US Jobless Claims Increase to 239,000, Led by Jump in California
Initial unemployment claims rose by 11,000 to 239,000 in the week ended April 8, Labor Department data showed Thursday. The median forecast in a Bloomberg survey of economists was for 235,000 applications.
Continuing claims, which include people who have received unemployment benefits for a week or more and are a good indicator of how hard it is for people to find work after losing their job, fell to 1.81 million in the week ended April 1.
On an unadjusted basis, claims jumped by more than 27,000 to 234,577. California — the epicenter for many tech layoffs in recent months — accounted for more than a third of the increase. (…)
The four-week moving average in initial claims, which smooths out some of the volatility, ticked up to 240,000. (…)
FYI, claims were 220k before the pandemic (dash line):
Remember that the Fed hiked last month in spite of its own staff’s recession forecast.
Supplier Prices Fell in March The producer-price index, which generally reflects supply conditions across the economy, fell 0.5% in March from the prior month.
From a year earlier, supplier prices rose by 2.7% in March, a significant slowdown from highs reached last year, but above prepandemic levels. PPI increased 4.9% in February, from a year earlier. (…)
Excluding often volatile food and energy costs, the PPI decreased 0.1% from the prior month and was up 3.4% from a year earlier. The year-over-year figure was a slowdown from the February reading. (…)
That’s all I could find among the mainstream media I survey every morning. There’s a lot more in the PPI report:
- Core PPI slowed to a crawl in March and is up 3.7% a.r. in Q1.
- Surprisingly, core goods PPI rose 0.3% in each of February and March after +0.6% in January. Q1: +4.9% after practically no growth in the second half of 2022.
- PPI services are also slowing, +4.0% a.r. in Q1and only +2.4% in the last 2 months.
- Merchants margins (wholesalers and retailers) dropped big time in Q1 as trade services show.
Looking at the upstream trends, PPI for processed core goods has ben about flat for 3 consecutive months.
And while I am no expert on PPI, this next table showing monthly trends by stages of production suggest fairly broad deflationary trends in both goods and services. While much may come from lower energy costs in the past 6-9 months, the overall trends are more disinflationary than inflationary. (Bls.gov)
Data: Bureau of Labor Statistics; Chart: Axios Visuals
If you wonder if PPI inflation matters, Ed Yardeni has this chart for you. Where it lands is unsure but the trend looks clear, doesn’t it?
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Based on details in the PPI and CPI reports, we estimate that the core PCE price index rose 0.28% in March, corresponding to a year-over-year rate of +4.51%. Additionally, we expect that the headline PCE price index increased 0.08% in March, or increased 4.10% from a year earlier. (GS)
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If GS is right, March core PCE deflator will have shown 2 consecutive months below 0.3% (3.7% a.r.). Q1 would come in at 4.4% annualized.
NBF tells us where else PPI matters: profit margins
The Producer Price Index (PPI) measures the change in prices received by US producers. It is therefore the PPI that determines corporate profits, not the CPI. Unfortunately, the newly released data show a significant erosion of the pricing power of US companies. According to the BLS, the final demand PPI fell by 0.5% in March, the third decline in four months and the largest monthly decline in three years.
As today’s Hot Chart shows, annual PPI inflation was 2.7% in March, down from a record 12% at this time last year. If the past is anything to go by, this erosion of pricing power will have the effect of reducing profit margins in the coming months (PPI is three months ahead of margins). Such an outcome is unlikely to be welcomed by investors, given that forward guidance for S&P 500 companies are for stable margins in the year ahead. It is important to note that declining profit margins are normally an early warning sign of deteriorating labour markets.
How Severe Is the Housing Shortage? It Depends on How You Define ‘Shortage’ Counting the homes we have is straightforward, yet counting the number we need is anything but
While everyone seems to agree there’s a housing shortage, there’s little agreement on its magnitude. The National Low Income Housing Coalition says the U.S. has a shortage of 7.3 million units, Realtor.com says 6.5 million, mortgage-finance company Fannie Mae says 4.4 million and Up for Growth, a policy group focused on the housing shortage, says 3.8 million units. John Burns Research & Consulting, a real-estate industry consultant, puts it at just 1.7 million.
Even in a country like the U.S. with around 142 million housing units, that’s quite a range. The reason for the variability is that these estimates aren’t all making the same claim. It’s an example of how asking slightly different questions about the same problem can lead to significantly different answers. (…)
Realtor.com’s approach is to compare new houses to new households. It puts new household formation since 2012 at 15.6 million and the number of single-family homes that began construction in that period at 9.03 million, yielding a gap of 6.5 million. (…)
Accounting for those units[apartments and condominiums], the gap shrinks to 2.3 million, according to Realtor.com. (…)
John Burns Research & Consulting looks at demographics and vacancies, concluding that fewer households should have been formed than you would expect looking at the year 2000, and noting that housing vacancies were still elevated until the past few years—implying that many places in the U.S. were still overbuilt from the early 2000s housing boom. As a result, it thinks the shortage is 1.7 million, lower than most other estimates, but “still a big number,” Mr. Burns said.
If his number is right it’s a reason for some optimism that today’s shortages can be resolved with a few years of solid construction, rather than requiring an unprecedented and sustained housing boom.
While the FOMC debates 0 or 25bps, the ECB considers another 50:
- A rate hike of 50 basis points “could be in the ballpark next time, what happens afterward depends as always on the conditions” – ECB Holzmann
- “At the current moment, I would certainly not exclude also 50 basis points,” – #ECB Kazaks
- There’s “still some way to go” on interest-rate increases. “We are worried about core inflation not yet peaking,” – #ECB Scicluna
S&P 500 Earnings Could Go From Bad to Even Worse in 2023, BofA Says
The firm expects “big cuts” to plague full-year earnings estimates as companies report first quarter results, with weaker forecasts likely this season against a worsening economic backdrop.
Consensus estimates for S&P 500 earnings per share have been slashed 6% for the first quarter, but estimate cuts historically accelerate any time the economy has entered a recession, BofA strategists led by Savita Subramanian warned in a note to clients Thursday. (…)
Since June, consensus EPS estimates for 2023 have plunged 13% to $220, but BofA’s forecast for the full year sees earnings even lower at $200.
“We forecast an in-line quarter, but the focus will be on guidance and tighter credit conditions impacting capital expenditures and buybacks,” Subramanian said in the note. “Consensus tends to cut estimates one quarter at a time.” (…)
Trailing 12-m EPS peaked at $223.37 last November and were $217.39 last Friday. In a typical “non-severe” recession, earnings decline 10%, so $200 would be in the ball park. Forward EPS are now $226.64.
