- ISM non-manufacturing index is expected to snap its losing streak
- Feb JOLTS job openings are expected to remain at a relatively strong level
- U.S. trade deficit expected to remain near trend
- Weekly EIA report expected to show a new record high in crude oil inventories
ISM non-manufacturing index is expected to snap its losing streak — The markets are expecting today’s Mar ISM non-manufacturing PMI to show a +0.8 point increase to 54.2, more than reversing Feb’s -0.1 decline to 53.4. An increase in today’s ISM non-manufacturing index would be a welcome relief since the index has fallen in 6 of the last 7 months by a total of -6.2 points to Feb’s 2-year low of 53.4.
Markit has already reported that its U.S. services PMI in early March rose by +1.3 points to 51.0, which was a positive signal for today’s ISM report. In addition, the market is expecting today’s final-March Markit U.S. services PMI to be revised higher by +0.2 points to 51.2, which would put the index up by +1.5 points from February rather than the preliminary-March increase of +1.3 points.
The ISM manufacturing index for March has already been reported at +2.3 points to 51.8, which also bodes well for a positive non-manufacturing ISM report today. The ISM manufacturing index climbed back above the expansion-contraction level of 50.0 for the first time since September 2015. The markets would be pleased if the non-manufacturing sectors of the economy also show an improvement in business confidence in March, which would give the markets more confidence that the U.S. economy will see some upward momentum going into this spring.
Feb JOLTS job openings are expected to remain at a relatively strong level — The market is expecting today’s Feb JOLTS job openings report to show a decline of -53,000 to 5.488 million. A decline in today’s report for Feb would not be surprising considering the +260,000 surge to 5.541 million seen in January. The number of job openings in the U.S. economy remains high, which is a good leading indicator for new payroll jobs since most job openings will eventually turn into a new job. The JOLTS job openings series posted a record high (data going back to 2000) in July 2015 at 5.788 million openings and the JOLTS level of 5.541 million in January was only -247,000 below that record high.
The markets were encouraged on the jobs front by last Friday’s March payroll report of +215,000, which was stronger than market expectations of +205,000. Payroll growth in the last six months has averaged a strong +246,000. The March unemployment rate moved up by +0.1 point to 5.0% from the 8-year low of 4.9% posted in Jan-Feb. However, the higher unemployment rate was mainly due to optimism about the economy as more people moved back into the labor market to look for a job. The number of people who are in the labor market, i.e., classified as either having a job or looking for a job, has risen sharply by 1.453 million people in just the last four reporting months since December.
U.S. trade deficit expected to remain near trend — The market is expecting today’s Feb U.S. trade deficit to widen mildly to -$46.2 billion from -$45.68 billion in January. Today’s expected report of -$46.2 billion would be just mildly wider than the 12-month trend average of -$45.1 billion. The persistently high U.S. trade deficit continues to be an underlying bearish factor for the dollar since a net $1.4 billion worth of trade dollars are flowing out of the U.S. every calendar day based on the U.S. current account deficit figures.
The U.S. trade deficit has been moving mostly sideways in recent months as U.S. exports and imports fall at similar rates. U.S. exports have been falling due to the strong dollar and weak overseas economic growth, while imports have been falling in part due to lower oil prices and the reduced dollar value of imported oil. U.S. exports in Jan were down -6.6% y/y and fell by a total of -10.8% from the record high of $197.759 billion posted in Oct 2014. Meanwhile, imports in January fell by -4.5% y/y and were down by a total of -7.6% from the record high of $240.524 billion posted in Dec 2014.
Weekly EIA report expected to show a new record high in crude oil inventories — The market consensus for Wednesday’s weekly EIA report is for a +3.0 million bbl rise in U.S. crude oil inventories, a -1.2 million bbl decline in gasoline inventories, a -1.0 million bbl decline in distillate inventories, and a +0.3 point increase in the U.S. refinery utilization rate to 90.7%.
There has been no let-up in the surge in U.S. oil inventories despite declining U.S. oil production. U.S. oil inventories last week rose by another +0.4% to post a new record high of 534.834 million bbls, which is +36.4% above the 5-year seasonal average. Oil inventories at Cushing, the hub where WTI crude oil futures are priced, posted a record high of 67.491 million bbl three weeks ago, but then fell by -2.3% in the past two reporting weeks. U.S. oil inventories based on seasonal patterns are likely to continue rising for at least another month due low demand from U.S. refineries, some of which are shut down for maintenance and/or the switch-over to producing summer fuels. Product inventories are also bulging, which is bearish for gasoline and heating oil prices. U.S. gasoline inventories are a hefty +9.7% above the 5-year seasonal average and distillates are in a glut at +25.5% above average.
Meanwhile, U.S. oil production since mid-January has been falling due to the renewed plunge in oil prices in Jan-Feb, which caused more oil companies to give up hope and close down more oil rigs. Yet production on a year-to-date basis has so far fallen by only -2.0% even though another 166 rigs (-31%) have been shut down so far this year. The grand total decline in oil production so far is only -6.1% from the 43-year high of 9.610 million bpd posted in June 2015.
