THE DAILY EDGE: 21 AUGUST 2020

U.S. Jobless Claims Rose to 1.1 Million in Latest Week Data indicate layoffs remain elevated as labor market slowly improves

Weekly initial claims for jobless benefits rose by 135,000 to a seasonally adjusted 1.1 million in the week ended Aug. 15, the Labor Department said Thursday.

The report followed others from the government and private firms showing that job gains slowed in July from June, job postings fell this week for the first time since April and several companies are planning more layoffs.

Still, the data show the job market is improving, though more slowly than in the spring.The number of people collecting unemployment benefits through regular state programs, which cover most workers, fell to about 14.8 million for the week ended Aug. 8. That marked the lowest number on benefit rolls since April. And nationally, new hiring is more than offsetting job cuts. (…)

The number of new claims rising last week shows that fresh layoffs are occurring even as the economy broadly is showing signs of recovering from the deep economic downturn caused by the pandemic and the shutdowns aimed at curbing it. (…)

“Initially businesses were recalling a lot of workers as state restrictions were lifted,” he said. “Now businesses are dealing with the reality that there’s a lot lower demand than there was at the start of the year.” (…)

U.S. employers added nearly 9.3 million jobs in the past three months, separate Labor Department data showed. While that is a strong pace of hiring, it hasn’t yet replaced half of the 22 million jobs lost in March and April. And as hiring slows, it becomes more likely that many Americans will be unemployed for a longer period. The unemployment rate was 10.2% in July. (…)

In addition to regular state claims, Thursday’s report showed the number of people applying for special federal pandemic assistance also rose in the week that ended Aug. 15. That program is open to self-employed and other workers who aren’t eligible for state programs. In early August, more than 11 million people were receiving benefits through that program. (…)

Axios’ Dion Rabouin:

The number of PEUC recipients has been over 1 million for four straight weeks and has increased each week. Worse, it’s likely made up of people who lost their jobs before the wave of business closures that hit the U.S. in mid-March.

“The real tsunami is coming,” Mark Zandi, chief economist at Moody’s Analytics, tells Axios. “My guess is at this point hiring in the industries that have been hit hard is going to abate.”

• “That leaves us with very little job creation in the rest of the economy but with still high levels of layoffs.”
• “I think the labor market is set to start weakening again here, particularly if Congress and the administration don’t get it together and pass more support.”

ECB fears recovery is at risk from a delayed surge in unemployment Surveys suggest that employment is lagging output, with actual and expected declines in employment and income, amid precautionary household saving, weighing on consumer spending

Ottawa eases EI eligibility as part of $37-billion in new income supports

(…) To qualify for regular EI benefits, which are tapped after a job loss, recipients will now need at least 120 hours of insurable work over the previous year. (Under prepandemic rules, it was at least 420 to 700 hours, depending on a claimant’s local unemployment rate.) There is now a floor of $400 in weekly benefits, and minimum coverage of at least 26 weeks. (…)

“This is just too low a bar and will serve as a disincentive for many part-time workers to return to their pre-COVID employment,” Dan Kelly, president of the Canadian Federation of Independent Business, said in a statement. (…)

• David Rosenberg:

Canada’s total debt-to-GDP ratio has soared to a record 364 per cent – up 20 percentage points in the past five years and 70 percentage points higher than it was a decade ago. There is a household credit bubble of historic proportions where aggregate debt in this sector is now 102 per cent of GDP – it was 90 per cent a decade ago. And much of this credit used for Canada’s prized asset – residential real estate, where the ratio of total outstanding value to personal disposable income has soared to an unheard-of 436 per cent. It has shot up 100 percentage points just this past decade in what is arguably the biggest housing bubble of all time.

The corporate sector is in a debt bubble of its own – outstanding liabilities are at 75 per cent relative to GDP compared with 68 per cent five years ago and 56 per cent 10 years back. Instead of this money going into business investment to bolster productivity, the proceeds went to buy back stock and provide the illusion of an earnings cycle (earnings and earnings per share aren’t quite the same thing).

(NBF)

FLASH PMIs

Strong expansion in U.S. private sector output in August

U.S. private sector firms signalled a strong upturn in business activity in August, with both manufacturers and service providers registering expansions. Notably, it marked the first rise in service sector activity since the start of the year, while goods manufacturers recorded the fastest increase in production since January 2019.

Adjusted for seasonal factors, the IHS Markit Flash U.S. Composite PMI Output Index posted 54.7 in August, up from 50.3 at the start of the third quarter and signalled a strong increase in output. Moreover, it marked the sharpest upturn in private sector business activity since February 2019.

Driving the overall upturn in output was stronger client demand. Total new business rose for the first time since February and at a solid rate. Manufacturing firms registered a steeper expansion in new order inflows than in July, while service providers signalled a renewed increase in sales. Companies commonly stated that new business growth stemmed from increased marketing efforts and the resumption of client operations. The reopening of economies worldwide also helped to boost new export orders, with foreign sales expanding at the sharpest pace since September 2014.

Meanwhile, increased pressure on capacity and an associated upturn in outstanding business led to a further expansion of workforce numbers across private sector firms in August. The rate of job creation accelerated among service providers, with manufacturers indicating the first rise in staff numbers since February.

On the price front, the rate of input price inflation quickened in August, as firms suggested higher raw material costs had driven the steep increase in operating expenses. Although manufacturers raised their selling prices at a faster pace, the rate of charge inflation among service providers eased amid reports of greater competitive pressures.

Businesses remained optimistic towards the 12-month outlook for output, with the degree of confidence strong overall. That said, positive sentiment dipped slightly from July’s recent high amid concerns surrounding the ongoing COVID-19 pandemic.

The seasonally adjusted IHS Markit Flash U.S. Services PMI™ Business Activity Index registered 54.8 in August, up from 50.0 in July, and signalled the first expansion in service sector business activity since the start of 2020. The rate of growth was the fastest since March 2019.

At the same time, greater client demand and increased marketing activity led to a renewed rise in overall new business. The solid rise in total sales was supported by a sharp upturn in new export orders.

Increased sales and an uptick in backlogs of work reportedly sparked a strong rise in workforce numbers midway through the third quarter. The rate of employment growth was the steepest since February 2019.

Despite a sharp and accelerated increase in cost burdens, competitive pressures led to a softer increase in selling prices.

Firms remained confident of an increase in activity over the coming year, despite the degree of optimism easing slightly from July.

Manufacturers signalled a solid improvement in operating conditions midway through the third quarter, as highlighted by the IHS Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) posting at 53.6 in August, up from 50.9 in July. The overall rate of improvement was the fastest since January 2019.

The upturn was driven by quicker expansions in output and new orders. Many goods producers stated that the resumption of business operations and the reopening of clients had helped to boost sales, with some also noting larger orders being placed by customers. Firms also recorded the first rise in foreign client demand since December 2019.

For the first time since February, manufacturers registered a rise in the level of work-in-hand (but not yet completed) in August. As a result, firms indicated a renewed uptick in employment.

Meanwhile, the rate of input cost inflation accelerated notably in August to the fastest since January 2019. Manufacturers partially passed-on some of their costs to their clients through a solid rise in selling prices.

Finally, business confidence among manufacturing firms picked up in August amid hopes that client demand will continue to increase as economies start to reopen.

Eurozone growth loses momentum in August

August saw a loss of growth momentum across the eurozone private sector, according to provisional PMI® survey data, following a rebound from the coronavirus disease 2019 (COVID-19) related downturn. Both business activity and new orders rose modestly, and at slower rates than in July. The softer overall expansion owed exclusively to weakness in the service sector as growth of manufacturing production quickened. Meanwhile, companies across the single currency bloc continued to scale back workforce numbers.

The flash IHS Markit Eurozone Composite PMI posted 51.6 in August, down from July’s reading of 54.9 and signalling a slowdown in the pace of output growth. July had seen the first expansion of activity in five months amid a rebound following the COVID-19 outbreak and disruption caused by lockdowns across the euro area.

Differing trends were recorded across the two sectors covered during August. Service providers recorded broadly unchanged levels of business activity from those seen in July. On the other hand, manufacturing production rose sharply, with the rate of growth quickening to the fastest since April 2018.

New orders increased for the second successive month, but as was the case with activity the rate of growth slowed midway through the third quarter. Growth of total new business was undermined by a fall in new export orders, itself driven by a sharp decline in new business from abroad at service providers as travel restrictions were reimposed in some countries following rises in COVID-19 cases.

A marked increase in manufacturing new orders for the second month running helped to bring about a stabilisation of backlogs of work in the sector, thereby ending a 23-month sequence of depletion. Overall, outstanding business continued to fall, however, as service providers posted a sharper reduction than in July.

With underlying demand remaining muted and business confidence towards future activity softening from the previous month, companies in the eurozone continued to reduce their staffing levels. Employment decreased for the sixth successive month, although the rate of job cuts softened further from April’s survey record. Falling workforce numbers were evident across both sectors, with manufacturers in particular continuing to lower employment rapidly.

Input costs increased for the third successive month in August. The rate of inflation was the sharpest since before the COVID-19 crisis hit, but remained relatively muted. The rise in input prices was centred on the service sector, while manufacturing input costs were broadly unchanged following more than a year of falling prices.

Companies continued to lower their own selling prices, extending the current sequence of decline to six months. That said, the latest reduction in charges was only slight and the softest in the current sequence of falling output prices. Charges were down across both monitored sectors amid a general lack of pricing power due to the weak demand environment.

By country, growth in Germany remained solid, seeing only a modest slowdown from July. Ongoing improvements in demand helped to support a rise in business confidence to the strongest in two years. That said, firms continued to lower their staffing levels.

Meanwhile, growth in France suffered a loss of momentum following a strong rebound in the previous month. Modest rises in output and new orders were recorded, while new export business decreased. The rate of job cuts accelerated slightly.

While the two largest eurozone economies remained in growth territory, outside the ‘big-2’ output decreased in August. That said, the contraction was only marginal. New orders also fell slightly, while companies reduced employment at a solid pace that was unchanged from that seen in the previous month.

Japan: Private sector downturn persists in August

• Flash Composite Output Index, Aug: 44.9 (Jul Final: 44.9)
• Flash Services Business Activity Index, Aug: 45.0 (Jul Final: 45.4)
• Flash Manufacturing Output Index, Aug: 44.7 (Jul Final: 43.9)

The headline au Jibun Bank Japan Manufacturing Purchasing Managers’ Index™ (PMI)® rose from 45.2 in July to 46.6. However, by remaining below the neutral 50.0 mark, the latest reading signalled a further sharp deterioration in the health of the manufacturing sector. Production and new orders fell further at steep rates, albeit slower than in July. Job shedding continued in August, but at a softer rate. Business confidence slipped to the weakest for three months.

The au Jibun Bank Flash Japan Services Business Activity Index edged down from 45.4 in July to 45.0, indicating a further sharp decline in output across the service sector. New business inflows contracted again, with the rate of reduction accelerating to a substantial pace. External demand continued to decline. The amount of incomplete work consequently fell again. Service sector employment shrank for a sixth straight month.

Demand continued to be adversely affected by subdued trade flows and social distancing measures. New orders fell sharply in August, accompanied by a substantial drop in export sales. The downturn remains broad-based across the manufacturing and services sectors, with the latter continuing to lead the decline midway through the third quarter.

The prospect of a solid recovery remains highly uncertain as Japanese firms were pessimistic about the business outlook on balance during August. Rising unemployment may also hit domestic household income and spending in the months ahead.

U.S. Listing Prices Up 10.1% Compared to Last Year Buyers should expect hot competition amid inventory shortages, according to realtor.com

In the week ending Aug. 15, the median listing price in the U.S. stood at $349,950, 10.1% higher than it did at same time last year and the first time that the pace of price growth has hit double digits since January 2018, the online real estate portal said. (…)

An increasing number of would-be buyers are entering the market, looking to upgrade their homes to include features such as more space, home offices and backyards, a result of the additional time people now spend at home and working remotely amid coronavirus lockdowns. (…)

Housing stock was down 36% annually last week, and though some sellers are returning to the market, buyers are increasingly outnumbering them, keeping inventory levels down, the report said.

The number of new listings coming to the market last week was down 11% from last year. The metric had improved the week previously, but has lost some momentum, the report said. (…)

RESTAURANT NEWS

Since the week ending June 28 the industry’s recovery remains stagnant. July’s comp sales were -15%, traffic -20%. While there is still a lot of ground for sales to cover before fully recovering, the recent pace of improvement suggests it probably will take a long time to get there. (Black Box Intelligence)

AIRLINE NEWS

According to trade group Airlines for America’s data:

• As of mid-August, domestic passenger volumes are still down 70% from a year ago; international travel is down 88%.
• The average domestic flight is 47% full, vs. 88% a year earlier.
• About 717,000 people passed through TSA checkpoints per day in mid-August, vs. 95,000 in mid-April and more than 2 million per day pre-COVID.
• Airlines’ operating revenues plummeted an average of 86.5% in the second quarter.

Bank of America analysts are sounding a note of caution: “We are only a few weeks away from moving out of peak leisure travel season, and into a more business-heavy period.”

• “With corporate volumes not moving meaningfully off of trough levels, we believe there could be risk to domestic volumes as we move into September.” (Axios)

 Pfizer (PFE)  and BioNTech (BNTX)  say their lead coronavirus vaccine candidate triggered a strong immune reaction and they could seek regulatory review as early as October. If approved, they currently plan to supply up to 100 million doses worldwide by the end of 2020, and approximately 1.3 billion doses by the end of 2021. Johnson & Johnson (JNJ)  meanwhile, is preparing a 60,000-person late-stage trial of its COVID-19 vaccine. (MarketWatch)