NEW$ & VIEW$ (15 MARCH 2013)

Employment. Deleveraging. Beware the retail sales numbers. Housing watch. Europe turning pro-growth. China labor costs. Sentiment watch.

Layoffs Drop, but Hiring Still Languishes  Pushing businesses to add new staff positions may be a bigger challenge for the Fed than creating financial conditions that stop layoffs.

The Labor Department said Thursday that new filings for jobless benefits last week unexpectedly dropped 10,000 to 332,000, the fourth drop in five weeks. The four-week moving average, which smooths out volatility, is at its lowest level in five years.

The claims drop follows other layoff news in this week’s job openings and labor turnover summary. The Jolts report showed layoffs and other discharges in January were at their lowest readings since Labor started tracking the data in 2000.

Americans’ Debt Payments Hit Three-Decade Low

U.S. households spent 10.4% of their after-tax income on debt payments in the final three months of 2012 compared with 10.6% a quarter earlier, the 15th straight decrease and the lowest level since government tracking started in 1980, according to recently released Federal Reserve figures. Families’ debt obligations are well below their average since 1980 of 11.9%. If you include other payments that aren’t classified as debt — like rent and auto leases — the figure rises to 15.5%, but that’s still the lowest since 1981.


Last Tuesday, posting on the weekly chain store data, I warned that even though sales were hanging in sequentially, the Y/Y trend was very weak due to the strong 2012 base:

Weekly chain store sales have increased in each of the last 4 weeks after their 6-week collapse early this year. The Y/Y growth rate keeps falling, however, due to the strong 2012 base. Retailers are likely to report pretty weak results for Q1 but the weekly trends are suggesting that American consumption is not collapsing.

The monthly retail sales data released Wednesday have a similar complexion as Moody’s explains:

The meaning of February’s 1.1% monthly jump by seasonally-adjusted retail sales was brought into question by unadjusted retail sales’ meager 1.2% increase rise from February 2012. For January-February 2013, seasonally-adjusted retail sales grew by a very lively 6.1% annualized from November-December 2012, but rose by a lackluster 3.6% from January-February 2012 before seasonal adjustment.


Pointing up  The oft-cited leaked e-mail from an executive at a leading discount chain that warned of especially weak February sales was hardly baseless. February’s nasty -4.7% yearly drop by general merchandise store sales included sales setbacks of an excruciatingly deep -7.8% for department stores and of -3.5% for general merchandise stores excluding department stores, where the latter includes the major discount chains.

Remember that public companies report Y/Y. Mmmm…Good thing we’re having an early Easter.


Spring Home Buying Season Starts Early According to®’s February Trend Data

(…) The median age of inventory was down by 9.26 percent month over month and total listings are up 1.15 percent month over month, suggesting that many reluctant home sellers are starting to take an early advantage of the recent improvements in housing prices. Annual inventory decreases of -15.97 percent are consistent with a gradual, yet persistent downward trend that has been occurring over the last two years. (…)

There continue to be pronounced regional differences in the strength of the housing market. Several areas in California are experiencing the highest increases in list prices coupled with the largest inventory declines. Phoenix, Seattle and Denver are also among the top performers across the U.S. However, many smaller industrialized markets in the Midwest and the Northeast registered year-over-year price declines, as did Philadelphia, Chicago and New York City. While the number of markets experiencing year-over-year list price declines had been increasing, this pattern appears to be turning around as home list prices increased in 78 markets last month on a year-over-year basis and declined in 39. (…)


European Union leaders endorsed “structural” budgetary assessments, using code for granting countries such as France, Spain and Portugal extra time to bring down deficits. (…)

European leaders are cloaking the easing up on the fiscal reins in language designed to reassure investors who have driven bond yields lower since mid-2012. They labelled the policy “differentiated growth-friendly fiscal consolidation,” with deficit targets set on a country-by-country basis.

“I can offer no solutions. I can say that this question is a part of our discussions, and we are conscious about this problem,” he said. (…)

“There should be a certain intellectual and practical flexibility.” (…)

German officials have backed the commission’s approach, indicating that the Berlin leadership is sensitive to criticisms that budget cutting has gone too far. A “pro-growth” bias may even play to Merkel’s advantage, enabling her to siphon votes away from the opposition Social Democrats— and potentially forge a coalition with them if dictated by the election outcome in September.

High five  ECB Holds Back on Stimulus Possibility

While the extra liquidity offered by the ECB in the past year has eased banks’ funding constraints, many small and medium-size companies still face funding difficulties, especially in the countries hit hardest by the debt crisis, Bank of Finland Governor and ECB Governing Council member Erkki Liikanen said in a press briefing in Helsinki.

Remember this chart in the Feb. 28 New$ & View$?


My comments then:

Credit is the lifeblood of an economy. While U.S. bank loans have turned Y/Y positive in early 2011, Eurozone loans are showing little vital signs if any. France economy is turning for the worse, Spain in nowhere near water level and Italy can only sink further with its messy politics. Germany can only weaken with such weak “partners”. Meanwhile, lending standards are tightening!

And this from ZeroHedge:

The Chart That Draghi Should Be Worried About

Given the increasingly tight coupling between European financials and their domestic sovereign credit – thanks to OMT promises and LTRO funding – one could be forgiven for thinking that the most important thing to watch in Europe is the financials. Indeed, year-to-date, European financial stocks have surged over 7% (driven mostly by a global pump in the first few days of January) while at the same time, European senior financial credits (the other ‘safer’ end of the spectrum in terms of capital structure support from stocks) are 1bps wider on the year… we suggest Mr. Draghi quickly come up with another solution to save the banks (cough Commerzbank cough) before stock markets catch on.

2013 has been a year of concern for European financials among credit traders – but the central bank spice must flow and equities ignored such silliness (for now)…

Prodi Says Europe Hurt by Too Much Austerity Amid Very High Euro

“The euro has a very high rate of exchange,” Prodi, a former European Commission president, said in an interview with Sara Eisen airing on Bloomberg Television today. “I do think that it’s stronger than needed.”

China Labors On  China’s job markets are heating up. Strong demand for labor show factories are humming, but rising wages are a reminder that China can no longer count on a growing workforce to buoy growth.


(…) Online recruitment firm reports that 62.4% of the 24,254 firms it surveyed in the first quarter planned to increase recruitment compared with a year earlier. Human-resources consultancy Manpower’s survey of 4,200 firms also found that hiring intentions had strengthened.

Strong demand for workers is pushing wages up. A survey of more than 300 factories in the Pearl River Delta by Standard Chartered found an average increase of 9.2% in 2013, after 7.6% in 2012. The head of the recruitment website at, an online advertising portal, says the going rate for a waitress in Beijing has risen to 3,000 yuan ($482) a month in 2013, up from 2,000 yuan in 2012. (…)

The World Bank estimates China’s labor productivity growth at about 8.3% a year – broadly in line with wage increases. Standard Chartered’s survey found that for the majority of factories, productivity gains were outpacing increases in wages. (…)


JPMorgan Sees Home Prices Up 14% as BofA Touts Party

JPMorgan Chase & Co. more than doubled its forecast for U.S. home price gains in 2013 to 7 percent this week, and predicts a more than 14 percent increase through 2015. Bank of America Corp. said last week property values will jump 8 percent this year, up from a prior estimate of 4.7 percent in a report titled “Someone say house party?” (…)

“We believe a positive feedback loop has begun, where the rise in home prices fuels expectations of further appreciation and easing credit conditions, which in turn stimulates homebuying,” they said. “It is a powerful positive relationship especially in this environment of historically low interest rates and a Federal Reserve determined to keep policy accommodative.”


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