JOLTS: Some Cold Water on the Last Jobs Report

Total job openings dropped to 7.44 million on the last business day of September, a decline of more than 400K from August’s downwardly-revised reading of 7.86 million.

The headline miss and negative revision to August run somewhat contrary to the latest readings on small business hiring plans and overall Indeed job postings, which suggest that the pullback in labor demand is decelerating.

However, the preponderance of the data has yet to persuade us that labor demand has stabilized. New job postings from Indeed have slowed sharply thus far in October and are currently just 8.7% higher than in February 2020—a stark drop-off from this time last year when the level of new postings was 44% higher than pre-pandemic.

In September, only 34% of businesses reported job openings they could not fill. This was a six point drop from August and the lowest reading since January 2021. The past month’s drop in job openings brings the vacancy rate to its lowest level since 2020 in another sign labor conditions have normalized after the post-pandemic hiring frenzy.

The number of job openings per unemployed person, an indicator cited by monetary policymakers when assessing labor market supply and demand imbalances, was unchanged in September at 1.1. Presently, the ratio signals a still-strong labor market with more open positions than unemployed workers even as the measure has nearly halved from its recent peak.

Yet, its slip is reflected in workers having become less confident in the prospects of finding work. Separately released data on consumer confidence showed the share of consumers who report jobs as “plentiful” less the share reporting jobs as “hard to get” having increased in October, but nevertheless down more than 10 points from the first few months of this year.

  

The quit rate fell to 1.9% in September—well below the 2.3% rate that prevailed in 2019. The gross hiring rate improved slightly throughout September but still remains stuck near 2013–2014 levels.

In this largely static labor market, subdued involuntary separations (i.e., layoffs and other discharges) have been a bright spot. The layoff & discharge rate ticked up to 1.2% in September, although the increase was driven by separations in durable goods manufacturing, likely reflecting spillovers from the ongoing strike at Boeing.

Even so, layoffs remain historically subdued on trend and still sit notably below their pre-pandemic level. Overall, that separations remain historically low is playing a large role in keeping the labor market from non-linear deterioration.

With retention significantly improved over the past year and demand for new workers ebbing, the labor market no longer poses a threat to the price stability side of the Fed’s dual mandate. We expect to see growth in employment costs (Q3 data released Thursday) continue its downward trend in the quarters ahead.

  

On net, the JOLTS report demonstrates that despite solid payroll gains in September, demand for labor continues to moderate. For the FOMC, these data may take on slightly elevated importance for its upcoming November 7 meeting. Although the Committee will receive one more employment report during the blackout period, distortions caused by the impacts of Hurricanes Helene and Milton and a large strike at Boeing lead us to expect the Committee to put much less weight than usual on the jobs report. Instead, we see monetary policymakers as focusing on the broader trend of the jobs market having cooled substantially over the past year, and while not weak in an absolute sense, by many accounts is somewhat softer than prior to the pandemic.

Wait! We need to insert the weather here:

There are still plenty of job openings. They did fall by 418,000 last month to 7.4 million. However, 78% of those losses were in the South. Hurricane Helene hit Florida four days prior to the end of September, when job openings are measured. (Ed Yardeni)

The uptick in hiring brings the rate closer to pre-pandemic norms and suggests that hiring activity may be picking back up. (Indeed)

• Small Business Jobs Index 

Using aggregated payroll data from businesses with fewer than 50 workers, the index offers a monthly, up-to-date measure of change in small business employment.

• The national jobs index gained 0.22 percentage points in October to 100.06. This marks the second-largest gain in 2024. The only region to slow in October, the South dropped 0.09 percentage points to an index level of 99.91.

CONSUMER WATCH

According to the Advance Economic Indicators Report, the goods trade deficit widened by more than expected to $108.2bn (seasonally adjusted) in September. Goods exports declined by 2.0% (month-over-month, seasonally adjusted) while goods imports increased by 3.8%.

Goods exports increased for food (+4.8%) and autos (+3.6%) but declined for consumer goods (-6.3%), capital goods (-3.2%), and industrial supplies (-2.5%). Goods imports increased across all categories, with the largest increase in consumer goods (+5.8%). (GS)

This while prices are declining!

US Efforts to Contain Xi’s Push for Tech Supremacy Are Faltering The world outside the US is increasingly driving Chinese electric vehicles, scrolling the web on Chinese smartphones and powering their homes with Chinese solar panels.

Since Donald Trump hit Xi Jinping’s government with punitive tariffs in 2018, his push to cut the trade deficit has snowballed into a full-scale bipartisan effort to stop China from becoming the world’s biggest economy and obtaining technology that threatens American military superiority. (…)

New research by Bloomberg Economics and Bloomberg Intelligence shows that Made in China 2025 — an industrial policy blueprint unveiled a decade ago to make the nation a leader in emerging technologies — has largely been a success. Of 13 key technologies tracked by Bloomberg researchers, China has achieved a global leadership position in five of them and is catching up fast in seven others.

That means the world outside the US is increasingly driving Chinese electric vehicles, scrolling the web on Chinese smartphones and powering their homes with Chinese solar panels. For Washington, the risk is that policies aimed at containing China end up isolating the US — and hurting its businesses and consumers. (…)

Chinese companies like BYD Co. and Contemporary Amperex Technology Co. Ltd., known as CATL, are world leaders in making goods such as EVs, batteries and solar panels — the pillars of Xi’s “new productive forces” to drive growth as authorities seek to deflate a property bubble. (…)

The struggle now is focused on whether the US can prevent China from catching up in advanced technology like manufacturing the most cutting-edge chips used for AI, which are currently only made with equipment from ASML. (…)

Made in China 2025 shows how far Xi’s efforts have come. Although China is still struggling to develop manufacturing processes for advanced semiconductors — the main focus of US export controls — it now has a clear lead in EVs, automotive software and lithium battery technology, according to Bloomberg Intelligence. China’s LNG shipbuilding and high-speed rail industries are on track to hit targets. It also produces the world’s most efficient and lowest-cost solar panels, and is developing innovative drugs. (…)

Trump has vowed to renew the trade war on China that dominated his first term, threatening tariffs of as high as 60% — a level that would effectively end trade between the two nations, according to Bloomberg Economics.

Tariffs — long decried by economists as market-skewing impediments to productivity — have helped shrink America’s trade deficit with China on paper. But much of that commerce was rerouted through Southeast Asia and other places, and the urgency to find new markets has only bolstered Chinese manufacturing dominance in EVs and other areas.

BYD is a case in point. China’s top-selling automaker expects overseas deliveries to account for almost half of total sales in the future, suggesting it doesn’t see US tariffs — now at 102.5% — as a big impediment. The automaker already has a factory in Thailand and is building similar ones in Hungary, Brazil and Turkey.

“We don’t need to enter the US market,” Stella Li, a BYD executive vice president, told Bloomberg in August from the company’s headquarters in Shenzhen, China’s main tech hub. “We’ve got a lot of opportunities to become a great company with the many markets outside of the US.”

Harris has criticized Trump’s plan for higher tariffs, saying they equate to a tax on the American middle class. On the campaign trail, she’s spoken of the need to prevent China from obtaining advanced chips, indicating she would continue President Joe Biden’s use of export controls. She’s also emphasized the need for investments “to ensure America remains a leader in the industries of the future.” (…)

In areas such as advanced semiconductors and chipmaking gear — the base layer for all future technologies — the country as a whole looks set to remain behind the US for years to come.

The US has banned China from buying the most advanced AI chips from Nvidia Corp. and Advanced Micro Devices Inc. It has also blocked Xi’s government from obtaining ASML’s extreme ultraviolet lithography (EUV) machines, which are essential to producing high-end chips, and is now seeking to hinder China’s ability to use deep ultraviolet lithography (DUV), an older technology that is underpinning the nation’s current production.

Without even ASML’s DUV gear, it will be much harder for Chinese technology champion Huawei Technologies Co. and its partner Semiconductor Manufacturing International Corp. to make breakthroughs in their current capability, which lags several generations — roughly half a decade — behind industry leader TSMC.

Even less clear is Chinese advancements in AI — regarded as one of the key determinants of future economic and geopolitical power. While OpenAI, Microsoft Corp. and Google continue to publicize new AI developments and support a thriving startup ecosystem, Chinese companies like Baidu Inc. labor under chip and data-content restrictions, and have yet to show evidence of significant breakthroughs.

The US export controls announced on Oct. 7, 2022 “made it much more difficult for scaled domestic Chinese production of strategically important chips like the most advanced AI accelerators,” said Jordan Schneider, founder of the ChinaTalk newsletter and adjunct fellow at the Center for a New American Security. Even so, he added, “uneven execution on the stated intentions of the export controls, particularly on the semiconductor equipment manufacturing side, have made the past two years post Oct 7th far easier for Chinese semiconductor firms than they could have been.”

Chinese firms have stockpiled a record amount of semiconductor equipment this year, including high-end Nvidia chips, in anticipation of further restrictions. Bloomberg Intelligence says those stores, along with more efficient computing processes, “should ensure China’s AI development remains on track through 2025 and beyond.”

Huawei, the company at the heart of Beijing’s global tech and semiconductor ambitions, shows China’s resilience. When the company saw its sales plummet after the US first placed it on a trade blacklist in 2019, it poured money into research and development and began working with domestic suppliers. Huawei’s smartphone business has since recovered and is now challenging Apple Inc.

Last year, Huawei introduced a smartphone with a 7-nanometer chip — something the US thought was unrealistic for Chinese firms to manufacture with DUV technology. (…)

Bloomberg Intelligence says Huawei’s latest semiconductors could outperform Nvidia’s H20 AI chip, a less powerful product that the California-based company developed for the Chinese market to comply with US restrictions. Bloomberg reported that Chinese regulators have discouraged local companies from purchasing Nvidia’s H20 chips, a move aimed at bolstering the market share of Huawei and Beijing-based AI chipmaker Cambricon Technologies Corp., which saw its shares surge on the news.

China could lift general chip self-sufficiency to 40% by 2030, nearly double from 2025, Goldman Sachs Group Inc. projected in a recent report, although most of that capacity expansion would be limited to older-generation semiconductors.

US officials have downplayed China’s tech advances, saying the process it’s using to develop chips like the one used in the Huawei phone is inefficient and commercially unviable without ASML’s EUV lithography machines. In an interview during an August trip to Beijing, Sullivan — Biden’s national security advisor — said that China’s efforts to stockpile Nvidia chips has “a clock on it” and the US was striving to “up our game” to stop Xi’s government from obtaining semiconductor manufacturing equipment.

But China also appears to be making notable advancements in that area. Beijing recently advised state-linked organizations to use a new homemade lithography machine with a resolution of 65 nanometers or better. While that’s far from the 8-nanometer resolution of ASML’s best machines, China’s most advanced indigenous equipment previously was only capable of about 90 nanometers.

Bloomberg Economics research shows that China has overtaken the US in international patent applications, which are stretching across a broader range of areas. That’s a positive signal for China’s efforts to commercialize new technologies — even as questions remain over whether its patents are more incremental than innovative.

China recently publicized a patent application from Shanghai Micro Electronics Equipment Group Co., known as SMEE, for an EUV lithography machine. If it gets to market — a big “if” given how complicated they are to make — the Chinese company would be the only one in the world apart from ASML capable of manufacturing such equipment.

The US export controls generated “massive incentives” for Chinese firms to collaborate more among themselves, according to Paul Triolo, partner for China and Technology Policy Lead at Washington-based advisory firm Albright Stonebridge Group. While Huawei’s AI chips aren’t comparable to those from Nvidia and Apple, he said, “they are capable enough for many applications.” (…)

The US’s focus on national security is making it a global outlier, particularly when it comes to EVs. While the European Union, Brazil and Turkey have raised tariffs on Chinese EVs, they have also welcomed companies such as BYD — which now sells more electric cars than Elon Musk’s Tesla Inc. — to set up factories and build locally.

“The efforts to contain China worked in the short term,” said Shen Meng, a director at Beijing-based investment bank Chanson & Co. “But in the long run China will find ways to circumvent this containment.” (…)

China, for its part, is doing more to protect its own tech. Beijing has strongly advised its carmakers to make sure advanced electric vehicle technology stays in the country, with key components produced domestically and then sent for final assembly in other factories around the world.

All of this means it’s becoming harder for global companies to operate in both the US and China, Peter Mandelson, a former European trade commissioner who co-founded the consulting firm Global Counsel, said during an interview in Hong Kong.

“A rupture has emerged,” said Mandelson, now a close adviser to UK leader Keir Starmer. “This is a very strong headwind blowing across the global economy, and international companies need to navigate that.”

This chart says a lot about what’s brewing in China.

Our own research (mostly David’s) suggests that China is quietly but rapidly ramping up its AI capabilities.

• Xiaomi, China’s Apple, has successfully launched its own electric car. Apple had to abandon its similar project.
• Astribot S1 could be the most advanced robot in the world. And it’s Chinese, from a yet little known company.
• Baidu’s Apollo Go robotaxi service has definitely surpassed Waymo in terms of total rides completed. Baidu boasts over 5 million completed rides, whereas Waymo’s figures are estimated to be between 20,000 to 40,000 rides per quarter. This translates to a significant lead for Baidu in terms of total deployments and user experience. Waymo’s robotaxis operate in controlled environments with limitations, while Baidu’s service caters to a wider range of cities in China, which might have different regulatory environments and road complexities.
• What’s this you ask? This is the paper announcing the new leader in LLM coding performance – and the list of engineers who achieved this. It surpasses the big three (Google, OpenAI and Claude) AND it is open source. The company DeepSeek was launched… in 2023 in Hangzhou, China.
• “Gerald Yin Zhiyao, chairman and CEO of Shanghai-listed Advanced Micro-Fabrication Equipment China (AMEC), said during a panel discussion last August that China’s semiconductor supply chain can achieve self-sufficiency despite gaps in “quality” and “reliability”, providing fresh evidence that US restrictions may have accelerated China’s chip industry development. “I had thought we need at least 10 years to find a solution, but with joint efforts from hundreds of companies over the past two years, we can reach basic self-sufficiency by this summer,” he said.”
• Lack of evidence of Chinese progress in AI is largely due to lack of visibility. Given that the Chinese have more engineers, and that their state support intelligence dwarfs Biden’s IRA, and that their manufacturing base vastly overcomes that of the West, a bet on Chinese tech is heavily discounted today.

• According to some accounts, China’s AI industry is moving so swiftly it’s already into a third generation of companies. “The rise of these AI apps with Chinese origins should be a wake-up call for US lawmakers that singling out TikTok doesn’t keep the purported risks at bay.”

More continuation signals from insiders and IPOs

Bullish insider activity was everywhere, while the stock market bottomed out in 2022. Since then, insider activity has cooled off as the stock market continues to hit new highs. This is unsurprising as insiders have a long history of “loading up” during significant declines and becoming net sellers as the market advances.

Regarding the 100 constituent stocks comprising the Nasdaq 100 Index (NDX), buying and selling have been on the low side recently. See the charts below.

At first blush, there does not appear to be much valuable information to glean from NDX’s insider activity. Enter our Corporate Insider Velocity – NDX indicator. This indicator shows the velocity of corporate insider buying versus selling in Nasdaq 100 stocks. It takes a 4-week rate of change for insider buys and subtracts a 4-week rate of change for insider sales.

Generally, the more positive the difference, the more that insiders are buying their stock and the more positive it is for the market. The lower the difference, the more intensely they are selling their stock, and the worse it is for the market. However, another helpful iteration looks for reversals in the indicator value from a low level as a somewhat “hidden” signal of a potential shift in insider action.

The chart below highlights the dates when our Corporate Insider Velocity-NDX indicator crossed above -28 for the first time in six months. The most recent signal occurred on 2024-10-28.

(…) There are a few key things to note. On the positive side, it is hard to ignore the 100% Win Rates for six and twelve-month returns and the exceptional Median Returns. On the other hand, the sample size is admittedly small (only nine previous signals), and Z-Scores do not jump off the page. So, one can argue that results are highly influenced by the primarily bullish action of the Nasdaq 100 over the past 15 years.

With all that said, I do not consider this an automatic “buy” signal. However, I place it firmly on the favorable side of the weight of the evidence ledger and interpret it as suggesting that investors continue to give the bullish case the benefit of the doubt. (…)

The recent signals do not guarantee that the stock market will continue to rally, nor that the Nasdaq 100 will automatically be trading higher six to twelve months from now. The signals do, however, add significant weight to the favorable side of the “weight of the evidence” ledger and – in the absence of contrary evidence – strongly suggest that longer-term investors continue to give the bullish case the benefit of the doubt and that shorter-term traders continue to focus on the long side of the market.

Weird Things Are Happening in the Bond Market Treasuries are wobbling without the usual collateral damage.

(…) Yields on 10-year US Treasuries have risen nearly 70 basis points since the Federal Reserve’s punchy half-point initial rate cut on Sept. 17.

What’s even more unusual is that US sovereign bonds are having a wobble without instruments that are usually correlated coming along for the ride — with the exception of UK gilts, for similar fiscal worries. The US dollar has strengthened 4% over the past month, so it’s evident foreign money isn’t fleeing US assets; it’s just not being parked in the usual safe spot of Treasuries.

(…) the most startling disconnect is within the US fixed-income space – with corporate credit spreads tightening despite the exodus from the sovereign benchmark. High-yield spreads have narrowed 150 basis points in the past year – and are near record tightness. Debt capital markets are in rude health with new bond deals this year matching the volumes and variety of credit quality as in the pandemic’s banner years.

With so much in Goldilocks territory, Washington must be the problem here. The economy is broadly ticking along nicely, but importantly neither is it too hot. (…)

This isn’t really an inflation-driven scare either, as the Fed’s preferred core Price Consumption Expenditure gauge is close to its 2% target. Persistent weakness in the crude oil price would normally be helping bonds. Yields on Treasury Inflation-Protected Securities have matched about half of the increase registered by their nominal brethren, but now return 2% after inflation — close to the most generous since the global financial crisis.
What is notable in the past month is a rise in the cost of buying downside option protection — along with pressure in the repurchase markets. That indicates not only an increase in portfolio hedging but also short positions being put on. Bond-market volatility is the highest since late last year but this may shelve off sharply post Nov. 5.

Fear of the unknown is an ephemeral thing even if nothing much in the real economy has changed. Any incoming administration’s capacity to splurge fiscally will be heavily limited, not just legislatively but by bond-market appetite. Reality will hit hard if nothing can be funded. Once the event risk of the election passes, the elastic of the fundamental valuation relationship of the global bond benchmark to other asset classes could well snap back.

Some clues:

• Stronger for longer:

(Ed Yardeni)

• Deficit Threat Drives Bond Yields Higher Investors expect Trump would increase budget gap with tax cuts

The prospect of a rising federal budget deficit is fueling a sharp climb in bond yields, with investors betting a challenging fiscal situation might only get worse after the election.

Treasury yields, which rise when bond prices fall, jumped Monday after a $69 billion government auction of 2-year notes attracted tepid demand from investors. That marked the latest leg in a weekslong bond-market selloff that began after a run of strong economic data undercut bets on rate cuts from the Federal Reserve.

The auctions aren’t poised to get smaller soon. When the Treasury Department releases its quarterly borrowing plans on Wednesday, it will almost certainly maintain record-large debt sales over the next three months. There is also a chance that it could hint that further increases are coming next year, according to some analysts.

Most investors expect the budget deficit to remain elevated no matter who wins in next week’s elections, with the cost of spending programs such as Medicare and Social Security climbing faster than federal revenues. Still, many think the budget gap will expand the most if Republicans sweep control of both the White House and Congress, leading to extensions of old tax cuts and the possible addition of new ones.

That view has been evident in recent days, with longer-term Treasury yields climbing as betting markets showed former President Donald Trump’s chances of victory increasing. Trump’s campaign proposals would expand deficits by $7.5 trillion over a decade, according to a recent analysis—more than double Kamala Harris’s proposals. (…)

Deficits typically grab the attention of investors when there is a major shift in the fiscal outlook, as can often happen around an election.

TD Securities estimates that the fiscal year 2025 deficit will be around $2 trillion under any political scenario, up from $1.8 trillion in the fiscal year that just ended on Sept. 30.

The election outcome could make a bigger difference the following year, with TD estimating a $2.2 trillion deficit under a Republican sweep versus a $2.05 trillion deficit if Harris wins but faces a divided Congress, a scenario that polls suggest also has a good chance of happening. That gap can largely be explained by the expiration of 2017 tax cuts at the end of 2025, which analysts expect would be fully extended by Republicans, but only partially extended if Democrats hold some power. (…)

Bills made up 21.7% of outstanding Treasurys at the end of last month. That is a little higher than the 15%-20% range recommended by a private-sector Treasury advisory group in 2020 but still below the long-term average of about 22.4%.

In a recent report, analysts at Goldman Sachs argued that there is a chance that Treasury officials on Wednesday could signal openness to increasing coupon auction sizes next year to avoid a scenario in which the share of bills climbs too high.

But analysts at BNP Paribas struck a relatively relaxed tone on the issue. “Having more T-bill flexibility allows for steady coupon issuance,” they wrote in a recent report, adding that “T-bills are easier to absorb for markets.”

• The Federal Government debt “will soon be expanding at an annual rate of over $1.0 trillion just to cover the net interest outlays of the Treasury.” (Ed Yardeni)

• According to the Peterson Foundation, the United States spent $820 billion on national defense during fiscal year 2023, which amounted to 13% of federal spending. Defense spending in 2023 was less than the average for the last decade, which was 15% of the budget. For fiscal year 2025, the proposed defense budget of $850 billion represents about 3% of GDP vs 3.5% in 2023 and 2.9% in 2024. Procurement of weapons and systems also accounted for a smaller share of the total defense budget:

But today’s WSJ editorial might be waking many up to this reality:

(…) the world is also different than it was when Mr. Trump left office in 2021. The dictators he says he got along with then are on the march now and they’re working together more than they ever have. North Korean troops are fighting for Russia against Ukraine, and Russia is shielding North Korea from nuclear sanctions enforcement. China and Iran are also helping Russia.

The U.S. military’s advantage over adversaries has also declined, a fact that Mr. Trump has done little to acknowledge or warn about in his campaign. It will take more than flattery and unpredictability to reestablish American deterrence, and that will include Western rearmament and reliable alliances.

Here’s the CBO current projections. Realistic?

I spare you on Medicare/Medicaid and social security but the path is clear:

Deficits don’t matter, until they do.

China Industrial Profits Extend Drop as Deflation Takes Toll

Last month’s industrial profits at large Chinese companies fell 27.1% from a year earlier, after a 17.8% plunge in August, the National Bureau of Statistics said in a statement Sunday. Profits decreased 3.5% in the first nine months from the same period in 2023.

The data was “affected by factors such as high base in the same period last year” the bureau said in a statement.

Industrial profits provide a key measure of the financial health of factories, mines and utilities that can affect their investment decisions in the months to come. (…)

Deepening deflation in producer prices was likely a drag on company earnings despite faster growth in industrial output, Bloomberg Economics said before the release. Factory-gate prices extended declines for a 24th straight month in September, with the recent drop accelerating, reflecting weak domestic demand.

The country’s top legislative body will hold a highly anticipated session in Beijing on Nov. 4 to 8, as investors watch for any approval of further fiscal stimulus to revive growth. (…)