The US labor market is showing signs of loosening

The Daily Shot: 06-Sep-22
The United States
Canada
The United Kingdom
The Eurozone
Europe
Japan
Asia – Pacific
China
Emerging Markets
Cryptocurrency
Commodities
Energy
Equities
Global Developments
Food for Thought



 

The United States

1. For now, US economic indicators show few signs of a recession. In contrast, China’s economy has been slowing amid lockdowns, while the Eurozone and the UK face an economic contraction as the energy crisis worsens. This divergence sent the US dollar to the highest level in nearly two decades.
 

 
2. US job creation remains above pre-COVID levels, with 315k payrolls added in August.
 

 
Here is the employment level (2 charts).
 

 
Source: @WSJ   Read full article  
 
In a positive development for the Fed, more Americans reentered the labor force last month, …
 

 
… moving the unemployment rate higher …
 

 
… and boosting the labor force participation rate.
 

 
Prime-age participation jumped and is approaching pre-COVID levels.
 
Source: Chart and data provided by Macrobond  
 
Wage growth edged lower.
 

 
Wage gains for nonsupervisory employees continue to outpace the overall workforce.
 

 
Here are some additional trends from the employment report.
 
Underemployment was slightly higher as more workers enter the labor force.
 

 
This time, the household survey showed a larger gain than the establishment survey.
 

 
The number of public school teachers in the workforce is moving in the wrong direction.
 

 
The next couple of charts show the contributions to payroll changes.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Source: Federal Reserve Bank of Atlanta   Read full article  
 
3. Initial unemployment claims returned to pre-COVID levels during the week of August 22nd.
 

 

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4. The probability of a 75 bps Fed rate hike this month dropped in response to the employment report as labor force participation improved and wage growth edged lower. The labor market is showing signs of loosening.
 

 
5. The ISM Manufacturing PMI held up well in August, suggesting that factory activity remains in growth mode. This report contradicts many of the regional measures, which show manufacturing contraction.
 

 
Production growth stalled, …
 

 
… but new orders unexpectedly returned to growth mode.
 

 
Will we see a rebound in the official factory orders data for August?
 

 
Export orders slumped, …
 

 
… which points to weaker US exports ahead.
 
Source: Capital Economics  
 
The ISM employment index unexpectedly rebounded.
 

 
Supplier delivery times are near the pre-COVID average.
 

 
And price pressures are easing.
 

 
Source: Reuters   Read full article  
 
Here are the contributions to the ISM PMI.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
The stock market still points to downside risks for US manufacturing activity.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

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6. Construction spending declined for the second month in a row in July, …
 

 
… driven by softer residential construction.
 
Source: Chart and data provided by Macrobond  

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7. Vehicle sales remain soft amid tight inventories (see chart).
 


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Canada

1. The Q2 GDP report was softer than expected, and there are signs of weakness in the current quarter.
 

 
2. Manufacturing slowed sharply last month as new orders tumbled.
 

 
3. July building permits surprised to the downside.
 


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The United Kingdom

1. The updated PMI indicators point to slowing growth in services and a contraction in manufacturing.
 
Source: S&P Global PMI  
 
Source: S&P Global PMI  

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2. The pound has been under pressure vs. USD.
 
Source: @WSJ   Read full article  
 
3. Barclays expects inflation to hit 13% early next year.
 
Source: Barclays Research  
 
The 2-year yield continues to surge as the market prices in more BoE rate hikes.
 

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4. Home price appreciation surprised to the upside in August.
 

 
But higher mortgage rates are a headwind for the housing market.
 
Source: Barclays Research  

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5. New car registrations remain at multi-year lows.
 

 
6. The FTSE 250 (mid-caps) has given up its outperformance (and then some) amid strains in the domestic economy.
 


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The Eurozone

1. The updated PMI report suggests that Germany may be in a recession.
 

 
Source: S&P Global PMI  
 
Will government stimulus be enough to avoid a significant downturn?
 
Source: @StevenArons, @bjennen1, @bpolitics   Read full article  
 
Germany’s retail sales jumped in July but remain well below trend.
 

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2. Italian manufacturing contraction accelerated last month.
 
Source: S&P Global PMI  
 
Services stabilized.
 
Source: S&P Global PMI  

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3. Dutch factory output declined in August, according to S&P Global PMI.
 
Source: S&P Global PMI  
 
4. Manufacturing growth has stalled at the Eurozone level.
 
Source: S&P Global PMI  
 
Tighter liquidity conditions point to further weakness in euro-area business activity ahead.
 
Source: Pantheon Macroeconomics  

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5. French budget deteriorated sharply in July as energy costs surge.
 

 
6. The euro-area Sentix investor confidence index surprised to the downside (and now looks recessionary).
 

 
The euro hit the lowest level in nearly two decades as Russia shut off natural gas flows (see the energy section).
 

 
Source: @WSJ   Read full article  

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7. Eurozone retail sales ticked higher in July.
 

 
8. Euro-area unemployment continues to trend lower.
 

 


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Europe

1. Sweden’s manufacturing growth has stalled as factory orders decline.
 

 
But services remain resilient.
 

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2. Central European economies are in a manufacturing recession.
 
The Czech Republic:
 
Source: S&P Global PMI  
 
Poland:
 
Source: S&P Global PMI  

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3. Czech real wages are crumbling.
 

 
4. Switzerland’s inflation continues to accelerate.
 

 
Separately, the Swiss franc has benefitted from safe-haven flows this year.
 
Source: MRB Partners  

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5. What percentage of young people in the EU work while in school?
 
Source: @EU_Eurostat   Read full article  


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Japan

1. The yen drawdown has exceeded the extremes of 1998.
 
h/t Cormac Mullen  
 
2. Japan’s monetary base has been declining.
 

 
3. Japan is heavily reliant on China for key imports.
 
Source: BIS   Read full article  


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Asia – Pacific

1. Let’s begin with South Korea.
 
The core CPI was a bit lower than expected in August.
 

 
Sentiment is deteriorating across the board.
 
Source: @ANZ_Research  
 
Investment has slowed.
 
Source: ING  

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2. Singapore’s inflation has broadened.
 
Source: ING  
 
Rents are surging in Singapore.
 
Source: ING  

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3. Australia’s consumer confidence has stabilized.
 
Source: @ANZ_Research  


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China

1. The PBoC has been trying to stop the renminbi from falling further …
 
… by forcing a stronger trading range …
 

 
… and cutting the F/X reserve ratio.
 
Source: Reuters   Read full article  
 
But it’s not working as lockdowns take a toll, and China’s monetary policy diverges from the US.
 

 
Source: ING   Read full article  

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2. Lockdowns will be a drag on the economy.
 
Source: ABC News   Read full article  
 
Source: Barclays Research  

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3. Service-sector activity is in growth mode.
 
Source: S&P Global PMI  
 
But that may not last.
 
Source: Pantheon Macroeconomics  


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Emerging Markets

1. Let’s begin with Chile, where the economy has been weakening.
 
Economic activity:
 

 
Industrial production (much weaker than expected):
 

 

 
Retail sales (holding up):
 

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2. Next, we have some updates on Mexico.
 
Consumer confidence (moderating):
 

 
Formal job creation (very strong):
 

 
Manufacturing (contracting):
 
Source: S&P Global PMI  
 
Remittances (record high):
 

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3. Turkey’s core inflation surged above 66% last month.
 

 
4. India’s factory activity remains robust.
 
Source: S&P Global PMI  
 
5. ASEAN manufacturing growth has been steady.
 
Source: S&P Global PMI  
 
Here is Thailand.
 
Source: S&P Global PMI  

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6. The MSCI EM equity index has massively underperformed the S&P 500, in part due to heavy exposure to China.
 
Source: @acemaxx, @MorganStanley  
 
Source: Truist Advisory Services  


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Cryptocurrency

1. Bitcoin has found support at the 2018 peak.
 
h/t @ossingerj, @Crypto, @Markets  
 
2. Bitcoin has been underperforming the Nasdaq lately.
 
Source: @KaikoData  
 
3. Ether is outperforming again.
 

 
4. Binance’s market share, measured by weekly volume, surged after the exchange eliminated BTC trading fees in early July.
 
Source: @KaikoData  
 
Source: CoinDesk   Read full article  

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5. Crypto trading volume in Ukrainian hryvnia (UAH) remains robust following the onset of the Russia/Ukraine war.
 
Source: @KaikoData  
 
6. Many altcoins have regained short-term momentum relative to bitcoin, although long-term downtrends remain intact.
 
Source: @StocktonKatie  
 
7. So far, Solana’s SOL token has held initial support.
 

 
8. Only ten thousand cryptocurrencies now?
 
Source: Augusta Free Press   Read full article  


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Commodities

1. Copper demand from the clean energy transition is expected to accelerate well before 2050 (2 charts).
 
Source: S&P Global Market Intelligence  
 
Source: S&P Global Market Intelligence  
 
Copper supply shortfalls could begin in 2025 and last through most of the following decade.
 
Source: S&P Global Market Intelligence  

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2. Brazil’s corn exports hit a record high.
 
Source: @kannbwx  
 
3. Commodity markets face downside risks, according to Variant Perception.
 
Source: Variant Perception  


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Energy

1. Nord Stream is shut.
 
Source: The Guardian   Read full article  
 

 
Natural gas prices surged but retreated shortly after.
 

 
Inventories remain healthy for now.
 
Source: Commerzbank Research  

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2. OPEC+ announced a “symbolic” production cut.
 
Source: CNBC   Read full article  
 
The market reaction was muted.
 

 
Longview Economics expects OPEC output to decline gradually in the months ahead.
 
Source: Longview Economics  
 
Will Russian oil production hold up?
 
Source: Longview Economics  

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3. US fracking activity has peaked for now despite elevated crude prices.
 

 
4. California power prices surge amid the heat wave as blackouts loom.
 
Source: Bloomberg   Read full article  


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Equities

1. The post-Jackson-Hole one-week selloff has been severe.
 
Source: @bespokeinvest   Read full article  
 
2. A high percentage of S&P 500 members are now oversold based on technicals.
 
Source: Truist Advisory Services  
 
3. The recent S&P 500 rally off the June low is comparable to other long-term bottoms. However, markets often give back most or all of the initial rally before the next leg up.
 
Source: SentimenTrader  
 
4. Retail investor sentiment deteriorated last week.
 

 
5. The S&P 500 remains concentrated, with the top 10 members representing nearly 30% of the market capitalization. But the earnings contribution of the top ten stocks is now about 21% (2nd panel).
 
Source: J.P. Morgan Asset Management  
 
The top ten stocks continue to trade at a massive premium to the rest of the index.
 
Source: J.P. Morgan Asset Management  

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6. This chart shows US index valuations relative to the 20-year averages.
 
Source: Truist Advisory Services  
 
7. The bounce in meme stocks didn’t last very long.
 


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Global Developments

1. Advanced economies’ retail sales are back at the pre-COVID trend.
 
Source: Capital Economics  
 
2. Global food prices have pulled back from the highs.
 
Source: Arcano Economics  
 
3. Terms of trade have not been useful in explaining currency moves this year.
 
Source: Deutsche Bank Research  
 
4. Global manufacturing growth has stalled.
 
Source: S&P Global PMI  


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Food for Thought

1. Overdue utility bills:
 
Source: @willwwade, @markchediak, @BW   Read full article  
 
2. US cash usage vs. five years ago:
 
Source: Gallup   Read full article  
 
3. Humanities majors’ share at US colleges relative to peak levels:
 
Source: @benmschmidt, @ipeds_nces  
 
4. Civil unrest risk:
 
Source: @patrickjdo, @bpolitics   Read full article  
 
5. Ukraine aid as a share of GDP:
 
Source: Statista  
 
6. Who is most likely to experience long COVID?
 
Source: Statista  
 
7. Atmospheric methane:
 
Source: @financialtimes   Read full article  
 
8. Serena Williams’ career:
 
Source: The New York Times   Read full article  

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