African nation’s rival governments for the control of crude exports.
Al Mabrook Bu Seif, the chairman of state-run National Oil Corp. appointed by the elected government in the east of the country, said his team will start contacting existing clients to coordinate crude loadings at oil ports, replacing the company’s rival management in the capital, Tripoli, where a cabinet backed by Islamist militias is ruling over most of the western region. (…)
Force majeure may be lifted in two weeks on loadings at Es Sider, Libya’s largest export terminal, and at neighboring Ras Lanuf, the third-largest, as Islamist militias pulled out from the region, signaling the end of a campaign they began in December to capture the two ports, said Abu Seif, whose team operates from Ras Lanuf. (…)
Es Sider, with a loading capacity of 340,000 barrels a day, needs at least one month to resume exports as pipelines around storage tanks have been damaged and electrical supply cut by milita attacks, the port’s emergency team chief Abdulwahed al-Sheikhy said by phone on Friday. Of its 19 storage tanks, 10 are intact, containing 2.14 million barrels of crude ready for export, he said. Ras Lanuf, with a loading capacity of 220,000 barrels a day, suffered no damage. (…)
EARNINGS WATCH
Earnings season officially begins this week. This is from Bloomberg:
Oil Slump Pushes S&P 500 Toward First Profit Decline Since 2009
First-quarter earnings per share for companies in the Standard & Poor’s 500 Index may have fallen about 5.8 percent, according to estimates compiled by Bloomberg, in the first year-over-year decline since 2009’s third quarter.
As earnings season gets its unofficial start this week with Alcoa Inc., the biggest drag will come from a 63 percent profit decline at energy companies. (…) Once energy companies are pulled out of the picture, S&P earnings look a bit better, with a projected rise of 1.9 percent. (…)
The profit slump at energy companies is forecast to continue throughout 2015, leading to earnings declines for the broader S&P in the first, second and third quarters. If that holds, it’s an ominous sign for the market. Since 1937, out of the 17 occasions where earnings fell for at least three quarters, most occurred within three months of a bear market. The index closed at a record 2117.39 on March 2 and has risen for nine straight quarters, the most since 1998. (…)
Factset calculates that EPS are projected to decline by 4.6%, unchanged since March 20th and that ex-Energy EPS will rise 3.4%, up from 3.1% March 20th.
BTW,
Of the 19 companies that have reported earnings to date for Q1 2015, 16 have reported earnings above the mean estimate and 12 have reported sales above the mean estimate.
Based on 2050 on the S&P 500 Index, trailing EPS of $112.48 and inflation at 1.7% (core), the Rule of 20 P/E stands at 19.9x.
SENTIMENT WATCH
Little Room for Error in Pricey U.S. Stock Market Financial markets got the news Friday that March job creation was subpar, and that complicates the investment outlook.
As the week ended, economists and money managers were trying to reassure clients that recent slumps in both hiring and consumer spending are temporary problems, due to the harsh winter and a long California port dispute that hurt trade. They see job creation and consumer spending recovering this spring, spurring the economy and helping investors shrug off fears of a Federal Reserve interest-rate increase that many now expect in September.
Whether it all pans out as they hope makes a big difference. (…)
“The first-quarter response was clouded by weather. (…) He and Joseph Carson, chief economist at AllianceBernstein LP, which oversees $488 billion in New York, both pointed out that March vehicle sales rebounded from weak February levels, which they said is a sign that consumer spending is recovering. Mr. Carson noted that light trucks accounted for more than half the sales, at average prices that are 40% higher than car prices. (…)
