Job Market Remains Strong, but Shows Signs of Cooling The October labor report points to an economy that is gradually losing momentum following a torrid stretch of growth last year and earlier this year. The jobless rate rose to 3.7%. Labor-force participation rate fell slightly.
Employers added a seasonally adjusted 261,000 jobs in October, a robust number but the fewest since December 2020, and the unemployment rate rose to 3.7%, the Labor Department said Friday. Wage gains in October ticked up from the previous month. On an annual basis, however, wage increases have eased, a possible sign of loosening in the labor market. (…)
Over the past three months, employers added an average 289,000 jobs a month, down from 539,000 during the same period a year ago. But that is still far more than before the pandemic. In 2019, job gains averaged 164,000 a month. (…)
Average hourly earnings rose 0.4% in October from the previous month, up from 0.3% in September, the Labor Department said. But they slowed on an annual basis, rising 4.7% in October, down from 5% in September. Annual wage gains have been softening steadily since peaking at 5.6% in March but they remain well above where they were before the pandemic. (…)
The share of adults holding or seeking jobs—the labor-force participation rate—fell slightly last month to 62.2% from 62.3%, which could keep the labor market tight. Notably, participation of prime-aged workers, those between the ages of 25 and 54, has fallen for two straight months. (…)
- Logistics Companies Are Reversing Their Hiring Binge Warehousing and storage companies cut payrolls by 20,000 workers last month as supply-chain bottlenecks eased.
(…) Warehousing and storage companies added more than 400,000 jobs in two years through the end of 2021. (…) It was the fourth straight monthly pullback in payrolls and the largest since the sector lost 75,000 jobs in April 2020 as pandemic lockdowns took hold. (…) “We certainly did not expect that the market was going to come down as rapidly as it did.” (…) Employment in the warehousing and storage sector has fallen by nearly 50,000 jobs since June, according to the BLS data. (…)
There are two separate measures of employment: the Current Population Survey (CPS), also known as the household survey, and the Current Employment Statistics (CES) survey, also known as the payroll or establishment survey. The BLS says that “Both surveys are needed for a complete picture of the labor market”, yet Fed members, and the media, rarely mention the household survey.
The payroll survey estimates the nation’s employment based on responses from a sample of about 400,000 business establishments, which account for about one-third of total nonfarm payroll employment. The payroll survey counts the number of jobs.
The household survey, in contrast, estimates the nation’s employment based on responses from interviews with approximately 60,000 households; the BLS then inflates the survey data by the most recent estimates of the population. The household survey counts the number of employed individuals.
The surveys may differ over short periods but they converge over the longer term.
Since March 2022, however, the readings vary considerably: payroll employment is up 1.6% while household employment is up only 0.1%. Full time employment (from the household survey) is actually down 0.3% during the same period.
Is this like the recent discrepancies between Gross Domestic Product and initially faster growing Gross Domestic Income which was eventually revised down to reveal an actually slower economy than originally measured by GDI?
Last month, the household survey was much weaker than the payroll survey with a 328k decline in household employment driven by a 489k decline in the important prime-age employment. The BLS household employment measure adjusted to reflect nonfarm payrolls methodology showed an even larger employment decline (-741k).
How useful is that when trying to navigate treacherous waters?
Job Cuts Highest Since February 2021, Up 13% Over September, 48% Over October 2021
U.S.-based employers announced 33,843 job cuts in October a 13% increase from the 29,989 cuts in September. It is 48% higher than the 22,822 cuts announced in the same month last year, according to a report released Thursday from global outplacement and business and executive coaching firm Challenger, Gray & Christmas, Inc.
October saw the highest number of job cuts announced in a single month since February 2021 when 34,531 job cuts were recorded. It is the sixth time this year that cuts were higher in 2022 than in the corresponding month a year earlier. (…)
That said,
- recent job cut announcements remain substantially lower than in pre-pandemic years.
- On the other hand, announced hiring plans totalled 659k in the 3 months to October, down from 1085k in 2021.
- The 12 companies having announced seasonal hiring plans will hire 189k (-25%) fewer workers this year.
Other facts from the NFP report:
- Growth in aggregate weekly payrolls (employment x hours x wages) averaged 6.4% a.r. in the last 3 months, down from 7.4% and 8.3% in the 2 previous 3-month periods respectively. A clear slowdown. On a YoY basis, real labor income growth is now close to zero (the Oct. CPI is out Thursday).
- Employers have not cut hours since June. Average weekly hours are stable in the middle of their normal 2012-2019 range.
- Employment growth (blue bar) is an ever diminishing contributor to payrolls growth: +2.3% a.r. in the last 3 months following +3.2% and +4.0% in the 2 previous 3-month periods respectively.
- But wages are not taking off, quite the opposite actually: average hourly earnings (black bar) grew 3.8% a.r. in the last 3 months, after +5.2% in the 3 months previous.
- The wage slowdown is visible on this chart:
Averaging the last 2 months, hourly earnings rose 4.0% a.r., indicative of restraint on the part of business leaders. Indeed, this table of the last 2-month annualized wage growth rates far from suggests we are near a wage/price spiral (number on left is % of total employment, right brackets are YoY):
- 0.4% Mining & Logging: ……………………….0.2% (3.6%)
- 10.4% Retail Trade ……………………………… 3.1% (4.2%)
- 16.1% Education & Health Services: …………. 1.9% (4.4%)
- 14.7% Professional & Business Services: ……. 4.0% (5.0%)
- 8.4% Manufacturing: …………………………… 3.7% (3.6%)
- 10.4% Leisure & Hospitality : …………………… 4.7% (6.5%)
- 3.7% Other Services: ………………………….. 6.9% (2.7%)
- 5.0% Construction: …………………………….. 6.2% (5.6%)
- 4.2% Transportation & Warehousing: ………… 5.1% (6.3%)
- 5.9% Financial Activities: ……………………… 4.2% (3.8%)
- 2.0% Information: ……………………………… 2.0% (6.4%)
Seven of the 11 sectors (58% of employment) are growing annualized wages at a slower rate than their YoY trend.
Total Private service-providing employee wages are up 4.8% YoY but 3.9% a.r. in the last 2 months.
But what is good or bad news today? Faster wage growth to offset inflation and keep consumer spending or slower wage growth risking a consumer strike?
The Fed, or at least Mr. Powell, are clearly in the second camp. They (he) might be getting it sooner than later…
What about those large excess savings expected to keep consumers buoyant?
Judging by the recent surge in credit card borrowing, +18.2% YoY at the end of October, many Americans are struggling to pay their bills:
- PayPal said lower- and middle-income households had started reducing non-essential spending, as they grapple with higher prices of food, energy and gas.
- NRF Predicts Healthy Holiday Sales as Consumers Navigate Economic Headwinds
Holiday spending is expected to be healthy even with recent inflationary challenges, as the National Retail Federation today forecast that holiday retail sales during November and December will grow between 6% and 8% over 2021 to between $942.6 billion and $960.4 billion. Last year’s holiday sales grew 13.5% over 2020 and totaled $889.3 billion, shattering previous records. Holiday retail sales have averaged an increase of 4.9% over the past 10 years, with pandemic spending in recent years accounting for considerable gains.
FYI, CPI-Durable Goods was up 7.6% YoY in Q3. CalculatedRisk uses retail hiring in October to assess Q4 sales: current forecast: +2.75% YoY in Q4.
Summers Sees Risk Fed Needs to Hike Past 6% to Curb Inflation
Real world anecdote:
It feels like the economy is heading off a cliff right now. In our larger portfolio of companies I can see the trajectory. After Q1 board meetings 1/3 were missing their numbers and it felt like the ones missing were related to these specific companies, not a macro trend. After Q2 board meetings 2/3 were missing and after Q3 board meetings, like now, the entire portfolio is re-forecasting. Even the best companies are seeing major headwinds. This is an economy wide-slowdown. (VC investor David Sachs quoted by The Market Ear)
Frackers Say Oil Production Slowing in the Shale Patch U.S. oil-and-gas companies offer little relief for tight global markets
(…) In the contiguous U.S., oil production through August has increased only 3% since December, up 288,000 barrels a day to 9.77 million, according to the Energy Information Administration. It had earlier expected total U.S. oil output—including Alaska and the Gulf of Mexico—to hit 12.64 million by December, growing more than 1 million barrels a day compared with the same month last year. It has since lowered its projection almost 500,000 barrels a day. (…)
Growth forecasts may fall further because many drillers have relied on wells they had previously drilled but left offline for future production, so-called drilled but uncompleted wells, or DUCs. The EIA said companies have tapped most of their best DUCs, after they used the wells to save money on drilling as the pandemic led to a historic oil-price collapse. That trend, combined with a gas-pipeline bottleneck in the Permian, is expected to further constrain U.S. oil production growth, the EIA said. (…)
Canada Rate-Hike Pressure Grows With Wages Up 5% for Fifth Month Average hourly wages rose 5.6% annually in October as the economy added 108,000 jobs, more than 10 times the consensus forecast. Workers in construction, professional services, accommodation and food saw even bigger gains than that.
China’s Exports Drop Sharply as Global Economy Slows The pullback in demand for its goods abroad removes a key prop for China’s growth as its economy is pressured by the government’s zero-Covid strategy and a severe real-estate slump.
(…) Exports from China declined 0.3% last month compared with a year earlier, China’s General Administration of Customs said Monday, the weakest pace of growth since May 2020, when trade was hobbled by countries’ early efforts to contain a worsening global pandemic. That was well below the expectations of economists polled by The Wall Street Journal, who had expected exports to increase 4% year over year.
Monday’s data showed exports to the U.S. fell 13% on the year in October, the third month of decline, while sales to the European Union fell 9%.
The data showed big falls in exports of products including home appliances and medical supplies, and weakening growth in exports of mobile phones and automobiles.
Other bellwether exporters in Asia, such as South Korea and Taiwan, have also reported faltering overseas sales, pointing to a broad slowdown in trade as the global economy loses momentum.
South Korea’s trade ministry said Nov. 1 that exports fell 5.7% in October compared with a year earlier, led by sinking exports of memory chips, petrochemicals and computers. (…)
China’s imports from the rest of the world dropped 0.7% in October from a year earlier, underscoring weak domestic spending in China’s economy. (…)
Will China pivot on Covid-19 lockdowns, given the weakening economy?
That would be untimely just before winter and given these trends (as of Nov. 6):
EARNINGS WATCH
From Refinitiv/IBES:
Through Nov. 4, 428 companies in the S&P 500 Index have reported earnings for Q3 2022. Of these companies, 71.3% reported earnings above analyst expectations and 24.1% reported earnings below analyst expectations. In a typical quarter (since 1994), 66% of companies beat estimates and 20% miss estimates. Over the past four quarters, 78% of companies beat the estimates and 18% missed estimates.
In aggregate, companies are reporting earnings that are 3.5% above estimates, which compares to a long-term (since 1994) average surprise factor of 4.1% and the average surprise factor over the prior four quarters of 7.0%.
Of these companies, 69.6% reported revenue above analyst expectations and 30.4% reported revenue below analyst expectations. In a typical quarter (since 2002), 62% of companies beat estimates and 38% miss estimates. Over the past four quarters, 74% of companies beat the estimates and 26% missed estimates.
In aggregate, companies are reporting revenues that are 1.9% above estimates, which compares to a long-term (since 2002) average surprise factor of 1.2% and the average surprise factor over the prior four quarters of 2.7%.
The estimated earnings growth rate for the S&P 500 for 22Q3 is 4.3% [4.1% on Oct. 7]. If the energy sector is excluded, the growth rate declines to -3.4% [-2.6%].
The estimated revenue growth rate for the S&P 500 for 22Q3 is 11.0% [9.7%]. If the energy sector is excluded, the growth rate declines to 7.7% [6.4%].
The estimated earnings growth rate for the S&P 500 for 22Q4 is 0.4% [5.2%]. If the energy sector is excluded, the growth rate declines to -4.1% [1.3%].
The estimated revenue growth rate for the S&P 500 for 22Q4 is 5.1% [6.9%]. If the energy sector is excluded, the growth rate declines to 3.9% [5.1%].
Ed Yardeni’s data reveal that, as of Nov. 2, 58.1% of S&P 500 companies having reported (344) are showing positive YoY growth, and 39.0% negative YoY growth (worst since Q3’20).
More pre-announcements, all negative, so far vs at the same time last quarter.
Interestingly, the number of estimate revisions jumped 50% in the last 2 weeks vs the previous 2 but ups vs downs were about equal…
…however, the cumulative number of downward revisions is high:
In terms of actual YoY growth, the pretty good correlation with the Manufacturing PMI suggests near stagnation for now. In November 2021, S&P 500 EPS were $196. Current trailing EPS: $223.37. Full year 2022: $220.91e (+6.1%). Forward EPS: $227.72e. Full year 2023: $232.64e (+5.3%).
