U.S. Job Openings Fall, Layoffs Rise There were 10.8 million job openings in January, down from December’s 11.2 million, a sign that demand for workers could be cooling a little.
January’s total was down from a record 12 million last March, according to revised 2022 data, but still well above 7 million openings in February 2020 ahead of the pandemic. January openings exceeded 5.7 million unemployed workers looking for work, a ratio of nearly two to one.
Openings fell sharply in the information, construction and real-estate sectors in January from the prior month, while leisure-and-hospitality and retail openings grew. (…)
Layoffs increased to a seasonally adjusted 1.7 million in January from 1.5 million in December. January layoffs increased about 20% compared with a year earlier, but they remained below prepandemic levels.
The revised figures showed that layoffs were higher than previously reported last year, which began to slightly increase in the second half of 2022, Nick Bunker, an economist at jobs site Indeed, said in a note.
Meanwhile, the revisions showed that quitting was slightly lower than previously reported in 2022, he added. (…)
- The number of construction job openings plunged by 240,000, or nearly 50%, to 248,000 in January compared to December, according to government data out yesterday. It was the largest-ever monthly decline in construction job openings in the data series that stretches back roughly 20 years.
The sudden sharp drop in construction job openings in January — combined with the recent downturn in investment in residential construction and other measures of housing activity — suggests that the economy is still adjusting to the big rate hikes of last year, even as the Fed considers doing a lot more. That could set the stage for the Fed to accidentally over-hike, generating the hard economic landing many had been hoping to avoid. (Axios)
Plunging construction job openings heralds tougher times for the 7.9M construction workers as units under construction near completion while starts and permits have dropped 25% in the past year.
Here’s a clearer view of the gap, almost 1M workers, and we’re not even in recession:
The Beige Book
Overall economic activity increased slightly in early 2023. Six Districts reported little or no change in economic activity since the last report, while six indicated economic activity expanded at a modest pace.
Several Districts indicated that high inflation and higher interest rates continued to reduce consumers’ discretionary income and purchasing power, and some concern was expressed about rising credit card debt.
On balance, loan demand declined, credit standards tightened, and delinquency rates edged up.
Travel and tourism activity remained fairly strong in most Districts.
Manufacturing activity stabilized following a period of contraction.
Labor market conditions remained solid. Employment continued to increase at a modest to moderate pace in most Districts despite hiring freezes by some firms and scattered reports of layoffs.
Wages generally increased at a moderate pace, though some Districts noted that wage pressures had eased somewhat. Wage increases are expected to moderate further in the coming year.
Inflationary pressures remained widespread, though price increases moderated in many Districts. Some Districts noted that firms were finding it more difficult to pass on cost increases to their consumers. Selling prices increased moderately in most Districts, with several Districts noting a deceleration.
Rents were reported to be steady or higher.
But it’s only words…
Bank of Canada Holds Rates at 4.5% Even as Fed Pushes Higher
The Bank of Canada kept interest rates unchanged for the first time in nine meetings, saying it’s prepared to hike again if the economy veers off its forecast course.
Policymakers led by Governor Tiff Macklem made good on a January pledge to hold the benchmark overnight rate at 4.5% on Wednesday, the first pause among major central banks that was expected by both markets and economists. Officials kept the door open to further rate increases, however, reiterating that they’re willing to raise borrowing costs again if necessary.
The stay-the-course message suggests officials are confident their aggressive tightening over the past year will keep dragging on economic growth and bring inflation to heel. That’s at odds with the US Federal Reserve, which is signaling further hikes to come. (…)
The Bank of Canada’s communications also highlighted a “very tight” labor market, and said inflation expectations still “need to come down further” for inflation to get back to 2%.
But taken as a whole, Macklem and his officials see the economy evolving as expected in their January forecasts, an important condition to holding steady.
The latest data remain “in line with the bank’s expectation that CPI inflation will come down to around 3% in the middle of this year,” policymakers said in the statement. (…)
China’s Inflation Rate Slows to One-Year Low, Casting Doubt on Recovery The data raise new questions about whether the scrapping of Covid controls alone would be enough to put growth back on Beijing’s desired trajectory.
Consumer prices gained 1% in February compared with a year earlier, slower than the 2.1% increase recorded in January, led by a deceleration in food-price increases, China’s National Bureau of Statistics said Thursday. (…)
The drop in consumer-price growth was driven by “a pullback in demand after the holiday as well as ample market supply,” said Dong Lijuan, a senior statistician with the statistics bureau. (…)
Food prices rose 2.6% from a year earlier in February, slowing from January’s 6.2% growth. Prices of pork, a Chinese staple that has a large weighting in the country’s consumer-price index, decelerated to 3.9% growth, down sharply from the 11.8% increase in January.
Stripping out food and energy prices, consumer prices rose 0.6% from a year earlier in February, compared with January’s 1.0% increase. (…)
The producer-price index dropped deeper into deflationary territory in February by falling 1.4% from a year earlier, compared with January’s 0.8% decline, the statistics bureau said. That was lower than the 1.2% decline expected by surveyed economists. (…)
China Property Sector Left in Limbo by Stalled Debt-Restructuring Talks Many debt negotiations are moving slowly, creating an overhang for a housing sector that is trying to recover
Dozens of the country’s developers defaulted on their dollar bonds last year, amid a sharp slowdown in China’s property sector. That has led to a series of difficult—and protracted—negotiations with overseas fund managers.
(…) Chinese real-estate firms missed payments on more than $30 billion of international bonds last year.
In February, new home sales by China’s largest developers rose on an annual basis for the first time since mid-2021, according to a private industry data provider. That was seen by some analysts as a sign that the market is bottoming out.
A recovery in nationwide home sales increases the chance that defaulted developers can remain in business and generate cash to repay investors. But it also adds a hurdle to negotiations between property executives and bondholders, since they may have dramatically different views on how long the sector will take to return to health. (…)
The need to keep businesses running also means foreign creditors are restricted from taking one obvious option in a debt workout: forcing equity holders to take heavy losses. Many Chinese property companies are tightly controlled by their founders, whose personal relationships are crucial to the company’s success. (…)
Chinese local governments are pushing them to spend money to finish projects, while some local creditors want them to shore up their finances at home instead of repaying foreign investors. (…)
More than 78% of attendees at a recent bond conference hosted by S&P Global Ratings said they thought it would take at least two years for most Chinese property companies to reach the end of negotiations with investors. Around 80% thought the amount investors got back would be 30 cents on the dollar or less. (…)
TINA Is Still the Only Wall Street Acronym That Matters
(…) Everyone knows that stocks do better than bonds on average, with the total return – price gains plus dividends – for the S&P 500 Index beating the total return for 10-year Treasuries in 62% of one-year periods and averaging 8.6% per year above inflation versus 2.9% for 10-year Treasuries. Stocks have considerably more volatility, 19.3% versus 8.8% for bonds, but still provide a better risk-adjusted return.
TINA-bashers only come out when equity prices are down, and bond yields and equity valuations are up. So, what if we only look at times when inflation-adjusted total returns for stocks are more than 10% below their prior peak, and bond yields and equity cyclically adjusted price-earnings ratios are above their averages over the prior 10 years?
In the 21 times before 2022 that all three happened together, stocks averaged 24.7% above inflation over the next year, versus 2.0% for the 10-year Treasury. Stock volatility was low, 10.6%, and not much above bonds at 8.2%. Only once, in 1893, did stocks lose to inflation or to bonds over the subsequent year. (…)
Over a year or two stocks can decline without taking everything else with them, but essentially all investments require robust long-term growth in corporate profits to provide good inflation-adjusted total returns. Sure, stocks can punch investors in the gut with 40% or larger declines, but either they come back (as they have in the past) or everything else goes too.
The best investors can hope for is to share in general prosperity, no piece of paper will help investors thrive while everyone else is suffering. This economic story, plus long-term history, underlies the “stocks for the long run” case. (…)
Two-year Treasuries are yielding 5%, highest since 2007…but so is inflation, negating any real return unless inflation falls rapidly. The Great Financial Repression continues but it is no longer Fed-induced. Something important needs to happen. Unless inflation declines, yields will rise even more, eventually causing the necessary slowdown.
- The 2-year Treasury yield has been following the Citi Economic Surprise Index. (The Daily Shot)
- US Yields Show Ominous Signs for Investors Betting on Rate Cuts
Source: Truist Advisory Services
If history is any guide the surge in US two-year yields back above the fed funds upper boundary this week is an ominous sign for any investors looking for the Federal Reserve to cut rates in 2023.
(…) since 1990 Fed rate cuts have only come after two-year yields fell below the rates upper boundary and remained there for at least several months.
(…) Powell, in two days of testimony before the US Congress this week, warned that robust US data makes it likely the Fed’s peak rate will be higher than officials had penciled in in December. He also said he and his team may need to re-accelerate the pace of rate hikes at the March 21-22 meeting, to a 50 basis-point clip.
Economists reacted swiftly, with Goldman Sachs Group Inc. adding a quarter percentage point to its Fed peak-rate forecast, taking it to a 5.5% to 5.75% range — a percentage point higher than officials’ current target. Citigroup Inc. flipped its March call to a half-point move, and pushed the terminal-rate prediction to the same as Goldman’s.
Investors have also ramped up bets for how far the European Central Bank will have to raise borrowing costs. Initially driven by hawkish comments from key officials, the trade got another boost from unexpectedly strong recent readings for underlying inflation — a measure that strips out volatile components.
An increasing number of economists now sees the ECB deposit rate reaching 4%, from the current 2.5%. ECB Governing Council member Robert Holzmann, perhaps the panel’s most hawkish member, even suggested four more half-point hikes are in the pipeline, which would take the peak to 4.5%.
German two-year note yields on Wednesday hit their highest level since 2008. In the Treasuries market, the yield curve inverted to an extent unseen since a ruinous US recession of the early 1980s — with two-year yields exceeding those on 10-year Treasuries by well over a percentage point. That evokes the era of Paul Volcker’s draconian tightening. (…)
- Recession probability model from @Economics (based on 10y2y yield spread) has risen to an all-time high (@LizAnnSonders)
Biden to Urge 25% Billionaire Tax, Levies on Rich Investors
Biden’s budget request to Congress, which is slated to be released Thursday, calls for a 25% minimum tax on billionaires, according to a White House official familiar with the proposal who declined to be named because the plan is not yet public. The plan would also nearly double the capital gains tax rate for investment to 39.6% from 20% and raise income levies on corporations and wealthy Americans.
The proposal, which is largely a reprise of Biden’s multi-trillion dollar Build Back Better economic package, has little chance of passing Congress, particularly now that Republicans control the House of Representatives. Biden was unable to pass similar tax increases when Democrats enjoyed control of both chambers of Congress, instead settling for slimmed down legislation focusing on energy and health policy known as the Inflation Reduction Act.
But the White House’s proposal foreshadows both Democrats’ strategy ahead of high-stakes negotiations over the debt ceiling and government spending later this year, as well as the economic platform underpinning an expected Biden reelection campaign. (…)