The weekly macro review for w/c 3 August 2020 – In the US, there was a more notable improvement/reduction in the number of new and continuing claims across both state and federal programs this week. Similarly, non-farm payrolls also recorded further growth in new jobs. But that pace of job growth slowed notably compared to the prior two months – and the levels of continuing claims, despite some improvement, remain extremely elevated.
On the broader tally, 22.16m payroll jobs were lost in Mar and Apr this year. So far, 9.28m payroll jobs have been regained during May-Jul. This month, most of the growth in employment was in part-time rather than full-time jobs.
To provide some context, the proportion of the US population now employed is back down to levels last seen in the 1960’s. The employment to population ratio highlights just how much damage has been done to the US labour market – and how critical ongoing fiscal support is for the recovery process.
With no clear resolution on new stimulus from the US congress, President Trump signed executive orders (EO’s) for a greatly reduced level ($300/wk) and extension (maybe 6wks) of the PUA benefit (utilizing FEMA funds), deferring some payroll tax, extending the eviction moratorium and continuing the zero-interest for student loans. At this point, its not clear whether these EO’s have an enforceable impact – the measures have been described as small, complex and temporary. But at least it might be a short term stop gap as negotiations continue.
Across all PMI’s for Jul, firms remain cautious about hiring, despite some headline month on month improvement in output and orders. Growth has been driven by domestic markets, while exports mostly remain weak.
US Manufacturing – the ISM report was quite positive for Jul. The Markit report indicated only marginal growth at best compared to the month prior. Production of motor vehicles has now appeared to gather more pace and this was a highlight of the Factory Orders & Shipments data for Jun. Durable goods ex transport orders were also stronger in Jun. Shipments of durable goods excluding transports is interesting – the decline due to the Covid shutdown was not as severe (as say the contraction in motor vehicle production) – and now shipments are ‘only’ 4.2% below a year ago (at the worst level, shipments were down by 8.7% in Apr). But shipment growth across durables ex transports was slowing notably in the 18-months leading up to the pandemic – which makes expectations for the recovery unclear.
Non-durable goods performance was likely impacted by higher oil prices this month. But excluding that, shipment growth of chemicals was stronger, and shipment growth of food remains steady.
As supply chains come back on-line, the next few months results will be important barometers of where final demand is at.
US Services – reports this month were lacklustre. Services accounted for most of the job growth this month, but there was little in either the ISM or Markit PMI’s that suggested acceleration in growth despite several months now of reopening. The ISM index remained elevated, but the underlying shift in firms reporting higher, no change or lower output suggests that firms, on net, are seeing at best more steady conditions this month, rather than accelerating growth. The Markit index also reflect no change in activity this month compared to the prior month.
Across the other regions, the UK and Aus services PMI’s were at levels more consistent with a broader reopening.
Eurozone services PMI recorded stronger month on month growth. Manufacturing growth was only moderate. For context, manufacturing output increased on a month on month basis for the first time this month since the start of 2019, while new orders increased in Jul, month on month for the first time in two years.
In Japan, both services and manufacturing PMI’s indicated a continued contraction in activity, although manufacturing contracted at a slower pace in Jul. The industrial production forecasts were for much higher growth in production for Jul – which has not been reflected in the PMI result.
In Australia, price has played a large factor in the return of retail sales in Q2. The trend in the underlying real (volume) of retail sales indicates that sales (versus the same quarter a year ago) have declined notably in Q2 while nominal growth remained positive, albeit slowed. Of note are the severe declines in Q2 volumes in NSW (-4.3%) and VIC (-6.2%) – well before the latest lock-down in Vic. Aus PMI’s continued to show further month on month growth in activity in Jul. For now, though, this momentum is likely to stall as severe restrictions are reimposed in Vic due to increased infections.
There are more data releases covered in the review document. Use the links on the contents page to navigate to different country sections. Download the review here;
The outlook for w/c 10 August 2020 – The focus will likely remain on progress of US Congress negotiations for further fiscal stimulus.
Data highlights this week:
US – initial claims data, retail sales for Jul, and the prelim consumer sentiment reading for early Aug. Also, Jul industrial production will be released – an important ‘hard datapoint’ to support the manufacturing PMI’s. It remains a good barometer for how manufacturing production and capacity is recovering.
Most of the Chinese economic data for Jul is out this week – including CPI, PPI, retail sales and industrial production.
Australia – the labour market survey for Jul will be released this week. The Q2 wage price index will also be released.
The schedule of US Fed purchases of Treasury and Mortgage-Backed Securities for this week is incomplete – the next schedule will be released during the week on 13 Aug. Treasury Security purchases by the Fed until Wed this week will be $7.8bn (last week total $9bn). The purchase of MBS so far, will be $17.04bn this week (last week $24.23bn).
US Treasury issuance will be slightly heavier this week. The US Treasury will settle approx. $319bn in ST bills this week, raising approx. +$8.3bn in new money. The US Treasury will also auction approx. $112bn in Notes and Bonds this week that will settle next week – raising approx. $62.5bn in new money. The latest US Treasury financing schedule for Q3 has a revised higher forecast for net cash raised for this quarter of $947bn, up from the initial $677bn estimate. Final numbers will depend on the shape of the final agreed stimulus bill. So far, $42bn (of a forecast $947bn) in new money has been raised this quarter – which means that there could be a significant increase in issuance over the next seven weeks.
More detail (including a calendar of key data releases) is provided in the briefing document – download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
