Regional Fed Manufacturing Indexes - Big Spike In Jobless Claims
In the week of April 20th, jobless claims exploded from 193,000 to 230,000. That’s a 37,000 increase. It was way above the consensus for 209,000 and the high end of the estimate range which was 210,000. It pushed the 4 week average from 201,500 to 206,000. The Labor Department described no special factors that pushed this report higher. However, it’s obvious the Easter holiday had an effect on this report as it was April 21st.
Interestingly, on a non-seasonally adjusted basis, initial claims increased from 196,000 to 211,000. Seasonally adjusted claims probably would have increased modestly without the Easter holiday. The Easter-related seasonal adjustment amplified that increase.
It’s tough to model the effect of the Easter holiday which is in a different part of spring every year. Luckily, this jobless claims report is outside of the sample week of the payrolls report. I’m expecting there to be somewhere between 125,000 and 175,000 jobs created in April based on the data that has been reported so far.
The monthly BLS report is going to be reported this Friday. We will see this Thursday if the jobless claims increase was in fact a blip on the radar. Investors expect claims to fall closer to 200,000. Finally, continuing claims from the week of April 13th were 1.655 million. The 4 week average fell 25,000 to 1.688 million which is very strong.
Regional Fed Manufacturing Indexes - Another Weak Report
A trend is now obvious. The April regional Fed manufacturing reports are coming in weak. Richmond Fed report fell from 10 to 3. Philly Fed index fell from 13.7 to 8.5. One good reading was the Empire Fed index which went from 3.7 to 10.1. Kansas City index, which came out last Thursday, added to the negative column as it fell from 10 to 5.
Bulls believe the manufacturing sector is starting to rebound. That thesis could be dealt a big blow if all these negative regional Fed reports mean the manufacturing ISM PMI is going to be weak. Flash Markit PMI was stable, so it’s far from certain where the ISM PMI will end up. Monthly ISM and Markit readings come out this Wednesday.
Specifically, the Kansas City Fed production index fell from 17 to 12. Volume of new shipments index fell from 14 to 9. And the volume of new orders increased from 4 to 10. Finally, the backlog of orders fell from 9 to -5. Looking at the 6 month expectations survey, the composite index was cut in half from 22 to 11.
Production was also cut in half as it went from 28 to 14. Volume of shipments and volume of new orders indexes fell from 33 to 14 and 29 to 12. Finally, capex fell from 31 to 23. It’s safe to say expectations are for the next 6 months to be much worse than April. That’s inconsistent with the thesis that is calling for a manufacturing rebound later this year.
Regional Fed Manufacturing Indexes - Rebound can still happen...
Often domestic manufacturing firms don’t see the changes to the global economy.
Sometimes when the environment looks the worst it’s the sign of a bottom. That being said, the environment is far from the worst as all the regional Fed indexes were positive and the April Flash Markit PMI was above 50 which signals growth.
Kansas City Fed report is great because it includes comments which could help us figure out why the outlook was so poor. In the quotes, firms mentioned the difficulty in finding qualified workers, the bad weather, and the political turmoil.
One firm stated, “Labor is still a big issue for us. We lost a handful of workers who have gone to outside work, construction and lawn care as examples. Finding it hard to replace them.”
These aren’t big issues since bad weather is probably a one-time event, a tight labor market is good for the economy, and politics won’t matter until the 2020 election which is in about 18 months. I’m not ignoring the 2020 election. But if there is an 18 month lead time for which we must start caring about elections, then elections will almost always be an issue. Especially since there is an important one every 2 years.
Regional Fed Manufacturing Indexes - Dallas Fed Index Falls Too
All but one regional Fed manufacturing index fell in April. April Dallas Fed reading adds to the negative list as the general activity index fell from 6.9 to 2.0 which missed estimates for 9.8 and the low end of the consensus range which was 7.0.
As you can see from the chart below, the average of all manufacturing Fed surveys calls for an ISM PMI of about 53. The March PMI was 55.3 and the consensus range for April is from 54.5 to 55.5.
Dallas Fed’s production index increased 1.9 points to 12.4 and the new orders index increased 7.6 points to 9.8. Furthermore, the growth rate of orders improved 7.2 points to 5.2. For a weak reading, these results aren’t bad. The biggest decline was in the prices paid for raw materials index which fell 11 points to 7.9. Company outlook index increased 2.1 points to 6.3. But the outlook uncertainty index increased 3.4 points to 6.8.
Regional Fed Manufacturing Indexes - Any increase in uncertainty is a bad thing.
It’s interesting to see the general business conditions index fall since this region has a lot of oil production and oil prices have been rising. It turns out that even though oil production is prevalent here, 52.1% of firms in this survey had no revenues related to oil and gas in 2018. 7.8% of firms had 50% or more revenues come from this industry.
Every single indicator in the 6 month expectations index fell. Production fell 10.2 points to 41.3. New orders and the growth rate of new orders fell 6.8 and 4.9 points to 35.9 and 27.5. The biggest decline was in wages and benefits which fell 15.5 points to 38.8.
Surprisingly, the company outlook increased 2.5 points to 20.9 and the general business activity index was stable at 18.4. In this report an electrical equipment, appliance, and component manufacturing firm stated, “the continued uncertainty surrounding tariffs and the trade wars seems to be fueling customer reluctance to initiate new large projects.” Tariffs are still an issue, but probably won’t be in a few months once a trade deal is made with China.
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