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October Payrolls Smash Expectations Even As Unemployment Rate Unexpectedly Spikes

October Payrolls Smash Expectations Even As Unemployment Rate Unexpectedly Spikes

The Bureau of Lies and Statistics has done it again: at…

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October Payrolls Smash Expectations Even As Unemployment Rate Unexpectedly Spikes

The Bureau of Lies and Statistics has done it again: at a time when the best paying tech companies are mass laying off double-digits of their workforce (just ask Twitter today)...

... and even left-leaning, pro-Biden media outlets such as Axios are pushing reports about "Massive wintertime layoff surge", moments ago the highly politicized BLS did what everyone expected it to do just days before the midterms when it reported that in October, payrolls jumped by 261K, far higher than the 195K expected, if another decline from the upward revised 315K in September (previously 263K).

This was the strongest best to expectations going back to July. More remarkably, payrolls have beaten expectations on 10 of the past 13 reports!

Revisions were also solid: the change in total nonfarm payroll employment for August was revised down by 23,000, from +315,000 to +292,000, and the change for September was revised up by 52,000, from +263,000 to +315,000. With these revisions, employment gains in August and September combined were 29,000 higher than previously reported.

Adding some more fuel to the Fed's inflationary fire, the average hourly earnings came hot on a sequential basis, rising 0.4%, above the 0.3% (and above last month's 0.3% increase), even as the annual increase of 4.7% came in line with expectations and down from September's 5.0%

The average workweek for all employees on private nonfarm payrolls was 34.5 hours for the fifth month in a row, as expected. In manufacturing, the average workweek for all employees was little changed at 40.4 hours, and overtime decreased by 0.1 hour to 3.1 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls held at 34.0 hours.

Michael Pearce, a senior US economist at Capital Economics, calculates that the annual gain for hourly earnings ran at 3.9% over the past three months. This suggests that wage growth has peaked, he says: “Nonetheless, that is still too fast to be consistent with the Fed’s 2% inflation target, and with employment growth still surprisingly resilient (at least on the payrolls measure) this release will do little to alter the Fed’s resolute hawkishness.”

The flipside, however, to the strong employment and wage prints (which come from the far less accurate Establishment survey), is that the unemployment rate unexpectedly jumped from 3.5% to 3.7%...

... as the number of unemployed persons (from the much more accurate Household Survey) rose by 306,000 to 6.1 million, while the number of employed workers slumped by 328K, completely contradicting the Establishment Survey.

Among the major worker groups, the unemployment rates for adult women (3.4 percent) and Whites (3.2 percent) rose in October. The jobless rates for adult men (3.3 percent), teenagers (11.0 percent), Blacks (5.9 percent), Asians (2.9 percent), and Hispanics (4.2 percent) showed little or no change over the month, perhaps as companies pursuing "equity" laid off their white workers first.

And since the number of employed workers actually tumbled, the participation rate did too, sliding to 62.2% from 62.3%, and below the unchanged print expected.

And something even more curious:as noted above, the divergence between the Household and Establishment Surveys is back front and center, as total nonfarm employment (per Est. survey) jumped by 261K, while employment (per Household survey) tumbled by 328K...

... leading to the jump in the unemployment rate, and our favorite chart showing that since March, the US has actually not added any employed workers!

And one more shocker: looking at the composition of the collapse in actual employed workers, we find the following stunner:

  • Full-time workers: -433K
  • Part-time workers: +164K

(More on all this in a subsequent post).

Alas, since algos and traders are only programmed to look at the Establishment survey, which is based on massive statistics distortions, seasonal adjustments, and goalseeking, here is what the BLS reported on a granular basis within the establishment Survey:

Total nonfarm payroll employment increased by 261,000 in October. Monthly job growth has averaged 407,000 thus far in 2022, compared with 562,000 per month in 2021. In October, notable job gains occurred in health care, professional and technical services, and manufacturing.

  • Employment in health care rose by 53,000, with gains in ambulatory health care services (+31,000), nursing and residential care facilities (+11,000), and hospitals (+11,000).
  • Professional and technical services added 43,000 jobs in October. Employment continued to trend up in management and technical consulting services (+7,000), architectural and engineering services (+7,000), and scientific research and development services (+5,000).
  • Manufacturing added 32,000 jobs in October, mostly in durable goods industries (+23,000). Manufacturing employment has increased by an average of 37,000 per month thus far this year, compared with 30,000 per month in 2021.
  • Employment in social assistance increased by 19,000 in October and is slightly below (-9,000) its pre-pandemic level in February 2020. Within social assistance, employment in individual and family services continued to trend up in October (+10,000).
  • Wholesale trade added 15,000 jobs in October. Employment in wholesale trade has increased by an average of 17,000 per month thus far in 2022, compared with 13,000 per month in 2021.
  • Employment in leisure and hospitality continued to trend up in October (+35,000), with accommodation adding 20,000 jobs. Employment in food services and drinking places changed little over the month (+6,000). 
  • Employment in transportation and warehousing changed little in October (+8,000). Within the industry, job growth occurred in truck transportation (+13,000), couriers and messengers (+7,000), and air transportation (+4,000). These gains were partially offset by a job loss in warehousing and storage (-20,000).
  • In October, financial activities employment was little changed (+3,000). Within the industry, job gains in insurance carriers and related activities (+9,000) and in securities, commodity contracts, and investments (+5,000) were partially offset by a job loss in rental and leasing services (-8,000).

Commenting on the report, Bloomberg chief economist Anna Wong writes that “the jobs report for October sends mixed signals about the labor market, with one survey showing robust job gains while another shows a big jump in unemployment. Filtering the noise in the data, our takeaway is that the labor market is still very tight and much adjustment still needs to occur before unemployment is close to a neutral level. We expect that the Fed will ultimately have to raise rates to 5% next year.”

Her team adds that “the October data mean the unemployment rate will have to average about 3.9% for the rest of the year to reach the median FOMC member’s September forecast of 3.8%. Chances are the FOMC will revise down their unemployment estimate in the December Summary of Economic Projections and revise up their inflation estimates."

“The bottom line is that the labor market is still a long way from a level consistent with non-accelerating inflation. Even though layoffs aren’t yet pervasive, we do expect more to come in the months ahead, ultimately pushing the unemployment rate to 4.9% by 2024.”

Of course, as we said in our preview, nothing in today's report matters - its entire purpose is purely political and meant to set the scene for the midterms. For the real data and the aggressive backward revisions, look to December's number, when the BLS will finally have to admit the dismal truth about the sad state of the US labor market.

Developing.

Tyler Durden Fri, 11/04/2022 - 08:48

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Fast-food chain closes restaurants after Chapter 11 bankruptcy

Several major fast-food chains recently have struggled to keep restaurants open.

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Competition in the fast-food space has been brutal as operators deal with inflation, consumers who are worried about the economy and their jobs and, in recent months, the falling cost of eating at home. 

Add in that many fast-food chains took on more debt during the covid pandemic and that labor costs are rising, and you have a perfect storm of problems. 

It's a situation where Restaurant Brands International (QSR) has suffered as much as any company.  

Related: Wendy's menu drops a fan favorite item, adds something new

Three major Burger King franchise operators filed for bankruptcy in 2023, and the chain saw hundreds of stores close. It also saw multiple Popeyes franchisees move into bankruptcy, with dozens of locations closing.

RBI also stepped in and purchased one of its key franchisees.

"Carrols is the largest Burger King franchisee in the United States today, operating 1,022 Burger King restaurants in 23 states that generated approximately $1.8 billion of system sales during the 12 months ended Sept. 30, 2023," RBI said in a news release. Carrols also owns and operates 60 Popeyes restaurants in six states." 

The multichain company made the move after two of its large franchisees, Premier Kings and Meridian, saw multiple locations not purchased when they reached auction after Chapter 11 bankruptcy filings. In that case, RBI bought select locations but allowed others to close.

Burger King lost hundreds of restaurants in 2023.

Image source: Chen Jianli/Xinhua via Getty

Another fast-food chain faces bankruptcy problems

Bojangles may not be as big a name as Burger King or Popeye's, but it's a popular chain with more than 800 restaurants in eight states.

"Bojangles is a Carolina-born restaurant chain specializing in craveable Southern chicken, biscuits and tea made fresh daily from real recipes, and with a friendly smile," the chain says on its website. "Founded in 1977 as a single location in Charlotte, our beloved brand continues to grow nationwide."

Like RBI, Bojangles uses a franchise model, which makes it dependent on the financial health of its operators. The company ultimately saw all its Maryland locations close due to the financial situation of one of its franchisees.

Unlike. RBI, Bojangles is not public — it was taken private by Durational Capital Management LP and Jordan Co. in 2018 — which means the company does not disclose its financial information to the public. 

That makes it hard to know whether overall softness for the brand contributed to the chain seeing its five Maryland locations after a Chapter 11 bankruptcy filing.

Bojangles has a messy bankruptcy situation

Even though the locations still appear on the Bojangles website, they have been shuttered since late 2023. The locations were operated by Salim Kakakhail and Yavir Akbar Durranni. The partners operated under a variety of LLCs, including ABS Network, according to local news channel WUSA9

The station reported that the owners face a state investigation over complaints of wage theft and fraudulent W2s. In November Durranni and ABS Network filed for bankruptcy in New Jersey, WUSA9 reported.

"Not only do former employees say these men owe them money, WUSA9 learned the former owners owe the state, too, and have over $69,000 in back property taxes."

Former employees also say that the restaurant would regularly purchase fried chicken from Popeyes and Safeway when it ran out in their stores, the station reported. 

Bojangles sent the station a comment on the situation.

"The franchisee is no longer in the Bojangles system," the company said. "However, it is important to note in your coverage that franchisees are independent business owners who are licensed to operate a brand but have autonomy over many aspects of their business, including hiring employees and payroll responsibilities."

Kakakhail and Durranni did not respond to multiple requests for comment from WUSA9.

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Industrial Production Increased 0.1% in February

From the Fed: Industrial Production and Capacity Utilization
Industrial production edged up 0.1 percent in February after declining 0.5 percent in January. In February, the output of manufacturing rose 0.8 percent and the index for mining climbed 2.2 p…

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From the Fed: Industrial Production and Capacity Utilization
Industrial production edged up 0.1 percent in February after declining 0.5 percent in January. In February, the output of manufacturing rose 0.8 percent and the index for mining climbed 2.2 percent. Both gains partly reflected recoveries from weather-related declines in January. The index for utilities fell 7.5 percent in February because of warmer-than-typical temperatures. At 102.3 percent of its 2017 average, total industrial production in February was 0.2 percent below its year-earlier level. Capacity utilization for the industrial sector remained at 78.3 percent in February, a rate that is 1.3 percentage points below its long-run (1972–2023) average.
emphasis added
Click on graph for larger image.

This graph shows Capacity Utilization. This series is up from the record low set in April 2020, and above the level in February 2020 (pre-pandemic).

Capacity utilization at 78.3% is 1.3% below the average from 1972 to 2022.  This was below consensus expectations.

Note: y-axis doesn't start at zero to better show the change.


Industrial Production The second graph shows industrial production since 1967.

Industrial production increased to 102.3. This is above the pre-pandemic level.

Industrial production was above consensus expectations.

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Southwest and United Airlines have bad news for passengers

Both airlines are facing the same problem, one that could lead to higher airfares and fewer flight options.

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Airlines operate in a market that's dictated by supply and demand: If more people want to fly a specific route than there are available seats, then tickets on those flights cost more.

That makes scheduling and predicting demand a huge part of maximizing revenue for airlines. There are, however, numerous factors that go into how airlines decide which flights to put on the schedule.

Related: Major airline faces Chapter 11 bankruptcy concerns

Every airport has only a certain number of gates, flight slots and runway capacity, limiting carriers' flexibility. That's why during times of high demand — like flights to Las Vegas during Super Bowl week — do not usually translate to airlines sending more planes to and from that destination.

Airlines generally do try to add capacity every year. That's become challenging as Boeing has struggled to keep up with demand for new airplanes. If you can't add airplanes, you can't grow your business. That's caused problems for the entire industry. 

Every airline retires planes each year. In general, those get replaced by newer, better models that offer more efficiency and, in most cases, better passenger amenities. 

If an airline can't get the planes it had hoped to add to its fleet in a given year, it can face capacity problems. And it's a problem that both Southwest Airlines (LUV) and United Airlines have addressed in a way that's inevitable but bad for passengers. 

Southwest Airlines has not been able to get the airplanes it had hoped to.

Image source: Kevin Dietsch/Getty Images

Southwest slows down its pilot hiring

In 2023, Southwest made a huge push to hire pilots. The airline lost thousands of pilots to retirement during the covid pandemic and it needed to replace them in order to build back to its 2019 capacity.

The airline successfully did that but will not continue that trend in 2024.

"Southwest plans to hire approximately 350 pilots this year, and no new-hire classes are scheduled after this month," Travel Weekly reported. "Last year, Southwest hired 1,916 pilots, according to pilot recruitment advisory firm Future & Active Pilot Advisors. The airline hired 1,140 pilots in 2022." 

The slowdown in hiring directly relates to the airline expecting to grow capacity only in the low-single-digits percent in 2024.

"Moving into 2024, there is continued uncertainty around the timing of expected Boeing deliveries and the certification of the Max 7 aircraft. Our fleet plans remain nimble and currently differs from our contractual order book with Boeing," Southwest Airlines Chief Financial Officer Tammy Romo said during the airline's fourth-quarter-earnings call

"We are planning for 79 aircraft deliveries this year and expect to retire roughly 45 700 and 4 800, resulting in a net expected increase of 30 aircraft this year."

That's very modest growth, which should not be enough of an increase in capacity to lower prices in any significant way.

United Airlines pauses pilot hiring

Boeing's  (BA)  struggles have had wide impact across the industry. United Airlines has also said it was going to pause hiring new pilots through the end of May.

United  (UAL)  Fight Operations Vice President Marc Champion explained the situation in a memo to the airline's staff.

"As you know, United has hundreds of new planes on order, and while we remain on path to be the fastest-growing airline in the industry, we just won't grow as fast as we thought we would in 2024 due to continued delays at Boeing," he said.

"For example, we had contractual deliveries for 80 Max 10s this year alone, but those aircraft aren't even certified yet, and it's impossible to know when they will arrive." 

That's another blow to consumers hoping that multiple major carriers would grow capacity, putting pressure on fares. Until Boeing can get back on track, it's unlikely that competition between the large airlines will lead to lower fares.  

In fact, it's possible that consumer demand will grow more than airline capacity which could push prices higher.

Related: Veteran fund manager picks favorite stocks for 2024

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