US Wage Growth Slows Across the Board, Indeed Index Shows

US wage growth is on track to fall back to pre-pandemic levels by the second half of next year, according to jobs platform Indeed, which built a new index based on salaries for posts offered via its website.

Wages by that measure were up 6.5% in November from a year ago, after peaking at around 9% in March this year, the gauge shows. The slowdown is broad-based, with more than four in five categories of job seeing lower rates of pay growth than they were six months earlier.

“On its current trajectory, posted wage growth would return to its 3-4% pre-pandemic pace by the second half of 2023,” the researchers wrote.

The Indeed tracker focuses on wages and salaries published in job postings rather than money actually paid to workers. That may make it a leading indicator of broader trends in wage growth, Indeed says. (…)

Indeed does not discuss the occupational mix in its index nor if and how it adjusts for compositional changes. It does, however, compare its findings with the Atlanta Fed Wage Tracker which does adjust for compositional changes:

The Atlanta Federal Reserve produces its own Wage Growth Tracker data series measuring pay trends for workers who have switched jobs. The Indeed Wage Tracker seems to have led the Atlanta Fed job switcher series by about three months in capturing pay trends over the course of the pandemic. The Indeed Wage Tracker’s lead is due to lags in the Atlanta series that stem from the length of the hiring process and the time needed for data collection. For example, Indeed’s tracker finds posted wage gains peaked in March 2022, while the Atlanta Fed tracker shows wage gains for job switchers tipping over in July.

The Atlanta Fed Wage Tracker was updated yesterday. I have found no media/blogger coverage so far this a.m. on what the Fed considers its most objective wage tracker after the ECI.

Overall wages are up 6.4% in November (3-m m.a.). The “sharp” slowdown observed in September has stalled. Also, wage growth for job switchers turned back up to 8.1% and is now substantially above Indeed’s 6.5%.

Job stayers also saw an uptick to 5.5%, above April’s 5.3%, putting in doubt what appeared to be a cooling trend from June’s 6.1%.

The last time there was such a gap between switchers and stayers (1999-2001), stayers’ wage growth rate accelerated to peak at 5.2% in April 2001. The recession officially started in March 2001.

In fact, the only periods when wage growth decelerated meaningfully were during and right after recessions. Recall that the Atlanta Fed Wage Tracker is a 3-m m.a.. Here’s the BLS’ rendition of monthly wage trends:

Next week’s FOMC will be very interesting, particularly if the November CPI number (next Tuesday) remains around 0.3% like October’s (+0.27%). Hawks vs Doves! Mr. Powell has clearly painted himself black, warning that “I control the message, that’s my job”.

Indeed adds an interesting factoid:

One thing the categories with the fastest posted wage gains have in common is they tended to advertise low wages before the pandemic. When we group jobs into low-, middle-, and high-wage tiers based on advertised pay in 2019, the acceleration and deceleration in posted wage growth during the pandemic have been most dramatic in the low-wage categories, which includes sectors such as Food Preparation & Service and Retail. Posted wage growth for the low-wage group peaked at 12.3% in January and has fallen by almost five percentage points through November. 

Timely from Almost Daily Grant’s:

• More than 1,100 staffers within The New York Times Guild walked off the job at midnight today in an ongoing compensation dispute, after union members held dozens of fruitless talks with NYT management since the prior labor agreement expired in March 2021.  It’s the Grey Lady’s first such strike since a 1981 work stoppage that spanned fewer than seven hours. “[The Times’] wage proposal still fails to meet the economic moment, lagging far behind both inflation and the average rate of wage gains in the U.S.,” the Guild stated. (…)
• Bloomberg relayed yesterday that Exxon Mobil will dole out 9% salary increases on average next year, with employees who manage to get promoted earning an additional 5%. That package marks the energy giant’s biggest such staff related outlay since 2007, which featured a raging bull market in oil.
• At least 23 states will enact minimum wage increases during 2023 according to the Labor Law Center, including a 10% jump in Florida and 8.6%, 7.6% and 3.3% in hikes in Ohio, New York and California, respectively.
• Staff at the European Central Bank will meet next month to consider walking off the job after the ECB proposed a 4.07% wage increase in January, well below the 10.6% pace of annual Euro Area CPI logged in October. 

• Workers at GM-LG Battery Plant in Ohio Vote to Unionize Result a win for UAW, which plans campaigns at slew of U.S. battery factories slated to open in coming years

Employees at the plant voted 710-to-16 in favor of joining the UAW. The Ultium Cells LLC plant, a joint venture between GM and South Korea’s LG Energy Solution Ltd., 373220 -3.01%decrease; red down pointing triangle began operations in late August and employs about 900 people.

For the UAW, securing the right to represent the Ohio factory’s workforce, which is expected to grow to 1,300 people, positions the union to expand its membership further as auto makers prepare to open more than a dozen U.S. battery plants in coming years, labor analysts say.

Car companies collectively are investing tens of billions of dollars to build cell factories that they plan to jointly own and operate with battery manufacturers, potentially creating more than 20,000 new U.S. jobs, mostly across the South and Midwest. (…)

The auto industry’s race to produce more electric vehicles eventually could lead to a loss of jobs within its existing factory workforce, because EVs require fewer parts and less labor to assemble than cars with internal-combustion engines, analysts say. That threat magnifies the importance of the UAW’s efforts to secure a foothold at the future battery plants, said Marick Masters, a professor of business and labor at Wayne State University in Detroit. (…)

Today, wages at the plant range from $15 to $22 per hour, which is less than the roughly $30 per hour that many UAW members make at factories owned by GM, Ford Motor Co. and Chrysler owner Stellantis NV, the three car makers with UAW-represented factory workforces. (…)

Over the past decade, the UAW has faltered in efforts to organize plants run by foreign auto makers. Workers at a Volkswagen AG plant in Tennessee have twice rejected the union’s efforts to represent blue-collar employees. Similar attempts at Nissan Motor Co. also failed. The union hasn’t mounted significant campaigns at EV makers Tesla Inc. and Rivian Automotive Inc., whose workforces remain nonunion. (…)

• U.K. Braces for Biggest Strikes in Years Nurses, ambulance crews and rail workers among those calling for higher wages as inflation chews into earnings
• Bank of England Says Consumer Inflation Outlook Drifts Higher

U.S. Jobless Claims Rise Slightly in Tight Labor Market Number of people seeking unemployment benefits remains historically low despite layoffs at big companies

(…) Layoffs have been concentrated in the technology and media industries and sectors of the economy sensitive to interest rates such as housing and finance. (…)

News organizations, TV networks and entertainment studios, including Warner Bros. Discovery Inc.’s CNN and Paramount Global’s television-production units, have also announced layoffs.

The layoffs haven’t led to a sharp rise in claims figures. It can take several weeks for affected workers to file an unemployment claim. Others may quickly find a new job in a still tight labor market or forgo making a claim. (…)

• Continuing US Jobless Claims Rise to Highest Since February

Continuing claims, which include people who have already received unemployment benefits for a week or more, climbed by 62,000 to 1.7 million in the week ended Nov. 26, Labor Department data showed Thursday. (…)

Economists have been watching continuing claims more closely in recent weeks as they serve as an indicator of how hard it is for people to find work after losing their job. They’ve also been known to hint at upcoming recessions. Although the gauge has been generally rising for the last two months, it’s still near historic lows.

Continuing claims have now strung together the three largest increases since May 2020. (…)

Many recent layoffs were of administrative employees which often receive a package. They are not counted as unemployed until their package benefits expire.

Meanwhile, this helps, but for how long?

Gas Prices Fall Below Last Year’s Average The U.S. average for regular unleaded gasoline has declined to $3.29 a gallon, down about 35% from its peak of about $5 earlier in the year.

• Saudi Arabia Sees 2023 Budget Surplus Bump Despite Oil-Market Jitters

The government’s latest fiscal outlook, unveiled on Wednesday, showed it now expects to run a surplus of 16 billion riyals ($4.3 billion) in 2023, nearly double a previous estimate of 9 billion riyals. The economy is still forecast to expand 3.1%. (…)

The kingdom tends to take a relatively conservative view of crude prices in drawing up its budget and doesn’t divulge its assumptions. Al Rajhi Capital estimates that Saudi Arabia is budgeting for Brent oil at around $78 a barrel next year, roughly where the global crude benchmark was trading on Wednesday.

Costco Sales Growth Cools as Consumers Shift Discretionary Spending The warehouse retailer reports a rise in revenue from membership fees

Comparable sales, those from stores of digital channels operating for at least 12 months, rose 7.1% in the quarter ended Nov. 20. That quarterly figure, which excludes currency fluctuations and gasoline sales, hasn’t fallen below 9% over the past two years. Online sales fell 3.7% from the prior year, Costco said.

(…) “It rains on all of us during these tougher times particularly with bigger ticket discretionary items,” said Mr. Galanti. Sales of food and household goods are strong, he said. (…) More high-income shoppers are coming to Costco for lower prices on a per item basis, said Mr. Galanti on the call. (…)

At Costco inventory rose 10% in the most recent quarter, compared with the same period last year. (…)

Overall for the quarter, Costco’s net income rose to $1.4 billion, or $3.07 a share, compared with $1.3 billion, or $2.98 a share, for the prior year.

Inflation Slowed in China as Lockdowns Spread Inflation in China slowed sharply in November as widespread Covid-19 lockdowns battered spending, emphasizing the economic cost of a stringent strategy the government has now begun to relax.

(…) Consumer prices in China last month were up 1.6% from a year earlier, the National Statistics Bureau said Friday. That was the slowest pace since March, well down from October’s 2.1%, but slightly above the 1.5% expected by economists polled by The Wall Street Journal.

Friday’s data showed November food prices up 3.7% from a year earlier, barely half October’s 7.0% pace. Nonfood prices were up 1.1%, while a gauge of consumer-price inflation that excludes volatile categories such as food and energy prices was up just 0.6% from a year earlier. (…)

Producer prices—those charged by companies at the factory gate—fell for the second straight month, down 1.3% from a year earlier, a reflection of weak spending at home in China as well as fading demand for Chinese exports. (…)

World’s Top Money Managers See Double-Digit Stock Gains in 2023 Bloomberg survey shows optimism for year ahead, but worries about stagflation

(…) 71% of respondents in a Bloomberg News survey expect equities to rise, versus 19% forecasting declines. For those seeing gains, the average response was a 10% return.

The informal survey of 134 fund managers incorporates the views of major investors including BlackRock Inc., Goldman Sachs Asset Management and Amundi SA. (…)

The stock market could be derailed again by stubbornly high inflation or a deep recession, however. Those are the top worries for the upcoming year, cited by 48% and 45% of participants, respectively. Stocks could also reach new lows early in 2023, with many seeing gains skewed to the second half. (…)

Last year, a similar survey predicted that aggressive policy tightening by central banks would be the biggest threat to stocks in 2022. (…)

FYI, the excellent Fiera Capital strategist team (AUM of C$158B) has not changed its views: a deep recession remains a 50% probability (Fed-funds at 6.0% and S&P 500 at 2900). A shallow recession (30%) would see the Fed funds at 5.25% and the S&P 500 at 3900. Stagflation (20%) would see the Fed funds at 4.0% and the S&P at 4400. Under no scenario does headline inflation slip below 5%.

China’s disappearing data stokes fears of hidden Covid wave

Cases tend to decline when testing declines. We’ve seen it in the U.S. before.

FTC sues to block Microsoft’s $75bn acquisition of Activision Blizzard US antitrust regulator says proposed deal would let tech group suppress competition in gaming

U.S. Consumer Credit Growth Increases in October

Consumer credit grew $27.1 billion (8.1% y/y) during October after increasing $25.8 billion in September, revised from $25.0 billion. The ratio of consumer credit outstanding to disposable personal income eased to 25.1% from 25.2% in September and remained near the highest since March 2020. It was increased from 19.4% in March 2021.

Revolving consumer credit balances grew $10.1 billion in October (15.0% y/y) after increasing $7.9 billion in September, revised from $8.3 billion. (…)

Nonrevolving consumer credit balances rose $17.0 billion (6.0% y/y) during October after increasing $17.9 billion in September, revised from $16.6 billion. (…)

This is for October which showed decent retail sales growth albeit still below inflation. Goldman Sachs previews holiday sales:

• Across Adobe’s panel of online retailers, nominal spending over Black Friday weekend and Cyber Monday rose 4.0% year-on-year, well below the double-digit pace throughout the 2010s and the 10.8% pace of ecommerce sales growth in Q3 of this year. Because of the importance of online shopping, the Adobe data are a useful predictor of the November retail sales report (correlation +0.58 since 2012) and argue for a below-trend reading in 2022. Turning to brick and mortar, Fiserv credit card spending and Redbook’s department store panel indicate a pickup in spending growth during Black Friday week but only modest sequential growth for November as a whole.

• We also believe the previously reported strength in October retail sales creates a high hurdle for incremental spending growth in November and December, especially because October spending benefitted from stimulus checks in California ($6.2bn of Middle Class Tax Refund payments, two-thirds of which were in October). Taken together, we are assuming a 0.2% decline in November retail control (mom sa) and a flat reading for December. We will finalize our forecasts as the remaining nowcast inputs become available.

The Chase credit card spending tracker, updated through November 29, suggests control sales up 0.3% MoM in November after +0.7% in October.

What’s Going On With the Housing Market? Home buyers and sellers are trying to make sense of a downturn that’s full of contradictions: Demand has seized up but supply is still low; prices are sliding but not plummeting; and no one can agree on what comes next.

(…) Next year’s predictions for home prices are unusually varied, economists say. KPMG LLP, an audit and consulting firm, is calling for prices to fall 20% next year, and Goldman Sachs Group Inc. forecasts a 7.5% drop. The National Association of Realtors, meanwhile, is forecasting a 1.2% increase in existing-home prices, and the Mortgage Bankers Association sees prices up 0.7% next year. (…)

The surge in interest rates has pushed both buyers and sellers out of the housing market. Buyers have been priced out, or they have retreated because they think prices might be lower in the future. (…)

Almost 70% of households with mortgages have rates below 4%, and they are reluctant to trade in a low mortgage rate for a higher one on a new home. (…)

An impending downturn could look more like the piercing but swift decline in activity recorded in the early 1980s, when the Fed raised rates to double-digits to address very high inflation, said Doug Duncan, chief economist at Fannie Mae.

“People simply stopped transacting,” he said. “As soon as the Fed got control of inflation and started working it down, you saw transactions start to pick up.” (…)

Fannie Mae is forecasting that home prices will fall 1.5% next year and 1.4% in 2024. (…)

Real-estate research and advisory firm Zelman & Associates, a unit of Walker & Dunlop Inc., expects home prices to fall 12% from their peak a few months ago through late 2024, before starting to rebound. John Burns Real Estate Consulting expects prices to fall 20% peak-to-trough and also expects the low point near the end of 2024. (…)

The homeowners most at risk are those who bought homes when prices were near their peak. About 8% of homes bought with mortgages in 2022 were underwater as of September, according to mortgage-data firm Black Knight Inc. (…)

Recently, the number of homes for sale has increased as homes sit on the market longer. In the four weeks ended Nov. 27, the number of active listings on the market rose 12.9% from a year earlier, according to Redfin, the real-estate brokerage. But the new listings of homes for sale in that period fell 21% from a year earlier, and supply remains lower than normal. (…)

Builders increased production in recent years to meet demand, and they have a large backlog of homes still under construction.

About 37% of builders surveyed by the National Association of Home Builders said they cut prices in November, and almost 60% of builders said they used incentives to attract buyers, such as paying lenders to reduce buyers’ mortgage rates. (…)

[Scottsdale, Ariz.-based builder Meritage Homes Corp.] has cut its prices in some markets, and its cancellation rate rose to 30% in the third quarter, up from 13% the prior quarter. (…)

Affordability is the word: buyers can’t afford high prices with high mortgage rates, sellers can’t afford to switch from a low to a high mortgage house. Moody’s Analytics estimates that the median sales price for existing homes in 2021 was 5.3 times the median household income—well above the 4.6 ratio in 2020. The previous peak was 4.9 in 2005. By comparison, price-to-income ratios averaged 3.9 in the 2010s, 4.1 in the 2000s, and just 3.1 in the 1980s.

The only motivated sellers are builders stuck with high and rising inventory. The construction cycle is longer this year due to shortages (labor & material). New homes for sale (470k) are 45% above their pre-pandemic level with another 300k under construction.

The average new home sold for nearly $550k in October, up 45% from pre-2020. Part of this jump in the average price is due to changing mix. Harvard University says that “in just the past two years, the share of new homes that sold for at least $400,000 increased from a third of all homes to more than half (56 percent).” Current estimates of the cost to build a typical 2000 sq.f. house vary greatly but are centered around $300k, plus land.

Redfin calculates that a homebuyer on a $2,500 monthly budget can afford a $383,750 home with a 6.5% mortgage rate; that same buyer could afford a $406,250 home with a 5.8% rate. With a 3% rate, which was common in 2020 and 2021, that same buyer could afford a $517,000 home.

• Home Delistings Hit Record High in November as Buyers and Sellers Retreated

(…) Sellers are taking their homes off the market because they’re often receiving no offers for the price they want to sell for, and sometimes, no offers at all. That’s due to a sharp drop in homebuyer demand driven by rising mortgage rates and persistently high home prices. While mortgage rates have dipped slightly since mid-November, the monthly mortgage payment on the median-asking-price home is still 40% higher than it was one year ago. (…)

• Manhattan Apartment Rents Inch Up After Three Months of Declines

(…) The median rent rose 2.1% from October to $4,095, the third-highest level ever recorded by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. Yet there were also indications that demand wasn’t particularly strong, including a rising share of new leases signed with concessions and a higher vacancy rate.

“The market largely is moving sideways,” said Jonathan Miller, president of Miller Samuel. “We’re having some ups and downs from month to month, but not any big moves in either direction.” (…)

Manhattan’s vacancy rate last month was 2.42%, up from 2.35% in October. It had been below 2% for much of the year.

Rent Rant (3)

Addendum to yesterday’s Rent Rant (2):

@jayparsons, an economist at RealPage, tweets this plot linking asking rents on new leases with renter incomes, suggesting that even new leases may not drop as much as many are forecasting.

Apartment renter incomes continue to grow, but the pace is moderating … and interestingly, the moderating pace mirrors the trend in asking rents. Still, this is an encouraging trend for renter affordability — with household incomes among new lease signers up 8.1% YoY.

‘Huge, Missing and Growing:’ $65 Trillion in Dollar Debt Sparks Concern

There’s a hidden risk to the global financial system embedded in the $65 trillion of dollar debt being held by non-US institutions via currency derivatives, according to the Bank for International Settlements.

In a paper with the title “huge, missing and growing,” the BIS said a lack of information is making it harder for policy makers to anticipate the next financial crisis. In particular, they raised concern with the fact that the debt is going unrecorded on balance sheets because of accounting conventions on how to track derivative positions.

The findings, based on data from a survey of global currency markets earlier this year, offer a rare insight into the scale of hidden leverage. Foreign-exchange swaps were a flashpoint during the global financial crisis of 2008 and pandemic of 2020, when dollar funding stress forced central banks to step in to help struggling borrowers.

To be sure, the debt is fully collateralized and backed by hard currency. To understand how the system works, consider a Dutch pension fund buying assets in the US. As part of the transaction, it will often use a foreign-currency swap to exchange euros for dollars. Then, when it’s closed out, the fund will repay dollars and receives euros. For the length of the trade, the payment obligation is recorded off-balance sheet, which the BIS calls a “blind spot” in the financial system.

It’s that opacity that puts policymakers at a disadvantage, according to BIS researchers Claudio Borio, Robert McCauley and Patrick McGuire.

“It is not even clear how many analysts are aware of the existence of the large off-balance sheet obligations,” they wrote. “In times of crises, policies to restore the smooth flow of short-term dollars in the financial system — for instance, central bank swap lines — are set in a fog.”

Central banks have found ways to manage the demand for dollars during times of stress. The Federal Reserve has tools, such as swap lines and the FIMA Repo Facility, to help prevent markets from seizing up. 

For researchers at the BIS, it’s the sheer scale of the swaps that’s worrying. They estimate that banks headquartered outside the US carry $39 trillion of this debt — more than double their on-balance sheet obligations and ten times their capital. Accounting conventions only require derivatives to be booked on a net basis, so the full extent of the cash involved isn’t recorded on a balance sheet.

“There is a staggering volume of off-balance sheet dollar debt that is partly hidden, and FX risk settlement remains stubbornly high,” said Borio, head of the monetary and economic department at the BIS.

In a separate report on Monday, the BIS also flagged the settlement risk as another potential source of instability in the foreign-exchange market. Researchers estimate that $2.2 trillion of daily currency turnover was subject to settlement risk, the possibility that one party to a trade fails to deliver the asset.

Payment-versus-payment arrangements, a settlement mechanism that coordinates transfers to ensure no one is left holding a claim, tend to be unsuitable or too expensive for certain trades, the BIS paper said.

“There is clearly an urgent need for wholesale market participants to look for alternative ways to eradicate settlement risk exposure across a broad range of currencies outside of the traditional majors,” said Jerome Kemp, president at post-trade processing firm Baton Systems, in response to the paper.

MEME has no pulse The SPX vs MEME ETF gap stays very wide. Is the “crap” trying to tell us something? (The Market Ear)

Refinitiv

Netherlands Plans Curbs on China Tech Exports in Deal With US The Netherlands and Japan are the world’s top suppliers, outside the US, of machinery and know-how needed to make advanced semiconductors, but Washington is yet to get those allies fully on board.

(…) The new export limits under consideration by the Netherlands could bar the sale of equipment capable of making chips designated as 14 nanometers or those that are more advanced, according to the people, using a reference to the industry standard for measuring semiconductor technology. That move may put Dutch regulations at least partly in line with US restrictions announced Oct. 7. (…)

China accounted for about 15% of [Dutch firm ASML Holding NV]’s revenue last year, according to its latest annual report. (…)

Officials are still discussing the details, but the step may effectively stop exports of the company’s immersion lithography machines, its second-most advanced gear, for Chinese clients who use them in combination with tools from other suppliers to manufacture 14-nanometer chips or those that are more advanced.

Washington has some leverage over the Netherlands as ASML uses US-made components. Since early October, American officials have threatened that if allies do not comply with the new export-control measures, they could ban sale of foreign equipment that contains even the smallest amount of US technologies to China. (…)

China’s Xi Jinping to Meet Saudi Crown Prince in Pivotal Visit The leaders of China and Saudi Arabia will sign agreements worth more than $29 billion as the desert kingdom deepens ties with global partners, including U.S. rivals.

Chinese leader Xi Jinping met with Saudi leaders Thursday at the start of a multiday state visit, as the oil-rich desert kingdom strengthens ties with U.S. rivals amid doubts about Washington’s commitment to the Middle East. (…)

No details about the deals have been made available, but progress in talks about pricing some Saudi oil sales in yuan, which The Wall Street Journal reported accelerated this year, would draw intense U.S. scrutiny, as would any new weapons deals or further cooperation on 5G and 6G telecommunications networks. (…)

China is already Saudi Arabia’s top trading partner and the biggest buyer of its crude. Even as the world looks to renewables, those trends are expected only to accelerate, with the last barrels of oil likely to come from Saudi fields and be consumed in Asia.

But ties between the two countries have grown in recent years to also include massive contracts for Chinese construction companies, widespread adoption of Chinese technology despite security concerns and even transfer of military hardware such as drones and ballistic missiles, as well as help fabricating uranium yellowcake, needed for a civil nuclear-energy program or nuclear-arms capability.

The growing defense and geopolitical aspects of the Chinese-Saudi relationship alarm Washington, which has long been the dominant security force in the energy-rich Middle East. But China hasn’t yet demonstrated interest in supplanting that role, or the ability to do so, and the Saudis don’t really want to replace the U.S. as their main security guarantor, analysts say. (…)

• Beijing running out of fever medication as Covid outbreak spreads Hospitals ration supplies and long queues form at testing centres as China relaxes restrictions
• Iran executes 23-year-old protester