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Hiccup or Harbinger? A March Jobs Report Drilldown + 10 Bonus Charts You Won't See Anywhere Else


It’s always hard to take a convicted view of a single month of data in isolation but there was little to celebrate in the March employment report.  Total Nonfarm payrolls recorded their softest sequential gain since December of 2013, Jan/Feb saw a net negative revision of -69K, hours worked slowed by 0.2%, the breadth of industry employment gains declined and the Unemployment rate held flat for the wrong reasons. 


Hiccup or Harbinger? A March Jobs Report Drilldown + 10 Bonus Charts You Won't See Anywhere Else - chart1

Silver Linings 

The primary bullish rejoinder to march’s weak print is that weather played an outsized factor and similarly soft gains observed in Dec/Jan of last year were followed by the strongest annual gains in two decades.  Further, while the +126K monthly gain in March was well below the TTM average of +269K, year-over-year growth in payrolls held near cycles highs at +2.27% YoY and was flat at 1.99% on a 2Y basis.  We are in the twilight of the current expansion and whether the March data was simply a hiccup  or a more ominous harbinger of things to come remains TBD> 

Hourly earnings

Average hourly earnings in the private sector accelerated +10 bps sequentially to +2.1% YoY.  However, earnings for nonsupervisory and production employees – which BLS estimates to be ~80% of the workforce – grew just 1.8% YoY, marking the 3rd month in 4 of sub 2% growth.  While labor slack continues its slow march towards tautness, both wage and broader inflation continue to elude policy makers.   

Unemployment Rate

The U-3 Unemployment rate held flat at 5.5% while the U-6 rate (underemployment Rate) ticked down 10.9% from 11% - although it was largely negative fundamental developments that drove the stability/improvement as the flow of workers from unemployed to out-of-the-labor force rose and the  labor force participation rate declined.


Job loss in the energy sector stabilized in March – at least according to BLS and Challenger Job Cut data.  Oil & Gas extraction employment - which includes data thru March  - saw a marginal increase in employment (following 3 consecutive months of job loss) in the latest month.  Broader energy sector employment  - data thru February – played catch-up, declining by -17K sequentially with the rate of YoY growth dropping 290bps sequentially to +1.2% - the slowest pace of growth in 56 months. So, while the energy sector has, in fact, been a source of relative weakness in recent months, it was not a driver of deceleration in March. With Energy state initial jobless claims accelerating in the latest week, however, we do expect further net declines in industry employment in the coming months.


An estimated 182K workers missed work due to severe weather in March.  This compares with 148K last year and a trailing five year average of 130K so weather may have served as a modest drag – (recall that the BLS survey is conducted during the pay period including the 12th of the month and temperatures and initial claims were worse during this period than for the month on average)


Key housing employment demographics remained solid in March and should continue to flow thru to housing demand at a modest rate. We continue to like housing on the long side. 

  • 25-34 year old employment growth held near the cycle high (& at a premium to the broader average) at 2.6% YoY.
  • Residential Construction employment rose +4K in March despite both adverse weather and softness in the balance of construction industry (total construction employment was down -1K for the month).  On a year-over-year basis, employment growth continues to hold in the high single digits as conditions in the resi construction labor market continue to tighten. 


Manufacturing employment declined for the first time since july of 2013 as the confluence of strong dollar, declining export demand, lower energy sector investment, and residual port shutdown impacts continue to weigh on the industry.  The softness was not unexpected given the lackluster gain in February and the slowdown observed in the ISM employment sub-indices. 


With global deflation/disinflation predominating, Japa-German yields anchoring the U.S. 10Y and a strong probability that Fed policy normalization drives a flattening in the curve we think the long-bond (TLT) continues to perform under most immediate/intermediate term macro scenario’s.  

Click chart to enlarge.


Hiccup or Harbinger? A March Jobs Report Drilldown + 10 Bonus Charts You Won't See Anywhere Else - chart2


Hiccup or Harbinger? A March Jobs Report Drilldown + 10 Bonus Charts You Won't See Anywhere Else - chart3


Hiccup or Harbinger? A March Jobs Report Drilldown + 10 Bonus Charts You Won't See Anywhere Else - chart4


Hiccup or Harbinger? A March Jobs Report Drilldown + 10 Bonus Charts You Won't See Anywhere Else - chart5


Hiccup or Harbinger? A March Jobs Report Drilldown + 10 Bonus Charts You Won't See Anywhere Else - chart6


Hiccup or Harbinger? A March Jobs Report Drilldown + 10 Bonus Charts You Won't See Anywhere Else - chart7


Hiccup or Harbinger? A March Jobs Report Drilldown + 10 Bonus Charts You Won't See Anywhere Else - chart8


Hiccup or Harbinger? A March Jobs Report Drilldown + 10 Bonus Charts You Won't See Anywhere Else - chart9


Hiccup or Harbinger? A March Jobs Report Drilldown + 10 Bonus Charts You Won't See Anywhere Else - chart10


Hiccup or Harbinger? A March Jobs Report Drilldown + 10 Bonus Charts You Won't See Anywhere Else - chart11

Giant Macro River

This note was originally published at 8am on March 20, 2015 for Hedgeye subscribers.

“It was the transformation of the ocean from a death sentence to a sort of giant river.”

-Peter Zeihan


After a mentally exhausting month on the road where I was debating investors on what the Fed could and should do, now we have the proverbial giant macro river card priced into the marketplace, and I can go back to reading my books and brackets.


Since my NCAA brackets are basically an uneducated guess from a 5’9 right-hand-only-dribble-Canadian who doesn’t know the difference between the SEC and whatever division UAB played in this year, my picks did well yesterday.


Go figure. Guessing works some of the time – but it gets you run over in macro markets most of the time. So let’s go back to analyzing the transformation of an interconnected, but non-linear, global currency, commodity, fixed income, and equity market.

Giant Macro River - z9


Back to the Global Macro Grind


The transformation of the oceans (across the last six centuries) is a fantastic metaphor for macro markets to consider as you watch your basketball brackets this weekend. If you’re not into doing either – let me save you the required reading and give you the history point:


The most lasting impact of the deep water revolution, wasn’t the shifting of the spice trade, the fall of the Ottomans, or even the rise of the British Empire… Deepwater navigation cracked the world open, launching the Age of Discovery, which in turn condensed the world both culturally and economically.” (The Accidental Superpower, pg 31)


Never mind not having a modern day #process to contextualize and risk manage the oceans. Trading macro used to be a death sentence for people who A) didn’t have live quotes and/or B) liquid macro securities that helped them express their macro themes.


Today, all of that has changed. Currency markets are some of the deepest and most liquid in the world – and most central planners wake up every morning looking for ways to manipulate them.


Last night, BOJ (Bank of Japan) overlord Kuroda was trying to jawbone the Yen lower by suggesting he could come up with some moarrr “innovative monetary policy.” What he meant by that is he can do moarr and moarrr of what has not worked, and take Japan’s annual money printing from 80-90T Yen to something greater than 100 TRILLION Yens…


Awesome, eh?


Yeah, these guys are totally awesome. As they are blowing up the purchasing power of The People, they are providing us an excellent map of how to navigate the River Alpha of Global Macro returns.


How did Kuroda impact macro markets?


  1. Yen Down (Dollar Up) = Nikkei Up
  2. With Burning Yens testing YTD lows, Weimar Nikkei ramped to a 15yr high at +12.2% YTD
  3. Janet’s attempts to devalue the US Dollar past 1-day were foiled


Oh, then Draghi woke up and gave the Greek guys a buzz telling them to just float it out there that they are “feeling confident” about their talks with the Germans:


  1. After hitting fresh YTD lows (see Chart of The Day), Greek stocks bounced +3% on that and…    
  2. The Euro (vs. USD) bounced to another lower-highs too at $1.06…
  3. So Janet doesn’t have to intervene just yet –until Euros and Yens are both on their lows again, I guess


This is, of course, the problem with trying to centrally plan your own domestic waterways as the rest of the world is trying to boil the currency ocean. If your “policy” is linear and local in its design, it’s going to get wiped out by non-linear global macro risks.


“So”, Janet, while I’m a fan of the no policy mistake move this week… and I think that the move you made on the non-impatience vs. “patient” was cute… in trying to devalue the Dollar from here, I think you’re up this river without a paddle until you make your next move.


How do we invest in these #StrongDollar + Down Rates Global Macro waters? No real change from where I’ve been:


  1. Commodity #Deflation = rocks, so avoid those (reiterating the asset allocation of 0%, which we’ve had for 6 months)
  2. US Equities = domestic consumption opportunities abound (Russell 2000, Housing, Consumer, Healthcare)
  3. Int’l Equities = owning central plans to ramp stocks markets (Japan, Germany, Italy, Spain, etc.)


And in FX and Fixed Income you obviously own what the long-term investors in Global #Deflation and #GrowthSlowing do – US Dollars and Long-term Treasuries. It’s a Giant Macro River, and I’m happy owning the deepest and most liquid parts of it.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.91-2.05%
SPX 2069-2107
RUT 1234-1265

DAX 11804-12230
USD 97.97-100.69
EUR/USD 1.04-1.08


Best of luck out there today and have a great weekend,



Keith R. McCullough
Chief Executive Officer


Giant Macro River - 03.20.15 chart




We will be hosting our highly-anticipated Quarterly Macro Themes conference call on Tuesday, April 7th at 11:00AM ET.  Led by CEO Keith McCullough, the presentation will detail the THREE MOST IMPORTANT MACRO TRENDS we have identified for the quarter and the associated investment implications.





#LateCycle USA: Employment, Inflation and Earnings follow an archetypic progression over the course of the economic cycle and always look best before the crest.  We’ll detail where we are in the current cycle, the likely trajectory for this trinity of late-cycle macro indicators from here and how best to be positioned in the twilight of the current expansion.  


#DemographicYields: Year after year in the post-crisis era, investors, economists and policy-makers alike have consistently seen their estimates for GDP growth, inflation and interest rates surprised to the downside. Perhaps there is some merit to the “secular stagnation” thesis most recently highlighted by Bernanke’s blog. In this theme, we pull back the curtains on the impact of demographics on the domestic and global economy. The conclusion? Lower-for-longer...

Oil’s #DeflationDeck: Taking a birds-eye view of oil prices throughout the peaks and troughs in business cycles provides essential context as deflation’s dominoes continue falling on a global scale. With the U.S. production machine changing the supply/demand dynamics in global energy markets, a deep-dive of this shift is key to generating sector-specific alpha into




  • U.S. Toll-Free Number:
  • U.S. Toll Number:
  • Confirmation Number: 39359212
  • Materials: CLICK HERE (the slides will be available approximately one hour prior to the start of the call)

New Best Idea: Long ZOES

Takeaway: We’re hosting a call on Wednesday, April 8 at 1:00pm EST. Dial-in details and associated materials to follow.

We are adding ZOES to the Hedgeye Best Ideas list as a long.

Standing Out From the Crowd

After coming down hard on NDLS, CHUY, PBPB, DFRG and SHAK over the past year, it’s probably apparent that we have a strong bias against “high growth” restaurant companies that have recently come public.  Rest assured this bias has not detracted from our research process.  In fact, this prior work in the small cap restaurant field has allowed us to identify a company that we believe is distinctly different from the rest – which, if you’re familiar with our work, can only be construed as a good thing. 


We like ZOES on the long side for many reasons, including its:

  • Superior brand positioning
  • Management philosophy and execution
  • Unit opening geographic profile
  • Early-stage average unit volumes and returns


There is little competition in the Mediterranean category which directly appeals to the health conscious millennial crowd and has the potential to become America’s next big cuisine.  Due in large part to a best-in-class management team and operating philosophy, we believe ZOES will be able to grow with minimal roadblocks.


Please join us on Wednesday as we walk through the intricacies of our call in a detailed Black Book.

New Best Idea: Long ZOES - 1

Retail Callouts (4/2): KSS, JCP, M, TGT, WMT, DKS, HIBB, FL

Takeaway: MCD raises wages, adding to lower tier wage pressure. DKS implications of Leonard Greene stake in Bass Pro.



WAGE PRESSURE Builds Further For Retail

MCD, KSS, JCP, M, TGT, WMT - McDonald's USA Announces New Employee Benefit Package Including Wage Increase and Paid Time Off at Company-Owned Restaurants



Takeaway: The largest restaurant group in the US and two of the three largest retailers are setting the tone on the employment front. Some may minimize this announcement because it only applies to 10% of MCD's, 14k US stores, and it's unlikely that Franchisees will follow suit, but we point to a) the 90,000 employees it will effect and b) the legislative risk associated with these pay moves by MCD, WMT, and TGT. Will we see a sweeping national reform of the Federal Minimum Wage? Who knows -- but, what is clear is that the likes of KSS, JCP, and M will have to compete with the employment leaders to attract and retain workforces. The reason why we haven’t seen it yet is because we’re now at a seasonal lull for retail. By July, retailers will start beefing up temporary workforce ranks for ‘Back to School’ and then they kick it up a notch again in October as they prepare for Holiday. With the exception of grocery retailers, they ALL follow that pattern. That’s precisely when we’ll see the biggest wage pressure. And it's not like these companies can optimize payroll hours to offset the additional cost without sacrificing the in-store 'experience'. KSS in particular at it's analyst day characterized its employee management as 'world-class' and said there wasn't much wiggle room.


To review our outlook for the year, see our note Retail - Our 2015 Quarterly Playbook  LINK: CLICK HERE


Additional data: According to Glassdoor, MCD pays its base level employees (crew members & cashiers) $8.31. That's just south of KSS territory, and below all of the big players in the retail industry. Here's a look at the average hourly wages by retailer.

Retail Callouts (4/2): KSS, JCP, M, TGT, WMT, DKS, HIBB, FL - 4 2 chart1



DKS Implications of Possible Leonard Greene Stake in Bass Pro



Takeaway: Bass Pro stores are absolutely massive, about and pump north of $60mm through an average store -- close to $300 bucks per foot (vs DKS at $207). Those numbers have tailed off over the past couple of years according to Euromonitor, but at 1.1x EV/Sales (LTM)  it doesn't seem like an egregious multiple for Leonard Green to stomach. With DKS trading at a discount it's likely we'll here some renewed talk in about the possibility of the company going private, though Stack has all but said he wouldn't sell. Here's how we are thinking about that talk…


Based on our LBO model (ping us is you want a copy), a DKS LBO at the current price -- and even 20% lower -- makes no financial sense. The IRR is negative in both instances.


To be clear, our model assumes…

  1. DKS tops out at 900 stores by 2018, below management's 1,100 goal
  2. 2% to 3% comp store sales growth as e-commerce offsets negative store traffic.
  3. Gross Margins fall by 50bp annually as e-commerce dilutes profitability, and aggregate sales growth is not strong enough for DKS to leverage occupancy costs.
  4. EBIT margins fall from 8% today to 6% in 2018.

Though the math on our model makes no sense, the reality is that a banker Dick's might hire to sell the company will use much more bulled-up assumptions. We've said it before and we'll say it again, if DKS could find a buyer with the stock at a $5-handle, it should hit the bit on that all day. Ed Stack built a good business in a tough space. But it's running out of growth and margin, and we think he knows it.  

Retail Callouts (4/2): KSS, JCP, M, TGT, WMT, DKS, HIBB, FL - 4 2 chart2C


LBO Model

Retail Callouts (4/2): KSS, JCP, M, TGT, WMT, DKS, HIBB, FL - 4 2 chart3





URBN - Comp sales QTD are mid single-digit positive



TGT - Target Canada to Close all Canadian Stores by April 12



LL - Formaldehyde Emission Standards for Composite Wood Products



APP - American Apparel to Lay Off 180 Employees



AMZN - We May Have Just Uncovered Amazon’s Vision for a New Kind of Retail Store



SQBG - Jessica Simpson Brand Bought by Sequential



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