U.S. Hiring Slows Sharply as Delta Dents Gains The U.S. economy added 235,000 jobs last month, falling far short of estimates. Hiring was particularly weak in services sectors that involve in-person interaction.
(…) The unemployment rate fell to a pandemic low of 5.2% in August from 5.4% in July. Wages increased 0.6% from a month earlier and 4.3% from a year ago. Industries including warehousing, manufacturing and finance added jobs solidly in August. (…)
Employment in leisure and hospitality held steady after adding an average of 350,000 jobs a month over the previous six months. Retailers cut jobs in August. (…)
In August, 5.6 million individuals said they didn’t work or worked shortened hours because of the pandemic, an increase from 5.2 million who said the pandemic negatively affected their work situation the prior month. (…)
While many employers are holding off on adding new workers due to pandemic uncertainty, they are clutching to the ones they have as demand for labor remains stronger than earlier in the year. Jobless claims, a proxy for layoffs, reached a new pandemic low of 340,000 last week and continued slowly declining since mid-July.
(…) there were still about 5.3 million fewer jobs in August than in February 2020. (…) There were 2.9 million fewer people in the labor force in August compared with February 2020, before the pandemic hit. (…)
The steady decline in employment throughout the month was driven by industries that had seen the sharpest job growth in recent months amid state reopenings. The number of hospitality employees working dropped 35% from mid-July, while those employed in entertainment fell 20%, according to Homebase. (…)
This Atlanta Fed chart sums up August employment trends vs the strong July data: Leisure and Hospitality (-415k) and Government (-263k) account for 83% of the swing from July to August.
This chart plots monthly changes in total employment minus L&H and G: the 243k gain in August is just below the 2021 average of 252k.
Now only consider private sector employment ex L&H: +374k jobs in August, well above the 2021 +220k average monthly gain. Even the July-August average of +285k exceeds the 2021 average.
So the private job market remains solid, even during a Covid-19 resurgence. In fact, employment is steadily rising: total employment is 3.5% below its pre-pandemic level, from -14.7% in March 2020, and private employment ex-L&H is 3.9% below (from -10.1%). Leisure and Hospitality employment is still 10.0% below February 2020 (from -48.6%).
ING charts the broad sectors: excluding L&H, Education and Health Services and Government, most other sectors are back or near their pre-pandemic employment levels:
Employment changes by sector through the pandemic
Source: Macrobond, ING
Large monthly swings in L&H employment where wages are below average can impact average economy-wide wage stats, like it probably did in August: average hourly earnings jumped 0.6% MoM to +4.3% YoY. Leisure/hospitality wages rose by 1.3% MoM to +10.3% YoY.
I charted annualized wage growth rates for various trades (all production and nonsupervisory) since before the pandemic and over the last 6 months. The acceleration is broad and significant with all groups above 6.2% annualized in the last 6 months.
Last 2 months annualized growth rates are above 5% for all 19 major groups except for Utilities and Information employees.
Aggregate weekly payrolls for all private employees are up 9.7% YoY in August and +4.9% from their pre-pandemic level in spite of employment being 3.5% lower. Private payrolls rose 9.3% annualized in August and 11.0% annualized in the last 3 months.
The Chase consumer spending tracker was weaker in August (through August 30) but remains up 9.9% over 2 years ago. Its control sales tracker is up 1.7% MoM in August after being down 4.2% in July (actual came in at -1.0%).
John Authers today:
The argument of inflation “bears” is that the pandemic will lead steadily to a wage price spiral, and the figures are consistent with that. The argument of inflation “bulls” is that the bottlenecks caused by the pandemic will prove transitory, and the figures are also consistent with that. If you want to stay rooted in empirical evidence, the debate will have to drag on.
The argument of inflation “bears” is that the pandemic will lead steadily to a wage price spiral, and the figures are consistent with that. The argument of inflation “bulls” is that the bottlenecks caused by the pandemic will prove transitory, and the figures are also consistent with that. If you want to stay rooted in empirical evidence, the debate will have to drag on.
The difference is that the figures on transitory bottlenecks are not hard figures just yet (he’s using PMI price indices, easing last month but still very high), unlike wage figures.
(…) Most people felt that “supply disruptions would start to ease around now,” said Stephen Brown, senior Canada economist at Capital Economics. “In reality, it’s become increasingly clear that those disruptions are likely to persist into 2022.” (…)
The price of plastic has soared to record highs – a cost the company has absorbed rather than pass on to customers. And Ms. Laframboise has to order parts as much as eight months in advance. It used to be one month. (…)
(…) And that means, analysts say, that record-high consumer prices for vehicles – new and used, as well as rental cars – will extend into next year and might not fall back toward earth until 2023.
The global parts shortage involves not just computer chips. Automakers are starting to see shortages of wiring harnesses, plastics and glass, too. And beyond autos, vital components for goods ranging from farm equipment and industrial machinery to sportswear and kitchen accessories are also bottled up at ports around the world as demand outpaces supply in the face of a resurgent virus. (…)
The average price of a new vehicle sold in the U.S. in August hit a record of just above US$41,000 – nearly US$8,200 more than it was just two years ago, J.D. Power estimated.
With consumer demand still high, automakers feel little pressure to discount their vehicles. Forced to conserve their scarce computer chips, the automakers have routed them to higher-priced models – pickup trucks and large SUVs, for example – thereby driving up their average prices. (…)
“Under that scenario,” said Dan Hearsch, an Alix Partners managing director, “it’s not until early 2023 before they even could overcome a backlog of sales, expected demand and build up the inventory.” (…)
“There will be an end to it, but the question is really when,” said Ravi Anupindi, a professor at the University of Michigan who studies supply chains.
- Ola Kallenius at Daimler and Oliver Zipse of BMW also added to the pessimism. Kallenius said that the shortage “may not entirely go away” in 2022, according to Bloomberg. Zipse said there could be another 6 to 12 months left in the shortage.
(…) Most people felt that “supply disruptions would start to ease around now,” said Stephen Brown, senior Canada economist at Capital Economics. “In reality, it’s become increasingly clear that those disruptions are likely to persist into 2022.” (…)
The price of plastic has soared to record highs – a cost the company has absorbed rather than pass on to customers. And Ms. Laframboise has to order parts as much as eight months in advance. It used to be one month. (…)
(…) And that means, analysts say, that record-high consumer prices for vehicles – new and used, as well as rental cars – will extend into next year and might not fall back toward earth until 2023.
The global parts shortage involves not just computer chips. Automakers are starting to see shortages of wiring harnesses, plastics and glass, too. And beyond autos, vital components for goods ranging from farm equipment and industrial machinery to sportswear and kitchen accessories are also bottled up at ports around the world as demand outpaces supply in the face of a resurgent virus. (…)
The average price of a new vehicle sold in the U.S. in August hit a record of just above US$41,000 – nearly US$8,200 more than it was just two years ago, J.D. Power estimated.
With consumer demand still high, automakers feel little pressure to discount their vehicles. Forced to conserve their scarce computer chips, the automakers have routed them to higher-priced models – pickup trucks and large SUVs, for example – thereby driving up their average prices. (…)
“Under that scenario,” said Dan Hearsch, an Alix Partners managing director, “it’s not until early 2023 before they even could overcome a backlog of sales, expected demand and build up the inventory.” (…)
“There will be an end to it, but the question is really when,” said Ravi Anupindi, a professor at the University of Michigan who studies supply chains.
- Ola Kallenius at Daimler and Oliver Zipse of BMW also added to the pessimism. Kallenius said that the shortage “may not entirely go away” in 2022, according to Bloomberg. Zipse said there could be another 6 to 12 months left in the shortage.
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Companies Need More Workers. Why Do They Reject Millions of Résumés? Automated-hiring systems are excluding many people from job discussions at a time when additional employees are desperately needed
Employers today rely on increasing levels of automation to fill vacancies efficiently, deploying software to do everything from sourcing candidates and managing the application process to scheduling interviews and performing background checks. These systems do the job they are supposed to do. They also exclude more than 10 million workers from hiring discussions, according to a new Harvard Business School study released Saturday. (…)
This reliance on automation filters big sections of the population out of the workforce and companies lose access to candidates they want to hire, he added. (…)
The algorithms created to help with this process, known as applicant-tracking systems, filtered tons of prospects down to a select group. Several companies make the talent-sifting software, and one of the biggest providers is Oracle Corp. with its Taleo system. Such systems, Harvard said, are now employed by 99% of Fortune 500 companies and 75% of the 760 U.S. employers Harvard surveyed as part of its study. Oracle declined to comment. (…)
Another hurdle for workers is that these software systems often eliminate those with a gap in employment if companies believe the currently-employed are more capable of filling a role successfully. A large percentage of U.S. companies surveyed by Harvard—49%—choose to eliminate candidates for roles that traditionally require less than a bachelor’s degree because of an employment gap of six months or longer. (…)
Amazon—which announced this week that it is in the market for 40,000 more workers in the U.S.—now hires from special programs created to bring in new types of workers who may have been filtered from its automated systems. (…)
- The World Is Still Short of Everything. Get Used to It. Pandemic-related product shortages — from computer chips to construction materials — were supposed to be resolved by now.
(…) Delays, product shortages and rising costs continue to bedevil businesses large and small. And consumers are confronted with an experience once rare in modern times: no stock available, and no idea when it will come in. (…) Factories around the world are limiting operations — despite powerful demand for their wares — because they cannot buy metal parts, plastics and raw materials. Construction companies are paying more for paint, lumber and hardware, while waiting weeks and sometimes months to receive what they need. (…)
Just as the health crisis has proved stubborn and unpredictable, the turmoil in international commerce has gone on longer than many expected because shortages and delays in some products have made it impossible to make others.
At the same time, many companies had slashed their inventories in recent years, embracing lean production to cut costs and boost profits. That left minimal margin for error. (…)
“It’s definitely getting worse,” Mr. Hague said. “It hasn’t bottomed out yet.” (…)
(…) “I don’t see substantial mitigation with regard to the congestion that the major container ports are experiencing,” Mr. Cordero [Port of Long Beach, Calif.] said. “Many people believe it’s going to continue through the summer of 2022.” (…)
“We think at least midway through 2022 or the entire 2022 could be very strong.” [Georgia Ports Authority] (…)
When the boxes do move, they are often snarled at congested freight rail yards and warehouses that are full to capacity. (…)
Euro zone growth revised up as consumer spending rebounds sharply
Eurostat said on Tuesday that gross domestic product in the 19 countries sharing the euro increased by 2.2% quarter-on-quarter for a 14.3% year-on-year rise. These compared with earlier estimates of respectively 2.0% and 13.6%. (…)
However, GDP volumes in the single currency bloc were still 2.5% below their pre-COVID peaks. The United States is already 0.8% higher than its end 2019 level.
Eurostat said household consumption in the April-June period added 1.9 percentage points to the overall quarterly figure, with government spending and investment adding 0.3 and 0.2 points respectively.
A draw-down of inventories pulled 0.2 percentage points off the overall figure, while the net impact of trade was zero. (…)
China’s Exports Strengthen, Despite Covid-19 Disruptions Exports unexpectedly expanded at a faster clip in August, shrugging off the impact of a global resurgence of the coronavirus pandemic, port congestion and supply bottlenecks.
China’s outbound shipments rose 25.6% in August from a year earlier, higher than the 19.3% increase in July, the General Administration of Customs said Tuesday. The result also comfortably topped the 17% increase expected by economists polled by The Wall Street Journal. (…)
Exports to the European Union, China’s No. 2 trading partner, jumped 29.4% in August from a year earlier, accelerating from July’s 17.2% rise, while shipments to the Association of Southeast Asian Nations and the U.S.—China’s No. 1 and No. 3 trading partners, respectively—rose by 16.6% and 15.5%. (…)
Economists had predicted earlier this year that exports would taper off as demand waned for protective gear and work-from-home electronic products—the main goods driving China’s export-led recovery last year.
Tuesday’s data, however, showed that demand for other categories of Chinese-made consumer goods, such as household appliances, furniture and clothing, has helped to fill the gap; export growth in all three categories accelerated last month. (…)
Economists said some of the unexpected export strength was likely due to customers in advanced economies frontloading their purchases ahead of the Christmas shopping season, amid rising uncertainties about global logistics bottlenecks. (…)
Imports jumped 33.1% from a year earlier, accelerating from July’s 28.1% growth and beating economists’ anticipation for a 25.7% increase. That put China’s trade surplus at $58.34 billion in August, higher than $56.6 billion in July. (…)
China’s ‘Volcker moment’ is a mounting risk to the global recovery Trouble at the country’s developers, sitting on $5.1 trillion debt, could derail the world economy
The Telegraph’s Ambrose Evans-Pritchard has strong antennas in China.
(…) “Markets should be prepared for what could be a much worse-than-expected growth slowdown, and potential stock market turmoil,” said Ting Lu, Nomura’s chief China economist. The scale of China’s cement addiction is eye-watering. “Half the world’s cranes are in China. We’re talking about 50pc of the global construction business,” he said. (…)
“Markets should be prepared for what could be a much worse-than-expected growth slowdown, and potential stock market turmoil,” said Ting Lu, Nomura’s chief China economist. The scale of China’s cement addiction is eye-watering. “Half the world’s cranes are in China. We’re talking about 50pc of the global construction business,” he said. (…)
The Party has concluded that the house price spiral is triply corrosive: it is a financial black hole; it is the chief cause of cancerous inequality; and it is a strategic threat through the demographic channel. (…)
The authorities are already orchestrating a disguised soft-landing for indebted developer Evergrande. “They cannot afford to let it go bust so they are kicking the can down the road,” said George Magnus from Oxford University’s China Centre. (…)
Yet that does not preclude a slow-motion dégringolade that ends illusions of Chinese economic exceptionalism and that is large enough to throw the world’s post-pandemic recovery into doubt. (…)
We are moving into treacherous global waters.
OPEC+ keen to keep oil prices at $65-$75 a barrel, Lukoil chief says
Global economic growth slows sharply as Delta variant hits businesses, pushing emerging markets into decline
At 52.6, down sharply from 55.8 in July, the JPMorgan Global PMI™ (compiled by IHS Markit) fell to its lowest since January. Although remaining at a level consistent with global GDP continuing to grow at a solid pace in the third quarter after near-record growth surge in the second quarter, the latest data indicate that the pace of expansion has now slowed for three successive months to the weakest since the start of the year. (…)
Goldman Sachs cut its U.S. growth forecast, citing a “harder path” ahead for consumers.
- 2021 expansion is now pegged at 5.7%, economist Ronnie Walker told clients yesterday — down from 6% at the end of August, Bloomberg reports.
More details from Fortune:
The consumer, the engine of the U.S. economy, is in trouble. Goldman forecasts consumption growth to fall by a half-percentage point this quarter on an annualized basis, and, looking forward, that Q4 GDP growth will come in at 5.5%, a full percentage point below its previous forecast. Part of this weakness is due to fiscal support running out—extended unemployment benefits this week and, soon, mortgage forbearance. But equally big factors include supply chain bottlenecks and Delta.
“The coronavirus situation has deteriorated over the last couple months,” Goldman writes in a September 6 investor note. “Daily new cases increased from 20k to 163k (based on a seven-day moving average), daily fatalities have increased six-fold, and hospitalizations now exceed the winter peak in the South.”
Delta is really messing with the travel and leisure portion of the economy, with restaurant bookings down along with subway ridership in big cities and airport throughput. In short: the consumer is dialing back spending. (…)Goldman last month increased its year-end forecast for stocks, and it’s sticking with that call. It is hardly the first Wall Street firm to cut its GDP outlook while getting more bullish on stocks.
Here’s why, maybe:
First, the headline payroll miss overstates the weakness because of a cumulative 134k upward revision to prior months, a 0.2pp drop in the unemployment rate to 5.2%, and a 0.6% gain in average hourly earnings. Second, the Delta fingerprints are all over the recent weakness, with much of the payroll slowdown concentrated in the virus-sensitive hospitality sector.
However, there are now signs that the Delta wave is cresting, with a drop in the positivity rate over the last couple of weeks and a more recent decline in new hospital admissions. We therefore expect a job market rebound in coming months and have also offset part of the Q3/Q4 GDP downgrade with stronger numbers in the first half of 2022.
GS says the EU will fare better:
Compared with the US, our growth views remain more unambiguously positive in the Euro area. Although the peak sequential growth pace is likely behind us in both economies, Europe is more highly vaccinated, has moved further past the peak of the Delta wave, remains much further below potential output, and will see less fiscal drag than the US. The last point is particularly important if the left-of-center SPD under Finance Minister Olaf Scholz wins the September 26 German election and leads the next government. Our analysis suggests that this would imply meaningful fiscal easing (relative to the baseline) in Germany next year, and probably a more favorable German attitude to fiscal expansion across the broader Euro area as well.
And EM will rebound:
Now, however, the EM outlook is brightening across a number of fronts. In China, new virus cases have come down sharply, restrictions are easing, and we expect policymakers to offset the impact of regulatory tightening with monetary and fiscal easing in a “micro takes and macro gives” environment. In most other Asian countries—including the hard-hit ASEAN region—there are now signs that the Delta wave has peaked, which should set the stage for a rebound in activity. And in both CEEMEA and (especially) Latin America, an improved virus situation remains a clear tailwind for growth.
TECHNICALS WATCH
The Russell 2000 index (+0.7%) did somewhat better than the S&P 500 (+0.6%) last week, somewhat improving measures of breadth and momentum. The S&P 600 index was actually down 0.4% last week. NDX rose 1.4% while the NYFANG index jumped 3.1% as bargain hunters decided the rout in Chinese tech stocks had gone far enough.
For example, Alibaba was trading at 39 times trailing EPS in October 2020. It’s now 16.5 times. The problem is nobody really knows what forward earnings will look like now…
Seems best to remain cautious until broad-based demand returns.
Large caps are not wavering just yet, however, as CMG Wealth’s 13/34–Week EMA Trend chart shows:
- Obviously, if this amazing torrent continues, breadth will improve:
- As Investors Jump In, U.S.-Stock Funds Rise 19.3% for the Year Record individual-investor inflows into U.S. stocks along with ETFs during the summer helped to boost the market.
JPMorgan Chase strategists estimate that net inflows to individual U.S. stocks as well as exchange-traded funds rose to a record of almost $16 billion in July before an additional $13 billion poured in during August—“very high by historical standards, ending a record summer,” the report notes. (…)
Among Lipper fund categories, gold-oriented funds fell 5.5% in August and are down 9.2% on average for the year despite inflation concerns (which traditionally boost gold).
Small-cap value funds, which focus on stocks with relatively low price/earnings ratios, are the year’s category star, with a 27% year-to-date advance after rising nearly 2% in August.
International-stock funds continued to trail their U.S. counterparts, on average. They were up 1.9% in August, pushing their year-to-date gain to 11.3%.
Bond funds were down slightly for the month. (…)
(…) Tencent stepping into the market to buy back shares worth HK$100.5 million ($12.9 million) spurred traders to pile into the market this week. Fewer warnings and more targeted regulations by Beijing in recent days also provided relief. (…)
Tencent has been repurchasing its shares in the public market almost daily since announcing second-quarter earnings results on August 18. The technology bellwether has bought back a combined 2.2 million shares since at an average price of HK$464 per share, according to Bloomberg calculations.
Wall Street prepares for IPO flood (Axios)
More than 100 companies are expected to go public on U.S. stock exchanges by year-end, capping off what’s already been the busiest year for IPOs since 2000, Axios Pro Rata author Dan Primack writes.
- 279 companies already completed U.S. IPOs in 2021, topping last year’s 218.
- Neither total includes the deluge of SPAC IPOs — 423 in 2021 vs 248 in 2020), per SPAC Research — nor the smaller number of direct listings.
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