PRETTY GOOD JOB REPORT OVERALL
Tepid Job Growth Fuels Worry U.S. employers closed out 2012 by maintaining the relatively slow pace of job creation, adding 155,000 to payrolls while brushing off the threat of higher taxes and spending cuts.
Employers added 155,000 jobs in December, in line with the average gains of 2011 and 2012. The unemployment rate, which is derived from a separate survey of households, sat at 7.8%, with the labor force rebounding from a drop tied to superstorm Sandy a month earlier. (…)
The private sector added about 1.9 million jobs in 2012, while the loss of 63,000 government jobs over 12 months marked the fourth year of public-sector job cuts.
Friday’s jobs report showed gains across most sectors in December, with the private sector adding 168,00 jobs, offset by a loss of 13,000 government jobs.
More than 200,000 full-time jobs were added in December according to the household survey. This brings the total to just over 2 million full-time positions in 2012, the best showing since 2006. As today’s Hot Chart shows, full-time employment is still 4% below its pre-recession peak
but it is catching up. This is important because the current mix of employment creation provides a much greater contribution to the growth in personal income. Full-time employment is also key for a rise
in homeownership and an uptrend in home prices in 2013.
Employment in the more cyclical construction (up 30,000) and manufacturing (up 25,000) sectors were higher on the month while employment in the retail sector declined by 11,000. Employment growth in the non-cyclical education and health services grew 65,000.
These are pretty well balanced and momentum building trends as higher paying jobs are growing faster than lesser paying ones. Over the past 3 months, construction employment gains have averaged +15k. ISI says that housing starts tend to lead residential construction employment by 1 year, suggesting at least residential construction employment should now be in a rising trend. And, according to ISI’s Stephen East, there is a 3x multiplier with residential construction jobs. (Chart from AAR)
Importantly, gains in average hourly earnings (+0.3% M/M) and the workweek (up 0.1 to 34.5) are encouraging signs that the labor market more broadly is firmly in recovery mode. Aggregate hours were up 0.4% M/M and 2% Y/Y. They rose an annualized 1.5% Q/Q in Q4 (up from 1.0% in Q3) and the payroll proxy of income was up 3.5%, up from 2.8%.
In all, employment income is accelerating with apparent momentum at its base. This should help offset some of the impact the fiscal cliff deal will have on consumers disposable income in Q1.
Canada added almost eight times more jobs than expected in December, driving the unemployment rate down unexpectedly to a four-year low.
A total of 39,800 net new jobs were created–all full-time and primarily in the private sector–marking the fourth outsized gain in five months, including 59,300 in November, Statistics Canada said Friday. The jobless rate dropped to 7.1% from 7.2%, the lowest since the 6.8% posted in December 2008.
Why the new $450,000 income threshold is a political fiction.
(…) The revival of two dormant provisions of the tax code means the much ballyhooed $450,000 income threshold for the highest tax rate is largely fake.
The two provisions are the infamous PEP and Pease, which aficionados of stealth tax increases will recognize immediately as relics of the 1990 tax increase. Those measures, which limit deductions and exemptions for higher-income taxpayers, expired in 2010. The Obama tax bill revived them this week. It isn’t going to be pretty.
Under the new law, some of the steepest tax increases may fall on upper-middle class earners with incomes just above $250,000. Here’s why:
During the negotiations, the White House won a concession from Republicans to allow phase outs for personal exemptions and limitations on itemized deductions, starting at an income of $250,000 for individuals and $300,000 for joint filers.
The Senate Finance Committee informs us that in effect the loss of the personal exemptions, currently $3,800 per family member, can mean a 4.4 percentage point rise in the marginal tax rate for a married couple with two kids and incomes above $250,000. A family with four kids in that income range faces about a six percentage point marginal rate hike. The restored limitations on itemized deductions can raise the tax rate by another one percentage point.
High-income Americans with incomes of more than $1 million may lose up to 80% of their itemized deductions for home mortgage payments, health care, state and local taxes—and charities. Cue the local symphony’s development office.
Add it together and families in the 33% tax bracket could see their effective marginal rate paid on each additional dollar earned rise to above 38%.
A store manager married to a dentist with a combined income of, say, $350,000 may pay a higher tax rate under the new law than if the tax code had simply reverted back to the Clinton-era rates that Mr. Obama championed. Those earning more than $450,000 would see their de facto tax rate rise to about 41% under the new law, not 39.6%. Add in the new ObamaCare investment taxes and the tax rate on interest income is close to 45%.
How did this happen? Recall that early in the fiscal-cliff negotiations House Speaker John Boehner offered to cap itemized deductions to raise $800 billion, in lieu of raising tax rates, if the President would agree to spending cuts. The White House rejected that.
Mr. Obama then insisted on reviving PEP and Pease, thereby recapturing much of the income he claimed to be “compromising” away by agreeing to a higher income threshold for the top bracket. But instead of using phase outs to offset higher rates as Mitt Romney proposed, Mr. Obama insisted on raising tax rates too.
Democrats are advertising the higher $400,000-$450,000 threshold as a victory for affluent taxpayers in blue states. But with PEP and Pease these Democrats are hammering their own constituents via the backdoor.
Taxpayers in blue states claim roughly twice as much in itemized deductions as those in red states. Income tax rates are steeper in California and New York than Texas and Utah. Chuck Schumer just put a tax bull’s-eye on upper-income Manhattanites, and Barbara Boxer whacked Silicon Valley. Some $150 billion, about one-quarter of all the money raised by this tax bill, will come from this stealth tax hike.
Mr. Obama purports this is merely “a return to the Clinton-era tax rates.” But capital-gains rates will be about three to five percentage points higher than in the 1990s, the Medicare tax is higher, and his stealth tax will raise personal rates higher than advertised. Forget the golden Clinton memories. Mr. Obama is pushing the U.S. back to the Carter era.
U.S. RAIL STATS TRENDING UP
The amount of occupied office space grew by 3.7 million square feet in the quarter, nudging down the vacancy rate 0.1 percentage point to end the year at 17.1%, according to real-estate research firm Reis Inc. Asking rents rose to an average $28.46 per square foot, up 0.8% for the quarter and 1.8% for the year, said Reis, which surveys 79 metropolitan areas. (…)
The office market has generally tracked growth in the labor force, which added 155,000 jobs in December, the Labor Department reported Friday. “Until that starts to escalate a little more, we’re probably going to see more of the same,” said Ryan Severino, an economist at Reis.
December sales of new cars, trucks and buses in Japan were off 3.4% from a year earlier, the fourth consecutive down month, as the end of the government’s buying incentives reduced demand for fuel-efficient cars.
For 2012 as a whole, sales were up 26% to 3.39 million vehicles—marking the first increase in two years, as the government’s subsidies for purchases of fuel-efficient vehicles helped spark sales before ending in September.
Financial results, which begin after the market closes on Tuesday with aluminum company Alcoa, are expected to be only slightly better than the third-quarter’s lackluster results. As a warning sign, analyst current estimates are down sharply from what they were in October. (…)
In the most recent earnings conference calls, macroeconomic worries were cited by 10 companies while the U.S. “fiscal cliff” was cited by at least nine as reasons for their earnings warnings.
Negative-to-positive guidance by S&P 500 companies for the fourth quarter was 3.6 to 1, the second worst since the third quarter of 2001, according to Thomson Reuters data. (…)
On Friday, the company reiterated its goal that through 2014, annual revenue will be at least $20 billion, with net income of at least $3 billion and operating cash flow of at least $4 billion. After 2014, the company expects to return to more sustainable financial growth, thanks to expected new-product launches.
Lilly reiterated its previous forecast of full-year 2012 earnings of $3.68 to $3.78 a share, or $3.30 to $3.40 a share excluding certain items, on revenue of $21.8 billion to $22.8 billion. (…)
For 2013, Lilly expects full-year earnings of $4.03 to $4.18 a share, or $3.75 to $3.90 a share excluding the impact of income associated with the termination of a diabetes-drug partnership with Amylin Pharmaceuticals(…). The 2013 forecast excludes the one-time impact associated with 2012 that will be recorded this year from the fiscal-cliff legislation.
Lilly’s 2013 profit forecast is better than Wall Street expectations, while the revenue view is generally in line. For 2012, the mean Lilly earnings estimate of analysts surveyed by Thomson Reuters was $3.36 a share, excluding one-time items, rising about 10% to $3.71 a share for 2013.
From the WSJ:
On Thursday, seven retailers provided quarterly earnings guidance below expectations, while only two offered brighter prospects, according to research firm Retail Metrics. “This suggests some of the sales may have come at the expense of some margin,” Retail Metrics President Ken Perkins said.
Target was one of the retailers that gave a disappointing outlook, saying it sees fourth-quarter earnings only meeting or somewhat exceeding the low end of its expectations.
“December sales were slightly below our expectations, as strong results late in the month did not completely offset softness in the first three weeks,” Target Chief Executive Gregg Steinhafel said. Target reported flat same-store sales when a 0.8% rise was expected.
Macy’s, meanwhile, said same-store sales rose 4.1% in December, just past expectations for 4% growth, but the retailer still lowered its fourth-quarter guidance.
Kohl’s Corp. KSS -0.28% posted a 3.4% gain in same-store sales, when a 1.2% increase was expected. But the department-store chain said it was disappointed with results for the month and slashed its guidance for the fourth quarter, which closes at the end of January. Kohl’s now expects earnings per share of $1.60 to $1.62, compared with previous guidance of $2 to $2.08 a share.
“December sales were lower than planned,” Kohl’s Chief Executive Kevin Mansell said. “Additionally, sales came late in the holiday shopping season and, as a result, were at deeper discounts than planned. We are taking the necessary markdowns in the fourth quarter to manage our inventory as we transition into the spring season.”
Gap reported December same-store sales rose 5%, while analysts expected a 3.5% increase. (…)
High-end department store Nordstrom also had a strong December, reporting an 8.6% increase in same-store sales, when a 3.4% rise was expected. Same-store sales at full-line stores combined with online rose 8.2%, while the Nordstrom Rack outlet posted an 8.1% increase.
Costco remained a standout, posting a gain of 8% in U.S. same-store sales not counting gasoline; analysts expected a 5.3% rise. The warehouse club said its sales for the month benefited by about 2% from an extra selling day because of the timing of the New Year’s holiday. Stores also were busier, with comparable traffic frequency posting a gain of slightly more than 5%.
Limited Brands, operator of Victoria’s Secret and Bath & Body Works, reported a rare miss, posting a same-store sales increase of 3%, when a 4.5% rise was expected.
Flat results at Victoria’s Secret offset 7% growth at Bath & Body Works. While the company said merchandise margins rose from a year earlier, the increase was “below expectations.”
China’s CSI 300 Index (SHSZ300) entered a bull market after rallying 20 percent from its 2012 low amid signs of an economic recovery in the world’s second-largest economy.
The gauge tracking 300 yuan-denominated A shares traded in Shanghai and Shenzhen gained 0.5 percent to 2,535.99 at the close, led by health-care and financial companies. The CSI 300 rebounded 20 percent since hitting a near four-year low on Dec. 3, while the Shanghai Composite Index climbed 17 percent.
Remember my Nov. 29 New$ & View$ comment on the Chinese market (Capitulation?)?
Bank shares rallied in an otherwise lower European market, after global banking regulators relaxed rules on Europe’s largest lenders.
Global banking regulators watered down an element of their plan for creating a safer financial system, giving ground to banks that argued the plans were unworkable and financially risky.
(…) Bowing to two years of intense pressure from the banking industry, the regulators made it easier for banks to meet the rule, known as the “liquidity coverage ratio,” and delayed its full implementation until 2019. (…)
The so-called Basel III accord, known for the Swiss city in which it has historically been negotiated, required banks to greatly thicken their capital cushions and come up with trillions of dollars of liquidity. The banking industry argued that the changes were overkill and would prompt them to dramatically reduce lending. Regulators ultimately accepted some of those arguments, and agreed to delay or ease key elements of the rules.
Meanwhile, questions are mounting in some countries, including the U.S., over whether the package will be implemented at all. It is up to individual countries to decide how to apply the rules to their financial institutions.
This is big (re: the U.S. manufacturing renaissance)
The CEO of Flextronics International Ltd, a Singapore-based company that helped hundreds of firms move manufacturing of electronic parts and products to Asia, says it is getting “easier to justify” production in the U.S.
The difference in labor costs is narrowing and local officials in America have been giving more financial incentives to companies setting up plants in the U.S., Mike McNamara, chief executive of Flextronics, said in an interview Friday. Mr. McNamara said he could even imagine some smartphones being made in the U.S. eventually. But he cautioned that the return of manufacturing to the U.S. is likely to be a “slow and evolving process” rather than a flood. Many obstacles remain, including relatively high U.S. taxes, health-care expenses and regulatory costs, he said. (…)
While wage costs in the U.S. have been about flat in recent years, they have been rising 20% a year in China, a trend Mr. McNamara expects to continue for at least five years. He said labor costs for Flextronics rose about 30% last year in Malaysia and 40% in Indonesia.