Link to Report: MCD: Free-Falling February Comps

  • Our thoughts on February same-store sales results
  • Review of why we prefer MCD on the short side 

Employment Envy: Domestic Labor Remains Strong in February

This note was originally published by Hedgeye U.S. macro analyst Christian Drake on March 06, 2015 at 11:19 in Macro. Click here for more information on how you can subscribe to Hedgeye.

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 - drake1


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


LEISURE LETTER (03/09/2015)

Tickers:  PNK,GLPI, LVS, MGM



PNK/GLPI-   GLPI bids for PNK's real estate business - GLPI values its bid at $36 per PNK share. Presentation HERE

Takeaway:  We agree with most of the analysis provided by GLPI except the assumed multiple for PNK's OpCO.  See our note "GLPI/PNK: QUICK THOUGHTS". We think GLPI's offer is closer to $30-32.


LVS -  Sands China has announced a 5% pay rise for its staff, effective March 1, 2015. The company said it is increasing the salaries of 26,000 eligible full-time team members.  The salary increase follows the payment of a bonus on February 16. The casino operator last month said that a total of 27,000 full-timers would receive a bonus of at least one month’s salary.



Takeaway: Following SJM's lead in raising salary.


LVS - reconsidering Rolling Stones and other marketing/entertainment programs to cut costs in Macau.




MGM - The Labour Affairs Bureau says it has suspended the use of all cranes and hoists on an MGM China Holdings Ltd building site in Cotai after a concrete pipe dropped by a crane there fatally injured a construction worker below.  The Labour Affairs Bureau and MGM China both say they are investigating.



Takeaway: We're hearing this construction incident will delay MGM Cotai's opening to 1Q 2017, rather than late 2016.


Genting Singapore - RWS will borrow S$2.27 billion to refinance its debt. The five-year deal includes a $1.75 billion term loan, $500 million revolving facility and a $20 million bank guarantee facility.



Unpaid leave - Secretary of the Economy and Finance Lionel Leong Vai Tac has warned casinos to refrain from offering unpaid leave to employees that it has no work for, and to give them training instead. The newspaper quotes Mr Leong as urging casino operators: “Don’t offer unpaid leave, thank you. Offer paid training and training at work.” Speaking to reporters in Beijing, Mr Leong said how casinos treated their employees would count when the government reviewed their concessions.


Takeaway: Leong's comments are in response to Wynn Macau's suggestion that employees take unpaid leave. Unpaid leave had been a tool used by Macau casinos to cut costs without laying off staff. Not good for margins...


Infrastructure delays - The cost of the massive bridge linking Hong Kong with Zhuhai and Macau will rise above its HK$132.9 billion estimate because of a significant delay and the extra expense will be shared by the three cities, says Li Chunhong, director of the Guangdong Development and Reform Commission. Li said the completion date of the bridge would be revealed by October after an assessment.  The bridge was scheduled to be completed next year, but Li said even 2020 was a difficult target because of technical difficulties in laying sections of tubes on the seabed and joining them to make a tunnel.


Takeaway: Another major infrastructure delay for Macau


Angela Leong - Legislator and executive director of SJM Holdings, Angela Leong On Kei estimates that the industry has spent more than MOP2 billion in modifying their air purifying facilities and ventilation systems in order to comply with local smoking regulations whilst the government has been “ambiguous” in its tobacco control policy.  “If the government had implemented a full smoking ban in casinos in the very beginning, then a lot of resources and effort [to comply with smoking control policy] would have been saved,” Ms. Leong said.


Having expressed support on several occasions for a full smoking ban in casinos in Legislative Assembly sessions before, Ms. Leong argued that smoking lounges should be allowed to be retained in casino properties while having a full smoking ban in effect.


Takeaway: Angela is again pushing for an all-out casino ban on smoking. We think it is inevitable. 


Chui - aims to ‘optimize’ Macau individual travel scheme



Illinois Feb GGR- fell 5% YoY

Takeaway: Below expectations. Was it poor weather-related or is the weather tailwind over?


LV/AC hotel prices -’s Hotel Price Index shows the average price of a hotel in Atlantic City rose 10% last year to $149 in 2014.  Las Vegas increased 8% to an average of $120 a night.


Hedgeye Macro Team remains negative Europe, their bottom-up, qualitative analysis (Growth/Inflation/Policy framework) indicates that the Eurozone is setting up to enter the ugly Quad4 in Q4 (equating to growth decelerates and inflation decelerates) = Europe Slowing.

Takeaway:  European pricing has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely in 2015.

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 80.46%
  • SHORT SIGNALS 78.35%

Keith's Macro Notebook 3/9: Euro | Commodities | Canada

Hedgeye Director of Research Daryl Jones shares the top three things in Keith's macro notebook this morning.


Link to Report: Monday Mashup

  • Key Callout: removing short PNRA from our Investment Ideas list

European Banking Monitor: Swaps Tighten Ahead of QE

Takeaway: The U.S. market read the favorable jobs report as bad news while the global risk perception decreased as ECB bond buying is set to begin.

Key Takeaway:

Risk perception decreased, as Mario Draghi announced that the ECB would begin buying bonds today, March 9th. In our heatmap below, risk measures on the short term are mixed, while intermediate-term measures are mostly positive.


European Financial CDS - Swaps mostly tightened among European banks last week with Mario Draghi announcing that ECB bond buying will begin today, March 9th.


European Banking Monitor: Swaps Tighten Ahead of QE - chart1 financials CDS


Sovereign CDS – With ECB bond buying approaching, sovereign swaps mostly tightened over last week. Spanish sovereign swaps tightened by -14 bps to 83 bps, and Portuguese swaps tightened by -17 bps to 118 bps.


European Banking Monitor: Swaps Tighten Ahead of QE - chart2 sovereign CDS


European Banking Monitor: Swaps Tighten Ahead of QE - chart3 sovereign CDS


European Banking Monitor: Swaps Tighten Ahead of QE - chart4 sovereign CDS


Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS was unchanged at 11 bps.


European Banking Monitor: Swaps Tighten Ahead of QE - chart5 euribor OIS Spread



Matthew Hedrick 



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