Monday, August 5, 2013

Mixed Signals from Economic Indicators (excerpt)

In addition to analyzing the monthly seasonality of the stock market, I have noticed that the first trading day of the month tends to be an especially good one during bull markets. I attributed this to the release on those days of the manufacturing PMI, which tends to be bullish when the economy is expanding.

It happened again last Thursday, August 1. The M-PMI was remarkably strong, jumping from 50.9 in June to 55.4 in July. Its major components all surged as well, with new orders rising from 51.9 to 58.3, production from 53.4 to 65.0, and employment from 48.7 to 54.4. These data certainly support our “Second Recovery” scenario with economic growth led by housing and autos. They also support the view expressed in Wednesday’s FOMC statement that while economic growth was “modest” (down from “moderate”) during the first half of the year, it should pick up during the second half.

Last Thursday’s drop in initial unemployment claims to 326,000, the lowest since January 2008, also supports the more upbeat outlook for the economy. The four-week average remains at a cyclical low and is a good leading indicator of the unemployment rate, which fell to 7.4% in July. That’s the good news. The bad news is that Friday’s employment report was among the weakest of the year. Let’s review:

(1) Lots of weak numbers. Payrolls rose 162,000 during July, below the 192,400 average from January-July. The previous two months were revised downwards. More significantly, aggregate hours worked fell 0.1%, and average hourly earnings also declined 0.1%, suggesting that lots of the new jobs are part-time ones with low wages.

(2) Not enough full-time jobs. July’s household employment survey shows that part-time jobs rose 174,000, while full-time ones increased 92,000. Since the start of the year, part-time employment is up 731,000, while full-time has risen 222,000. The data show that since the record-high peak in employment during November 2007, full-time jobs are still down 5.8 million, while part-time jobs are up 3.5 million to a record high. The biggest losers of full-time jobs since November 2007 have been 25- to 54-year olds, with a loss of 7.7 million. Over this same period, this group has gained only 864,000 part-time jobs.

(3) Mixed readings on wages and salaries. Our YRI Earned Income Proxy--which is the product of aggregate hours worked and average hourly earnings in the private sector--fell 0.2% during July. That’s bad news for July’s wages and salaries in personal income, since it is highly correlated with this series for the private sector. On the other hand, inflation-adjusted wages and salaries in personal income managed to grow at a 3.4% (saar) pace during the second quarter.

Today's Morning Briefing: Spring, Summer, & Fall. (1) Old adage getting old: May is just another month. (2) Aging bull still raging. (3) Our mantra: Four more years! (4) Julys and Augusts can be big winners. (5) Blue skies for our Blue Angels. (6) Rule of 20 P/Es at 17-19. (7) September can be a big loser. (8) Lots of stuff hitting the fan in the fall. (9) Another big up day at the start of the month. (10) M-PMI confirms “Second Recovery” scenario in US. (11) Soft patch in July’s labor indicators. (12) “Blue Jasmine” (+). (More for subscribers.)

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