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SEPTEMBER EMPLOYMENT: MARKING THE LOW?

Takeaway: Net monthly NFP gains continue to decline while growth remains steady. Payroll data should strengthen from here as seasonality reverses.

While this morning’s nonfarm payroll data was a continuation of a steady multi-month growth trend, the market remains focused on the magnitude of the absolute number and the read through to prospective Fed policy adjustment.  Given the unremarkable, +148K MoM change and the sequential softening in the rolling 3M/6M averages, a Taper delay is increasingly likely.  

 

The absolute NFP numbers have been trending lower since 1Q13 while, on a rate of change basis, the YoY growth in total payrolls has been stable-to-higher over that same period – a dynamic largely stemming from the existent seasonal distortion in the data. 

 

September reflected this same dynamic as total nonfarm payrolls were 45K lower than in August (revised) and the 3M  rolling average fell  -8K sequentially while YoY growth in payrolls ticked marginally higher.  

 

Elsewhere in the report, the unemployment rate declined to 7.2% on a static participation rate, part-time employment declined -594K MoM, State & local government employment showed positive growth for a 3rd consecutive month, and the U-6 Unemployment Rate and level of LongTerm Unemployed both continued to decline.   

 

On balance, September was another month of middling employment growth with small, ongoing under-the-hood improvements.  All-in, the preponderance of data is unlikely to get the Fed to move in the near term.   

 

We expect seasonality to drive strengthening headline improvement in the employment data over the next 6 months with peak positive impact (again) occurring in March.  Incidentally, prevailing expectations are shifting towards March as the likeliest timeline for Tapering – at which point Yellen should be fully confirmed at the helm of the Fed, Fiscal Policy uncertainty should (hopefully) be rearview, and the domestic marco data will, optically, be at peak strength.    

 

Below is a summary review of the September Employment data along with a visual re-highlight (see: Initial Claims: "Tis the Season) of how seasonality has manifest in the macro data, expectations, and market prices over the last 4 years.

 

NFP:  Net Non-Farm payrolls gained sequentially coming in at +148K – holding flat on a YoY growth basis at +1.66% while the 2Y average decelerated 3bps to 1.64%.

NFP Revision:  The net two month revision was +9K with July revised lower from +104K to +89K and August revised higher from +169K to +193K.  

Household Survey:  The net employment gain as measured by the Household Survey was positive at +133K vs. -115K  in August

Employment by Age:  Employment growth held positive but decelerated across all age cohorts except for 45-54 year olds, where payrolls remain mired in negative growth.

Unemployment Rate:  The Unemployment Rate dropped to 7.2% from 7.3%  as the total labor force increased +73K alongside a -61K decrease in Total Unemployed and +133K increase in Total Employed. 

Labor Force Participation:  A positive +209K change in the working age population alongside a +73K net change in the labor force pushed the Labor Force Participation Rate down to 63.19% from 63.22%.

Part-time/Temp Employment:  Part-time employment declined by -594K (2M chg = -828K) while Temp employment gained +20K, registering its 12th consecutive month of net gains.  

Industry Employment:  Leisure/Hospitality and Finance were the lone losers with employment declining -13K and -2K, respectively in September..  Manufacturing gained jobs for a second straight month while Trade/Transportation and Construction posted their largest gains in 10 and 21 months, respectively.

State & Local Government Employment:  Net positive change of +28K in September and a third consecutive month of positive YoY growth.

Ave Weekly Hours for Private Employees:  Hours held flat at 34.5 MoM and YoY.

 

SEPTEMBER EMPLOYMENT:  MARKING THE LOW? - Employment Summary Table

 

SEPTEMBER EMPLOYMENT:  MARKING THE LOW? - Quits vs Consumer Comfort

 

SEPTEMBER EMPLOYMENT:  MARKING THE LOW? - Unemployment Rate

 

SEPTEMBER EMPLOYMENT:  MARKING THE LOW? - Employment by Age

 

SEPTEMBER EMPLOYMENT:  MARKING THE LOW? - U6

 

SEPTEMBER EMPLOYMENT:  MARKING THE LOW? - State   Local Gov t

 

Seasonality Reminder:  The September Trough

Positive Seasonal impacts build from September through March then reverse to a headwind that builds over the April to September timeframe.   The seasonality impacts have been pervasive across the reported domestic macro data, sentiment, and market prices.  From here, seasonality should manifest via strengthening improvement in the employment data through 1Q14.  

 

SEPTEMBER EMPLOYMENT:  MARKING THE LOW? - NFP Seasonality

 

SEPTEMBER EMPLOYMENT:  MARKING THE LOW? - JS 3

 

SEPTEMBER EMPLOYMENT:  MARKING THE LOW? - US Economic Surprise Index Seasonality

 

SEPTEMBER EMPLOYMENT:  MARKING THE LOW? - SPX NTM Revenue Revision Spread Seasonality

 

SEPTEMBER EMPLOYMENT:  MARKING THE LOW? - SPX Deja Vu Annual Trend 

 

Christian B. Drake

Senior Analyst 



RAI – 3Q13 Results In-line; E-Cig VUSE Excitement

RAI reported Q3 top and bottom line results in-line with consensus, and slightly revised downward its FY EPS guidance to $3.17 to $3.27 (versus last quarter’s estimate of $3.15-$3.30). The stock is trading down over one percent on what we view as a stronger quarter sequentially, with total cigarette volume declines moderating at -4.3% (versus -6% last quarter), solid smokeless results, and increased excitement around the launch of its e-cigarette VUSE (more below).  Our quantitative set-up suggests the stock is a buy below $50.

 

RAI – 3Q13 Results In-line; E-Cig VUSE Excitement - z. RAI

 

Total retail share slipped 50bps to 26%, offset by higher pricing year-over-year and strong performance from smokeless offerings: it saw a +0.7% share increase to +17.8% from Camel and Pall Mall, the company’s growth brands that account for almost 70% of total share volume.  Camel SNUS, which enjoys dominate market share (~80%), grew +0.4 points and increased pricing from its moist-snuff brand Grizzly gained +1.6% share points in the quarter.

 

We do expect cigarette volume pressure through year-end. The company said volumes should decline closer to -4% (vs previous guidance of -4 to -5%) for the year, but did not predict any less consumption based on the impact from the government shutdown. We’re bullish on the migration to smokeless tobacco and e-cigs to offset declining cigarette volume over the medium term.  

 

 

On e-cigs: If you don’t think e-cigs matter to big tobacco – think again!  On the earnings call, the progress on VUSE, the company’s first e-cig that was launched in July in the test market of Colorado, was the first brand that management reviewed. CEO Delen said that VUSE is getting a great reception with leading market position in the state (we’d expect so given the strong couponing). He noted strong repeat purchasing and that its replacement cartridge was the largest selling SKU, and believes that VUSE can attain cigarette-like margins over the medium term. Further information on its plans around a national roll-out were indicated to come at next month’s Investor Day meeting.

 

Delen indicated that he has no further information on when the FDA may come out with a ruling on e-cigs (expected October timeline) and/or if the government shutdown will delay the announcement. He did note that RAI engaged with the FDA on VUSE, and the meeting was heavily attended by the FDA.

 

Given that Colorado is a test market, it’s hard to extrapolate the costs for a nationwide roll-out – certainly it’s a competitive category and RAI is playing slightly behind the 8-ball.  We look forward to monitoring VUSE’s performance.   

 

 

Results: On the quarter, EPS was in line with consensus at $0.86, up 8.9% year-over-year.  Revenue also met analysts’ estimates at $2.14B, up 0.9% year-over-year. On the year, RAI revised its EPS guidance to $3.17 to $3.27 versus last quarter’s estimate of $3.15-$3.30.


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Smartwatch Wars: Escalation

Takeaway: Adidas shows it means business.

Editor's note: Interesting development on Hedgeye Retail Sector Head Brian McGough's radar screen. For more information on McGough's research click here.

 

Smartwatch Wars: Escalation - adid1

 

From the Wall Street Journal

  • "The Adidas watch will retail for $399 when it becomes available on Nov. 1. It includes GPS tracking technology, wrist-based heart monitoring, a Bluetooth-enabled music player, and use of Adidas’ live coaching service, miCoach."
  • "Mr. Gaudio said the watch was developed for runners who don’t like the idea of bringing along their phone on runs, and who use that time to disconnect. Two key features of the watch are, in fact, components it doesn’t have: Unlike gadgets offered by Samsung and Nike which work in conjunction with smartphones, the miCoach Smart Run functions as a standalone product. Further, its heart rate monitoring is conducted on the wrist, eliminating the need for a traditional separate chest strap."

Takeaway: Nike currently has its Nike+ Sportswatch that it built 2-years ago in conjunction with TomTom. It has GPS, tracks cadence, laps, splits and has a solid alarm. All of that said, this Adidas watch appears to blow it out of the water. That said, Nike's sells for $169, and Adidas is $399.  On a relative value basis, Nike still might come out ahead.  Either way, expect NKE to up the ante on its product to beat Adidas -- and it will likely do so at the same sub $200 price.


THE M3: NEPTUNE; PARADISE/SEGA; WYNN SUIT

THE MACAU METRO MONITOR, OCTOBER 22, 2013

 

 

NEPTUNE BUYS 5% OF GALAXY JUNKET OPERATORS Macau Business

Neptune Group Ltd will pay HK$241 million (US$31 million) for 5% of privately owned Joyful Celebrate Global Ltd.  Joyful Celebrate promotes the Galaxy Neptune Guangdong VIP Club at Galaxy Casino SA’s casino-hotel in Cotai.  The Galaxy Neptune Guangdong VIP Club has at least 16 VIP tables with a rolling chip turnover of about HK$7.5 billion a month. Neptune is guaranteed 0.3% of the rolling turnover from the room.

 

PARADISE, SEGA SAMMY PLAN $1.7 BLN SOUTH KOREA RESORT Reuters

Paradise Group , one of South Korea's largest casino operators, and Japanese gaming company Sega Sammy plan to invest $1.7 billion to build a luxury resort to tap a surge in Chinese gamblers flocking to the country.  The pair said in a statement on Tuesday they will build a foreigners-only casino in Incheon, in the northwest of the country near the capital Seoul and a short flight away from wealthy gamblers in China and Japan.

 

JAPAN COURT DISMISSES DEFAMATION SUIT AGAINST WYNN RESORTS Reuters

A Tokyo court has dismissed a defamation lawsuit filed by Japanese billionaire Kazuo Okada against Wynn Resorts and some of its top executives, saying the case should not be handled by a Japanese tribunal.


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BULLISH TRENDS

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BEARISH TRENDS

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