Morning Report: Some good news on inflation

Vital Statistics:

 LastChange
S&P futures3,931-23.50
Oil (WTI)87.76-1.81
10 year government bond yield 3.52%
30 year fixed rate mortgage 5.81%

Stocks are lower on continued Fed fears. Bonds and MBS are down.

The 10 year bond yield soared in the last hour of trading yesterday. I didn’t see anything in particular driving it and I assumed it was just month-end noise. The sell-off is continuing this morning, so perhaps that doesn’t explain it. Regardless, the market seems to be bracing for a blockbuster jobs report tomorrow.

Some bad news for inflation: productivity fell 4.1% in the second quarter as output fell 1.4% and hours worked increased 2.7%. This number was a touch better than expectations, however. The bad number (at least for bonds and the Fed) was the 10.2% increase in unit labor costs, which was the highest since 1982. This as driven by a 5.7% increase in compensation and a 4.1% decrease in productivity. You can see in the chart below that we are getting back to levels last seen in the 1970s.

Interestingly, there is a bifurcation between manufacturing and non-manufacturing. Manufacturing productivity increased as output rose 4.1% and hours worked fell 0.7%. This mean that the service sector became highly inefficient during the quarter. Is this the quiet quitting phenomenon we have been reading about?

Announced job cuts fell 21% MOM to just over 25k, according to outplacement firm Challenger, Gray and Christmas. Announced job cuts are up 30% YOY however. “Employment data continue to point to a strong labor market. Job openings are high, layoffs are low, and workers seem to have slowed their resignations. If a recession is imminent, it’s not yet reflected in the labor data,” said Andrew Challenger, Senior Vice President of Challenger, Gray & Christmas, Inc. Separately, initial jobless claims fell 5k last week. Note job cuts in finance and fintech increased 765% to

Bottom line: while employment is a lagging indicator so far we aren’t seeing any evidence in the numbers that the job market is reacting to the increased fed funds rate. All eyes turn to the employment situation report tomorrow.

The ISM Manufacturing Index was flat in August, however the report generally contained good news. Most notably, the Prices index fell pretty dramatically and is back to June 2020 levels. Production fell while new orders increased. “The U.S. manufacturing sector continues expanding at rates similar to the prior two months. New order rates returned to expansion levels, supplier deliveries remain at appropriate tension levels and prices softened again, reflecting movement toward supply/demand balance. According to Business Survey Committee respondents’ comments, companies continued to hire at strong rates in August, with few indications of layoffs, hiring freezes or head-count reductions through attrition. Panelists reported lower rates of quits, a positive trend. Prices expansion eased dramatically in August, which — when coupled with lead times easing — should bring buyers back into the market, improving new order levels. Sentiment remained optimistic regarding demand, with five positive growth comments for every cautious comment.”

35 Responses

  1. “Biden to warn of threat to democracy from ‘MAGA Republicans,’ election deniers in prime-time address”

    https://www.washingtonpost.com/politics/2022/09/01/biden-democracy-republican-extremists-trump/

    I don’t like Trump, but this makes me want to vote for him just as a Fuck You to Biden and the Democrats.

    Like

  2. I have been making this argument for years:

    https://thefederalist.com/2022/08/31/the-real-hero-of-the-soviet-fall-wasnt-gorbachev/

    The only reason Gorbachev is so feted is because he was a communist and the media hated Reagan and Thatcher. Everything he did was done in an attempt to preserve, not destroy the Soviet Union. He failed in his purpose, and the best thing we can say about him is that he chose not to kill and imprison a bunch of people in order to achieve his goal. That is a pretty low bar, yet he is hailed as the hero of the Cold War. Nonsense.

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    • This whole thing was such a trip when I was in the Navy. Everyone was shocked to see the Big Bad Enemy just…. disintegrate.

      Like

    • My sister lives in the USSR for a year in 81/82, she was a nanny to the Military Attaché and when she came back she relayed to me (I was 15-16 at the time, she was 19-20 is) just how corrupt things were in Moscow. The bartering with westerners, the trading she did with even the people assigned to follow her. She had stories of the malaise, anger and fascination with American and European TV shows.

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      • I always wish that “The Americans” had done a flash forward ending to the fall of the Berlin wall to show where the characters ended up and how they reacted to the subsequent collapse of the Soviet Union.

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  3. Long but interesting thread.

    It really is worth checking out. There are many things in it I disagree with but I do like his ultimate prognostications.

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  4. Lol

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  5. Mark…if you are out there, I would like to get your thoughts on Biden’s speech last night. Was this the kind of “talking to Americans as Americans” that you think it is the President’s job to do, and that Trump failed to do?

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  6. It’s amazing to me that this was thought to be an effective look for POTUS.

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    • So ya
      Though ya
      Might Like To
      Go To The Show

      To feel the warm thrill of confusion
      That space cadet glow…

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    • I am waiting to see the “moderate” D’s and NeverTrump R’s criticize Biden’s plainly over-the-top and divisive rhetoric by blaming Trump….Baby, why you make me hit you?

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      • Jonah Goldberg complimented the rhetoric but was ambivalent on the background.

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        • I’m not sure if Trump broke him or this is the price you have to pay today to get to go on TV as the oh-shucks conservative

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        • Trump broke him, in the sense that he had to clarify his allegiance to his elite class and that required certain positions, taking certain sides. But just the fact he’s never said a thing about Bill Kristol’s move right-ish neocon the leftist Democrat partisan kind of tells you all you need to know about what he values above everything, and that’s his position in the club. Which doesn’t mean he’s gone full Kristol or Jen Rubin but does mean he’s totally down with the idea that the role of the sophisticated conservative is be correct, erudite, deeply knowledgeable, and lose every critical cultural battle with decorum and dignity.

          He’s also loyal to the press. He hated Kaley McEnany for daring to be rude the the Whitehouse press corps while she was clearly the best and most contemporary press secretary in the Whitehouse in the modern era. That he could not see the brilliance there really discredited Goldberg for me.

          That and he could not stop bellyaching about Trump. I gave his podcast a few months after the 2020 elections to get on to something else but he just wouldn’t do it. So I unsubbed.

          I think he’s also being influenced by where his paychecks come from. Clearly The Dispatch is old school liberal (rather than leftist progressive like most of the news) and David French is a liberal evangelical and … well he’s surrounded by NeverTrumpers and people who believe True Conservatism is about electing Democrats and making sure Republicans and conservatives lose every battle with grace and aplomb. Yet he can still get angry about the New Deal and Woodrow Wilson.

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    • It’s moving towards “they’re fucking with us on purpose”. I have a hard time attributing it to just incompetence.

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