Labor Market Indicators are Starting to Unify on Easing in Hiring
Economic news and commentary for August 30, 2023
US ADP Employment
The labor market is finally loosening, and several indicators are coming together to support that. The preshow to the BLS jobs report, the ADP National Employment Report, recorded job growth of 177,000 in August, down from 371,000 jobs added in July. The July employment increase was upgraded by 47,000 from the previous reading of 324,000 in a slight nod to labor market strength, but that was the extent of the signals of strength. The job gains were still heavily in the services sector with another substantial 154,000 gain there, but within that sector, the gains were more spread out. The robust growth of employment in business services and leisure & hospitality has slowed and was just 15,000 and 30,000 this month. The services sector was also slightly distorted by a strong increase in education (52,000) that came as a result of schools being back in session following the summer break.
More weakness can be found in the ADP’s wage data which pointed to a significant easing in the growth of annual pay in August. For job changers, annual pay growth reached the lowest since July 2021 at 9.5% YoY, down from 10.3% YoY last month. The softness in pay growth for job changers in August matches up well with the decline in the total number of quitters in July from the JOLTS data yesterday. There are increasingly weaker incentives for employees to jump ship to other positions as job prospects gradually become dimmer. Pay growth for job stayers also slowed, down -0.3 ppts to 5.9% YoY, but the deceleration was much slower than for job changers’ pay growth. The spread between the two has reached the lowest since May 2021.
The ADP data jives well with JOLTS July release where it was discovered that the trend in falling job openings was continued. Specifically, job openings fell over -330,000 from June to July to 8.8 million. The decline over the last year has been -2.4 million from a total of 11.4 million in July 2021. The sharpest decline over the past year has been in the business services industry where openings fell -750,000 in that period. It is no surprise that this sector has also seen a sharp slowdown in the pace of hiring over the past few months. As mentioned before, the number of quits reported by the BLS has also come down substantially. From June to July, total quits fell -253,000 to 3.5 million and was down more substantially over the past year, down around -460,000. This is basically back to the average amount of quits observed just before the pandemic (the average in Q4 2019 was just under 3.5 million).
The Fed will have a lot of new data to think about in its next meeting. It will be happy to see several of the employment indicators cooling together to provide broad evidence that the labor market is loosening. At the same time, the Fed will hope to see this while the unemployment rate remains near the current low level. Further confirmation of the trend of labor market easing this Friday might be convincing enough to keep the FOMC members from opting for a final hike in September.
Still to come…
10:00 am (EST) - US Pending Home Sales
10:00 am - US State Street Investor Confidence Index
10:30 am - US EIA Petroleum Status Report
11:00 am - US Survey of Business Uncertainty
7:50 pm - Japan Industrial Production
7:50 pm - Japan Retail Sales
9:30 pm - Australia Capital Expenditures
9:30 pm - China CFLP Composite PMI
Morning Reading List
Other Data Releases Today
Italy's Consumer Confidence index edged down -0.2 pts to 106.5 in August. The Current Climate index edged up 0.4 pts to 101.4, while the Future Climate index fell -0.9 pts to 114.1.
The EU Economic Sentiment Indicator fell -0.6 pts to 92.9 in August, and the Employment Expectations Indicator fell -1.0 pts to 101.7. The consumer confidence index fell for the first time since September 2022, down -0.9 pts to -17.0.
German import prices fell -0.6% MoM and -13.2% YoY in July and export prices fell -0.3% MoM and -3.2% YoY. The YoY decline in import prices is the sharpest since Jan 1987. Intermediate goods prices were down -1.6% MoM and -9.5% YoY.
Germany's CPI grew 0.3% MoM and 6.1% YoY in August, down from 6.2% YoY in July.
Core CPI: 5.5% YoY (Jul 5.5% YoY)
Energy: 8.3% YoY (5.7% YoY)
Food: 9.0% YoY (11.0% YoY)
Goods: 7.1% YoY (7.0% YoY)
Services: 5.1% YoY (5.2% YoY)
The 2nd estimate of Q2 2023 GDP was revised down -0.3 ppts to 2.1%. The weaker GDP reading also lead to a downgrade in the PCE price index, down -0.1 ppts to 2.5% YoY, and the core PCE price index, down -0.1 ppts to 3.7% YoY.
Advanced Economic Indicators for August:
Trade deficit up 2.6% MoM, exports up 1.5% MoM, imports up 1.9% MoM
Wholesale inventories fell -0.1% MoM
Retail inventories grew 0.3% MoM
Auto inventories are up 22.4% YoY
US Job Openings
JOLTS: More Good News for the FOMC (Wells Fargo) - The July JOLTS report showed clear signs of continued cooling in labor demand growth. Total openings fell to 8.8 million in July, a decline from the downwardly-revised 9.2 million openings in June and the lowest level since February 2021. The quit rate fell another tick and is now back to where it was before the pandemic began. Gross hiring growth kept slowing, but involuntary separations including layoffs remained in check, a sign that while demand for new workers is moderating, demand for existing workers is holding up.
Job Openings Data Reveal Labor Market Cooling (NAHB) - The count of open, unfilled jobs for the overall economy continued to moved lower in July, falling to 8.8 million. While certain inflation readings have raised the likelihood of a September Federal Reserve interest rate increase, the JOLTS survey is another data point indicating an ongoing but gradual cooling of macro conditions due to elevated interest rates.
A JOLT to U.S. Household Confidence (BMO) - Job openings fell to 8.83 mln in July, marking the lowest level since March 2021. This is what the Fed wants to see—easing labour demand. Vacancies have continued to trend down and are well below the record-high 12 mln hit back in March 2022. Meantime, hiring softened to the lowest level since the start of 2021. And, the quits rate is now lower than its pre-pandemic peak.
US
Consumer Confidence: From FOMO to Uh Oh (Wells Fargo) - Lost swagger in August has a lot to do with the cooling labor market. Multiple gauges of how consumer feel about jobs slipped to levels not seen in more than two years.
Home Price Appreciation Continues in June (NAHB) - In June, national home prices continued to increase. Limited inventory and solid but weakened demand put upward pressure on home prices, despite rising mortgage rates. Locally, all 20 metro areas, reported by S&P Dow Jones Indices, had positive home price appreciation in June.
Employment preview: A noisy August jobs report (EY Parthenon) - The August jobs report will likely bring more evidence that the labor market is gradually cooling, with nonfarm payrolls expected to rise around 140,000 following an average gain of 218,000 in the prior three months. The Screen Actors Guild — American Federation of Television and Radio Artists (SAG-AFTRA) strike and bankruptcy of a long-time trucking company in August will likely create some noise in the data and point to some downside risk to the headline payroll gain. We estimate that these two factors could potentially pose a cumulative drag on payrolls worth around 30,000 to 40,000 jobs.
Automation will accelerate under tight labour markets (Saxo Bank) - Automation and robotics are key technologies for companies to offset the cost headwinds from inflation, tight labour markets and demographics in the years to come. In the case of DSV, one of the world's largest logistic companies, heavy investments in automation technology has enabled the company to slightly expand its operating margin and reducing its workforce while competitors have been forced to do the opposite. Automation and robotics as an investment theme is key for the long-term investor.
The Impact of the Additional Appropriations on Federal Spending in the Fourth District (Cleveland Fed) - Headlines regularly report large changes in federal spending. But despite recent additional appropriations, it appears that the federal funds flowing into the Fourth District in 2023 have returned to their prepandemic levels relative to the District’s gross domestic product.
Halloween creeps a little closer: Seasonal supply chains accelerate (S&P Global) - Retailers are preparing for Halloween sales earlier than ever, in part due to concerns about a downturn in consumer spending. That's led to earlier shipments of Halloween products than prior years, with decorations outstripping outfits. (Worryingly, clown costumes are doing better than others.)
Europe
German government sends in the paramedics (ING) - The recent ‘Sick man of Europe’ debate seems to have woken up the German government as it just announced a ten-point programme to support the economy. We are afraid that today’s announcement will not be enough.
Swedish Q2 GDP: Upward revision, but still bad (Nordea) - Growth was weak in Q2, but not as bad as the flash estimate indicated. The revised figures for Q2 GDP came out at -0.8% q/q and by -1.0% y/y. The flash for Q2 from late July stood at -1.5% q/q and -2.4% y/y.
Spanish headline inflation rises for second month in a row (ING) - Spanish headline inflation rose to 2.6% in August from 2.3% in July, the second consecutive increase. Core inflation, however, did drop slightly to 6.1% last month from 6.2% in July.
Spain | The banking channel of monetary policy (BBVA) - The main banking indicators for the first half of 2023 are now public, revealing a reduction in credit and deposits, but a significant rise in interest rates on loans compared to a very timid increase in interest rates on deposits.
Australia
Australia: Rate hike forecast is hanging by a thread (ING) - The headline inflation rate has now fallen below 5% which will encourage thoughts that the RBA tightening cycle has peaked - though progress over the next few months will be harder. Our final 25bp rate hike call for 4Q23 is hanging by a thread.
Canada
Ontario GDP by Industry Outlook: Shifting into Lower Gear (TD Bank) - Ontario’s industries enjoyed a solid first-half performance, keyed by output gains in several sectors. The manufacturing and public sector industries played particularly important roles in supporting growth. The former benefitted from healing auto supply chains while growth in the latter is consistent with government spending plans.
Africa
Africa's Fragile States Are Greatest Climate Change Casualties (IMF) - Climate change poses grave threats to countries across Africa—but especially fragile and conflict-affected states. As the continent’s leaders converge on Kenya for next week’s African Climate Action Summit, it is vital that they come up with solutions to support these vulnerable countries.
Inflation
Inflation’s second wave: Are we really watching a 70s rerun? (ING) - Another wave of global inflation is far from inevitable. But there are good reasons to think inflation will be structurally higher and more volatile over the next decade than the last.
Price-Setting During the Covid Era (Federal Reserve) - The Covid-19 pandemic has had enormous effects on every aspect of the economy, including inflation which has become one of the most pressing economic problems of the recovery period. Although inflation fell significantly at the onset of the pandemic, the increase seen since early 2021 has brought inflation to levels not seen since the 1980's. While the inflationary surge has captured the attention of economic policymakers, academics, and commentators, there has so far been little documentation of individual price-setting dynamics that have been behind this surge and how these dynamics may or may not have changed.
Debt
Historic $650 Billion Liquidity Boost Continues to Benefit the Global Economy (IMF) - In a world shaken by multiple shocks affecting many countries—pandemics, wars, food and energy crises, and climate disasters—the international community has a responsibility to stand together and support the global economy and all its citizens. One example of such international cooperation has been the IMF’s largest-ever allocation of special drawing rights in August 2021, which injected $650 billion of liquidity into countries to help turn the pandemic crisis toward recovery.
Weather
SustainaWeekly - The economic impact of extreme weather events (ABN AMRO) - Extreme weather events, such as heatwaves, fires, droughts, flooding and tropical storms, are more commonplace and more intense. In this edition of the SustainaWeekly, we first start by setting out the channels through which extreme weather events have an impact on the economy. We then go on to summarise the highlights of our ESG Investor Survey, which were covered in much more extensive detail in an earlier publication. Finally, we focus on the emerging solar technologies, which could be game changers but are not yet commercially ready.
Outlook
Global Economic Outlook: Slow Motion (Northern Trust) - Despite strong headwinds, the global economy has continued to expand. But an economic divergence has developed. The U.S. and Japan have exhibited unexpected strength; China, which was anticipated to drive global growth this year, is struggling. And Europe is somewhere between these extremes.
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