Wentz Weekly Insights
Earnings Season and Inflation Data Ahead
Recent Economic Data
- The ISM manufacturing index, a monthly survey on manufacturing activity, for March came in at 46.3, a further decline from 47.7 in February and still below 50 for the fifth consecutive month, a reading that indicates contracting activity. New orders shrunk at a faster pace in the month while production, backlogs, employment, and inventories all contracted as well. Prices eased further after the prices index fell to 49.2 after record highs for most of 2022. The surveys reflect another month of “companies continuing to slow outputs to better match demand for the first half of 2023.”
- The PMI manufacturing index was 49.2 for March, up slightly from 47.3, but still indicating contracting manufacturing activity. The decline came from a further drop in demand with only a slight increase in output. The report notes manufacturers “engaged in cost cutting initiatives as input buying and pre-production inventories fell.” Price pressures eased more as firms moderated price increases to drive demand.
- New orders for manufactured goods, also known as factory orders, declined 0.7% in February, after a 2.1% decline in January and down for three of the past four months as manufacturing remains a weak part of the economy. Shipments fell 0.5% in the month and also down three of the past four months. Unfilled orders declined for the first time in 29 months as manufacturers have worked through nearly all of the covid backlogs.
- Construction spending fell slightly in February, falling 0.1% to an annual rate of $1.844.1 billion, slowing from January’s 0.4% increase. The figure is 5.2% above February 2022 with residential spending like homes down 5.5% due to the slowdown in the housing market and spending on nonresidential projects up 16.8% after a 0.4% rise in the month.
- The ISM non-manufacturing index, a survey index on the services sector of the economy, was 51.2 for March, down from 55.1 in February and rising in 33 of the last 34 months with the only contraction in December (a reading below 50 indicates contracting activity). Business activity was 55.4, still growing but at a slower pace than February with new orders falling 10 points to 52.2. The supplier delivery index was in contraction, similar to the manufacturing surveys, as companies have caught up on backlogs.
- Trade data for February shows the U.S. trade deficit expanded more than expected in the month by $2.8 billion, brining the monthly deficit to $70.5 billion as exports fell at a faster pace than imports. Exports were $6.9 billion less, a decline of 2.7%, while imports fell $5.0 billion, a decline of 1.5%. Through the first two months of the year, the deficit decreased $35.5 billion, or 20%, compared to the same period in 2022. This is data that points to and signals a recession may be closer as trade activity slows.
- Job openings in the U.S. fell at faster rate than expected on the last day of March compared to the month prior. The number of job openings decreased to 9.9 million, down 632,000 from February with the largest decreases coming from professional and business services, health care, social assistance and transportation and warehousing jobs. The number of quits increased 146,000 to 4.0 million as employees overall continue to feel comfortable and confident in their ability to find a new job.
- Payroll data from ADP showed payrolls in the U.S. grew 145,000 in March, lower than the 200,000 increase expected and slower than the pace in February. ADP Chief Economist Nela Richardson said the data “is one of several signals that the economy is slowing” as the labor market begins to find better balance with consumer demand slowing and cost of borrowing continuing to go up. Small job gains were seen in all size employers in the month.
- The number of unemployment claims filed the week ended April 1 declined 18,000 from the week prior’s level, but this was due to a large upward revision in the number, mostly due to changes in the way the Department of Labor calculates seasonal adjustments. If not for the revisions to how it calculates seasonal adjustments, claims would have risen 30,000. The four-week average declined 4,250. On the other hand, the number of continuing claims rose slightly from the prior week to 1.823 million (due to a 128,000 upward revision) and was the highest level since December 2021. The four-week average of continuing claims was 1.804 million, also the highest since late 2021.
- The Department of Labor’s survey on establishments showed payroll growth of 236,000 in March, right around expectations but slowing from 326,000 in February and the average of the past six months of 334,000. Job gains continued to trend up in leisure and hospitality, professional and business services, health care, government, and social assistance. There were small declines in retail and little change in manufacturing and trade. The average hourly earning rose 0.3% in the month, now 4.2% higher from the prior year which is slower than the 12-month pace of 4.6% in February. The average work week fell again to 34.4 hours, from a high of 35.0, the lowest since the middle of Covid but back to the trend of the 2010s as employers are better able to find workers and longer shifts or overtime no longer become as necessary. Another welcoming sign is the household survey shows the number of people in the labor force rose 480,000 to 166.731 million while the number of employed rose 577,000 to 160.892 million, both all time highs. The number of unemployed fell, dropping the unemployment rate back down to 3.5%, and the underemployment rate (the U-6 rate) at 6.7%.
- Google made additional headlines last week after its CEO said it plans to integrate conversational AI features into its Google search engine. Sundar Pichai said advances in AI could help Google answer questions faster and denied speculation that chatbots could pose a threat to its search business.
- Tesla said in the first quarter it delivered a record 423,000 vehicles, slightly ahead of the 421,000 expected and rising 36% from the quarter a year earlier. The company also produced 441,000 vehicles with the spread between deliveries and production growing from recent quarters which caused concerns about growing inventories.
- In an investor event in which it focused on cost saving initiatives, FedEx said it would consolidate its overall delivery operations by combining its Express, Ground, Services, and other companies into one operating unit while keeping FedEx Freight as a standalone company. It provided long-term permanent cost savings targets of $4 billion by 2025 through its DRIVE initiative.
- Warner Bros Discovery is reportedly closer to a deal to bring a TV series based on the Harry Potter franchise. The TV series would be a move in the direction the CEO wants to take the company in focusing on its franchises.
Updates on 2022 Tax Documents
The Week Ahead
After the holiday shortened week in which we received an update on the labor market, data which suggested a slowing, investors will come back this week looking ahead to inflation data. The consumer price index for March will be released on Wednesday with economists seeing a 0.3% increase in the month but the core 12 month increase remaining elevated at 5.6%. That is followed by the producer price index on Thursday and import and export prices on Friday. Elsewhere, weekly jobless claims are released Thursday and Friday is a busy day with retail sales, expected to have seen a small decline in March, industrial production, and consumer sentiment all coming out in the morning. In addition, the FOMC will release the minutes of the March 22 meeting on Wednesday. A wave of earnings reports will come out Friday morning, kicking off first quarter earnings season, with most of the big banks reporting their results including JPMorgan, Wells Fargo, Citi, PNC and BlackRock. Delta Airlines, Progressive, and Fastenal will also report results this week, all on Thursday.