Payroll employment rises by 431,000 in March; unemployment rate declines to 3.6%

• Overall, job growth averaged 562,000 per month in the first quarter of 2022, the same as the average monthly gain for 2021. However, employment is down by 1.6 million, or 1.0 percent, from its pre-pandemic level in February 2020.
• The change in total nonfarm payroll employment for January was revised up by 23,000, from +481,000 to +504,000, and the change for February was revised up by 72,000, from +678,000 to +750,000. With these revisions, employment in January and February combined is 95,000 higher than previously reported.
• The labor force participation rate, at 62.4 percent, changed little in March.
• In March, 2.5 million persons reported that they had been unable to work because their employer closed or lost business due to the pandemic—that is, they did not work at all or worked fewer hours at some point in the 4 weeks preceding the survey due to the pandemic. This measure is down from 4.2 million in the previous month.
• Among those not in the labor force in March, 874,000 persons were prevented from looking for work due to the pandemic, down from 1.2 million in the prior month.

Consumer-Spending Growth Falters Consumer spending increased 0.2% in February, the Commerce Department said, a slowdown from the prior month as inflation stayed elevated.

U.S. households boosted their spending at a seasonally adjusted 0.2% pace in February from the month before, down from a revised 2.7% rate in January, when spending rebounded from an Omicron-related dip in December, the Commerce Department said Thursday. (…)

Personal income increased by 0.5% in February over the prior month, a pickup after it was nearly flat in January, but inflation rose more quickly. Income after taxes, adjusted for inflation, fell for the seventh straight month in February to the lowest level since March 2020, the Commerce Department said. (…)

Consumer prices rose 0.6% on the month and 6.4% on the year, a new 40-year peak as measured by the department’s personal-consumption expenditures price index, the Federal Reserve’s preferred gauge. Annual core PCE inflation, which strips out volatile food and energy prices, rose to 5.4% in February. (…)

Services spending rose by 0.9% in February, the most since last July, while goods spending declined by 1%, largely due to lower spending on vehicles as prices continued to rise and supply chain issues hurt availability. (…)

There are several very different angles one can use to assess the health of the American consumer as this Haver Analytics table shows.

Wages and Salaries are booming, up 11.5% YoY in February after +9.4% in 2021. But the growth rate slowed to 7.8% a.r. in the last 3 months and 6.1% in the last 2 months.

PCE inflation is eating more and more of that away, being up 6.6% a.r. in the last 2 and 3 months.

The ending of virtually all pandemic stimmies brought nominal disposable income up 4.6% YoY in February but only 3.2% annualized in the last 3 months. Real disposable income is thus negative YoY and has declined sequentially every month since August 2021. Real disposable income is now only 1.5% above its pre-pandemic level.

The tight relationship between income and spending is slowly being restored. Real expenditures are up 6.9% YoY and 4.6% above their February 2020 level. But they are up 1.2% annualized in the last 3 months and only 0.6% a.r. in the last 4 months to include Thanksgiving.

Much hope is still resting on so-called excess savings but the savings rate ticked up from 6.1% to 6.3% in February. The amount of time the savings rate spent below 6.0% in the last 62 years defies reasonable probabilities of that happening now.

Americans borrowed heavily between 1998 and 2006 to speculate on housing. Even if they wished to do that now, there are so few available houses nowadays, particularly at the mass affordable price levels, it seems unlikely it could happen to a similar extent.

Helping spending and the economy now is the rapid rise in employment. But inflation needs to abate rapidly, otherwise gains aggregate spending power will all go into higher prices. PCE inflation is up 6.4% YoY in February, core PCE +5.4%, with little slowdown lately. Durable goods inflation was zero in February, not a sign of rising demand.

As I reported on March 28, the mid-March Chicago Fed Advance Retail Trade Summary projected that March sales would decrease 3.2% from February on a seasonally adjusted basis and to decrease 4.4% when adjusted for inflation.

The Chase consumer spending tracker, updated through March 28, suggests that late March sales improved. Its estimate for control retail sales (ex-cars) is up 1.0% MoM in nominal terms, so down 0.2% in real terms using the same deflator used by the Chicago Fed. That would follow -1.5% in February.

Meanwhile, real spending on services was up 0.6% MoM in February, from +0.3% in January and 0.1% in December as reopening spurs people to eat out, entertain and travel.

Inflation on services was restrained to +0.3% MoM in February but is nonetheless up 4.9% annualized since last November. Accelerating wage gains will likely keep services inflation above 5% for a while.

In all, the splurge on goods seems to be abating along with real disposable income. Services will likely keep total spending up but inflation is seriously eroding spending power.

• Mortgages Rates Surge to Highest Since 2018 The average rate for a 30-year fixed mortgage loan jumped to 4.67%, the latest in a weekslong move that has brought the figure up from 3.22% in early January.

MANUFACTURING PMIs

The U.S. PMI is out later this morning.

Eurozone: PMI slides to 14-month low in March amid rising inflation and geopolitical tensions

The Eurozone manufacturing sector registered a further slowdown in growth at the end of the first quarter, with the headline PMI slumping to a 14-month low. A rise in geopolitical tensions was mentioned as a factor weighing on demand, and had a noticeable impact on business confidence, which fell to its weakest level since May 2020. The weaker upturn was accompanied by an intensification of supply chain pressures over the month as rising COVID-19 infections in China and Russia’s invasion of Ukraine reportedly led to longer lead times.

Meanwhile, amid surging commodity, fuel and energy costs, input price inflation re-accelerated in March and hit a four-month high. To offset margin pressures, eurozone manufacturers raised their charges to the greatest extent in the series history.

The S&P Global Eurozone Manufacturing PMI® fell to 56.5 in March, from 58.2 in February, and signalled the slowest improvement in operating conditions faced by goods producers since the beginning of 2021.

Notwithstanding a greater lengthening in average lead times (the Suppliers Delivery Times Index is inverted in the calculation of the headline PMI), the slowdown would have been much steeper as the remaining four sub-components all declined over the month.

By nation, Ireland registered the strongest improvement in manufacturing operating conditions during March, marginally outpacing the expansion seen in Austria. Aside from these two, rates of expansion slowed in all of the remaining monitored eurozone constituents.

Manufacturing output across the eurozone continued to increase in March, in line with the trend observed since July 2020. However, the rate of growth was the slowest seen over the current expansion period as firms struggled to obtain raw materials and other necessary components. COVID-related staff absences, Russia’s invasion of Ukraine, and sluggishness within the automotive industry were also reported as drags on growth.

New orders increased solidly at the end of the first quarter, although growth momentum eased notably as rising geopolitical tensions led to increased hesitancy among clients. Export demand declined during March for the first time since June 2020, reflecting lower new orders from customers in overseas markets. According to anecdotal evidence, intra-European trade was particularly impacted by the war in Ukraine.

Latest survey data also pointed to a significant reduction in business confidence during March. Although manufacturers were optimistic on average, the Future Output Index fell by its largest margin since the onset of the pandemic just over two years ago and was at its weakest since May 2020.

Supplier delivery times continued to lengthen at a substantial rate at the end of the first quarter. In fact, vendor performance deteriorated to the greatest extent since December and ended a four-month sequence of easing supply chain pressures. According to panellists, rising COVID-19 cases in China and the war in Ukraine exacerbated ongoing bottlenecks.

Consequently, cost pressures intensified during March as supply issues were compounded by rising commodity, fuel and energy prices. Overall, the rate of increase in input costs quickened and was among the fastest seen in the survey history. To protect profit margins, eurozone manufacturers raised their charges at a record pace.

Meanwhile, purchasing activity rose at the slowest rate in 14 months during March, although the increase was sufficiently strong to support stockpiling efforts, as latest survey data signalled a further, albeit slower, increase in pre-production inventories.

Lastly, manufacturing employment was expanded once again in March. The rate of jobs growth was stronger than the series average, but the weakest since February 2021. Despite continued hiring activity, capacity pressures remained evident as backlogs of work rose for a twentieth successive month. Panellists commonly linked the increase in outstanding business to input shortages.

China: Manufacturing performance dampened by latest COVID-19 wave in March

The introduction of tighter restrictions to contain the spread of the latest wave of COVID-19 in China weighed heavily on manufacturing performance in March. Companies registered the quickest falls in output and new business since the initial onset of the pandemic in February 2020, with restrictions around mobility also leading to a steeper deterioration in supplier performance.

Cost pressures meanwhile intensified, with input costs and output charges both rising at the sharpest rates for five months. The ongoing disruption to business operations, rising costs and recent invasion of Ukraine all weighed on business confidence for the year ahead, which slipped to a three-month low in March.

The headline seasonally adjusted Purchasing Managers’ Index™ (PMI™) fell from 50.4 in February to 48.1 in March, to signal a renewed deterioration in business conditions. Though modest overall, the pace of decline was the quickest seen since February 2020.

The drop in the headline PMI was partly driven by a renewed and solid fall in production at Chinese manufacturing firms in March. Furthermore, the rate of contraction was the steepest seen for 25 months. Companies frequently mentioned that the measures to contain the spread of COVID-19 had disrupted operations, supply and dampened customer demand.

New orders likewise fell at the sharpest rate since February 2020 in March. Companies commented that both domestic and foreign demand had waned, with new export business declining at the fastest pace for 22 months. The pandemic, and difficulties shipping items to clients, as well as greater market uncertainty due to the Ukraine war had dampened sales, according to panellists.

Disruption to business operations and logistics due to containment measures led to a further deterioration in average supplier performance. Notably, the rate at which delivery times increased was the fastest since last October.

Higher COVID-19 case numbers and increased restrictions also added pressure to capacities, as backlogs of work rose slightly for the second month in a row. This was despite a marginal increase in staffing levels.

Greater market uncertainty and lower sales led firms to cut back on their purchasing activity, though the rate of contraction was only marginal. At the same time, stocks of both inputs and finished goods fell as firms made greater usage of current inventories amid softer demand conditions. There were also reports that high purchasing costs had contributed to greater utilisation of current stocks.

Overall input costs rose at a sharp and accelerated pace in March, with the rate of inflation hitting a five-month high. Firms sought to pass on additional expenses to clients in the form of higher selling prices. The rate of charge inflation was the quickest since last October and solid overall.

Business expectations regarding future output waned to a three-month low in March. Companies cited a number of headwinds to the outlook, most notably, uncertainty relating to the pandemic, the war in Ukraine and steep rises in costs. Optimism was generally attributed to company expansion plans and hopes that global economic conditions will strengthen as the pandemic recedes.

Japan: Stronger expansion in manufacturing in March

Japanese manufacturers signalled a quicker improvement in operating conditions in March, as respondents registered a renewed expansion in production levels. At the same time, new order growth regained some of the momentum lost in February. That said, total new order growth was still held back by a solid reduction in new export sales, which fell at the sharpest pace since July 2020, as firms cited that external demand was dampened by renewed lockdown restrictions in parts of China and the Russia-Ukraine war. The latter also exacerbated price pressures and supply chain disruption, which prompted firms to increase stockpiles of pre-production inventories at a series record rate.

The headline au Jibun Bank Japan Manufacturing Purchasing Managers’ Index™ (PMI) rose from 52.7 in February to 54.1 in March. This signalled the fourteenth consecutive improvement in the health of the sector and one that was solid overall.

The improvement partly stemmed from a renewed rise in production volumes in March. Firms often attributed this to greater new orders, although growth was slightly held back by reports of higher raw material prices. Output volumes have now increased in five of the last six months.

Japanese goods producers also signalled a further expansion in new order inflows in March, the sixth in as many months. The rate of growth quickened from February as firms reported domestic sales in particular were boosted by the easing of COVID-19 restrictions. That said, stricter restrictions in key export markets, particularly China, led to a sharp reduction in export orders. The contraction was solid overall and the quickest since July 2020. Foreign sales were also hindered by the Russian invasion of Ukraine.

Input cost inflation strengthened further in March. The pace of inflation was rapid overall and the strongest since August 2008. Manufacturers widely linked an increase in average input prices with rapidly rising raw material costs. Concurrently, average prices charged for Japanese manufactured goods rose at a marked pace as firms sought to pass increased cost burdens on to clients. The rate of factory gate inflation quickened, and was the third-fastest in the survey history.

Supply chain disruption continued to disrupt manufacturing activity in March, with average lead times lengthening at a marked pace that was the most substantial for three months. Delays in receiving shipments led manufacturers to increase purchasing activity solidly in a bid to build safety stocks. As a result, stocks of purchases rose at the strongest rate on record.

Additional pressure on capacity led to Japanese manufacturers expanding employment levels for the twelfth month running. The rate of job creation eased slightly to a five-month low, yet remained moderate overall. Backlogs of work also rose at a sharper pace, providing further evidence of pressure on existing capacity in March. The latest accumulation extended the current sequence to 13 months.

Looking forward, business confidence regarding output over the year ahead remained positive with sentiment underpinned by hopes that the pandemic would end and boost domestic demand, while an end to the Russia-Ukraine war would bolster international demand and stabilise price and supply pressures.

Morgan Stanley Slashes China GDP Forecast, Citi Warns of Risks

Economists at Morgan Stanley led by Robin Xing downgraded their full-year forecast to 4.6% from 5.1% on Friday. China’s “strict adherence” to its no-tolerance policy is expected to stay in the coming months “despite the more transmissible omicron,” they said.

Citigroup economists said gross domestic product growth could take a hit of as much as 0.9 percentage points in the second quarter.

Morgan Stanley cited low overall vaccination rates for third doses, especially among the elderly, as a reason why authorities will likely stick with Covid Zero policies for most of this year. (…)

In a worst-case scenario, China could delay its exit from Covid Zero until the first half of 2023, “and recurring lockdowns could result in more severe supply chain disruption and merely 4% GDP growth,” they said.

• China Censors Shanghai Protest Videos as Lockdown Anger Grows

China Home Sales Slump Worsens Despite Vows to Support Market

The 100 biggest companies in China’s debt-ridden property industry saw a 53% drop in sales from a year earlier, according to preliminary data from China Real Estate Information Corp. That’s the steepest decline this year. (…)

In an early promising sign, March sales grew 27% from February, according to CRIC, driven by state-backed and strong private developers. The roll-back of policy curbs may kickstart a “slow and gradual” recovery in developers’ sales, Bloomberg Intelligence analyst Kristy Hung wrote in a Friday note. (…)

Buyer confidence remained subdued and real estate companies turned inactive in marketing new projects, they said. Covid outbreaks and lockdowns in cities including Shanghai added to the gloom. (…)

Funding difficulties and sizable refinancing needs for the rest of 2022 will further strain liquidity and increase defaults, Moody’s Investors Service analysts led by Daniel Zhou wrote in a note Thursday. (…)

Stressed developers face at least $3.1 billion of payments on dollar and onshore public bonds this month, according to data compiled by Bloomberg. The sector also has 53.6 billion yuan ($8.4 billion) of trust payments due, according to data tracker Use Trust.

Car Sales Seen Sputtering as Supply-Chain Woes Hurt Production Auto makers are projected to report lower year-over-year sales amid tight inventories. “This market is stuck in low gear,” said one industry watcher.

Sales of new vehicles are projected to fall 16% in the first quarter from the year-ago period and represent the second-worst quarterly total in a decade, behind the pandemic-affected second quarter of 2020, according to Cox Automotive. (…)

The rate of sales is expected to slow in the first quarter to 12.7 million annually, according to J.D. Power. In comparison, auto makers last year sold just shy of 15 million vehicles in the U.S., the firm said, up slightly from 2020. For five straight years before the pandemic, the industry had eclipsed the mark of 17 million vehicles. (…)

The average new car price is about $44,700, according to Cox, with a total available inventory of 1.1 million vehicles, down 59% from the same period in 2021. The average listing for a used vehicle sits at $27,600, the firm said, with 2.62 million unsold used vehicles available, a nearly 5% increase from March 2021.

Also affected are car leases, which are at their lowest level since 2009. Average lease payments have soared during the pandemic as auto makers dropped the incentives that typically make leasing a more affordable option, reducing the way many buyers enter the market. (…)

• Ford, GM to halt production at two Michigan plants due to parts shortage

(…) Last month, Ford halted production at its Kansas city assembly plant that makes F-150 pickup vehicles for a week due to the chip shortage. (…) GM last week said it would halt production for two weeks at an assembly plant in Fort Wayne, Indiana, that builds the Chevrolet Silverado 1500 and GMC Sierra 1500 pickup trucks, beginning April 4, over the semiconductor chip shortage.

War to Prompt NATO Countries to Raise Military Spending Alliance military outlays, which have grown since Moscow annexed Crimea in 2014, will step upward with Germany’s armaments pledge

The North Atlantic Treaty Organization’s 30 countries have in the past year increased their military spending by roughly 2% overall, according to the alliance’s annual report released Thursday. Of NATO members’ roughly $1 trillion in total military spending this year, the U.S. accounts for almost 70%. (…)

Following Russia’s seizure of Crimea from Ukraine in 2014, NATO members pledged to spend at least 2% of their gross domestic product on defense by 2024.

Only eight countries, including the U.S., already cross the 2% threshold, according to NATO’s report, a decline from the previous annual report, in which 11 countries met the target. (…)

Germany currently spends less than 1.5% of its GDP on defense, according to NATO’s report. Since the country has Europe’s largest economy, an increase in military spending of more than 0.5 percentage point of its GDP would make a significant difference in NATO’s total European outlays. (…)

NATO members are now also for the first time considering permanently stationing troops in members that joined after the end of the Cold War and were once Soviet satellites. Under an agreement struck between NATO and Russia in 1997, the alliance had agreed not to permanently station troops in those countries. NATO leaders say that Russia’s invasion of Ukraine rendered that agreement void, so the alliance can now deploy troops as it sees fit.

OPEC Sticks to Production Plan Cartel agrees to keep small output increase despite rocketing prices

The Organization of the Petroleum Exporting Countries said there is nothing it can do to stop rising oil prices, as it decided again Thursday to stick with a Moscow-backed production plan that has done nothing to tame the market during the Ukraine war.

In its second meeting since the Kremlin ordered the assault on Ukraine, a partnership between OPEC and a group of Russia-led countries, dubbed OPEC+, declined again to tap into its millions of barrels of remaining capacity to pump more oil. Instead, they agreed to raise their collective oil output by a modest 432,000 barrels a day, rejecting calls from oil-consuming countries to do more.

The reason: Most OPEC+ members are already pumping at their maximum capacity, while Saudi Arabia and the United Arab Emirates—which have so-called spare capacity to raise their production—say beefing up output would actually raise prices, not lower them.

OPEC’s spare capacity still stands at 4.19 million barrels a day, including 3.2 million barrels a day from Saudi Arabia and the U.A.E., according to the International Energy Agency, a group that assesses the oil market and advises oil-consuming nations.

The Saudis and Emiratis said this week they won’t break up their energy-market alliance with Russia and pump more to help the U.S. and the West in their confrontation with Moscow. Higher oil prices fuel Russia’s state revenue and complicate efforts by the U.S. and Europe to exert maximum pressure on Moscow with energy sanctions. (…)

In recent months, U.S. officials say they have stopped asking the Saudis to pump more oil and have instead pressed them to not react in some unexpected way to a petroleum-reserve release, such as by cutting output. (…)

Already about 2 million barrels a day of oil supplies have been disrupted since the war started, Amos Hochstein, the U.S. State Department official in charge of energy security, told a Dubai energy conference on Monday.

In addition, OPEC delegates say they are worried about a resurgence of Covid-19, which has led to new lockdowns in China. They also see the U.S. holding talks that could lift sanctions on about 1.5 million barrels a day of Iranian oil production and about 300,000 barrels a day of Venezuelan output. (…)

• U.K. Agrees to Join U.S. in Strategic Oil Reserves Release The U.K. will join the U.S. as part of a joint effort to lower prices and reduce reliance on Russian supplies.

Eurozone Inflation Soars to 7.5%, Raising Pressure on ECB Investors in government bonds have begun to anticipate rises in the central bank’s key interest rate later this year

(…) The European Union’s statistics agency on Friday said consumer prices were 7.5% higher in March than a year earlier, a jump from the 5.9% rate of inflation recorded in February. (…) National figures suggest that the current rate of inflation could be even higher. Germany’s measure of inflation for March was the highest since 1981, while Spain’s was the highest since May 1985. (…)

Much of the pickup in inflation has been driven by energy prices, which were 44.7% higher than a year earlier, having been 32% higher in February. Food-price inflation also picked up, to 5% in March from 4.2% in February. (…)

The ECB’s economists now expect the inflation rate to average 5.1% this year, having raised their forecast from the 3.1% projected in December. Economists said a 7.1% increase is possible if energy prices are higher than they assume. (…)

Figures released by Eurostat Thursday showed the eurozone’s unemployment rate fell to a record low of 6.8% as 181,000 workers found jobs. The decline had been particularly rapid among younger workers over the previous 12 months, with the unemployment rate for people aged 25 years or under falling to 14% in February from 18.6% a year earlier. That drop was more than three times as large as for the working-age population as a whole. (…)

Asian Liquefied Natural Gas Demand Is Cooling Fast

(…) The carnage this winter is already impressive. Overall, Asia Pacific LNG imports are down 10% in the first quarter of 2022 from a year earlier, according to data from consultancy Wood Mackenzie. Chinese, Japanese and Indian LNG imports are down 11%, 14% and 25% respectively.

Asian LNG prices had roughly quintupled over the past year to $34 per million British Thermal Units (MMBtu) as of late March but still lagged behind the European benchmark which hit $39 per MMBtu, according to Rystad Energy, a consultancy. Some Asian buyers began redirecting purchased cargoes to take advantage of sky high European prices even before the war broke out: Around 10 LNG cargoes were redirected from Asia to Europe in December, according to Xi Nan, vice president of LNG markets at Rystad.

There is also some evidence of a switch back toward coal and oil. Valery Chow, vice president at Wood Mackenzie, observed that China, India and Southeast Asia have been resorting to increased coal use for power generation, while industrial customers in India have been switching to naphtha and furnace oil in the face of persistently high and volatile LNG prices.

While it may be still too early to speak of permanent gas demand destruction across Asia, high LNG spot prices will probably persist for several years, weakening Asian demand growth—and potentially impacting further planned LNG export developments in Western Australia. Should new Russian pipelines begin supplying large additional volumes of gas to China, as seems likely, that would magnify the impact. (…)

Asia’s energy demand continues to gallop ahead and there is little reason to doubt that will change. But for the next several years, overall Asian LNG demand growth might be lackluster. Coal and renewable power vendors will celebrate. And LNG merchants heavily dependent on the region will be shielded to an extent from weak demand by their long-term sales contracts. But getting new contracts over the finish line—unless offered on very favorable terms relative to current spot prices—could prove challenging.

• Europe’s appetite for U.S. gas fast-tracks two new LNG projects

Developers Sempra Energy (SRE.N) and New Fortress Energy Inc (NFE.O) advanced agreements on separate projects, one of which could be producing LNG within 12 months. These plants typically requires long-term contracts for about 85% of output to kick off, and take years to complete.

But growing demand among customers, especially in Europe, was behind New Fortress Energy’s decision to invest its own money to build a 2.8 million tonne per annum (MTPA) plant off the coast of Louisiana. (…)

GameStop Shares Jump 15% on Stock-Split Request The videogame retailer says it will seek shareholder approval to increase the number of common shares for a stock split, which would follow the recent path of Tesla, Alphabet and Amazon.com.

Chinese Developer Stocks Suspended as Results Deadlines Pass Several large Chinese property stocks stopped as part of a wave of share suspensions for Hong Kong-listed companies that couldn’t publish annual results on time.

EU to Warn China It Will Hurt Global Role by Helping Russia

European Union leaders plan to tell President Xi Jinping in a summit that China will hurt its global stature if it hands Russia an economic or military lifeline, a pointed message that will test Beijing’s commitment to keep the war from damaging its ties with Brussels.

European Commission President Ursula von der Leyen said China had a “special responsibility” to demand that Russia respect international law and to defend Ukraine’s sovereignty.

“No European citizen would understand any support to Russia’s ability to wage war,” she said in a statement to Bloomberg ahead of the virtual summit Friday. “It would lead to major reputational damage for China here in Europe.” (…)

U.S. has inescapable responsibilities for Ukraine crisis

This is from the People’s Daily, i.e. the Chinese government.

For balance, this is from NATO:

NATO-Russia relations: the facts