QUICK QUILL — Unemployment risks have increased thanks to the Conference Board’s Jobs Hard to Get and Fewer Jobs metrics, suggesting the consensus call for a mild loosening through 2026’s first quarter is too optimistic. Additional data points – LinkUp’s job openings and a lengthening in how long it takes to fill an open position, regional service employment indices and ongoing losses in Durable Goods payrolls (despite core capex orders surprising to the upside) – pile onto the labor risks. Volatility remains cheap.

TAKEAWAYS

1. Conference Board Jobs Hard to Get was north of 20% in August while Fewer Jobs pierced 25% for a seventh straight month; this dual weakness has occurred 5% of the time since 1978, and history suggests July’s 4.2% unemployment rate could be 5.1% by November
2. Per LinkUp, time to fill positions rose to 49.6 days in July, the slowest hiring velocity rate since January 2024; validating the signal, the average of Dallas, NY, Philly, and Richmond Fed Services Employment gauges has printed negative in four of the last six months
3. Durable Goods Employment has fallen by 144,000 since peaking at 8.033 million in February 2023, running counter to the upside surprise in core capex orders; payrolls in the sector have historically turned well in advance of recession, another labor market red flag

QUICK QUILL — The Chicago Fed National Activity Index (CFNAI) and the New Home Sales report point to tame core inflation and pressured house prices. Moreover, the deterioration in the CFNAI Diffusion Index supports our curve steepener call. Current Production in August’s Dallas Fed manufacturing survey looked good on the surface. But survey details and a faster pace of rising continuing jobless claims vis-à-vis the nation as a whole flag underperformance in the nation’s second-largest economy. On balance, these reports support Powell’s pivot which rightly puts more relative weight on labor’s downside and less on that of upside to inflation.

TAKEAWAYS

1. The CFNAI Diffusion Index fell below the -0.35 breakeven line to -0.40 in June and sat on the precipice at -0.31 in May and July; historically, prolonged forays beneath this threshold have preceded steepening in the 2s10s yield curve north of 200 bps
2. Dallas Fed Current Production fell from its four-year high of 21.3 in July to 15.3 in August, but remains above the long-run average of 9.6; however, the New Orders-Inventories spread of 2.0, lower than the 7.9 long-run average, is flagging further cooling come September
3. Dallas Fed General Business Activity fell back into contraction in August from 0.9 to -1.8, signaling service sector underperformance; in a special question to surveyed firms, the impact of tariffs on Profit Margins was a net -35% and on Company Outlook was a net -29%

QUICK QUILL — In June, the latest month for which data are available, the aggregate of state-level payrolls came in at -65,000, an outright decline. In history to 1990, declines of this magnitude have predicted a decline of 67% of the time, suggesting a strong probability that June payrolls are revised into the red upon being revised a second time when released September 5^th. Powell is correct to be shift the focus to the Fed’s employment mandate. As for concerns about price pressures, food inflation is at its lowest level in nearly a year. If the Fed’s inflation mandate remains a risk, how can inflation-adjusted services inflation (net of those other essentials of housing, utilities, and health care) be at the lowest since the Great Recession? Accelerating wage disinflation is clearly the more existential risk, one that threatens the top and bottom lines of firms in the consumer discretionary space.

TAKEAWAYS

1.  The share of states with increasing Hires and Quits over the last six months was 33% in June, well below the 48% long-run average; while the headline unemployment rate has been hampered by low response rates, the sum of state-level gauges hit a cycle high 4.201% in July
2. On a 6MA basis, Food CPI Inflation sank from 3.04% to 2.39% in July, its lowest in nearly a year; with a stagnant job market leaving purchasing power under pressure, real consumer spending on discretionary services fell to a cycle low of -0.87% on a 6MA basis in June
3. The sum of state nonfarm payrolls declined -65,000 in June, a warning sign that the +14,000 national figure for June turns negative with its second revision; since 1990, state-level declines between -50,000 and -100,000 have led to a national decline 67% of the time

QUICK QUILL — Yesterday’s crosscurrents from August manufacturing surveys revealed an underlying theme of investment away from goods and toward services. The path for construction starts piles onto reasons for the Fed to cut. And with continuing claims reaching a fresh cycle high in the first week of August, it should be enough for Powell to signal at Jackson Hole a restart to the Fed’s easing cycle.

TAKEAWAYS

1. While the Philly Fed Mfg survey headline came in below all Bloomberg estimates, Future Capex jumped to 38.4 in August while Future Inventories fell into contraction; the capex optimism was catalyzed by the AI boom whereas inventory pessimism was goods-driven
2. Driven by New Orders improving from 50.1 to 53.6 and Backlogs from 48.7 to 52.4, the S&P Mfg PMI climbed to a three-year high of 53.3; however, Quantity of Purchases fell for a second month to 50.4, echoing the Philly Fed’s inventory investment weakness
3. Per the Dodge Construction Network, starts were down 10.2% in July, with the 20.4% gain in nonbuilding offset by 30.1% nonresidential and 3.1% residential declines; since peaking in July 2022, the Dodge Index has plateaued, highlighting the lagged impact of Fed policy

QUICK QUILL — The inversion between leading building permits and coincident housing starts which is concentrated in the South eerily echoes 2007. “Bullish” mortgage application data should be faded as continuing claims are creeping higher, just like in 2007. Lack of worker wage and promotion satisfaction adds to the din. The FOMC Minutes’ tilt toward inflation outweighing employment flags a housing sector that’s unlikely to get sizable relief anytime soon.

TAKEAWAYS

1. The Permits-Starts spread fell to -74,000 in July, which would take out Q1 2008’s -39,000 and Q1 2020’s -33,000 of it holds for the rest of Q3; the spread in the South sank to -94,000, which tracks with Homebuilder Sentiment in the region sinking to 29 in July and August, on par with Q3 2007
2. While the MBA’s Mortgage Application Purchase Index has risen this year, due to rising rejections, similar to 2007; just like that year which heralded the GFC, continuing claims have continued to increase, diverging with the uptick in mortgage applications
3. In the NY Fed’s August consumer survey, only 87.1% of those employed four months ago were still employed, the lowest reading since July 2020; similarly, a series low 53.7% reported being satisfied with their current compensation, posing further challenges for the housing sector

QUICK QUILL — Supply chain volatility is cooling. Deflationary supply chain risks are also emanating from: 1) a potential Chinese yuan depreciation and 2) a sharp slowing in Germany’s upstream chemicals sector. Downside surprises in tomorrow’s Germany manufacturing PMI and the Philly Fed manufacturing index should not be ruled out.

TAKEAWAYS

1. The GEP Global Supply Chain Volatility Index fell from -0.17 to -0.35 in July, with U.S. manufacturers driving the decline; China Beige Book registered a similar signal in June, with export orders to the U.S. sinking vs. picking up in Asia and other developed countries
2. The ZEW Germany Business Conditions Index for Chemicals fell from 5.1 to -24.7 in August, with 2025 being the most volatile in the series’ history back to 1991; the sector’s current woes suggest appreciation in the yuan from its current 7.18 exchange rate is unlikely
3. Germany’s PPI is expected to fall 1.4% YoY in July, a 21^st YoY contraction in the last 25 months; with German Mfg Backlogs and Input Prices having multi-year stays in contraction, weakness in Germany flags downside for the chemicals-intensive Philly Fed Mfg Index

QUICK QUILL — A relapse in the New York Fed’s Service Survey introduces the risk of downside in S&P’s Global national read come Thursday. Wage slack and weakening housing in the Northeast pile onto disinflationary pressures being more than just a regional story. Zillow’s nonstop rise in Single-Family Home Inventory for Sale fits with NAHB Present Sales gauge re-retreating to cycle lows. On balance, home sellers will continue to cut asking prices, which will be doubly reinforced by impaired builder profits and homeowner wealth.

TAKEAWAYS

1. NY Fed Services Current Business Activity sank to -11.7 in August from July’s six-month high of -9.3, flagging downside for S&P Global’s national read; Future Wages were below the long-run average for a seventh month, a streak that is the sole preserve of recession
2. The average of NY Fed Services Future Business Climate, Employment, and Capex fell to -7.8 in August, a level consistent with recession; meanwhile, the NAHB’s Homebuilder Sentiment gauge for the Northeast slipped 9 points to 39, its lowest since January 2023
3. NAHB Present Sales sank to 35 in August, matching June’s cycle lows as buyers continue to wait for mortgage rate relief; with Zillow Single-Family Home Inventory For Sale up 20.1% YoY in July, the growing supply and demand imbalance will continue to pressure prices

QUICK QUILL — Despite the rebound in Empire New Orders-Inventories spread, moribund Capacity Utilization and sinking capex plans in the New York Fed District warn disinflationary winds will keep blowing. Conflicts abound on consumers as well, with a recovery in inflation-adjusted Retail Sales on a six-month annualized basis refuted by retreating buying conditions for autos, homes and home durables in the University of Michigan’s initial August print. UMich also noted fresh increases in expectations for a rising unemployment rate and inflation. Despite continued labor demand destruction, Powell should try his best to disabuse talk of a more aggressive path for rate cuts this Friday. Given a light data docket and punk summer trading volumes, last week’s bond market sell-off will be tempered only by weak retailer earnings and an upside surprise in initial jobless claims, which are reported Thursday for the August payrolls survey week.

TAKEAWAYS

1. Capacity Utilization continues to sink from its mid-2022 peak, falling two-tenths to 77.5% in July which is 2.1 points below the long-run average back to 1972; Manufacturing Capacity Utilization fell one-tenth to 76.8% and continues to flag factory sector disinflation
2. The NY Fed Mfg New Orders-Inventories spread jumped 35.4 points in August to 21.8, the third largest gain in data back to 2001; despite the improvement, Future Capex Plans remained challenged, falling -10.1 points to -0.9, the third negative print in four months
3. On a 6MA basis, real Retail Sales ex-food services rose to 4.4%, the highest since December 2024; despite the resilience on display, UMich Probability of Real Income Gains fell to 39.9, while buying conditions for Autos, Household Durables, and Homes all retreated

QUICK QUILL — The PPI for trade services revealed sharp margin expansion in July for wholesalers and retailers – and notably for consumer goods – flipping the script of recent months. This said, capex demand destruction alongside the slump in shipments and labor (read: continuing claims) countered the hot PPI. Upside in UMich consumer expectations would add consumer resilience to the pass-through narrative. If realized, the sell-off in the bond market could extend into week’s end.

TAKEAWAYS

1. PPI Trade Services for Consumer Goods jumped to 4.9% YoY in July, flagging upward pressure on core goods CPI vs. July’s 1.2% print; meanwhile, PPI Trade Services for Private Capital Equipment spiked 14.5% YoY, countering Bloomberg’s Regional Fed Capex gauge
2. The Cass Freight Shipment Volume Index fell 1.7% MoM and is now down -6.9% YoY, continuing its negative YoY streak going back to February 2023; the co-movement with rising YoY continuing claims flags disinflation, running against the hot PPI data
3. The RCM/TIPP Economic Optimism Index rose 4.7% to 50.9, the first optimistic reading in four months; the 13.2% MoM jump in confidence for investors to a 48-month high drove the increase, and rallying equities could drive similar improvements in today’s UMich data

QUICK QUILL — State hiring declines in June were so pervasive they echoed past recessions. To be sure, the layoff breadth is not as widespread as the hiring weakness. But the collapse in the M&A cycle is adding downgrade risks to private demand and bleeding the revenue problem from Main Street to Wall Street. This makes us wonder, is Treasury Secretary Bessent’s call for 150-175 basis points of Fed easing enough?

TAKEAWAYS

1. Forty-one states saw declining Hires in June, an 80% breadth well north of the 45% long-run average that validates the hiring uncertainty picked up in the latest NFIB data; the only other months north of 80% are November 2008, March and April 2020, and June 2024
2. The population-weighted share of states with rising YoY initial claims was 50% in July, an increase from the 15% registered last November; meanwhile, the same gauge for continuing claims came in at 60% in July and has been stuck between 50-80% for the last year
3. Completed M&A deal volume averaged $105.3 billion in Q1 but has since collapsed to a $37.6 billion run rate in Q3, consistent with recession; the decline flags downside risk for real private demand, which has stalled from 2.9% annualized at the end of last year to Q2’s 1.2%