U.S. JOLTS: Job Openings and Layoffs Edge Down; Hiring Unchanged
The Bureau of Labor Statistics reported that the total job openings rate in December notched down to 3.8% from 3.9% in November. At the end of 2016 the job openings rate was 3.7%. The hiring rate was unchanged at 3.7%, slightly higher than the 3.6% reading from a year ago. The layoff rate declined to 1.1% in December from 1.2% in November, but was unchanged from a year ago. These figures are from the Job Openings & Labor Turnover Survey (JOLTS), which dates back to December 2000.
The private sector job openings rate edged down to 4.1% in December; a year ago it was 4.0%. Monthly declines in construction, manufacturing, trade, transportation & utilities and professional services were offset by gains in education & health and leisure and hospitality. Job Openings in the government sector increased to 2.3% in December from 2.2% in November.
The total number of job openings fell 2.8% in December, driven by a 3.2% drop in private sector openings. Still, total economy job openings are up 4.9% from a year ago, while private sector openings have risen 4.4% year-on-year. (…)
The private sector hiring rate was unchanged at 4.1% in December with little movement in individual industries. Private sector hiring edged up 0.2% in December with a 2.9% gain for the year.(…)
As Utilities Move To Pass Tax Savings To Customers, Credit Concerns Arise Regulated utilities are urged by state authorities to refund tax savings to consumers, but credit analysts worry about pinched revenues
(…) Utilities’ tax payments, alongside other operating costs, are built into retail rates and paid for by customers. Now that the federal government has slashed the corporate tax rate to 21% from 35%, utilities will pay less tax, which will need to be reflected in revised rates.
(…) Moody’s Investors Service Inc. reduced the outlook for 24 regulated utilities and utility holding companies to negative from stable in January, saying they would be adversely impacted by tax reform.
“If [cash flow]’s going to be smaller, to us the financial risk has gone up,” said Toby Shea, a senior credit officer at Moody’s who covers utilities. (…)
But if the tax savings are simply passed through to customers, the effect on cash flow is neutral. 
The Real Reasons Behind the Stock Selloff Investors blame volatility sellers, risk-parity funds and algorithmic trading
While fears about inflation and rising bond yields have played a role, analysts say much of the equity-market slump can be explained by other, less fundamental factors—raising hopes that stock markets will recover and continue to do well against a backdrop of robust economic growth and beefy earnings. (…)
When valuations are excessive, nervous investors look for any reasons that might make other investors to sell and start selling when they see enough of them. VIX, ETFs, ETNs and algos only exacerbate the swings. The Fed and rising inflation took TINA away. Higher volatility likely will make FOMO (fear of missing out) fade as well.
A Closer Look at the Wage Growth That Shook Markets There are reasons for caution: It hit just pockets of the labor market and previous breakouts have been short-lived
(…) But wage gains aren’t very widespread. A separate gauge in Friday’s report showed wages for nonsupervisory workers, who account for around 80% of employment, rose just 2.4% for the year ended January, in the same paltry range that’s prevailed for several years. (…)
Almost all of the gain in Friday’s report came from the smaller subset supervisors and nonproduction workers, who saw wages rise 5% on the year. This measure is volatile. The monthly gain in wages for this group, which was 0.8% in January, carries with it a margin of error of 0.66%, notes Ian Shepherdson, chief economist at Pantheon Macroeconomics.
“It would not surprise me in the least if this reverses in February,” he said. (…)
Other components of Friday’s report also make the banner wage gains less impressive. The average work week declined in January. As a result, the annual change in weekly wages for all workers rose 2.6% on the year, below gains of 3% in December and 3.1% in November. (…)
“I caution against interpreting good news from labor markets as translating directly into higher inflation,” said St. Louis Fed President James Bullard in a speech in Lexington, Ky., on Tuesday. He said the relationship between inflation and labor market conditions “has broken down in recent years and may be zero.” (…)
It may be that businesses had no need to raise prices with stable unit labor costs since 2015 (and weak pricing power). But that may be changing with unemployment around 4%, shortages of skilled workers, minimum wage growth and the return of pricing power as revealed by recent PMI surveys.
January’s employment report showed a drop in the average work week which looks like managers are already trying to minimize the effect of rising minimum wages across the USA. The decline was particularly severe in the Service industries where the work week plunged to 31.9 hours in January, down 0.2 hours or 1.2% YoY. Private service sector earnings rose 0.4% (3.0% YoY) in January following a 0.5% December increase. That is a sharp (+5.5% a.r.) acceleration at year-end in the large service sector which produced 68% of the total new jobs in the last 3 months.
The contracting work week has resulted in a big slowdown in weekly pay checks, particularly in the large Service sector.
In all, while wage pressures may be emerging, businesses are offsetting them trying to boost productivity. A reduced work week coupled with the continued slowdown in total employment growth could well result is slower GDP growth than currently assumed. This would help keep inflation at bay. Otherwise, either inflation will accelerate or profit margins will get under pressure.
Inflation Is Mostly in Check Despite Market Turmoil
(…) But there’s little sign that prices are poised to break significantly above the 2% annual increase targeted by the Federal Reserve. (…)
Hmmm…Some recent inflation data:
- Core PCE deflator rose 1.7% annualized in the last 6 months, +1.9% during the last 3 months.
- Total PCE deflator rose 2.4% annualized in the last 6 months, +2.0% during the last 3 months.
- Total CPI rose 3.4% annualized in the last 6 months, +2.6% during the last 3 months.
- Core CPI rose 2.2% annualized in the last 6 months, +2.5% during the last 3 months.
- The S&P GSCI has risen 18% since June 2017
- Oil prices are up 15% YoY.
- CPI food prices deflated during 2016 and the first half of 2017 but are now up 0.6% YoY; the PPI-Finished Consumer Foods, in negative territory for most of 2015-16, is now +3.4% YoY.
- Non-petroleum import prices in the U.S. declined in 2015-16. They were up 1.4% YoY last November and +2.0% annualized in the last 3 months.
- The U.S. dollar is down 13% in the past year.
- The producer-price index for final demand advanced 2.6% YoY in December.
- Producer prices rose 3.0% a.r. in the last 6 months, +2.8% in the last 3. Even when excluding food and energy and a volatile category known as trade services, prices businesses charge were up 2.3% YoY in December.
- PPI-Core Goods has accelerated sharply in the last 3 months: +3.2% SAAR.
- The pipeline of core intermediate goods is also showing sharply accelerating inflation: +3.8% a.r in last 6 months, +6.6% in the last 3.
From the recent PMI surveys:
U.S.: “Average prices charged also increased further in January, with the pace of inflation quickening. Stronger client demand reportedly allowed firms to pass on greater cost burdens to customers through higher charges. Overall, output price inflation was solid and above the series trend.”
“[U.S. manufacturing] firms raised their selling prices at the second-steepest pace since September 2014.”
Europe: ” Input costs and output charges both rose at the sharpest rates since mid-2011, with accelerations signalled in both the manufacturing and service sectors.”
Japanese manufacturers’ “output price inflation accelerated to the sharpest extent since October 2008.”
Everything Has Changed in the Stock Market. Also, Nothing Has Changed.
(…) But a correction on its own rarely leads to a recession. There have been 23 stock market drops of 10% or more in the last three decades, yet only three recessions, as Citi Private Bank notes.
“The 20 drawdowns not associated with recessions tended to be far shorter in duration, even if severe in magnitude,” the strategists write.
End of a Bull Market, or Nowhere Near? Making the Case for Both
Three Lessons for Investors in Turbulent Markets By Mohamed A. El-Erian
The Fed Put Is Far Away Sure, the Federal Reserve could respond to falling stock prices. But they would have to drop a lot more before that happened.
TECHNICALS WATCH
Lowry’s Research yesterday after the close wrote that “”
While the point gain was impressive, Up Volume was less so at 78% of total Up/Down Volume, while Advancing Issues were 72% of total Adv/Dec Issues. Thus, it will likely be important for the signs of strong Demand to develop in the days ahead, as in a 90% Up Day or consecutive 80% Up Days plus the registration of a conventional short term buy signal by the Short Term Index.
To identify panic or capitulation selling which generally signal market lows, Lowry’s is trying to measure the intensity of selling as oppose to just the activity as most technicians do.
In reviewing these numbers, we found that almost all periods of significant market decline in the past 69 years have contained at least one, and usually more than one, day of panic selling in which Downside Volume equaled 90.0% or more of the total of Upside Volume plus Downside Volume, and Points Lost equaled 90.0% or more of the total of Points Gained plus Points Lost. (…)
The historical record shows that 90% Downside Days do not usually occur as a single incident on the bottom day of an important market decline, but typically occur on a number of occasions throughout a major decline, often spread apart by as much as thirty trading days.
(…) our 69-year record shows that declines containing two or more 90% Downside Days usually persist, on a trend basis, until investors eventually come rushing back in to snap up what they perceive to be the bargains of the decade and, in the process, produce a 90% Upside Day (in which Points Gained equal 90.0% or more of the sum of Points Gained plus Points Lost, and on which Upside Volume equals 90.0% or more of the sum of Upside plus Downside Volume). These two events – panic selling (one or more 90% Downside Days) and panic buying (a 90% Upside Day, or on rare occasions, two back-to-back 80% Upside Days) – produce very powerful probabilities that a major trend reversal has begun, and that the market’s Sweet Spot is ready to be savored. (…)
To be monitored.
