THE FULL SCOOP

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7/1 - 7/5

ISM Manufacturing

The June ISM manufacturing Index fell slightly from 48.7 to 48.5, ​below estimates of 49.1. This index continues to be in contraction and ​has only been above 50 once in almost two years. Looking at the ​components:

New orders rose 3.9 points, but remains in contraction at 49.3

Prices paid, which measures inflation, fell from 57 to 52.1 - This has ​been falling the last few months.

Employment dropped back under 50 again to 49.3, signaling ​contraction

Even though this should have been a Bond friendly report, global Bond ​markets continued to sell off.

Atlanta Fed Q2 GDP Estimate

Chicago Fed President Austan ​Goolsbee Comments

Chicago Fed President Austan Goolsbee spoke in Portugal. He is not a voting ​member this year, but will be voting in July as Mester retires and is not replaced ​by Hammock until August. Goolsbee sounded even more in favor of a cut than the ​last time he spoke.

Goolsbee spoke about how high the Fed Funds Rate was and how it was over ​restrictive. He said that we got to this rate when inflation was over 4%, and ​inflation is now down close to 2.5%. So if you keep rates where they are and ​inflation is going down, you are tightening further. The reason that you would ​want to tighten is if you think that you're not on a path to 2%. This means he ​wants to cut as inflation has moved lower.

He also mentioned the dual mandate and how employment has been weakening. ​He cited the warning signs we are seeing and how they have to balance pricing ​progress with the weakening economy.

The Atlanta Fed released GDP estimates every week, and they just revised their Q2 estimate substantially from 3% to 1.7% over just the last week. Based on the size of ​our economy, that’s like a $400 Billion adjustment in a week. Another sign the economy is slowing.

JOLTS

The May JOLTS data showed that job openings rose slightly to 8.1M. The previous report originally reported at 8.1M, was revised lower to 7.9M. This is still the lowest ​level of job openings since Feb 2021. Overall, openings were little changed.

Leisure and hospitality openings fell 146,000, the second month of big declines. The level of openings in this sector is now at 922k, now below the February 2020 level.

The Quit rate remained at 2.2% for the seventh month in a row, which is still at the lowest level since 2018 when removing Covid. This shows some weakness in the ​labor market, as a lower quit rate means less people feel confident about getting a new job/less poaching from other companies.

CoreLogic Home Price Insights / Black Knight Home Price Index

CoreLogic reported that home prices rose 0.6% in May after rising 1.1% in April and 1.2% in March. CoreLogic forecasted that it would rise by 0.8%, so while a strong ​reading in a month, it was below their estimate.

Year over year, home prices are now up 4.9%, which is down from 5.3% in the previous report, due to a higher gain last year that was replaced.

CoreLogic forecasts that in June home prices will rise 0.7% and anticipates that home prices will rise 3% over the next year, which is likely conservative.

Black Knight also reported their home price index, showing home values rose 0.33% in May and are now up 4.6% year over year, down from 5.3% in the previous report. ​Again, remember that the year over year number declined because of a very high comp from last year.

ADP Employment Report

The June ADP Employment report showed that there were 150,000 jobs ​created during the month, which was slightly weaker than estimates of ​160,000. May’s report was revised slightly higher from 152,000 to 157,000, ​but job growth is slowing down at a measured pace.

Almost all the hiring took place at businesses with 50 or employees, as ​small businesses only added 5,000 jobs. This is something to keep in mind ​for the BLS Jobs Report on Friday, as the BLS uses imputed data via their ​birth/death model for small businesses and it has been coming in much ​hotter than ADP’s actual small business data.

The Goods sector only added 14,000 jobs, led by Construction, which ​added 27,000…Manufacturing and Natural Resources/Mining were ​-13,000. The Service sector added 136,000 jobs, led by Leisure and ​Hospitality, which added 63,000 jobs and is not syncing up with the decline ​we have seen in job openings in the sector the last two JOLTS reports.

“Job growth has been solid, but not broad-based,” said Nela Richardson, ​chief economist, ADP. “Had it not been for a rebound in hiring in leisure ​and hospitality, June would have been a downbeat month.”

ADP also reported that annual pay for job stayers increased at 4.9%, down ​from 5% in the previous report and the lowest level in almost three years. ​Job changers saw an average increase of 7.7%, which is down from 7.8% in ​the previous report.

Initial Jobless Claims

Initial Jobless Claims, which measures individuals filing for unemployment benefits for ​the first time, rose 4,000 to 238,000. This metric has been above 230,000 for the last ​four weeks and the four-week moving average has moved up to 238,500, which is the ​highest level since August 2023.

Continuing Claims, which measures Individuals continuing to receive benefits after ​their initial claims, rose 26,000 to 1.858M. This figure continues to climb and is at the ​highest level since November 2021 and shows that once you are laid off it’s becoming ​harder to find a new job. Remember that each week the initial claims are a new ​batch up people getting laid off, while continuing growing shows that they are still ​unemployed and continue to receive benefits. This report is another sign that the ​labor market is beginning to show some weakness.

Mortgage Applications

Purchase application volume broke a three week win streak and fell 3% last week. ​Purchase volume is down 12% from this time last year. Refinance volume fell 2% and ​is now UP 29% year over year.

Interest rates rose slightly from 6.93% to 7.03% last week and are now 0.18% higher ​than they were this time last year.

BLS Jobs Report

The Bureau of Labor Statistics (BLS) reported that there were 206,000 jobs created in June, which was close to estimates of 190,000 to 200,000. There were big ​negative revisions to the previous two months totaling 111,000…And last month’s reading of 272,000 was revised lower to 218,000. April was revised lower from 165,000 ​to 108,000, which is a completely different story. Remember, May will get revised once more and will likely be even lower.

The faulty Birth/Death model added 59,000 jobs to the headline figure – without it we would have only seen 147,000. This is where the BLS tries to figure out how many ​businesses came online vs offline and how many jobs that accounted for.

Leisure and Hospitality only added 7,000 jobs, and most of the gains came from Government, which added 70,000, and Healthcare/Education, which added 82,000 ​jobs combined.

Average hourly earnings, which measures wage pressured inflation, rose 0.3%, which is in line with estimates. Year over year, average hourly earnings fell from 4.1% to ​3.9%.

Average weekly hours worked remained at 34.3. Average weekly earnings rose 0.3%, with the year-over-year figure decreasing from 3.8% to 3.6% year-over-year.

Remember, there are two surveys within the Jobs report, the Business Survey and the Household Survey. The Business Survey is where the headline job creation number ​comes from and the Household Survey is where the unemployment rate comes from.

The Household Survey has its own job creation component, and it showed only 116,000 job gains, which is much lower than the headline survey. Additionally, the labor ​force increased from 277,000…and the combination of the two made the unemployment rate from 4% to 4.1%...the highest level since November 2021.

Furthermore, the SAHM rule has now been triggered, which portends a recession ahead with a high degree of accuracy. The three-month average of the ​unemployment rate is now 4%, which is 0.5% above the low over the last twelve months, which was 3.5% back in July.

Looking deeper at the 116,000 jobs created, we lost full-time jobs and gained part-time workers, which has been a theme we have been seeing for quite some time ​now.