Good Life Advisors – Talking Points – Week 2
Two weeks into the new year and most of the major indices are in the red. Overall, equities were down this week, with most domestic indices adding to last week’s declines. The Russell 1kValue is the sole outlier on our list for both the week and year. Value outperformed growth again, adding another 1%, bringing the ytd difference to 6.6%. It’s easy to see why when you look at the sector performance. Energy, financials, and industrials are the sectors positive for the for the year, rising 16% and 4.5% and 0.03% respectively. The Russell 1kV largest sector is financials at 21.64%, energy is almost 6% and industrials are over 8% of the index.
The market’s take on Covid this week tilted slightly negative. There continued to be numerous headlines about the potential for the current Omicron surge to be at or near its US peak, as well as ample reminders that the variant has tended to result in less-severe cases and is unlikely to spark wide-scale lockdowns. But there was also a flurry of articles about the broadening range of industries that have been seeing staffing challenges related to Covid illness. Recent weeks have seen discussion of thinning staff at airlines, in healthcare facilities, and in schools, but pressures are now seen extending to other areas of the economy including grocers, manufacturing, and trucking. Moreover, the week saw several corporate announcements flagging this pressure in lead up to earnings season.
On the geopolitical front, not covid related, U.S. and Russian officials held talks in Geneva amid the tensions over Ukraine and NATO. However, neither side acknowledged any real progress in defusing the situation; in fact, Russia’s foreign minister warned the talks could be at a “dead end.” Over recent weeks, American intelligence has warned of Russian troop buildup on the Ukrainian border. On the 10th, Ukraine says it arrested a Russian spy that was said to be setting up a false flag mission against his own Russian troops in order to greenlight Russian action on the border. This is certainly something that could be in play in 2022.
It was a big week for economic releases. Headline December CPI was up 7.0% y/y, the fastest pace since June 1982, with the 0.5% m/m increase faster than the 0.4% consensus. However, there was also a bit of deceleration in shelter prices and lower food costs. Analysts did not see anything that was likely to alter the Fed’s policy path, though there was some note that the broad-based price rises could mean that above-2% inflation could be with us for a while (a new higher floor).
December PPI rose 9.7% year/y with core prices rising 0.5% month/m in line with consensus. Services prices were generally higher while goods prices pulled back for the first time since April 2020. Initial jobless claims climbed a bit w/w (to 230K from 207K), but continuing claims saw a big drop (to 1559K from 1760K). December retail sales posted a big miss, declining 1.9% m/m against forecasts for a flat reading. However, the nominally disappointing result was not terribly surprising given experience of holiday sales having been pulled forward into October and November.
The Q4 earnings season officially opened on Friday with reports from several big banks. Overall, the season is expected to see a nearly 22% y/y increase from S&P 500 constituents (which would be the fourth straight 20%+ quarter) and revenue up nearly 13% y/y. Analyst commentary has been generally positive, with continued mentions of strong consumer demand and resilient margins. However, previews also highlighted ongoing supply chain constraints, inflationary pressures (particularly regarding wages), and Omicron headwinds. Higher expenses were a theme across Friday’s bank results.
Global Bond Yields
Foreign Exchange Market
The Baker Hughes rig count increased by 13 this week. There are 601 oil and gas rigs operating in the US – Up 228 over last year.
Weekly Unemployment Claims – Released Thursday 1/13/2022 – The week ending January 8thobserved an increase of 23k in initial claims currently at 230k. The four-week moving average of initial jobless claims increased 6.25k to 210.75k.
December Jobs Report – BLS Summary Released 1/7/2022 – The US Economy added 199k nonfarm jobs in December and the Unemployment rate edged down to 3.9%. Average hourly earnings increased by 19 cents to $31.31. Hiring highlights include +53k Leisure and Hospitality, +43k Professional and Business Services, and +26 in Manufacturing.
- Average hourly earnings increased by 19 cents to $31.31.
- U3 unemployment rate declined 0.3% to 3.9%. U6 unemployment rate declined to 7.3%.
- The labor force participation rate was unchanged at 61.9%.
- Average work week was unchanged at 34.7 hours.
Job Openings & Labor Turnover Survey – JOLTS – Released 1/4/2022 – The U.S. Bureau of Labor Statistics reported the number and rate of job openings decreased to 10.6 million on the last business day of November. Over the month, hires were little changed at 6.7 million and separations increased to 6.3 million. Within separations, the quits rate increased to 3.0%. The layoffs and discharges rates were unchanged at 0.9%.
Employment Cost Index – Released 10/29/2021 – Compensation costs for civilian workers increased 1.3% for the 3-month period ending in September 2021. The 12-month period ending in September 2021 saw compensation costs increase by 3.7%. The 12-month period ending September 2020 increased 2.4%. Wages and salaries increased 4.2 percent over the year and increased 2.5 percent for the 12-month period ending in September 2020. Benefit costs increased 2.5 percent over the year and increased 2.3 percent for the 12-month period ending in September 2020. This report is published quarterly.
This Week’s Economic Data
Links take you to the data source
Industrial Production and Capacity Utilization – Released 1/14/2022 – In December Industrial production decreased 0.1%. Manufacturing decreased 0.3%. Utilities output decreased 1.5%. Mining output increased 2.0%. Total industrial production was 3.7% higher in December than a year ago. Total capacity utilization decreased 0.1% to 76.5% in December which is 3.1% below its long run average.
Retail Sales – Released 1/14/2022 – U.S. retail sales for December decreased 1.9% to $626.8 billion but retail sales are 16.9% above December 2020. U.S. retail sales for the October 2021 through December 2021 period were up 17.1% from the same period a year ago.
Producer Price Index – Released 1/13/2022 – The Producer Price Index for final demand increased 0.2% in December. PPI less food and energy increased 0.5%. The change in PPI for final demand has increased 9.7% year/y.
Consumer Price Index – Released 1/12/2022 – Consumer prices rose 0.5% m/m in December following a 0.8% gain in November. Consumer prices are up 7.0% for the 12-month period ending in December. Core consumer prices increased 0.6% m/m in December following a 0.5% gain in November.
Recent Economic Data
Links take you to the data source
Consumer Credit – Released 1/7/2022 – Consumer credit increased at a seasonally adjusted annual rate of 11.0 percent in November. Revolving credit increased at an annual rate of 23.4 percent, while nonrevolving credit increased at an annual rate of 7.2 percent.
U.S. Trade Balance – Released 1/6/2022 – According to the U.S. Census Bureau of Economic Analysis the goods and services deficit increased in November by $13 billion to $80.2 billion. November exports were $224.2 billion, $0.4 billion more than October exports. November imports were $304.4 billion, $13.4 billion more than October imports. Year to date the goods and services deficit increased $174.6 billion or 28.6%, from the same period in 2020. Year to date exports and imports increased $354.4 billion or 18.2% and increased $529.0 billion or 20.7% respectively.
PMI Non-Manufacturing Index – Released 1/6/2022 – Economic activity in the non-manufacturing sector grew in November for the 19th consecutive month. ISM Non-Manufacturing registered 62.0 percent, which is 7.1 percentage points below the adjusted November reading of 69.1 percent.
PMI Manufacturing Index – Released 1/3/2022 – December PMI decreased 2.4% to 58.7% down from November’s reading of 61.1%. The New Orders Index was 60.4% down 1.1% from November’s reading of 61.5%. The Production Index registered 59.2%, down 2.3%.
U.S. Construction Spending – Released 1/3/2022 – Construction spending increased 0.4% in November measuring at a seasonally adjusted annual rate of $1,625.9 billion. The November figure is 9.3% above the November 2020 estimate. Private construction spending was 0.6% above the revised October estimate at $1,273.6 billion. Public construction spending was 0.2% below the revised October estimate at $352.3 billion.
Chicago PMI – Released 12/31/2021 – Chicago PMI increased to 63.1 points in December. Among the main five indicators, Production and New Orders and were higher. Order Backlogs, Employment and Supplier Deliveries fell across the month.
US Light Vehicle Sales – Released 12/23/2021 – U.S. light vehicle sales were at a seasonally adjusted annual rate (SAAR) of 12.857 million units in November.
Personal Income – Released 12/23/2021 – Personal income increased $90.4 billion or 0.4 percent in November according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $70.4 billion or 0.4 percent and personal consumption expenditures (PCE) increased $104.7 billion or 0.6 percent.
Durable Goods – Released 12/23/2021 – New orders for manufactured durable goods in November increased $6.5billion or 2.5% to $268.3 billion. Transportation equipment led the increase raising $5.0 billion or 6.5% to $82.1 billion.
New Residential Sales – Released 12/23/2021 – Sales of new single-family homes increased 12.4% to 744k, seasonally adjusted, in November. The median sales price of new homes sold in November was $416,900 with an average sales price of $481,700. At the end of November, the seasonally adjusted estimate of new homes for sale was 402k. This represents a supply of 6.5 months at the current sales rate.
Existing Home Sales – Released 12/22/2021 – Existing home sales increased in November. Sales rose 1.9% to a seasonally adjusted rate of 6.46 million in November. Sales are currently down 2.0% from one year ago. Housing inventory sits at 1.11 million units. Down 9.8% from October’s inventory. Down 13.3% over last year. Unsold inventory sits at a 2.1-month supply. The median existing home price for all housing types was $353,900.
Consumer Confidence – Released 12/22/2021 – The Consumer confidence index increased in December following a modest gain in November. The Index now stands at 115.8, up from 111.9 in November.
Third Estimate of 3rd Quarter 2021 GDP – Released 12/22/2021 – Real gross domestic product (GDP) increased at an annual rate of 2.3 percent in the third quarter of 2021, according to the third estimate released by the Bureau of Economic Analysis. The third estimate is based on source data that are more complete than the data available for the second and advance estimates. Real GDP increased 2.0% in the advance estimate and 2.1% in the second estimate. The increase in real GDP in the third quarter reflected increases in private inventory investment, personal consumption expenditures (PCE), state and local government spending, and nonresidential fixed investment that were partly offset by decreases in residential fixed investment, federal government spending, and exports. Imports, which are a subtraction in the calculation of GDP, increased. The update primarily reflects upward revisions to personal consumption expenditures (PCE) and private inventory investment that were partly offset by a downward revision to exports. Imports, which are a subtraction in the calculation of GDP, were revised down.
Housing Starts – Released 12/16/2021 – New home starts in November were at a seasonally adjusted annual rate of 1.679 million; up 11.8% above October, and 8.3% above last November’s rate. Building Permits were at a seasonally adjusted annual rate of 1.712 million, up 3.6% compared to October, and up 0.9% over last year.
Next week we get data on Housing Starts and Existing Home Sales.