To The Surprise Of *No One* I Remain Skeptical Regarding The Actual "Health" Of The Labor Force & We Received A TON Of Data This Morning |(12.15.22)
"It's a recession when your neighbor loses their job; it's a depression when you lose yours." - Harry S. Truman
What You Need To Know Today:
• The U.S. Census Bureau has released its advance estimates of U.S. retail and food services sales for November 2022, showing that sales were down (-0.6%) from the previous month but up 6.5% from November 2021.1 This was below the market expectation of (-0.2%) month-over-month and well below the reading of 1.3% for October 2022. “Core Retail Sales” month-over-month, which excludes automobile sales, were down (-0.2%) and under the pre-report market expectation, which had an expected gain of 0.2%. The “core” data excludes the automobile industry as it accounts for approximately 20% of retail sales, but the sector's volatility can distort the overall trend. For this reason, many believe it provides a more accurate representation of spending patterns.
TL;DR — Advance estimates of retail sales for Nov 2022 show a decline of 0.6% m/m — below market expectations. “Core" retail sales down 0.2%. Sales are down.
• According to the Department of Labor (“DoL”) the number of Americans applying for unemployment benefits fell significantly last week, with applications for jobless claims dropping to 211,000 for the week ending December 10.2 This is unexpectedly low and the lowest level in more than two months. At the surface level, it suggests that the labor market remains strong despite the Federal Reserve's interest rate hikes / push to slow the economy. Approximately 1.67 million people were receiving jobless aid in the week ending December 3, up 1,000 from the previous week. What this doesn’t tell us is the change in the overall size of the labor force. Remember, to be accounted for in unemployment statistics a person must be both unemployed and seeking employment (within the past four weeks). While initial jobless claims coming in low is great, when considering the ratio of “employed individuals to the total size of the workforce,” it only represents a movement within the numerator. If the denominator is also changed (relative size of the total workforce), because people are dropping out of the statistics, the data will be skewed. Think of it this way, if you have a society of 100 people and 99 of them are employed the “unemployment rate” is 1%. Now, if in that same society 9 people lose their job the unemployment rate rises to 10% — given that 90 of 100 people are employed. However, if 5 of those 10 unemployed individuals stop seeking work for four weeks they drop out of the statistics completely — meaning that at week five the unemployment rate would drop to ~9.4% despite the fact that 10 out of 100 people in the society remain without gainful employment. Scale this example up over a society of ~332 million (USA) and you can see why this becomes a problem / not representative of reality.
TL;DR — Initial jobless claims came in unexpectedly low, at the surface level this is great news for economic health! To the surprise of *no one* I remain skeptical as to the reality of the labor force’s health when considering the total population of “working-age adults”.
• The Federal Reserve Bank of Philadelphia released its latest Philly Fed Manufacturing Index reading, which is derived via a survey of approximately 250 manufacturers near Philadelphia and asks them to rate the relative level of general business conditions. The index reading came in at (-13.8), lower than the expected (-10.0), but an improvement from the (-19.4) in last month’s reading3. Manufacturing activity in the region continued to decline overall in December. Indicators for activity, such as new orders and shipments, were negative. That said, future indicators, including the future employment index, improved, suggesting that firms expect overall growth over the next six months. Businesses also reported a slight increase in capacity utilization, but labor and supply chains remain constraints.
TL;DR — Sentiment across manufacturers declined more significantly than expected, but at a lesser scale than last month. Firms expect overall growth in the next six months despite continued labor and supply chain challenges.
Poll of The Day:
Source: U.S. Census Bureau — Advance Monthly Sales for Retail and Food Services.
Source: Department of Labor — Unemployment Insurance Weekly Claims.
Source: Federal Reserve Bank of Philadelphia — Manufacturing Business Outlook Survey.