Nonfarm payroll employment rises by 661,000 in September; unemployment rate falls to 7.9% Consensus was 850k

Decline in Household Income Poses Hurdle for U.S. Recovery U.S. consumer spending rose 1% in August while incomes fell 2.7% in part because of a decline in government aid for unemployed workers.

Lots of numbers but I highlighted those I consider more important. The short of it is that Americans’ income streams are not solid and eroding fast post CARES act. Per capita real PDI is down 10.3% from its April boosted peak and is only 2.0% above its February level while still carrying subsidies amid a very slowly recovering employment market.

US unemployment measures

U.S. Auto Sales Show Signs of Recovery in Third Quarter The U.S. auto industry’s recovery gathered momentum in the third quarter, with sales at auto makers rebounding from coronavirus-related lows and buyers returning to showrooms.

(…) Car-shopping website Edmunds.com estimates total U.S. auto-industry sales for the third quarter will still be down 11%, but that is an improvement from the nearly 31% plunge that occurred in the second quarter. (…) Car shoppers on average paid a record $35,655 for a new vehicle in September, up 5.6% from the same month last year, according to research firm J.D. Power. (…) Fleet sales are expected to account for just 11% of new-vehicle purchases in the third quarter, compared with 17% during the July-to-September period in 2019, according to Edmunds.com. (…)

• New York could lose 159,000 restaurant jobs due to pandemic

U.S. Stimulus Talks in Limbo After Vote on Democrat-Only Plan The 214-207 vote, which garnered no GOP support, followed the most concerted talks between the top negotiators since early August. House Speaker Nancy Pelosi told reporters Thursday evening that she would review documents that Treasury Secretary Steven Mnuchin had sent her to determine where to go next.

U.S. MANUFACTURING PMI: Strongest improvement in operating conditions since January 2019

September PMI^TM data from IHS Markit indicated the sharpest improvement in operating conditions across the U.S. manufacturing sector since early-2019. Overall growth was supported by a faster expansion in production and a solid rise in new orders. As a result, firms continued to broaden their workforce numbers, as hiring increased following further upward pressure on capacity. Nonetheless, output expectations moderated in September amid increased uncertainty regarding the coronavirus disease 2019 (COVID-19) pandemic and the upcoming presidential election.

Meanwhile, cost burdens rose sharply once again, with selling prices increasing at the fastest rate since January 2019.

The seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) posted 53.2 in September, broadly in line with 53.1 seen in August, but down slightly from the earlier ‘flash’ reading of 53.5. The solid improvement in the health of the goods-producing sector was the steepest since January 2019, and signalled a further recovery from April’s nadir.

Contributing to the overall upturn was a quicker rise in output at the end of the third quarter. The rate of growth was the sharpest for ten months and solid overall. A number of firms attributed the expansion to a further uptick in new orders and the resumption of operations at clients.

At the same time, manufacturers indicated a solid, albeit slightly slower, increase in new order inflows. The rate of expansion was the second-fastest for almost a year, as panellists continued to note strengthening demand conditions following the marked contractions seen throughout the second quarter. New export orders also picked up and, although slowing from August’s recent peak, the rate of growth was faster than the series trend.

Growth of new orders for consumer goods also waned during the month, hinting at some cooling of demand from households, commonly blamed on Covid-19.

Greater new sales led to further pressure on capacity at manufacturing firms. As a result, companies registered a second monthly rise in backlogs of work. To help alleviate pressure, firms expanded their workforce numbers again. The upturn in employment was slightly slower than that seen in August and modest, but was nevertheless the second-strongest since November 2019.

Meanwhile, business confidence eased in September. Although firms remained optimistic regarding the outlook for output over the coming year on balance, positive sentiment was weighed down by uncertainty towards the ongoing pandemic and the upcoming election. The overall degree of confidence was the lowest for four months.

Average cost burdens continued to rise at a sharp pace in September, albeit at a slightly slower rate than August’s recent high. Inflation was linked by panellists to greater raw material costs and supplier shortages, with many also mentioning higher PPE prices. A further uptick in client demand allowed firms to partially pass on greater costs to clients through higher charges. Selling prices rose at the steepest rate since January 2019.

Finally, input buying remained modest in September. Although firms expanded their purchasing activity, supplier delays and the use of stocks in production led to a renewed contraction in pre-production inventories. Stocks of finished goods also fell as companies met demand from stock.

The Canadian PMI survey revealed that “survey respondents commented on greater demand
from both domestic and export markets, especially the US.”

While PMIs, which are diffusion indices, have completed their “V”, August actual production remained 6.4% lower than its pre-pandemic level and was showing signs of swooshing. Employment was down 5.6% from February’s level and has clear swooshing intentions.

The jobs market is far bleaker than the headline stats show

(…) looking at headline rates makes for a misleading reading of what’s actually happening on the ground. The reason being that many of those who initially lost their jobs in the US have now fallen out of the headline measure due to the Bureau of Labour Statistics labelling them either re-employed in part-time jobs or ineligible for work. That’s because circumstances related to the crisis have meant they’re no longer searching for a job. This newfound ineligibility could also have affected unemployed workers who were looking for a job before the crisis struck but no longer can. (…)

One way of uncovering a more accurate reading of what’s happened to the labour market is to look at the gap between the headline rate, dubbed U3 in wonk-speak, and U6 — a measure that includes those who would like to work but are no longer actively seeking a job, as well as underemployed part-time workers. Hindery, Jr, believes that by looking at this measure, the unemployment rate is 16.8 per cent, or 28.2m in terms of the number of workers. Double the rate that grabs the headlines, then. (…)

Whether in Europe or the US, then, the picture painted by the headline jobless rates is more a mirage than an accurate representation of just how much slack there is in labour markets right now.

NOT FAKE NEWS!

The hoax has been unmasked! Actually, many hoaxes have been all at once.

We wish them well, it will go away.

John Authers discusses the implications:

(…) They involve checking on the health of the vice president, and of Joe Biden, who shared a platform with the president Tuesday night. Then there is an array of political possibilities. When Britain’s Prime Minister Boris Johnson had a brush with death at the hands of Covid-19 earlier in the year, there was a wave of sympathy for him from across the country, which has since abated. Will there be such a reaction in the U.S.? And how will the president withstand the illness? Johnson relinquished day-to-day-power for a while; is it conceivable that such a thing would happen in the month before a U.S. election?

Some other thoughts that arise:

• This is almost certainly negative news for the economy, because the chances of a significant relaxation in lockdown provisions in the U.S. have just been sharply reduced. It was much easier to argue for reopening the economy when a large part of the population truly believed that the pandemic was a hoax. That will change, and many individuals’ behavior will probably alter even without an adjustment in the official rules.
• The chances for a fiscal stimulus deal may well just have increased. Politicians on both sides will want to be seen to be achieving something in these difficult times, and Covid-19 suddenly looks like much more of an immediate problem than it did a few hours ago. A weak unemployment number might also help this.
• The chance of some deliberate geopolitical “surprise” to change the subject from Covid-19 may also just have risen. If this news turns out to work against the president, and his polling numbers deteriorate, then the possibility of some escalation in the dispute with China, an issue on which Trump has broad support, becomes that much greater.
• For stock markets, we can assume that volatility will rise and that defensive stocks (these days meaning the FANGs) will outperform.
• Perhaps the most interesting market to watch is the dollar. In the past, it has acted as a haven during times of alarm, even if the alarm emanates from the U.S. itself. That happened most famously when investors responded to the Standard & Poor’s downgrade of U.S. Treasuries by buying Treasuries and the dollar. Is it still perceived as that kind of a haven? (More on this below.)

Before this development, polls following Tuesday’s presidential debate, plus those suggesting that the Democrats now look likely to take the Iowa Senate seat that currently belongs to Republican Joni Ernst, pointed to a sharp improvement in their chances of winning both the White House and the Senate. That caused a sharp reaction in political prediction and betting markets.

• Pence’s travel schedule this week appears to have kept him away from the president. He actually tested negative this morning.

Via MSNBC

Morning Consult says that “retail investors are now the second-largest group of investors in the market, a shift with profound implications for the economy, financial services and public companies faced with reaching a rapidly-expanding market. A new Morning Consult report released today lays the foundation for understanding the rise of retail investing, who these investors are, and how companies can appeal to them. Download the Report.”

Who knows what’s going to happen now? All we know is that this very expensive market has its 100dma at 3220 and its 200dma at 3105, both lines still rising. But we also know that Lowry’s measures of Buying Power and Selling Pressure have deteriorated meaningfully in recent months but mainly because BP has declined. Should SP turn up, coming mainly from momentum following retail investors, support will disappear.

MANUFACTURING PMIs

The U.S. Manufacturing PMI will be out later this morning. China’s was released yesterday.

Eurozone manufacturing growth strongest for over two years

The IHS Markit Eurozone Manufacturing PMI® signalled an acceleration in growth of the manufacturing economy during September. After accounting for seasonal factors, the index posted 53.7, unchanged on the earlier flash reading and up from 51.7 in the previous month. Moreover, September marked the strongest growth in over two years and improved operating conditions have now been signalled for three months in a row.

All three market groups recorded a monthly improvement in operating conditions during September. Solid gains were seen in both the consumer and intermediate goods categories, but both lagged investment goods where growth was the strongest for over two years.

Germany led the upswing in regional manufacturing activity, with the respective PMI here hitting its highest level for 26 months. The Italian manufacturing sector also performed well, with growth also the strongest for over two years.

A solid improvement in operating conditions was seen in the Netherlands, whilst modest growth was registered in France and Austria. In contrast, Spain posted only a slight expansion while Greece saw no change and Ireland’s manufacturing recovery stalled.

Overall, manufacturing output and new orders received by euro area goods producers increased at considerable and accelerated rates during September. Growth rates in each instance were the strongest in over two-and-a-half years, although gains were principally centred on Germany.

A noticeable feature of the upturn in manufacturing new orders was the relative resurgence of export trade, with latest data showing a third successive month of growth and the sharpest gain since February 2018.

Strong gains in new work placed some pressure on firms, as evidenced by a solid rise in backlogs of work during September. Growth in work outstanding was the sharpest for nearly two-and-a-half years, although this failed to prevent further job losses as manufacturers sought productivity gains and control over costs given the uncertain near-term outlook. That said, the drop in employment was the weakest since February and noticeably slower than in recent months.

Firms also utilised inventories wherever possible to meet swelling production and order book requirements. Stocks of purchases and finished goods both declined markedly, with the drop in warehouse inventories the sharpest since the start of 2010.

Ongoing delays in the delivery of inputs also encouraged higher degrees of stock utilisation. Average lead times deteriorated for an eighth successive month and to the greatest degree since May. A rise in purchasing activity amongst eurozone manufacturers, the first recorded for 22 months, added to pressure on vendors.

Meanwhile, there was little change in prices during September. Input costs were marginally higher overall, albeit with some divergence in trends across the region. For instance, Germany saw a noticeable fall in prices, but Ireland registered a marked rise.

Meanwhile a slight fall during September ensured that output charges overall declined for a fifteenth successive month. Competitive pressures and a still-fragile demand environment weighed on pricing power.

Finally, confidence about the future improved during September to reach its highest level since April 2018. Italian manufacturers were the most confident, followed by German and Dutch goods producers.

Chris Williamson, Chief Business Economist at IHS Markit:

(…) The recovery would have been far more modest without Germany, however, where output has surged especially sharply to account for around half of the region’s overall expansion in September. Germany’s performance contrasted markedly with modest production growth in Spain, slowdowns in Italy and Austria, plus a particularly worrying return to contraction in Ireland. Excluding Germany, output growth would have weakened to the lowest since June.

Divergent export performance explains much of the difference between national production trends, with Germany the stand-out leader in terms of growth in September, led by a strengthening of demand for investment goods such as plant and machinery.

Encouragingly, optimism about the future rose not only in Germany but also in France, Italy, Spain and Austria, hinting that the upturn could broaden out in coming months. Without a more broad-based recovery, the sustainability of the upturn looks at risk, with additional worries fuelled by rising Covid-19 infection rates.

Japan: Manufacturing PMI reaches seven-month high

September data indicated that the Japanese manufacturing sector moved another step closer to stabilisation, helped by the slowest fall in new orders since January. At the same time, hopes of a longer-term recovery in production volumes strengthened, with growth expectations for the year ahead rising to the highest since May 2018.

At 47.7 in September, up from 47.3 in August, the headline au Jibun Bank Japan Manufacturing Purchasing Managers’ Index™ (PMI)® rose for the fourth month in a row following the low point seen in May (38.4). The latest reading was the highest since February, albeit still below the neutral 50.0 value.

Supporting the rise in the PMI during September, latest data indicated the weakest decline in production volumes for seven months. Manufacturers reporting a drop in output mostly commented on project cancellations and subdued demand levels due to the coronavirus disease 2019 (COVID-19) pandemic. However, the latest decrease in production was modest in comparison to the rate of contraction seen during the second quarter of the year.

New orders fell to the least marked extent since January, which highlighted a turnaround from the severe downward trend seen in the earlier stages of the pandemic. Some manufacturers commented on a boost from rising demand from clients in China and South East Asia, which partly offset weakness in other major overseas markets. Total new export sales fell again in September, but at the slowest pace for eight months.

Employment remained relatively stable across the manufacturing sector, with this index only fractionally below the 50.0 no-change threshold. Where a decrease in payrolls was reported, survey respondents mostly cited the non-replacement of retired staff. However, backlogs fell at a sharp rate, which suggested a lack of pressure on production capacity.

Supply chain disruptions showed signs of easing in September, with lead times lengthening to the least marked degree in the current eight-month sequence of longer delivery times. Improvements in transport availability and fewer delays at international borders allowed manufacturers to boost shipments of finished goods in September. This resulted in the fastest drop in post-production inventories for seven months.

There were again reports that rising transport costs and increased raw material prices had pushed up average cost burdens across the manufacturing sector. Input prices have now risen for four months running, although the rate of inflation remained only marginal in September. Margins were also under pressure, as suggested by another slight reduction in average prices charged by manufacturing companies.

Manufacturers in Japan are increasingly confident that production volumes will expand during the next 12 months. More than twice as many survey respondents (37%) expect a rise in their output levels as those that anticipate a reduction (18%). The resulting index signalled the strongest business expectations since May 2018, which was mainly linked to hopes that the global economic impact of the pandemic will fade in the next 12 months.

Key will be Services PMIs coming out next Monday.

• American, United to Cut 32,000 Jobs as Washington Debates Relief The airlines will go forward for now with a total of more than 32,000 job cuts after lawmakers were unable to agree on a broad coronavirus-relief package, the airlines told employees.

• Allstate to Lay Off 3,800 Employees One of the U.S.’s largest insurers said it plans to lay off about 8% of its approximately 46,000 workers.

(…) The pandemic resulted in “fewer auto accidents, so you need fewer claims people,” Mr. Wilson said. Of the layoffs, “somewhere between 25% and 30% are due to the fact that we have fewer claims,” he said. (…)

House Delays Vote on $2.2 Trillion Coronavirus Bill Lacking GOP Backing Democratic aides say postponement is to allow two sides one more day to keep talking

• Goldman Sachs is not optimistic:

Negotiations on a COVID-19 fiscal relief package continue and while there is a chance a deal could be reached in the next day or so, the odds still seem stacked against additional pre-election fiscal stimulus. The outlook should be fairly clear by tomorrow, when the House is scheduled to depart until after the election and is likely to vote on the recently introduced House Democratic fiscal package before then. If a vote occurs on that bill, the odds of pre-election stimulus would approach zero, we believe. A delay in the vote would be a positive signal, though there remain several obstacles to an agreement that would still need to be overcome.

ECB Steps Up Support for Credit Markets The European Central Bank is ramping up its corporate-bond purchases, increasing its support for the region’s companies as weaker economic data weigh on credit markets.

U.S. Pending Home Sales Climb Again

Pending home sales rose for the fourth consecutive month in August, rising 8.8% m/m (+24.2% y/y) to a record high of 132.8 (2001=100), according to data released by the National Association of Realtors. While the August gain was still slower than the dramatic rebounds in May and June, it reflected a pickup in activity from the 5.9% m/m rise in July. The rise in home sales has been supported by the continued decline in mortgage rates with the rate on a 30-year mortgage in the Mortgage Bankers Association weekly survey falling to a record low in August.

Pending home sales rose again in all the major regions of the country. And while August gains were generally smaller than the rebounds in May and June, they were meaningfully stronger than those in July, apart from the Northeast. The largest monthly gain in August was in the West with pending sales up 13.1% m/m (+13.2% y/y) after a 6.8% monthly increase in July. Pending sales rose 8.6% m/m to new record highs in both the Midwest and the South. These series begin in 2001. From a year ago, sales were up 15.4% in the Midwest and 14.9% in the South. After an outsized 25.2% m/m jump in July, pending sales in the Northeast slowed sharply in August, gaining 4.3% m/m (+20.6%y/y).

Momentum in the Recovery in Consumer Confidence Slowed in September

After a slight decrease last week, consumer confidence recovered this week to its highest point since mid-March. However, the rate at which consumer confidence is growing at the end of the month is not as great as it was throughout August and early September. Top takeaways from this week’s data include: growth in consumer confidence slowed during the second half of September, the gap between Main Street and Wall Street narrowed, and the share of furloughed workers who no longer expect to be brought back to work by their former employers rose to 34%, up from 30% in August. (Morning Consult)

This Overlooked Variable Is the Key to the Pandemic

This is the most interesting article I have read on the pandemic, well worth the time.

Coronavirus Super-Spreaders Drove Explosive Outbreak in India

(…) Prolific SARS-CoV-2 transmitters tended to spread the virus during prolonged close contact on buses and other forms of transportation, according to the researchers, who were also from Princeton University, Johns Hopkins Bloomberg School of Public Health, and Indian state governments. In such settings, there was a 79% chance of an infection occurring.

That compares with only a 1 in 40 chance of catching the virus from someone in the community who wasn’t a household member, Laxminarayan said. Children under 14, though, were found to be frequent “silent” spreaders of the virus, especially to their parents and peers. (…)

Japan’s three C’s in action: crowds in closed spaces in close contact.

Axios has a weekly map showing the spreading of virus cases across the U.S. states. It is increasing at a slower rate but gradually concentrating in the northern states.

September 22 to 29

September 15 to 22                      September 8 to 15

  

TECHNICALS WATCH

• The 13/34–Week EMA Trend (CMG Wealth)

• Don’t Fight the Tape or the Fed

Personally, I would not label this “don’t fight the Fed” as CMG Wealth does. The indicators that comprise this reading are a combination of NDR’s Big Mo and the 10-Year Treasury yield, really equity market momentum and long-term rates. “Since 1980, the indicator has only hit the -2 level less than 6% of the time with very poor equity market returns.”

Fed Caps Big Banks’ Dividends, Halts Share Buybacks in Fourth Quarter The biggest U.S. banks will face restrictions on dividends and share buybacks for another three months, the Federal Reserve said, citing the need to conserve capital during the coronavirus-induced downturn.

The biggest U.S. banks will face restrictions on dividends and share buybacks for another three months, the Federal Reserve said Wednesday, citing the need to conserve capital during the coronavirus-induced downturn.

The Fed said it would maintain prohibitions on share buybacks and a cap on dividend payments by 33 banks with more than $100 billion in assets until the end of year. The restrictions, imposed for the third quarter, were due to expire Wednesday. (…)

In another sign of the uncertainty facing the industry and the broader economy, the Fed has required big banks to undergo a second round of so-called stress tests later this year, based on two coronavirus-related recession scenarios. Results of the tests, designed to ensure banks can continue to lend in a crisis, will be announced by the end of the year.

Banks are in a much stronger position now than they were during the financial crisis of 2008. But an analysis the Fed conducted this summer found that if the economy takes a long time to recover, banks could experience losses on a similar scale. It said at the time that limiting shareholder payouts would help keep banks healthy during the recession. (…)

Palantir Grabs $21 Billion Valuation, but Debut Comes With a Hiccup Palantir and Asana made history by both completing direct listings on the New York Stock Exchange on the same day, a milestone for the little-tested way to go public.

(…) By the time markets closed, Palantir’s stock was worth less than it was earlier in the day. The stock closed at $9.50—below its high of $11.42 and its first-trade price. Still, that netted the company a valuation of roughly $21 billion, and shares remained above the $7.31 and $9.17 average prices where they had changed hands in private trades in August and September, respectively. (…)

Asana’s shares closed at $28.80, which is 37% above their reference price of $21 and above the average price of $25.11 where private shares changed hands in August. That gave the company, which makes workplace tools for productivity and communication, a valuation of about $5.9 billion. (…)

The structure of a direct listing typically allows existing shareholders and employees to sell most or all of their shares immediately rather than wait for the mandated lockup of 180 days in most traditional IPOs. Palantir is taking steps to limit the supply of stock on the market by only allowing existing holders to sell 20% of their shares until early next year. That scarcity could serve to bolster the stock price.