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[Music] so now we're going to look at the u.s in more depth and some of the recent economic indicators and what does it mean for the consumer as we look at employment overall and some of that impact on poverty and just what what trajectory are we really on now this is just taking a look at the weekly economic index which is coming out from the new york fed it's sitting at about 2.3 percent and you can see in how there's still some of that mitigation in terms of you know because the new york weekly economic index is a high frequency index you know atlanta has theirs looking at an annual level and this is looking at the the weekly view and this is why we continue to say that there's there's still some overhang and it's really being driven by not so much you know just as much by consumption with the inflation and prices going up but also on that underlying jobs data which remains concerning as we go through the remainder of this quarter and into really the remainder of the year so let's take a step back and look at some of the recent data points so the manufacturing pmi came in in line at 58.6 construction spending very remained strong residential versus commercial is the name of the game residential spending continues to be the core driver behind it now isn manufacturing had a nice beat to the upside 60.8 versus 58.9 we'll go through some of those impacts but then when we look at prices paid continuing to surprise to the upside but new orders also went to the wen went up which is a net positive so even though prices paid is going up we're also seeing new orders which is supportive of activity but the employment side while better versus last year still remains well below some of the the hopefulness that we're seeing not really seeing in the market now when we look at you know how how do we tell that that's the case well let's take adp employment change and you can see that we missed estimates by a wide margin where it was expected to be a 205 came in at 117 but then services pmi came in a little bit better than expected on the on the i on the market us services pmi but then ism services index actually surprised to the downside because we're we're seeing this as the separation between how quickly or what is the speed in which we're understanding it so when we look at the the bat the data backdrop so the group's measures of orders and business activity also plummeted to the lowest level since may speaking to the ism index while many service providers remain constrained by the pandemic the setback in february included an arctic blast that disrupted supply chains blackouts so there's some of that getting picked up in the ism services index the figures also showed price paid for materials jumped to 71.8 in february the highest since september 2008 delivery times also lengthened obviously issues with supply chain and the group's manufacturing data released monday showed input costs for factories were also at the highest since 2008. the ism index of service employment indicated slower growth in february falling to 52.7 from 55.2 so now the service sector is also seeing the employment slowdowns and another report on wednesday from the adp research confirmed that they had added fewer workers during the month than forecasted so when we look at the home base employment so let's take home base points to a rebound so we should get a bounce so if you think about the adp numbers the ism numbers the pmi numbers they're all still above 50. so we should see some expansion but here you're seeing just what that expansion looks like where when you take the adb payrolls there they were obviously negative so if you look at home-based employment you had a a pop-up and we saw that move up but it's just not we're not seeing the same turnaround and there still remains headwinds for the employment side so when we take the manufacturing index and this is just taking that backdrop coming from the commentary and this is just looking at those different impacts the ones that i want to point to is that is the production so production went up and it married with new orders but when we look at supplier deliveries that were again the highest since april 2020 so we still we're having a lengthening of time of getting stuff into into the market inventories are falling so guys are pulling from inventory they're just because they're not getting those deliveries but when we look at customer inventories also falling so that means that the customer is going to have to come back and buy but price is paid as customers or are working through their own inventory they're going to have to go and refill at a much higher price and then the backlog orders remain strong but the biggest issue at this point is going to remain the employment side because for the most part a lot of these data points still remain strong but when we think about what this looks like over time so we had a little bit of a pullback cost rise at the steepest rate since april 2011 amid record suppliers selling prices increased the sharpest price since july 2008 and that's really helped pull some of this this capacity up so let's take this into its pieces so you have the iso manufacturing climb to the new record high of 60.8 in feb nine straight month but you can see what is the the biggest driver behind it so employment is a positive contribution you have new orders was a positive contribution but once we start to normalize it and the supplier side starts to get a little bit better that will start to pull down a bit and we should be you know still well within a expansionary level but this is supporting some of that inflation the issue is when we look at supplier deliveries it's really been happening since april and we haven't been able to close that gap due to the issues that remain in the market now as the price continues to go up for the consumer they're also we're also seeing an issue in delinquency rates so looking at the 60-day delinquency rate since august we continue to see a drive higher so mortgages have been fairly stable but when we look at auto we look at credit card and we look at other secureds we're seeing this fear so now we're going to get a new stimulus how much of that stimulus is going to go to getting rid of some of the delinquencies and replenish savings versus just going into buying stuff in the market and typically autos is a very good leading indicator for some of the other capacity because autos is one of the first things not to get paid before we get credit cards and then mortgages so again this is going to be a little bit more of an indication on the weakness at the consumer level then when we look at just used car prices just you know speaking of inflation used car prices have risen more than 50 percent since the december 2018 trough in the last recession and this is the u.s car prices since january of 1995. so again we got this bump up and because we do have people going from that urban to suburban people are buying cars helping to support where we are right now in terms of pricing now the other thing that we also keep hearing is that real disposable personal income has increased but it has increased i am not saying it has not increased it's just it hasn't increased as an equal weighted level because as we as we showed in the very first segment and then again in the second segment where we're getting that difference between the different uh the different quartiles or the different breakdowns of who is benefiting the most and we're seeing that breakdown in the in the bottom three quintiles versus those top two because we're just seeing that there's that bifurcation in terms of who has the most benefit in general so then when we look at contributions to the change in personal income we have to look at well what is driving it and the biggest issue is income from wages and other private sources continues to be negative again wage compression all of this is being supported by stimulus checks federal unemployment unemployment extension benefits and state and unemployment benefits all of this is being benefited from just what is the government doing to support as wages and other other private sources continue to be negative and this is again the problem that we continue to see where we excuse me we need a recovery in wages to see that being the driving force versus just additional stimulus coming from the economy and looking at those payroll employment levels as the wage side this stresses the fact that we mentioned previously where low wages is being is declining there's more pressure at the in wage level on the low wage side with middle wages and and high wages really petering out and and getting that swoosh but the problem is the low wage side is the anchor that continues to pull down draining savings increasing delinquency rates and it's becoming the bigger issue now why is that a bigger issue well let's look at unemployment and let's look at not just i'm sorry not just unemployment but let's look at underemployment now this is the rise in involuntary part-time work by industry so these are people that want to work full-time but are told you have to work part-time there is either not enough money to pay you or we just don't have the capacity to pay you to be full-time and you could see obviously that leisure is not the highest level but construction manufacturing there's been an increase from 2020 to 2021 not a huge surprise but you would hope that by let's say a year after the covid start and the start of a recovery you would start to see this whittle down and you'd start to see a bit more activity as we got into january now february is a little bit better we and this is also reflecting you know what we know from adp and and and the private payroll data but we're just not seeing the turnaround that we were hoping at this at this stage of the game and that's also looking at the hit to employment by sectors so then we're looking at employment levels so not just people who can't work part-time but can't work at all and this is where you can see those issues continue to be yeah on a negative impact when we look at 2020 versus 2021 and this is keeping that overhang for what does the recovery and what is the strength of the recovery over time and this is why we when we talk about u.s poverty rates shows some improvement in january but it's because of government stimulus so if it wasn't for government stimulus this would continue to get worse so when you know how many checks can be pushed into the market how much support can come in before we have to sit there and say look we need to slow down because which is becoming too costly and when we look at hotel occupancy rates coming to the leisure side so typically we have a recovery and people going and staying away and going to hotels and we're following the same trend obviously at a much lower rate and it's vaccines will help accelerate some of this but there's also how much money are people sitting on and how much business travel is there and just what are people willing to do they may have just bought a home and they're looking to save money or they just don't have the same capacity that they have in previous years and they're looking to save money and what's the easiest way then not stay at a hotel so then when we look at the mortgage market the mortgage market has increased by almost 50 percent since the financial crisis but the fed has been the biggest buyer of all those issuance so this is where we we see just what the fed has really done and the inability for them to unwind because you know would they want to unwind but we've seen that why would they like this is something where they can take in a certain amount of premium and this could be a benefit for their balance sheet over the longer term but again it's also taking away from banks that are operating on their normal level but it's also supporting some of these very low rates and keeping the elevated price of the assets and just commodities in general again driving that inflation higher which when we look at consumer sentiment expectations everything is starting excuse me everything is starting to get a little bit worse as people are looking at their inflation and what are they expecting and the pain that that's bringing to their doorstep because their cost of living is just going up and that's this is something that is going to become a perpetual problem and opec needs to consider when thinking about how do they manage the market because how much higher can gas lean prices go and what is that going to be an impact on when we think about not only refinery throughput but also how much money do people have to spend on the back end and this is where when again this is looking at the personal income versus the expenditures where people are still saving and and this comes to that bifurcation of who has what so when we link personal income was up 10 in january versus the estimate of 9.5 percent spending slightly weaker than expected at 2.4 percent versus a positive 2.5 percent and and this is this is where we continue to see this peak but no surprise we took out the peak from april 2020 which was hint hint the last time we got government stimulus so you can see how quickly it goes up and how quickly it fades and there and just based on the only stimulus that's coming in or the only increase in income people are getting is government oriented and not uh you know employment wage oriented this is going to see the similar drop down and that's why when we talk about the personal savings as a percent personal savings is going up but it's only at the richest percentage the top 20 percent are saving the bottom eighty percent are not so that's why this is a very skewed number when you think about oh well there's going to be a ton of money dumped into the market but who who is going to be able to dump into the market is your buddy going to be able to take a flight to i don't know veil for an extra ski trip or the kids to orlando or have an extra week for a beach vacation yes but that's at the highest level that's not accounting for a huge percentage of the market now the upper end accounts for the largest percentage of the consumption side of gdp so they there will be a bump but the bottom percentage keeps getting bigger and bigger and is going to be that anchor to what this overall recovery really looks like and that's why when we look at u.s personal consumption expenditures and u.s consumption core pricing you can see that we're just meandering at this flat edge point so it's going into savings but it's not going into the market and if it is the money can't go as far or doesn't have the ability to go as far because the inflation is going up costs are going up which is weighing on just what the overall purchasing power is and now let's take this from a different perspective let's look at this on an indicators of consumption growth so when we look at retail goods we've had a positive but services now people who are wealthier tend to eat out more can fly more so the people who aren't spending on those goods have those additional capacity to save so this is being converted into savings on the services side but how much of it will come back as things start to reopen because how many of them bought homes and don't have that spare cash because it's locked in their homes or how many people are may have lost their jobs or working part time or seeing the wage compression we're talking about so this is why this will start to get better but it will still be limited to how good it will get just given the that backdrop of you know what does it look like in general on the on the different levels of wage of income so then looking at a high frequency so new business applications continues to go up which is in that positive but household expenditures and and this is again looking at the differences so high confidence in making next mortgage payment still remains elevate high high confidence making next rate rent payment and expected loss of employment that has gotten a little bit better in terms of losing employment because we're starting to get to that turning point now i i'm the one saying that the turning point or the pivot will underwhelm based on all the leading indicators that we're seeing but we will stop going down and instead o going down and not really going back up we're just going to go sideways which is going to be a limit to what spending looks like and here's where we're seeing that where guys are being converted from regular benefits into those extended benefits as we see here with those movements going from as of the end of january into february up 19 million and then when we look at just that conversion ratio here's just another way to look at the movement of guys going from covered employment to the percent going to the unemployment extended benefits so continuing claims in regular state ui uh which typically lasts 26 weeks are drifting down the blue line but a lot of that is going into uh the client isn't doing a job finding it's because workers are exhausting regular benefits and are going into the extended world and when we look at the employment declines for low middle and high wage so here you can see top is is starting to dip a little bit but then when we look at at the bottom middle and the bottom that is where we're seeing that pressure that bottom is continuing to get priced out of the market that pressure continues to to come back in which is why when we look at the wage phillips curve you can see that we're not getting the reaction that we need in terms of the wage the private wage and salaries increasing so prime age employment population percent you know people are falling out of the workforce we have less people we have more retirees we have more people leaving the workforce but it's not increasing the private wage like we're not seeing wages move up in any real meaningful way even though inflation is continuing to move up and this is where as we talked about with with the beverage uh the uh the beverage curve and just what the pressure is in general there are jobs available but the the skills aren't there to marry it so then you you will accept a lower salary it's going to cost the company more to train you and you're just seeing that essentially the stagnation in just where the actual benefits are on the private wage side but when we look at durable goods durable goods were net positive when we look at total orders that were up 3. 3.4 which is the total change from february obviously at the positive side and the core capital goods continues to go up as people are buying more stuff for their homes and just durable goods in general because u.s durable goods are up capital goods are continuing to go up which is in that positive for again moving things through the system seeing some of those consumers continuing to purchase but when we look at just the capital goods new orders the survey was 0.8 and the actual is 0.5 so then we're seeing new water starting to slow so this was kind of that last push and now new orders are starting to get a little sluggish and that's going to be a headwind as we go into the remainder of of this month and into next and then when we look at just home prices this is the evercore isi bubble territory so we're in a bubble i don't think anybody would fight us on that it's just always the question of when does that bubble pop and based on what the fed is doing and what is happening in the market is it unlikely to pop anytime soon or at least in the next you know let's call it six to 12 months but then when we look at u.s retail foot traffic this is where we're starting to see that slow down in terms of just spending and purchasing so we had that pop because all of these numbers were actually positive on a year over year week over week level and now they're starting to slow again so this is something where there's obviously going to be an impact from weather and other types of issues but these this will weigh on some of those future numbers as we go into march and then what do we look like heading into april and then taking this from the a different perspective when we start looking at u.s retail sales by type here's where we're starting to see a little bit of an increase but it's more online versus in person and this comes to what is gasoline demand going to look like how our consumer purchases changing and that's where we're starting to see more and more of that which which is why even if we start to see a more aggressive rally in just underlying economic strength which we're seeing so far is it going to re is it going to translate into more refined product demand and the question is yes then the point is yes but not to the level i think the market is expecting so that's a lot to cover i know we went through a lot of different things so again your questions comments anything that you have want to talk about we welcome the conversation and in the next segment now we're going to shift gears a bit and look at what's happening in europe overall and just what is inflation and some of those data points really telling us [Music] so [Music] you