U.S. JOLTS: Job Openings Nearly Steady in February

The Bureau of Labor Statistics reported that on the last business day of February, the total number of job openings was 11.266 million, down 0.2% (+43.3% y/y) from January’s 11.283 million. With this small change in the number of job openings, the job openings rate, calculated as job openings as a percent of the sum of total employment and openings, was steady at 7.0%.

New hires were up 4.1% (+11.0% y/y) to 6.689 million. The hiring rate ticked up to 4.4% from January’s 4.3%. The number of job quits rose 2.2% (+26.5% y/y) to 4.352 million from 4.258 million in January. The quits rate edged up to 2.9% in February from January’s 2.8%. Layoffs and discharges totaled 1.386 million in February, down 1.2% (-15.5% y/y) from January’s 1.403 million.

Private-sector job openings fell 0.5% in February (+42.9% y/y) to 10.185 million, with the private-sector job openings rate steady at 7.4%.

Among select industries, openings were largest in professional and business services, up 0.5% in February (+39.5% y/y), to 2.088 million. The next largest industry, not surprisingly, was health care and social assistance, 2.022 million, up 2.2% m/m (34.8% y/y). In manufacturing, job opening fell 5.9% in February (+40.0% y/y) to 808,000. They rose 1.7% in trade, transportation and utilities (+26.5% y/y) to 1.863 million. Government sector job openings were 1.081 million at the end of February, up 3.1% m/m and 47.7% y/y.

Total separations include quits, layoffs and discharges, and other separations. The level of private sector separations were 5.693 million in February, up 0.4% m/m and 12.0% y/y. The private sector quits rate was 3.2%, the same as in January.

Layoffs and discharges are involuntary separations initiated by the employer. In the private sector, these were 1.307 million in February, down from 1.327 million in January. The layoff & discharge rate in February was 1.0%, still close to its level of the preceding nine months. Among various industries, layoffs and discharges were 404,000 in professional and business services, a rate of 1.8%. In leisure and hospitality, they were 169,000, a rate of 1.1%. In manufacturing, there were 101,000 layoffs and discharges, a rate of 0.8% and in construction, 155,000, representing a rate of 2.0%.

• The jobs-workers gap stands at +3.0% of the labor force in February, just under the highest level in postwar US history (+3.2% in December), which suggests strong wage growth will persist until improvements in labor supply and normalization of job openings bring the labor market back into balance. (GS)
• Small Business Employment Watch

Small businesses represent nearly 95 percent of all U.S. employers. The Paychex | IHS Markit Small Business Employment Watch draws from the payroll data of approximately 350,000 Paychex clients to gauge small business wage and employment trends on a national, regional, state, metro, and industry basis.

Hourly earnings are up 4.8% (+5.1% a.r in the last 3 months) from 2.7% last year. Hours worked remain down YoY.

U.S. Consumer Confidence Improves in March

(…) The jobs gap, representing the difference between respondents indicating that jobs are plentiful and those saying jobs are hard to get, rose sharply to a record 47.4% and more than reversed the February decline to 41.5%. Calculated by Haver Analytics, this series has had a 69% correlation with the unemployment rate over the last ten years. The jobs plentiful measure rose this month to a record 57.2% of respondents from 53.5% in February. The jobs hard-to-get measure fell to 9.8% of respondents, the lowest level since July 2000. (…)

The expected inflation rate in twelve months surged to 7.9% in March. It remained up from a 4.4% low in January of 2020. Roughly two-thirds of respondents expected that interest rates would rise over the next twelve months, the most in three years. The share of respondents planning to buy a new home within six months held steady m/m at 0.6% and remained below a June 2020 high of 2.0%. Those planning to buy a major appliance rose to 47.4% of respondents, down from 53.9% in July 2021.

Home-Price Growth Accelerated in January The S&P CoreLogic Case-Shiller National Home Price Index rose 19.2% as the supply of homes for sale fell to a new low.

(…) The inventory of homes for sale at the end of January slid to the lowest level on record since the National Association of Realtors began tracking total existing-home inventory in 1999.

Some buyers rushed to make purchases in January, as mortgage rates started to increase, because they expected rates to continue to rise, according to real-estate agents. (…)

The average 30-year fixed mortgage rate rose above 4.4% last week, which was more than a percentage point higher than at the start of the year, according to mortgage-finance company Freddie Mac.

The Case-Shiller index, which measures repeat-sales data, reports on a two-month delay. Inventory ticked higher in February but remained far below normal levels, NAR said. The median existing-home price rose 15% in February from a year earlier, NAR said, to $357,300. (…)

China’s Lockdowns Are Hurting Electronics Demand, TSMC Head Says

Demand for consumer electronics including smartphones, PCs and TVs has been hurt by China’s lockdowns, the head of the world’s biggest contract chipmaker said, adding to concerns about the economic impact of the country’s measures to contain Covid-19.

Taiwan Semiconductor Manufacturing Co. Chairman Mark Liu said his company isn’t revising down its forecasts for sales or capital spending for this year. Global demand for chips used in vehicles, internet-of-things gadgets and high performance computing remains strong, he said at an appearance in Hsinchu, Taiwan, as head of the Taiwan Semiconductor Industry Association.

China’s lockdowns are likely costing the country at least $46 billion a month, or 3.1% of GDP, in lost economic output, an economist predicted based on the assumption that cities generating about 20% of China’s gross domestic product are currently imposing targeted lockdowns. That cost would double if those areas had to follow Shanghai and impose stricter policies requiring most residents to remain at home. (…)

The slowdown is weighing on the tech sector. Apple Inc. is planning to cut its iPhone SE output target in the next quarter, Nikkei reported. Earlier this week, JPMorgan Chase & Co. analysts trimmed their estimates for PC and server shipments for this year. (…)

Germany takes step towards gas rationing over payment stand-off with Russia Berlin activates emergency law as west refuses to comply with Moscow’s demand for roubles

• Fortescue and E.ON sign deal to replace Russian gas with Australian green hydrogen
• As Trade With Russia Halts, Countries Turn to Canada Canada produces many of the same commodities as Russia, such as oil, nickel, wheat and potash, and countries are lining up to broker deals.

(…) Canada, which shares similar climate and geographical features, produces many of the same commodities as Russia. Both countries are among the world’s largest producers of crude oil, uranium, nickel and potash. Along with Ukraine, they are among the world’s largest wheat exporters. Buyers are turning to Canada to replace the energy, food and minerals that are being blocked because of the war and international sanctions on Russia.(…)

Before the Ukraine conflict, Brazil imported about 36% of its potash from Canada, compared with close to half imported from Russia and Belarus. (…) Nutrien subsequently increased its potash production this year by more than 10% to 15 million metric tons from 2021. Nutrien is the world’s largest corporate producer of potash.

Buyers seeking replacements for commodities that are restricted in Russia are also looking to Brazil for oil, to South Africa for platinum and Argentina for wheat. (…)

Copper and nickel, which are mined in Russia, are found widely in Australia, too, but the country is ill-prepared to fill any gaps. After years of underinvestment in the sector, Australia says ramping up production quickly will be a challenge. (…)

Increasing demand for Canadian resources prompted Pavilion Global Markets, a Canadian investment advisory firm, to tell clients in a note last week that it expects Canada’s stock market, which lists many materials and commodity stocks, to emerge as one of the biggest beneficiaries from global efforts to isolate the Russian economy.

The S&P/TSX Index, which tracks 239 companies listed on the Toronto Stock Exchange, has risen 3.5% this year. The S&P 500, on the other hand, has dropped 4.6%. (…)

Canada’s largest uranium producer, Cameco, is set to increase production at its mines in Canada and the U.S., said a company spokesman. The company said it would boost output at a mine in northern Saskatchewan by 10 million pounds by 2024. The company would still be able to increase production by another 45%, if uranium prices justify it, he said. (…)

SOME RALLY!

+10.6% in the last 2 weeks!

BofA writes that “over the last two weeks, the S&P has produced one of its sharpest rallies in history. (…) the recent 10-day gain ranks in the 98th percentile of bear market rallies and in the 99.5th percentile of non-bear market rallies.”

The S&P 500 is now 6.7% above where it stood before Russia first moved into Ukraine on February 24. The FANG internet platform stocks have rallied by more than 25% since a low on March 24.

In spite of worsening fundamentals including a clearly hawkish Fed:

• The Fed funds rate priced in for Dec-22 is up from 1.57% (6 hikes) to 2.10% (8 hikes).
• 10Y Ts were 1.4% in December. Now: 2.5%.
• The U.S. five-year inflation breakeven rate is up from 2.8% to 3.4%. The 10-Y breakeven has risen from 2.5% to 2.9%.
• The 2s/10s Treasury curve just inverted.
• Corporate guidance has become pretty negative.

(Bloomberg via John Authers)

Goldman Sachs Financial Conditions Index

  

Data: Economist Intelligence Unit. Chart: Will Chase/Axios

John Authers:

(…) there is an interesting recession indicator to be derived from the gap between the two best-known surveys, published by the Conference Board and the University of Michigan. Both are well respected, but they track slightly different indicators. The Conference Board’s is more weighted toward measures that tend to keep flourishing in late cycle, while Michigan’s tend to fall earlier in the cycle. The fact that the Michigan number has just dropped to an all-time high deficit compared to the Conference Board suggests very strongly that we are right at the end of the cycle (and therefore due for a recession):

If you think that chart looks familiar, you’d be right. As Matthew Luzzetti, chief U.S. economist for Deutsche Bank AG, points out, the spread between the confidence measures tends to mimic the spread between two- and 10-year bond yields. The sentiment emanating from bond traders looks identical to the sentiment revealed in the consumer surveys:

Russian Foreign Minister in China on First Visit Since War

(…) Chinese Foreign Ministry spokesman Wang Wenbin reiterated Wednesday at a regular press briefing in Beijing that “cooperation between China and Russia has no limits.”

“We will do our utmost to work for peace and security, and reject hegemony,” he added, noting that details on Lavrov’s visit would be released “in a timely manner.”

China has struggled to come up with a consistent response to the war, supporting Putin’s rationale for the invasion on the one hand, while also expressing concern about civilian casualties and pushing for talks to end the fighting. China has so far complied with sanctions from the U.S. and other countries, even though it has officially opposed them.

Lavrov is also set to visit India on Thursday to discuss the sale of Russian crude oil to the country and the possibility of a rupee-ruble denominated payment method that could work outside the SWIFT messaging system, Bloomberg reported. India has taken a similar position as China, drawing some criticism from U.S. President Joe Biden.

World’s Largest Electric Cruise Ship Sets Sail in China Powered by a massive 7,500 kilowatt-hour marine battery from the world’s No. 1 battery manufacturer for electric cars, Contemporary Amperex Technology Co. Ltd., the ship will go into commercial operations from next month, being used mainly for sightseeing trips. At 100 meters long and around 16 meters wide, the Yangtze River Three Gorges 1 can carry up to 1,300 passengers. It can travel for around 100 kilometers on a single charge, saving around 530 metric tons of fuel.

BA.2 Variant Is Dominant in U.S., CDC Estimates The highly contagious Omicron strain, which has been causing surges in Europe, represents more than half of all new U.S. Covid-19 infections, and there are signs of rising caseloads in parts of the Northeast.

Crypto is already a $2 trillion trading market:

Data: CoinGecko; Chart: Simran Parwani/Axios

• We’re in the unregulated, risky, experimental phase — with more than 10,000 different digital currencies available globally with minimal government rules or oversight.
• And very few people are buying stuff with it — yet.

Inflation Named as Top U.S. Problem by Most Americans Since 1985 About one in five Americans, or 17%, surveyed March 1-18 cited inflation as the nation’s most important problem. That’s up from 10% in February, and compares with 4% who pointed to fuel prices in particular.

(…) Still, the overall share rating inflation as the biggest problem in the U.S. is far below the 52% proportion recorded in the early 1980s. Consumer prices increased as much as 14.8% back then on annual basis, compared to 7.9% in February.

Looking ahead, the poll found Americans are increasingly pessimistic about the economy: 75% said conditions are getting worse, about tied with the most negative it’s been since April 2020.

Investors are also getting worried, at least for the next 5 years:

Business Travel Is Picking Up Again Corporate travel transactions are up significantly over the past nine weeks, with small and medium-size companies driving the acceleration

(…) Delta Air Lines ‘ large corporate contracted travel business, primarily Fortune 500 companies, is about 65% of what it was compared with 2019. Travel for small and medium enterprises is about 5 to 10 percentage points higher, which has been consistent throughout the pandemic, says Steve Sear, Delta’s executive vice president of global sales and distribution. (…)

Big corporate travel-management companies are hovering around 50% of 2019 booking levels, much of which is due to the lack of international travel, says Brandon Strauss, president of CapTrav, a company that captures corporate travel bookings data.

Smaller companies and startups say it has been critical for them to get back on the road to meet with clients and prospective customers. A recent survey conducted by Morning Consult on behalf of the American Hotel & Lodging Association found that 77% of business travelers say that in-person meetings and business travel foster collaboration in a way virtual interactions cannot. (…)

Biden’s Budget Calls for Increase in Defense Spending President Biden released a $5.8 trillion budget that envisions a substantial increase in defense spending, including aid to Ukraine, a sign of the administration’s willingness to devote additional resources to military programs.

(…) The administration is seeking $813 billion for military spending in fiscal year 2023, which begins Oct. 1, a roughly 4% increase from the $782 billion enacted for this fiscal year. Budget figures aren’t adjusted for inflation.

The requested increase is more than double than the 1.6% boost the administration sought for military spending in last year’s budget. (…)

Overall, the proposal seeks $769 billion for non-defense spending and the medical care program at Veterans Affairs in fiscal 2023, compared with the $691 billion Congress enacted for those items in the current year.

The administration forecasts a yearly drop of roughly 50% in the U.S. deficit during fiscal 2022, to $1.4 trillion, as spending on Covid-19 relief programs wanes and a stronger economy generates more tax revenue. (…)

The budget projects debt held by the public would fall to 101.8% of U.S. GDP in fiscal 2023, compared with the White House’s forecast of 102.4% in the current year. Debt is expected to rise in subsequent years to 106.7% of GDP by 2032. (…)

The tax increases most likely to pass Congress soon, including a surtax on top earners, a 15% minimum tax on corporations and higher taxes on U.S. companies’ foreign earnings, would be part of the revived bill. (…)

The budget includes a proposal for a 20% minimum tax rate on income, including unrealized gains in assets, for American households worth more than $100 million. This would apply to the top 0.01% of households, the White House said. That is likely under 20,000 households. (…)

G7 rejects Putin’s demand for rouble payment for Russian gas – Germany

China real estate via @Sino_Market:

• The gross floor area of contracted sales for new homes in 60 Chinese cities has declined by 50% y/y on March 1-24 versus -28% y/y on February 1-24. The GFA transactions in 18 second-tier cities dropped by 39% y/y on March 1-24 versus -38% on February 1-24. #China #realestate 
• Chinese property #Yango Group tumbles 10% in Hong Kong after the group failed to pay the principal and interest of some bonds. #Sunac slides 12%, as the group was unable to complete preparations of financial statements for 2021 by the end of March.

THE YIELD CURVE!

John Authers: Not All Yield Curve Inversions Are Fatal

(…) This means a radical difference between the messages of the three-month/10 year and two-year/10-year curves. The former has generally been an even better recession warning, though it delays its signal until closer before the downturn. Historically, there hasn’t been much difference between them. At present, however, they have diverged in spectacular fashion. The following chart, using Bloomberg data and correct as of the close on Friday, was prepared by Win Thin, currency strategist at Brown Brothers Harriman & Co. in New York:

This is a big hint that something genuinely is different this time. Explanations can be found at both ends of the curve.

Expectations for rate hikes in the near future have risen in spectacular fashion. The shift in forecasts has happened with breathtaking pace, and this helps to explain the massive excess of the two-year yield over the three-month. (…)

Bespoke Investment Group offers this chart showing the implicit expectation for the course of the fed funds rate over the next two years, using data from CME Group. It suggests even more tightening than is currently priced by two-year bonds. Nothing as aggressive as this has been seen since Paul Volcker was Fed chair four decades ago:

Even if this is not just a matter of overheated crowd psychology, it’s fair to suggest that the rise in the two-year yield reflects investor confusion in trying to deal with a situation that has no precedent in the working lives of most traders now active. Just as the Fed now admits that it has been behind the curve, so investors have also been slow on the uptake, and may now be over-compensating. That suggests that a curve inversion here should be treated with some caution. (…)

Inversions are generally driven by a decline in long yields as much as a rise in short yields. They have different drivers. As Michael Contopoulos of Richard Bernstein Advisors in New York puts it, two-year yields are driven by policy, while 10-year yields are driven by expectations for growth. Higher yields generally betoken stronger growth ahead. A rising long yield suggests we shouldn’t be too worried about a recession even if the curve is flat or inverted. (…)

None of these [5] prior inversions has followed a rise this great in the 10-year yield. And of course there is a reason why this time is different; massive intervention from the central bank has held the 10-year yield lower than it otherwise would be. To continue with Contopoulos, he suggests that the main yield curve would be nowhere near inverting without the years of QE that preceded it:

Our models show the flatness of the curve could be more a consequence of the Fed’s relentless buying of bonds, and the consequent growth of their balance sheet, rather than because of a looming growth shock. As such, the true fair value of the 2s10s spread could be in the 150bp-200bp range had the Fed never engaged in its multiple rounds of quantitative easing.

The Bernstein model derives 10-year yields from inflation, leading economic indicators, the current fed funds rate and the size of the Fed’s balance sheet relative to gross domestic product — and these deliver a 10-year yield of about 3%. If there had been no QE on these calculations, then the financial world would be a very different place now — and the 10-year yield would be about 3.7%. (…)

This line of thinking suggests (good news) that we needn’t be too worried about the flatness of the curve but that (bad news) the likely start of QT (quantitative tightening) in May is something to fear. The Fed has only just stopped buying longer-dated bonds, which was done in an unabashed attempt to reduce their yields. QT could well steepen the curve, but do it by raising long rates sharply, to levels that might jeopardize credit markets in the U.S. and elsewhere. With the Bank of Japan recommitting to its intervention to keep 10-year yields low on Monday, it also promises to strengthen the dollar yet further, which will have further implications.

It’s not necessarily good news if 10-year yields are about to go up sharply. But at least it should protect us from the dreaded yield curve. (…)

Bill Dudley: The Fed Has Made a U.S. Recession Inevitable Jerome Powell is far too optimistic about the chances of a soft landing.

(…) The Fed’s application of its framework has left it behind the curve in controlling inflation. This, in turn, has made a hard landing virtually inevitable. (…)

So can the Fed correct its mistake and engineer a soft landing? Powell is correct that the central bank tightened monetary policy significantly in 1965, 1984 and 1994 without precipitating a recession. In none of those episodes, though, did the Fed tighten sufficiently to push up the unemployment rate.

• 1964: The federal funds rates rose from 3.4% in October 1964 to 5.8% in November 1966, while the unemployment rate declined from 5.1% to 3.6%.
• 1984: The federal funds rate rose from 9.6% in February to 11.6% in August, while the unemployment rate declined from 7.8% to 7.5%.
• 1993: The federal funds rate rose from 3% in December 1993 to 6% in April 1995, while the unemployment declined from 6.5% to 5.8%.

The Fed’s most benign tightening cycles didn’t increase unemployment

The current situation is very different. Consider the starting points: The unemployment rate is much lower (at 3.8%), and inflation is far above the Fed’s 2% target. To create sufficient economic slack to restrain inflation, the Fed will have to tighten enough to push the unemployment rate higher.

Which leads us to the key point: The Fed has never achieved a soft landing when it has had to push up unemployment significantly. This is memorialized in the Sahm Rule, which holds that a recession is inevitable when the 3-month moving average of the unemployment rate increases by 0.5 percentage point or more. Worse, full-blown recessions have always been accompanied by much larger increases: specifically, over the past 75 years, no less than 2 percentage points.

The Fed needs to adjust how it puts its monetary policy framework into practice. It shouldn’t be completely reactive, waiting passively until inflation exceeds target and the labor market is extremely tight. Such extreme “patience” forces it to slam on the brakes, increasing the likelihood of an early recession. Also, officials need to be more forthright about the road ahead: Getting inflation down will be costly, in terms of jobs and economic growth.

Never heard of Sham Rule before? Here’s the St-Louis Fed:

Sahm Recession Indicator signals the start of a recession when the three-month moving average of the national unemployment rate (U3) rises by 0.50 percentage points or more relative to its low during the previous 12 months.

You probably also never heard of the “10 point rule” as the NBER explains:

Policymakers should focus on the qualitative data as an indicator of turning points. We find a good measure of when the recession started is when the fear of unemployment series begins to rise sharply. We adopt a “10 point rule”: recession is signaled when the fear of unemployment series rose 10 points above its 2007 low.

“We have nothing to fear than fear itself”!

No worries now as the U. of Michigan’s latest survey shows:

This in spite of poor economic expectations:

• Job Openings Hover Near Record Highs The number of available positions continued to dwarf the number of people looking for work last month, according to private-sector estimates, as the U.S. labor market remains tight.

Employers had 11.2 million job openings on March 18, according to estimates from jobs site Indeed. That is a slight decline from the number the government reported in January but remains a historically high figure. (…)

[Indeed’s] Mr. Bunker said that the tightness in the labor market has already reduced in some sectors of the economy such as leisure and hospitality. He said this can be seen through quits trending down and wage growth cooling. (…)

• War, inflation hit French, German consumer morale more than feared

(…) In Germany, the GfK institute said its consumer sentiment index, based on a survey of around 2,000 people, dropped to -15.5 points heading into April from a revised -8.5 points a month earlier and the lowest since February 2021. (…)

In France, the INSEE official statistics agency said its consumer confidence index fell to 91 points from 97 in February, falling short of economists’ expectations in a Reuters poll for 94 and the worst headline figure since February 2021.

“A fall of that extent is rare,” BNP analysts commented in a note that observed that sharper monthly drops had only previously occurred around the 1993 recession and the 2020 lockdown. (…)

Based on a flash estimate last Wednesday, euro zone sentiment collapsed in March to 18.7 points, the lowest level since the start of the COVID-19 crisis in April and May 2020.

Italy, the euro zone’s third-largest economy, also saw a bigger than expected decline in consumer confidence, the national statistics office said last week.