The domestic economic momentum continues to recover, and the "secondary inflation" of the United States has arrived?

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来源 | 诺亚配置策略研究

In March, a number of temporary factors subsided (e.g., leap years, concentrated holidays, and Spring Festival dislocation), but the base effect rose, what will be the year-on-year growth rate of industrial added value, total social zero, and exports? What are the characteristics of major types of assets since March? Non-farm payrolls in the United States have greatly exceeded expectations, and the household sector is experiencing a comprehensive recovery in income. At present, corporate earnings and household income maintain a virtuous circle, the current rebound trend of core inflation in the United States will continue, and the current interest rate cut expectations are facing continuous downward revisions. Let's take a look at the interpretations and views of various brokerages on the above issues.

01

CICC: March economic data outlook - economic momentum continues to recover

The month-on-month improvement in manufacturing production accelerated, and non-fundamental factors affected the year-on-year growth rate of industry. On a month-on-month basis, the manufacturing PMI rose to 50.8% in March beyond the season, indicating that the month-on-month improvement in the manufacturing industry has accelerated. However, the subsidence of temporary factors such as leap years, coupled with the increase in the base brought about by the rush to work after the epidemic in the same period last year, may affect the year-on-year growth rate of industrial added value. Judging from the high-frequency operating rate data, the year-on-year growth rate has mostly declined. We expect industrial production to grow by 5% y-o-y in March (7.0% in January-February).

Consumption activities will naturally fall after the holiday, and the high base will drag down the growth rate of the total amount of social zero. Judging from the high-frequency data, after experiencing the concentrated release of consumer demand brought about by the Spring Festival holiday, the consumption activities after the holiday showed a natural downward trend. However, since mid-March, people's travel and consumption activities have stabilized. At the same time, in mid-to-late March, some localities introduced policies to promote the trade-in of consumer goods, providing shopping subsidies for consumer goods such as automobiles and home appliances. According to the China Passenger Car Association, retail sales of passenger cars in the narrow sense are expected to increase by 3.7% year-on-year in March[1]. Considering the high base in the same period last year due to the release of post-epidemic consumer demand, we expect that the growth rate of total social zero in March this year may fall back to about 3.5%, and the corresponding compound growth rate since 2019 is roughly the same as that in January and February.

Infrastructure and manufacturing support fixed asset investment. We expect fixed asset investment to grow by 5.0% in the first quarter (4.2% in January-February). Among them, driven by fundamental factors such as exports and profits, the growth rate of manufacturing investment may still maintain a high growth rate, which may be 9.0% year-on-year (9.4% from January to February). Since March, with the end of the Spring Festival holiday, infrastructure projects have ushered in the resumption of work. At the project level, the new orders index in the PMI of the civil engineering industry fell to 48.6% in March, reflecting that the progress of project reserves in March was not fast. However, the new energy infrastructure sector is booming, and we expect the infrastructure to be about 10% year-on-year in January-March (9.0% in January-February).

In March, real estate sales slowed down, land acquisition shrank, and real estate development investment fell year-on-year. New home sales continued to weaken, with the sales area of 30 cities falling to -47.3% year-on-year from -39.2% in January-February (unchanged from -25% compound growth rate in 2021), and the second-hand housing transaction area in 15 cities slowing down from -9.5% in January-February to -32.2% year-on-year (narrowing slightly from -5.6% to -5.0% compound growth rate in 2021). In February, CICC's prices of second-hand housing in the same comparable stock widened from -11.1% year-on-year to -12.6%. Real estate developers have shrunk the amount of land acquired, and the area of land transactions in 300 cities slowed to -37% year-on-year in March from -7.8% in January-February. Affected by the slowdown in the early stage of construction, construction and completion, real estate development investment may fall from -9% in January-February to -11% in March.

The marginal improvement of external demand, the base factor may lead to a significant year-on-year negative export. From the perspective of marginal changes in demand, overseas manufacturing is still in the process of marginal improvement, except for the euro area, the United States, Japan, and the United Kingdom in March, the preliminary value of Markit manufacturing PMI has further improved. PMI new export orders rose by 5.0 percentage points month-on-month to 51.3% in March, returning to the expansion range on the one hand, and improving month-on-month on the other hand higher than overall new orders. South Korea's average daily exports increased by 9.9% year-on-year in March (8.6% in January-February), imports from China were -8.0% year-on-year (January-February: -11.8%), and Vietnam's exports in March increased by 14.2% year-on-year (January-February: 19.3%). Seasonal factors such as leap years and Spring Festival dislocation, as well as the high base caused by the backlog of orders after the epidemic in the same period last year, may be the main factors for the year-on-year growth rate of exports in March compared with January and February. Overall, we expect exports to be -9.0% y/y in March (7.1% in January-February) and imports to be 3.6% y/y (3.5% in January-February).

There may be changes in the credit structure in March, and the growth rate of social financing is expected to decline slightly. The manufacturing PMI rebounded markedly in March, but construction activity, which is most related to credit demand, was not strong. Judging from the high-frequency data, the interest rate on bills rose briefly at the beginning of the month, but fell in the last week of March, which may mean that banks have increased the amount of bill discounting in the context of insufficient medium and long-term credit in the month. In addition, we expect new trust loans to remain relatively flat in March. Overall, we expect that the new credit in March will be 3.2 trillion yuan, and the new social finance will reach 4.3 trillion yuan, and the growth rate of social finance may decline slightly to 8.7%, and the growth rate of M2 may drop to 8.5%.

After the dislocation of the Spring Festival subsided, the CPI in March may fall from 0.7% to 0.2% year-on-year, and the PPI may slow from -2.7% to -3.0% year-on-year. In terms of CPI, the dislocation disturbance of the Spring Festival was year-on-year from January to February, and the dislocation effect subsided in March. Food prices generally fell after the holiday, and the prices of services such as tourism may fall more than in the past due to the increased representativeness. However, after mid-March, pig prices rebounded in the off-season, and the pig inventory that is about to shrink boosted the pressure and secondary fattening sentiment, and the target for breeding sows this year was lowered to also boost pig price confidence. In terms of PPI, the rise and fall of black and non-ferrous metals, building materials and oil are differentiated, highlighting the recovery and differentiation of domestic and foreign demand, the old economy and the new economy. The price of black series generally fell, after the holiday, the blast furnace started, the output of molten iron is still falling, the price of steel is lower, the price of coking coal has not changed, and the price of building materials continues to fall. The Federal Reserve is expected to cut interest rates, the global manufacturing industry rebounds to boost exports, domestic demand for new energy is still strong, non-ferrous prices are rising, and OPEC+ extends the additional production cut plan, domestic copper smelters jointly reduce production, and supply adjustment is expected to heat up. The headline PPI implied by the PMI was -0.2% QoQ, and we expect the year-on-year decline in PPI to widen.

Combining the production and expenditure approaches, we expect GDP growth to be 5.0-5.5% YoY in the first quarter.

02

GF Securities: Asset characteristics since March

Since March 2024, major asset classes have shown seven characteristics: (1) stocks as a whole are still in the rebound channel since February, with the rhythm of March rising first and then decreasing, with the All-A Index rising by 1.4% on a monthly basis; During the period, the seesaw effect of stocks and bonds has been strengthened. (2) The stock market resources and precious metals sector led the gains, led by nonferrous metals, petroleum and petrochemicals, etc.; the relative absolute returns of dividend assets were adjusted, but there were re-entry characteristics at the end of the month, and the dividend asset correction period in mid-March was synchronized with the shock of 30-year ultra-long bonds. (3) The overall valuation continued to recover, and as of the end of March, about 40% of the industry's P/E ratio was restored to the level at the beginning of the year. In the first quarter of 2024, the P/E valuation of Wind All A (excluding finance, petroleum and petrochemical) is in the range of 13.0%~16.3% of the historical valuation quantile since 2002 and 13.7%~18.8% since 2015. The valuation quantile goes down first and then up, showing a "V-shape". (4) Overseas risk-free yields were roughly flat in March, with equity markets rising, with Japanese stocks leading the rise in March; since April, the expectation of U.S. interest rate cuts has pushed U.S. bond yields upward, and most overseas stock indexes have adjusted. Since March, the volatility of most global stock indices has declined, with the volatility of China-related equity indices falling most significantly. (5) The U.S. dollar index was broadly flat, and the central parity of the RMB exchange rate also remained at around 7.10. (6) Commodity differentiation is obvious. Crude oil, gold, and non-ferrous metals rose significantly, and iron ore, rebar, coke, and coking coal continued to adjust; (7) In March, the transactions of first-hand houses and second-hand houses were all seasonally restored, and the slope rose in late March, but the trend in April remained to be observed. In March, the listing price index of second-hand housing sales continued its downward trend.

From the perspective of the main trading line behind the above-mentioned performance of assets, the major types of assets since March have mainly revolved around four clues: first, the pricing characteristics of overseas "recession" at the beginning of the year have faded, the market's attention to the low inventory cycle, trade repair and manufacturing recovery has risen, and the bulk products with high correlation with emerging industry demand have relatively higher elasticity because of the superposition of financial attributes; Third, the domestic economic data from January to February and the high-frequency data in the first quarter showed that the manufacturing and service consumption were better than expected in the previous period, which supported the risk appetite of the equity market;

03

Tianfeng Securities: The employment report once again confirmed that "U.S. secondary inflation" has arrived

U.S. non-farm payrolls beat expectations by a large margin and maintained a rebound trend, non-cyclical government sector employment maintained steady growth, and cyclical employment remained strong, led by the leisure and hospitality, health care and construction industries. Although the growth rate of hourly earnings has slowed year-on-year, from the perspective of weekly wages, the US residential sector is experiencing a full recovery in income.

The unemployment rate edged down 0.1% to 3.8%, remaining at a historically low level, while the labor force participation rate edged up 0.2% to 62.7%. Although the supply of low-skilled labor has recovered, there is still a significant gap compared to the pre-pandemic level, especially in "core" industries such as healthcare.

The virtuous cycle of corporate profits and household incomes continues. In the context of the overall growth of household wage income and the slow recovery of labor supply, the current rebound trend of core inflation/super-core inflation in the United States may continue, and the strong labor demand and wage growth rate of more than 4% under all calibers have strengthened residents' consumption expectations.

Under the combination of high non-farm growth and rebounding inflation, the Fed "has no need, no space, and no motivation" to make substantive monetary policy adjustments, and the current interest rate cut expectations are facing continuous downward revisions. Considering the recent continued rise in energy prices, if the rapid rise in oil prices leads to the decoupling of inflation expectations, coupled with the strong US economy, the possibility of another interest rate hike by the Fed cannot be ruled out.

First, the high growth of core employment highlights the strength of the economy

The U.S. non-farm payrolls recorded 303,000 in March 2024, significantly higher than the expected 200,000 and higher than the previous reading of 270,000, while the private sector added 232,000 jobs. From the perspective of the three-month monthly average, the new non-farm payrolls further rose to 276,000, and the trend of continuous recovery of the overall new non-farm jobs continued.

The largest contribution continued to come from the "core" employment sectors in the United States: education and health care (88,000) and leisure tourism (49,000), while non-cyclical government employment (71,000) remained stable. In addition, the construction sector added 39,000 jobs, driven by new construction starts and a sharp rebound in building permits. Considering the continuation of the overall slight recovery trend in the U.S. real estate and the approaching cycle of private new housing construction, construction employment is likely to remain high.

Job creation continued to improve in most sectors, but manufacturing job creation remained weak. The number of new jobs in the manufacturing sector in February was further revised down to -10,000 from -4,000 in the previous month, and employment recorded zero growth in March. Recently, the ISM manufacturing PMI index has entered expansion territory again since November 2022, but it will take time for new orders to be transmitted to employment.

The overall reshoring of the manufacturing industry in the United States is still in the upstream (construction) boom stage, and it is still necessary to wait for the transmission to the manufacturing industry (chemicals, machinery and other industries).

The number of job openings in low-skilled industries rebounded significantly, highlighting the strong demand for labor. In particular, the leisure and accommodation industries and the healthcare industry are still facing a shortage of labor, mainly due to the significant decline in the supply of young people with lower educational qualifications by about 1.54 million compared to February 2020.

Recently, there has been a growing debate about the role of immigrants in the recovery of the U.S. labor supply, and we believe that the role of new immigrants in promoting the labor supply balance may be overestimated, mainly due to the 4-6 month lag between immigrants with high willingness to work and convert to the labor force.

It is true that the previous CBO report showed that the total number of immigrants in the United States in 2023 will be about 3.3 million (of which about 2.4 million are "undocumented immigrants"), a significant increase from 2.6 million in 2022 and the pre-pandemic average of 900,000. But more than 50% of those 2.4 million people entering the U.S. occurred after August 2023, and even with the fastest approval speed in history, the number of new labor force released each month would not exceed 300,000.

It is difficult to explain the changes in labor force in a single month after the end of 2024Q2, and we tend to systematically review whether the supply of labor in the United States has been repaired by the supply of new immigrants after the end of 2024Q2.

In addition, as we mentioned in our report, "The Fed's Confidence and Ambivalence," if we include the large increase in immigration over the past two years in our analysis of the U.S. labor market, the number of potential jobs in the U.S. is 160,000-200,000, rather than around 100,000. By this measure, the current U.S. labor market remains strong.

2. Wage stickiness once again strengthens the "secondary inflation"

From the perspective of total salary income, the U.S. resident sector is experiencing a full recovery in income. Although wage growth fell further to 4.1% year-on-year, the upward trend in working hours allowed overall weekly earnings to rebound to more than 4% year-on-year. From the perspective of total salary income in the residential sector, the year-on-year growth rate has further risen to nearly 6%.

We remain firm that "it is unlikely that US wage growth will fall below 4% substantially", and the sharp rebound in the year-on-year wage growth of ADP job-hoppers announced earlier also reflects the current strong labor demand in the US.

Behind the high wage growth rate is the continuation of the virtuous cycle of corporate profits and household income since the epidemic. Considering that the after-tax income of non-financial companies in the United States has rebounded for four consecutive quarters, and the production profit margin has remained at the level of 16% (10.7% in 2020Q1), corporate earnings will continue to support the rebound in the salary income of American residents and avoid the occurrence of major layoffs.

Whether the U.S. labor market can cool down in the short term is still a race between wage growth and labor supply recovery. The rebound in wages (gross household income) in the United States is even better, which will also push up more consumer demand from American residents. In particular, PCE real services consumption in the United States in February was 0.6% month-on-month, the largest growth rate since July 2021, highlighting the strong spending power of the U.S. residential sector.

Therefore, in the context of the overall growth of household wage income and the slow recovery of labor supply, the current rebound trend of core inflation/super-core inflation in the United States will continue, and the strong labor demand and wage growth rate of more than 4% under all calibers have strengthened residents' consumption expectations.

Third, the market expectation is gradually moving closer to "no interest rate cut".

The non-farm payrolls report also reinforces the current resilience of the US economy, although Powell mentioned in the post-March FOMC press conference that strong job growth is not a reason for the Fed to worry about inflation, but the logic chain of "strong jobs-high wages-inflation rebound" still holds.

To be sure, the United States is currently experiencing slow productivity growth, which will hinder the efficiency of wage growth in transmitting to inflation. However, according to the CBO's forecast, there is no match between total factor productivity in the United States and wage growth significantly higher than pre-pandemic levels. We still tend to view the current wage growth as the result of a virtuous cycle of corporate earnings and household wages.

Under the combination of high non-farm growth and rebounding inflation, the Fed "has no need, no space, and no motivation" to make substantive monetary policy adjustments, and the current interest rate cut expectations are facing continuous downward revisions.

Given the recent continued rise in energy prices, we also maintain our previous view that if the rapid rise in oil prices leads to the decoupling of inflation expectations, coupled with the strength of the US economy, we cannot rule out the possibility of another Fed rate hike.

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