On a day when headwinds for risk assets were many, investors were spared additional deterioration in US economic data, even as PMI anecdotes were less than encouraging.
Jobless claims fell a second week, dropping to 238,000 from an upwardly revised 260,000 the prior week.
That was better than forecasts. Consensus expected 245,000 on the headline claims print. The consecutive weekly declines (figure below) came on the heels of a three-week jump widely attributed to Omicron and seasonal distortions.
The four-week moving average rose to 247,250. Continuing claims in the week to January 22 were 1.628 million, slightly more than expected.
Obviously, none of the above does anything to mitigate what’s now almost certain to be a very poor January jobs report. On Wednesday, ADP printed the worst since the financial crisis, excluding the pandemic months.
Meanwhile, productivity rose much more than expected in Q4. The 6.6% increase (figure below) came in the near the top-end of the range (0.9% to 7.1%) and easily beat consensus (3.9%). In tandem, the increase in unit labor costs (0.3%) was much smaller than Q3’s 9.3% gain.
Although positive at the margins (no pun intended), the data does little to change the macro zeitgeist that’s currently informing (or maybe misinforming is more apt) the Fed’s policy shift. The data is noisy, and won’t change any minds.
Wage pressure is sure to persist, crimping margins further at a time when input costs stubbornly refuse to fall. It’s not as simple as flipping a switch to ramp up productivity, although if the situation doesn’t improve for businesses in relatively short order, it may be as simple as buying more robots. In that sense, it is as simple as flipping a switch. Notably, real compensation fell again. It hasn’t been above zero since Q4 2020.
Finally, ISM services posted a small beat (59.9 versus an expected 59.5). Despite being marginally better than consensus, the headline print was sill the lowest in nearly a year (figure below).
The final read on IHS Markit’s gauge for January was a bit better than the flash read (51.2 versus 50.9). Still, the index sits at the lowest since July of 2020.
Under the hood of ISM, the activity and new orders gauges fell, as did the employment index, which touched the lowest since June. New export orders plummeted. The prices paid index remained near record highs.
Despite the still decent (albeit falling) headline prints, the accompanying color for both the ISM and IHS Markit surveys was disconcerting. The ISM anecdotes were particularly colorful. “Costs have escalated to what we believe are unsustainable levels. Available labor is nonexistent,” someone in Construction said. “We will be forced to upgrade some equipment that is less reliant on labor,” a panelist from Agriculture, Forestry, Fishing & Hunting remarked. (Flipping a switch.)
Weighing in Thursday, IHS Markit chief business economist Chris Williamson reiterated that the Omicron wave weighed heavily on the US economy. The January PMIs “signal a near-stalling of the recovery,” he said, adding that “as well as the demand-dampening effect of the virus, businesses are facing multiple headwinds, including labor shortages, supply chain issues, rising costs and soaring inflation, combined with concerns over the future resilience of demand amid rising interest rates and reduced fiscal support.”
Other than that, though…
