Note: I am currently travelling. Hence the more limited postings.
DATA DEPENDENCY
We finally got some official data. It did not make things that much clearer, did it?
- Nonfarm payrolls rose 119k in September, well above expectations of +50k.
- Private payrolls rose 97k after +56k in July and +18k in August.
- But payroll growth was revised down by 26k to -4k in August (despite a pattern of upward revisions to August in the past) and by 7k to 72k in July.
- The three-month average of payroll growth now stands at 62k (private 57k).
- The payrolls diffusion index rose 6.6pt to 55.6 on a one-month basis and by 3.6pt to 50.6 on a three-month basis. By this measure, job growth has dangerously stalled as Wells Fargo illustrates:
- Payroll employment in the industries most exposed to immigration policy changes declined by 18k on a three-month average basis through August (vs. -16k in July and +27k on average in 2024), the latest month for which payroll employment data is available at the detailed industry level. The US immigration crackdown is not helping:
- Revisions remain negative, also suggesting a stalled labor market:
- Goldman Sachs estimates that the underlying pace of job growth based on the payroll and household surveys and accounting for potential revisions to payroll growth now stands at +39k. The Chicago Fed puts the breakeven rate, where job creation matches population growth, at 62k.
- The unemployment rate reached 4.44% in September, up one full point from the 3.3% cycle low of April 2023 and almost half a point since January 2025.
- Looking at contributions to labor income growth, jobs and hours have disappeared, leaving only wages to sustain demand, still at 4% annualized in Q3.
- Average hourly earnings increased 0.25% MoM (3.0% annualized) in September, below consensus expectations and below the July-August average of 0.37%. YoY: +3.79%.
- Aggregate labor income at +4.6% YoY is still reasonably above PCE inflation of 2.7% in September but absent job growth, wages are only 1% above inflation and slowing.
- Federal Reserve Bank of Philadelphia President Anna Paulson noted that most job gains have been concentrated in healthcare and social assistance: “Historically, when job gains are concentrated in acyclical sectors like healthcare, that is a precursor to a slowdown,” she said. She added this other factoid: “Candy sales over Halloween provide another example of how stretched some families are. Smaller bags of candy — with fewer items — sold better than larger bags that offered greater value per unit,” she said. “And, at the same time, demand for higher-end chocolate is very strong.” Don’t say there’s no data!
The FOMC minutes revealed that ““most” participants worried that further rate cuts could either “add to the risk of higher inflation” or “be misinterpreted as implying a lack of policymaker commitment” to the Fed’s 2%. It was not that long ago that the FOMC told us it was more worried about the labor market since tariff inflation would be transitory.
Friday we also got Walmart quarterly data, rather significant given its size.
- US comp sales rose 4.5% with measured inflation of +1.3% on groceries and +1.7% on general merchandise, so 1.5% overall. That’s +3.0% real sales.
- But that’s not representative of the US economy as some are suggesting. WMT is gaining share big time: Target’s comps declined 2.7% in the same period!
- WMT’s average ticket was up 2.7%, or 1.2% in real terms, gaining market share. My sense is that overall real retail sales are slowing in the USA, not readily apparent because of rising prices from tariffs being gradually passed on.
A truly data dependent Fed should realize that the real problem is not inflation, even more so with Trump focused on the mid-terms and on “affordability”. WMT no longer has the monopoly on roll-backs.
A stalled, or stalling labor market, with slowing wages, will eventually hit demand.
FYI:
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Workers who participated in the federal government’s deferred resignation program will be removed from the government’s October payroll, leading to a roughly 125K drop decline in official federal employment.
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Verizon Begins Laying Off More Than 13,000 Employees
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Second Large Fire at Ford Aluminum Supplier Threatens Production
FLASH PMIs
November sees further solid expansion of eurozone business activity
The seasonally adjusted HCOB Flash Eurozone Composite PMI Output Index, based on approximately 85% of usual survey responses and compiled by S&P Global, posted 52.4 in November, down only fractionally from 52.5 in October and therefore signalling a further solid monthly rise in business activity. The latest expansion was among the sharpest in the past two-and-a-half years. Output has now increased in each of the past 11 months.
The overall expansion in business activity continued to be centred on service providers, where activity grew at the fastest pace for a year-and-a-half. Meanwhile, manufacturing production increased only slightly in November, and at the joint-slowest rate in the current nine-month sequence of expansion, equal with that seen in March.
Germany continued to record growth of output in November, albeit with the pace of expansion easing from October. Meanwhile, France saw a near-stabilisation of business activity, helped by a return to growth in the service sector. The best performance in November, however, was seen in the rest of the eurozone, where output rose solidly, and at the fastest pace since April 2023.
While overall business activity increased at a broadly similar pace to that seen in the previous month, November saw a slowdown in the pace of new order growth in the euro area. New orders rose for a fourth consecutive month, however, as an expansion in services outweighed a renewed fall in manufacturing. The ability of firms to secure new business continued to be hampered by weakness in international demand. New export orders (which include intra-eurozone trade) decreased slightly again in November, and at the same pace as seen in October.
After rising in October, staffing levels were unchanged in November. A slower, and only slight increase in services employment was registered, and this was cancelled out by a faster fall in manufacturing workforce numbers.
Manufacturing employment has now decreased on a monthly basis throughout the past two-and-a-half years. Staffing levels decreased slightly in both Germany and France, but continued to increase across the rest of the eurozone.
A reluctance among firms to hire additional staff in part reflected evidence that current workforce numbers were sufficient to deal with incoming new business. Backlogs of work decreased again in November, following a near-stabilisation of work-in-hand in the previous month. Outstanding business was down across both the manufacturing and service sectors.The two price indices from the survey signalled differing trends midway through the final quarter of the year. Input costs increased sharply, and at the fastest pace since March. The steeper increase in input prices reflected faster inflation among service providers and a renewed rise in input costs at manufacturers. Manufacturing input prices increased for the first time in three months, and at the steepest pace in eight months.
On the other hand, the pace of output price inflation eased in November, slowing to the weakest in just over a year and pointing to only a modest monthly rise in charges across the eurozone private sector. Manufacturers kept their selling prices unchanged, while in services the pace of inflation eased to the slowest since April 2021. Charges increased in Germany and across the eurozone excluding the largest two economies, while French firms kept their selling prices unchanged.
Japan: Business activity growth strengthens in November, but cost pressures intensify
The headline seasonally adjusted S&P Global Flash Japan PMI Composite Output Index posted 52.0 in November, up from 51.5 in October, to signal a further increase in total Japanese business activity. Though indicative of a modest rate of growth, the reading was the best recorded for three months, and the joint-highest since August 2024.
A softer and only marginal reduction in manufacturing output helped to lift the headline index in November, while the service sector recorded a solid rate of growth that was unchanged from the previous month.
Demand conditions remained subdued, however, as firms signalled a back-to-back fall in overall new work during November. That said, the rate of decline eased from October and was only fractional. This was driven by a marked drop in factory orders, as sales across the service sector continued to rise.
Manufacturers and service providers both reported weaker foreign demand, however, with composite new export orders falling at the quickest pace in three months. (…)
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Walking in Rome yesterday, I could not miss the acronym SPQR on every manhole covers and drains. It stands for Senatus Populusque Romanus, which translates to “The Senate and the People of Rome”.
This acronym was used throughout the Roman Republic and Empire to represent the government, and it is still prominently featured on official documents, monuments, and public fixtures in Rome today.
It symbolizes the combined power and authority of the Roman state (the Senate) and the Roman citizenry.
Then this morning, I see this WSJ piece …
Outraged House Lawmakers Vote to Strike $500,000 Payouts for Senators Provision was slipped into the bill reopening government, sparking bipartisan backlash
The House voted unanimously Wednesday evening to repeal a controversial Senate-crafted provision that could grant some GOP senators at least $500,000 each in taxpayer-funded damages, after the provision prompted bipartisan outrage.
Republican Rep. Austin Scott’s measure passed 426-0 and strikes the clause inserted by Senate leaders into the legislation that ended the government shutdown earlier this month. The language allows senators—but not House members—to sue the federal government if investigators obtained their records without their knowledge.
The measure striking the provision would now need to be approved by the Senate, where its fate is unclear.
The provision is retroactive to 2022, covering the Justice Department’s collection of phone records from eight Republican senators during former special counsel Jack Smith’s investigation into President Trump’s attempts to overturn the 2020 election. Under the law, the senators could be eligible to receive taxpayer-funded payouts of $500,000 or more.
House members of both parties have lambasted the provision as improper. Rep. Chip Roy (R., Texas) warned that the “11th hour” addition could be seen as self-serving and self-dealing. “It is beside my comprehension that this got in this bill, and it’s why people have such a low opinion of this town,” Roy said. House Minority Leader Hakeem Jeffries (D., N.Y.) called it a “multimillion-dollar slush fund.”
Despite their opposition to the provision, Republicans in the House voted to pass the spending package and reopen the government anyway, because making changes would have sent the bill back to the Senate, prolonging the shutdown. But House lawmakers pledged to repeal it quickly.
Senate Majority Leader John Thune (R., S.D.) has defended the provision as an accountability measure and said that some of his caucus members wanted it. (…)
Thursday afternoon, Sen. Martin Heinrich (D., N.M.) tried to pass the measure striking the provision by unanimous consent, but it was blocked by Republicans. (…)
I find it curious that the House gets outraged by a Senate provision snuck in the bill reopening the government as “self-serving and self-dealing” while totally silent when another part of the government does that, and much more, almost daily.
The US Founding Fathers, especially John Adams and Alexander Hamilton, studied the works of Polybius and Cicero, who described how Rome’s balance of powers prevented any single group from dominating the state. This concept directly inspired the American system of separation of powers among the executive (President), legislative (Congress), and judicial (Supreme Court) branches.
The Founders sought to create a government that would avoid the pitfalls of tyranny and mob rule by ensuring that each branch could check the others, much like the Roman Republic’s consuls, Senate, and assemblies.
The Founders modeled the US Senate after the Roman Senate, envisioning it as a deliberative body that would provide stability and wisdom, counterbalancing the more populist House of Representatives. The idea was that the Senate would act as a check on the passions of the majority, similar to how the Roman Senate was meant to temper the decisions of the popular assemblies.
The term “Senate” itself is a direct borrowing from Roman nomenclature, and the Founders hoped that, like Rome, the Senate would serve as a guardian of the republic.
The Founders were particularly wary of the Roman Republic’s eventual descent into empire, so they designed the Constitution to prevent the concentration of power in any single individual or branch.
The Roman concept of the rule of law, where laws applied equally to all citizens regardless of status, was another important influence. The Founders believed that a just society required laws that were fair and impartial, a principle that underpins (ed?) the American legal system.
The Founders also looked to Rome as an anti-model, drawing lessons from its decline and fall. They were acutely aware of how the Roman Republic’s collapse into empire was precipitated by the erosion of checks and balances, the rise of populist leaders, and the concentration of power in the hands of a single individual.
The Constitution was designed to prevent similar outcomes by limiting the power of the executive, ensuring regular elections, and protecting individual rights.
The Roman Republic lasted from 509 BCE to 27 BCE, a span of about 482 years before transforming into the Roman Empire under Augustus. The transition began with decades of civil war, culminating in Octavian’s victory over Mark Antony in 31 BCE and his official designation as Augustus in 27 BCE, marking the start of imperial rule.
The Roman Empire lasted from 27 BCE to 476 CE in the West, covering approximately 500 years before its decline and eventual fall with the deposition of the last emperor, Romulus Augustulus, in 476 CE. In total, it took about five centuries for the Republic to become an Empire, and another five centuries for the Western Empire to decline and collapse.
What did Mark Twain say about history again?