Weekend briefing: No end to US labour market expansion

Here’s our summary of key economic events overnight that affect New Zealand, with news the strength of the American labour market just rolls on and on

The US economy unexpectedly added +253,000 jobs in April, beating forecasts of +180,000 and following a downwardly revised +165,000 in March. But these are the headline, seasonally-adjusted numbers. On an actual basis, the month-on-month rise was +892,000. There are now 161 mln people employed in their workforce, a new record high and up +3.1 mln from year-ago levels. 155.3 mln are on employer payrolls and 5.7 mln self-employed in unincorporated businesses. The ‘self-employed’ level is near a record low over the past decade if you exclude the March-July 2020 pandemic emergency period.

Average weekly earnings rose at a +5.8% annualised rate in April from March. It was an unexpected improvement and is a faster rise than in any month in the past year. The jobless rate dipped to 3.4% and their participation rate is unchanged at 62.6% so there remains plenty of capacity for more improvement.

By any measure this is a strong labour market, confounding the doomsters yet again.

This strong labour market is supporting non-housing consumer credit growth which came in higher in March than expected. Total consumer debt rose +US$26.5 bln from the prior month after an upwardly revised +US$15 bln increase in the previous month and the March levels were well above market expectations of a +US$16.5 bln rise. This data is also not supporting bear scenarios.

None of today’s data will be welcomed by the Fed. It does not indicate that inflationary pressures will be easing soon from a slowing economy.

And finally in the US, we can note that the three banks that recently collapsed – Silicon Valley bank, Signature Bank, and First Federal Bank, were all audited by KPMG and all gained clean audit statements just prior to their failure. They all also had stable credit ratings (investment grade BBB for the first two, B+ junk grade for First Federal), probably largely based on the audit assurances. The US Fed has acknowledged serious regulatory listakes, but neither the auditors nor the credit ratings agencies have done so.

Across the border, Canada’s labour market delivered a stronger-than-expected result too, adding +41,400 jobs when +20,000 additional were expected. But there was a downside – all those additional jobs were part-time roles. Their jobless rate is hovering near a record low for them.

The China, the Caixin services PMI came in at the same level as the official services PMI, both measures recording a healthy expansion.

After nine years of fitful trials, the PBoC is finally getting its digital yuan off the ground. Some provincial governments allow trade in the e-yuan. And now public employees are being paid in e-yuan, direct to their phone wallets. Users can also directly transfer funds just by tapping another phone (even if internet signals or coverage is weak or down). Banks or credit card companies not required for daily transactions?

In the UK, shareholders voted down the proposal by its largest shareholder Ping Ang (and backed by Beijing) to split off the Asian business. Few shareholders other than Ping Ang supported the idea. But because it is a move wanted by Beijing, HSBC is entering murky waters in Hong Kong and China. Overnight, President Xi called for more party control over the economy, centralised in Beijing. (In their language, “further strengthen and improve the centralised and unified leadership of the Party Central Committee on economic work.”) While the call wasn’t specifically aimed at HSBC, they will find it very tough resisting it.

Singapore’s retail activity rose +2.2% in March and a sharp deceleration of the February rate. They will be concerned about that fall away. Given they have inflation running at +5.5% and the retail data is nominal, that suggests real retail activity is down -3.3%.

The EU is suffering declines in retail activity too, down -1.2% in March from February, down -3.8% from year ago levels. This data is inflation adjusted.

In Germany there has been a very sharp drop in factory orders, led by orders for large engineering products. This has been the biggest drop in industrial orders since the height of the pandemic in April 2020.

In Australia, the RBA’s Monetary Policy Review doesn’t see inflation returning to its policy range until … mid-2025. They acknowledge the current 7% is too high but they are in no rush to rock the boat to fix that problem. They seem more worried about weak housing markets than inflation stealing savings. Perhaps they are trying to inflate their household debt away? They seem to have little tolerance for meaningful action on inflation.

Lending for owner-occupied homes in Australia rose +5.5% to A$16 bln in March from February, logging a positive month-on-month gain for the first time in ten months and defying expectations for a -1% decline. Still, March’s figure was -25% lower than for March a year ago. A fast-recovering housing market seriously complicates the RBA’s efforts to tackle inflation

All eyes in Australia are now on the May 9 (Tuesday) Federal Budget. Expectations are high for new initiatives aimed at helping households deal with inflation – while themselves not causing more inflation.

And we should probably note that the iron ore price has now fallen to a six month low.

The UST 10yr yield starts today at 3.44%, and up +7 bps from this time yesterday. A week ago it was at 3.43%. Their 2-10 yield curve is more inverted at -47 bps. Their 1-5 curve is little-changed by -134 bps. But their 3 mth-10yr curve is now very much more inverted, now by -198 bps and hurt by the impending debt limit shenanigans. The Australian 10 year bond yield is now at 3.41% and up +14 bps from this time yesterday. The China 10 year bond rate is down -4 bps at 2.74%. This is actually a six month low and an unusual daily dip. And the NZ Government 10 year bond rate is now at 4.13%, and that is down -3 bps from this time yesterday but only back to week-ago levels.

Wall Street is up +1.9% on the S&P500 in its Friday trade, buoyed by the extended strength of the American labour market. And the woes from regional bank stocks seem to be fading now. For the week, the S&P500 is down -0.7%. Overnight, European markets were all up about 1.3% except London which rose +1.0%. Yesterday Tokyo was closed for a holiday. Hong Kong rose +0.5% yesterday and Shanghai fell -0.5%. Both recorded most weekly gains. Yesterday, the ASX200 ended down a minor +0.4% gain to end the week down -1.2%, while the NZX50 ended Friday down -0.7% for a weekly -1.1% loss.

The price of gold will start today at US$2014/oz and down -US$32 from this time yesterday. A week ago it was at US$1991/oz. (Remember its all-time high was US$2070 on August 6, 2020, so no longer threatening that.)

And oil prices have risen +US$2.50 from yesterday to be just under US$71.50/bbl in the US. The international Brent price is just over US$75/bbl. These are -US$5 lower than week-ago levels.

The Kiwi dollar is holding unchanged against the USD and now at 63 USc. Against the Aussie we are -½c softer at 93.5 AUc. Against the euro we are unchanged at 57.1 euro cents. That means the TWI-5 is now at 70.6 and down -10 bps from this time yesterday but up +70 bps in a week.

The bitcoin price is firmer again today, now at US$29,557 and up another +2.5% this time yesterday. But that only takes us back to where we were this time last week. (-0.2%) Volatility over the past 24 hours has been modest at +/- 2.6%.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».