Monday, June 6, 2016

Bonddad Monday Linkfest

Daily Chart of the UNG ETF

Note, however, that yesterday’s ADP national estimate of private payrolls looks dramatically brighter. The firm reported that US companies added 173,000 jobs last month. The chasm between this estimate and the government’s official data is surprisingly wide. Clearly, one number is wrong—big time. Deciding which data set is misleading us will take a month or two.

Note, however, that initial jobless claims continue to print at levels that are close to a multi-decade low, which implies that job growth will roll on at a healthy pace. But as I discussed yesterday, there are cracks in this seemingly upbeat picture via the raw year-over-year trend in claims. New filings for unemployment benefits increased 6.6% last week vs. the year-earlier level. The annual rise is the fourth time in the past five weeks that claims headed higher vs. year-ago figures. If claims continue to rise on a year-over-year basis, this leading indicator will signal trouble for the business cycle in a more convincing degree.

ADP v. Establishment Data

Econbrowser on the Jobs Report

The Strong Dollar and Manufacturing Jobs 

Scott Grannis on the Jobs Report

The June employment report was much weaker than expected (+38K vs. +160K), but it's not necessarily the case that the engine of economic growth has virtually shut down. We've seen a half dozen very weak numbers like this over the past 5-6 years—it's the nature of this beast to be very volatile on a month-to-month basis. The monthly payroll numbers are simply not reliable enough to make confident judgments about the health of the economy, and, moreover, they can be revised significantly in the future.

What the report does tell us is that there is no sign of any fundamental improvement in the economy or the jobs market. There had been hints of improvement in past reports (e.g., a rise in the labor force participation rate and a quickening in the growth of the labor force), but they've been largely reversed now. As a result, it's likely that the economy is still plodding along at a miserably slow pace and will continue to do so unless and until there is a meaningful change to fiscal policy.  

The way to bet is that two-thirds of the surprising component of this month's employment report will be reversed over the next quarter or so.

Nevertheless: does anybody want to say that the Federal Reserve's increase in interest rates last December and its subsequent champing-at-the-bit chatter about raising interest rates was prudent in retrospect? Anyone? Anyone? Bueller?

And does anybody want to say--given that the downside risks we are now seeing were in the fan of possibilities as of last December, and given that the Federal Reserve could have quickly reacted to neutralize any inflationary pressures generated by the upside possibilities in the fan last December--that the Federal Reserve's increase in interest rates last December and its subsequent champing-at-the-bit chatter about raising interest rates was sensible as any form of an optimal-control exercise?

And we haven't even gotten to the impact of the withdrawal of risk-bearing capacity from the rest of the world that happens in a Federal Reserve tightening cycle...

Visa and MasterCard agree that there hasn’t been any dramatic change in the consumer during the month of May.

“What we are seeing . . . it’s very much more of the same. . . . We don’t see that weakening environment, but in the same respect we also don’t see a strengthening of commerce, and obviously that’s something that we’d like to see. But I would say in every developed market around the world, volumes continue to perform at levels like we saw last quarter.” — Visa director and CEO Charles Scharf (Payments)

“I don’t think we see anything different really than what we said back when we had our last earnings call . . . in April . . . So from a US perspective . . . We don’t see that the consumer had a step-down in spend.” — MasterCard CFO Martina Hund-Mejean (Payments)

Daily Chart of the XLYs

Daily Chart of the XLPs

Daily Retail Sector ETF

                                                         Daily Consumer Services ETF