CONSUMER, JOBS WATCH

Consumers More Confident in August, But Still Worried About the Jobs Market

Consumers grew more confident in August. The Consumer Confidence Index rose to 103.3, notching the highest level in six months, and July’s data was revised slightly higher. Household views on current conditions as well as expectations around the future improved, though as seen in the nearby chart both remain well-off pre-pandemic levels. Despite the more recent improvement, overall confidence has moved within a narrow range so far this year. (…)

The labor differential, or the share of consumers who report jobs as “plentiful” less the share reporting jobs as “hard to get” declined to 16.4% in August from 17.1% in July. The differential has been in a trend decline since reaching an all-time high about two years ago, and it has fallen 15.3 percentage points since January.

The trend decline has been driven both by a decrease in the share of consumers reporting jobs as plentiful and an increase in the share of consumers reporting jobs as hard to get. Consumers clearly view the labor market as less favorable to job seekers than they did at the start of the year, in line with the latest employment report data that showed a deceleration in nonfarm payroll growth at play. The labor market remains the focus for not only Fed officials but households as well.

@C_Barraud

Ed Yardeni says that “ the percent saying that jobs are available rose to 50.8%, which is consistent with a normal labor market.”

Postings on Indeed have flattened since June (through Aug. 15) supporting a “normalizing” labor market. The new buzz word.

But the Quits Rate has declined below 2019 levels:

Joe Weisenthal

Goldman Sachs’ Twitter Economic Sentiment Index” is much stronger than the U of M measure:

Goldman Sachs took a hard look at all controversies surrounding the current labor market stats.

Our preferred approach to balancing the divergent signals in the payroll and household surveys is to use what we have found to be a statistically optimal rule of thumb for combining recent averages of each. The rule puts about ¾ weight on payroll growth because it is more reliable and less noisy and ¼ weight on household employment growth.

Taken together, our rule of thumb and adjustments to account for immigration and the overstatement in the birth-death model suggest that the underlying pace of job growth is around 160k jobs/month.

But given the uncertainty around the true pace of job growth and the breakeven rate, we believe it is appropriate to put more weight on the unemployment rate, which is less affected by these data challenges. And while we expect that a high level of job openings will likely keep job growth in this neighborhood for now and the slowdown in labor supply growth to 150k workers/month will allow the unemployment rate to stabilize here, there is a plausible risk that labor demand will prove to be a bit too soft. In that scenario, the FOMC would likely respond by cutting more quickly.

Here’s a chart I have never seen. I wonder if the Fed has this chart in its playbook. Maybe “normalization” is not the appropriate word for the labor market. Transitory?

A Time Bomb Is Threatening Economies Across Asia Double-digit unemployment is holding back tens of millions of young people, raising urgent questions for a swath of fast-growing nations

Bangladesh—long considered a development model for slashing extreme poverty—clocked an average of 6.5% economic growth a year for the last decade. But over the past few years, youth unemployment climbed to 16%—the highest level in at least three decades, according to data from the United Nations International Labor Organization.

China and India recorded the same percentage of young people who are seeking work without success. In Indonesia, the rate is 14%. Malaysia’s is 12.5%.  

Across these populous nations, that adds up to 30 million people between the ages of 15 and 24 who are looking for jobs but can’t find suitable ones. They account for just less than half the global total of 65 million jobless youth in that age range, according to ILO data.

The figures are worse than in rich countries such as the U.S., Japan and Germany, where young people tend to get snapped up, though not as bad as slow-growing southern European countries such as Italy and Spain where around a quarter of young people are failing to find work. (…)

Anger over dwindling prospects was a key driver of this month’s tumultuous events in Bangladesh, where large crowds of students forced Sheikh Hasina to relinquish power after more than 15 successive years as prime minister and flee the country. In India, whose economy grew at 8% in the year ended March, Prime Minister Narendra Modi’s party lost its parliamentary majority in elections this year.

Though India’s youth unemployment has come down in recent years, it remains above the global average. Analysts cited poor work opportunities as a major factor in Modi’s setback. (…)

In many countries, difficulty in finding decent work extends well into a job seeker’s 20s. Last year, 71% of employed 25- to 29-year-olds in South Asia had insecure work, meaning they were self-employed or in temporary jobs—not a significant fall from the 77% figure recorded two decades ago. (…)

Countries hoping to make it now must compete with hyper-efficient China. Developed economies such as the U.S. are vying to bring more production home. Automation is shifting the landscape. Even Bangladesh’s main growth engine—the production of clothes—is turning to machines over manpower. (…)

• Protests in China on the Rise Amid Housing Crisis, Slowing Economy Dissent cases rise 18% in the second quarter of 2024: CDM

The majority of events linked to economic issues, according to a report published Wednesday.

Of those events, 44% related to labor and 21% involved aggrieved homeowners, the report noted. Generally, it defines dissent as acts of voicing grievances, asserting rights or advancing interests in contention with the authorities or the powerful.

The report offers a snapshot of sentiment across China, although it doesn’t fully capture discontent in the world’s No. 2 economy. Physical protests are suppressed and deterred by surveillance and internet controls strengthened under President Xi Jinping. Such unrest is unlikely to threaten the regime — demonstrations are often small and isolated in nature, with protesters rarely directing their anger at the leader. (…)

“In recent decades, the Community Party has essentially demanded citizens should submit to its one-party authoritarianism as a trade-off for economic prosperity,” said Kevin Slaten, who leads the China Dissent Monitor project. “As the ramifications of slowing economic growth impact more citizens, it may undermine this trade-off,” he said. (…)

Over the past two years, analysis shows that many of the top cities for economic protests were in the southern Chinese province of Guangdong, reflecting the impact of the slowdown on the manufacturing hub. By contrast, a higher proportion of dissent in Xi’an — another highly ranked city — is related to real estate. (…)

• China Proposes New Curbs on Grain Imports to Boost Local Prices Measures designed to ease domestic stockpiles, support farmers

Beijing this week summoned top importers for meetings and suggested they halt purchases of barley and sorghum, according to people familiar with the matter. The move, ahead of a forecast bumper grains harvest this year, is the latest effort by China to ease domestic oversupply and bolster local prices.

China is the world’s biggest buyer of barley and sorghum, and any sustained curbs on imports would deal a blow to farmers in top exporters such as Australia and the US. Earlier this year, authorities asked traders to limit overseas purchases of corn as local supply swelled. (…)

China imports sorghum and barley to feed its massive livestock herd, mostly as a substitute for corn. Higher quality barley is also used to make beer. Beijing manages overseas buying of corn and wheat under an annual tariff rate quota system, but there’s no official quota on barley and sorghum.

Prices for corn, sorghum and barley in China are all near the lowest level in more than three years. Stockpiles of corn at the nation’s southern ports are close to the highest in two years.

Sorghum imports were at 5.21 million tons over the first seven months of 2024, almost double the volume in the same period last year. US supplies accounted for more than 80% of the total. Barley purchases were 67% higher, with most coming from Australia after Beijing lifted a ban on cargoes.

When sports betting replaces the stock market

Americans put less money into their brokerage accounts in states where sports gambling has been legalized, per a new paper that has caused something of a stir.

One lesson of the meme-stock winter of 2021 was that get-rich-quick investing, even if it ends up losing money, can be a lot more fun than get-rich-slow investing that involves index funds and decades of doing nothing much at all.

On average,* households in states that legalized gambling saw the amount of money they invested in the market fall almost every quarter for the first three years after legalization.

Data: “Gambling Away Stability: Sports Betting’s Impact on Vulnerable Households”; Chart: Jacque Schrag/Axios

AI CORNER

Capex Spending on AI Continues to Be a Significant Tailwind to the Economic Outlook (Apollo)

Microsoft’s AI software is gaining traction with enterprise customers

(…) And according to Jared Spataro, Microsoft’s corporate vice president of AI at work, the company is seeing sizable gains in usage of its Copilot for Microsoft 365.

“Last quarter, the number of Copilot for [Microsoft 365] customers increased by more than 60%, which is great because we were already off to the races with that,” Spataro told Yahoo Finance.

“Daily users more than doubled, and we love that trend. When we start to see that type of intensity of usage doubling, it means that you’re really onto something,” added Spataro. (…)

According to Spataro, the number of 1,000-seat subscriptions for Copilot for Microsoft 365 has doubled with big-name organizations including Capital Group, Disney, Dow, and Novartis. Microsoft, however, didn’t provide exact information on daily or monthly active user numbers or how many Copilot for Microsoft 365 licenses it’s sold.

The key to Copilot’s success is proving that it saves enterprise users time on tasks, whether that’s reducing the length of meetings, cutting down on how long it takes to sort through emails, or helping to brainstorm ideas.

So far, Microsoft says its customers are seeing results. Networking and cybersecurity company Lumen’s employees are saving four hours per week in work using Copilot, which should result in a $50 million annual savings. Cognizant, for its part, says it’s seen a 10% reduction in time spent on emails and a 27% increase in employees ending meetings early, Spataro explained. (…)

Spataro, however, says Microsoft has performed its own six-month study of 60 companies and found that those firms saw a 50% decrease in email usage thanks to Copilot. Microsoft also says it performed a survey of 1,300 Copilot users and found that it typically takes companies 11 weeks and they need to see a time savings of at least 11 minutes per day for their Copilot habits to stick for the long term.

“This is a moment of kind of reprogramming how work gets done,” Spataro said. “It is not just an incremental change.”

In a separate Morgan Stanley research note, analysts found that 94% of chief information officers surveyed said they expect to use Microsoft’s generative AI services over the next 12 months. That’s up from just 47% in the second quarter of 2023. (…)

Chinese EV maker Xpeng unveils $22,000 car with self-driving features

Americans and Canadians won’t have access.

Jump in July Durable Goods Orders Clouds Sluggish Underlying Demand

New orders of durable goods surged 9.9% in July, coming on the heels of a 6.9% contraction the prior month. The month-to-month volatility has been driven primarily by aircraft. Separately released data from Boeing showed aircraft orders picking up in July after some weakness in May and June, which corroborates the recent swings in headline durable good orders. Excluding transportation goods, orders slipped 0.2% in July.

Softness was broad-based. Orders of motor vehicles & parts (-2.6%) posted the largest monthly decline, followed by communication equipment (-1.1%) and primary metals (-0.9%). The decrease in new orders of autos and parts reflects the ongoing normalization in the sector that has been faced with numerous supply challenges since the pandemic. On the flip side, computers and related products continue to be a bright spot in the otherwise dreary landscape—new orders of computers rose 3.2% in July and are up nearly 13% over the year.

Over the past year, new orders of durable goods (excluding transportation) are up a meager 0.65%, which is the softest annual growth rate since January. The stalling is illustrative of restrictive monetary policy and political uncertainty. These dynamics have underpinned a deferment mindset among businesses who are reluctant to take on major projects today.

The composition of orders points to a sluggish environment for capital expenditures. Yet, it is shipments, not new orders, that are used for the calculation of business fixed investment in the U.S. GDP accounts. Nondefense capital goods shipments rose 4.7% in July, coming on top of an upwardly revised 6.1% pop in June. While that suggests business equipment spending is tracking for a decent outturn in the third quarter, most of the strength is tied to aircraft. Excluding aircraft and defense goods, core capital goods shipments fell 0.4% in July after a flat reading to end Q2, pointing to a recent loss of momentum. (…)

  

PDD’s $55 Billion Stock Crash Sends Warning on Chinese Economy PDD’s stock plunges 29% after a disappointing sales outlook

One of the last remaining bright spots for Chinese consumption is rapidly fading, as the nation’s economic malaise takes a toll on demand for even the most accessible of goods.

In the latest warning to global markets on the health of the Chinese economy, Temu-owner PDD Holdings Inc. on Monday surprised investors with an unusually gloomy outlook. The e-commerce firm, which became a market darling with low-priced goods that helped propel sales and profits during China’s economic downturn, also reported revenue that missed estimates. During a post-earnings briefing, CEO Chen Lei mentioned at least eight times that revenue and profits must “inevitably” decline as economic growth slows. (…)

The CEO and his lieutenants were careful to stress they remained confident in Chinese consumption over the longer term — a big priority for Beijing in rebalancing the world’s No. 2 economy. But the damage was done. PDD’s shares plunged 29% in their biggest fall on record, wiping out $55 billion of market value. Its closest rivals Alibaba Group Holding Ltd. and JD.com Inc. followed suit, sliding about 5% in Hong Kong.

PDD’s warning stunned investors because the company was long viewed as the main beneficiary of a Chinese “consumer downgrade” — its low-pricing strategy on Pinduoduo domestically and Temu abroad was intended to appeal to cost-conscious shoppers at a time of unprecedented economic volatility.

The disappointing results were the latest in a series of red flags about the Chinese economy. This week, popular fast food chain Din Tai Fung — long one of the most popular restaurant brands across the country — revealed it was shutting more than a dozen outlets. Last month, Starbucks Corp. disclosed a 14% plummet in Chinese revenue in the June quarter. (…)

Consumption, a main driver of the economy, weakened this year after a rebound in post-Covid reopening spending last year. Against the backdrop of widespread job and salary cuts as well as plunging property prices, Chinese consumers have turned more cautious with their spending, leading to intense price wars in sectors such as cars.

Retail sales expanded just a little over 3% in the first seven months of 2024, far worse than the 8%-plus growth recorded in pre-pandemic times. Residents’ confidence in future income plunged to the worst level since the end of 2022, one of the most intense periods of Covid lockdowns, according to a central bank survey conducted in the second quarter.

Almost half of the residents polled said employment is “grim and difficult,” the highest proportion since the end of 2022. Nearly two thirds of those surveyed said they’re willing to save more, hovering near an all-time high recorded last year. (…)

Canada to Hit China With Tariffs on Electric Vehicles, Steel Plans 100% levy on electric cars, 25% on steel and aluminum

(…) The surtax on electric vehicles will take effect Oct. 1 and will also include certain hybrid passenger automobiles, trucks, buses and delivery vans. It will be added to an existing 6.1% tariff that applies to Chinese EVs.

The levies on aluminum and steel will come into place Oct. 15. The government released an initial list of goods on Monday and the public will have a chance to comment before it is finalized on Oct. 1.

Trudeau’s government is also launching a new 30-day consultation on other sectors, including batteries and battery parts, semiconductors, solar products and critical minerals. (…)

Canada’s auto sector is highly integrated with that of its closest neighbor: The vast majority of its light vehicle production — which was 1.5 million units last year — is exported to the US. (…)

The European Union has also announced proposed new tariffs on electric vehicles important from China, though at lower levels than the US and now Canada are proposing. (…)

The value of Chinese electric vehicles imported by Canada surged to C$2.2 billion ($1.6 billion) last year, from less than C$100 million in 2022, according to data from Statistics Canada. The number of cars arriving from China at the port of Vancouver jumped after Tesla Inc. started shipping Model Y vehicles there from its Shanghai factory.

However, the Canadian government’s main concern isn’t Tesla, but the prospect of cheap cars made by Chinese automakers eventually becoming available. BYD informed the Canadian government in July that it intends to lobby lawmakers and officials about its plans to enter the country. (…)

US industry seeks easing of steep Biden-Harris China tariff hikes

The Biden-Harris administration this week is expected to announce final implementation plans for steep tariff increases on certain Chinese imports, and if U.S. industry gets its way, many of the planned duties would be softened.

Manufacturers from electric vehicles to electric utility equipment have asked for the higher tariff rates to be reduced, delayed or abandoned, and for potential exclusions to be greatly expanded. (…)

The White House had said initially the new tariffs would take effect on Aug. 1 but that was delayed until some time in September as the U.S. Trade Representative’s office studied more than 1,100 public comments. A final determination is due by the end of August. (…)

The Biden-Harris tariffs include a new 25% levy on Chinese-made ship-to-shore cranes, a China-dominated sector with no U.S. producers. The Port of New York and New Jersey said it has eight cranes on order from China’s state-owned ZPMC at $18 million apiece, and a 25% tariff would boost the cost of each by $4.5 million, “causing a significant strain on the Port’s critical and limited resources.” (…)

Ford Motor asked USTR to reduce proposed tariffs on artificial graphite, a key material used in the production of anodes for electric vehicle batteries. Ford said it still “almost exclusively” uses Chinese secondary-particle graphite,

Autos Drive America, a group representing foreign-brand automakers, called for tariff rates on batteries, modules, cells, and critical minerals to be kept stable through at least 2027 to allow automakers to “fulfill investments in U.S. production and to bolster consumer adoption” of EVs. (…)

High-tech manufacturing spurs China’s July industrial profit growth

China’s industrial profits grew faster in July buoyed by high-tech manufacturing, even as sluggish domestic demand weighed on the recovery in the world’s second-largest economy.

Profits in July jumped 4.1% from a year earlier following a 3.6% rise in June, National Bureau of Statistics (NBS) data showed on Tuesday.

For the January-July period, profits expanded slightly faster at 3.6% compared with 3.5% in the first half, offering some hope of improving momentum amid dreary factory output, export, prices and banking lending numbers earlier in August. (…)

The high-tech manufacturing sector, including the making of lithium-ion batteries and semiconductors and related equipment, led the earnings growth with a 12.8% rise in the January-July period, the data showed.

Still, “domestic consumption demand remains weak while the external environment is complex and volatile,” said NBS statistician Wei Ning, suggesting more efforts were needed to boost domestic demand.

Tamer shipments last month raised a red flag over the country’s export-driven recovery and heightened concerns about frail domestic demand.

China’s July bank loans recorded the first contraction in 19 years, central bank data showed earlier. (…)

China’s export curbs on semiconductor materials stoke chip output fears Western customers say restrictions on supply could hit production of advanced microprocessors and optical products

The FT reports on “Beijing’s curbs on shipments of germanium and gallium, which are used for semiconductor applications and military and communications equipment components, have led to an almost twofold increase in the minerals’ prices in Europe over the past year. (…) The country produces 98 per cent of the world’s supply of gallium and 60 per cent of germanium, according to the US Geological Survey. (…) Beijing also announced export restrictions this month on antimony, a mineral used in armour-piercing ammunition, night-vision goggles and precision optics. The measure followed China’s imposition of controls on exports of graphite and technologies used in rare earth extraction and separation.” (…)

China’s Budget Spending Drops as Land Sales See Record Fall Broad budget spending is down 2% in first seven months of 2024

(…) Behind the decline was a 8.9% decrease in land-related expenditure that includes payments for primary land development and compensation for existing rural infrastructure in preparation for a potential sale. Local governments have been cutting spending as their budgets come under strain from a severe housing downturn that’s made developers reluctant to purchase land.

The property fallout on public finances is becoming increasingly evident on the balance sheets of indebted local governments. Their revenue from land sales in July shrank just over 40% on year to 250 billion yuan, according to Bloomberg calculations, the sharpest fall since comparative data became available in 2016.

Total revenue under the two budgets came in at 15.9 trillion yuan in the first seven months, down 5.3% on year. That translated into an augmented deficit — a broad measure of the fiscal gap — of 3.8 trillion yuan. (…)

At a regular meeting on July 31, China’s cabinet vowed to study additional steps that would be strong enough to reach companies and households.

The Goldman economists estimate fiscal expenditure growth rebounded in July, citing a broad deficit metric of their own that combines major on- and off-budget channels. They also expect government bond net issuance to increase “notably” in coming months to support fiscal spending and government-led investment.

Calls are meanwhile intensifying for the Chinese authorities to ramp up fiscal stimulus. Domestic demand has struggled to pick up as the persistent real estate crisis, price competition between companies and a gloomy job market weigh on business and consumer confidence. (…)

Libyan Rival Government to Stop Oil Output Over Bank Row Dueling governments fight over leadership of central bank

Brent crude jumped as much as 3.2% to above $81 a barrel, after the eastern authorities said Monday in a statement on Facebook that a “force majeure” applies to all fields, terminals and oil facilities.

Waha Oil Co., which supplies Es Sider — the country’s largest export terminal — said it will start cutting shipments gradually. Sirte Oil Co. also said it will start reducing output. (…)

A row over who leads the central bank, the manager of billions of dollars of energy revenues, has been brewing for over a week, deepening political divisions and threatening a UN-brokered peace deal. The internationally acknowledged government in the country’s west has been seeking to replace Governor Sadiq Al-Kabir, who has refused to step down. A government delegation entered the regulator’s offices today to take over, according to local media. (…)

The country produced a total of about 1.15 million barrels a day of oil last month, according to data compiled by Bloomberg. (…)

FYI: Corporate cash as a share of total assets has been trending lower, indicating that we could see a pullback in share buybacks.

Source: BofA Global Research