How bad is it? Global negative surprises. Some positives. China also so-so, not so Europe. Copper.
HOW BAD IS IT?
Employers slammed on the brakes in March, keeping the recovery from shifting to a higher gear despite a mending housing market and steady consumer and business spending.
The March reading stirred some fears of yet another “springtime swoon” for the labor market. In recent years, hiring has started the year strong, only to wilt as the weather warmed.
Friday’s report underscored this point, as the government revised up its estimates for January and February by a combined 61,000 jobs. Even with those revisions, however, job growth started 2013 weaker than in the same period a year ago, suggesting the pace of hiring was trending down before March.
Silver linings in the details were scant, beyond higher estimates for January and February’s tallies. Employers took on 20,000 temporary workers in March, often seen as a hiring bellwether. The construction sector added 18,000 jobs, reflecting the housing market’s healing, but well below the nearly 50,000 added the month before. Governments shed 7,000 jobs in March.
Jobs Report Hits Fed in the Jawbone The weak jobs numbers have put Federal Reserve officials back in wait-and-see mode.
(…) There’s reason to think the job market is in better shape than the report showed: The weakness may merely be a payback for February’s strong jobs count, which the Labor Department revised up by 32,000, to 268,000. A more wintry March than the U.S. has seen in recent years also may have pushed back some seasonal hiring. And given the employment report’s standard error of plus or minus 90,000 jobs, the three-month average gain of 168,000 might be a better reflection of what’s going on.
Doug Short did the work on revisions for us:
My approach is to take the employment numbers since January 2000 and plot the change from the first to third estimate for each month through January 2013, the most recent month for which we have three estimates.
During this timeframe there were 91 upward revisions and 63 downward revisions. The absolute mean (average) revision was 46 thousand, which breaks down as 48K for the upward adjustments and 44K for the downward adjustments.
Revisions remain generally positive, a good thing. Still, the 131k drop in the 3ms m.a. is significant. In April 2012, the 199k drop in the m.a. continued into a 463k loss through June.
What is also disturbing is that household employment has flattened out in the last 6 months while payroll employment kept rising. How will they meet next?
Hint: the NFP surveys were conducted in mid-March. Weekly unemployment claims rose in late March. To be closely monitored.
For every new job in March, five Americans left the labor market.
(…) The share of the population that’s either working or looking for work, a metric known as the participation rate, fell to 63.3% in March, its lowest level since 1979. Nearly half a million Americans dropped out of the labor force in March, the biggest one-month decline since December 2009.(…)
March’s labor force decline was concentrated not among retirement-age baby boomers but among those under age 25, who accounted for nearly half of all drop-outs. The participation rate among those under 25 has fallen below 55%, from just under 60% when the recession began. That reflects to some degree the long-run increase in college attendance, but the big one-month drop also suggests young people are struggling to find work in the still-shaky economy.
Among those in the middle of their working lives, the downward trend is milder but still unmistakable. The participation rate for so-called prime-age workers—those between 25 and 54—was 81.1% in March, the lowest level since 1984. There is no benign explanation for that decline: The number of prime-age workers counted as “unemployed” has fallen by 731,000 in the past year, but just 166,000 of those workers found jobs; the rest simply gave up looking. (Chart from IBD)
Politicians and economists often forget this is not a board game. Economic decisions have real meanings. If you raise payroll taxes, it will have two consequences:
- People will spend less.
- Employers will hire less.
Tack on to that ObamaCare’s incentives for employers to reduce staff count below 50, cut working hours and increase temps and you eventually get a nasty real world impact.
- The 24k drop in retail workers in March reflects the big slowdown in sales, in spite of an early Easter:
- The 20k gain in temp workers may not be the usual positive bellwether.
- The decline in the labor force is extraordinary and not simply explained by demographics:
Has the great American work ethic suddenly vanished? Doubtful. A more likely explanation for the shrinking workforce is a failing education system that doesn’t give young adults the skills they need to compete in the information economy.
Another probable culprit is the rapid expansion of government payments—jobless insurance, food stamps, Medicaid, disability and various tax credits—that provide millions with an alternative income to getting a job. Research by Casey Mulligan of the University of Chicago and others shows that the generosity of federal benefit programs means that workers face very steep financial disincentives to take a low-wage job. The benefits phase out as they begin to work. (WSJ:Making Work Not Pay)
Regarding education, the March survey of National Federation of Independent Business revealed that
Forty-seven percent of the owners hired or tried to hire in the last three months and 36 percent (77 percent of those trying to hire or hiring) reported few or no qualified applicants for open positions.
The NFIB continues:
Job creation plans fell 4 points to a net 0 percent planning to increase total employment, a disappointing outcome. Not seasonally adjusted, 15 percent plan to increase employment at their firm (down 2 points), and 5 percent plan reductions (down 2 points), a bit of frost on the “green shoots” that appeared to be emerging in the first quarter. Owners are still pessimistic and see little reason to hire.
And we have not seen much effect from the sequester, yet.
The sequester could take some time to show up in official data. The sweeping furloughs set to start in coming weeks will take a bite out of government workers’ paychecks, and most likely out of their consumer spending, but most of those jobs won’t disappear. The budget cuts would need to remain in place for months before more agencies start to shed jobs outright.(…)
In March, the federal government’s civilian workforce fell by just 2,000, apart from almost 12,000 cuts at the U.S. Postal Service. (…)
State and local governments get about a quarter of their funding from Washington. But the budget cuts don’t appear to have hit them hard in March, either. State-government jobs rose by 9,000 to 5.1 million, the second straight monthly increase. Local-government employment dipped by just 2,000 jobs, sitting around 14 million. (WSJ)
Meanwhile, weekly hours are rising at a snail’s pace and hourly earnings are not keeping pace with inflation.
Consumer Credit Jumps on Student, Auto Loans
The month’s gain was largely due to a $17.6 billion increase in nonrevolving credit, which includes student loans and auto financing. Revolving credit, which mainly consists of credit-card debt, increased $532.82 billion in February to about $848 billion outstanding.
On the other hand…NBF economists keep their faith:
In our view, some of the softness was certainly attributable to unusually harsh weather. As today’s Hot Chart shows, agricultural employment slumped 64,000, the worst showing for a month of March in three years. Also, retail employment at building materials & garden supply stores fell 10,000 (the worst in three years) while that at clothing stores plummeted 15,300 (biggest drop since the recession). We expect the situation to improve in those industries as temperature returns to more normal patterns.
The authoritative Browning Newsletter cools any excessive weather enthusiasm, however:
For most of 2013, the dominant factor shaping the weather has been the Arctic Oscillation, the winds that circle the northern latitudes. Last year the AO was extremely positive, which meant that it trapped the cold polar winds north and relatively few escaped and chilled the middle latitudes.
This year, the AO was negative during a couple of weeks in December, positive during most of January and February and negative in March. During the last two weeks of March, it turned sharply negative. What this meant in North America is that December had some storms, January and February were warmer than average and March has been a beast. Cold Arctic winds poured through most of the US east of the Mississippi.
Reminder: the NFP surveys were conducted in mid-March.
Here’s the weather forecast:
Meteorologists are already predicting an unusually stormy springtime, pounding the Gulf in April and moving up the Eastern Plains to the Midwest and Great Lakes in May and June.
Housing is better but exports are flattening. Anybody surprised?
NEGATIVE SURPRISES ARE GLOBAL
Ineichen Research and Management AG
Of 15 PMI readings in March, 8 were below 50 vs 7 in Jan-Feb. The U.S. manufacturing ISM dropped from 54.2 to 51.3. The non-manufacturing index declined from 56.0 to 54.4.
- The BOJ announced “all the policy measures imaginable”, to be tacked on top of all other QEs of the world. ISI calculates that “the combined balance sheets of the Fed/BoJ will increase +$160b per month, or +$40b per week, or at almost a +$2t a.r. This is so hard to fathom that it’s unlikely market participants have fully digested it. And other central banks are likely to join in.”
- Ward’s said that U.S. vehicle production is scheduled to grow 9% QoQ annualized.
- Gasoline futures dropped nearly $0.25.
- Cass Freight Index Report™ ‐ March 2013
Shipment volume jumped up 5.8 percent from February to March, following a 5.6 percent rise in February. Compared to March 2012, shipments were up 4.2 percent, the largest year‐over‐year increase since October 2012. On a cumulative basis, freight shipments have increased 6.4 percent since the end of last year over the same period in 2012.
Truck tonnage data is not yet available for March, but it has been on the rise since November, according to the American Trucking Association. Weekly truck loading indicators are showing an uptick in March. Rail reported mixed results, with carloads up 0.3 percent and intermodal down by 5.1 percent. Most of the carload gains are in petroleum and petroleum products. Shipments of products related to construction, including stone and gravel, lumber and fabricated steel, are increasing. Truck flatbed loads were reported up every week. Exports were also up in March.
Freight expenditures rose 6.5 percent in March and are 4.4 percent above the same period last year. Much of the monthly increase can be attributed to the rise in the number of shipments. However, in recent weeks there have been more reports of higher rates for truckloads, particularly on the spot market, as demand builds.
Well, we just got the Association of American Railroad report for March.
The Association of American Railroads (AAR) today reported that U.S. monthly rail traffic showed mixed results in March 2013, while both carloads and intermodal traffic declined for the week ending March 30, 2013.
Intermodal traffic in March 2013 totaled 933,208 containers and trailers, up 0.5 percent (4,859 units) compared with March 2012. That percentage increase represents the smallest year-over-year monthly gain for intermodal since August 2011.
Seven of the 20 major commodity categories tracked on a monthly basis by AAR saw year-over-year increases in March 2013 over March 2012.
AAR today also reported declines in rail traffic for the week ending March 30, 2013. U.S. railroads originated 281,367 carloads last week, down 1.9 percent compared with the same week last year, while intermodal volume for the week totaled 233,587 units, down 3.8 percent compared with the same week last year.
In all, a so-so month ending on a weak note.
CHINA RECOVERY ALSO SO-SO
In the traditional busy season, demand improved among industrial sectors. The demand recovery observed by respondents is slightly stronger than it was in March of 2012. Infrastructure projects were the main sources of demand in up- and midstream sectors. Respondents from the cement and construction machinery sectors reported above-expectations sales data. However, demand recovery for steelmakers and machinery tool manufacturers remained relatively weak. Auto sales were also below expectations, and automakers became more cautious as a result. The discrepancy among different sectors suggests that the seasonal recovery was relatively modest. (CEBM Research)
BUT NOTHING SO-SO IN EUROPE
Eurozone downturn intensifies as German economy shows near-stagnation
At 46.5 in March, the final Markit Eurozone PMI® Composite Output Index was unchanged on the flash reading, confirming that the rate of decline in activity accelerated for the second month in a row to reach the fastest since last November. (…)
Of the four largest euro nations, France saw the steepest downturn with output falling at the fastest rate for four years, while severe contractions were again recorded in Spain and Italy (albeit with the latter showing a marginal easing in the rate of decline). Only Germany continued to see higher business activity, though even there the rate of expansion slowed sharply to near-stagnation. (…)
March saw the largest monthly fall in new orders since December. New business dropped at the fastest rate since September in the service sector,
while manufacturers reported the steepest drop in new orders since December.
New orders fell for the first time in three months in Germany, accompanied by sharp rates of decline in France, Italy and Spain.
And in case you missed that in late March:
The downturn in the Eurozone retail sector gathered momentum at the end of the first quarter, Markit’s retail PMI® data for March showed. The rate of decline in sales in the latest period was the fastest since May 2012, and the trend over the first quarter as a whole was the second-weakest since Q1 2009. (…)
Retail PMI data by country signalled steep falls in sales in both France and Italy, and a broadly stable trend in Germany.
In particular, the month-on-month rate of decline in French retail sales accelerated further to a new survey record (data were first collected in January 2004). Moreover, the pace of contraction in France was fractionally faster than that registered in Italy – the first time that France had registered a worse performance than Italy since February 2011. Italian sales continued to fall sharply, but at a weaker rate than the trend shown over 2012.
Total industrial output in February increased 0.5% on the month, beating economists’ forecasts of a 0.4% gain, data from Germany’s Economics Ministry showed Monday. But a sharp downward revision of January’s industrial output data—to a 0.6% monthly drop from a previously reported flat reading—indicates that any industrial recovery remains muted and that overall economic activity in the first quarter may not have been as strong as previously expected. (…)
In an annual comparison, industrial production was down 1.8% when taking account of the number of working days in February 2013 vis-à-vis February 2012.
Bridgewater Asks “Could Italy Blow Up The Euro?”
Economic conditions in Italy are as depressed as they’ve been since the end of WWII, the economy is still contracting, Italy’s banks are in terrible shape, private sector lending is very strained, and the ECB’s policy is not resolving the problems. As is typical in countries enduring this level of economic pain, the political situation is starting to get pretty chaotic. (…)
So there is a risk that if economic conditions continue to be terrible and the political situation gets more extreme, the pressure on the banks will increase, and the sovereigns could start to have trouble (and with the political uncertainty, should the need arise, who would the Troika negotiate with?).
Italian banks increasingly look strained, both outright and relative to Spain. Bank CDS spreads have risen 150 basis points and bank eguity prices have fallen 30% in the past two months, and there are some indications of stress in the bank funding flows. Unlike in Spain, Italian banks have not decreased their reliance on the ECB at all, and in February they actually increased their net ECB funding. At the same time, wholesale funding lines with banks and non-banks are falling, and Italian banks have had substantial bond redemptions that they haven’t rolled in February and March. Italian banks are getting liguidity by reducing private sector loans and through a healthy inflow of retail deposits, which is helping them to pay for the wholesale funding that is leaving. Italian banks bought government bonds at a healthy pace in January, but the purchases slowed in February, and they have been selling foreign corporate and bank bonds for the past six months. (…)
Eurobanks bleeding, even before Cyprus.
Deposits in Spain and Portugal are bleeding with annual rates of 10%. This, together with rising non-performing loans and increased capital requirements will make banks reduce their lending, choking small and medium-sized companies. (Lighthouse Investment Management)
“Cyprus was a special case … but the upcoming directive assumes that investor and depositor liability will be carried out in case of a bank restructuring or a wind-down,” Rehn, the European Economic and Monetary Affairs Commissioner, said in a TV interview with Finland’s national broadcaster YLE.
“But there is a very clear hierarchy, at first the shareholders, then possibly the unprotected investments and deposits. However, the limit of 100,000 euros is sacred, deposits smaller than that are always safe.”
Bank runs in Europe are now only one rumor away…
Move threatens €78bn bailout programme and 2013 budget
In a long-awaited decision late on Friday night, the constitutional court rejected cuts in state pensions and public sector wages in a ruling that could force Pedro Passos Coelho, the prime minister, to negotiate alternative deficit reduction measures with international lenders.
Economists calculated that the measures deemed unconstitutional represented between €900m and €1.3bn in government revenue and savings, about 20 per cent of the €5bn the government planned to gain from austerity measures this year.
The court rejected cuts in state pensions and public sector pay equivalent to about 7 per cent of annual income as well as cuts in sickness and unemployment benefits.
A contested “solidarity” tax surcharge ranging from 3.5 to 10 per cent on pensions of more than €1,350 a month was accepted by the court as well as a 50 per cent cut in overtime pay rates for public sector workers.
Portugal Plans Spending Cuts After Ruling on Salaries
When it rains, …
Production rises at fastest rate in decade
Wood Mackenzie, a leading consultancy, expects 2013 to see the biggest percentage increase in global mine production since 2004.