Two “Data” items today:
#1: The latest color on Wall Street analysts’ S&P 500 earnings revisions, where the news is quite good:
- As of December 10th (2 Fridays ago), the aggregate of Wall Street analysts’ earnings estimates for the companies of the S&P 500 bubbled up to $51.09/share for Q4 2021 and $52.02/share for Q1 2022. Their estimate for 2022 stood at $222.71.
- Over the course of last week, analysts bumped their estimates higher and now the Q4 estimate is $51.25/share (+0.3 pct from prior). Their estimate for Q1 also increased and is now $52.36/share (+0.7 pct). Their whole-year 2022 estimate now stands at $223.48/share (+0.3 pct).
These increases in estimates are notable for 2 reasons:
- Analysts know the quarter is ending on an uncertain note, but they still feel comfortable taking their numbers higher. We did the sell-side analyst job all through the 1990s and can tell you current-quarter estimates only go up when the Street is as certain as they can be that actual results will be even better than the new (higher) estimate.
- Even at the new estimates for Q4 ($51.25/share) and Q1 ($52.36/share), analysts are still taking a cautious stance because Q3 came in much higher ($53.86/share actual). Yes, Financials will certainly see lower earnings in Q4 than Q3, but US economic growth remains robust so we see little reason for Q4 earnings to not at least match Q3’s results.
Takeaway: earnings surprises have been the driver behind this year’s S&P 500 gains, the one thing that held the market together during periods of pandemic-related uncertainty. This week’s upward revisions should have the same ability to backstop equities as we wrap up the year. The operative word is “should”, of course, and we do expect further volatility this week.
#2: The newest US state level unemployment data is out (for November), and it tells a useful story about the real state of the domestic labor market:
- The US national unemployment rate was 4.2 percent last month. This is also the modal observation when you rank the individual states by joblessness (Oregon is exactly halfway down the list, with a 4.2 percent unemployment rate).
- However, the population of just 5 states make up 37 percent of the US population: California, Texas, Florida, New York, and Pennsylvania.
- Unemployment in these top 5 states is, in every case, higher than the national level: California (6.9 percent, worst of any state), New York (6.6 pct), Pennsylvania (5.7 pct), Texas (5.2 pct) and Florida (4.5 pct).
Why do so many large states continue to have an unemployment problem? One answer continues to be urban unemployment:
- New York City unemployment: 8.0 percent in November
- Los Angeles: 7.1 percent in November
- Houston: 5.4 percent in October (4th largest US city)
- Philadelphia: 7.2 percent in October (6th largest US city)
More broadly, the other important issue is that these 5 states (CA, TX, FL, NY, PA) are falling further behind the national trend to lower unemployment rates. The chart below shows the ratio of state-level unemployment for each to the national level (state unemployment rate divided by the national rate).
While this graph is a bit of an eye chart, here’s what we see:
- Before the pandemic, the 5 systematically important states we’re focused on had unemployment rates that were within 0.9x to 1.2x of the national jobless rate.
- In the first year after the Pandemic Recession (grey bar), there was quite a divergence in how different states’ labor markets performed. Texas (green line) and Florida (purple) fared reasonably well and Pennsylvania (light blue) recovered relatively quickly also (ratios at or below 1.0). NY (dark blue) and CA (red) had a tougher time (ratios +1.3x, or at least 30 percent higher unemployment than the country as a whole).
- But … Since June 2021 (noted on the chart), the ratios of relative state/national unemployment have been rising for all 5 states. New York and California are 60 percent above the national level now, Pennsylvania is at 40 pct over, and Texas/Florida are 20/10 percent above. All are also at multi-month highs.
Takeaway (1): unemployment is falling for all 5 large states, but not at the same pace as the national jobless rate. That is at least in part due to urban unemployment, which remains elevated.
Takeaway (2): the flip side of this coin is that labor markets in the other 45 states are, collectively, doing better than the national data suggests. Labor shortages are real, even here in New York City with its 8.0 percent unemployment, but they are even more acute in the 17 states where the unemployment rate is 3.5 percent or below (link below to see the complete list)
Takeaway (3): since the pandemic invariably hits urban centers harder than the suburbs or rural America in terms of economic impact, national unemployment could rise in Q1 2022 if the latest variant disrupts large cities. In the other 45 states of the union, the labor market might not change very much (at least in the near term).
State-Level unemployment: https://www.bls.gov/web/laus/laumstrk.htm