NEW$ & VIEW$ (10 April 2012)

U.S. EMPLOYMENT TRENDS will be a dominant factor for financial markets in coming months. Manufacturing data tend to get a lot of media attention but NBF Financial reminds us that retailing is a much bigger employer. Surprisingly, employment at retail stores has been weak in recent months.

(…) For the first time since August 2009, both the temporary help supply
and retail industries lost jobs during the month. For retailers, this was the second decline in as many months with General Merchandise stores accounted for all virtually all of these losses. These stores, who normally account for 20% of total retail employment, have shed a cumulative 83,000 workers in the last two months. This is unprecedented. This is much more than we would expect at this point in the economic cycle and
all the more curious given that such stores reported peak employment of 3.14 million last January.


Today’s NFIB report adds little comfort to the above since retailers account for nearly 25% of the survey respondents (construction accounts for another 20%):
Storm cloud   Small Business Confidence Drops After 6 Months of Increases

Six monthly gains in the Index of Small Business Optimism were reversed in March, as the index fell almost 2 points to 92.5. Nine of the ten Index components declined, only increasing satisfaction with inventory stocks added one point to the Index computation. It looks like a replay of 2011, a few months look good early on and then it all fades.


The percent of owners reporting hard to fill job openings fell 2 points to 15 percent, the second monthly decline since reaching 18 percent in imageJanuary, the highest reading since June 2008. Hard-to-fill job openings are a strong predictor of the unemployment rate and indicate that the rate is likely to rise, other things equal. This is reinforced by a four month decline in the net percent of owners planning to create new jobs. March’s net 0 reading was 4 points lower than February and 7 points lower than last November. With a net 0 percent planning to create new jobs, it is hard to be optimistic about job growth.

The net percent of all owners (seasonally adjusted) reporting higher
nominal sales over the past three months gained a surprising 8 points,
rising to a net 1 percent. This is the best reading since December 2007, the
peak of the last expansion. The net percent of owners expecting higher real sales lost 4 points, falling to a net 8 percent of all owners (seasonally

Pointing up   It looks like retailers are seeing something negative. Weekly chain store sales have been weakening since Christmas 2011. The YoY change in trailing 4-week sales slumped from +4.3% on Dec.31, 2011 to +2.5% on March 24. The recent rebound may be only due to the earlier Easter this year.




Here’s a very good chart from Reuters. It shows the 3-month moving average of the S&P 500 minus government bonds versus the Citi G10 Economic Surprise Index.  The results show a very tight correlation and a clearly changing trend (Via Pragmatic Capitalism)



Data Raise Hopes for Germany

Exports in January and February grew 2.1% compared with the fourth-quarter average, according to the Federal Statistics Office, or Destasis. While imports in the first two months of the year also outpaced the fourth-quarter average, the increase was only 1.7%. This suggests that, at least according to available data, net trade might have made a positive contribution to gross domestic product in the first quarter of this year.

Germany’s seasonally adjusted trade surplus narrowed in February as imports grew at a faster pace than exports, Destatis reported. Exports rose 1.6% on the month after January’s 3.4% rise, to €91 billion ($119.27 billion), according to calendar-adjusted and seasonally adjusted data. The rise lagged behind the 3.9% monthly rise in imports to €77.4 billion.

German February exports to non-EU countries were 13.4% higher than in February 2011.

Sad smile   Yet, the basic trend is not positive, even more so if U.S. consumption slows down.




Lightning  Spain Vows Reforms as Yields Soar

Spain’s government vowed to stick to its reform agenda as investor concerns over the euro zone’s fourth-largest economy sent government borrowing costs to their highest levels since December.

The yields on Spanish government 10-year bond yields climbed 0.09 percentage point to 5.83%, their highest level since early December.

Lightning   Spanish Home Sales Slump Most in Six Months Amid Recession

The number of transactions fell 31.8 percent from a year earlier, the National Statistics Institute in Madrid said in an e-mailed statement today. That was the most since August, and compares with a decline of 26.3 percent in January.

Crying face   Italian Labor Reforms Fall Short

Prime Minister Mario Monti has ended up having to water down his proposed reform of the notorious Article 18 of the country’s employment rules, which virtually guarantee many employees a job for life. That’s worrying.

Article 18 protects workers in companies with more than 15 employees against dismissal “without just cause” even for economic reasons. Judges can force employers to reinstate workers. Worse, it can take two years or more for a case to be settled. That makes permanent employees almost impossible to fire. The result is a divided market with younger and lower-skilled workers increasingly only offered temporary contracts.

(…) judges will still be able to force companies to rehire workers if the economic reasons are judged “patently unfounded.” That leaves employers facing continued uncertainty, although the reform does still aim to fast-track the process.

Mr. Monti clearly felt the compromise was necessary to secure other vital reforms. Those include apprenticeship contracts to boost incentives to train young people and increased employer contributions for temporary contracts, in an attempt to reduce reliance on them. But if the concession leaves companies still feeling unable to hire and fire employees, a golden opportunity will have been missed.

Storm cloud  French economy grinds to a halt

France’s economy posted no growth in the first quarter and there are no sign of a strong recovery in activity in the coming months, according to a Bank of France survey on Tuesday.

In its monthly report, the Bank of France indicated that the euro zone’s second largest economy avoided a recession, after it grew by 0.2 per cent in the fourth quarter.

However, it said that activity was likely to remain stable in the coming months, a picture confirmed by soft manufacturing data on Tuesday from the INSEE national statistics office. INSEE said that manufacturing output fell by 1.2 per cent in February after slipping a revised 0.1 per cent in January.

Portugal’s Banks Lean on ECB

The dependence of the Portuguese banking system on the ECB rose to a record high in March, as banks took advantage of easier borrowing conditions.

Lightning   Greece Industrial Production Continues to Fall

Industrial production fell 8.3% on the year in February, after declining by a revised 6% in January and a 11.9% drop in December. For the first two months of the year, industrial production fell by an average of 7.2%.

Pre-election threat to stability in Greece
Voters appear set to back small opposition parties


Opinion polls at the weekend showed Pasok and New Democracy would together capture only 40-41 per cent of the vote, well short of the 50 per cent seen as critical for maintaining the reform process. (…)

But the majority of voters appear set to back half-a-dozen small opposition parties that oppose the reform effort, from the Greek Communist party to the far-right Chrysi Avgi (Golden Dawn).


With the electoral system heavily weighted in favour of the front-running party, New Democracy and Pasok could still scrape an overall majority in parliament with about 45 per cent of the vote, according to pollsters.

“There is a lot of volatility in the polls and it’s likely that the mainstream parties will both win back more of their core voters during the course of the campaign,” a senior socialist party member said.

Charts from Bespoke:





China Swings to Trade Surplus

China posted a surprising trade surplus in March after a hefty deficit in February, but weak imports were a primary factor in the turnaround, raising fresh concern over the outlook for the world’s second-largest economy.

China recorded a $5.35 billion trade surplus in March, sharply reversing a $31.48 billion deficit in February.

March imports: +5.3% after +7.7% Jan/Feb. This means two things:

  1. Domestic consumption keeps weakening.
  2. Since much of China’s imports are re-exported in finished products, foreign demand is also weak.

March exports: +8.9% vs +6.9% in Jan/Feb. Looks better until one remembers that exports grew 20.3% for the whole of 2011.

China’s customs agency said that after adjusting for seasonal factors the trend was more pronounced, with exports rising 9.8 per cent in March from a year earlier and imports growing by just 4.6 per cent.

China’s main trading partner is Europe. Good thing the U.S., and Apple, are doing well this year.

In the first three months, exports to Europe dropped 1.8 per cent from a year earlier, while exports to the US, China’s second largest trading partner, grew 12.8 per cent.

I have been saying for some time that China seems to be slowing more than generally though and that the Chinese risk is underappreciated in commodity markets. From the FT:

“The economy is just sucking wind right now,” says one senior Chinese auto industry executive, who asked not to be named because he did not want to damage relations with powerful government officials by talking to the foreign press. “It’s clear there’s a slowdown under way, but whether that gets much worse or not depends on three things – Europe, the [domestic] real estate market and whether the government boosts infrastructure investment again.”


North Sea Oil Shock Keeps Fire Under Brent Price

The gas leak that forced Total to halt oil production at the North Sea’s Elgin field has led to soul-searching that could rein in output at Europe’s biggest oil patch.

Elgin crude accounts for only about 5% of the U.K.’s North Sea production, but it is mixed with oil from other fields to produce Forties crude. Forties is part of the Brent family of crudes, whose prices are used to determine the Brent benchmark, the most widely used oil-price indicator in the world.

Prices for more than half of the world’s oil are set in relation to the cost of physical Brent—sold for delivery to refiners, rather than on the futures market—so when it gets more expensive, the impact echoes widely.(…)

Already, the Elgin leak has cut the supply of crude used to set the benchmark price by three tanker cargoes, totalling 1.8 million barrels, and many more shipments have been delayed.


This Bloomberg chart covers 2000-11. In May 2009, I posted Gold Summer Doldrums which goes back to 1995.



In Europe, Bonds With Banks Fraying

During the first quarter, European companies borrowed more from the bond market than they did from banks, according to Dealogic, a data provider. That is a rare phenomenon in Europe, where banks have long dominated lending.



Brazil Slams U.S. Monetary Policy

Complaints by emerging-market leaders that weak U.S. and European monetary policies are having unwanted side effects in the developing world are taking on new urgency as big emerging-market economies such as Brazil are slowing—dragged down in part by overly strong currencies. Brazil’s economy grew 2.7% in 2011, compared with 7.5% in 2010.


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