Three key items impacting the markets this week will be /1/ news regarding the impact of the coronavirus on the post-holiday re-opening of businesses in China, /2/ Fed Chair Powell's Semi-Annual Monetary Policy Testimony, and /3/ US macroeconomic data.
The most important will be news regarding Chinese business response to the virus. While news reports have highlighted the risk to the global supply chain if Chinese production is severely impacted, there are a couple of reasons why the impact may not be as bad as feared. The other two items should be market neutral to positive. Powell will almost certainly repeat the message of the latest FOMC Statement and his post-meeting news conference. This week's key US economic data are expected to underscore moderate growth with low inflation.
While there is little, if any, sign that the spread of the coronavirus has peaked, there are a couple of reasons that conceivably could prompt Chinese businesses to restart business after the Lunar holiday despite concern about the virus' spread. One is economic in nature, the other political. From an economic perspective, Chinese businesses may have to continue operations to generate income to service their high levels of debt. To be sure, the Chinese central bank's injection of funds last week may be intended to allow banks to loan additional funds to get businesses through this period. From a political perspective -- and possibly more importantly, the government could view employment of people as a way to prevent widespread civil protest and disorder.
Fed Chair Powell's testimony to the House Financial Services Committee (Tuesday) and Senate Banking Committee (Wednesday) should adhere to the message found in the January FOMC Statement. The testimony is meant to reflect the entire Board's views, which the Statement does. The tone should be market friendly. The Statement cited moderate economic growth and acknowledged below-target inflation. The FOMC consensus views the current monetary policy stance as appropriate for the foreseeable future. But, the risks are still more to the downside than upside. In particular, Powell said the Fed is monitoring the coronavirus situation closely. Powell also may mention, perhaps in response to a question, that the Fed is looking at whether it should change its target, such as to aim for a price level (thereby allowing for high inflation to offset earlier low inflation ).
This week's US economic data should not change the picture of moderate growth with low inflation. Consensus looks for a decent 0.3% m/m increase in January Ex Auto Retail Sales. And, it looks for a 0.2% m/m increase in the January Core CPI, with the y/y edging down to 2.2% from 2.3%. Manufacturing Output, within the Industrial Production Report, is seen as 0.0% m/m. But, the risk is for a slight decline, based on Total Hours Worked for the sector.
The Atlanta Fed model's latest estimate of 2.7% (q/q, saar) for Q120 Real GDP Growth should be viewed cautiously, however. It seems too high relative to Total Hours Worked and the Unemployment Rate in January, both of which suggest a GDP growth rate closer to 2.0%. So, the risk is for the model's forecast to come down as more data are released.
Sunday, February 9, 2020
Friday, February 7, 2020
January Employment Report Good, But Not Great
The January Employment Report points to a continuation of about 2.0% Real GDP Growth in Q120. While Payrolls were strong, Civilian Employment dipped and the Unemployment Rate edged up. Technically, the benchmark revision looks like it did not impact the m/m change in Payrolls after March 2019. Wage inflation remains subdued.
The +225k m/m increase in Payrolls is in line with the implication of the Claims data that they would speed up from December (+147k, was +145k). The benchmark revision did not carry through to the m/m changes after March 2019 (the time of the benchmark revision to the level of Payrolls). The net revision to the m/m changes between April and December 2019 is +92k. Other revisions, besides the benchmark, likely played a role.
The Payroll composition shows decent gains in most industries. A stand-out is in Construction, which jumped 44k - mostly in Specialty Trade Contractors (split evenly between residential and nonresidential). Good weather could have played a role. However, declines were registered in Manufacturing jobs (-12k, mostly in motor vehicles) and Retail (-8k, more than accounted for by job cuts in general merchandise). Early evidence from the Claims data suggest a smaller increase in February Payrolls.
The Average Workweek was steady at 34.3 Hours, not particularly high. Along with the increase in Payrolls, it resulted in Total Hours Worked rising 0.2% m/m -- putting them 0.8% (annualized) above the Q419 average. Adding in an estimate of productivity growth points to about 2.0% Real GDP Growth.
The uptick in the Unemployment Rate to 3.6% puts it above the 3.5% Q419 average. The January level is still historically low, but raises doubts that GDP Growth is above the Fed's estimate of 1.8-2.0% trend. The Rate should decline q/q if GDP Growth is above trend. To be sure, this trend estimate may be too low, if last year's stronger Productivity Growth pace continues.
Even with a low Unemployment Rate, wage inflation remains subdued. Average Hourly Earnings rose 0.2% m/m, putting the y/y at 3.1%, versus 3.0% in December. but within last year's range.
The +225k m/m increase in Payrolls is in line with the implication of the Claims data that they would speed up from December (+147k, was +145k). The benchmark revision did not carry through to the m/m changes after March 2019 (the time of the benchmark revision to the level of Payrolls). The net revision to the m/m changes between April and December 2019 is +92k. Other revisions, besides the benchmark, likely played a role.
The Payroll composition shows decent gains in most industries. A stand-out is in Construction, which jumped 44k - mostly in Specialty Trade Contractors (split evenly between residential and nonresidential). Good weather could have played a role. However, declines were registered in Manufacturing jobs (-12k, mostly in motor vehicles) and Retail (-8k, more than accounted for by job cuts in general merchandise). Early evidence from the Claims data suggest a smaller increase in February Payrolls.
The Average Workweek was steady at 34.3 Hours, not particularly high. Along with the increase in Payrolls, it resulted in Total Hours Worked rising 0.2% m/m -- putting them 0.8% (annualized) above the Q419 average. Adding in an estimate of productivity growth points to about 2.0% Real GDP Growth.
The uptick in the Unemployment Rate to 3.6% puts it above the 3.5% Q419 average. The January level is still historically low, but raises doubts that GDP Growth is above the Fed's estimate of 1.8-2.0% trend. The Rate should decline q/q if GDP Growth is above trend. To be sure, this trend estimate may be too low, if last year's stronger Productivity Growth pace continues.
Even with a low Unemployment Rate, wage inflation remains subdued. Average Hourly Earnings rose 0.2% m/m, putting the y/y at 3.1%, versus 3.0% in December. but within last year's range.
Sunday, February 2, 2020
Coronarivus Still a Problem, But Some Positive Developments
Fears of a negative economic impact of the coronavirus should continue to weigh on the stock market, but there were some positive developments over the weekend that could limit the damage. The apparent success of a Gilead drug on a patient in California is a hopeful development. And, the Chinese central bank's large injection of liquidity and regulators' actions to restrain stock selling show authorities will try to limit economic damage. But, until widespread success against the disease is seen, any strength in January and even February economic data may be discounted if not dismissed as temporary. Once it is apparent that the spread of the virus has peaked, a sustained recovery and rally will proceed. When this happens, soft economic data will be discounted or dismissed.
This week's US economic data should contain at least some stronger prints, but there are caveats. In particular, January Payrolls risk speeding up from December's +145k m/m pace, based on the Claims data. The consensus estimate of +165k is not unreasonable. However, this report will contain benchmark revisions. And, this revision should cut job growth.
The revision brings the monthly Payroll figure for March of the prior year to the level shown by Insured Employment data. Bureau of Labor Statistics already has released its preliminary estimate, a large -501k. (In other words, the level of Payrolls in March 2019 is 501k too high relative to the Insured Employment figure for the month.) A downward revision in the March 2019 level would cut the m/m trend in Payrolls between March 2018 and March 2019 by about 40k. This reduction in trend should extend past March 2019. So, the +176k m/m average since then could be revised down to about 135k. December's pace would be about 100k. Note that unless the "spending" data used to construct GDP are revised down, as well, the slower job pace would result in higher productivity growth. Benchmark revisions to the spending data will be released over the next few months, with GDP incorporating them in the Q220 release, due in July.
The consensus estimate of an increase in the Mfg ISM to 48.5 from 47.2 in December cannot be ruled out. The decline in the December Mfg ISM to 47.2 seems to be too weak relative to the hard data on Manufacturing Output and Employment for the month. So, an uptick, like the consensus estimate, is not out of the question. But, there is no reliable evidence. Other surveys have been mixed, with none having done a good job predicting the m/m directional change in the Mfg ISM. On the negative side, the stoppage of the Boeing 737 MAX and global economic uncertainty could hold down the Mfg ISM. New seasonals also could subtract a bit from the January level while raising December, as well.
To be sure, the broadest measures of economic performance -- the Unemployment Claims data -- are performing well so far in January. Initial Claims returned to the low range seen prior to December. And, Continuing Claims have begun to trend down, although the level is still high. These data do not show much, if any, deterioration stemming from the Boeing production cutback, global uncertainty, or the coronavirus. The Atlanta Fed model's first estimate of Q120 Real GDP Growth is 2.7%, seemingly consistent with these data. Most Street economists look for 1.0-2.3% Q120 Real GDP Growth, according to the Blue Chip Consensus survey. But, there is very little data upon which to base an estimate. So, Q120 GDP estimates will likely change as additional data become available.
If virus-related fears recede in the next couple of days, Trump's State of the Union Address (Tuesday night) and his impeachment acquittal (Wednesday) should prompt a bounce in the stock market.
This week's US economic data should contain at least some stronger prints, but there are caveats. In particular, January Payrolls risk speeding up from December's +145k m/m pace, based on the Claims data. The consensus estimate of +165k is not unreasonable. However, this report will contain benchmark revisions. And, this revision should cut job growth.
The revision brings the monthly Payroll figure for March of the prior year to the level shown by Insured Employment data. Bureau of Labor Statistics already has released its preliminary estimate, a large -501k. (In other words, the level of Payrolls in March 2019 is 501k too high relative to the Insured Employment figure for the month.) A downward revision in the March 2019 level would cut the m/m trend in Payrolls between March 2018 and March 2019 by about 40k. This reduction in trend should extend past March 2019. So, the +176k m/m average since then could be revised down to about 135k. December's pace would be about 100k. Note that unless the "spending" data used to construct GDP are revised down, as well, the slower job pace would result in higher productivity growth. Benchmark revisions to the spending data will be released over the next few months, with GDP incorporating them in the Q220 release, due in July.
The consensus estimate of an increase in the Mfg ISM to 48.5 from 47.2 in December cannot be ruled out. The decline in the December Mfg ISM to 47.2 seems to be too weak relative to the hard data on Manufacturing Output and Employment for the month. So, an uptick, like the consensus estimate, is not out of the question. But, there is no reliable evidence. Other surveys have been mixed, with none having done a good job predicting the m/m directional change in the Mfg ISM. On the negative side, the stoppage of the Boeing 737 MAX and global economic uncertainty could hold down the Mfg ISM. New seasonals also could subtract a bit from the January level while raising December, as well.
To be sure, the broadest measures of economic performance -- the Unemployment Claims data -- are performing well so far in January. Initial Claims returned to the low range seen prior to December. And, Continuing Claims have begun to trend down, although the level is still high. These data do not show much, if any, deterioration stemming from the Boeing production cutback, global uncertainty, or the coronavirus. The Atlanta Fed model's first estimate of Q120 Real GDP Growth is 2.7%, seemingly consistent with these data. Most Street economists look for 1.0-2.3% Q120 Real GDP Growth, according to the Blue Chip Consensus survey. But, there is very little data upon which to base an estimate. So, Q120 GDP estimates will likely change as additional data become available.
If virus-related fears recede in the next couple of days, Trump's State of the Union Address (Tuesday night) and his impeachment acquittal (Wednesday) should prompt a bounce in the stock market.
Sunday, January 26, 2020
Coronavirus and the Stock Market
Fears of the coronavirus disrupting international trade as well as the Chinese domestic economy activity has bumped economic news and possibly earnings reports from being primary movers of the stock market in the near term. So, while upcoming US economic data are likely to confirm slightly above-trend GDP growth, indications that the spread of the virus is under control may be what is needed to lift stocks at this point.
A prior virus scare was the Ebola outbreak that showed up in the US in September 2014. The market's impact lasted about a month during which the S&P 500 Index fell about 3.0%. A similar market response now would bring the Index down to about 3200 from about 3300 last week. The current situation could be worse, however, given China's importance in world trade. A virus-related disruption of trade would have a larger negative impact on the world economy than this earlier virus.
The market may hope for some word of hope by the Fed at this week's FOMC Meeting. While Powell may mention the virus as a downside risk to the outlook, evidence of its impact on US economic activity will likely be needed to persuade officials to ease policy. This dependency, in fact, would be no different from its current policy approach of being guided by the upcoming data and their implications for the outlook. So, any solace for the market from Powell comments should be short-lived.
The market may get some solace from decent US economic data this week, but not all the risks are supportive. /1/ Consensus looks for a modest 0.2% m/m increase in December Ex Transportation Durable Goods Orders -- a positive for the markets given all the negative sentiment about manufacturing. But, an anticipatory decline in Boeing-related orders is a downside risk. /2/ The consensus estimate of a slightly above-trend 2.1% for Q419 Real GDP Growth would seem to be more reasonable than the Atlanta Fed models' trend-like 1.8% estimate, given the decline in the Unemployment Rate in the quarter. Note that both estimates could change from evidence in the Durable Goods report. /3/ The consensus estimate of 0.1% m/m for the December Core PCE Deflator, with the y/y steady at 1.6%, risks being too low. Because of the jump in airfares in the PPI, the risk is for a 0.2% m/m increase. The y/y could rise to 1.7%. This result would be a market negative since it argues against Fed easing.
While the initial impact of the coronavirus scare seems to be dis-inflationary, as oil prices have fallen sharply, the opposite may be true ahead if trade disruptions lead to shortages.
A prior virus scare was the Ebola outbreak that showed up in the US in September 2014. The market's impact lasted about a month during which the S&P 500 Index fell about 3.0%. A similar market response now would bring the Index down to about 3200 from about 3300 last week. The current situation could be worse, however, given China's importance in world trade. A virus-related disruption of trade would have a larger negative impact on the world economy than this earlier virus.
The market may hope for some word of hope by the Fed at this week's FOMC Meeting. While Powell may mention the virus as a downside risk to the outlook, evidence of its impact on US economic activity will likely be needed to persuade officials to ease policy. This dependency, in fact, would be no different from its current policy approach of being guided by the upcoming data and their implications for the outlook. So, any solace for the market from Powell comments should be short-lived.
The market may get some solace from decent US economic data this week, but not all the risks are supportive. /1/ Consensus looks for a modest 0.2% m/m increase in December Ex Transportation Durable Goods Orders -- a positive for the markets given all the negative sentiment about manufacturing. But, an anticipatory decline in Boeing-related orders is a downside risk. /2/ The consensus estimate of a slightly above-trend 2.1% for Q419 Real GDP Growth would seem to be more reasonable than the Atlanta Fed models' trend-like 1.8% estimate, given the decline in the Unemployment Rate in the quarter. Note that both estimates could change from evidence in the Durable Goods report. /3/ The consensus estimate of 0.1% m/m for the December Core PCE Deflator, with the y/y steady at 1.6%, risks being too low. Because of the jump in airfares in the PPI, the risk is for a 0.2% m/m increase. The y/y could rise to 1.7%. This result would be a market negative since it argues against Fed easing.
While the initial impact of the coronavirus scare seems to be dis-inflationary, as oil prices have fallen sharply, the opposite may be true ahead if trade disruptions lead to shortages.
Sunday, January 19, 2020
Good Economic Growth to Support Stock Market Rally
The stock market could be subject to some caution ahead of the key earnings releases this week and next. But, the impeachment trial should remain as background noise for the markets. And, unless there are major earnings disappointments, the stock market rally should continue into February, as evidence mounts of decent economic growth in Q120 -- with one caveat.
Last week's data shows the economy moving on all cylinders in December. Ex Auto/Ex Gasoline Retail Sales rose a solid 0.5% m/m, putting them about 1.0% (annualized) above the Q419 average. While these sales can be volatile, so there is no guarantee they'll continue to rise in January or February, the December jump is a good take-off point. Similarly, the surge in Housing Starts is probably one-off (weather related?), but should translate into continued growth in Residential Construction in Q120. And, the 0.5% m/m increase in Non-Auto Manufacturing Output raises the possibility that this sector's growth will speed up now that the US/China trade agreement is in place. The one caveat is that the stoppage of Boeing 737 Max production should subtract significantly from Q120 GDP and Industrial Production growth. But, this will be one-off.
The Claims data, the broadest high-frequency measure of the economy, are encouraging. Initial Claims fell to the low end of their range in the latest week. Continuing Claims also fell, but they remain at a high level. They need to fall further to confirm a speedup in growth. However, as they now stand, the data raise the risk of a speedup in January Payrolls.
Forward-looking evidence regarding the economy is strengthening, helped in part by the stock market rally. The ECRI Leading Index rose to a new high over the first two weeks of January (see chart below). And, the Phil Fed's daily ADS Index shows a sharp improvement since Christmas week. Regarding economic data, it will be important for the outlook and the markets if the forward-looking indicator of capital spending -- nondefense capital goods orders excluding civilian aircraft -- continues, if not accelerates, the upward movement seen in October and November.
ECRI Leading Index (level)
Dec 2018 Jan 2020
Two Reminders:
1. I post comments on many US economic data releases on Linked In and Twitter.
2. My book "Finding Judaism in the Torah" is available on www.amazon.com. It offers new insight into old ideas, regardless of religion.
Last week's data shows the economy moving on all cylinders in December. Ex Auto/Ex Gasoline Retail Sales rose a solid 0.5% m/m, putting them about 1.0% (annualized) above the Q419 average. While these sales can be volatile, so there is no guarantee they'll continue to rise in January or February, the December jump is a good take-off point. Similarly, the surge in Housing Starts is probably one-off (weather related?), but should translate into continued growth in Residential Construction in Q120. And, the 0.5% m/m increase in Non-Auto Manufacturing Output raises the possibility that this sector's growth will speed up now that the US/China trade agreement is in place. The one caveat is that the stoppage of Boeing 737 Max production should subtract significantly from Q120 GDP and Industrial Production growth. But, this will be one-off.
The Claims data, the broadest high-frequency measure of the economy, are encouraging. Initial Claims fell to the low end of their range in the latest week. Continuing Claims also fell, but they remain at a high level. They need to fall further to confirm a speedup in growth. However, as they now stand, the data raise the risk of a speedup in January Payrolls.
Forward-looking evidence regarding the economy is strengthening, helped in part by the stock market rally. The ECRI Leading Index rose to a new high over the first two weeks of January (see chart below). And, the Phil Fed's daily ADS Index shows a sharp improvement since Christmas week. Regarding economic data, it will be important for the outlook and the markets if the forward-looking indicator of capital spending -- nondefense capital goods orders excluding civilian aircraft -- continues, if not accelerates, the upward movement seen in October and November.
ECRI Leading Index (level)
Dec 2018 Jan 2020
Two Reminders:
1. I post comments on many US economic data releases on Linked In and Twitter.
2. My book "Finding Judaism in the Torah" is available on www.amazon.com. It offers new insight into old ideas, regardless of religion.
Sunday, January 12, 2020
This Week's Events
The stock market has to contend with a number of events this week -- /1/ signing of US/China Phase 1 agreement, /2/ Senate impeachment trial, /3/ start of corporate earnings releases, /4/ risk of an Iranian reaction to Trump's imposition of new sanctions, and /5/ some key US economic data. None is likely to be a major hurdle for the market.
The question with regard to the Phase 1 agreement is whether this will be a "buy the rumor, sell the fact" situation. The market already responded positively to the announcement, so will there be profit taking when the agreement is signed? Some analysts think the market reaction will depend on the details of the pact. It is doubtful, however, that the effects of the pact can be fully foreseen. So, while there will be lots of opinion voiced, there is likely more uncertainty than might be heard. Perhaps the most important implication of the pact is that a trade war has been averted and that there is precedence for more agreements in the future. Any profit-taking in the market, therefore, will probably be short-lived.
The Senate impeachment trial should be a non-event, as long as acquittal is assured. The issue of witnesses may have more negative potential for Democrats than for Republicans. If Schiff, Biden and son are called, their testimonies may help Republicans more than Democrats, politically. What they purportedly did smacks of dishonesty to say the least. If Bolton is called, his testimony presumably will only corroborate what everyone knows -- that Trump was involved in holding back military aid to Ukraine. The issue would remain whether this action warrants impeachment. On balance, the result of the witnesses would likely be more favorable for Republicans than Democrats. This should be a positive for the stock market. But, since it risks hurting the moderate Biden and helping the left-wing Democratic candidates, the market impact is not clear.
Corporate earnings should be stronger in Q419 than in Q319, as I discussed in my December 29 blog. But, consensus looks for about a 1.5% y/y decline, so individual company results should be mixed. Nevertheless, with corporate earnings expected to speed up in 2020, the market impact of negative Q419 earnings should be transitory.
No one knows if or what Iran will do in response to Trump's imposition of further sanctions. This uncertainty should weigh on the stock market, particularly if Iran issues dire threats. But, as a businessman involved in the Middle East once told me, Arabic/Iranian rhetoric is typically more extreme than their actions. Last week's missile attack seems to support this view. The distinction between threats and action should be kept in mind in evaluating how this situation develops.
Consensus looks for a moderate 0.2% m/m December Core CPI and a strong 0.5% m/m increase in Ex Auto Retail Sales. December Industrial Production should be flattish, similar to the -0.1% m/m consensus. (Some of the December weakness in the manufacturing sector could be in anticipation of the stoppage of the Boeing 737 Max production in January.) Prints near these estimates should have little impact on the stock market, as together they would point to the continuation of moderate economic growth. The Atlanta Fed model's projection of 2.3% for Q419 Real GDP should be little changed after these releases.
The question with regard to the Phase 1 agreement is whether this will be a "buy the rumor, sell the fact" situation. The market already responded positively to the announcement, so will there be profit taking when the agreement is signed? Some analysts think the market reaction will depend on the details of the pact. It is doubtful, however, that the effects of the pact can be fully foreseen. So, while there will be lots of opinion voiced, there is likely more uncertainty than might be heard. Perhaps the most important implication of the pact is that a trade war has been averted and that there is precedence for more agreements in the future. Any profit-taking in the market, therefore, will probably be short-lived.
The Senate impeachment trial should be a non-event, as long as acquittal is assured. The issue of witnesses may have more negative potential for Democrats than for Republicans. If Schiff, Biden and son are called, their testimonies may help Republicans more than Democrats, politically. What they purportedly did smacks of dishonesty to say the least. If Bolton is called, his testimony presumably will only corroborate what everyone knows -- that Trump was involved in holding back military aid to Ukraine. The issue would remain whether this action warrants impeachment. On balance, the result of the witnesses would likely be more favorable for Republicans than Democrats. This should be a positive for the stock market. But, since it risks hurting the moderate Biden and helping the left-wing Democratic candidates, the market impact is not clear.
Corporate earnings should be stronger in Q419 than in Q319, as I discussed in my December 29 blog. But, consensus looks for about a 1.5% y/y decline, so individual company results should be mixed. Nevertheless, with corporate earnings expected to speed up in 2020, the market impact of negative Q419 earnings should be transitory.
No one knows if or what Iran will do in response to Trump's imposition of further sanctions. This uncertainty should weigh on the stock market, particularly if Iran issues dire threats. But, as a businessman involved in the Middle East once told me, Arabic/Iranian rhetoric is typically more extreme than their actions. Last week's missile attack seems to support this view. The distinction between threats and action should be kept in mind in evaluating how this situation develops.
Consensus looks for a moderate 0.2% m/m December Core CPI and a strong 0.5% m/m increase in Ex Auto Retail Sales. December Industrial Production should be flattish, similar to the -0.1% m/m consensus. (Some of the December weakness in the manufacturing sector could be in anticipation of the stoppage of the Boeing 737 Max production in January.) Prints near these estimates should have little impact on the stock market, as together they would point to the continuation of moderate economic growth. The Atlanta Fed model's projection of 2.3% for Q419 Real GDP should be little changed after these releases.
Friday, January 10, 2020
December Job Growth Below Consensus, But...
The December Employment Report shows job growth slowing toward trend in the last month of the year. But the underlying labor market remains strong. Some of the slowing could reflect volatility after the November jump. And, there may be some special factor behind weakness in manufacturing jobs. There is evidence that some sectors, like construction, are strengthening. The jobs slowdown is not enough to derail the stock market rally, but it should keep Treasury yields from rising.
While the +145k Payroll gain is smaller than consensus, it still above the near-110k pace consistent with a steady Unemployment Rate. While the headline Unemployment Rate was steady at 3.5%, it actually slipped to 3.50% from 3.54% in November.
The Payroll composition shows mostly smaller gains than in November, which is not surprising given the latter's out-sized 256k Payroll jump (even taking account of the 44k returning GM strikers). Most interestingly, Construction Jobs jumped 20k m/m in December, but not because of construction of new residential homes. The gain was mostly in nonresidential, which suggests this component of the sector may have ended its recent downtrend -- important in the big picture question whether business investment will speed up. In contrast, the 12k drop in Manufacturing Jobs suggests business investment is still weak. The jobs drop was accounted for by declines in Primary Metals, Fabricated Metals and Machinery. Some of these declines, however, may have been in anticipation of the stoppage of the Boeing 737 Max production beginning in January.
The Boeing shutdown should weigh noticeably on Q120 Real GDP Growth. But, Total Hours Worked still look decent going into the quarter. THW in December are 0.5% (annualized) above the Q419 average. With modest gains in the next 3 months, THW in Q120 could easily match the 1.1% (q/q, saar) increase in Q419.
Meanwhile, wage inflation so far remains in check. While calendar considerations could be behind the below-consensus 0.1% m/m increase in December Average Hourly Earnings, it is still a noteworthy sign the tighter labor market is not putting heavy pressure on labor costs. The y/y fell to 2.9% from 3.1% in November. It is well below the 3.3% in 2018. The latter reflected in part a wave of minimum wage hikes. With another wave happening in 2020, wage inflation could pick up in coming months.
While the +145k Payroll gain is smaller than consensus, it still above the near-110k pace consistent with a steady Unemployment Rate. While the headline Unemployment Rate was steady at 3.5%, it actually slipped to 3.50% from 3.54% in November.
The Payroll composition shows mostly smaller gains than in November, which is not surprising given the latter's out-sized 256k Payroll jump (even taking account of the 44k returning GM strikers). Most interestingly, Construction Jobs jumped 20k m/m in December, but not because of construction of new residential homes. The gain was mostly in nonresidential, which suggests this component of the sector may have ended its recent downtrend -- important in the big picture question whether business investment will speed up. In contrast, the 12k drop in Manufacturing Jobs suggests business investment is still weak. The jobs drop was accounted for by declines in Primary Metals, Fabricated Metals and Machinery. Some of these declines, however, may have been in anticipation of the stoppage of the Boeing 737 Max production beginning in January.
The Boeing shutdown should weigh noticeably on Q120 Real GDP Growth. But, Total Hours Worked still look decent going into the quarter. THW in December are 0.5% (annualized) above the Q419 average. With modest gains in the next 3 months, THW in Q120 could easily match the 1.1% (q/q, saar) increase in Q419.
Meanwhile, wage inflation so far remains in check. While calendar considerations could be behind the below-consensus 0.1% m/m increase in December Average Hourly Earnings, it is still a noteworthy sign the tighter labor market is not putting heavy pressure on labor costs. The y/y fell to 2.9% from 3.1% in November. It is well below the 3.3% in 2018. The latter reflected in part a wave of minimum wage hikes. With another wave happening in 2020, wage inflation could pick up in coming months.
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