Copper prices are often said to reflect the health of the global economy, hence the moniker “Dr. Copper.” Between January 15, 2016, and December 28, 2017, copper prices rose by 72% as China’s pace of growth picked up and emerging-market nations such as Brazil and Russia began to recover from recession while the rest of the global economy boomed. This year, however, copper prices are about 5% off last year’s highs and copper options appear more concerned with downside risks than higher prices. Here’s a look at copper’s demand and supply, and possible trajectory.
Off The Charts! examines the pertinent economic issues of the day, providing a deeper dive into complex topics and framing the issues in a way that can lead to a better understanding of the financial and commodities markets.
The stock market is caught in the middle of the escalating trade skirmish between the U.S. and China, one of several phase transitions adding to volatility.
The February jobs report was a killer: 313,000 new jobs were created, with an additional 54,000 in upward revisions. Average hourly earnings growth, however, was much less impressive, growing only 2.6% YoY and just 0.4% after factoring for inflation. So, despite the unemployment rate holding at 4.1%, companies are hiring briskly but wage growth is mysteriously absent. Looking ahead to the March employment report due on Friday, April 6, there are number of items to look for:
1) Total Labor Income: A Holistic Look at Labor Markets
The Bureau of Labor Statistics (BLS) reports labor market data in a fairly atomistic fashion. Unemployment is calculated from a household survey. The number of jobs created is presented as a month-on-month change from a survey of establishments. Average hourly earnings are usually presented as a year-on-year change. The number of hours worked are a monthly series and remains largely overlooked.
When we evaluate the March 2018 data (or any other employment report), we prefer to standardize these measures by looking at the change in non-farm payrolls and number of hours worked as a year-on-year percentage change. This way it lines up with the percentage change in average hourly earnings. More importantly, it allows us to calculate total labor income, which is the total number of people working multiplied by the average number of hours multiplied by their average hourly earnings.
Total Labor Income = Number of Workers X Average Hours Worked X Average Hourly Earnings
This is a much more comprehensive view of labor market conditions than looking at non-farm payroll data by itself and obsessing over whether it was a few tens of thousands of jobs more or less than expected in an economy that employs over 148 million people. Figure 1 shows that the growth in total labor income looks like overtime as well as the growth in its individual components. Basically, since 2010, its been growing very consistently at around 4%. In the past several months it’s been slightly but not alarmingly above that trend at around +4.4% year on year.
As the labor market has tightened, a few subtle shifts have happened within the labor market. Despite February’s strong employment gains, overall, the pace of hiring has slowed moderately. In 2014, the total number of people working grew by 2.2%. In recent months that growth rate has come down to around 1.4-1.6%. As the labor market has tightened growth, average hourly earnings have perked up but again, not by much. From 2010 until 2015 they rose at around 2% per year. Starting early 2016 they accelerated to around 2.6% year on year. They remain well below the 3.0-3.5% pre-crisis pace.