Succinct Summation of the Week's Events

Succinct Summation of the Week’s Events:

Positives,

1)Within the payroll data, wages grew by .4% m/o/m which was one tenth more than anticipated and higher by 4.1% y/o/y. Combining this with the tick down in hours worked reflects a 3.8% y/o/y average weekly wage gain. Evidenced by the drop in the labor force, the participation rate and the employment to population ratio, the labor market remains tight.

2)Initial claims totaled 202k vs 220k in the week before and that was 14k below expectations but because it was for the week ended 12/30, assume the timing of the holidays messed with the seasonal adjustments, though the BLS tries its best to smooth things out. Continuing claims, for the week ended 12/23, and less influenced by the holidays as its counting those that continue to collect benefits, remained elevated at 1.855mm, though down from 1.886k in the week before.

3)According to ADP, wage growth is slowing but these are still heady numbers. ‘Job Stayers’ saw a 5.4% y/o/y pay gain vs 5.6% in November. For ‘Job Changers’, the pay raise was 8% y/o/y vs 8.3% in November.

4)The December ISM manufacturing index rose to 47.4 from 46.7 and was a bit above the forecast of 47.1 but it was October 2022 the last time it was 50 or above. While the headline print rose slightly, the breadth deteriorated further where just one industry saw growth and that was ‘primary metals.’ That compares with 3 in November while those seeing contraction totaled 16 vs 14 in the month before. The bottom line according to ISM, “Demand remains soft” and “84% of manufacturing GDP contracted in December, up from 65% in November.”

5)Apartment List released its December rental report of new leases (not renewals) and the nationwide median rent was down by .8% m/o/m and said "The recent declines are in line with the rental market's typical seasonal pattern, as fewer renters are looking to move at this time of year, although this year's dip has been a bit sharper than what we normally see." Of the 100 biggest cities, rents were down in 83 of them. The y/o/y drop is now 1% and obviously is a big slowdown from the dramatic increases in 2021 and 2022. "But despite this cool down, the national median rent is still nearly $250 per month higher than it was just three years ago." On the supply side, their national vacancy index is at 6.5%, "slightly higher than the pre-pandemic average" and should rise further in 2024.

6)In the December Dallas Fed Banking Conditions survey things eased up a bit in terms of lending standards, the demand for loans and the cost of capital but loan non-performance continued to mostly soften. The survey said, "Credit standards tightened at a slower pace across all loan types. Loan demand continued to decline, though at the slowest pace since the end of 2022. The decline in loan volume eased across all loan types, with the greatest stabilization in commercial real estate and consumer loans. Loan nonperformance rose again, driven by consumer loans. Loan pricing continued to increase but at a slower rate. Although bankers remain pessimistic and expect future business activity and loan demand to decline, the slowdown is anticipated to be milder than prior expectations. Survey respondents do, however, expect loan nonperformance to continue increasing at a slightly faster rate over the next six months."

7)Auto sales in December totaled 15.83mm at a seasonally adjusted annualized rate (SAAR) and that was above the estimate of 15.5mm. That also compares with a 13.3mm run rate in December 2022 and a 16.7mm pace in December 2019. It's tough to separate out the influence of better inventory levels, holiday incentives, fleet sales and the end of the UAW strikes.

8)Eurozone inflation for December came in as expected with the headline print of up 2.9% and the core rate higher by 3.4%. The headline read is up from 2.4% in November and the core comparison was 3.6%. 

9)The December Eurozone services PMI was revised up to 48.8 from the initial print of 48.1 but that is below 50 for the 5th straight month. S&P Global said "It's not quite recession territory yet for services, but the vibe is far from growth oriented. There are a lack of clear signals indicating an imminent return to robust expansion." As for the outlook, "Business confidence improved during December, rising to its highest level since mid-2023. Nevertheless, growth expectations remained weak by historical standards." On pricing, take note of this, "Eurozone services firms were more aggressive with their price setting, despite input cost inflation slowing to a 5 month low."

10)The UK services sector ended 2023 on a good note with its PMI revised to 53.4 from 52.7 initially, up from 50.9 in November and that is the best since June. S&P Global said "December data indicated that the UK service sector ended last year on a high, with business activity growth accelerating to its fastest for six months as the turnaround in order books gained momentum. The recovery in client demand was attributed to hopes of lower borrowing costs and an improving global economic backdrop in 2024. However, many firms continued to cite challenging underlying business conditions due to the stagnating UK economy and strong pressure on margins from rising labor costs."

11)Germany said its December labor data saw an increase of 5k in the number of unemployed but that was much less than the estimate of up 20k. Their unemployment rate of 5.9% is now at the highest level since May 2021. The head of the labor agency in Germany said "If we look back at 2023, we can see that the weak economy has left its mark on the labor market - however, considering the extent of the stress and uncertainty, the labor market is still holding up well."

12)China's December Caixin services PMI rose to 52.9 from 51.5 and that was 1.3 pts above expectations. Also, "Chinese services companies remained upbeat that business activity will increase over the next 12 months in December. Businesses that forecast rising output over the course of 2024 often attributed this to forecasts of stronger economic conditions and a corresponding increase in client spending. The level of positive sentiment remained below the series average, however, despite improving to a three month high." 

13)The private sector Caixin China manufacturing PMI was little changed at 50.8 vs 50.7 but just above the estimate of 50.3. Caixin said "Firms signaled stronger increases in output and new orders amid reports of firmer market demand. At the same time, new export business fell at the softest rate in six months. However, business confidence regarding the year ahead remained historically subdued and firms maintained a cautious approach to employment, as staffing levels fell for the 4th straight month."

14)Hong Kong's PMI also improved to 51.3 from 50.1 and that is the best since April. S&P Global said "Higher demand helped to boost private sector output and contribute to faster employment growth."

15)Singapore's December PMI was little changed at 55.7 vs 55.8. S&P Global said "Singapore's private sector economic expansion was sustained at a solid pace at the end of 2023.

16)An economic bright spot in southeast Asia, Indonesia’s manufacturing December PMI rose to 52.2 vs 51.7. 

Negatives,

1)December payrolls grew by 216k, 40k more than expected but the two prior months were revised down by a net 71k. The private sector added 164k of these jobs. The large increase in the household survey in November was completely offset and then some in December as jobs here fell by 683k and combine that with a large drop in the size of the labor force of 676k kept the unemployment rate at 3.7% and for the wrong reason this time in contrast to November. The all in rate rose one tenth m/o/m to 7.1%. Hours worked fell to 34.3 from 34.4, the estimate was for no change and that matches the lowest since April 2020. Also, the participation rate fell 3 tenths to 62.5% which is the lowest since February 2023. The key 25-54 yr old group saw a one tenth drop in the participation rate to 83.2%. The employment to population ratio fell too. Most of the job gains are taking place in government (52k), private education/health (74k) and leisure/hospitality (40k) which total 166k of the 216k. Lastly of note, the number of people working part time because of ‘slack work’ rose to the 2^nd highest read since May 2022. And, the number of ‘multiple job holders’ rose to a record high.

2)In the December NFIB small business optimism survey (full report out next week), Plans to Hire fell 2 pts m/o/m to 16% which is the lowest since June and 1 pt from matching the lowest since the Covid shutdowns.