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U.S. JOLTS: Job Openings Rate Hits Another Record
The Bureau of Labor Statistics reported that the total job openings rate rose to a record 4.6% in August; July was revised higher to 4.5%. The job openings rate is the job openings level as a percent of total employment plus the job openings level. The hiring rate increased to 3.9%, matching the eleven-year high reached in May. Meanwhile, the quits rate, a measure of confidence in job prospects, was unchanged at a 17-year high of 2.4%. The private-sector job openings rate remained at July’s record 4.8% (though July’s data was revised higher). (…)
The level of job openings increased 0.8% month-to-month (18.1% year-on-year) to 7.136 million in August following an upwardly revised 3.7% July gain. Private-sector openings jumped 17.0% y/y with the factory sector revving 17.3% y/y and construction 38.6% y/y. Openings in professional & business services advanced 27.0% y/y; leisure & hospitality gained 17.4% y/y; trade, transportation & utilities increased 15.5% y/y; and education & health services were up 6.7% y/y. Government sector job openings gained 29.4% y/y.
The private-sector hiring rate in August rose to 4.3% matching May’s eleven-year high. (…) Total hiring rose 1.2% (5.0% y/y) in August to 5.784 million. Hiring in the private sector increased 5.2% y/y with trade, transportation & utilities jumping 17.2% and leisure & hospitality gaining 5.9% y/y. Professional & business employment increased 1.8% y/y and educational & health services were up 1.3% y/y. Factory sector hiring slowed to 2.2% y/y and construction sector fell 10.3% y/y. (…)
What eventually must happen when the blue line gets above all other lines?
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J.B. Hunt Boosts Pay as Trucking Companies Scramble for Drivers The company raised pay for truck drivers at a double-digit pace in the third quarter amid robust shipping demand
(…) The higher payroll spending helped drive overall operating costs up 21.2% even as overall revenue rose 20%. (…) fleets have added more than 33,000 jobs in the past 12 months, according to the Bureau of Labor Statistics, and overall payrolls in the sector rose to their highest level in more than a decade in September. (…)
Like other carriers, the company is passing those pay increases along to customers in the form of higher freight rates.
Ms. Simpson said at this point in the year shipping customers appear to be more concerned about service than cost (…)
The Lowell, Ark., company’s salaries, wages and employee benefits costs grew by more than $87 million from the third quarter a year ago, and were up 6.5% from the second quarter. That helped pull down operating earnings growth to 6% year over year, to $174.7 million.
Overall, J.B. Hunt reported net earnings of $131.1 million in the third quarter, or $1.19 a share, up 31% compared with the same three-month period in 2017.
So, JBHT’s Q3 labor costs are up at a 28.7% annualized rate (although that will not repeat quarterly, god forbids). PPI-Truck Transportation is up 6.6% YoY in September and has increased at a 7.5% annualized rate in the past 6 months.
Big Jump in Americans Saying Renting Is Cheaper Than Owning Freddie Mac data shows 78% of people now say that renting is more affordable than owning
(…) That is up 11 percentage points from only six months ago.
The survey also indicates that demand for for-sale housing could remain soft in the coming months. Some 58% of renters now say they don’t currently have plans to buy a home—up from 54% in February, according to Freddie. (…)
Two-thirds of renters say they have had difficulty affording their rent at some point in the past two years, according to the Freddie survey. Nearly nine in 10 renters in what Freddie deems “essential†fields like health care and education say they have had significant struggles to pay rent during the past two years.
Mr. Brickman cautioned that if more people decide to continue renting that could eventually reverse the current dynamic and make rents once again begin to rise quickly. (…)
The above coupled with the first item could well explain the below:
Employment growth in Education and Health Services has slowed from +3.0% in 2015 to +1.9%. Wage growth in these trades is 2.0%, while inflation is 2.3%. Gas prices are up 9.1% YoY, fuel oil 23.4% (!) and shelter 3.3%. The savings grace for many is that grocery inflation is only 0.4%.
U.S. Manufacturing Capacity Increases for 16th Month in a Row Factory output also rose in September, helping drive overall industrial production up 0.3% for month
(…) Manufacturing capacity began recovering from a steep decline in 2011, faded in 2014 and resumed a modest march higher in mid-2015. In September it was up 1.4% from a year earlier. The report suggests investment in U.S. manufacturing has been increasing at a steady pace over the past three years. In June it passed its 2008 peak. (…)
U.S. IP is up 5.1% YoY and 4.0% annualized in Q3 with the energy sector contributing big time. Capacity may be up a little but still low capacity utilization rates prevent a sharp increase. Manufacturing production remains 2.4% below its December 2007 peak. (Table and chart from Haver Analytics)
PMI data largely skewed to the downside for “vulnerable” emerging markets
A combination of US economic strength, rising US interest rates and various risks in certain emerging markets has resulted in the underperformance of EM FX markets during 2018 so far. While Turkey and Argentina are two stand-out examples of such currency stress, there has been a contagion effect which has resonated through the developing world.
Broadly speaking, EM manufacturing sector growth has deteriorated markedly since a five-year peak seen at the end of 2017. September PMI data signalled a pace of expansion that was only marginal and the slowest in just over two years. Charting the EM Manufacturing PMI against currency changes suggests that the PMI has moved in line with markets.
(…) inflationary pressures are likely to build in all cases as the combined effect of rising commodity prices (which are generally priced in US dollars) and weak domestic currencies increases the cost of imported goods and materials. (…)
Despite weaker currencies and improved international competitiveness, PMI data have signalled a distinct drop in exports across all ‘fragile five’ economies except India, in line with the wider trend of deteriorating export performance seen across all EMs. All else being equal, a combination of currency depreciation and declining exports will contribute to a further worsening of current account deficits, potentially leaving these countries more susceptible to further capital flight. (…)
China’s Stock Rout Puts $613 Billion of Share Pledges at Risk
Loans extended to company founders and other major investors who pledged their shareholdings as collateral emerged as a popular financing channel in recent years. But given the losses in equities — Shenzhen’s stock benchmark is down 33 percent in 2018 — there’s a growing risk that brokerages will be forced to sell the shares, accelerating the downturn.
At least 36 companies have seen pledged shares liquidated by brokerages since the start of June, more than triple the 10 in the first five months of the year, according to company filings. At least two firms announced after Monday’s close that their shares were at risk of forced selling, including Jilin Zixin Pharmaceutical Industrial Co., which plunged by the 10 percent daily limit the following day. (…)
China Exporters Feel the Trade-War Strain: Canton Fair Notebook
The fair claims to be the world’s largest trade forum, bringing together more than 25,000 exhibitors and 200,000 buyers, mostly foreign. Here are some of the most interesting entries in our notebook so far:
China Is Starting to Lose Out to Vietnam, Turkey
(…) China’s becoming expensive and some of Empire Crystal’s suppliers have already set up factories in Vietnam, Vana said.
The company’s also starting to source some glass, ceramic and wooden products from Turkey, he says. The production cost is about the same but transportation costs are lower and there are no customs duties, he said.
Eastern European nations including Ukraine and Romania now have lower costs than China, says Vana. The company’s also checking out producers in Bangladesh, he says.
Empire Crystal’s not directly impacted by the U.S.-China trade war but Vana says it’s possible European companies like his may benefit if as a result China moves to boost trade with Europe via measures including lower customs duties.
(…) In the meantime, they’re starting to switch away from U.S. inputs — they’re buying more control systems from Canada and using Chinese-sourced acrylic
Prices Going Up If Americans Still Want to Buy
(…) Reida is receiving interesting offers for help. A trading company in Mongolia reached out, suggesting it could aid them in circumventing tariffs by importing the company’s goods and re-exporting them to the U.S. market, according to Zeng. A similar overture came from Mexico, she says. (…)
Protectionism, Volatile Yuan Worry Aluminum Exporter
(…) A weaker yuan makes JMA’s products cheaper for foreign buyers, but the company prefers a stable exchange rate, Wong says. A lot of its foreign sales are in emerging markets like Latin America, and weaker currencies there have made it harder for would-be buyers to purchase their aluminum, which is priced in dollars.
Trade War Means Better Sales…For Now
Ningbo Staxx Material Handling Equipment Co., a manufacturer of pallet jacks, is experiencing a short-term boom as its customers try to get ahead of U.S. tariffs, says Jeremy Chow, a sales manager at the company. It’s a good illustration of the front-loading of orders that analysts said explained the surprise acceleration in export growth in China’s September trade data.
Will Trump’s Tariffs Make Next Christmas Pricier?
Jiang, who is handling North American sales for the company’s booth at the Canton Fair, said the industry is already struggling amid rising labor costs, which in recent years have spurred a relocation of production to southeast Asian countries where it’s less expensive, like Vietnam.
But companies are having trouble building out capacity quickly enough to meet demand, and margins, at just 5 percent to 10 percent, are already too thin for producers to make concessions on price, Jiang says. The bottom line: if tariffs end up covering their products, U.S. consumers will just have to pay more. (…)
GE beats Siemens to Iraq power-generation contract Trump administration pressured Baghdad to reject German rival’s bid for $15bn deal
The FT says that Siemens was told two weeks ago to give up because the US government was putting intense pressure (“The US government is holding a gun to our headâ€) on Irak to favor GE.
Iraq needs support from the Trump administration over the country’s gas imports from Iran. About 35-40% of Iraq’s electricity is generated by plants burning Iranian gas and Irak is worried that when reinstated US sanctions on Iran take effect on November 5, the U.S. would penalize Irak.
Here’s the big rub as the FT puts it: “If GE does beat Siemens to win a large contract to sell power plants to Iraq that will burn gas from Iran, it could cause a political furore in Germany. Richard Grenell, the US ambassador, has been forthright in warning German companies to cease doing business with Iran “immediately†in the wake of the Trump administration exiting the international deal over the country’s nuclear programme.â€
Trump is not about to say “Ich bin ein Berlinerâ€.
World stocks extend rise after blockbuster U.S. earnings
Forecast-beating U.S. company earnings improved the mood on world equity markets on Wednesday, as Asian and European shares put aside concerns on global growth and trade and took their cue from Wall Street’s best one-day rise in eight months.
EARNINGS WATCH
Forty-one companies in and the beat rate is a record 88% with a strong beat rate of 4.0%. Still a lot left but the season is shaping up like a repeat of Q2. The blended estimate for Q3 has increased a little to 21.8% (18.0% ex-Energy). Monitoring how analysts react to conference calls, Q4 estimates are holding (+19.9%) and so are Q1 and Q2 of 2019 estimates.
At today’s pre-opening of 2800, the Rule of 20 P/E using full year 2018 estimates is exactly 20.0.
The market has thus held, so far, on the Rule of 20 “Fair Value†(now 2878) and on its 200-day moving average (2763).
But there has been some technical damage that merits attention:
The S&P 500 Index has recovered its 200dma…
…but not the equal weight index which is also showing a flattening 200dma.
The mid-cap index remains below its 200dma and the latter is now pointing down…The small cap index also could not reach back on its 200dma but the latter remains upward sloping.
Tech stocks were strong yesterday and the NDX roared back above its 200dma…
…but its equal weight measure failed the same reclaim and displays a wavering 200dma:
Large caps are resilient amid strong earnings and ok valuations as inflation seems to have paused a little. But technical cracks keep coming. It started with small caps a few weeks ago when earnings revisions turned negative. Last week, revisions on S&P 500 companies were weaker. Q3 releases are accelerating this week and next and guidance on conference calls will be important to monitor through analyst revisions.
In case you missed the point from J.B. Hunt’s results above: its Q3 EPS are up 31% but its operating income is up only 6%. This in a booming industry with strong pricing power. Revenues were up 20% but operating income could only rise 6%! Any slowdown will hurt big time. The squeeze is on but hides under lower taxes. We know that won’t last…
Meanwhile, many key indices are showing weakening 200dmas.
Let’s not forget that this is not a happy, serene and smooth world. Same for the U.S. President who has smartly found a handy scapegoat should he need one (he will eventually):
Trump describes Fed as his “biggest threatâ€
Hmmm…really? Let’s see: