Three “Data” items today:
#1: US urban center office occupancy. We recently came across a dataset from Kastle Systems, a provider of building access monitoring. When you swipe one of their ID cards to get into your office building or work area, they log that activity. Their customers are in more than 2,600 buildings in 138 cities, so their aggregate data is a reasonable sample of US office space utilization.
Kastle publishes a “Back to work barometer” of office occupancy based on weekly access card scans. Here is the latest data from its top-10 markets for the week ending July 21st:
Most striking to us: occupancy is at +50 percent for the 3 cities in Texas (Austin, Dallas, and Houston) but much lower everywhere else. New York metro at 25% looks accurate to us, based as we are in Manhattan. San Francisco and San Jose at 21 – 24 pct (the lowest occupancy rates here) speaks to the tech industry still working from home. Another chart on the Kastle Barometer website (link below) shows every one of these markets was running +90 percent occupancy in early March 2020, so we clearly have a long way to go.
Takeaway: the data here supports our ongoing concern that US urban unemployment remains a key macroeconomic challenge. People working in offices mean other people working in leisure/hospitality (lunch, after-work drinks and dinner) and personal support services (housekeeping, child and pet care). As we noted last week, unemployment in NYC, LA and Chicago is +9 percent right now. Until more workers return to offices, urban unemployment will likely remain stubbornly high and the national jobless readings will only slowly continue to improve.
#2: Here in America, 2021 is turning into the “year of the Summer road trip vacation”. We have been tracking weekly US gasoline consumption as a measure of leisure travel this summer since, as the data above shows, commutation is clearly not a major factor just now.
Here is the EIA’s latest data, through mid-July. At a 4-week average of 9.5 million barrels/day and final week consumption of 9.3 million barrels/day, we are just 2 percent away from 2019’s levels. That, without the benefit of commuting-related gas consumption, speaks to the strength of the current US summer holiday season.
Takeaway: that bump you see in the blue line on the right side of the chart marks the start of post-July 4th period in 2021 and is remarkable when compared to the leftmost part of the brown line (2019). Even with millions of Americans forgoing their typical 30-mile daily commute, US gas consumption is very close to 2019 levels.
#3: There’s an old saying that “the stock market is not the economy”, and that sentiment carries outsized importance when looking at the Chinese equity market just now. Three points on this, using the MSCI China Index (as tracked by the MCHI ETF):
First, even after the recent selloff, Tencent and Alibaba are still 26 percent of MSCI China (13.3 and 12.9 percent, respectively). That is greater than the combined weightings of Apple, Microsoft, Amazon, Google and Facebook in the S&P 500 (23 pct). Alibaba and Tencent are at the epicenter of the Chinese government’s recent Big Tech crackdown.
Second, consumer services platform company Meituan is 3.9 percent of MSCI China, basically the same weighting as Google in the S&P 500 (4.3 pct). Its offerings run the gamut from food delivery to travel booking and movie tickets. It has also been in the regulatory crosshairs of late.
Lastly, other companies either facing direct or implicit regulatory scrutiny include: JD (2.1 pct weight), Baidu (1.6 pct), and Pinduoduo (1.4 pct). That’s another 5.1 percent of the MSCI China Index.
These 6 companies make up just over a third (35 percent) of MSCI China, so there’s clearly still a lot of regulatory risk here but there are other issues to consider. Over the last few weeks there have been reports that Chinese regulators are considering tightening the rules around VIEs (Variable Interest Entities). This offshore structure allows Chinese companies to go public overseas (such as in the US). Alibaba and Didi Chuxing used this approach for their listings, for example. Regulators are considering requiring companies who plan to list outside China to receive prior approval for VIEs. Also, companies with existing VIEs may need to seek approval before issuing additional shares. All this would limit Chinese companies’ access to international capital.
Takeaway: the Chinese government knows the stock market is not the economy, but it also knows that the stock market can create social and economic outcomes that are at odds with its long run goals. It is trying to address that imbalance now and it is certainly powerful enough to do so. The MSCI China Index is so overexposed to this effort that there is no fundamental way to call a bottom for the country’s equity markets. The MSCI Emerging Markets Index, 35 percent weighted to China and 13 pct to the names mentioned above, is in a similar if less-leaky boat. We continue to recommend under/no weighting in either.
Kastle Systems Occupancy Data: https://www.kastle.com/safety-wellness/getting-america-back-to-work/