• run with the bulls

    get your first month

    of hedgeye free


Consumption Through Commodities

Over the last 8 weeks, the US dollar has appreciated in value at an impressive clip. In turn, commodity prices have fallen considerably in tandem with the dollar's appreciation. Most notably, corn, copper and crude oil prices have dropped in price significantly, which is a boon for the American consumer. Lower gas prices and lower food prices are what help drive consumption and in the end, more consumption = more growth, which helps with corporate earnings.


Consumption Through Commodities - image001

Payroll Data Reflects March Deceleration

Takeaway: Today’s Payroll data agreed with the sequential softening in other labor market indicators. Sequestration impacts will remain a wildcard.

Today’s Payroll data confirmed the sequential deceleration observed in both the ADP and NSA Jobless claims numbers earlier in the week.  On balance, the labor market trends for March have followed the broader trends in the domestic macro data (ISM, PMI, Auto’s) where strong January and February numbers have been chased by been sequentially weaker March reports. 


Below we provide a summary review of the March employment trends observed across both the Current Population Survey (Household Survey), which drives the Unemployment Rate, and the Establishment Survey (CES) which drives the NFP Number.


Non-Farm Payrolls (Establishment Survey):  NonFarm Payrolls rose 88K in March on expectations of 190K and 268K prior (revised from 236) with y/y growth slowing 10bps sequentially to +1.4%.   Private payrolls rose 95K on expectations of 200K and 254K prior (revised from 246) with y/y growth slowing 10bps sequentially to +1.8%.   


Household Employment:  BLS’s Household survey of employment showed total employment declining 206K sequentially with y/y employment growth decelerating 10bps sequentially to +0.9%.


Unemployment Rate:  The Unemployment rate dropped to 7.6% from 7.7% m/m.  The decline was principally a function of the 496K drop in the Civilian labor Force which was comprised of a 206K m/m decline in total Employed and a 290K m/m decline in total Unemployed.  The greater decline in total Unemployed drove the improvement in the Unemployment rate despite the sequential weakening in the payroll data. 


Labor Force Participation:  The Labor Force Participation rate (LFPR) declined to 63.3% in March, the lowest level since May of 1979.  As a reminder, the LFPR = Total Labor Force (Employed + Unemployed)/Civilian Non-institutional Population.  The Civilian non-institutional population was up +167K m/m  (+1.0% y/y) while the total Labor Force declined by 496K (+0.2% y/y).  A lower numerator and higher denominator = a lower Labor Force Participation Rate. 


Employment By Age:  With the exception of the 55-64 year old cohort, employment growth across all age buckets decelerated sequentially in March.  The ongoing barbell recovery in employment remains the story as employment growth within the 20-34 YOA & 55-64 YOA age demographics remains positive while 35-44 and 45-54 year olds remain mired in negative employment growth according to BLS Household survey data. 


Part-Time & Temp Employment: Part-time employment (household survey) declined by 127K m/m while Temp employment growth (establishment survey) rose 20K in March. The growth trend across both series continues to be one of deceleration.  Is this good or bad?  Generally, it depends on where you are in the cycle.  Historically, increased part-time and temp hiring out of an economic trough would be viewed positively as businesses tepidly increase labor into signs of a fledgling demand recovery with the expectation that growth in PT and temp workers acts as a temporal gateway to increased FT employment gains.   We’d argue that we are out of trough conditions and, from here, to the extent growth in full-time employment can displace growth in part/temp employment and business can gain some further fiscal policy clarity into mid-year (post sequester, debt ceiling, budget resolution) consumption growth stands to benefit as workers gain health/retirement benefits, weekly wages rise, and confidence/clarity around future income supports marginal spending decisions. 


State & Local Gov’t Employment:  After a four year run of negative growth, state & local government employment growth continues to stagnate just below the zero line – coming in at -0.1% y/y in March.  Collectively, states expect continued tax revenue growth in 2013 with total General fund revenues expected to surpass the 2008 peak in nominal terms. The continued recovery in revenues should be a tailwind for employment and investment, however, sequestration and uncertainty around impending fiscal policy decisions at the federal may be weighing on hiring decisions at the state/local gov’t level currently.  


Sequestration:  Anecdotally, consensus seems to be largely sitting on the CBO’s estimate for approximately 400K in direct employment cuts with an multiplier impact of ~100-150K over calendar 2013.  Taking these estimates at face value, a smoothed impact would equate to an ~50K headwind to Claims & Nonfarm payrolls on a monthly basis.  Actual cuts will invariably be more lumpy and while the impacts should be concentrated in 2Q/3Q, trying to handicap the impact on any given economic report is largely intractable.  This reality increases the open-the-envelope risk on domestic econ data and sets up the potential for some negative sticker shock if some concentrated bolus of impact happens to flow through a particular release.  


BLS Household Survey Data

Payroll Data Reflects March Deceleration - Unemployment Rate


Payroll Data Reflects March Deceleration - CPS vs CES 040513


Payroll Data Reflects March Deceleration - Employment by Age 040513


Payroll Data Reflects March Deceleration - LFPR vs Unemployment Rate Monthly 040513


Payroll Data Reflects March Deceleration - Part time Employment 040513 


Payroll Data Reflects March Deceleration - CNP 040513



BLS Establishment Survey Data  


Payroll Data Reflects March Deceleration - NFP 040513


Payroll Data Reflects March Deceleration - Ave Weekly Hours 040513


Payroll Data Reflects March Deceleration - State   Local Gov t 040513


Payroll Data Reflects March Deceleration - Temp Employment 040513



Christian B. Drake

Senior Analyst 





Panera Bread’s stock has been upgraded two times in as many days and the stock has soared in response.  We believe there is an opportunity to short PNRA at current levels for a trade (three weeks or less).


Fundamental Setup Less Positive (summary bullets)

  • Traffic trends suggest that the consumer may be tiring of consistent price increases at Panera Bread
  • Comp sales growth has become increasingly dependent on mix
  • Total revenue growth continues to slow from the peak in 3Q11.  4Q13’s figure will be skewed because of an extra week
  • Same-restaurant sales, margin guidance at risk
  • Earnings estimates revisions unlikely to go higher absent sales acceleration
  • Valuation is likely stretched at current levels


Traffic Trends


As the chart below illustrates, Panera’s traffic trends have been decelerating over the last three quarters.  Embedded in some of the optimism in recent upgrades has been an idea that easier comparisons may play a part in better traffic trends in 2013. Traffic trends may improve sequentially but we see the 4Q traffic number, against an easy comparison, as an indication that Panera could have a traffic problem.


PNRA HYPE MAKES IT SHORTABLE - pnra traffic growth



Revenue Growth


Along with traffic trends, total revenue growth has been decelerating for the three quarters,  If this trend continues, we believe that the multiple implied in the stock’s price could compress (more below).


PNRA HYPE MAKES IT SHORTABLE - pnra revenue growth



Comparable Sales Trends


The company has guided to company-owned same-store sales growth of 4.5% to 5.5% for fiscal 2013 and 4.0% to 5.0% for 1Q13. Consensus expectations are for the company to post 4.3% same-store sales and sequential improvement thru the balance of 2013. We believe there is sufficient risk to traffic expectations to bet against the sequential improvement that the Street is forecasting.


PNRA HYPE MAKES IT SHORTABLE - pnra sss components





Earnings revision growth has slowed and, absent meaningful acceleration in sales trends, there may be no additional upside to estimates.  The company is guiding to 2013 EPS growth of 17-19%, inclusive of the 53rd week impact.







We don’t anticipate any catalyst materializing to drive PNRA’s multiple higher over the next year.  Particularly if our concerns about traffic growth are well-founded, it could be difficult to argue for a higher multiple.  The last time the stock was trading a turn higher than current levels, on an EV/EBITDA basis, the company was posting high-single-digit same-restaurant sales growth and low-single-digit traffic trends.  If traffic trends don’t accelerate, we believe that the multiple has significant downside.





Howard Penney

Managing Director


Rory Green

Senior Analyst

get free cartoon of the day!

Start receiving Hedgeye's Cartoon of the Day, an exclusive and humourous take on the market and the economy, delivered every morning to your inbox

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.

Buyem: SP500 Levels, Refreshed

Takeaway: I bought this SPY on my line. I also bought the US Dollar (UUP) again today. The SPY vs USD correlation = ) +0.84 right now.



We are well aware that this week’s news on the jobs front (both NSA Rolling Claims and the Monthly Jobs Report) weren’t good; at least not as good as the employment news has been. That’s now another market opportunity – what if next week’s jobless claims improve?


What if the mortgage rate for a 30yr falls back to where it was 3 months ago? What if the US Dollar continues to strengthen? What if Oil prices continue to fall? Plenty of questions to answer for tomorrow as people are forced to react to what’s now old news today.


Across our core risk management durations, here are the lines that matter to me most:


  1. Immediate-term TRADE resistance = 1575
  2. Immediate-term TRADE support = 1540
  3. Intermediate-term TREND support = 1502


In other words, A) we held TRADE support (1540) this morning and B) I’m giving you a higher (all-time) high of resistance (1575). I am only giving you these because my quant model gave them to me. I do what she says.


I bought this SPY on my line. I also bought the US Dollar (UUP) again today. The SPY vs USD correlation = ) +0.84 right now. So if the US Dollar makes another higher-low here and VIX makes another lower-high, you know what to do.


Enjoy your weekend,



Keith R. McCullough
Chief Executive Officer


Buyem: SP500 Levels, Refreshed - SPX

Winds Of Change

In February, Hedgeye Financials Sector Head Josh Steiner warned that the positive data coming out of the labor market regarding employment would not last forever. Week-after-week of positive data that beat expectations was unsustainable and the seasonal-adjustments that were acting as a tailwind for the data would become a headwind by late March/early April. Sure enough, this week's ADP employment report, initial jobless claims and non-farm payroll numbers were nothing short of disappointing. 


Winds Of Change - image005


On February 28, Steiner wrote:


"The end of February marks of the peak of the seasonality distortion tailwind. Next week will mark the final tailwind datapoint. Then, beginning in March, we'll start to see the effect reverse and the market's perception around the momentum in the labor market will begin to weaken and ultimately will turn bearish as the reverse effect peaks in August."


Winds Of Change - image006


You can see in the charts we've included in this note that the labor market is now bearing the brunt of the seasonal-adjustment headwinds. Don't expect any meaningful recovery in the labor market, save for the occasional weekly surprise, until Labor Day weekend.


Winds Of Change - image017


Winds Of Change - image010

JOBS: A Disappointing Week

This morning's non-farm payroll numbers for the month of March were the lowest in 10 months and disappointing to say the least. Only 88,000 new jobs were added for the month on a seasonally-adjusted basis, the smallest increase since June of last year as new hires fell and more people continued to drop out of the labor force. This comes on the heels of this week's ADP employment report and initial jobless claims report, both of which showed a slowdown in the labor market and came in below consensus expectations.


JOBS: A Disappointing Week - image010


Meanwhile, the unemployment fell from 7.7% to 7.6%, the lowest level since December 2007. While it may appear as a positive overall, the reality is that more people have dropped out of the labor force. The participation rate, which measures the number of working-age people who have or want a job, fell to 63.3%, the lowest level since 1979.


JOBS: A Disappointing Week - image012


JOBS: A Disappointing Week - image004


JOBS: A Disappointing Week - image002

Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.