Low Jobless Claims Show Labor Market Stays Robust Worker filings for unemployment benefits rose to a seasonally adjusted 198,000 last week but were still historically low, showing that the broader labor market remains robust.
Initial jobless claims, a proxy for layoffs, increased by 7,000 to a seasonally adjusted 198,000 last week, the Labor Department said Thursday.
The level of claims fluctuated earlier this month, but broadly remains low. The four-week average of weekly claims, which smooths out volatility in the weekly numbers, ticked up by 2,000 to 198,250. Weekly claims have remained near the 2019 prepandemic average of about 220,000 for several months. (…)
Through March 24, job postings on Indeed have declined 9.5% since the last BLS Job Openings data (January). The horizontal black line is the BLS Job Openings prepandemic.
- Fewer companies are talking about labor shortages, but more firms are mentioning job cuts.
Source: @M_McDonough, @TheTerminal, Bloomberg Finance L.P.
Fed Officials See More Work on Inflation Despite Bank Strains
The comments from the three regional Fed presidents Thursday echoed remarks from Chair Jerome Powell last week that policymakers will not shrink from their responsibility to restore price stability despite banking strains.
“Inflation remains too high, and recent indicators reinforce my view that there is more work to do, to bring inflation down to the 2% target associated with price stability,” Boston Fed President Susan Collins told a conference hosted by the National Association for Business Economics in Washington. (…)
Minneapolis Fed President Neel Kashkari, who votes on policy this year, said it was premature to judge what impact the banking turmoil will have on the economy but the Fed also needs to focus on lowering inflation.
Kashkari, who was at the center of the government’s response to the 2008-2009 financial crisis, said banking stresses tend to last longer than policymakers initially expect. But he also noted that inflation was too high and that the services sector, excluding housing, has yet to slow down despite a series of aggressive interest-rate increases by the Fed over the past 12 months. (…)
“If inflation persists, we can react by raising rates further,” [Richmond Fed President] Barkin said. “It was only a few weeks ago that some were calling for a 50 basis-point increase.”
CFOs Modestly Upgrade Economic Outlook Despite Labor Market, Inflation Concerns
Financial decision-makers became slightly more optimistic about the U.S. economy and increased their expectations for real GDP growth in 2023, while citing labor availability and inflation as the most pressing concerns for their company, according to the results of The CFO Survey, a collaboration of Duke University’s Fuqua School of Business and the Federal Reserve Banks of Richmond and Atlanta.
The survey, which closed on March 10, found that CFO optimism about the U.S. economy was 55 on a scale of 0 to 100, modestly higher than last quarter but well below the historic average of about 60. Additionally, CFOs revised upward their expectations for real GDP growth over the next four quarters to 1.4 percent from 0.7 percent in the prior survey. Moreover, the probability respondents assigned to negative year-ahead economic growth fell from 31 percent last quarter to 19 percent this quarter. (…)
The business spending picture has deteriorated somewhat. The share of firms that decreased spending (excluding capital expenditures) in the past 3 months rose to 23 percent, an increase of 5 percentage points from last quarter’s survey and nearly twice the share of firms that had decreased spending in a survey conducted this time last year.
For capital expenditures, the share of firms planning investments has also edged lower over the past year. Among companies not planning to invest at all in the next six months, most cited ample capacity, and the share of these CFOs noting unfavorable financing conditions increased to 24 percent, up from 14 percent in Q3 2022 and 7 percent a year ago.
In a series of special questions on energy, roughly three-quarters of firms noted that their costs associated with energy usage increased since the start of 2022. Most of these firms noted that increased energy costs decreased their profitability. Only about 20 percent of respondents indicated passing the majority of their cost increases on to customers.
Revenue growth expectations for 2023 rose from 5.0% to 7.2% while price expectations declined from 5.4% to 5.2%. Not what the Fed wants.
Economy-wide total business sales grew 7.7% in Q4’22 but slowed to 5.0% in January.
S&P 500 companies grew revenues 5.8% in Q4 but analysts are forecasting +1.7% in Q1’23, -0.1% in Q2, +1.2% in Q3 and +3.9% in Q4. Recall that the S&P 500 index is heavily weighted on the goods economy.
If the wage bill actually comes in at +7.1%, goods producers and distributors will find it difficult to maintain profit margins this year.
Fed’s Emergency Loans to Banks Fall in Sign of Easing Turmoil
US institutions had a combined $152.6 billion in outstanding borrowings in the week through March 29, compared with $163.9 billion the previous week.
The latest figures suggest efforts by policymakers to stem contagion following a string of bank collapses is working, though banks are still borrowing much more than is typical during periods of low stress. (…)
Foreign central banks tapped the Fed’s Foreign and International Monetary Authorities repurchase agreement facility for $55 billion in the week through March 29, data show. That’s after it reached an all-time high of $60 billion the prior week.
South Korea Cuts Chip Production Most Since Global Financial Crisis as Demand Cools Production dropped 41.8% YoY, worsening from a 33.9% fall in January. Inventories increased by 33.5% and factory shipments fell 41.6%, adding to signs of continued weakness.
- Japan will tighten curbs on exports of chip technology following months of lobbying by the US to limit China’s access.
Eurozone Core Inflation Hits Record High The headline inflation rate fell sharply in March but policy makers worry the search for bigger profits may keep other prices rising
(…) The European Union’s statistics agency said consumer prices in the eurozone were 6.9% higher in March than a year earlier, a decline from the 8.5% rate of inflation recorded in February and the lowest in just over a year. Economists surveyed by The Wall Street Journal last week had expected to see a decline to 7.1%. (…)
The core rate of inflation however, which excludes volatile food and energy prices, rose to 5.7% from 5.6%, reaching the highest level since records began in 2001. (…)
Some ECB rate setters are now also looking at the inflationary potential of widening profit margins, with one official warning of a “profit-price spiral.”
“Opportunistic behavior by firms could also delay the fall in core inflation,” said Fabio Panetta last week.
ECB President Christine Lagarde has echoed that concern, saying that a refusal on the part of business owners—not just workers—to accept a decline in their real incomes could entrench high inflation. (…)
Eurozone wages rose at an annual pace of 5.1% during the last quarter of 2022, the fastest rise since records began in 1996, with the exception of the second quarter of 2021, which was boosted by one-off pandemic-related effects.
Encouraged by an unemployment rate that fell back to a record low of 6.6% in February, some workers seeking larger pay rises have resorted to strikes. In one of Germany’s biggest walkouts in decades, a large-scale transport strike brought large parts of the country to a standstill on Monday as two labor unions sought raises of 10.5% and 12% respectively. (…)
China’s Consumers Extend Economic Rebound A gauge of activity in China’s services sector reached its highest level in more than a decade in March, a sign that Chinese consumers are heading back to stores and restaurants following the end of strict Covid-19 controls.
(…) China’s official purchasing managers index for nonmanufacturing sectors, which include services and construction, rose in March to 58.2 from 56.3 in February, its highest level since May 2011. A subindex focused just on the services sector reached 56.9, its highest level since March 2012.
China’s PMI for the manufacturing sector declined to 51.9 in March from 52.6 in February, according to figures published Friday by China’s National Bureau of Statistics. Still, the index remained comfortably above the 50 mark that separates an expansion from contraction, and beat the 51.3 forecast made by economists polled by The Wall Street Journal. (…)
Still, for many economists, a range of indicators suggest keeping up the current momentum won’t be straightforward. Chinese families continue to sock away savings and are rushing to repay mortgage loans. Households’ bank deposits are climbing, rising by 6.2 trillion yuan, the equivalent of $903 billion, in January alone, a new monthly record.
Private businesses appear reluctant to hire and invest, reflecting the scars of Covid-19 and regulatory clampdowns on sectors including tech and education. During the first two months of the year, private investment in machinery, buildings and other fixed assets grew by only 0.8% from a year earlier, much weaker than the 5.5% growth in overall fixed-asset investment. (…)
BofA Says Investors Poured $508 Billion Into Cash This Quarter
(…) More than $100 billion have flocked into money-market funds in the past two weeks alone, they said. (…) Assets in US money-market funds have now reached a record $5.2 trillion, according to data from the Investment Company Institute, with more than $300 billion of that added in the three weeks to March 29.
- 2nd wave of deposit outflows on it’s way Barclays: “We expect flows into money market funds to grow by several hundred billion dollars…we are in a midst of a two-stage shift…the second stage is emerging now…” (The Market Ear)
Barclays
Citigroup sees global profits shrinking 5% in aftermath of banking turmoil
Citigroup equity strategists flagged a likely 5% contraction in global profits this year as turmoil in the banking sector raises the risk of a recession. (…) The ongoing confidence crisis could limit banks’ risk appetite and reduce the flow of credit, they warned, downgrading the global financial sector to “neutral.” (…)
Narrative building that the banking crisis is now over because the S&P 500 has just about retraced all its losses. Someone tell the bank stocks as they are unable to rally …
… and someone tell the other 492 stocks in the S&P 500 as they are collectively down on the year. Eight stocks are keeping the YTD gains in the S&P 500 positive.
Will history rhyme again?
David Rosenberg reminds us:
- On April 2nd, 2007, New Century Financial was shuttered. The mantra was that this was a one-off “idiosyncratic” event, much like you hear today, and the S&P 500 bounced back 1% the day after and by 6% right through June 20th, 2007
- Two Bear Stearns hedge funds failed on June 20th, 2007.
- The Fed cut rates 50 basis points on September 18th, 2007 and the S&P 500 soared 3% that day and tacked on another 3% to the October 9th highs.
- Bear Stearns fail on March 16th, 2008 and the Fed, over a weekend, orchestrated a shotgun JP Morgan takeover that triggered an immediate 4.2% surge in the stock market.
- September 6, 2008: Fannie and Freddie are placed in conservatorship — and bang! Investors immediately bid up the S&P 500 by 2% in response.Always the treatment, never the malady that required the triage.
- October 3, 2008: TARP 1 was passed and the Pavlov Dog market jumped +5.4% in one day!
- The U.S. government announce an additional $250 billion capital purchase program on October 8th — as investors waded through the details, they ended up taking the market up nearly 12% from October 9th to October 13th.
As Warren Buffett famously said, “what we learn from history is that people don’t learn from history.”
Recall that in 2008-09, inflation was not a factor so the Fed was free to cut rates, which it started to do in September 2007.
Equity valuations were quite reasonable until Bear Stearns failed in March 2008 (#4). The S&P 500 had lost 12% from its June 2007 high.
Valuations per the Rule of 20 peaked in August 2008 at 21.7x (19.2x on conventional P/E). The S&P lost another 50% after. Currently, the R20 P/ is 23.1 while the conventional P/E is 17.6. Inflation is 5.5% and the Fed wished it could be friendlier.
