Day: August 1, 2023

(C) Reuters. An employee hiring sign with a QR code is seen in a window of a business in Arlington, Virginia, U.S., April 7, 2023. REUTERS/Elizabeth Frantz/File photo

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. job openings fell to the lowest level in more than two years in June but remained at levels consistent with tight labor market conditions despite the Federal Reserve’s hefty interest rate increases.

The Job Openings and Labor Turnover Survey, or JOLTS report, from the Labor Department on Tuesday also showed layoffs and discharges declined for a third straight month. Employers are hoarding workers after difficulties finding labor during the COVID-19 pandemic.

There were 1.6 job openings for every unemployed person in June, little changed from May. Labor market resilience suggests the Fed could keep rates higher for longer. The U.S. central bank has hiked its policy rate by 525 basis points since March 2022 to lower high inflation.

“While today’s report discusses data from June, this continued strength in the labor market is likely to keep Fed officials hawkish,” said Eugenio Aleman, chief economist at Raymond James.

Job openings, a measure of labor demand, dropped 34,000 to 9.582 million as of the last day of June, the lowest level since April 2021. Economists polled by Reuters had forecast 9.610 million job openings.

There were an additional 136,000 job openings in healthcare and social assistance, while vacancies increased by 62,000 in state and local government, excluding education.

Transportation, warehousing and utilities had 78,000 fewer open positions. Unfilled jobs in state and local government education dropped by 29,000, while the federal government had 21,000 fewer vacancies.

The job openings rate was unchanged at 5.8% in June. Hiring dropped 326,000 to 5.905 million. That lowered the hires rate to 3.8% from 4.0% in May. The decline in hiring was concentrated in durable goods manufacturing as well as finance and insurance.

Layoffs and discharges fell 19,000 to 1.527 million.

Despite the labor market’s resilience, workers are showing less appetite to seek greener pastures. Resignations dropped 295,000, the most since during the first wave of the pandemic, to 3.772 million. As a result, the quits rate, viewed as a measure of labor market confidence, fell to 2.4% from 2.6% in May.

U.S. stocks were trading lower. The dollar rose against a basket of currencies. U.S. Treasury prices fell.

MANUFACTURING STABILIZING

While the labor market remains defiant, higher borrowing costs are hurting manufacturing, though factory activity appeared to stabilize at weaker levels in July.

The Institute for Supply Management (ISM) said in a separate report that its manufacturing PMI edged up to 46.4 last month from 46.0 in June, which was the lowest reading since May 2020.

It was the ninth straight month that the PMI stayed below the 50 threshold, which indicates contraction in manufacturing, the longest such stretch since the 2007-2009 Great Recession. Economists had forecast the index would rise to 46.8.

While the ISM survey continues to offer a grim assessment of manufacturing conditions, so-called hard data suggest the sector is shuffling along. Fed data last month showed factory production rebounded in the second quarter, ending two straight quarterly declines.

The government reported last week that business spending on equipment grew solidly in the second quarter after slumping in the prior two quarters. Manufacturing accounts for 11.1% of the economy. Spending on long-lasting manufactured goods has slowed after booming during the pandemic, with services like airline travel and visits to amusement parks now in favor.

The ISM survey’s forward-looking new orders sub-index increased to 47.3 in July, the highest reading since October 2022, from 45.6 in June. The outlook for orders is improving as demand for goods holds up, encouraging businesses to rebuild inventories. Inventories for factories and customers remained low in July, which bodes well for future production.

Weak orders are keeping prices for inputs subdued. The survey’s measure of prices paid by manufacturers rose to a still-low 42.6 in July from 41.8 in June amid the significant improvement in supply chains.

According to the ISM, the delivery performance of suppliers to manufacturing firms has been faster for 10 straight months. Goods disinflation is helping to dampen price pressures in the economy, with annual inflation decelerating sharply in June.

With orders still depressed, factory employment is shrinking. In June, the ISM reported that companies “began using layoffs to manage head counts, to a greater extent than in prior months.” That practice probably gathered momentum in July. The survey’s gauge of factory employment dropped to 44.4, the lowest reading since July 2020, from 48.1 in June.

It has, however, not been a reliable predictor of manufacturing employment in the government’s nonfarm payrolls count. Factory employment has largely increased this year.

Manufacturing employment likely rose by 5,000 jobs last month, according to a Reuters survey of economists. Overall nonfarm payrolls are forecast to rise by 200,000 jobs in July after increasing by 209,000 in June. The Labor Department is due to release the employment report for July on Friday.

(C) Reuters.

Investing.com — U.S. stock futures weakened Tuesday, handing back some of the recent gains as investors awaited a deluge of megacap earnings as well as important economic data.

By 06:30 ET (10:30 GMT), the Dow Futures contract was down 85 points, or 0.2%, S&P 500 Futures traded 10 points, or 0.2%, lower and Nasdaq 100 Futures dropped 42 points, or 0.3%.

The benchmark Wall Street indices closed modestly higher Monday, ending the month of July which saw the broad-based S&P 500 and the blue chip Dow Jones Industrial Average both gain more than 3%, while the tech-heavy Nasdaq advanced over 4%.

Earnings deluge continues

Strong earnings have helped boost stocks, which have already been rising this year on the prospect of the Federal Reserve nearing the end of its interest rate increases.

More than 160 S&P 500 constituents are scheduled to release their quarterly results this week, adding to the more than 250 that have already reported. Of those companies that have already disclosed, 80% beat earnings expectations, according to FactSet data.

The pharma giants Pfizer (NYSE:PFE) and Merck (NYSE:MRK) are set to release results before the bell, as well as ride-hailing company Uber (NYSE:UBER), but a lot of focus will be on the earnings of Caterpillar (NYSE:CAT), as the construction equipment maker is often seen as a bellwether of the world economy.

Coffee chain Starbucks (NASDAQ:SBUX) and chip maker Advanced Micro Devices (NASDAQ:AMD) are set to offer up quarterly numbers after the close.

Meta to launch AI chatbots – FT

Elsewhere, Meta Platforms (NASDAQ:META) is likely to attract attention after the Financial Times reported that the Facebook parent is preparing to release new artificial intelligence-powered chatbots that have different personalities, in an attempt to boost user engagement.

Job openings in focus

There is also important economic data scheduled for release this season, including job openings and labor turnover numbers from June and the July manufacturing purchasing managers’ index.

These numbers will be studied carefully ahead of Friday’s official jobs report, which is expected to show the economy added jobs, though at a slower pace than in June.

The Fed won’t meet to decide on rates again until September, and Chair Jerome Powell was at pains to point out last week the importance of upcoming data in helping the policymakers decide upon the future path of interest rates.

Crude retreats as global manufacturing activity slides

Oil prices slipped lower Tuesday after private survey data showed further signs of weakness in the Chinese manufacturing sector, an important component of the world’s second-largest economy and largest importer of crude.

Similar data in Europe was also depressing, as manufacturing activity across the eurozone contracted in July at the fastest pace since COVID-19.

By 06:30 ET, U.S. crude futures traded 0.6% lower at $81.33 a barrel, while the Brent contract dropped 0.5% to $85.03.

However, both contracts remained near three-month highs on signs of tightening global supply, as major producers started implementing output cuts.

Additionally, gold futures fell 0.8% to $1,993.35/oz, while EUR/USD traded 0.2% lower at 1.0976.

(Oliver Gray contributed to this article.)

(C) Reuters

Here is your Pro Recap of the biggest analyst cuts you may have missed since yesterday: downgrades at Salesforce, Est?e Lauder, Tractor Supply, and General Electric.

InvestingPro subscribers got this news first. Never miss another market-moving headline.

Salesforce cut at Morgan Stanley ahead of Q2

Morgan Stanley downgraded Salesforce (NYSE:CRM) to Equalweight from Overweight with a price target of $278.00 (from $251.00), as reported in real time on InvestingPro.

While confident in Salesforce’s longer-term opportunity to further penetrate large enterprises with more vertically oriented solutions, near-term catalysts, including margin expansion and price increases, are now in rear-view mirror.

The bank mentioned that generative AI could potentially serve as the next catalyst for a higher Salesforce rating in the future. However, they do not foresee this happening in the short term due to limited access to its Unlimited Edition tiers in Sales and Service Clouds, as well as uncertainty surrounding “access, capabilities and pricing of consumption credits (which are expected to be the more significant driver on GenAI-related growth vs. seatbased uplifts).”

The company is set to report its Q2/24 earnings on Aug 23.

Est?e Lauder slashed at Citi

Est?e Lauder (NYSE:EL) shares fell more than 1.5% premarket today after Citi downgraded the company to Neutral from Buy and cut its price target to $195.00 from $240.00. The bank expressed concerns about the potential risks to the recovery path for the Asian Travel Retail business over the next 6-12 months.

We remain optimistic about the long-term revenue and margin opportunities at EL, but we expect weaker results over the next few quarters with negative incremental data points (China macros/category trends, share dynamics, cybersecurity incident).

2 more downgrades

Barclays downgraded Tractor Supply (NASDAQ:TSCO) from Overweight to Equalweight and cut its price target to $224.00 from $254.00. The decision comes in the wake of the company’s disappointing Q2 results announced last week, which fell short of consensus estimates.

The downgrade stems from concerns about the company’s growth prospects and uncertainty surrounding its performance going forward.

Oppenheimer downgraded General Electric (NYSE:GE) to Perform from Outperform, fueled by valuation concerns, highlighting over 35% stock rally since it upgraded the stock back in December.

Last week, the company reported a Q2 beat and raised its full-year outlook.

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Here is your Pro Recap of the biggest analyst picks you may have missed since yesterday: Upgrades at Sweetgreen, Nutrien, Bath & Body Works, and Verra Mobility.

InvestingPro subscribers got this news first. Never miss another market-moving headline.

Sweetgreen surges on Piper Sandler upgrade

Sweetgreen (NYSE:SG) shares jumped more than 6% yesterday after Piper Sandler upgraded the company to Overweight from Neutral and raised its price target to $19 from $13, noting that margins are inflecting.

The upgrade comes after the analysts’ review of the company’s Q2 print late last week. Restaurant-level margins (RLMs) appear to have stabilized, say the analysts, showing promising improvements for the future. Currently, the trailing 12-month RLMs stand at 15.2%, and the last week’s reported Q2 earnings demonstrated a sequential increase of approximately 40 bps.

The analysts also highlighted the uniqueness and potential of the technology behind the Infinite Kitchen, which has garnered investor interest due to the RLM reaching 26% in June. And management anticipates a higher stabilized margin once the store reaches its full operational capacity.

Nutrien upgraded at TD Securities

TD Securities upgraded Nutrien (NYSE:NTR) to Buy from Hold and raised its price target to $83.00 from $72.00, as reported in real time on InvestingPro.

The company is set to report its Q2/23 earnings tomorrow after the market close. Street estimates stand at $2.83 for EPS and $11.08 billion for revenues.

2 more upgrades

Barclays upgraded Bath & Body Works (NYSE:BBWI) to Overweight from Equalweight and raised its price target to $45.00 from $41.00. Shares rose more than 1% pre-market today.

Verra Mobility (NASDAQ:VRRM) shares gained nearly 3% yesterday after Deutsche Bank upgraded the company to Buy from Hold and raised its price target to $26.00 from $21.00.

Recent travel data indicates a resilient environment, and we expect the company to beat revenues this year in its commercial services segment.

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Don’t miss out on this limited-time opportunity to access cutting-edge tools, real-time market analysis, and expert insights. Join InvestingPro today and unlock your investing potential. Hurry, the Summer Sale won’t last forever!