Category Archives: Inflation

Personal income and spending, ISM manufacturing, construction spending

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Spending still not good, and GDP *is* spending. Personal income growth remains low, but is higher than spending. I suspect this gets reconciled with downward revisions to income over time, perhaps due to downward revisions to employment.

With GDP growth near flat employment growth implies more employees are being hired to produce the same levels of output, which sends up a red flag for downward revisions to employment.

Personal Income and Outlays
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Highlights
Consumers had a healthy December but kept the money to themselves. Personal income rose a solid 0.3 percent with the savings rate moving 2 tenths higher to 5.5 percent, its strongest level since December 2012. Wages & salaries, however, slowed to only plus 0.2 percent in the month but follow outsized gains of 0.5 and 0.6 percent in the prior two months. Service industries lead the pay data with manufacturing pay in contraction. Proprietors’ income rose in the month along with rental income while income receipts were down on lower interest income, the latter reflecting, despite the Fed’s rate hike, the downdraft in rates.

Spending, as retailers already know, was very soft, unchanged with only services showing a gain. December spending on both durable and non-durable goods fell 0.9 percent each, the former reflecting weak spending on holiday gifts and also vehicles and the latter reflecting lower hitting bills. A partial offset is a 2 tenths upward revision to November’s spending to plus 0.5 percent.

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More bad, and downward revisions as well:

ISM Mfg Index
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Highlights
Employment sank the ISM index in January which could muster no better than a 48.2 for what, following annual revisions to 2015, is the fourth sub-50 reading in a row. This is by far the worst run for this closely watched indicator since the Great Recession days of 2009.

Employment fell a very steep 2.1 points to 45.9 to signal significant contraction for manufacturing payrolls in Friday’s employment report, which however would not be much of a surprise given the sector’s prior payroll contraction. This is the third sub-50 reading for employment of the last four months and the lowest reading since, once again, 2009.

There is good news in the report and that’s a snapback for new orders, to 51.5 for only the second plus 50 reading of the last five months and which points to overall improvement in the coming reports. But backlog orders, at only 43.0, remain in deep contraction, and what strength there is in orders isn’t coming from exports which are in contraction for the seventh of the last eight months. Manufacturers have been working down backlogs to keep production up, which came in at 50.2 to signal fractional monthly growth. Inventories remain steady and low but the sample still say they are too high, sentiment that points to lack of confidence in the business outlook.

Confirming the weakness is breadth among industries with 10 reporting composite contraction against eight reporting monthly growth. If it wasn’t for strength in new orders, January’s data would be almost entirely negative. This report is a downbeat opening to 2016 which follows a definitively downbeat year for the factory sector in 2015.

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No mention of the NY tax breaks that expired in June:

Construction Spending
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Highlights
Held down by weakness in the nonresidential component, construction spending didn’t get a lift at all from the mild weather late last year, rising only 0.1 percent in December following a downwardly revised 0.6 percent decline in November and a 0.1 percent contraction in October. Year-on-year, spending was up 8.2 percent, a respectable rate but still the slowest since March last year.

But there is very good news in the report and that’s a very strong 0.9 percent rise in residential construction where the year-on-year rate came in at plus 8.1 percent. Spending on multi-family units continues to lead the residential component, up 2.7 percent in the month for a 12.0 percent year-on-year gain. Single-family homes rose 1.0 percent in the month for an 8.7 percent year-on-year gain.

Now the bad news. Non-residential spending fell 2.1 percent following a 0.2 percent decline in November. Steep declines hit manufacturing for a second month with the office and transportation components also showing weakness. Still year-on-year, non-residential construction rose 11.8 percent.

Rates of growth in the public readings are led by highway & streets, at a 9.4 percent surge for December and a year-on-year rate of plus 12.0 percent. Educational growth ended 2015 at 9.4 percent with state & local at plus 4.4 percent. The Federal subcomponent brings up the rear at minus 1.4.

Lack of business confidence and cutbacks for business spending are evident in this report but not troubles on the consumer side, where residential spending remains very solid and a reminder that the housing sector is poised to be a leading driver for the 2016 economy. Still, the weak December and revised November headlines are likely to pull down, at least slightly, estimates for revised fourth-quarter GDP which came in at plus 0.7 percent in last week’s advance report.

A blind man can see this chart has been decelerating for a long time now:
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Looks to me like it was growing but then flattened out not long after oil capex spending collapsed?
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This is the ‘driver’ for 2016?
It’s only now just back to 2004 levels, and not growing nearly as fast as the prior cycle, and this chart isn’t adjusted for inflation, which brings it’s influence down that much more:
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Japan, China, Fed comment, Capex cutbacks, South Korea

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This is the yen yield curve after over 20 years of a 0 rate policy, massive QE, and now negative overnight rates. Maybe now the economy will finally respond.
:(

(And how good can the BOJ think the economy is?)
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The western educated kids/monetarists who’ve taken control don’t seem to be doing all that well, as China begins to look like the other countries they’ve taken over, like the EU, US, etc. etc. etc. What they learned is that it’s about balancing the federal budget and using monetary policy to support growth and employment as needed, allowing ‘free markets’ to ‘clear’ as per their general equilibrium models that earned them advanced degrees. Unfortunately they fail to recognize the currency itself is a (simple) public monopoly which obviates all those ‘market clearing’ assumptions in their models:

China official PMI misses in January, Caixin PMI shows contraction

Jan 31 (CNBC) — China’s factory activity skidded to a three-year low point in January, adding to further gloom about the state of the world’s second-largest economy.

The government-compiled January manufacturing purchasing manager’s index (PMI) came in at 49.4, slightly missing Reuters consensus estimates for a 49.6 reading and ticking down from December’s 49.7 figure. It was the weakest result since 2012 and marked the sixth straight month in contraction territory.

The mood was worsened by a private survey by Caixin and Markit that showed January manufacturing activity shrinking for the eleventh straight month. Caixin’s survey, which tracks smaller firms than the official indicator, came in at 48.4, compared to December’s reading of 48.2.

Does this read like an executive who’s organization has a $200 million per year research budget?

They just hiked rates in December with every chart I’ve seen having been heading south for a year or so?

And GDP was right on forecast.

Seems to me this ‘kind of tells him’ the fundamental assumptions behind his models needs a rethink?

Fed’s Williams says sees ‘smidgen’ slower rate hikes

Jan 29 (Reuters) — “Standard monetary policy strategy says a little less inflation, maybe a little less growth … argue for just a smidgen slower process of normalizing rates,” San Francisco Fed President John Williams said. “We got a little stronger dollar, some mixed data on the economy, some weakness in Q4 GDP, all of those coming together kind of tell me that we probably need a little bit more monetary accommodation this year than I was thinking in the middle of December.” Williams said his “modal” forecast, remains fundamentally unchanged for 2016 and 2017. “The thing that has changed is that commodity prices keep coming down,” he said.

The hits keep on coming with no replacement spending in sight:

Chevron Posts Loss, Readies More Layoffs

Jan 29 (WSJ) — Chevron is slashing its capital spending by more than $9 billion this year. Chevron plans to sell up to $10 billion in oil fields and other assets through 2017. A $26.6 billion spending plan detailed in December will have to be reduced given how much oil-market conditions have since deteriorated, he company said. Chevron reported a loss of $588 million, or 31 cents a share, in the fourth quarter, down from a profit of $3.47 billion, or $1.85 a share, in the year-earlier period. Revenue tumbled 37% to $29.25 billion. In Chevron’s refining division profits were cut nearly in half, falling to $496 million.

For Mining Chiefs, Doomsday Scenarios Could Become Reality

Jan 29 (WSJ) — Refined-copper supply jumped 36% to 22.5 million tons from 2005 to 2014, according to ICSG data. Over that same period, annual copper consumption increased 38% to 22.9 million tons. Total Chinese copper imports fell to 8.6 million tons in 2015, down 2.2% from the year before. Global refined supply rose 1.8% over the same period, largely because of a 4% increase in refined production from China. China imports of unfinished copper and products in December rose 26% in annual terms to 530,000 tons. More than 600,000 tons of copper supply have been taken out of the market over the past 12 months, according to Morgan Stanley.

Not the worst indicator for global growth:

South Korean Exports Fall at Fastest Pace Since Financial Crisis

Jan 31 (WSJ) — Korean exports, the first shipments data released each month in Asia, slid 18.5% to $36.74 billion in January, the steepest fall since August 2009. The decline extended a run of monthly falls into a 13th month. Imports plunged 20.1% from a year earlier to $31.42 billion in January. For all of 2015, Korean shipments overseas contracted 8%—the steepest fall in six years and the first 12-month contraction in three years, the government said. The Nikkei PMI reading for January came in at 49.5, down from 50.7 in December.

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GDP, Saudi oil production, KC Fed, Chicago PMI, Shale Italy and Japan comments

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As expected, the deceleration continues, and over the next couple of years it wouldn’t surprise me if the entire year gets revised down substantially:

GDP
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Highlights
Consumer spending is the central driver of the economy but is slowing, at least it was during the fourth quarter when GDP rose only at a 0.7 percent annualized rate. Final demand rose 1.2 percent, which is the weakest since first quarter last year but is still 5 tenths above GDP.

Spending on services, adding 0.9 percentage points, was a leading contributor to the quarter as was spending on goods, at plus 0.5. Residential investment, another measure of consumer health, rose very solidly once again, contributing 0.3 percentage points. Government purchases added modestly to growth.

The negatives are on the business side especially those facing foreign markets. Net exports pulled down GDP by 0.5 percentage points. Non-residential investment pulled down GDP by more than 0.2 percentage points. Reduction in inventory investment, which the FOMC warned about on Wednesday, pulled the quarter down by 0.5 percentage points.

Price data are not accelerating, at plus 0.8 percent for the GDP price index which is the lowest reading since plus 0.1 in the first quarter last year. The core price reading is only slightly higher, at plus 1.1 percent which is also the weakest reading in a year.

There are definitely points of concern in this report, especially the weakness in exports and business investment, but it’s the resilience in the consumer, despite a soft holiday season, that headlines this report and should help confirm faith in the domestic strength of the economy.

And this from JPM:

Consumer spending slowed to a 2.2% pace of advance, while business fixed investment spending contracted at a 1.8% rate, the first decline since 2012. A slowing in inventory investment subtracted 0.5%-point from growth last quarter. Even so, the pace of stockbuilding—a $69 billion annual rate—is still faster than is sustainable and poses an ongoing headwind to producers early in 2016. As such, after today’s report we see some more downside risk to our 2.0% projection for Q1 GDP growth.

The consumer looks to be going down hill to me, and this includes increases in total health care premiums due to the newly insured under Obamacare. This chart is not adjusted for inflation, which shows the growth of nominal spending has slowed dramatically. Fortunately the ‘deflator’ indicates that with prices down real purchases have been sustained. But consumers on average tend to spend most all of their incomes, which means fortunately for them prices didn’t rise as fast or they would have bought fewer real goods and services.

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Here’s the last year of GDP year over year growth, after oil capex collapsed:
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This is nominal GDP, not adjusted for inflation:
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Note the relation between export collapses and recessions:
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The increase in premium expenditures for the newly insured is a ‘one time’ event that offered support last year and won’t be repeated this year.
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Interesting how even at the dramatically lowered prices due to increased discounts the Saudis appear to be selling less oil. Patiently waiting for March pricing to be released:
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Yet another bad one:

Kansas City Fed Manufacturing Index
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Highlights
Kansas City manufacturing, along with that of Dallas, are suffering the worst of any regions in the nation’s factory contraction. Kansas City came in at minus 9 for the ninth contraction in 10 months.

Minus signs sweep nearly all readings including new orders and backlogs which are in extremely deep contraction, at minus 27 and minus 36 respectively. Production is at minus 8 with shipments at minus 7. Employment is at minus 7 with price readings moving deeper into contraction, at minus 14 for raw materials and, ominously for inflation expectations, at minus 15 for finished products.

One of the few pluses in the report, ironically, is the index for new export orders which came in at a very modest plus 1. But it’s not only exports that have been pulling down the factory sector but also energy equipment, the latter which is especially sinking the nation’s energy patch.

Chicago PMI: Jan Chicago Business Barometer Jumps 12.7 Points to 55.6

The Chicago Business Barometer bounced back sharply in January, increasing 12.7 points to 55.6 from 42.9 in December, the highest pace of growth in a year.

Chief Economist of MNI Indicators Philip Uglow said, “While the surge in activity in January marks a positive start to the year, it follows significant weakness in the previous two months, with the latest rise not sufficient to offset the previous falls in output and orders. Previously, surges of such magnitude have not been maintained so we would expect to see some easing in February. Still, even if activity does moderate somewhat next month, the latest increase supports the view that GDP will bounce back in Q1 following the expected slowdown in Q4.”

“At current prices U.S. shale producers are losing more than $2 billion a week, according to consulting firm AlixPartners LLP.”

” Italian gross domestic product per capita has hardly changed in 20 years.”

And all they needed was a fiscal adjustment sufficient to get aggregate demand to appropriate levels:

Amari’s fall leaves Abenomics in lurch

Jan 29 (Nikkei) — “I bear responsibility for appointing him,” a visibly pained Abe told reporters Thursday following the resignation of Akira Amari, who also served as his right-hand man in the Trans-Pacific Partnership trade negotiations. Amari devised the basis for Abenomics. He helped alter LDP economic policy’s traditional bias toward public works, shifting the emphasis to a pro-growth strategy of making Japanese companies more competitive and innovative. After Abe led the LDP back to power in 2012, he put Amari in charge of the government’s new industrial competitiveness council and the reconstituted Council on Economic and Fiscal Policy.

Nor will this work, negative rates are just another tax:

BOJ adopts negative interest rates

Jan 29 (Nikkei) — The Bank of Japan decided to adopt negative interest rates at its policy meeting on Friday, voting 5-4 to apply an interest rate of -0.1 percent on current accounts that financial institutions hold at the central bank. At the same time, the BOJ revised its inflation forecast for fiscal 2016 down to 0.8% from a previous level of 1.4%. In a statement, the BOJ said it adopted the negative interest rate policy in order to achieve its price stability target of 2% at the earliest possible time, and signalled that it will “cut the interest rate further into negative territory if judged necessary.”

This might have had something to do with their decision:

Japan’s industrial output falls 1.4% in December, down for 2nd month

Jan 29 (Kyodo) — Japan’s industrial output in December fell a seasonally adjusted 1.4 percent from the previous month, in sharp contrast with a rise of 0.9 percent the government had projected based on hearings with manufacturers last month. The government said the trend of output is fluctuating without clear direction, maintaining its basic assessment of production from the previous month. For 2015, the industrial output index fell 0.8 percent from the previous year. The production index increased 2.1 percent in 2014. Polled manufacturers said they expect output to rise 7.6 percent in January and then fall by 4.1 percent in February.

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Chicago Fed, existing home sales

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Still negative:

Chicago Fed National Activity Index
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Highlights
December was a weak month for the U.S. economy but a little less weak than November, based on the national activity index which improved to minus 0.22 from minus 0.36 (revised lower from minus 0.30). The improvement is centered in the production component as contraction in industrial production eased to minus 0.4 percent from November’s very deep minus 0.9 percent. Other components were steady with sales/orders/inventories and consumption & housing both slightly negative. The only component in positive ground is employment, unchanged in the month at a solid plus 0.12. Despite the improvement in December, the 3-month average fell to minus 0.24 from minus 0.19 in November. This report is a reminder that economic activity is subdued which is a major factor, aside from low oil and commodity prices, holding down inflation.

Up more than expected, but from the chart you can see the average of the last two volatile months is still down a bit vs prior months:
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Fed comment, Retail sales, Empire State Manufacturing, Industrial production, Business inventories, Consumer sentiment

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Looks like the Fed hiked during a recession.

Should make for interesting Congressional testimony…

Maybe the hundreds of $ millions they spend on economic research isn’t enough???
;)

Sales remain at recession levels:

Retail Sales
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Highlights
Retail sales proved disappointing in December, down 0.1 percent in a headline that is not skewed by vehicles or even that much by gasoline. Ex-auto sales also fell 0.1 percent while the core ex-auto ex-gas reading came in unchanged which is well below both expectations as well as low-end expectations. The Beige Book yesterday warned us about weak apparel sales which in this report fell a very steep 0.9 percent, in a decline that likely reflects more than just import-price contraction. The general merchandise category, which is very large, fell 1.0 percent in the month. Electronics & appliances also show contraction.

December winds up what was a not-so-great year for the nation’s retailers. Total sales rose only 2.1 percent in the year, the smallest gain since 2009 and well down from 3.9 percent in 2014. Excluding motor vehicles, sales rose 0.9 percent, far lower than 2014’s 3.1 percent.

There are, however, some positives in the report including another strong gain for restaurants, up 0.8 percent, and also another gain for furniture & home furnishings, up 0.9 percent in strength that confirms ongoing improvement in the housing sector. But sales at non-store retailers rose only 0.3 percent for a second straight month which are moderate gains that do not confirm anecdotal reports of unusual holiday strength for online shopping.

Upward revisions do take some of the sting out of the December report but not much. November total sales are revised 2 tenths higher to plus 0.4 percent and reflects a sharp upward revision to vehicle sales to plus 0.5 percent. But vehicle sales couldn’t muster any strength in December, coming in unchanged. And sales at gasoline stations extended their long run of contraction that reflects falling oil prices, down 1.1 percent in December.

There’s plenty of jobs for consumers and gas prices are low — but so are wages. The consumer started to slow down at year end and that was before the new trouble in China. Today’s data will pull down expectations for fourth-quarter growth.
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Retail Sales ‘control group’ (retail sales excluding food, auto dealers, building materials, and gas stations)
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More recession evidence, and maybe worse…

Empire State Mfg Survey
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Highlights
The contraction in factory activity in the New York manufacturing region, which began way back in August, unfortunately is picking up a lot of steam this month, at minus 19.37 for the January headline which is the lowest reading since April 2009. New orders, at minus 23.54, are contracting for an eighth straight month and at the sharpest pace since March 2009. Unfilled orders, at minus 11.00, are in an even deeper string of contraction. Employment, at minus 13.00, is down for a sixth straight month as is the workweek, at minus 6.00. And there’s a crumbling going on in the 6-month outlook which, at 9.51 is still in the positive column but shows the least optimism since way back in March 2009. This report is grim and offers an initial look at January’s factory activity which, based on these results, appears to be getting hit by global concerns.
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More recession evidence, or worse…

Industrial Production
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Highlights
December was not a good month for the industrial economy as industrial production fell a sharper-than-expected 0.4 percent. Utility output, down 2.0 percent, declined for a third straight month reflecting unseasonably warm temperatures. Mining, reflecting low commodity prices and contraction in energy extraction, has also been week, down 0.8 percent for a fourth straight decline. Turning to manufacturing, which is the most important component in this report, production fell 0.1 percent for a second straight month (November revised downward from an initial no-change reading).

Details on manufacturing include a second straight contraction for vehicles, down 1.7 percent following November’s 1.5 percent decline. Weakness here, along with weakness in the motor vehicle component of this morning’s retail sales report, will raise talk that the auto sector, which had been one of the highlights of the 2015 economy, may slow down in 2016, at least the early part of the year. Construction supplies are a positive, up 0.6 percent for the second strong showing in three months and confirming strength underway in data for construction spending.

Capacity utilization fell 4 tenths from a downwardly revised November to 76.5 percent. A low utilization rate, which is running roughly 4 percentage points below its long-term average, holds down the cost of goods.

Year-on-year rates confirm weakness, down 1.8 percent overall with utilities down 6.9 percent and mining down 11.2 percent. Manufacturing is in the plus column but it’s nothing spectacular, at plus 0.8 percent.

Making matters worse is a downward revision to November, now at minus 0.9 percent vs an initial decline of 0.6 percent. Looking at the annualized rate for the fourth quarter, industrial production fell 3.4 percent though manufacturing did increase but not much, up 0.5 percent. Weather factors are skewing utility output but otherwise, readings are fundamentally soft and reflect the downturn in global demand made more severe for U.S. producers by strength in the dollar.
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Inventories down some but sales down same so relative to sales inventories remain way high, another recession indication:

Business Inventories
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Highlights
Inventories are contracting, the result of defensive draws in the wholesale and manufacturing sectors. Business inventories fell 0.2 percent in November following a decline in October of 0.1 percent. Wholesale inventories fell 0.3 percent for a second straight month with manufacturing down 0.3 percent following October’s 0.2 percent draw. Retail, up 0.2 and 0.1 percent in November and October, was the only sector adding inventories and today’s weak results for December retail sales may point to an unwanted build for December.

Relative to sales, which also fell 0.2 percent and were down 0.3 percent in October, total inventories are stable, at a ratio of 1.38. This report is indicative of economic weakness and will not be building expectations for fourth-quarter growth let alone the outlook for first-quarter growth.
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This was up a tad so they have something to report on the news. But even here the current conditions took a dive. And, as previously discussed, this is one man one vote, not one dollar one vote, and total spending has been decelerating:

Consumer Sentiment
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Highlights
The first indication of the China effect on U.S. consumers looks positive but ultimately is mixed. January’s flash consumer sentiment index did rise 7 tenths from final December to 93.3 but current conditions, the component that picks up the immediate impact of special factors, fell 3.0 points to 105.1. Should volatility in markets begin to ease and confidence in China improve, this reading could pop back as quickly as month end.

Lifting the mid-month index is a rise in the expectations component, up 3.0 points 85.7. Behind this gain is strength in the jobs market and perhaps even falling oil prices as 1-year inflation expectations are down a sizable 2 tenths to 2.4 percent. This is offset in part by a 1 tenth rise in 5-year expectations to 2.7 percent.

The resilience in long-term optimism is a plus for the U.S. economy though the eroding in short-term inflation expectations will not be encouraging to Federal Reserve policy makers who have launched a rate-hike sequence for an economy still struggling against deflation. The Dow is moving off opening lows in early reaction to this report.
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ECB, Fed, Rail traffic

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Looks like they are again making hawkish noises, taking the lead of the Fed:

ECB wary of further action despite uncertain future

By: Balazs Koranyi and John O’Donnell

Jan 14 (Reuters)

* Many governors sceptical of need for further action in near term
* Governors urge countries to act instead with reform
* Oil price and inflation expectations:
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Many European Central Bank policy makers are sceptical about the need for further policy action in the near term, conversations with five of them indicate, even as inflation expectations sink and some investors bank on more easing.

Next week’s rate meeting is expected to be relatively uneventful with the big test coming when the ECB releases its initial 2018 growth and inflation forecasts on March 10.

But apparently recent market action has got the Fed thinking twice about it’s hiking intentions:

China may slow Fed’s interest rate rises: Fed officials

Jan 13 (Reuters) — The rout in China’s stock market, weak oil prices and other factors are “furthering the concern that global growth has slowed significantly,” Boston Fed President Eric Rosengren said. Rosengren also said a second hike will face a strict test as the Fed looks for tangible evidence that U.S. growth will be “at or above potential” and inflation is moving back up toward the Fed’s 2 percent target. “It’s something that’s got to make you nervous,” Chicago Fed chief Charles Evans said of the drag slower growth in China could have on economies like the United States that don’t do much direct trade. Evans also said he was nervous about inflation expectations not being as firmly anchored as a year ago, and added it could be midyear before the Fed has a good picture of the inflation outlook.

Confirming the rail traffic indicators:

CSX fourth quarter profit falls on lower freight volumes

Jan 13 (Bloomberg) — CSX said freight volumes fell 6 percent in the fourth quarter, with a huge 32 percent decline in the amount of coal hauled. Fourth-quarter net income was $466 million or 48 cents per share, down 5 percent from $491 million or 49 cents per share a year earlier. Revenue in the quarter was $2.78 billion, down nearly 13 percent from $3.19 billion a year earlier. “We have not seen these kind of pressures in so many different markets because you have multiple aspects working against you: Low gas prices, low commodity prices, strength of the dollar,” CEO Michael Ward said on the call. Except auto, housing, “you are seeing pressure on most of the markets.”

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Jobs, Wholesale trade, China, Rail traffic

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Anyone notice that the annual growth rate of employment continues the deterioration that began with the collapse in oil capex?
Or that, once again, it looks like most all the new jobs were taken by people previously considered out of the labor force?
And the anemic wage growth also contributes to the narrative of a continuously deteriorating plight for people trying to work for a living:

Employment Situation
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Highlights
The labor market is stronger than most assessments with December results well outside top-end estimates and big upward revisions underscoring the strength of prior months. Nonfarm payrolls jumped 292,000 in December which is 92,000 above the consensus and 43,000 above Econoday’s high forecast. The gain importantly is led by professional & business services which is considered a leading component for future hiring and which rose 73,000 for the second outsized gain of the last three months. Construction, boosted by the nation’s unseasonable weather, has also been adding workers, up 45,000 in December. Upward revisions to the two prior months total 50,000 with November now at 252,000 and October over 300,000 at 307,000.

Despite payroll strength, the unemployment rate held steady at 5.0 percent as more people looked for work in the month. The labor force participation rate improved 1 tenth to 62.6 percent as did the employment-to-population ratio, to 59.5 percent. Wages, also despite the payroll strength, came in unchanged though the year-on-year rate, boosted by an easy year-ago comparison, rose 2 tenths to 2.5 percent which, however, is lower than many expected. The average workweek held unchanged at 34.5 hours while manufacturing hours slipped 0.1 percent which will pull down estimates for next week’s industrial production report.

Turning back to industry payrolls, the bureau of labor statistics is highlighting a 34,000 rise in temporary help services. This is a subcomponent of professional & business services and is considered an especially sensitive barometer for future hiring. Other industries posting gains include trade & transportation at 31,000, government at 17,000, and manufacturing at a modest 8,000. Mining payrolls, hurt by low commodity prices, continue to contract, down 8,000 and are one of the few industries in the minus column.

This report is strong and should confirm confidence that the U.S. economy is, or at least was in December, largely insulated against global weakness. The strength of this report is certain to grab global attention though the lack of wage punch underscores the two-track economy and the Fed’s dilemma — strong job growth but weak inflation.

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Also decelerating since the oil capex collapse:
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So 10 million + people decided all at once they didn’t ever want to work anymore in 2008? That is, we still have massive ‘slack’ in the ‘labor market’ best I can tell:
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And this is still higher than it was in the prior recession:
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Earnings continue to grow only at depressed rates, maybe because of all the ‘slack’ in the ‘labor market?’
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Inventories fell, but sales fell even more, so the inventory to sales ratio went up.
Not good!!!

Wholesale Trade
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Highlights
Wholesale inventories fell a sizable 0.3 percent for a second straight month in November. Sales at the wholesale level fell an even sharper 1.0 percent in the month and, despite the decline in inventories, drove the stock-to-sales ratio up to 1.32 vs 1.31 in the two prior months. A year-ago, the ratio was at 1.23 in what is confirmation that inventories in the sector remain heavy. Inventories of farm products and petroleum rose due to weak sales while inventories of furniture and metals fell on strong sales. Previously released data on the factory sector show a 0.3 percent inventory contraction in November. The missing piece, retail inventories, will be posted following next week’s retail sales report.

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‘Monetary Policy’ in this case means currency management. So we called China a currency manipulator and predator when they bought fx reserves to keep their currency from getting too strong too fast from FDI flows, etc., and then when they let their currency float as FDI flows reversed we criticized them.

And we had a ‘strong dollar policy’ while at the same time telling China their currency needed to appreciate when they were buying fx to moderate the appreciation. It’s all be continuous ‘talking out of both sides of the mouth’

And with a large trade and current account surplus it’s only a matter of time until China is again accumulating fx reserves to keep their currency from appreciating. But in light of the current criticism of their weakening currency, maintaining ‘stability’ when it’s back in appreciation mode may be applauded.

China central bank to maintain prudent monetary policy, keep yuan stable

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ECB comment, Retail Sales, Fed Atlanta, Oil comment

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Seems there’s no wisdom on the topic of ‘money’ anywhere of consequence:

No ‘plan B’ for ECB despite still low inflation: Praet

Jan 6 (Reuters) — Executive Board member Peter Praet said various factors, notably low oil prices and less buoyant emerging economies, meant it was taking longer to reach the goal of inflation of close to but below 2 percent. “We need to be attentive that this shifting horizon does not damage the credibility of the ECB,” he added. “There is no plan B, there is just one plan. The ECB is ready to take all measures necessary to bring inflation up to 2 percent. If you print enough money, you get inflation. Always. If, as is happening now, the prices of oil and commodities are tumbling, then it’s more difficult to drive up inflation,” he said.

From Morgan Stanley:

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Up to 1% for Q4 on the trade number, which is subject to revision.

And DB is forecasting +.5%.
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The still don’t seem to understand it’s only about pricing, not quantity:

Brent Crude Oil Drops Below $35

World’s benchmark oil fell by more than 4.8% to below $35 a barrel around 9:30 AM NY time, extending a third consecutive day of losses. It is the lowest price since 2004 as oversupply worries increased as tensions between Saudi Arabia and Iran diminish chances of major producers cooperating to cut production.

Not to forget their models use the oil futures prices, which express storage charges, as indications of future spot prices, and that this ‘rookie error’ tends to inflate their inflation forecasts:

A number of members commented that it was appropriate to begin policy normalization in response to the substantial progress in the labor market toward achieving the Committee’s objective of maximum employment and their reasonable confidence that inflation would move to 2 percent over the medium term.

However, some members said that their decision to raise the target range was a close call, particularly given the uncertainty about inflation dynamics, and emphasized the need to monitor the progress of inflation closely.

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Saudi pricing, Mtg purchase apps, ADP, Trade, Factory orders, ISM non manufacturing

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Saudi discounts for February. Some reduced, some increased, so probably more same- prices fall until Saudi output hits its capacity:
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Zig zagging a lot recently, now back down to where they’ve been for a while:

MBA Mortgage Applications
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Highlights
Mortgage application activity fell sharply in the two weeks ended January 1, down 15 percent for home purchases and down 37 percent for refinancing. Rates were steady in the period with the average 30-year mortgage for conforming balances ($417,000 or less) up 1 basis point to 4.20 percent. Weekly data can be volatile during the shortened holiday weeks, making the latest results difficult to read. This series will resume its weekly periods beginning next week.
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This is a forecast for Friday’s jobs report:

ADP Employment Report
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Highlights
ADP is calling for unusual strength in Friday’s employment report, at 257,000 for private payrolls which is far outside Econoday’s consensus at 190,000 and well outside the high estimate for 227,000. Strength of this degree would underscore the health of the labor market and would begin to seal expectations for a rate hike at the March FOMC. ADP isn’t always an accurate barometer for the employment report but today’s results could definitely affect the markets.

A bit smaller than expected, but again, both imports and exports are falling:

International Trade
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Highlights
The nation’s trade balance, reflecting weak cross-border activity, narrowed in November to $42.4 billion from a revised $44.6 billion in October. Exports fell 0.9 percent in the month to $182.2 billion with industrial supplies and consumer goods showing the most weakness. Imports fell 1.7 percent to $224.6 billion with both consumer goods and capital goods showing declines.

Despite low oil prices, the petroleum gap widened by $0.9 billion to $5.4 billion due to rising demand. The price of imported oil fell 88 cents to $39.24 for the lowest level since February 2009.

The trade gap with China narrowed by $1.7 billion in the month to $31.3 billion while the gap with Europe widened by $0.4 billion to $13.8 billion. The gap with Mexico narrowed by $1.2 billion to $5.2 billion.

The nation’s fourth-quarter trade balance adjusted for inflation is still trending slightly above the third-quarter which will pull down GDP. But the takeaway from today’s report is slowing global trade.
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Negative growth continues here:

Factory Orders
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Highlights
Flat is a good description of the nation’s factory sector as factory orders slipped 0.2 percent in November, making October’s revised 1.3 percent gain look like a rare outlier. Durable goods orders were unchanged in the month while orders for non-durable goods fell 0.4 percent on price weakness for petroleum and coal.

Capital goods data, unfortunately, are mostly weak including a 0.3 percent decline for core orders. Shipments of core capital goods fell 0.6 percent in November and follow October’s 1.0 percent decline in readings that will pull down the business investment component of the fourth-quarter GDP report.

Outside of orders, total shipments edged 0.2 percent higher to end a string of declines that go all the way back to July. Inventories also offer good news, falling 0.3 percent and bringing down the inventory-to-shipment ratio to a less heavy 1.35 vs October’s 1.36. Unfilled orders are another positive, rising 0.2 percent following a 0.3 percent gain in October.

The factory sector is not exactly robust, the result of weak demand for U.S. exports and also weakness in the domestic energy sector reflected in this report by a 13.6 percent monthly plunge in orders for mining & oil field machinery. But the nation’s economy is not narrowly focused on the factory sector, evidenced by healthy readings in today’s ISM non-manufacturing report.

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Yes, it’s above 50, but the chart indicates the non manufacturing growth rate is melting away:
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PMI Manufacturing, ISM Manufacturing, Construction Spending, Canada PMI, China Manufacturing PMI

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Bad:

PMI Manufacturing Index
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Highlights
The manufacturing PMI has been consistently running warmer than other manufacturing surveys which helps put into context the disappointment of December’s slowing to 51.2, down from 52.8 in November. The final reading for December is 1 tenth lower than the mid-month flash. Near stagnation in new orders is a key negative in the report, one that points to further slowing for the headline index in coming readings. Orders are still growing but at their slowest pace of the recovery, since September 2009. Backlog orders are contracting sharply, the most since September 2009 as well. The report points to widespread weakness across orders including for export orders where manufacturers continue to site strength in the dollar as a negative.

Very bad, employment down, but export orders did manage a bounce:

ISM Mfg Index
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Highlights
ISM manufacturing sample is reporting the weakest conditions since July 2009. At 48.2, December is much lower than Econoday’s 49.2 consensus and is only the third sub-50 reading of the recovery. But the story is much the same as it was in November which came in at 48.6 with both months showing slight contraction underway for both new orders and production. Employment in the sample, however, is noticeably weaker than November, at 48.1 for a more than 2 point decline and the second sub-50 reading in the last three months. A sizable 4.5 point rise for new export orders to 51.0 is a positive in the report. Inventories are steady and low but the sample still say inventories are a little bit high which betrays caution in their outlook. Prices for raw materials continue to contract, a reminder that low oil and commodity prices are making it difficult for the Fed to reach its 2 percent inflation target. This report points to ever softer conditions for a sector that, held down by energy and weak foreign demand, showed very little life during 2015.
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And more bad. Note the ‘processing error’ which resulted in reductions to prior months. As suspected, things have been worse than reported ever since the collapse in oil capex a little over a year ago. And as the chart shows, the blip up as the NY tax credit expired in June continues to reverse:

Construction Spending
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Highlights
Construction spending had been a highlight of the U.S. economy but less so with November’s report where the headline fell 0.4 percent, far below the Econoday consensus for plus 0.7 percent. The year-on-year gain for spending, at 10.5 percent, is the lowest since April last year. Today’s report also includes sharp downward revisions to prior months, the result of a processing error going back to January last year. October’s initial 1.0 percent monthly gain is now cut 7 tenths to 0.3 percent while September is now at plus 0.2 percent vs an initial plus 0.6 percent.

The processing error, unfortunately for the housing outlook, is centered in the residential component where prior strength has been cut back. Still, residential spending rose 0.3 percent for a second month in a row that follows September’s very solid 1.2 percent gain. Spending on new single-family homes has been rising strongly with the year-on-year rate at a very solid plus 9.3 percent. Spending on multi-family homes did fall in November but has been in fact booming in prior months, up 24.5 percent year-on-year.

Spending on nonresidential construction has also been solid, down in November but with the year-on-year rate at plus 13.6 percent. Public spending has been led by the educational component, up 15.2 percent year-on-year, with highway spending behind at plus 5.6 percent.
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Canada Manufacturing PMI at Record Low

Jan 4 — The RBC Canadian Manufacturing PMI dropped to 47.5 in December of 2015 from 48.6 in the previous month. It is the fifth contraction and the lowest reading on record due to weak output, new orders and employment.

China Caixin Factory Activity Contracts for 10th Month

Jan 4 — The Caixin Manufacturing PMI in China dropped to 48.2 in December of 2015 from 48.6 in November and below market expectations. While the reading was the lowest in 3 months, factory activity has been in a contraction since March. Production declined for the seventh time in the past eight months, driven in part by a further fall in total new work. Client demand was weak both at home and abroad, with new export business falling for the first time in three months. Manufacturers continued to trim their staff numbers and reduce their purchasing activity in line with lower production requirements. Meanwhile, deflationary pressures persisted, as highlighted by further marked declines in both input costs and selling prices.

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