Payroll employment increases by 209,000 in July; unemployment rate changes little at 4.3%
Total nonfarm payroll employment increased by 209,000 in July, and the unemployment rate was little changed at 4.3 percent, the U.S. Bureau of Labor Statistics reported today.- Employment growth has averaged 184,000 per month thus far this year, in line with the average monthly gain in 2016 (+187,000).
- The average workweek for all employees on private nonfarm payrolls was unchanged at 34.5 hours in July. In manufacturing, the workweek was also unchanged at 40.9 hours, and overtime remained at 3.3 hours.
- In July, average hourly earnings for all employees on private nonfarm payrolls rose by 9 cents to $26.36 (+2.5%).
U.S. Factory Orders Increase Sharply
Manufacturing sector orders jumped 3.0% in June (9.1% y/y) following a 0.3% May dip, revised from -0.8%. Durable goods orders strengthened 6.4% (14.8% y/y), revised from 6.5% in the advance report. Transportation sector orders strengthened 19.0% (32.1% y/y) with a surge in aircraft bookings. Orders outside of the transportation sector eased 0.2% (+4.6% y/y).
Total factory sector shipments declined 0.2% (4.0% y/y), and have been little changed so far this year. Durable goods shipments held steady (4.4% y/y). Transportation equipment shipments eased 0.5% (+2.1% y/y). Auto shipments declined 4.4% (-14.5% y/y) while light truck shipments increased 0.2% (10.4% y/y). Nondefense aircraft shipments strengthened 0.9% (-2.5% y/y). Excluding the transportation sector, shipments have been fairly stable for the last four months (+4.4% y/y).
Outside of the transportation sector, unfilled orders declined 0.4% (+3.6% y/y).
U.S. PMI: Business activity growth accelerates to six-month high in July
The seasonally adjusted IHS Markit U.S. Services Business Activity Index registered 54.7 in July, up from 54.2 in June. The latest reading signalled the largest expansion of business activity since January and the fourth consecutive month of accelerated growth. Despite being marginally below the long-run series average, the latest upturn in activity was solid overall.
Increased business activity at service sector firms was supported by a further expansion in new business. July data indicated that the pace of new order growth was the strongest in two years. A number of panel members noted that new marketing strategies were effective in securing new clients.
In line with upturns in both business activity and new orders, service providers expanded their payroll numbers at a marked and accelerated pace. The rate of job creation was the strongest so far this year. However, capacity pressures persisted, as shown by a further increase in the level of outstanding business. Though modest, the rate of backlog accumulation was the strongest seen for nine months.
July survey data indicated robust business confidence among service providers. Optimism was built upon marked improvements in overall activity and new business, while some firms linked positive sentiment to improving conditions and strengthening client demand. This was despite the overall level of confidence slipping from June’s five-month high.
Input costs paid by service providers continued to rise in July, thereby extending the trend seen every month since data collection began in October 2009. The pace was solid overall, with firms stating that higher demand for raw materials at suppliers had often pushed purchase costs up. That said, the pace of input cost inflation eased from June’s two-year high.
Average prices charged by service sector firms also increased at a weaker pace than the previous survey period. Notably, panellists stated that increased client demand had enabled some firms to raise their charges in July.
The final seasonally adjusted IHS Markit U.S. Composite PMI™ Output Index rose to 54.6 in July, up from 53.9 in the previous month.
The PMI surveys have now shown growth accelerating for four consecutive months, meaning the economy started the third quarter with the strongest momentum since January. This is also a broad-based improvement, with the upturn in service sector activity coming on the heels of news of faster manufacturing growth.
With inflows of new business into the vast service sector rising at the fastest rate for two years, the survey data support the view that the economy is on course for solid growth in the third quarter. At current levels, the surveys are indicative of GDP rising at an annualised rate of approximately 2%, but if growth accelerates further in line with the upturn in new business, the third quarter could be even stronger. (…)
- The ISM Non-Manufacturing Index unexpectedly dipped in July, suggesting that the service sector growth is slowing.
U.S. Small-Business Owners’ Optimism Highest in 10 Years
Eurozone PMI: economic growth slows at start of third quarter
The final IHS Markit Eurozone PMI® Composite Output Index posted a six-month low of 55.7 in July, down from 56.3 in June and the earlier flash estimate of 55.8. The expansion was once again broad-based by both sector and nation. July was the second successive month that all of the national manufacturing and service sector surveys covered
registered higher levels of output.
Growth of euro area manufacturing output continued to outpace that of service sector activity, despite the rate of increase in production volumes slipping to a six-month low. Growth in services output was unchanged at June’s five-month low.
Underpinning the latest rise in economic activity was a further solid increase in new business. This in turn tested capacity – as highlighted by backlogs of work rising at one of the fastest rates in the past six years – leading to further job creation. (…)
Input prices and output charges continued to rise in July. However, rates of increase eased to eight and six-month lows respectively. (…)
At 55.4 in July, unchanged from the earlier flash estimate, the final IHS Markit Eurozone PMI® Services Business Activity Index signalled that output has now expanded throughout the past four years. Although the rate of growth was identical to June’s five-month low, it remained above the long run average and among the best registered over
the past six years. (…)July data signalled little change in price pressures, with rates of input cost and output charge inflation similar to those seen in the prior survey month. Service charges rose in Germany, Spain and Ireland, but fell in France and Italy.
The elevated PMI reading puts the eurozone economy on course for another strong quarter, the data being historically consistent with a very respectable 0.6% qr/qr increase in GDP.
Of the four largest euro members, only Italy recorded faster growth in July, pushing the PMI into territory consistent with 0.5% quarterly GDP growth. Spain nevertheless continued to record the strongest overall expansion, with the PMI indicative of 0.9% growth.
The slowdown in Germany meant it registered the weakest increase in activity of the four largest euro countries for the first time in over 12 years, though the ten-month low PMI reading still points to a 0.4-0.5% GDP growth rate.
A loss of momentum in France also pushes the PMI down to a level broadly consistent with 0.4-0.5% growth.
- Retail sales across the Eurozone are on the rise. (The Daily Shot)
CHINA COMPOSITE PMI AT 4-MONTH HIGH
The Caixin China Composite PMI™ data (which covers both manufacturing and services) signalled an improvement in the rate of Chinese business activity growth at the start of the third quarter. This was shown by the Composite Output Index rising from June’s recent low of 51.1 to a four-month high of 51.9 in July.
The stronger increase in total business activity was supported by a sustained upturn in manufacturing production, which in turn increased at the quickest rate in five months in July. In contrast, service sector activity expanded at a modest pace that was the joint-weakest since May 2016 (on par with April 2017). This was shown by the seasonally adjusted Caixin China General Services Business Activity Index posting 51.5, down fractionally from 51.6 in June.
New business also expanded at a weaker pace across the service sector in July. Furthermore, the rate of growth edged down to the least marked for 16 months, with some panellists linking relatively subdued sales to lower client numbers. In line with the trend for output, new work placed at manufacturers increased at a quicker pace at the start of the third quarter. This offset the slowdown in new order growth at services companies and led composite new business to rise at the quickest pace in four months.
Employment trends continued to diverge across both monitored sectors in July. Services companies added to their payroll numbers for the eleventh month running, while manufacturing staffing levels continued to decline. That said, the rate of job creation at services companies held close to June’s ten-month low and remained marginal. Meanwhile, workforce numbers at goods producers declined at the fastest pace since September last year. As a result, total employment fell for the four successive month, albeit marginally.
(…) Overall, backlogs of work increased modestly at the composite level at the start of the third quarter.
Average input costs continued to increase across China’s service sector in July, though the rate of inflation weakened since June. Furthermore, the rate of inflation was the weakest seen for nearly a year and only slight. In contrast, the rate of cost inflation picked up to a solid pace across the manufacturing sector amid reports of higher raw material prices. Consequently, composite input prices rose at the strongest pace for three months in July.
Latest survey data signalled a further marginal increase in prices charged by Chinese services companies at the start of the third quarter. Manufacturing firms also raised their selling prices, and at a quicker pace than in June. Firms across both monitored sectors commented on increasing their output charges to reflect higher input costs. At the composite level, prices charged increased at a modest pace that was the fastest since March. (…)
Developed world powers steady global upturn at start of third quarter
The global economy saw growth ease very slightly for a second successive month in July but nevertheless enjoyed a solid start to the second half of 2017, according to the latest PMI data. The divergence between the developed and emerging markets remained the widest seen for one-and-a-half years, amid subdued growth in the latter, underscoring the continued relative outperformance of the developed world, and the eurozone in particular.
The headline JPMorgan PMI, compiled by IHS Markit, slipped further from May’s recent peak, down from 53.7 in June to 53.5 in July. The latest reading was the lowest since December.
EARNINGS WATCH
From Thomson Reuters:
- 401 reports in: 73% beat rate, +5.9% surprise factor, +11.8% blended EPS growth on 5.0% revenue growth.
- Q3E: +7.2%; Q4E: +12.4%.
- Trailing 12-m EPS: $125.74
SENTIMENT WATCH
Why Do U.S. Stocks Keep Setting Records? Here Are Five Theories The Dow Jones Industrial Average crossed 22000 for the first time Wednesday and again finished higher Thursday, its 33rd record close this year. Here are five theories on why the stock market keeps rising despite headwinds.
- Stocks Reflect the Resurgent Health of American Corporations
- The Global Outlook Is Looking Brighter
- The U.S. Economy Is in a ‘Goldilocks’ Situation
- Passive Funds Are Propping Up Prices
- There Is No Alternative
Why Are Stock Market Prices So High? Jeremy Grantham
- Contrary to theory, the market P/E level does not primarily reflect future prospects. It reflects current conditions.
- The variables it weights heavily are not academically or economically correct, but those that make investors feel comfortable.
- High profit margins and stable, low inflation dominate this feel-good list, with stability of GDP growth (as opposed to actual growth) a distant third.
- Investors’ extreme preference for comfort, like human nature, has never changed. (Tested back to 1925.) This is unlike financial and economic conditions, which have
very substantially changed in the last 20 years. - The ebb and flow of these variables explain previous market peaks and troughs. These comfort factors, for example, have been at an extremely high average level for
20 years (as have P/Es) and remain so today. Thus today’s high priced market is the completely usual response from investors. - Any shift back to a lower P/E regime must therefore be accompanied by a major sustained fall in margins or a sustained rise in inflation (or both).
- And, yes, I do believe these comfort variables will move to be less favorable. But probably not quickly.
- Viewpoints – I Do Indeed Believe the US Market Will Revert Toward Its Old Means – Just Very Slowly — Jeremy Grantham
China Warns the U.S. on Trade: ‘We Both Are Hurt in a Fight’ China urged the Trump administration to back off plans for tough trade actions, warning that conflict would hurt both sides.
How America Dug a $375 Billion Pension Hole
Mueller Impanels Grand Jury in Russia Probe Special Counsel Robert Mueller has impaneled a grand jury in Washington to investigate Russia’s interference in the 2016 elections, a sign that his inquiry is growing in intensity and entering a new phase, according to people familiar with the matter.
The grand jury, which began its work in recent weeks, signals that Mr. Mueller’s inquiry will likely continue for months. (…)
Grand juries are investigative tools that allow prosecutors to subpoena documents, put witnesses under oath and seek indictments, if there is evidence of a crime. Legal experts said Mr. Mueller’s decision suggests he believes he will need to subpoena records and take testimony from witnesses.
A grand jury in Washington is also more convenient for Mr. Mueller and his 16 attorneys—they work just a few blocks from the U.S. federal courthouse where grand juries meet—than one that is 10 traffic-clogged miles away in Virginia.
“This is yet a further sign that there is a long-term, large-scale series of prosecutions being contemplated and being pursued by the special counsel,” said Stephen I. Vladeck, a law professor at the University of Texas. “If there was already a grand jury in Alexandria looking at Flynn, there would be no need to reinvent the wheel for the same guy. This suggests that the investigation is bigger and wider than Flynn, perhaps substantially so.”
Thomas Zeno, a federal prosecutor for 29 years before becoming a lawyer at the Squire Patton Boggs law firm, said the grand jury was “confirmation that this is a very vigorous investigation going on.”
“This doesn’t mean he is going to bring charges,” Mr. Zeno cautioned. “But it shows he is very serious. He wouldn’t do this if it were winding down.”
Another sign the investigation is ramping up: Greg Andres, a top partner in a powerhouse New York law firm, Davis Polk & Wardwell LLP, has joined Mr. Mueller’s team.
Mr. Andres, a former top Justice Department official who also oversaw the criminal division of the U.S. attorney’s office in Brooklyn, wouldn’t leave his private-sector job for a low-level investigation, Mr. Zeno said. “People like Greg Andres don’t leave private practice willy-nilly “The fact he is being added after a couple of months shows how serious this is and that it could last a long time,” Mr. Zeno said. (…)
Oil prices dip on high OPEC supplies, rising U.S. production
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Oil’s $100 Million Man Pays Price for Bad Bets Andrew Hall, one of the world’s most prominent oil bulls, is shutting down his main hedge fund, the latest reckoning for a Wall Street trader who struck out on his own.
(…) His bullish stance on oil ran headlong into the shale revolution, which in the past decade defied predictions that the world would soon run out of easily accessible crude. (…)
Wrong for too long…
Astenbeck’s unwinding is the latest in what has been an escalating series of stumbles for Wall Street traders who created multibillion-dollar hedge funds off their reputations as big bettors at major investment banks.
It’s not how good you”ve been, rather how long can you be good…In commodities, good luck! In fact, you’ll need much more than good luck.