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Employment Envy: Domestic Labor Remains Strong in February

Insular Strength:  The domestic labor market remains insularly strong with February employment holding near cycle highs despite serial storm activity, the rising drag from the energy sector, and global growth in discrete retreat.  The best run in payroll gains since the late 1990’s extended in the latest month with employment growth accelerating for a 6th straight month, the unemployment rate approaching the Fed’s NAIRU level and employment growth across the key housing demographic of 20-34 year olds accelerating. 

 

Best Before the Crest:  We remain late cycle in the current expansion and the data is always best before the crest but the labor market remains the recipient of positive macroeconomic reflexivity currently and the expectations build into the Fed announcement on March 18th will now be that much more acute. 

 

A summary review of the February NFP highlights: 

  • Energy:  The slowdown is starting to show up in the industry employment data but not enough to move the aggregate numbers.  Oil & Gas extraction employment - which includes data thru February  - was down for a 3rd straight month with YoY growth moving toward 0%.  Broader energy sector employment  - data thru January - showed the same trend.  So, while the energy sector is, in fact, a spot of weakness, strength elsewhere is swamping the drag.  As we’ve highlighted, direct energy employment is only 60bps (~770K workers on NFP base of 141mn) of total and ~1% of total on an effective worker basis.
  • Weather:  An estimated 328K workers missed worked due to severe weather in February.  This compares favorably with last year’s polar vortex spike but was moderately worse than the historical average and likely had a concentrated impact in specific geographies. 
  • Housing:  Key housing employment demographic continued to accelerate and should continue to flow thru to housing demand at a modest rate.  We continue to like housing on the long side. 
    1. 20-34YOA employment accelerated to +2.7% YoY from +2.3% (growing at a premium to aggregate NFP which grew at +2.4% YoY)
    2. Resi Construction employment down -1K sequentially after last months epic gain (largest since November 2005).  Industry employment is still up +7% on a year-over-year basis.  Severe weather probably a had a moderate impact on construction demand. 
  • Employment Mix Low wage jobs constituted 199K of the 288K gain (69%) on the private side but the trend has been in favor of high wage job gains with high wage growing as a share consistently over TTM.  Accelerating employment + positive mix has supported ongoing improvement in aggregate disposable income growth. 
  • Unemployment Rate:  U-3 and U-6 rate both declining with employment approaching “full” although the decline in LFPR and increase in those dropping out of labor force drove most of the delta (so largely negative dynamics and opposite those that drove last months change)
  • Wage Growth:  Private sector Wage Growth slowed to +2.0% YoY from +2.2% prior and wage growth for nonsupervisory workers decelerated to +1.5% YoY.   So,  nominal wage growth remains flat-to-down but with inflation falling at a faster rate of late, real wage growth is actually improving.
  • PCE/Household Consumption:  The personal income numbers have been strong and the household consumption has been a source of strength against flagging export demand and the slide in goods pricing.  The February employment figures suggest  stable-to-strengthening income and spending figures for February (savings (rising) rate + credit growth remain the swing factors).

Employment Envy:  Domestic Labor Remains Strong in February - Employment Table Feb

 

Employment Envy:  Domestic Labor Remains Strong in February - NFP Growth YoY

 

Employment Envy:  Domestic Labor Remains Strong in February - Employment Weather Feb

 

Employment Envy:  Domestic Labor Remains Strong in February - Employment Weather Dec Feb

 

Employment Envy:  Domestic Labor Remains Strong in February - Oil   Gas Extraction

 

Employment Envy:  Domestic Labor Remains Strong in February - Oil Industry Employment Feb

 

Employment Envy:  Domestic Labor Remains Strong in February - Employment   EtoP Ratio 20 34YOA

 

Employment Envy:  Domestic Labor Remains Strong in February - Resi Construction Employment Feb

 

Employment Envy:  Domestic Labor Remains Strong in February - Employment Mix High Wage Jobs

 

Employment Envy:  Domestic Labor Remains Strong in February - ST Unemployment Feb

 

Employment Envy:  Domestic Labor Remains Strong in February - Wage Growth Feb

 

 

Christian B. Drake

@HedgeyeUSA


Keith's Macro Notebook 3/6: Euro | Yen | UST 10YR

 

Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.


Today’s Jobs Report: Lose the Spin, Let the Numbers Talk

I love how political the monthly Jobs Report gets. Everyone has their own spin. Unfortunately, not everyone has math or facts, which are one and the same. Let the numbers talk.

Today’s Jobs Report: Lose the Spin, Let the Numbers Talk - j1

To that end, please see the charts and commentary below which should help you contextualize today's February jobs report.

 

Month-over-month Nonfarm Payrolls growth accelerated on a sequential basis, but are decelerating on a trending basis:

 

Today’s Jobs Report: Lose the Spin, Let the Numbers Talk - DD1

 

That deceleration is from a really high growth rate, however. The latest 3MMA is in the 88th percentile of all readings over the last 10 years, which compares to the 95th percentile recorded in the prior month.

 

On a Year-Over-Year basis, Total Employees on Nonfarm Payrolls are up 2.39%, the fastest rate of growth since MAY '00. The 2yr average of 2% is the fastest since NOV '00.

 

It would not behoove you to see MAY/NOV 2000 and say, "Well that was it for the market/economy." That was in a clear down-cycle. We are still in up-cycle mode.

 

How do we know? Well, A) the data is still accelerating. And B) the leading indicator for employment growth continues to support that conclusion:

 

Today’s Jobs Report: Lose the Spin, Let the Numbers Talk - DD2

 

In research, #math > storytelling. In risk management, #process > hope. In the seeking of context, @Hedgeye > the alternative.

 

 


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14 (Not So Great) Charts You Need to See In the Industrials Sector

This note was originally published March 04, 2015 at 21:32 by Hedgeye Industrials Sector Head Jay Van Sciver.

Overview

 

Outside of housing/construction, much of the recent industrial data point to weakening activity.  Some of the deceleration may relate to broader deflationary trends, such as weaker resource-related capital spending.

 

14 (Not So Great) Charts You Need to See In the Industrials Sector - in99

 

ISM New Orders

 

While still in expansion territory, both the Manufacturing and Nonmanufacturing New Orders readings weakened.

 

14 (Not So Great) Charts You Need to See In the Industrials Sector - jay1

 

 

Intermodal Rail Traffic

 

While weather and port disruptions play a part, the recent meaningful declines in intermodal rail traffic are the first since the great recession.

 

14 (Not So Great) Charts You Need to See In the Industrials Sector - as2

 

 

U.S. Manufacturers New Orders


While we typically track the more timely ISM Manufacturing New Orders readings, other measures also point to a deceleration in orders.  Ex-Defense also shows YoY declines.

 

14 (Not So Great) Charts You Need to See In the Industrials Sector - as3

 

 

U.S. Crude-By-Rail

Crude-by-rail volume showing slight year-on-year declines in recent weeks.

 

14 (Not So Great) Charts You Need to See In the Industrials Sector - as4

 

 

Single Family Building Permits

Residential construction/housing appears to be positioned well into 2015.

 

14 (Not So Great) Charts You Need to See In the Industrials Sector - as5

 

 

Architectural Billings Index


While the ABI points to strengthening activity through much of 2015, the recent 49.9 reading points to a deceleration into 2016.  Of course, by then no one will remember where ABI was 11 months prior.

 

14 (Not So Great) Charts You Need to See In the Industrials Sector - as6

 

 

Public Nonresidential Construction Spending

 

After several years of being a drag on nonresidential construction, public sector spending is showing solid signs of growth.

 

14 (Not So Great) Charts You Need to See In the Industrials Sector - as7

 

 

Inventory to Shipments Ratio

 

Inventory is building relative to shipments, which is typically a negative indicator for higher cost transportation spending.  It is also typically associated with weaker economic activity.

 

14 (Not So Great) Charts You Need to See In the Industrials Sector - as8

 

 

IATA International Airfreight FTK Growth

 

Even airfreight growth seems to be slowing, which is surprising given recent declines in fuel costs. (Freight Ton Kilometers = FTK)

 

14 (Not So Great) Charts You Need to See In the Industrials Sector - as9

 

 

Truck Demand Index

 

While some of this may be weather/port related, it is not a positive indicator for heavy trucks.

 

14 (Not So Great) Charts You Need to See In the Industrials Sector - as10

 

 

US Truck Backlog to Build

 

From a trading perspective, we look to enter truck OEMs when this reading is low.  Recent slowing may portend an entry opportunity for that group.

 

14 (Not So Great) Charts You Need to See In the Industrials Sector - as11

 

 

Brazil Heavy Truck Registrations

 

14 (Not So Great) Charts You Need to See In the Industrials Sector - as12

 

 

CRB Index

 

A stronger dollar and deflationary trends are not typically favorable for Industrial top-lines.

 

14 (Not So Great) Charts You Need to See In the Industrials Sector - as13

 

  

AWP Value Index


This series seems to be decelerating.  (AWP = Aerial Work Platforms)

 

 14 (Not So Great) Charts You Need to See In the Industrials Sector - as14

 

 

Business Jet Flights YoY%


Growth appears to be slowing in recent months, although the January decline may be partly weather related.

 

14 (Not So Great) Charts You Need to See In the Industrials Sector - as15

 

 

China HSBC PMI

 

Ending on a more positive note, the HSBC China Manufacturing PMI has moved into positive territory.

 

14 (Not So Great) Charts You Need to See In the Industrials Sector - as16


Retail Callouts (3/6): February Comps, GPS, LB, COST, ZUMZ, BKE, RAD, etc.

Takeaway: Weather wins the day in February. MidWest, South, and East Coast hit the hardest. But even well diversified players like GPS feel the pain.

COMPANY HIGHLIGHTS

 

February Comps -

 

Takeaway: Weather was an issue last year during February, and it's been equally as bad this year. The 2-yr trend in the ICSC has been decidedly negative since the year started drawing essentially a straight line from 3% to 2% over the 9-weeks to date. 

Retail Callouts (3/6): February Comps, GPS, LB, COST, ZUMZ, BKE, RAD, etc. - 3 6 chart1

 

That manifested itself in the numbers we saw reported on Wednesday and Thursday where 2/3 of the companies who still report monthly sales numbers missed expectations by an average of 450bps (240bps if you exclude CATO). Not only  that, but every company with the exception of BKE and ZUMZ posted a sequential decline on the 2yr trend line. The average decline for the 7 companies equaled 320bps.

 

We looked at the regional weighting for each retailer to see if there was any geographic areas that made it through February in a healthy position.  It's hard to give any part of the country the benefit of the doubt when GPS reported a -4% against a -7% LY, but based on what we found it looks like the South and MidWest were hit hardest. We'd add the East Coast in there as well even though there was no company with a bias to that region because we've been trudging through the snow here in CT for the better part of 6 weeks.

Retail Callouts (3/6): February Comps, GPS, LB, COST, ZUMZ, BKE, RAD, etc. - 3 6 chart2

 

We have 1 more month of easy compares until comps get more difficult starting in April. Cheap gas has been a tailwind YTD, but we should point out that the average price for a regular gallon of gas is up about 12% since the first week of January according to the EIA and the YY growth rate is 460bps behind where it was when January kicked off.

Retail Callouts (3/6): February Comps, GPS, LB, COST, ZUMZ, BKE, RAD, etc. - 3 6 chart3

 

On the positive side, employment numbers looked good this morning and averages wages ticked up another 20bps. That could continue to help especially on the lower end, but it appears for now that weather is winning the battle.

 

 

OTHER NEWS

 

Ports Gridlock Reshapes the Supply Chain

(http://www.wsj.com/articles/ports-gridlock-reshapes-the-supply-chain-1425567704)

 

Sephora in big omnichannel push: beacons, in-store augmented reality and more

(http://www.chainstoreage.com/article/sephora-big-omnichannel-push-beacons-store-augmented-reality-and-more)

 

LL - Senator calls for Lumber Liquidators investigation

(http://www.chainstoreage.com/article/senator-calls-lumber-liquidators-investigation)

 

APP - American Apparel workers create coalition

(http://www.chainstoreage.com/article/american-apparel-workers-create-coalition)

 

Bonobos to open 4,000-sq.-ft. flagship in Manhattan

(http://www.chainstoreage.com/article/bonobos-open-4000-sq-ft-flagship-manhattan)

 

COST - Exclusive: Costco working to end use of human antibiotics in chicken

(http://in.reuters.com/article/2015/03/06/us-costco-antibiotics-idINKBN0M201520150306)

 


The Euro, Yen and UST 10YR

Client Talking Points

EURO

Euro...the collapse of a currency, testing 1.09 -1.08 literally straight down and in the face of that the USD is going straight up here. This only reinforces our Global #Deflation view (which is largely instructed from our USD view which is instructed by our European and Japanese policy view). To be clear we don’t think this will create any economic value.

YEN

As the YEN tumbles look at the Nikkei go, up almost 9% year-to-date up 1.2% overnight. The Yen has burned through the 1.20 line, intermediate term targets are 1.05 and 1.35 for the Euro and the YEN respectively and those targets look firmly intact at this point.

UST 10YR

We have been saying this all along, on a good jobs report number the UST 10YR hits the top end of the risk range which is 2.18 on a bad number it will see 20-25 basis points of downside. The jobs report was good, which is really not congruent with every other piece of jobs data or economic data that we look at. Either way a good jobs number is bullish for bond yields in the very immediate term.

Asset Allocation

CASH 37% US EQUITIES 12%
INTL EQUITIES 11% COMMODITIES 0%
FIXED INCOME 30% INTL CURRENCIES 10%

Top Long Ideas

Company Ticker Sector Duration
ITB

iShares U.S. Home Construction ETF (ITB) is a great way to play our long housing call, U.S. #HousingAccelerating remains 1 of the Top 3 Global Macro Themes in the Hedgeye Institutional Themes deck right now. Not only did U.S. home prices accelerate (in rate of change terms) in the Core Logic data this week to +5.7%, but the supply/demand data has been improving throughout the last 3 months.

PENN

Penn National Gaming is the best way to play improving domestic regional gaming trends due to its superior operational management and unit growth opportunities. Catalysts include positive estimate revisions, the opening of the first Massachusetts casino in June, and industry leading earnings growth in 2015 and 2016.

TLT

Low-volatility Long Bonds (TLT) have plenty of room to run. Late-Cycle Economic Indicators are still deteriorating on a TRENDING Basis (Manufacturing, CapEX, inflation) while consumption driven numbers have improved. Inflation readings for January are #SLOWING. We saw deceleration in CPI year-over-year at +0.8% vs. +1.3% prior and month-over-month at -0.4% vs. -0.3% prior. Growth is still #SLOWING with Real GDP growth decelerating at -20 basis points to +2.5% year-over-year for Q4 2014.The GDP deflator decelerated -40 basis points to +1.2% year-over-year.

Three for the Road

TWEET OF THE DAY

VIDEO: Maria, Leo, and I on #Bubbles - Alibaba Arguably “Biggest IPO Bubble In World History" | $BABA https://app.hedgeye.com/insights/42773-mccullough-alibaba-arguably-biggest-ipo-bubble-in-world-history

@KeithMcCullough

QUOTE OF THE DAY

The most unprofitable item ever manufactured is an excuse.

-John Mason

                                                             

STAT OF THE DAY

A member of the Bush family has now been on the cover of Time magazine 51 times.


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