Payroll Revision To Finally Fix The Bogus Seasonal Adjustments

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In his podcast addressing the markets today, Louis Navellier offered the following commentary.

If you wish to listen to this commentary, please click here

Fixing Payroll

This week we hope to get some clarity on payroll growth, since ADP and the Labor Department have been far apart in the past couple of months, especially on manufacturing jobs. In addition to announcing the August payroll report, the Labor Department is also expected to dramatically reduce overall U.S. payroll growth in the past 12 months.

This big payroll revision is anticipated to finally fix the bogus seasonal adjustments (like in January) as well as overstated manufacturing jobs (like in June and July) relative to ADP.  This is why I do not trust the monthly payroll reports from the Labor Department since there are simply too many seasonal “fudge” factors.

As an example of how consumer spending has changed, Best Buy announced on Tuesday that its same-store sales declined 6.3% in its latest quarter due largely to falling demand for appliances and big-ticket items. The only growth area for Best Buy was gaming. 

Although Best Buy’s operating earnings were better than expected, any company facing declining sales growth is in a scary situation. Chief Executive Corie Barry said, “We continue to expect that this year will be the low point in tech demand after two years of sales declines.”

The Rising Cost Of Living

We will also get clarification this week from the Institute of Supply Management (ISM) on manufacturing which has contracted for several months.  The manufacturing recession and related job losses according to ADP are running counter to the “Bidenomics” message emanating from the White House. 

So far, the Biden Administration’s onshoring efforts have failed to create new jobs, since manufacturing employment has been falling.  Furthermore, the Biden Administration has been losing support among working-class voters and Hispanics, who continue to worry about economic issues, like the higher cost of living.

Speaking about the cost of living, I should add that gasoline prices are now at their highest level this year, which is annoying inflation-wary Americans.  The fact that inventories remain low for crude oil and refined products is facilitating the high prices at the pump. 

Typically, peak summer demand ebbs after Labor Day, so it will be interesting if there is any meaningful relief in the upcoming weeks.  However, when the refineries shift from summer fuels to “oxygenated” winter fuels, gasoline inventories typically decline and gasoline prices all too often surge higher, so any price relief may be temporary.

The other factor that is raising the cost of living is higher home prices.  S&P Global Case-Shiller announced on Tuesday that median home prices in 20 major metro areas rose 0.9% in June compared to May, but declined 1.2% in the past 12 months.  Home prices rose in all 20 metro areas in June. 

Chicago, Cleveland, and New York metro areas led the price appreciation, while home prices declined in Seattle and San Francisco metro areas in the past 12 months.  It will be interesting if declining median home prices in the past 12 months will impact Owners’ Equivalent Rent which will be updated in the Personal Consumption Expenditure (PCE) index on Wednesday.

Spooked Consumers

As evidence that consumers are restless, the Conference Board reported that its consumer confidence index plunged to 106.1 in August, down from a revised 114 in July.  The present situation component plunged to 114.7 in August, down from 153 in July.  The previous gains in consumer confidence in June and July were erased in August. 

Higher credit card debt and fears over higher interest rates, plus high gasoline prices are clearly spooking consumers.  This is truly a shock and bodes poorly for continued strong consumer spending.

China’s oil refiner, Sinopec, has declared that it is expecting gasoline usage to peak this year due to EVs.  Interestingly, China is also famous for the graveyards of discarded EVs after their battery lives ended, so apparently battery recycling is not being pursued yet. 

Since China is mostly urban and EVs perform well in stop-and-go driving, EVs do make more sense for Chinese buyers, especially after generous government incentives offered in past years.  Now the price wars among EVs in China have eliminated the need for any incentive.

U.S. Is Oasis

In the U.S., we are blessed to be food and energy-independent.  However, for much of the rest of the world, many countries have to import food and energy.  Russia has successfully disrupted Ukraine’s exports of corn, sunflower oil, and wheat, so acute food shortages are anticipated in the sub-Sahara and other countries that traditionally import food staples from Ukraine. 

Last year there was an ideal growing season, so Canada and other nations helped offset Ukraine’s falling agriculture output, but this year there have been droughts in the Midwest, South America, and much of Europe, so food costs are rising outside of the U.S.

Energy prices also remain stubbornly high due to sanctions on Russia and well as a Saudi Arabia production cut, but central bankers know that there is little they can do to offset rising energy costs.  The bottom line is the U.S. is in much better shape than the rest of the world and remains an oasis.

Coffee Beans: Brain Food

A woman who was experiencing forgetfulness and depression has had an 8cm-long parasitic roundworm removed from her brain. Medical professionals suspect the woman inadvertently ingested the worm’s eggs by eating edible grasses that were tainted with snake feces. Source: Sky News. See the full story here.