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Christophe Barraud

U.S. December Employment Report: Comments from Christophe Barraud

Christophe Barraud, Chief Economist & Strategist at Market Securities, sent me his analysis concerning the U.S. December employment report:


1/ NFP surprised on the upside at 252K (11th consecutive months over 200K) vs 240Ke and once again, figures were revised upward in Nov. (+32K) and Oct. (+18K) so that, in 2014, NFP monthly average reached 246K (highest since 1999), up from 194K in 2013. Note that for private employment, 2014 was the best year since 1997. The improvement was broad based with all components adding jobs. Construction sector created most of jobs (+48K) in a context where weather conditions were clearly better after a cold and snowy Nov. which means that housing data should improve in Dec.


2/ Separately, the unemployment rate fell 0.2% to 5.6% which is the lowest since June 2008 but also the threshold defined by the CBO as the NAIRU (full employment). This drop can be explained by the significant decrease of the unemployed people (-383K to 8.688M, the lowest since June 2008) and the ongoing decline of the participation rate to the lowest level since 1978 (-0.2% to 62.7%). Once again, figures suggest that, in line with recent findings in academia, this move is mainly due to demographics and not to discouraged workers. The fact is that many of the people exiting the labor force were actually employed in November which means that older workers decided it was time to retire. Here is the breakdown, last month, some 4.4 million Americans went from having a job to being out of the labor force, the highest number since August 2007. That’s twice the 2.2 million who went from being jobless to out of the workforce.


3/ Therefore, more entry-level positions (not getting too much paid) and retirements of more expensive employees probably played a role in the decline of wages (-0.2% MoM, the biggest drop since records began in 2006). Separately, we have to keep in mind that stores and online merchants hired a larger-than-usual army of seasonal workers with low salary. Note that in Dec, retail workers saw average earnings fall 0.4% to $17.04 an hour from $17.11 in November. Finally, several economists were particularly cautious about the data. As a matter of fact, Citi and JPM said they believe the distribution of average earnings declines across sectors suggests a broad adjustment error which may well be corrected next month causing a big snap back higher in the data. This scenario seems likely given that several states raised the minimum wage in January.


4 / Finally, note that qualitative indicators were also quite strong as:
*underemployment rate fell 0.2% to 11.2% (lowest since Sept. 2008)
*employed part time for economic reasons declined 61K to 6790K (lowest since Oct. 2008)
*long term unemployed decreased by 77K to 2693K (lowest since Dec. 2008)


5/ All in all, it was another very strong report but it raised doubts about the current wages’ growth. My guess is that the decline is transitory and we should see a pickup in Jan. The fact is that the labor force is falling while job openings are increasing.  It offers little room for Fed before raising rates. A liftoff in April (in line with Dec. FOMC dots) is less likely given that inflation will remain particularly low in Q1 so that more than ever, June is our base case scenario.

Experts Expect US Vehicle Sales to Rise Significantly in November

Automakers will release November vehicle sales next Tuesday (December 3rd) and currently, analysts expect sales (Seasonally Adjusted at Annualized Rate) to rebound sharply from October.


Here are some forecasts from several specialists:


1/ Edmunds: November Auto Sales Set the Tone for Final Stretch of 2013, Forecasts, the premier resource for car shopping and automotive information, forecasts that 1,196,663 new cars and trucks will be sold in the U.S. in November for an estimated Seasonally Adjusted Annual Rate (SAAR) of 15.7 million. The projected sales will be a 0.7 percent decrease from October 2013, but a 4.7 percent increase from November 2012.
“Any economic uncertainty that car shoppers might have felt in October seems to be a distant memory by now,” says Senior Analyst Jessica Caldwell. “Car buyers are already taking advantage of advertised holiday deals, and as we plow deeper into the holiday season, the table is set for 2013 to finish on a very strong note.”


2/ JD Power-LMC Automotive: Consumer Demand for New Vehicles Picks Up in November

In November, U.S. new-vehicle sales are likely to reach 1.2 million units–up 3% from November 2012–after adjustment for one more selling day this year vs. the same month a year ago,* based on an auto sales forecast update from J.D. Power and strategic partner LMC Automotive.
The average sales pace in November is expected to translate to a 16.1 million-unit seasonally adjusted annual rate, or SAAR, which would be nearly 700,000 units stronger than the 15.4 million-unit SAAR in November 2012. It would also outpace the 15.2 million-unit SAAR in October, 2013.


3/ Wards: Forecast Calls for Post-Shutdown Bounce

U.S. automakers should sell 1.21 million light vehicles in November, according to a new WardsAuto forecast. The forecast looks for strong retail sales in the beginning of the month, accelerating in the final weeks of November, more than offsetting a downturn in fleet deliveries. The forecast sales volume (over 26 days) would represent a 2% rise in daily sales over same-month year-ago (25 days) and equate to a 15.9 million-unit SAAR.


4/ Kelley Blue Book: US: Kelly Blue Book sees Black Friday boosting November sales up 3.6%

New vehicle sales in the United States are expected to rise 3.6% year on year in November to nearly 1.19m units, according to Kelley Blue Book (KBB).
The car data provider said: “Fears of a vehicle sale hangover following the government shutdown in October turned out to be largely overblown as consumers showed no hesitation heading out to the dealership in November.”
KBB has pegged November 2013 SAAR at 15.6m, up from 15.3m in November 2012 and up from 15.2m in October 2013.


Moreover, according to my friend, Christophe Barraud, Chief Economist & Strategist at Market Securities and also the best forecaster of US statistics, total vehicle sales should rise 5% to 15.90M (SAAR).

Pending Home Sales Should Be Weaker Than Expected in September

The NAR is scheduled to report September pending home sales on October 28th and the consensus is expecting no change from August:


Yet, according to my friend, Christophe Barraud, Chief Economist and Strategist at Market Securities and also the best forecaster of US statistics since November, pending home sales should decrease by 2.8% MoM in September:


Regarding this index which helps to forecast existing home sales, 30 to 45 days in advance, I anticipate a decline from August. According to my estimate, in order for the pending home sales in adjusted value to be stable from August to September, raw data should increase 8.6% YoY. Nevertheless, local data that I gathered show a rise of 5.5%. Indeed, even if pending home sales rose in some areas like in New York (18.6%), they fell in other places like in Arizona (-28.9%). After seasonal adjustment, pending home sales should decrease by 2.8% MoM.


This forecast is coherent with comments from Lawrence Yun and Gary Thomas:


Lawrence Yun, NAR chief economist, said a decline was expected. “Affordability has fallen to a five-year low as home price increases easily outpaced income growth,” he said. “Expected rising mortgage interest rates will further lower affordability in upcoming months. Next month we may see some delays associated with the government shutdown.”
NAR President Gary Thomas, broker-owner of Evergreen Realty in Villa Park, Calif., said there are far-ranging consequences from the repeating stalemates in Washington. “Just one impact of the recent government shutdown – delays in tax transcripts needed for approval of mortgage loans – put a monkey wrench in the transaction process and could negatively impact sales closings in next month’s report,” he said.

US Existing Home Sales Should Be Slightly Below Expectations in September

The NAR is scheduled to report September existing home sales on Monday and the Bloomberg consensus is expecting 5.30 million units down 3.3% from August.


Yet, according to my friend, Christophe Barraud, Chief Economist and Strategist at Market Securities and also the best forecaster of US statistics since November 2012, existing home sales should fall significantly in September:


According to my estimate, in order for the sales in adjusted value to be stable from August to September, that is to stay at 5 480K – raw data should rise 17.5% from September 2012 to September 2013. Nevertheless, local data that I gathered show a rise of 12.6%. Indeed, even if existing home rose in some regions like in North Texas (22.4%), they fell in some areas like in Arizona (-6.6%) or Las Vegas (-1.2%). Finally, we get a seasonally adjusted statistics of 5 250 K which represents a 4.2% drop MoM.


This forecast is coherent with articles which show that, in several regions, sales YoY were far below the +17.5% threshold needed to stabilize sales in September:
- Albuquerque (+7.9% YoY)
- Twin Cities (+14.5% YoY)
- California (+5.9% YoY)