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May Payrolls Preview: A 1 Million “Whisper”

May Payrolls Preview: A 1 Million "Whisper"

Up until this morning, the big risk heading into tomorrow’s payrolls report was for yet another subpar print (as a reminder last month’s jobs report showed a paltry 266K jobs were added, a huge…



May Payrolls Preview: A 1 Million "Whisper"

Up until this morning, the big risk heading into tomorrow's payrolls report was for yet another subpar print (as a reminder last month's jobs report showed a paltry 266K jobs were added, a huge miss to expectations), but then today's blockbuster ADP report, which showed 978K private jobs far above the highest forecast, changed everything (even if the ADP report has a reputation of being chronically incorrect, with zero predictive power).

Still, as Newsquawk notes, labor market indicators have generally been encouraging in May (if maybe not to the same degree as April and we know how that ended): ADP’s gauge of payroll growth surprised to the upside, initial jobless claims declined to a fresh pandemic low in the corresponding survey week, while continuing claims fell near to the post-pandemic low (both continued to make progress in the subsequent reports too). Business surveys like the ISM reports as well as the Fed’s own Beige Book allude to tight labor market conditions where firms are struggling to fill vacancies, and are having to offer financial incentives like signing-on fees and higher wages to attract staff. However, the Conference Board’s measure of consumer confidence was more mixed: although consumers’ view of the labour market improved, their views on wage growth are not quite as bullish as business surveys are signalling.

Traders have suggested that the May jobs data is more important than other recent reports, since it will be influential in the market's perceptions about the timing of the Fed's taper of asset purchases; for what it is worth, even if the report comes in on the strong side, officials will likely highlight the great deal of slack that remains, while there are still multiple-millions that remain out of work vs pre-pandemic levels. Furthermore, to catch up to the pre-covid trendline by mid/late-2022, the economy will need to add roughly 1 million jobs every month (which isn't very likely).

In his preview of tomorrow's jobs number, JPM Chief Economist Mike Feroli has a sub-consensus forecast of +550k jobs while Economist Jesse Edgerton’s alternative data suggests +476k jobs. Both numbers are below the current consensus of +656k. If either  Mike or Jesse is correct this would be a disappointment, which would fail to push yields higher. A weak jobs print combined with higher commodity prices likely pushes real yields more negative. This would be positive for both gold and Tech stocks.

Goldman's economists are more optimistic, and estimate that nonfarm payrolls rose by an above consensus 750k in May. Following the surprisingly weak April report, Goldman believes the further easing of business restrictions more than offset a moderate drag from labor supply factors and seasonality. While Big Data measures were mixed between the April and May survey weeks, the signals Goldman tracks generally indicate sharply higher employment levels relative to March. Goldman's optimistic goalseek narrative aside, the bank sees uncertainty ahead of tomorrow’s report to be higher than usual, and Goldman notes the possibility that the establishment survey undercounts job gains from reopening establishments, which other things equal would result in a relatively stronger household survey.

These two banks aside, here is what consensus expects:

  • JOB GROWTH: Non-farm Payrolls (exp. 650k, prev. 266k); Private Payrolls (prev. 600k, prev. 218k); Government Payrolls (prev. 48k); Manufacturing Payrolls (exp. 24k, prev. -18k).
  • JOBLESSNESS: Unemployment Rate (exp. 5.9%, prev. 6.1%); Participation Rate (prev. 61.7%, vs 63.3% in Feb 2020); U6 Underemployment (prev. 10.4%, vs 7.0% in Feb 2020); Employment-Population Ratio (prev. 57.9%, vs 61.1% in Feb 2020).
  • WAGES: Average Earnings M/M (exp. +0.2%, prev. +0.7%); Average Earnings Y/Y (exp. +1.6%, prev. +0.3%); Average Workweek Hours (exp. 35.0hrs, prev. 35.0hrs)

Job Gains

  • Initial jobless claims data that coincides with the BLS employment situation report survey period showed weekly claims falling to a post-pandemic low at 444k, and the data series continued to show progress the next week too; continuing claims also declined in the corresponding survey window to 3.64mln, although that was not a fresh pandemic low.
  • The ADP measure of nonfarm payrolls surprised to the upside, seeing 978k private payrolls added to the economy in May, above the forecast range, where the most optimistic forecast saw gains of 900k. ADP's chief economist said that private payrolls had shown a marked improvement from recent months, and the strongest monthly gain since the early days of the recovery; "While goods producers grew at a steady pace, it is service providers that accounted for the lion’s share of the gains, far outpacing the monthly average in the last six months," she added, "companies of all sizes experienced an uptick in job growth, reflecting the improving nature of the pandemic and economy."
  • ISM's manufacturing PMI saw the employment sub-component fall by 4.2ppts to 50.9, still in expansion for the sixth straight month, but with momentum cooling (a manufacturing employment index above 50.6, over time, is generally consistent with an increase in the BLS data on manufacturing employment). ISM said that continued strong new-order levels, low customer inventories and expanding backlogs continue to indicate employment strength, but panellists are struggling to meet labor-management plans, and the commentary indicates that an overwhelming majority of companies are hiring or attempting to hire, though more than 50% of manufacturing firms have expressed difficulty in doing so. Similarly, the employment sub-component within the Services ISM declined too, by 3.5 points to 55.3; respondents said that "competition for labor continues to intensify due to lack of available talent pool” and “working to fill vacant positions; difficulty in finding qualified candidates."


  • The Conference Board's gauge of consumer confidence was mixed regarding the labour market; consumers’ assessment of current labour market conditions improved – with the number saying jobs are plentiful rising while those claiming that jobs are hard to get declining, which in aggregate bodes well for the May jobs report. However, optimism in the short-term outlook waned, CB said, with the number expecting business conditions to improve over the next six months falling, while the number expecting business conditions to worsen rose. CB also said that consumers were less upbeat about the job market ahead, with the proportion expecting more jobs in the months ahead falling, while those anticipating fewer jobs rose.
  • But even if the data surprises to the upside (range is 400k to 1mln), some desks expect Fed commentary to remain cautious, and continue to note that there remain a significant number of Americans out of work. Indeed, the aggregate nonfarm payroll additions since March last year still leaves a deficit of 8.2mln who remain out of work vs pre-pandemic levels, if you judge the amount purely based on the totals of the nonfarm payrolls figures, and potentially even more when accounting for underemployment.
  • Fed officials are looking beyond the headline unemployment rate to try and gauge the levels of slack that remains; accordingly, the U6 Underemployment metric, Participation Rate, as well as the Employment-toPopulation ratio have gained in importance; last month, U6 stood at 10.4% (vs 7.0% in February 2020), Participation was at 61.7% (vs 63.3% in February 2020), and the Employment-Population Ratio was at 57.9% (vs 61.1% in February 2020), all three of these indicating that there is still some way to go, and reclaiming this lost ground is not going to happen in the immediate short-term.


  • Data from Challenger, Gray & Christmas showed monthly job cut announcements picking up a touch in May, to 24.6k from around 22.9k in April, but the trend remains solid, and announced job cuts were still some 93.8% lower vs May 2020 levels. "Many employers, especially those hit hard during the pandemic, such as Retailers and Hospitality and Leisure companies, are having a difficult time finding workers, and many are offering signing bonuses or higher wages to attract workers," Challenger said, adding that “as the labour market tightens, workers may find employers offering more attractive perks and benefits, including higher starting wages, as they look for positions."
  • However, according to Conference Board data, the number of consumers expecting incomes to rise over the next six-months pared back a touch in May (to +14.5% from +17.4%), though the number of Americans expecting incomes to decline in the next six-months also dropped back. Anecdotes leaning towards this were also noted in the Fed's recent Beige Book (which was conducted before 25th May), which stated that while overall wage growth was moderate, a growing number of firms were offering signing bonuses and had increased starting wages to attract and retain workers.

Arguing for a better-than-expected report:

  • Reopening. Sharply lower infection rates and a further easing in the severity of business restrictions likely supported job growth in virus-sensitive industries between the April and May survey period. For example, restaurant seatings on OpenTable rebounded to -17% during the May survey week, compared to -35% in that of April.

  • Big Data. High-frequency data on the labor market were mixed between the April and May survey weeks, with outright declines in three of the seven measures Goldman tracks (gray bars in Exhibit 2). However, most measures nonetheless indicate sharply higher employment levels relative to March. Taking into account last month’s divergence with nonfarm payrolls, the majority of the signals would argue for an above-consensus reading, on our estimates (blue bars below). We find that Homebase (75% directionally correct vs. consensus since May 2020), Dallas Fed(75%), the USC Understanding America Survey (67%), and the Census Small Business Pulse have been among the most reliable predictors of the jobs report over the last year. Given the diverging messages from these indicators, we believe uncertainty ahead of tomorrow’s report is higher than usual.

  • ADP. Private sector employment in the ADP report increased by 978k in May, well above consensus expectations for a 650k gain. We continue to believe the ADP panel methodology undercounted workers returning to their previous employers,and this would argue for a larger gain in tomorrow’s report.
  • Job availability. The Conference Board labor differential—the difference between the percent of respondents saying jobs are plentiful and those saying jobs are hard to get—surged to +34.6 in May (from +21.6 in April) and is now at pre-pandemic levels.Job cuts. Announced layoffs reported by Challenger, Gray & Christmas fell by 30%nin May after declining by 23% in April (mom, SA by GS). Announced layoffs reported by Challenger, Gray & Christmas fell by 30% in May after declining by 23% in April(mom, SA by GS). Layoffs were at the lowest level since 1989.e at the lowest level since 1989. Employer surveys.

Arguing for a weaker-than-expected report:

  • Labor supply constraints. Labor supply appears to be tighter than the unemployment rate suggests, likely reflecting the impact of unusually generous unemployment benefits and lingering virus-related impediments to working. We also believe that the survey period of tomorrow’s report is too early to reflect state-level changes to UI benefit availability and generosity, as benefits will be curtailed in onehalf of US states starting in June.

Neutral/mixed factors:

  • Seasonality. In April, reopening effects likely overlapped with normal seasonal hiringn patterns, resulting in less-impressive job gains on a seasonally-adjusted basis. In normal times, many service industries ramp up operations in the spring ahead of peak-season demand. This year, however, firms in heavily-impacted industries may simply have been more focused on bringing back their pre-crisis permanent workforces than on expanding their businesses and adding temporary seasonal labor. If so, seasonality should weigh on the May report as well, as the May BLS adjustment factors generally anticipate at least 300k of net hiring (vs. over 800k in April).
  • Employer surveys. The employment component of our manufacturing survey tracker decreased (-1.4pt to 58.5), while the employment component of our services survey tracker increased (+0.6pt to 56.6), but both remain around 2018 levels.
  • Jobless claims. Initial jobless claims declined during the May payroll month, averaging 505k per week vs. 656k in April. Across all employee programs including emergency benefits, continuing claims remained roughly unchanged between the payroll survey weeks.

How will the market respond?

The yield curve has failed to move materially over the last month as we received a disappointing NFP print but Fed Mins that show the FOMC is talking about talking about tapering. According to JPM, it may be the case that the bond market needs to see multiple NFP prints that approach the 700k – 1mm jobs range and/or actual tapering talk, before we see a sustained move higher, especially since the latest JPM Treasury survey found the most shorts since 2017. In other words, there is nobody left to short rates.

Meanwhile, as Bloomberg notes, stronger data, including ADP and ISM services, sent real yields and the dollar higher. The risk of the payroll Friday is skewed favorably to the dollar. There’s a wide range of estimates for the payroll, making a clean read more difficult. The average forecast was 667k jobs. But with standard deviation of 147k, anything between 500k and 800k would be considered more or less in line with expectations.

But, as BBG's Ye Xie notes,  we know from various surveys that demand for labor isn’t an issue. It’s labor supply that is holding back job growth, because of the pandemic, child care and unemployment benefits. So, a low reading would be taken with a grain of salt. Any knee-jerk fall in yields or the dollar could be reversed soon after.

But a higher figure, say close to 1 million, would put the tapering discussion on the table more urgently.

Finally, it is worth noting that after several months of disappointment, the US economy is certainly in need of a strong jobs report and that may explain why moments ago we learned that the president, who already knows the number, is set to discuss it shortly after it is released:


That alone was enough to push the whisper number to 1 million.

Tyler Durden Thu, 06/03/2021 - 22:40

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Baltimore City Responds After Dozens Of Businesses Threaten Not To Pay Taxes

Baltimore City Responds After Dozens Of Businesses Threaten Not To Pay Taxes

This weekend, the Baltimore Police Department (BPD) closed down multiple city streets around the Inner Harbor, in a stretch called "Fells Point," after dozens…



Baltimore City Responds After Dozens Of Businesses Threaten Not To Pay Taxes

This weekend, the Baltimore Police Department (BPD) closed down multiple city streets around the Inner Harbor, in a stretch called "Fells Point," after dozens of local businesses threatened the new city government, run by Mayor Brandon Scott, to not pay taxes because they're "fed up and frustrated" with the outburst of violence. 

Last week, 37 restaurants and small businesses sent a letter to the mayor's office titled "Letter to City Leaders From Fells Point Business Leaders." They threatened to stop paying city taxes and other fees until "basic and essential municipal services are restored." This comes as Madam State's Attorney Marilyn Mosby halted petty crimes during the pandemic and made such a measure permanent - the idea was to decrease violent crime, but that seems to have severely backfired.

What's happened in the historic bar strict is absolute mayhem at night, transformed into a dangerous area where violent and rowdy crowds have ruined the once pleasant atmosphere along with multiple shootings. 

So this weekend, BPD closed down streets around Fells Point, which includes parts of Aliceanna, Thames, and Bond streets.

In addition, Maryland State Police will conduct sobriety checkpoints in Fells Point. 

Local news WJZ13's Mike Hellgren tweets a couple of images of the increased police presence across Fells Point.

One of the 37 concerned business owners on the list is Bill Packo, who owns Barley's Backyard and has been operating in Fells Point for three decades. He spoke with WJZ13 about the out of control violence and public drunkenness:

"It's a shame. What they're letting happen to Fells Point is what they let happen in the Inner Harbor, and now it has made its way here," Packo said. "There's alcohol being sold by individuals out there, drugs, and clearly we all know about the shootings that took place last weekend. But there needs to be some control out there. There is none whatsoever."

BPD's mobile police command was spotted outside another shop in the bar district. It looks very dystopic. 

Meanwhile, Scott, who was newly elected, skipped out on the virtual community town hall meeting on Thursday at 7 p.m that was to address the issues in Fells Point. 

Packo called out Scott for not attending the meeting: 

"It's an embarrassment to the city. It's an embarrassment to the mayor no matter what the schedule was," he said.

Again, as we've said before, the chaos in Fells Point comes as the city descends into what could be the most violent period ever. Mosby has halted police officers going after petty crimes that have inadvertently backfired. Another liberal-run town with good intentions in policies not exactly panning out as they thought. 

Local news WMAR2's Eddie Kadhim interviewed a man who summed up the city's response in Fells Point: 

Another man said the violent crime in low-income neighborhoods is just spilling over into the downtown area. 

Tyler Durden Sat, 06/12/2021 - 15:00

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Visualizing The History Of US Inflation Over 100 Years

Visualizing The History Of US Inflation Over 100 Years

Is inflation rising?

The consumer price index (CPI), an index used as a proxy for inflation in consumer prices, offers some answers. In 2020, inflation dropped to 1.4%, the lowest rate..



Visualizing The History Of US Inflation Over 100 Years

Is inflation rising?

The consumer price index (CPI), an index used as a proxy for inflation in consumer prices, offers some answers. In 2020, inflation dropped to 1.4%, the lowest rate since 2015. By comparison, inflation sits around 5.0% as of June 2021.

Given how the economic shock of COVID-19 depressed prices, rising price levels make sense. However, as Visual Capitalist's Dorothy Neufeld notes, other variables, such as a growing money supply and rising raw materials costs, could factor into rising inflation.

To show current price levels in context, this Markets in a Minute chart from New York Life Investments shows the history of inflation over 100 years.

U.S. Inflation: Early History

Between the founding of the U.S. in 1776 to the year 1914, one thing was for sure - wartime periods were met with high inflation.

At the time, the U.S. operated under a classical Gold Standard regime, with the dollar’s value tied to gold. During the Civil War and World War I, the U.S. went off the Gold Standard in order to print money and finance the war. When this occurred, it triggered inflationary episodes, with prices rising upwards of 20% in 1918.

However, when the government returned to a modified Gold Standard, deflationary periods followed, leading prices to effectively stabilize, on average, leading up to World War II.

The Move to Bretton Woods

Like post-World War I, the Great Depression of the 1930s coincided with deflationary pressures on prices. Due to the rigidity of the monetary system at the time, countries had difficulty increasing money supply to help boost their economy. Many countries exited the Gold Standard during this time, and by 1933 the U.S. abandoned it completely.

A decade later, with the Bretton Woods Agreement in 1944, global currency exchange values pegged to the dollar, while the dollar was pegged to gold. The U.S. held the majority of gold reserves, and the global reserve currency transitioned from the sterling pound to the dollar.

1970’s Regime Change

By 1971, the ability for gold to cover the supply of U.S. dollars in circulation became an increasing concern.

Leading up to this point, a surplus of money supply was created due to military expenses, foreign aid, and others. In response, President Richard Nixon abandoned the Bretton Woods Agreement in 1971 for a floating exchange, known as the “Nixon shock”. Under a floating exchange regime, rates fluctuate based on supply and demand relative to other currencies.

A few years later, oil shocks of 1973 and 1974 led inflation to soar past 12%. By 1979, inflation surged in excess of 13%.

The Volcker Era

In 1979, Federal Reserve Chair Paul Volcker was sworn in, and he introduced stark changes to combat inflation that differed from previous regimes.

Instead of managing inflation through interest rates, which the Federal Reserve had done previously, inflation would be managed through controlling the money supply. If the money supply was limited, this would cause interest rates to increase.

While interest rates jumped to 20% in 1980, by 1983 inflation dropped below 4% as the economy recovered from the recession of 1982, and oil prices rose more moderately. Over the last four decades, inflation levels have remained relatively stable since the measures of the Volcker era were put in place.

Fluctuating Prices Over History

Throughout U.S. history. there have been periods of high inflation.

As the chart below illustrates, at least four distinct periods of high inflation have emerged between 1800 and 2010. The GDP deflator measurement shown accounts for the price change of all of an economy’s goods and services, as opposed to the CPI index which is a fixed basket of goods.

It is measured as GDP Price Deflator = (Nominal GDP ÷ Real GDP) × 100.

According to this measure, inflation hit its highest levels in the 1910s, averaging nearly 8% annually over the decade. Between 1914 and 1918 money supply doubled to finance war efforts, compared to a 25% increase in GDP during this period.

U.S. Inflation: Present Day

As the U.S. economy reopens, consumer demand has strengthened.

Meanwhile, supply bottlenecks, from semiconductor chips to lumber, are causing strains on automotive and tech industries. While this points towards increasing inflation, some suggest that it may be temporary, as prices were depressed in 2020.

At the same time, the Federal Reserve is following an “average inflation targeting” regime, which means that if a previous inflation shortfall occurred in the previous year, it would allow for higher inflationary periods to make up for them. As the last decade has been characterized by low inflation and low interest rates, any prolonged period of inflation will likely have pronounced effects on investors and financial markets.

Tyler Durden Sat, 06/12/2021 - 19:00

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Visualizing The Biggest Companies In The World In 2021

Visualizing The Biggest Companies In The World In 2021

Since the COVID-19 crash, global equity markets have seen a strong recovery. The 100 biggest companies in the world were worth a record-breaking $31.7 trillion as of March 31 2021,…



Visualizing The Biggest Companies In The World In 2021

Since the COVID-19 crash, global equity markets have seen a strong recovery. The 100 biggest companies in the world were worth a record-breaking $31.7 trillion as of March 31 2021, up 48% year-over-year. As a point of comparison, the combined GDP of the U.S. and China was $35.7 trillion in 2020.

In today’s graphic, Visual Capitalist's Jenna Ross uses PwC data to show the world’s biggest businesses by market capitalization, as well as the countries and sectors they are from.

The Top 100, Ranked

PwC ranked the largest publicly-traded companies by their market capitalization in U.S. dollars. It’s also worth noting that sector classification is based on the FTSE Russell Industry Classification Benchmark, and a company’s location is based on where its headquarters are located.

Within the ranking, there was a wide disparity in value. Apple was worth over $2 trillion, more than 16 times that of Anheuser-Busch (AB InBev), which took the 100th spot at $128 billion.

In total, 59 companies were headquartered in the United States, making up 65% of the top 100’s total market capitalization. China and its regions was the second most common location for company headquarters, with 14 companies on the list.

Risers and Fallers

What are some of the notable changes to the biggest companies in the world compared to last year’s ranking?

Tesla’s market capitalization surged by an eye-watering 565%, temporarily making Elon Musk the richest person in the world. Food delivery platform Meituan and PayPal benefited from growing e-commerce popularity with their market capitalizations growing by 221% and 151% respectively.

Tech companies TSMC and ASML Holdings were also among the top 10 risers, thanks to a shortage of semiconductor chips and growing demand.

On the other end of the scale, Swiss companies Nestlé, Novartis, and Roche Holding were all among the bottom 10 companies by market capitalization growth. China Mobile was the only company to decline with a -12% change. The company was delisted from the New York Stock Exchange as a result of an executive order issued by former president Donald Trump, and recently announced its intention to list on the Shanghai Stock Exchange.

A Sector View

Across the 100 biggest companies in the world, some sectors had higher weightings.

Technology had the highest market capitalization and was also the most common sector, with Big Tech dominating the top 10. Companies in the consumer discretionary, financials, and health care sectors also had a strong representation in the ranking.

Despite having only five companies on the list, the energy sector amounted to almost 10% of the top 100’s market capitalization, mostly due to Saudi Aramco’s whopping valuation.

An Uncertain Recovery

From near market lows on March 31, 2020, all sectors saw increases in their market capitalization. However, top 100 companies in some sectors outperformed their respective industry index, while others did not.

Basic materials and industrials, both cyclical sectors, were high performers in the top 100 and outperformed their respective industry indexes. Technology companies also outperformed, and accounted for $255 billion or 31% of all shareholder distributions by the top 100, far more than any other sector. Apple alone spent $73 billion on share buybacks and $14 billion in dividends in the 2020 calendar year.

On the other hand, the worst-performing sectors in the top 100 were health care, utilities, and energy. While the index performance for health care and utilities was also relatively poor, the wider energy sector performed fairly well.

It’s perhaps not surprising that all sectors saw positive returns since their low levels in March 2020, buoyed by fiscal stimulus and central bank policies. As countries begin to reopen, will the value of the biggest companies in the world continue to climb?

Tyler Durden Sat, 06/12/2021 - 23:00

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