prev

The Week Ahead

The Economic Data calendar for the week of the 7th of July through the 11th of July is full of critical releases and events.  Attached below is a snapshot of some of the headline numbers that we will be focused on.

 

The Week Ahead - 07.03.14 Week Ahead

 


FiveFecta: June Employment

Takeaway: The Labor market data remained solid in June, but keep optimism anchored as we move into 3Q.

Editor's note: This note was originally published July 03, 2014 at 12:33 in Macro. For more information on our market and economic research options click here.

Solid report overall as NFP goes >200K for five months in a row for 1st time since Jan 2000 (although that wasn’t a particularly positive harbinger), employment gains were broad based, the Unemployment rate flirts with a 5-handle, and the U-6 and total LT unemployed continued to decline. 

 

On the other side, total part-time and involuntary part-time both increased significantly while the slope in private wage growth remained negative – with real earnings growth likely to be negative for a second month in June. 

 

FiveFecta: June Employment - drake1

 

FiveFecta: June Employment - Eco Summary Table 070314

 

 

THE GOOD:

  • NFP:  Solid Report with NFP = +288, Private = +262, 2Mo Revision = +29K
  • Household Survey:  Net gain of +407K in June with Employment growth accelerating across all age buckets except 20-24 YOA
  • Unemployment Rate:  Unemployment Rate dropped to 6.1% from 6.3% prior alongside the +407K increase in total Employed and a -325K decrease in Total Unemployed
  • U6/LT Unemployed:  U-6 Unemployment dropped to 12.1% from 12.2% while the ranks of the long-term unemployed dropped -293K MoM on an absolute and -1.8% to 32.8% as a % of total
  • State & Local Government Employment:  increased for a 10th consecutive month in June while the rate of job loss at the Federal level improved 10bps sequentially to -2.0% YoY.  Aggregate government salary and wage growth has finally begun to contribute positively to aggregate disposable income growth in recent months 
  • Initial Claims:  The employment data has followed the steady improvement in the initial jobless claims data in recent months and this mornings update to claims was again positive with both headline rolling claims and the YoY rate of improvement in NSA claims holding near the best levels YTD. 

 FiveFecta: June Employment - State   Local Govt Employment

 

FiveFecta: June Employment - CLaims SA 070314

 

FiveFecta: June Employment - Employment by Age 070314

 

FiveFecta: June Employment - Salary   Wage Growth

 

 

THE MIDDLING & (STILL) MOROSE: 

  • Hours Worked:  Ave weekly hours worked for private employees continued to track sideways at 34.5
  • U-6/U-3 Spread:  The spread, which sits as part of the FOMCs  dashboard of “slack” indicators, ticked up sequentially with the magnitude of decline in the U-3 rate outpacing that of the U-6. 
  • Ticking Clock:  At 61 months as of June, the current expansion continues to surpass the mean duration of expansions (59 months) over the last century.  We continue to think this reality weighs into the feds policy calculus  – they need to get out of QE if only to give themselves the opportunity to (credibly) get back in if need be.   

FiveFecta: June Employment - Eco Cycle Profile Table

 

WAGE GROWTH:  Average hourly earnings in the Private sector grew 2.0% YoY, down from +2.1% in May and continuing the stagnant 2.0% +/- 20bps that has prevailed over the last two years.  Average hourly earnings for Production and Nonsupervisory employees also decelerated -10bps to +2.29% YoY.   

 

With nominal earnings growth static, real earnings growth likely to be negative for a 2nd month in June with the official release, and the spread between spending and earnings growth having re-expanded the last couple quarters, we continue to think the upside to consumption growth remains constrained in the immediate/intermediate term – particularly if inflation continues to march northward and the savings rate remains at current levels.  

 

FiveFecta: June Employment - Real Weekly Earnings

 

FiveFecta: June Employment - Nominal Spending vs. Nominal Earnings

 

FiveFecta: June Employment - Wage Growth Production Workers Nominal

 

 

WAGE RAGE:  Wage Growth Refuses To Accelerate, Does it Matter To The Policy Outlook?  

Conventionally, wages are viewed as a lagging indicator, with wage inflationary pressure building as the labor supply declines and the economy moves towards constrained capacity.  There’s a view that the FOMC won’t move to raise rates so long as real wage growth is flat or declining, which it is currently. 

 

It’s somewhat difficult to make a particularly cogent empirical argument in either direction, however.  The longest historical dataset for (real) wages is that for Production & NonSupervisory Employees which goes back to 1964 (the BLS series for total private employment reported inside the NFP release only dates back to 2006). 

 

The problem with using this series stems from the well documented, secular plight of middle and low income earners where flat/negative real wage growth has characterized the last four decades.  

 

In fact, the current post-recessionary trend in real wage growth compares favorably with those observed over the last half century.   

 

We’d agree that the collective policy bias of the current FOMC body argues for dovish conservatism in the face of negative real wage growth alongside sub-target, or moderately above target, inflation levels.   

 

FiveFecta: June Employment - Post Recession Real Wages  Indexed 2

 

 

THE WORST EVER...& EVER IS STILL A PRETTY LONG TIME  

The painstakingly slow progression of growth out of the Great Recession has been exhaustingly documented and the duo of negative post-recession GDP prints observed in 1Q13 and 1Q11 sit as the two worst of any post-war recession with a recovery greater than 61 months (the duration of the current expansion).    

 

The five month run of positive labor market data has been encouraging - though not fully corroborated by broad macro strength post the immediate weather-distortion bounce. 

 

We’d advise keeping growth optimism anchored over the intermediate as growth compares get harder and inflation comps easier in 3Q and the conflation of rising inflation, static nominal wage growth, and an ongoing deceleration in housing should drive a sequential deceleration in domestic economic growth.  

 

The reality of the intermediate/LT is that household balance sheets remain over levered, demographics are going the wrong way,  and policy driven increases in inequality will continue to feed the growing phantasm that is the U.S.  middle class. 

 

Yellen’s acute attention to the prospects for secular stagnation and hysteresis isn't misplaced. 

 

FiveFecta: June Employment - Post Recession GDP  QoQ 2

 

FiveFecta: June Employment - Post Recession GDP  Indexed 2

 

 

 

Enjoy the Holiday Weekend,

 

 

Christian B. Drake

cdrake@hedgeye.com

@HedgeyeUSA

 

 


Cartoon of the Day: That Burger's Gonna Cost You

Takeaway: Live cattle and lean hog prices are up well into the double-digits year-to-date. But there's no inflation right?

Cartoon of the Day: That Burger's Gonna Cost You - burger cartoon 7.03.2014


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.32%
  • SHORT SIGNALS 78.48%

FiveFecta: June Employment

Takeaway: The Labor market data remained solid in June, but keep optimism anchored as we move into 3Q.

Solid report overall as NFP goes >200K for five months in a row for 1st time since Jan 2000 (although that wasn’t a particularly positive harbinger), employment gains were broad based, the Unemployment rate flirts with a 5-handle, and the U-6 and total LT unemployed continued to decline. 

 

On the other side, total part-time and involuntary part-time both increased significantly while the slope in private wage growth remained negative – with real earnings growth likely to be negative for a second month in June. 

 

FiveFecta:  June Employment - NFP Rolling 5M Total

 

FiveFecta:  June Employment - Eco Summary Table 070314

 

 

THE GOOD:

  • NFP:  Solid Report with NFP = +288, Private = +262, 2Mo Revision = +29K
  • Household Survey:  Net gain of +407K in June with Employment growth accelerating across all age buckets except 20-24 YOA
  • Unemployment Rate:  Unemployment Rate dropped to 6.1% from 6.3% prior alongside the +407K increase in total Employed and a -325K decrease in Total Unemployed
  • U6/LT Unemployed:  U-6 Unemployment dropped to 12.1% from 12.2% while the ranks of the long-term unemployed dropped -293K MoM on an absolute and -1.8% to 32.8% as a % of total
  • State & Local Government Employment:  increased for a 10th consecutive month in June while the rate of job loss at the Federal level improved 10bps sequentially to -2.0% YoY.  Aggregate government salary and wage growth has finally begun to contribute positively to aggregate disposable income growth in recent months 
  • Initial Claims:  The employment data has followed the steady improvement in the initial jobless claims data in recent months and this mornings update to claims was again positive with both headline rolling claims and the YoY rate of improvement in NSA claims holding near the best levels YTD. 

 FiveFecta:  June Employment - State   Local Govt Employment

 

FiveFecta:  June Employment - CLaims SA 070314

 

FiveFecta:  June Employment - Employment by Age 070314

 

FiveFecta:  June Employment - Salary   Wage Growth

 

 

THE MIDDLING & (STILL) MOROSE: 

  • Hours Worked:  Ave weekly hours worked for private employees continued to track sideways at 34.5
  • U-6/U-3 Spread:  The spread, which sits as part of the FOMCs  dashboard of “slack” indicators, ticked up sequentially with the magnitude of decline in the U-3 rate outpacing that of the U-6. 
  • Ticking Clock:  At 61 months as of June, the current expansion continues to surpass the mean duration of expansions (59 months) over the last century.  We continue to think this reality weighs into the feds policy calculus  – they need to get out of QE if only to give themselves the opportunity to (credibly) get back in if need be.   

FiveFecta:  June Employment - Eco Cycle Profile Table

 

WAGE GROWTH:  Average hourly earnings in the Private sector grew 2.0% YoY, down from +2.1% in May and continuing the stagnant 2.0% +/- 20bps that has prevailed over the last two years.  Average hourly earnings for Production and Nonsupervisory employees also decelerated -10bps to +2.29% YoY.   

 

With nominal earnings growth static, real earnings growth likely to be negative for a 2nd month in June with the official release, and the spread between spending and earnings growth having re-expanded the last couple quarters, we continue to think the upside to consumption growth remains constrained in the immediate/intermediate term – particularly if inflation continues to march northward and the savings rate remains at current levels.  

 

FiveFecta:  June Employment - Real Weekly Earnings

 

FiveFecta:  June Employment - Nominal Spending vs. Nominal Earnings

 

FiveFecta:  June Employment - Wage Growth Production Workers Nominal

 

 

WAGE RAGE:  Wage Growth Refuses To Accelerate, Does it Matter To The Policy Outlook?  

Conventionally, wages are viewed as a lagging indicator, with wage inflationary pressure building as the labor supply declines and the economy moves towards constrained capacity.  There’s a view that the FOMC won’t move to raise rates so long as real wage growth is flat or declining, which it is currently. 

 

It’s somewhat difficult to make a particularly cogent empirical argument in either direction, however.  The longest historical dataset for (real) wages is that for Production & NonSupervisory Employees which goes back to 1964 (the BLS series for total private employment reported inside the NFP release only dates back to 2006). 

 

The problem with using this series stems from the well documented, secular plight of middle and low income earners where flat/negative real wage growth has characterized the last four decades.  

 

In fact, the current post-recessionary trend in real wage growth compares favorably with those observed over the last half century.   

 

We’d agree that the collective policy bias of the current FOMC body argues for dovish conservatism in the face of negative real wage growth alongside sub-target, or moderately above target, inflation levels.   

 

FiveFecta:  June Employment - Post Recession Real Wages  Indexed 2

 

 

THE WORST EVER...& EVER IS STILL A PRETTY LONG TIME  

The painstakingly slow progression of growth out of the Great Recession has been exhaustingly documented and the duo of negative post-recession GDP prints observed in 1Q13 and 1Q11 sit as the two worst of any post-war recession with a recovery greater than 61 months (the duration of the current expansion).    

 

The five month run of positive labor market data has been encouraging - though not fully corroborated by broad macro strength post the immediate weather-distortion bounce. 

 

We’d advise keeping growth optimism anchored over the intermediate as growth compares get harder and inflation comps easier in 3Q and the conflation of rising inflation, static nominal wage growth, and an ongoing deceleration in housing should drive a sequential deceleration in domestic economic growth.  

 

The reality of the intermediate/LT is that household balance sheets remain over levered, demographics are going the wrong way,  and policy driven increases in inequality will continue to feed the growing phantasm that is the U.S.  middle class. 

 

Yellen’s acute attention to the prospects for secular stagnation and hysteresis isn't misplaced. 

 

FiveFecta:  June Employment - Post Recession GDP  QoQ 2

 

FiveFecta:  June Employment - Post Recession GDP  Indexed 2

 

 

 

Enjoy the Holiday Weekend,

 

 

Christian B. Drake

@HedgeyeUSA

 

 



Bloody High Meat Prices (and Sticky Wages)

Takeaway: Livestock prices are heating up ... just in-time for grilling season.

This unlocked research note was originally published on June 30, 2014 at 16:39 in Macro

Bloody High Meat Prices (and Sticky Wages)  - chip1

 

A sign at Chipotle in NYC notifying customers of “conventionally raised” steak has been up for two months now. Chipotle is either seeing outright supply scarcity or experiencing supply shortages at a price it’s willing to pay.

 

Granted this is only one location, prices have recently increased +8.3% for steak and 11.1% for guacamole at New York locations… And for “conventionally raised!” With the exception of a -3 bps correction in front-month live cattle futures during the week ending June 20th, Livestock prices closed in positive territory every week this month:

 

June 6th: Live Cattle: +1.7%; Lean Hogs: +1.1%

June 13th: Live Cattle: +5.3%; Lean Hogs: +1.2%

June 20th: Live Cattle: -0.3%; Lean Hogs: +10.3%

June 27th: Live Cattle: +3.2%; Lean Hogs: +2.4%

 

Bloody High Meat Prices (and Sticky Wages)  - chart 2 Performance Table

 

Rather than making a call on the direction of agricultural and soft commodity prices on a daily basis, we accept that the speculation of supply shortages can whip prices for a number of reasons outside our control. What we choose to dissect is the consumer and outlook for the U.S. dollar. For the first half of 2014, the consumer slowed and will continue to face similar headwinds in 2H:

 

  1. A Fed revision for 2014 full-year GDP from 3.0% to 2.1 - 2.3% at the last FOMC meeting will likely face a further downward revision after a -2.9% Final Q1 print last week
  2. The Fed gets more dovish with the data
  3. The bond market adjusts for growth expectations and the prospect for future dollar devaluation perpetuates the yield spread compression
  4. Commodities, which are priced in U.S. dollars, face continued pressure to the upside

 

Unfortunately this headline commodity inflation is not considered the kind of inflation that concerns the Federal Reserve formula. Forgive us on the repetitive call-out, but the Hedgeye Macro team felt the following article from Reuters last week was an epic interview with Yellen on the linearity of the Fed’s model.

 

Every FOMC meeting in the last several years precedes an abundance of financial media punditry that dissects the sequential change in the language of each statement. Although rare, we enjoy this direct commentary in the Reuters article for insight into the assumptions made by the fed machine:

 

"My own expectation is that, as the labor market begins to tighten, we will see wage growth pick up some to the point where ... nominal wages are rising more rapidly than inflation, so households are getting a real increase in their take home pay," she said last week, adding: "If we were to fail to see that, frankly, I would worry about downside risk to consumer spending."

 

Janet Yellen is, in this quote, referring to her belief in what is called “money neutrality” which is basically the idea that prices and wages move together without harm over the intermediate to long-term. In our opinion, she sounds rather nervous in her assessment of this “reality".

 

To further quote the Reuters reporter in this article:

 

“Over the last year Fed staff changed their main model for forecasting wage and price inflation to reflect evidence that companies were adjusting prices more slowly than in prior years. That implies the Fed has more time to allow wages to rise and employment to expand before having to be concerned about inflation accelerating.”

 

This seems like a convenient way to make room for an extension of accommodative policy as wage growth has stagnated against a flat dollar and skyrocketing cost of living…

 

Bloody High Meat Prices (and Sticky Wages)  - chart 3 wage growth vs. livestock and USD

 

Income earners save less and spend more with an increase in cost-of-living:

 

Bloody High Meat Prices (and Sticky Wages)  - chart 4 savings rate vs. USD and CRB

 

Our process points to Fed and consensus full-year growth and inflation estimates that are still too optimistic. Yellen’s comments point to the predictable FOMC policy response that we have continuously highlighted as a catalyst for further dollar devaluation. With the CRB Index up 10% in 2014, both the dollar and ten-year treasury yield remain in @Hedgeye bearish formations. 

 

 

Ben Ryan

Analyst

  

 

 

 

 

 


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

next