The first of the monthly regional Fed readings on the manufacturing sector was released this morning out of the Empire State.  The headline index fell to 17.4 from 24.3 in May.  While the 6.9 point decline sat in the bottom quintile of all monthly moves and it was a 5.3 point larger drop than had been forecast, the current level still would be the highest since November 2018 outside of the past few months.  Additionally, in spite of the decline in current conditions, expectations saw a significant uptick rising 11.1 points to the highest level in exactly a year.  Prior to last June, February 2018 was the last time the index has seen as strong of a reading.

Given the decline in the headline number, the vast majority of categories also declined in June, although almost all remained positive signifying that they continue to grow at a healthy clip. Of the current conditions indices, Delivery Times was the sole index to move higher, and that is not necessarily a good thing as higher readings indicate longer lead times.  Meanwhile, the declines for New Orders, Shipments, and Unfilled Orders were particularly large all ranking in the bottom decile of monthly moves.

Staying on the topic of these same indices, similar to the headline reading, although current conditions deteriorated, businesses reported pretty optimistic results for the future. Six-month expectations for New Orders and Shipments both saw sizeable month-over-month increases of 9.2 and 9.1 points, respectively, whereas the current conditions indices moved in the opposite direction. Those moves left each index at the high end of the past several years’ ranges.  Staying on the topic of expectations, the index for Unfilled Orders was particularly interesting.  The past few months have seen some of the highest readings on record in the current conditions index meaning businesses have been reporting massive builds in order backlogs.  While backlogs continue to grow with the current conditions index remaining positive, the index for expectations tipped negative for the first time since October meaning businesses foresee those backlogs to finally begin to decline in six months.  Additionally, businesses reported a draw in inventories for the first time since January.

One likely culprit of those backlogs is delivery times.  The index saw yet another record high in June. On the bright side, businesses seem to point to normalization in supply chains down the road as expectations plummeted by 14.5 points; the third-largest month-over-month decline on record behind March 2011 and September 2001.

Prices continue to rise at a rapid pace according to responding businesses, though, there was some deceleration in prices paid and received in June.  The only measure of prices that moved higher this month was expectations for prices received which rose to the highest level since the summer of 2008.

One other interesting part of the report was the response around employment metrics.  The index for current conditions for the average workweek remains around some of the highest levels of the past decade even after pulling back month over month. Businesses also slowed hiring as the index of the number of employees fell to 12.3. While that reading is still off pre-pandemic highs, expectations continue to surge, setting another record high. Together this seems to indicate that businesses have a desire and in the future expect to take on more workers in spite of actual progress in doing so more recently.  Click here to view Bespoke’s premium membership options.

It doesn’t look now like the S&P 500 will do it today, but so far this year, the S&P 500 has been making it a habit of closing at record highs.  Since the year started, last Friday was the 28th day of the year that the S&P 500 closed at a record high.  That works out to slightly more than 25% of all trading days or more than once a week.  With more than six months left in the year, the S&P 500 isn’t far from overtaking the total number of record closes in the last two years, and if the current pace of new highs continues (a big if given that a sell-off can really cause the pace of new highs to dry up quickly), this year would see 62 record closing highs.  That would tie the total for 2017 and trail only 1995 (77) and 1964 (65) for the most record closing highs in a given year. Click here to view Bespoke’s premium membership options.

It is a boring start to the week with nothing on the docket for earnings, Fed speakers, or economic data.  With regards to the latter, the slate will pick up tomorrow with several US releases including retail sales, PPI, industrial production, and more.  Expectations for tomorrow’s releases are a bit mixed relative to the prior readings in each indicator, but overall, recent US data has been beating expectations at a healthy rate.  The charts below show the Citi Economic Surprise indices for a variety of global regions and the US.  Positive readings in these indices indicate economic data is coming in above forecasts, and vice versa for negative readings.  Additionally, higher positive or negative readings would mean that economic data is exceeding or coming up short of those forecasts by a wider margin.

Currently, the US index is well off record levels from the past year, but it has bounced since the start of June.  The index has risen 42.7 points in the ten days from the end of May to last Friday.  That move stands in the top 2% of all 10-day changes since the index began in 2003. That also comes not even a full month after the index saw its first negative reading in a year.  While the negative reading was far from anything extreme, the sharp rebound has been impressive, leaving the index at a historically healthy level in the 83rd percentile.

The US is not alone in having seen a rebound.  Although it is similarly off the peak from last summer and generally trending lower since then, the global index has consistently sat at the high end of its historical range over the past year.  The current reading is still in the top 1% of all periods, and the move higher over the past ten days is again dramatic ranking in the top 5% of ten-day changes in the index’s history. While the jump in the US index has likely played at least some part in this, other regions around the world are also pulling weight having seen just as, if not more, significant moves.  Sticking with a look at the move over the past ten days, the gains for the indices covering APAC and Central/Eastern Europe, the Middle East, and Africa all rank in the 98th percentile while the move in the index tracking Latin American countries ranks in the top decile. Each of these indices now sits in the top 1% or 2% of their historical ranges. One outlier region not contributing to the pickup in the global index has been Europe.  While the Eurozone index is far from weak, it has not seen much of a move higher recently as other regions have.

Likely thanks to the weakness in Eurozone countries, a similar dichotomy can be seen comparing the indices for major developed economies (the G10 members) and emerging market countries.  While the index tracking major economies has simply held up at healthy levels, the emerging markets index has leaped to new record highs, breaking well above the previous records set earlier in the pandemic. BRIC countries in particular are some to thank for that sharp move higher as the index has seen one of its largest short-term moves on record.  Click here to view Bespoke’s premium membership options.

Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.

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Labor Markets

Employed in a SNAP? The Impact of Work Requirements on Program Participation and Labor Supply by Colin Gray, Adam Leive, Elena Prager, Kelsey B. Pukelis & Mary Zaki (NBER Working Papers)

Work requirements do little to increase employment among recipients, while pushing out beneficiaries who are entitled to benefits; the authors estimate that simply eliminating work requirements would be a more effective step than new programs to target low-income adults. [Link; soft paywall]

How Does the Dramatic Rise of CPS Non-Response Impact Labor Market Indicators? by Robert Bernhardt, David Munro, and Erin Wolcott (FRB Chicago/Middlebury College Working Paper)

Declining response rates for the Census Current Population Survey explain a significant share of the decline in labor force participation rates reported over the last couple of decades. [Link; 26 page PDF]

Teens

Summer Job Market for Teens Is Sweet by Patrick Thomas (WSJ)

With labor markets tight, employers are reaching down the age ladder to fill low prerequisite positions and have driven teen labor force participation to the highest levels since 2008. [Link; paywall]

Sixteen Years Old, $1.7 Million in Revenue: Max Hits It Big as a Pandemic Reseller by Sarah E. Needleman (WSJ)

Huge disruptions in supply chains and massive consumer demand have sent goods markets into a wild frenzy benefitting re-sellers and middlemen that can move quickly to arbitrage prices. [Link; paywall]

Big Shifts

On the Crisis and Inflation, Barron’s Shows How the Past Can Be Prologue by Matthew C. Klein (Barron’s)

A look at a pre-COVID analogue to the pent-up demand and tight supply chains which have sent prices of some goods soaring in recent months, using both data and the words of contemporaries in media reporting. [Link; paywall]

Farewell, Millennial Lifestyle Subsidy by Kevin Roose (NYT)

The combination of high demand, tight labor markets, and wind-downs of investor subsidies are turning the various on-demand apps which fueled a labor-intensive luxury lifestyle for young adults over the past decade into pricey options. [Link; soft paywall]

Cash Management

Banks to Companies: No More Deposits, Please by Nina Trentmann and David Benoit (WJS)

QE purchases have left the banking system flush with cash, and the liability on the other side of that asset is an ocean of deposits which have jammed bank balance sheets. [Link; paywall]

Cryptocurrency Comes to Retirement Plans as Coinbase Teams Up With 401(k) Provider by Anne Tergesen (WSJ)

A small 401(k) provider is partnering with Coinbase to allow workers to allocate up to 5% of their retirement savings to crypto assets. [Link; paywall]

Don’t Forget To Flush

This man spent last year flushing hundreds of toilets. The new fear as the pandemic wanes: Legionnaires’ disease by Elizabeth Weise (USA Today)

A side effect of emptied out buildings during the pandemic: stagnant water. Maintenance staff has spent untold hours simply running faucets and flushing toilets to prevent standing water from becoming a breeding ground for pathogens even deadlier than COVID. [Link]

Renewables

Plug In or Gas Up? Why Driving on Electricity is Better than Gasoline by David Reichmuth (The Equation)

As the US grid shifts to renewables, the emissions advantages of electric vehicles are extending their lead over gasoline-powered cars even accounting for the CO2 intensity of electrical generation. [Link]

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Have a great weekend!