prev

INITIAL CLAIMS: LABOR MARKET MOMENTUM COMING UNDER SOME PRESSURE

Takeaway: The labor market data slowed again in the most recent week, adding to a string of data pointing in the same direction.

#Deceleration: Par for the 2014 Course

 

We profiled the deceleration in the Retail Sales data this morning - Here

 

Inclusive of this week’s data, the trend in the high frequency labor market data is telling a similar story as seasonally-adjusted rolling claims rose again WoW and the rate of improvement in the rolling average of YoY non-seasonally adjusted claims decelerated 70bps to -5.0%.  

 

As we highlighted last week, its important to remember that initial claims can’t show “accelerating improvement” in perpetuity – the rate of improvement will inevitably converge towards zero as we approach the historical, frictional floor at ~300K in the seasonally adjusted series.   

 

Its notable, however, that the claims data has deteriorated even as we’ve moved into the period of peak, positive seasonality.  Any softness in the underlying trend will be (optically) exaggerated as seasonality again reverses into 2Q14. 

 

Elsewhere, and on the constructive side, bloomberg’s weekly read on the consumer showed confidence ticking up 2.4 pts WoW to -30.7, the highest reading in a month.  After a discrete breakout in 2013, confidence has been middling the last couple months with readings mixed mixed across the primary survey’s.

 

Dollar Down, Rates Down, Utilities leading and yield chase/inflation hedge assets (Gold/REITS/CRB) outperforming today….also par for the 2014 course.    

 

Below is the detailed breakdown of this morning's claims data from the Hedgeye Financials led by Joshua Steiner. If you would like to setup a call with Josh or Jonathan or trial their research, please contact 

 

 

- Hedgeye Macro

 

INITIAL CLAIMS: LABOR MARKET MOMENTUM COMING UNDER SOME PRESSURE - Confidence Table 021314

 

 

--------------------------------------------------------------------------------------------------------------

 

 

INITIAL CLAIMS: The Labor Market Slows Further ...

Last week we profiled the labor market beginning to show modest signs of cooling off. This week's data marks a continuation of that trend. Our preference remains to look at the trend in the year-over-year rate of change in the rolling NSA initial jobless claims.

 

We look for signs of acceleration or deceleration and treat that as a referendum on the marginal strength of the economy. This week, that measure showed 5.0% y/y improvement. Here's how the last five weeks now look, ordered from oldest to most recent:  -8.5%, -7.9%, -7.3%, -5.7%, -5.0%.

 

Clearly the trend over the past month has been one of a slowing rate of improvement. This doesn't mean that the economy isn't still progressing and jobs aren't still being added, but it does mean that the rate at which those things are happening is slowing down. Credit-sensitive financials should take note.

 

The Numbers

Prior to revision, initial jobless claims rose 8k to 339k from 331k WoW, as the prior week's number was revised down by 0k to 331k.

 

The headline (unrevised) number shows claims were higher by 8k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 3.5k WoW to 336k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -5.0% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -5.7%

 

 

INITIAL CLAIMS: LABOR MARKET MOMENTUM COMING UNDER SOME PRESSURE - JS 1

 

INITIAL CLAIMS: LABOR MARKET MOMENTUM COMING UNDER SOME PRESSURE - JS 2

 

INITIAL CLAIMS: LABOR MARKET MOMENTUM COMING UNDER SOME PRESSURE - JS 3

 

INITIAL CLAIMS: LABOR MARKET MOMENTUM COMING UNDER SOME PRESSURE - JS 4

 

INITIAL CLAIMS: LABOR MARKET MOMENTUM COMING UNDER SOME PRESSURE - JS 5

 

Joshua Steiner, CFA

Jonathan Casteleyn, CFA, CMT

 

 


INITIAL CLAIMS: LABOR MARKET MOMENTUM COMING UNDER SOME PRESSURE

Takeaway: The labor market data slowed again in the most recent week, adding to a string of data pointing in the same direction.

The Labor Market Slows Further ...

Last week we profiled the labor market beginning to show modest signs of cooling off. This week's data marks a continuation of that trend. Our preference remains to look at the trend in the year-over-year rate of change in the rolling NSA initial jobless claims. We look for signs of acceleration or deceleration and treat that as a referendum on the marginal strength of the economy. This week, that measure showed 5.0% y/y improvement. Here's how the last five weeks now look, ordered from oldest to most recent:  -8.5%, -7.9%, -7.3%, -5.7%, -5.0%. Clearly the trend over the past month has been one of a slowing rate of improvement. This doesn't mean that the economy isn't still progressing and jobs aren't still being added, but it does mean that the rate at which those things are happening is slowing down. Credit-sensitive financials should take note.

 

The Numbers

Prior to revision, initial jobless claims rose 8k to 339k from 331k WoW, as the prior week's number was revised down by 0k to 331k.

 

The headline (unrevised) number shows claims were higher by 8k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 3.5k WoW to 336k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -5.0% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -5.7%

 

INITIAL CLAIMS: LABOR MARKET MOMENTUM COMING UNDER SOME PRESSURE - 1

 

INITIAL CLAIMS: LABOR MARKET MOMENTUM COMING UNDER SOME PRESSURE - 2

 

INITIAL CLAIMS: LABOR MARKET MOMENTUM COMING UNDER SOME PRESSURE - 3

 

INITIAL CLAIMS: LABOR MARKET MOMENTUM COMING UNDER SOME PRESSURE - 4

 

INITIAL CLAIMS: LABOR MARKET MOMENTUM COMING UNDER SOME PRESSURE - 5

 

INITIAL CLAIMS: LABOR MARKET MOMENTUM COMING UNDER SOME PRESSURE - 6

 

INITIAL CLAIMS: LABOR MARKET MOMENTUM COMING UNDER SOME PRESSURE - 7

 

INITIAL CLAIMS: LABOR MARKET MOMENTUM COMING UNDER SOME PRESSURE - 8

 

INITIAL CLAIMS: LABOR MARKET MOMENTUM COMING UNDER SOME PRESSURE - 9

 

INITIAL CLAIMS: LABOR MARKET MOMENTUM COMING UNDER SOME PRESSURE - 10

 

INITIAL CLAIMS: LABOR MARKET MOMENTUM COMING UNDER SOME PRESSURE - 11

 

INITIAL CLAIMS: LABOR MARKET MOMENTUM COMING UNDER SOME PRESSURE - 12

 

INITIAL CLAIMS: LABOR MARKET MOMENTUM COMING UNDER SOME PRESSURE - 13

 

INITIAL CLAIMS: LABOR MARKET MOMENTUM COMING UNDER SOME PRESSURE - 19

 

INITIAL CLAIMS: LABOR MARKET MOMENTUM COMING UNDER SOME PRESSURE - 14

 

Yield Spreads Recover Modestly

The 2-10 spread rose 6 basis points WoW to 242 bps. 1Q14TD, the 2-10 spread is averaging 243 bps, which is higher by 3 bps relative to 4Q13.

 

INITIAL CLAIMS: LABOR MARKET MOMENTUM COMING UNDER SOME PRESSURE - 15

 

INITIAL CLAIMS: LABOR MARKET MOMENTUM COMING UNDER SOME PRESSURE - 16

 

Joshua Steiner, CFA

Jonathan Casteleyn, CFA, CMT

 


HOT 4Q CONFERENCE CALL NOTES

Solid Q4 tempered by modest guidance outside of the US.

 

 

CONF CALL

  • In 4Q last year, projected 5-7% REVPAR growth for 2013.  GDP in 2013 was slower than in 2012 and REVPAR growth reflected that.
  • Latin America:  +1% 
  • Mexico REVPAR continued its rebound
  • Brazil uncertainty with elections
  • Argentina:  a mess with currency issues
  • Egypt:  civil war affected visitation
  • Dubai/Gulf:  booming business
  • China: +2% REVPAR in 2013; market did not rebound as much as HOT hoped due to govt austerity, flooding in Sichuan, bird flu scares in East, soft govt business
    • 13% of fee revenues
  • Asia (ex China): REVPAR up 7%:  strong performance in India; adverse FX impacted REVPAR by 80bps
  • Strong corporate transient demand in NA
  • 15 more properties coming to Africa in next few years
  • Residental sales at Bal Harbour did well;  Bal Harbour essentially sold out. 
  • Asset light:  sold 6 hotels and one non-core asset for total of $263MM
  • SVG share of occu stayed consistently above 50%.  Global sales organization posted another year of double digit growth as well and for 2014 is set to bring in more than twice the revenue than it did in 2009.
  • Repurchased 4.9MM shares for $216MM
  • 2014
    • US set to improve
    • Europe will muddle through another year
    • Customers telling them they are adding staff and plan to travel more
    • China
      • 2nd and 3rd tier city development continues
      • Good sales momentum in Chinese corporate accounts
      • Strong Chinese outbound travel
  • Mobile accounts for 42% of site visits to Starwood, up from 16% two years ago
  • Mobile bookings growing 5x faster than web bookings did 10 years ago
  • New technology:  smart check-in
  • 2013 FX headwind: $17MM
  • 2013 US REVPAR:  6.3%
  • 4 condos left to sell at Bal Harbour
  • Sold a hotel for over $1 million per key
  • Net debt:  $528MM
  • Sale of St. Regis Bal Harbour added another $200MM to cash balance in January
  • No longer report out Bal Harbour profits:  will be ~5 MM in 2014
  • Expect NA REVPAR trends (6.7% REVPAR) to continue; supply subdued, occu continues to climb helping ADR too
  • Negotiated corp rates: up mid single digits for 2014
  • Group rates:  up mid single digits for 2014
  • Canadian business remains sluggish and the weakening Canadian dollar will also be a drag. 
  • NA REVPAR 5-7% outlook:  rate will account for 75-80% of the increase
  • Despite the Harsh weather, January REVPAR at Company-Operated hotels in North America was up almost 8%.
  • Q4:  saw mid single digit REVPAR growth in Spain, Italy and the U.K.  Only Germany was a little soft,  offset by strong growth across eastern Europe.  Occupancies continue to rise which is a good sign, and rate growth could accelerate.  Nevertheless assume Europe REVPAR growth in 2014 will be at the low end of worldwide outlook range.  Europe also had a good January but it's the low season.  
  • China:  expect to outperform in 2014
  • China:  On track to get 200 operating hotels in near future
  • Expect 2014 REVPAR growth in China to pick up from the Q4 trend of 3.1%
  • Expect Asia REVPAR to continue to grow at the high end of global REVPAR outlook range of 5 to 7%
  • Middle East and Latin America:  expect REVPAR at the lower half of 5-7% range
  • Mgmt and franchisee fees:  45% from US, 12% from Europe; 40% of fees from growth markets
  • 85% of incentive fees outside of US; >75% of international hotels pay incentive fees vs 25% in US
  • Expect Bal Harbour to be fully done selling by 1H 2014
  • M&A:  next 18-24 months could be prime time for asset sales.  They intend to be active in the market.
  • Cash flow priority:  1st is to pay down debt and achieve BBB rating
  • Will move to a quarterly div payment schedule in 2014
  • Will be aggressive buyers of stock.  614MM in buyback authorization availability

Q & A

  • No buybacks in 4Q; hurting the stock?
  • Reducing capital spending on owned hotels as they finish renovations
  • On pace for $750MM in asset sales per year ($3BN by 2016)
  • Transaction market:  markets are becoming deeper. More buyers. Private equity/sovereigns are back.
  • Sheraton:  50% US, 50% non-US
  • Group:  return of incentive travel in Europe; higher volume of smaller meetings
  • China:  no crackdown on luxury
  • Half hedged to euro exposure at $1.36
  • A plus or minus 1% move of the dollar uniformly against other currencies is still about 5 million.
  • Portfolio sales may pick up
  • Any future portfolio sale would therefore mark a significant uptick in that demand
  • Will do a timeshare securitization in 2014 - around $250MM
  • D&A guidance for 2014:  It includes the proportion of the JVs so it's going to be higher than what you're seeing on our balance sheet...It will be a little higher because it's going to reflect the investments we've been making both in the renovations we've been doing and some of the technology...normalized will be +5-6%

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.

PANGLOSSIAN PIQUE: JANUARY RETAIL SALES

Outside of the now ubiquitous ‘weather’ caveat, it’s hard to paint the January Retail Sales data with a panglossian brush. 

 

JANUARY WEAKNESS:  The weakness in auto sales was well telegraphed and drove the decline in the Headline reading for January, but December was revised lower as well and the softness was pervasive with the primary sub-aggregates (Ex-Auto’s, Ex-Auto’s & Gas, Control Group) declining across every rate of change measure – MoM, YoY, 2Y ave. 

 

With respect to calculated GDP, the Control Group decelerated 60bps and 70bps on a YoY and 2Y basis, respectively, while the -0.3% MoM decline was the largest since December 2011.

 

UPHILL BATTLE:  Labor market trends remain okay and the anniversary-ing of the ending of the payroll tax holiday in 2013 should serve as a modest support to retail sales growth this year.

 

However, with wage growth (at ~2%) running at a negative spread to consumption (at +3.6%) and the savings rate holding little incremental downside (ie. little upside for consumption) the outlook for a material acceleration in retail sales isn’t particularly strong. 

 

Further, If housing continues to decelerate and stocks fail to repeat last year’s performance, luxury and higher end durable sales, driven principally by the top income quintiles, may reverse the notable acceleration observed in 2013.   

 

PERFORMANCE RISK:  More broadly, a deceleration in sales alongside burgeoning inventory levels at the retail level does not generally augur rising profitability.  

 

Sequential deterioration in operating performance has already begun to manifest in consumer companies in 4q13 earnings and is likely to continue if #InflationAccelerating continues to play out.     

 

As we’ve been highlighting for 6 weeks now, growth isn’t falling apart (yet) but the slope of growth is definitely decelerating on the margin – and macro alpha is (still) typically a game of divining better/worse, not good/bad. 

 

PANGLOSSIAN PIQUE:  JANUARY RETAIL SALES - ES OP 021314

 

PANGLOSSIAN PIQUE:  JANUARY RETAIL SALES - IS Ratio

 

PANGLOSSIAN PIQUE:  JANUARY RETAIL SALES - Retail Sales Control Group Jan 

 

PANGLOSSIAN PIQUE:  JANUARY RETAIL SALES - Retail Sales Table Jan

 

Christian B. Drake

c

@HedgeyeUSA

 

 


LO: Weighing in on Menthol – Expert View from Washington

We’ve retained a top Washington law firm involved in tobacco public policy to assess the details of the FDA's action on menthol.

 

This assessment is a comprehensive look at the key issues under the FDA microscope and is a must-read for current and prospective tobacco investors – particularly LO as the menthol leader. The work succinctly sizes up the regulatory environment and provides a roadmap and time frame for assessing the menthol-related risks.  

 

Key considerations in the report include:

  • Findings on scientific, economic and political considerations to influence the FDA
  • Status of the FDA’s consideration to regulate or ban menthol
  • Make-up of the public comments on menthol
  • Roadmap for timing potential regulatory action

Lorillard remains our preferred Big Tobacco company on the long side. We will present our updated thoughts on LO on March 4th.

 

If you would like a copy of the expert report or access to our upcoming call, please contact us at or .

 

 

Matt Hedrick

Associate

Tobacco, Alcohol, Food and Beverage


Short: SP500 Levels, Refreshed

Takeaway: Given US #InflationAccelerating and consumption #GrowthSlowing, I am not convinced my @Hedgeye TREND support of 1785 holds.

Editor's note: This complimentary market note from CEO Keith McCullough was originally published February 12, 2014 at 10:57 in Macro. Click here for more information on how you can subscribe to Hedgeye.

POSITION: 4 LONGS, 9 SHORTS @Hedgeye

 

While being short into the tail-end of a market v-bottoming off the YTD lows was painful yesterday, that doesn’t mean our bearish call on consumption growth ends. If you want to be long, buy commodity inflation and/or slow-growth (bonds) assets.

 

That’s what’s working.

 

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

  1. Immediate-term TRADE overbought = 1837
  2. Intermediate-term TREND = 1785
  3. Immediate-term TRADE support = 1729

In other words, SPX is making lower-highs on lower-volume signals than we are seeing on the down days (Top 5 Volume Days of 2014 were all down days).

 

Given US #InflationAccelerating and consumption #GrowthSlowing, I am not convinced my @Hedgeye TREND support of 1785 holds. This is materializing into a very different setup vs. what our process signaled in 2013.

 

If they snap 1785 again, there’s no support to 1729. On a move like that, risk will most likely happen fast.

KM

 

Keith R. McCullough
Chief Executive Officer

 

Short: SP500 Levels, Refreshed - keith

Join the Hedgeye Revolution.


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

next