Positives
While Powell and Co didn't cut rates, as no one expected, we're well priced for a few by year end.
Q2 productivity rose more than expected, by 2.3% q/o/q annualized. The estimate was 1.8% and follows a .4% increase in Q1. Versus last year, productivity was up 2.7% y/o/y and is the 4th quarter in a row with a 2 handle after a multi year stretch of subpar growth as we managed thru Covid. After a 3.8% jump in Q1, unit labor costs were up .9% and are up .5% y/o/y.
Pending home sales in June rose 4.8% m/o/m, better than the estimate of up 1.5%, though still down 7.8% y/o/y. All four regions saw increases vs May. The NAR attributed the bounce to a lift in supply, “The rise in housing inventory is beginning to lead to more contract signings. Multiple offers are less intense, and buyers are in a more favorable position.”
The Q2 Employment Cost Index rose .9% q/o/q, one tenth less than expected. Specifically with the private sector, wages/salaries rose .8% q/o/q, down from 1.1% in Q1. On a y/o/y basis, private sector wages and salaries grew by 4.1% vs 4.3% in the two prior quarters and vs 4.5% in the one before that.
The July Consumer Confidence index from the Conference Board was 100.3, about in line with the estimate of 99.7 and compares with 97.8 in June (revised up from 100.4 initially) and 101.3 in May. The Present Situation has fallen to the lowest level since April 2021 and go back to January 2017, not including Covid, the last time it was lower. On the flip side, while still pretty depressed, the Expectations component rose to the highest since January. The differential can be explained by the labor market answers. People are more worried now but hopeful in the coming 6 months things will improve, albeit slightly. Spending intentions continued to weaken.
An update on container shipping prices. The Shanghai to Rotterdam trip fell a touch, by $60 to $8,200 while the route to LA fell for a 3rd week by $194 to $6,740 and is off more from its recent high of $7,512.
The Apartment List National Rent Report on July activity rose for a 6th month m/o/m, measuring new leases, but still "over the course of 2024 as a whole remains modest, signaling ongoing sluggishness in the market." Prices rose .2% m/o/m. Y/o/Y rents fell by .8%. Because of growing supply, the vacancy rate was 6.7%, the most since August 2020 and compares with about 6% pre Covid. Most of that excess supply is in the sunbelt states where most of the overbuilding took place.
From Camden Property Trust: In July, new lease rates fell 1.6% y/o/y but signed renewal rates rose by 4% and their blended rate was up .9% y/o/y.
From Meta: "We estimate that there are now more than 3.2 billion people using at least one or our apps each day...Looking forward, we believe generative AI will play a growing role in how businesses market and engage with customers at scale. Within ad revenue, the online commerce vertical was the largest contributor to y/o/y growth, followed by gaming and entertainment and media. On a user geography basis, ad revenue growth was strongest in Rest of World and Europe at 33% and 26%, respectively. Asia Pacific grew 20% and North America grew 17%." Their cap ex outlook is $37b to $40b for the full year from their previous range of $35b to $40b.
From Microsoft: On Copilot, "The number of people who use Copilot daily at work nearly doubled q/o/q as they use it to complete tasks faster, hold more effective meetings, and automate business workflows and processes." Cap ex in the quarter was $19b, "in line with expectations"
From Amazon: "AWS y/o/y revenue growth accelerated again, from 17.2% in Q1 to 18.8% in Q2...companies have completed the significant majority of their cost optimization efforts and are focused again on new efforts." On its cap ex spend, "For the first half of the year, cap ex was $30.5 billion. Looking ahead to the rest of 2024, we expect capital investments to be higher in the 2nd half of the year. The majority of this spend will be to support the growing need for AWS infrastructure as we continue to see strong demand in both generative AI and our non-generative AI workloads."
From Apple: On the outlook, "We expect our September quarter total company revenue to grow y/o/y at a rate similar to the June quarter."
From AMD: "second quarter revenue increased 9% y/o/y to $5.8b as significantly higher sales of our data center and client processors more than offset declines in gaming and embedded product sales."
From Block: "GPV (gross payment volume) growth in the quarter was up 8% y/o/y as strength from our markets outside the US was offset by a continued moderation in US same store sales growth, consistent with broader macro data points."
Cheesecake Factory saw 1.4% comps for Q2 "meaningfully outperforming the casual dining industry resulting in record high Cheesecake Factory restaurant average weekly sales as well as total consolidated revenues."
From Shake Shack: They had 4% comp growth and said this, "There has been much discussion about customers moving to a more value oriented mindset and that the industry has started to wage value wars in a fight for transactions. In this environment, many believe that Shake Shack's premium positioning is a liability. But, to the contrary, I believe that it is truly one of our strengths. Our team has been nimble and begun to employ strategic promotions to earn more than our fair share of transactions."
From Live Nation: "We continue to see strong demand globally, with a growing variety of shows attracting both casual and diehard fans who are buying tickets at all price points, which speaks to the unique experience only live concerts can provide."
From Autonation: "the CDK outage masked what was developing into a very positive quarter...April and May, new unit sales were up about 5%" but ended up down 3% because of the outage. Used vehicle sales were tracking flat thru May but ended lower by 8% y/o/y also due to the outage."
From Paypal: "we see the US environment being very consistent right now with what we've seen over the first half. International is a real strength for us."
From Ferrari: "One, very strong Q2 financial results and the continuous smooth execution of the year. Two, a solid order book, which has evolved as expected...Look, we don't see any sign of weakness. We see there is no trend at all in reduction of visit...so there is no weakness sign that is perceived either by us directly or by our dealers."
From Eaton: "Recently, we've seen data center and power generation/renewable projects take the lead in new project announcements. These two project types represent some 40% of announced projects in the last 12 months." They are also seeing strength in 'institutional infrastructure' such as "education, healthcare, government and includes waste and wastewater."
From Schneider National: "the quarter saw positive indicators, including seasonal demand, tightening supply during the annual road check event, increased spot pricing and modest contract price gains in our truckload network. While we are not calling a market inflection just yet, and the sustainability of these trends is not yet proven, there are signs of market improvement which we anticipate will present opportunities as we move forward."
The BoJ stepped up with a rate hike to .25% from 0-.10%, said they could hike again and will SLOWLY cut QT in half to 3 trillion yen by early 2026.
Thailand's July manufacturing PMI rose to 52.8 fro 51.7.
Australia saw Q2 CPI in line relative to expectations but the trimmed mean calculation rose two tenths less than forecasted q/o/q.
Hong Kong's economy grew more than estimated in Q2, by .4% q/o/q and 3.3% y/o/y vs the estimate of up .3% and 2.7% respectively, helped by exports which offset weakness in consumption.
Taiwan's economy grew by 5% y/o/y in Q2.
Vietnam, the growing manufacturing plant destination, saw its exports in July rise 19.1% y/o/y which was much better than the estimate of up 13.5%. Helping is Samsung in particular which makes up alone about 30% of Vietnam's exports with 4 factories and about 200,000 employees.
The Eurozone reported a better than expected Q2 economic performance with GDP up .3% q/o/q and .6% y/o/y, both one tenth above the forecast. Germany though continued with its weakness as its economy contracted by one tenth q/o/q vs the estimate of up one tenth. Spain has been the bright spot, helped by tourism, as its economy grew by .8% q/o/q, well above expectations of up .5%. The French economy grew by .3% q/o/q vs the estimate of .2%.
Negatives
Bad news is bad news now. July payrolls grew just 114k, well below the estimate of 175k and the two prior months were revised down by a combined 29k. The unemployment rate jumped to 4.3% from 4.1% as a rise of 67k was more than offset by a gain of 420k in the labor force. The all in rate rose to 7.8% from 7.4%. Also reflecting weakness was the decline in the workweek to just 34.2 hours from 34.3 and that is the least since 2010 not including the Covid drop. Average hourly earnings rose .2% vs the estimate of .3% m/o/m. The only positive was the one tenth gain in the participation rate to 62.7% and to 84% for 25-54.
While Powell made clear on Wednesday that a 50 bps cut was not on their minds for the first shift in policy, I’d think it might be now time to start thinking about. That said, we are not going to have a slash and burn rate cutting cycle ahead I believe.
That wasn’t the only negative this week…
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