NEW$ & VIEW$ (23 JANUARY 2014)

EMPLOYMENT SUPPLY/DEMAND (Cont’d)

Lance Roberts points out the jump in the Quits/Layoffs ratio which also suggests un tight supply/demand balance.

“Quits are generally voluntary separations initiated by employees. Quits are procyclical, rising with an improving economy and falling with a faltering economy. Layoffs and discharges are generally involuntary separations initiated by an employer and are countercyclical, moving in the opposite direction of quits. The ratio of the number of quits to the number of layoffs and discharges provides insight into churn in the labor market over the business cycle.

 
Boost for Spain as unemployment dips
Latest sign pointing to a nascent economic recovery

The number of unemployed people in Spain dropped slightly in the final quarter of last year, the first such fall in a decade and the latest in a series of broadly encouraging signs that point towards a nascent economic recovery in the country.

The data, contained in a labour market survey released on Thursday, are likely to bolster confidence in the Spanish economy at a time when investors are piling into the country’s sovereign debt and other assets on a scale not seen since the start of the crisis.

S Korea records fastest growth in 3 years
Robust domestic demand powers strong growth

Gross domestic product rose by 3.9 per cent in the last three months of 2013 from a year earlier, broadly in line with economists’ forecasts. In a break from the trend of recent years, the contribution to growth of domestic demand – or total purchases of goods and services – outstripped that of exports, the Bank of Korea said on Thursday.

However, confidence in South Korea is tightly linked to exports, which account for more than half of GDP, and economists said the improved domestic demand was based on growing faith in the strength of the global recovery, with South Korean exports growing 4.3 per cent last year. (…)

Companies’ investment in machinery and transport equipment fell heavily over most of the past two years, reflecting nervousness among manufacturers about overseas demand. But it rose by an annual 9.9 per cent in the fourth quarter, and this rebound was set to continue into the new year, said Kwon Young-sun, an economist at Nomura. (…)

Dollar sinks below 90¢ as Poloz ‘declares open season on loonie’

(…) Yesterday, it plunged below 91 cents U.S. after the Bank of Canada released its rate decision and monetary policy report that, over all, suggests interest rates aren’t going anywhere at any time soon because of its focus on stubbornly low inflation.

Pointing up Coupled with that was a line in the report that warned the currency “remains strong and will continue to pose competitiveness challenges for Canada’s non-commodity exports” even with its stunning loss over the past year.

“Until today, the Bank of Canada had been careful not to open talk down the loonie,” chief economist Douglas Porter of BMO Nesbitt Burns said late yesterday in a research note titled “BoC declares open season on loonie.”

“They effectively gave sellers the green light in today’s monetary policy report by stating that even with the big drop in recent weeks, it remained high and would still ‘pose a competitiveness challenge for Canada’s non-commodity exports,” he added. (…)

Some observers also believe that this is a deliberate move by Canadian policy makers to devalue the currency in a bid to boost the country’s exports, as a weaker loonie lowers the cost of Canadian goods in the United States.

The Bank of Canada denies any such thing, but everyone agrees that Mr. Poloz, while not driving down the dollar, is pleased with the outcome. (…)

THE BoC DOES NOT NEED TO CUT RATES
 

In Canada, low inflation and disappointing job creation have prompted many to ask whether the Bank of Canada (BoC) will need to ease in 2014. At this writing the OIS market is putting the odds of a rate cut by September at 33%. The question is legitimate, but we think the depreciation of the Canadian dollar is doing the job for the Bank.

An old rule of thumb was that a 10% depreciation of the Canadian dollar would add 1.5% to GDP over time. That was when the penetration of
Canadian exports in the U.S. market was stronger. Our share of U.S. imports has been declining since even before the last recession. Moreover, Canadian manufacturing capacity has shrunk as producers have restructured their operations in the wake of the Great Recession. So that rule of thumb is surely too optimistic by now.

Yet even if the impact of the exchange rate on the economy were only a third of what it used to be, the 9.5% drop in the effective exchange rate since January 2013, if sustained, would over time add 0.4% to GDP. As
today’s Hot Chart shows, that is probably as large a boost to the economy as would be expected from a BoC rate cut of 50 to 75 basis points. (NBF)

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Rouhani outlines growth plan for Iran
President calls for greater engagement with rest of the world

Hassan Rouhani, president of Iran, on Thursday predicted that his country had the potential to be one of the world’s top 10 economies in the next three decades if sanctions were lifted and economic ties normalised.

In an upbeat and conciliatory speech at the World Economic Forum in Davos, Mr Rouhani reiterated that developing nuclear weapons “has no place in Iran‘s security strategy” and forecast that ties with Europe would be “normalised” as the interim nuclear agreement is implemented.

Mr Rouhani said he intended to remove “all political and economic impediments to growth” in Iran and that one of his priorities was “constructive engagement with the world”. (…)

For its part, Iran intends to “reopen trade, industrial and economic relations with all of our neighbours”, he said, naming Turkey, Iraq, Russia, Pakistan, Afghanistan and Central Asia. (…)

Iran’s economy shrank more than 5 per cent in the last fiscal year as international sanctions imposed in response to the country’s nuclear programme took their toll. (…)

Benjamin Netanyahu, the Israeli prime minister, who is due to address the forum later on Thursday, described the speech as a continuation of “the Iranian campaign of deception”.

In a long post on his Facebook page he warned: “The international community mustn’t fall for this deception once again, and it must prevent Iran from being capable of manufacturing nuclear weapons.” (…)

SMALL IS BEAUTIFUL?

Chart from Citi Research (via ZeroHedge)

BUYBACKS BACK PRICE GAINS

Investing in the 100 stocks with the highest buyback ratios had a 49 percent total return for 2013. The S&P 500 Index gained 32 percent, and the CDX High Yield Index returned about 14 percent, including the 5 percent coupon. (BloombergBriefs)

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EARNINGS WATCH

Bespoke give us its tally of all NYSE companies:

Earnings and Revenue Beat Rates Decent So Far

Of the 121 companies that have released earnings since the Q4 2013 reporting period began, 68% have beaten bottom-line EPS estimates.  As you can see, 68% would be a strong reading if it holds. Keep in mind that it’s still very early, though.  More than 1,000 companies are set to report over the next few weeks, so the beat rate could fluctuate a lot.

Top-line sales numbers have been a little less rosy than the more-easily manipulated bottom-line numbers.  As shown in the second chart below, 57% of companies have beaten revenue estimates so far this season.  While this isn’t a stellar reading, it is better than all but one of the earnings seasons we’ve had since the start of 2012. 


CFOs Warn Investors on Impact of Expired R&D Tax Credit

Companies are flagging investors they may face higher tax rates this year because the U.S. tax credit they use to offset some research and development expenses expired at the end of last year.

As first quarter conference calls get going, companies ranging from Johnson & Johnson to Textron Inc. are providing detailed information about the missing credit. While chief financial officers widely expect Congress to reinstate the credit, companies cannot factor in the tax credit into their financial results unless it is current law.

Companies, including Johnson & Johnson, are warning the lapsed tax credit for research and development could boost their tax rate.

The impact for many companies could be significant. Because the credit was retroactively extended for 2012 at the beginning of 2013, many companies recognized five quarters of tax credits in the first quarter of last year, but will recognize zero in the first quarter of 2014. (…)

While the credit often expires and is retroactively enacted, Congress has only once allowed it to lapse completely in 33 years. Some companies are confident enough to continue giving financial guidance with the assumption it will be extended, while others are hedging their bets. (…)

 

NEW$ & VIEW$ (28 NOVEMBER 2013)

Chicago PMI Stronger Than Expected

Following last month’s surge, economists were expecting some giveback in this month’s Chicago PMI report, and that is exactly what we saw today.  While economists were expecting to 60.0 from last month’s reading of 65.9, the actual decline was considerably less as the headline reading came in at 63.0.  (…)

Pointing up Beware! Inventories jumped.

German Unemployment Rises Fourth Month in Uneven Recovery

The number of people out of work climbed a seasonally-adjusted 10,000 to 2.985 million, after gaining by a revised 3,000 in October, the Nuremberg-based Federal Labor Agency said today. Economists predicted no change, according to the median of 33 estimates in a Bloomberg News survey. The adjusted jobless rate was unchanged at 6.9 percent.

Spain Household Spending Snaps Declines Amid Recovery

Spanish household spending grew in the three months through September for the first time in six quarters, helping end a two-year recession amid continued export growth.

Household spending increased 0.4 percent from the three months through June, when it declined 0.1 percent, while exports rose 2.2 percent after a 6.4 percent gain in the previous quarter, the Madrid-based National Statistics Institute said today.

Gross domestic product rose 0.1 percent in the third quarter, the office said, confirming an Oct. 30 estimate. The economy contracted 1.1 percent from a year earlier. (…)

ECB warns of risks posed by Fed tapering

The European Central Bank on Wednesday issued a stark warning over the threat posed by the scaling back of US monetary stimulus, calling on eurozone policy makers to do more to prepare for the market shocks from Federal Reserve “tapering”.

In its latest financial stability report, the ECB said the risks to the eurozone’s financial system from outside the currency bloc had grown since May due to the Fed’s talk of scaling back its $85bn of monthly bond purchases – despite a general improvement in market conditions.

“Starting in May, there was a significant repricing in global bond markets, which took place largely because of changing monetary policy expectations in the United States – with increased foreign exchange market volatility and stress borne largely by emerging market economies,” the ECB said. (…)

The ECB said the eurozone’s institutional investors were more exposed to bond markets than the region’s banks, but that it was difficult to know where the risks of ultimate losses were greatest.

“It cannot be ruled out that ultimate exposures are concentrated among a limited number of entities which may now be more vulnerable to any further severe market shock,” the ECB said.

It added that the recent turbulence meant that policy makers needed to ensure banks, insurers and pension funds could cope with a “normalisation” of yields from their current historically low levels. (…)

The ECB said weak bank profitability and persistent financial fragmentation still presented a threat to stability. Banking union would be “an important contribution” to resolving these hurdles. (…)

Unforeseen bank recapitalisations also posed a threat. “Although provisioning is increasing, it has barely kept pace with the deterioration in asset quality, on average, highlighting a potential further need for additional reserves to strengthen bank balance sheet resilience in case asset quality deteriorates further.” (…)

Euro-Zone Private-Sector Lending Declines

Private-sector lending fell by 2.1% in October from the previous year, the ECB said Thursday, following a 2% drop in September. A broad measure of money supply slowed sharply to just 1.4% year-over-year growth, suggesting inflationary pressures remain absent in the euro bloc.

Loans to firms declined by €12 billion ($16.3 billion) on the month in adjusted terms in October, after a decline of €10 billion in the previous month. Loans to households rose by €1 billion on the month after an increase of €6 billion in the previous month.

Eurozone Inflation Rises

Annual inflation in Spain rose to 0.3% in November from no change the previous month. Belgium’s rate also increased slightly. Data from German states suggest that annual consumer-price growth in Europe’s largest economy increased to 1.5% this month from 1.2% in October, according to BNP Paribas.

As a result, economists say annual euro-zone inflation likely increased slightly in November from October’s four-year low reading of 0.7%—a figure that prompted the ECB to reduce its key lending rate earlier this month to 0.25%. The ECB targets annual inflation of just below 2% over the medium term.

Canada Emerging From Biggest Slowdown Since Recession

The Bank of Canada estimates that over the past two years the economy’s output gap — a measure of unused capacity — has grown from about zero to 1.5 percent of gross domestic product, and that gap won’t close for another two years because of weak global demand for the nation’s exports.

“We’re slowly crawling our way out,” said David Tulk, chief macro strategist at Toronto-Dominion Bank’s TD Securities unit. “I would still venture to say we’re vulnerable to a host of downside surprises.”

GDP probably grew at an annualized pace of 2.5 percent in the three months ended September, the biggest gain since the third quarter of 2011, according to the median estimate of 18 economists surveyed by Bloomberg. That’s up from 1.7 percent growth in the second quarter, when the economy was hurt by flooding in Alberta and a construction strike in Quebec.

Economists project a temporary slowdown to 2 percent in the fourth-quarter before the economy accelerates to average quarterly growth of 2.5 percent in 2014, according to separate estimates compiled monthly by Bloomberg.

After an initial burst following the recession, Canada’s economy began to slow last year amid weak global demand for its goods, a slump in business investment and temporary factors such as maintenance shutdowns in the oil industry, flooding and strikes. Canada has averaged annualized quarterly growth rates of 1.3 percent since the start of 2012, less than half the pace seen over 2010 and 2011.

The country’s benchmark stock index has risen 7.6 percent this year, trailing the 26.7 percent advance in the U.S. Standard & Poor’s 500 Index. The Canadian dollar has lost 6.4 percent against its U.S. counterpart in that period. The nation’s government bonds are down 1.5 percent in 2013, compared with a 2.2 percent drop for U.S. Treasuries, according to Bank of America Merrill Lynch indexes.

A 126,300 rise in employment this year puts the country’s labor market on pace for its third worst annual result in the past 12 years. Inflation has been below the Bank of Canada’s 2 percent target for 18 consecutive months, the longest stretch outside of recessions since the late 1990s. Weak inflation has assumed “increasing importance,” the Bank of Canada said in its last statement on Oct. 23 when it left its 1 percent benchmark rate unchanged.

The slowdown prompted Governor Stephen Poloz last month to drop language about the need for future interest rate increases.

Whether the economy can tighten economic slack will depend on a recovery in trade. Net exports — the difference between shipments abroad and imports — has been a drag on the economy every year since 2009, according to Bank of Canada reports.

Trade was probably also the biggest factor restraining third-quarter growth, economists estimate, with Canada averaging trade deficits of C$920 million ($868 million) in the three months ended September, the highest quarterly gap in a year. (…)

Bank of Canada Senior Deputy Governor Tiff Macklem said in a speech last month the economy will need to expand by at least 2.5 percent in order to begin absorbing the “current material degree” of slack.

To get there, business investment and net exports will need to contribute at least 1 percentage point to growth, he said. The central bank is confident Canada is on that path.

It projects Canada’s expansion will accelerate to 2.6 percent in 2015, of which 1.1 percentage points will come from exports and business investment, closing the output gap by year-end.

“The Bank expects that a better balance between domestic and foreign demand will be achieved over time and that growth will become more self-sustaining,” Poloz told lawmakers on Oct. 29 in Toronto. “This will take longer than previously projected.”

Why Goldman Sachs recommends shorting the loonie

As The Globe and Mail’s Scott Barlow reports, the Wall Street giant forecasts the Canadian dollar will sink to 88 cents U.S. One of its reasons is that Canada has been running a current account deficit.

There are other reasons, but that one tops the list.

“Since the global financial crisis, significant external imbalances have built up in the Canadian economy,” Goldman said.

“In 2008, the current account balance fell from a surplus of 1 per cent of GDP to a deficit of 3 per cent – and it has remained stable at this level since then,” the bank said in its report.

“The main reason for this has been a decline in manufacturing exports, which fell by about 30 per cent during the crisis.”

Over the past several quarters, Goldman added, money flowing into Canada has slowed markedly, and interest rates are low, and expected to stay there.

“It is also important to highlight that the Canadian dollar remains clearly overvalued on our … fair value model,” the bank said.

“Combined with the weak current account position, there are therefore good fundamental reasons for a weaker CAD,” it added, referring to the currency by its symbol.

Goldman’s forecast for the loonie, as Canada’s dollar coin is known, is lower than most. Chief currency strategist Camilla Sutton of Bank of Nova Scotia, for example, projects the dollar, which has been hovering just below 95 cents U.S. of late, will sink to 93 cents by mid-2014, and then pick up again. (…)

“Canada’s current account gap of just over 3 per cent of GDP is manageable, but continues to suggest the Canadian dollar is overvalued,” said senior economist Robert Kavcic of BMO Nesbitt Burns.

“A stronger U.S. economy and softer loonie should help narrow the gap somewhat in 2014.”

 

NEW$ & VIEW$ (9 SEPTEMBER 2013)

DRIVING BLIND (Continued)

Tepid Jobs Report Muddies Fed Plans

The disappointing jobs report released Friday leaves Fed officials without a clear-cut signal of an economy on the mend, creating a dilemma for the central bank as it contemplates pulling back on a bond-buying program.

Employers added a steady, if unspectacular, 169,000 jobs in August, and  unemployment rate fell to 7.3% last month. That’s notable improvement from the 8.1% unemployment rate when Fed officials launched the latest stimulus program late last year, but job growth has been anemic in recent months, below the 200,000-a-month level some officials want to see. (…)

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“Steady”? Payrolls growth has averaged 148,000 for the past three months, a notable decline from the 199,000 pace of the previous 5 months and well below the 184,000 average of the past twelve months.

Add the significant revisions (net downward revision for June and July of 74,000 jobs) and you get deep in the mud if your job is first to know where you are before finding the right direction.

Then, in the household survey, the total number of people employed declined by 115,000, but the size of the labour force fell by a much higher 312,000, accounting for the decline in the unemployment rate to 63.2%, which is the lowest rate since August 1978 and before the enormous influx of women in the workforce in the 1980s and 1990s.

Bespoke Investment adds:

While much, if not all, of the increase in the labor force participation rate in the 1970s was attributable to women entering the workforce, the shrinking of the labor force since the peak in early 2000 is due in majority to the exit of men from the work force.  For example, since the labor force participation rate peaked, the participation rate among women has declined by just 2.8 percentage points.  Men, on the other hand, have seen their participation rate decline by twice that at 5.6 percentage points.

Due to the fact that men are exiting the labor force at nearly twice the rate of women, the gap between the participation rate among men and women has been steadily shrinking.  The participation rate among men currently stands at 69.5%, while the rate among women is 57.3%.  With a spread of 12.2 percentage points, the gap between the sexes has never been narrower.

More important is that men employment (+ 947,000 or +1.3%) has seriously lagged women employment (+2,326,000 or +3.5%) since 2012. Given the (15-28% depending on industry) gender pay gap, this has probably contributed to corporate profit margins in the past 18 months.

EMPLOYMENT: MEN/WOMENimage

ONLY PIECE OF GOOD NEWS:

The only piece of good news came from the household survey, which despite the net job losses showed a second consecutive increase in full time jobs.

High five  But as today’s Hot Charts show, despite those gains in full-time positions the share of part-timers in total employment remains much too high. (…) That in turn is restraining the economy e.g. preventing an improvement in home ownership rates and capping wage growth and hours worked. The annualized growth rate in aggregate hours is tracking just +1% so far in Q3, a deceleration from Q2’s pace, suggesting a likely return to sub-2% GDP growth in Q3 after the spike in the last quarter. (NBF Economy & Strategy)

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The WSJ keeps hammering:

Part of the problem is also the growing attraction of not working. These columns have reported on the explosion in both the food-stamp and federal disability rolls since the recession ended. A new Cato Institute study shows that the full plate of welfare benefits—food stamps, housing assistance, Medicaid and so on—now pays more than a $12 an hour job in half the states. This, too, plays a role in the expanding number of people who are leaving the workforce. Reforms in those programs would help, but the real cure is faster economic growth.

Why Is One-Sixth of U.S. on Food Stamps? Food-stamp use grew 2.3% in June from a year earlier, with nearly one-sixth of the U.S. population receiving benefits.

One of the largest social safety net programs in the United States, food stamps – formally known as the Supplemental Nutrition Assistance Program, or SNAP – expanded substantially during and after the recession, with enrollment rising about 70% from 2007 to 2011. At the same time, the government also temporarily increased benefits and allowed users in the hardest-hit areas to receive aid for longer-than-usual periods of time. The average monthly benefit was $133 last year.

Critics clamor against what they see as a disturbing rise in government dependency. But new economic research suggests the program’s expansion isn’t alarming and can, in fact, be explained by business cycles. (…)

The 2009 fiscal stimulus program’s temporary increase in food stamp benefits, which may have also boosted incentives to enroll, is set to expire Nov. 1. Congress is not expected to mitigate the scheduled cuts.

Surprised smile

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Fingers crossed A Hire Calling for Companies

Companies remain reluctant to add jobs. They may not be able hold off for too much longer.

image(…) One indication companies may need to step up hiring is that there hasn’t been much firing going on. The four-week moving average of initial jobless claims, at 328,500, has reached its lowest level since October 2007. Companies also had workers clocking more time last month, with private payroll hours rising 0.4%. To add that many hours of work without increasing each worker’s time on the job, private employers would have had to increase payrolls by 464,000 positions, rather than the 152,000 they delivered.

High five  What the WSJ fails to mention is that last month’s increase in weekly hours was tiny and left average hours near the low end of their range of the last 3 years. There is thus no immediate need to boost payroll as the WSJ article suggests.image

Here’s a more solid sign of hope from the August NFIB survey (via John Mauldin):

Job creation plans rose a very large 7 points to a net sixteen percent planning to increase total employment, the best reading since January, 2007 and historically a very strong reading. Not seasonally adjusted, 15 percent plan to increase employment at their firm (up 3 points), and 5 percent plan reductions (down 1 point). If this reading is not a fluke, it signals a substantial resumption of hiring in the coming months. Hopefully, the September survey will validate the August readings and reports of actual hiring will turn positive.

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SO, TAPER OR NO TAPER?

How about a baby taper? One little step at a time…

One option that has gained support among some Fed officials in recent weeks: Reduce monthly bond purchases by a small amount, say by $10 billion, to $75 billion a month, and signal as loudly as possible the next step will depend on more evidence the job market is continuing to improve and inflation is moving back toward 2% from its current low levels.

Obama will copycat, one little tomahawk at a time…

Obama’s Limited Strikes Plan Faces Risks of Escalation

An old military mantra — “the enemy has a vote” — describes the situation President Barack Obama is confronting as he tries to muster support for U.S. military strikes against Syria.

Facing a divided Congress and a war-weary public, Obama has promised that any U.S. action will be “limited and proportionate.” Syrian President Bashar al-Assad and his allies, though, will also help decide how long and how big any American military mission in Syria will be.

Canadian Job Creation Triples Forecasts in August

Employment increased by 59,200 and the jobless rate fell to 7.1 percent from 7.2 percent, Statistics Canada said today in Ottawa. (…)

Part-time employment in Canada rose by 41,800 in August, with full-time jobs rising by 17,400, Statistics Canada said. Service industry employment increased by 40,600 and goods-producing companies hired 18,600.

Canada has added 38,400 full-time jobs so far this year, the second-least in that period since 1995. (…)

Job gains have averaged 12,700 this year, compared with 25,900 in 2012. The world’s 11th largest economy needs to add more than 22,000 jobs a month for the rest of 2013 to avoid suffering the weakest annual gain since 2001, except for the recession years of 2008-2009.

Bank of Mexico Takes the Plunge, Surprises With Rate Cut

(…) The central bank, led by Governor Agustín Carstens, was clear in its reasons for cutting the overnight rate target to 3.75%: the economic downturn in the second quarter was “faster and deeper” than expected, and the slack in the economy is likely to remain for a prolonged period.

The bank acknowledged that economic growth this year will be well below the 2%-3% estimate it gave in August, about a week before the National Statistics Institute released the bad news about second-quarter gross domestic product, which contracted 0.7% from the first quarter and was up just 1.5% from a year earlier.

Credit Suisse economist Alonso Cervera, who alone had predicted a quarter-point reduction in the overnight rate Friday, says it’s significant that the Bank of Mexico didn’t call this a one-off cut, as it had done with the half-point reduction in March. (…)

The central bank was sanguine about inflation, which it said is likely to follow a lower path than the 3.5% it recently predicted for coming months. The bank’s permanent CPI target is 3%.

German Factory Output Drops

[image]Data indicators across the euro zone Friday reinforced remarks made Thursday by European Central Bank President Mario Draghi to the effect that while signs of recovery are indeed apparent, they remain weak and somewhat inconsistent.

Industrial output in Germany fell 1.7% on the month in July, the country’s economics ministry reported Friday. This was well below expectations of a 0.5% dip in a Dow Jones Newswires survey of analysts. The data followed an earlier release from the statistics agency that showed exports dropping on the month and the country’s trade surplus narrowing.

CHINA

China’s Exports Accelerated in August

China’s economy shows new signs of resilience in August, with key trade data pointing to a sustained strengthening in global demand for goods from the country.

Exports continued to gather steam, rising 7.2% in August from a year earlier, according to data released Sunday by the General Administration of Customs. This was up from a 5.1% rise in July and a contraction of 3.1% in June. Imports rose 7.0% from a year earlier in August, down from 10.9% in July.

Shipments to the U.S. rose 6.1% on-year in August, up from 5.3% in July, which marked an improvement from shrinking sales earlier in the year.

Sales to countries in the Association of Southeast Asian Nations — a 10-nation grouping that includes Indonesia, Malaysia, Thailand and Singapore — rose 30.8%.

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Credit Suisse analysts track the quarterly change in China premier’s three favoured economic measures in a forward-looking indicator they call the Li Keqiang Momentum Index (LKMI):

Graph China

(…) all three of the LKMI’s indicators have started to gather steam in the third quarter, which reflects the positive news the economist and his team of analysts have been hearing anecdotally (…).

ChinaCreditSuisseIII

(…) None of the new supports to growth are robust. But they should at the very least keep things in China from getting much worse. (…)

SENTIMENT WATCH

Mutual-Fund Investors Halt March Into U.S. Stocks

Investors pulled a net $226 million out of U.S. equity mutual funds in the week ended Sept. 4, their first week of outflows since the week ended June 5, according to fund tracker Lipper. That was a reversal from the $1 billion of inflows the previous week. (…)

ETF investors have pulled $23 billion from U.S. stock funds over the past four weeks, after sending cash to U.S. stock ETFs for six weeks in a row. In the latest week, they pulled $4.8 billion from U.S. stock ETFs.

TRAVELLING for the rest of the month. Why not?

image(BMO Capital)

 

NEW$ & VIEW$ (5 SEPTEMBER 2013)

Auto U.S. Car Sales Soar to Pre-Slump Level

The U.S. auto industry has shifted into high gear with new-car buyers snapping up vehicles last month at a pace not seen since before the financial crisis.

All told, buyers purchased 1.5 million vehicles last month, up 17% from a year ago, with nearly all major auto makers reporting double-digit sales gains.

August’s sales translated to an annualized pace of 16.09 million vehicles, up from December 2007’s about 16 million. Some 17.4 million vehicles were sold in 2000.

Automotive website TrueCar.com estimates car companies spent an average of $2,477 on sales incentives last month, down 2.6% from a year ago and the lowest level since January.

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Pointing up  The CalculatedRisk chart above shows that car sales are back to their previous 4 cyclical peaks if one accepts that the 1998-2007 levels were boosted by the irrational exuberance that characterized those years and are unlike to repeat anytime soon. However, unlike housing, interest rates on car loans have not risen just yet. But keep in mind that truck sales have jumped lately on the back of an improving housing sector.

(Bespoke Investment)

The WSJ article goes on with these interesting facts on the auto industry:

While the sales pace returned to prerecession levels, the U.S. auto industry looks nothing like its old self. GM, Ford and Chrysler Group LLC are now much leaner. GM employs about 212,000 people in the U.S., about 31,000 fewer than in 2008. Ford’s workforce here is about 171,000, down 42,0000 from five years ago. Before Chrysler was split off from its German partner, Daimler AG, it employed 83,000. Today, its payroll is about 65,000.

That’s nearly 100k (-24%) fewer employees for the same sales volume. 

The three auto makers combined have closed more than two dozen auto-assembly, stamping, engine and transmission plants across the Midwest and in Canada. Health care costs for retired union workers, which once added about $2,000 to the cost of a car, are now born not by the companies but union-controlled trusts. Union wages have also fallen. New hires started at about $14 an hour, half of what veteran workers make.

Detroit auto makers abandoned brands such as Pontiac, Saturn, Hummer and Mercury. GM and Chrysler dropped more than 2,000 dealers from their sales networks, and all three companies stopped profit-denting practices such as dumping cars into rental car fleets and stuffing dealers with cars and trucks that consumers didn’t want.

As a result, the Detroit Three can now make money at lower sales volumes, and on lower-priced vehicles. A decade ago, all three companies struggled to make money when Americans were buying more than 16 million cars a year regularly. Now they say they can make money with sales below 12 million vehicles a year.

TITLE EXUBERANCE

 

Data Signal Consumer-Spending Rise

Imports rose 1.6% in July from the prior month, aided by strengthening domestic demand for industrial supplies and consumer products, Commerce Department figures showed Wednesday. Exports fell 0.6%, giving up some ground after the surging to a record high in June, though several key U.S. export markets showed signs of firming.

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A quick look at the imports chart reveals precious little hint of a revival. Imports have been flat for 18 months. Now, that is partly due to declining oil imports which the WSJ article omits to mention. Actually, total imports are up 4.5% annualized in the last 3 months but non-petroleum imports are up a meagre 0.8% annualized and only 1.3% Y/Y in July as this Haver Analytics chart shows.

 

Here’s the interesting part from the trade report:

July exports to the European Union rose a non-seasonally adjusted 2.6% from the same period a year earlier, bucking a recent downward trend.

July exports to Brazil of $4.4 billion were the highest on record. Exports to China also rose, reflecting a stabilization in the world’s second-largest economy after a sharp slowdown in growth earlier in the year.

The positive trend in U.S. exports to the E.U. becomes even more significant when we consider that Canadian exports to the E.U. were down some 18% YoY in July. Big market share shifts underway?

CANADIAN HOUSING

From BMO Capital:

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U.S. Economy Grew at Modest to Moderate Pace in July, August

(…) The central bank’s “beige book” report, a summary of conditions in its 12 districts from early July through late August, was largely positive. Eight districts reported moderate growth, while three said growth was modest. The remaining district, Chicago, said economic activity had improved.

Back-to-school shopping helped boost overall consumer spending, particularly in Boston, Kansas City and Dallas. Sales were mixed in New York, and were more modest in the other districts. Activity in the travel and tourism sectors expanded in most areas.

Demand rose in part from stronger car sales and housing-related goods such as furnishings or home-improvement items, the report said. Still, several regions said consumers remain cautious and “highly price-sensitive.” (…)

Wage pressures remained modest overall, with some companies in the New York region reporting more willingness to negotiate salaries. Still, pay rates “have not escalated significantly,” the report said. Rising health-care costs have continued to put upward pressures on overall compensation costs.

Lending activity weakened a bit, the report said, with several districts reporting less-favorable conditions than in the preceding period. Several regions described business lending as largely flat, and Chicago said that the recent interest-rate rises were likely depressing commercial investment. (…)

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Bank of Japan Says Economy Is on Recovery Track

The Bank of Japan on Thursday formally proclaimed that the world’s third-biggest economy is back on a recovery track, a move that could tip the balance in favor of those who support a sales-tax hike from next spring as Prime Minister Shinzo Abe nears a decision on whether to go ahead with the plan.

The upgrade in the central bank’s assessment will likely strengthen speculation that it will hold off on any additional monetary easing for the time being, at least until the sales-tax increase is launched in April. The BOJ’s nine-member policy board Thursday decided to stand pat on monetary policy.

China Record Drop in Credit Growth Puts Momentum at Risk

New yuan loans were probably little changed in August, after aggregate financing, the broadest measure of credit, posted a fourth straight drop in July, the longest streak in 11 years of data.

The moderation in credit after a record first-quarter financing boom stands to cap an economic rebound being driven by a recovery in confidence and Premier Li Keqiang’s support measures, such as faster spending on railways. Overcapacity and pressure to clean up debt loom as challenges, according to JPMorgan, which sees growth slowing to 7.2 percent in 2014 from 7.6 percent this year.

DIGGING FOR YIELD? Make sure you don’t burry yourself.

For the full year, bonds rated CCC or lower have gained 7.1% while AAA debt has lost 5%. It’s only the third time since 1996 low-rated debt has gained while top-rated paper lost value.

America’s ‘Baby Bust’ Starts to Ease The nation’s fertility rate stabilized last year for the first time in five years. That follows four years of big declines during the economic downturn that pushed the rate to the lowest levels on record.

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Demographic Intelligence, a for-profit forecasting firm, projects the so-called total fertility rate—which measures the average number of children born to women over their lifetimes—will rise slightly from 1.89 children per woman in 2012 to 1.90 in 2013. The rate stood at 2.12 in 2007.

Sam Sturgeon, the firm’s president, sees “modest” increases in 2014 and 2015 too, though not enough to reach the 2.1 rate that is considered the level needed to keep the U.S. population stable. When asked, American women still say they want two children—one boy and one girl, Mr. Sturgeon said.

 

NEW$ & VIEW$ (12 AUGUST 2013)

EARNINGS WATCH

The earnings season is almost complete. S&P reports that of the 446 S&P 500 companies that have reported, 65% beat estimates and 27% missed. As expected, the beat rate has diminished slightly throughout the season and the miss rate has gradually edged up to 27%. The miss rate has been rising steadily from 23.7% in Q3’12 to 24.8% in Q4’12 and 25.9% in Q1’13.

Q2 earnings are now seen at $26.43, in line with the $26.40 estimated at the end of June, and up $1.00 or 3.9% YoY, a deceleration from the 6.3% YoY growth rate recorded in Q1’13. Trailing EPS should thus come in at $99.35, up $1.00 or 1.6% from the previous quarter, a slight advance from the $96.82-98.69 range since March 2012, a period during which the S&P 500 Index rose 20.7%.

Girl Boy A Tough Test for Back-to-School Sales

With Wal-Mart, Macy’s, Kohl’s and Nordstrom all reporting their second-quarter results this week, all eyes will be on their early reads about back-to-school sales and the outlook for the rest of the year.

The National Retail Federation forecast spending this fall on K-12 students to drop 12% to $26.72 billion after a record 2012, with a slowdown also expected for back-to-college spending. Meanwhile, the ICSC projected sales to rise 3.1%, the smallest gain since 2009.

Doubts Arise Over Dollar Strength

The dollar is stumbling as investors begin to question the strength of the U.S. economic recovery, which had powered a first-half rally in the currency.

Driving the reversal: a shift in views on when the Federal Reserve might start reining in some easy-money policies that are a legacy of the financial crisis, many fund managers say.

Many investors had piled into the dollar earlier this year on the belief that robust growth in the U.S. would lead the Fed to scale back its bond-purchase program, which has been pumping $85 billion into the economy each month, in the fall.

Not only would a receding flood of dollars raise the greenback’s value, the positive signal it would send about the U.S. economy would give the dollar additional fuel by attracting money flows from outside the U.S., analysts say.

However, disappointing economic data, mainly weaker-than-expected jobs growth and tepid retail sales, have prompted some currency investors to back away from bullish dollar bets that were based on the Fed reducing—or “tapering”—bond purchases in September, well before other major central banks would be ready to start tightening monetary policy.

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At the same time, there are signs that Europe’s year-and-a-half-long recession is coming to an end, enhancing the allure of the euro. As well, fears that a slowdown in China would drag down the global economy appear overblown for now, a factor that could revive the appeal of riskier assets such as emerging-market currencies.

Although the selloff in the dollar is in its early stages, the implications could be wide-ranging. For example, in the longer term, a weaker dollar could bolster corporate earnings, as multinational companies find that profits made outside the U.S. are worth more when translated into dollars. (…)

Meanwhile (via FT Alphaville):


Ghost  ‘Sept-Taper’ Odds Soar

Just over a week ago, the probability of a September ‘Taper’ were a mere 14% with the majority of the ‘smart’ money betting on a ‘December 2013 at the earliest’ start to the Fed’s removal of the punchbowl. September 2013 is now the front-runner at a 36% probability, based on PaddyPower’s latest odds. September has surged from a 7/1 outsider to a 7/4 favorite in that brief time (and October also improved from 11/1 to 7/1). It seems that JPY-carry is well aware of this shift (having surged over 4% in the same period). Between Merkel’s election and the FOMC, the 3rd week of September (which just happens to perfectly correspond to an option expiration) looks set for some fireworks one way or another.

Food-Stamp Use Rises; Some 15% Get Benefits Food-stamp use rose 2.4% in the U.S. in May from a year earlier, with more than 15% of the U.S. population receiving benefits.

The number of recipients in the food stamp program, formally known as the Supplemental Nutrition Assistance Program (SNAP), is at 47.6 million, or nearly one in six Americans.

Canada Loses 39,400 Jobs in July as Government Hires Wane

Employment fell by 39,400 last month, while the jobless rate rose to 7.2 percent from 7.1 percent, Statistics Canada said today in Ottawa.

Canada’s job gains have slowed so far this year, with the average monthly gain of 6,000. That’s down from the 27,820 average recorded in the second half of last year.

Japan GDP growth misses expectations
Weak business investment continues to slow economy

Gross domestic product expanded at an annualised rate of 2.6 per cent, a preliminary government estimate showed on Monday.

Japan GDP

That was more than twice as fast as Japan’s average over the last decade, but it was less robust than the previous quarter and a full percentage point slower than the average forecast of economists surveyed by news agencies.

The preliminary data are being watched especially closely in light of the debate over the sales tax, which has divided advisers to Shinzo Abe, the prime minister who is attempting to lead Japan out of a more than 15-year period of deflation. (…)

GDP growth for the previous quarter was revised down, from an annualised 4.1 per cent to 3.8 per cent.

In the latest quarter, private consumption increased 3.1 per cent and the value of exports rose 12.5 per cent, suggesting a run-up in the stock market and a weak yen, two by-products of the monetary and fiscal stimulus at the core of Mr Abe’s “Abenomics” policies, continued to help lift the economy.

But business investment, a crucial element for any sustained recovery that has been largely missing in the Abenomics boom so far, continued to shrink, albeit at a milder pace than in previous periods. It fell by an annualised 0.4 per cent. (…)

 Russia’s Growth Pace Weakens

imageRussia’s State Statistics Committee said the growth rate fell to 1.2% in the second quarter of the year, down from 1.6% in the first three months and far below government forecasts of 1.9%.

The results add pressure on Russian policy makers to lower interest rates—something the Central Bank of Russia has lately resisted, saying that inflation is untamed. The bank left its key rates unchanged Friday for the 11th consecutive month. The Economy Ministry said it sees inflation in August at 6.4%, just a notch lower than in July, but still above the Central Bank of Russia’s target of 6%.

IEA Trims Estimate for 2014 Global Oil Demand Growth on Economy

Global consumption will increase by 1.1 million barrels a day, or 1.2 percent, to 92 million next year, the Paris-based adviser to energy-consuming nations said today in its monthly market report. The expansion is 100,000 barrels a day less than last month, when the estimate for 2014 was first introduced. Refinery operating rates will ease after a record surge in July, the IEA said.

Demand for crude produced by the Organization of Petroleum Exporting Countries will shrink by 400,000 barrels a day next year to 29.4 million a day as higher output from other nations, such as the U.S. and Canada, exceeds the expansion in global oil consumption, the agency said.

Production from OPEC’s 12 members fell by 165,000 barrels a day last month to 30.41 million a day, the lowest in six months, amid supply disruptions in Libya and Iraq, according to the IEA. The North African nation’s output slipped to 1 million barrels a day, while the Persian Gulf state’s fell to 2.99 million. Supplies from Saudi Arabia, the group’s biggest member and de facto leader, increased by 150,000 barrels a day in July to a one-year high of 9.8 million.

The decline still leaves OPEC output about 400,000 barrels a day higher than the amount the IEA estimates will be needed from the group in the third quarter, and the organization’s own formal target, at 30 million a day. OPEC, which accounts for about 40 percent of global supplies, will meet next to review production targets on Dec. 4.

The agency kept estimates for supplies from outside the group in 2014 unchanged. Non-OPEC producers, led by the U.S., Canada and Brazil, will bolster production by 1.4 million barrels a day, or 2.6 percent, next year to 55.9 million a day.

The IEA also kept its projection for world oil demand in 2013 mostly unchanged. Consumption will rise by 895,000 barrels a day this year to 90.8 million, amounting to a reduction of 70,000 barrels a day from last month’s report.

Oil price held high by supply disruptions  Outages expected to reach almost 4% of global demand

(…) From oil theft in Nigeria to the closure of ports in Libya and transit disputes in South Sudan, unplanned outages are on the rise. By September they are set to hit a 10-year high of 3.4m barrels a day, according to Energy Aspects, a consultancy.

That is almost 4 per cent of global demand. It is also more than double the combined output of the Bakken and Eagle Ford shale formations – the twin centres of the US oil revolution – underlining how rising North American supplies are being overwhelmed by problems elsewhere. (…)

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NEW$ & VIEW$ (8 JULY 2013)

Job Gains Show Staying Power The U.S. job market chalked up solid progress in June, bolstering evidence that the economy might be strong enough to grow with less help from the Federal Reserve and sending bond investors rushing to sell.

American employers added 195,000 jobs in June, the Labor Department said Friday, and tallies for April and May climbed by a combined 70,000.

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Revisions are almost always up!

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However:

Job creation is still concentrated in the low-income, low wage industries. During June, 121,600 of the 195,000 jobs created (or 62 percent) were in leisure & hospitality (75,000), retail (37,100), and temporary worker (9,500) industries. It isn’t easy to get the economy going with jobs growth relatively isolated to these low-wage sectors. Overall, average hourly earnings increased just 0.4 percent in June, 2.2 percent from year ago levels. Once adjusted for the mild inflation of about 1.5 percent, real earnings are advancing at about a 1 percent pace. (Bloomberg)

Construction companies added 13,000 jobs, the most in three months, while automakers boosted employment by 5,100 workers, the biggest gain in four months. Hiring at auto dealerships and home-improvement stores also picked up, the report showed.

Factories reduced payrolls by 6,000 in June.

Doug Short illustrates the consumer earnings trends:

 

The next chart applies some simple math to the two data series. Let’s create a snapshot of hypothetical expected real annual earnings: multiply Real Average Hourly Earnings times the Average Hours Per Week and then multiply the weekly earnings times 50 (yes, a couple of weeks of unpaid vacation).

 

 

Some Troubling Signs In June’s Jobs Report  The latest June jobs report isn’t quite all roses.

Behind the solid payroll gains are a few troubling signs. The number of Americans working part-time because they can’t find full-time jobs and the number who want jobs but have given up looking both jumped last month.

As a result, a broader measure of unemployment increased a half percentage point in June to 14.3%. That’s the highest level since February and the largest monthly increase since 2009 in that rate, known as the “U-6,″ for its data classification by the Labor Department. (…)

The number of workers employed part-time because they couldn’t find a full-time job increased by a seasonally adjusted 322,000 last month. There were 1 million so-called discouraged workers in June, those who say they are not currently looking for work because they believe no jobs are available for them. That’s an increase of more than 200,000 from a year ago. (…)

Prime-Age workers remain jobless:
 

To get a cleaner read of trends in job opportunities we look at the EPOP after removing young people and people near or above retirement age. As the figure below shows, the employment-to-population ratio of “prime-age” workers—workers age 25–54—dropped from over 80 percent in early 2007 to 74.8 percent at the end of 2009, and has since increased to 75.9 percent. In other words, we are four years into the recovery, and we have climbed only about one-fifth of the way out of the hole left by the Great Recession. (Heidi Shierholz at the Economic Policy Institute)


 
 Annoyed  Jobs Strength Keeps Fed on Track

The Labor Department’s strong June employment report improved the odds the Fed will begin to pull back on its $85 billion-per-month bond-buying program by the end of the year.

The Labor Department said U.S. employers have added more than 200,000 jobs per month over the past six months, hitting a benchmark some Fed officials have cited as an indication of the kind of economic progress they want to see before shrinking their bond purchases.

But the market is not waiting for the Fed:
 

“The Fed has made clear that at the end of the day it is employment which will call the tune,” Mr. Feroli said. “Coming into today, our call for a December first taper was already probably a little underwater, and after today’s report we are moving to a call for a first reduction in asset purchases at the September FOMC meeting.”

The Atlanta Fed’s “Jobs Calculator” says if the economy can add an average of 180,000 jobs per month, that 7% jobless mark could be hit in a year’s time, all other labor force factors being equal.

Rising long-term rates are not without consequences:

Incidentally, ISI’s homebuilders’ survey has been wakening in recent weeks.

And the PMIs:

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And this big danger:

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Hmmm…

Office Recovery Stays Slow

The U.S. office market continued its slow-but-steady recovery in the second quarter, as employers took on additional space at a modestly improved pace compared with recent anemic levels.

The amount of office space occupied by employers increased by 7.2 million square feet, or 0.2% of the total occupied stock, during the quarter, according to real-estate research service Reis Inc. That was the biggest increase since the economy began slowing in 2007.

But the pickup still was below levels seen in more typical periods of economic growth. During such times, the volume of occupied space can increase some 10 million to 20 million square feet per quarter. In contrast, employers have generally taken on between three million and five million square feet of additional space per quarter since the market began improving in 2011.

Without faster growth, the office-vacancy rate is likely to continue to stay high—and rents relatively low. In the second quarter, the overall U.S. vacancy rate stayed flat at 17%, down from a postrecession peak of 17.6% reached in mid-2010.

Rents sought by landlords ticked up to $28.78 per square foot in the second quarter, from $28.66 per square foot in the first quarter and $28.18 one year earlier, according to Reis, which tracks 79 metropolitan areas.

Ripple effects:

FT’s John Authers: ECB comes to the market’s rescue again

(…) Friday’s US jobs report, revealing the US labour market continued to show slightly greater strength than many expected, forced the message home. Despite much ongoing weakness in the US economy, if its labour market keeps improving like this, the chances are that the Fed stimulus will end next summer. In response, bond yields moved sharply upwards across the world. This may well have been what Mr Bernanke wanted, even if Fed colleagues later downplayed his remarks.

What is now beyond doubt is that the market went very far beyond anything the BoE or ECB could tolerate.

To counter rising rates, the ECB said it “expects the key rates to remain at present or lower levels for an extended period of time”, while the BoE’s new governor, Mark Carney, said “the implied rise” in future rates was “not warranted by the recent developments in the domestic economy”. In other words, the market had set gilt yields too high.

As a result, although the Fed is still buying bonds, while the ECB’s balance sheet is contracting, the extra yield on German Bunds compared to US Treasury bonds reached its highest since the crisis.

There is irony here. When the Fed launched its programme of bond purchases in early 2009 – arguably a form of printing money – the rest of the world complained that it was fighting “currency wars”. Low US rates made for a weak dollar, and cheaper US exports. The response was for other countries to cut their rates. In effect, the Fed exported its low interest rates. Now the problem has reversed. The Fed is exporting higher rates, and the ECB and BoE have been forced to be more lenient.

There is one safe bet out of this, which is prolonged weakness for sterling and the euro, already near their lows for the year. When their central banks appear so much more dovish than the Fed, this can only weaken them against the dollar.

A second, slightly less safe bet is on European equities. Easy money is good for stocks, and these announcements will prop up stock markets which in Europe have been anaemic. (…)

While European stocks enjoy support from their central banks, it is a bad idea to bet against them. But in the longer term, the reasons for concern about the eurozone and UK are not going away. That they share the world with a Fed that is talking up rates only adds to the hazards.

Canada Jobs Little Changed in June After May’s Huge Gain

Employment fell by 400 last month after May’s surge of 95,000 while the jobless rate was unchanged at 7.1 percent, Statistics Canada said today in Ottawa. (…)

Canada’s job gains have slowed so far this year, with the average monthly gain of 14,000 less than the 27,000 recorded in the second half of last year, Statistics Canada said.

Full-time employment fell by 32,400 in June, following a 76,700 gain the prior month. Part-time positions rose by 32,200, Statistics Canada said.

Private companies cut 5,300 workers last month after May’s 94,600 increase, while public-sector employment rose by 1,000.

Meanwhile, in the Eurozone

German Industrial Production Decreased in May

Production fell 1 percent from April, when it gained a revised 2 percent, the Economy Ministry in Berlin said today. That’s the first decline since January. From a year earlier, production decreased 1 percent when adjusted for working days.

Orders are also falling:

German Factory Orders Drop as Euro-Area Economy Struggles

Orders, adjusted for seasonal swings and inflation, dropped 1.3 percent from April, when they fell a revised 2.2 percent, the Economy Ministry in Berlin said today. Economists forecast a gain of 1.2 percent, according to the median of 42 estimates in a Bloomberg News survey. Orders slid 2 percent from a year ago, when adjusted for the number of working days.

Germany’s domestic orders declined 2 percent in May from the prior month, today’s report showed. Overseas demand shrank 0.7 percent, with orders from the euro area slumping 3.9 percent. Orders for basic goods fell 0.1 percent from April, while investment-goods orders slid 1.8 percent. Demand for consumer goods dropped 3.1 percent, with orders from the euro area down 5.7 percent.

The FT adds:

This follows a weak 48.6 in June’s manufacturing PMI survey. Economists at Markit said: “There’s a lack of demand both at home and in export markets, so stagnation seems to be the best that we can expect for the time being.”

Sweden’s IP fell 2.6% in May MoM, after dropping 1.1% in April. Turkey’s IP fell 0.6% in May MoM, following a 1.4% rise in April.

French Firms Cut Back on Investments

Despite low interest rates, French companies and entrepreneurs are cutting back on their investments. They’re delaying plans to expand existing factories, and canceling plans to build new ones.

[image]Higher taxes and cheaper foreign competition have pushed margins for French companies down to their lowest level since 1985—reducing companies’ ability to stomach risk. At the same time, French business leaders say the challenges from unpredictable tax rates and ever-changing French red tape are rising. (…)

Investment by nonfinancial companies in the euro-zone’s second-largest economy has contracted every quarter since the beginning of 2012. A recent survey by French statistics agency Insee showed French businesses in manufacturing expect to cut investment by 4% this year, while in January they expected to keep investment at the same level as 2012.

France isn’t alone in seeing shrinking private investment as the recession across much of Europe pushes businesses from Germany to Greece to tighten their purse strings. But economists say the decline is particularly worrying in France because of the lower profitability of French companies. For nonfinancial corporations in France, gross profit share—a standardized measure of profit margins—stood at 25.7% at the end of last year, compared with 35.2% on average in the euro zone, according to data from European the statistical agency Eurostat.

Greece’s Economic Future ‘Uncertain’

Hours before a euro-zone finance ministers’ meeting to approve the disbursement of aid to Greece, the technocrats overseeing its bailout said the country’s economic outlook remained cloudy

CHINA SURVEY POINTS TO SLOWER GROWTH
 
CEBM Research latest survey:

Industrial demand has remained weak during the traditional off-season with few bright spots among industrial sectors. Additionally, the recent liquidity squeeze in the interbank market has led to higher financing costs, worsening cash flows and higher credit risks among small and medium sized enterprises (SMEs).

In detail, a number of industrial sectors surveyed by CEBM did not achieve their sales targets during the month of June. Cement demand declined due to the upcoming off season, and actual sales were weaker than expectations. Steelmakers and machinery sales showed no improvement due to the off season. Auto sales, which have been quite robust over the past few months, decreased in June and were below seasonal trends, partially due to tightening credit conditions for car loans. Property sales were stronger than expectations but mostly due to lowered sentiment among property developers.

The most significant change during the course of June was of course the liquidity squeeze in the interbank market, which has expanded to enterprises and has led to higher financing costs, tightening cash flow, and increasing risk of default on debts. Current bill financing rates increased to an annualized cost of around 10-12% for enterprises, leading to significant pressure on their profitability and short term cash flow. A few cement producers and metal traders reported that they received a lot more commercial bills than they did previously, in addition to the rapid increase of other receivables. Many banks surveyed by CEBM are now concerned about the potential outburst of credit risks among SMEs, particularly those located in the Yangtze delta area. (…)

Consumer sector performance in June showed signals of further decline. Respondents in department stores, home appliance retailers, and supermarkets all reported weaker sales growth (Y/Y). Performance of restaurants further diverged.

Japan bank lending hits four-year high
Loan growth suggests stimulus is spurring fund demand

Outstanding loans held by Japanese banks rose 1.9 per cent in June from a year earlier, Bank of Japan data showed on Monday, marking the 20th straight month of increase and posting the biggest gain since July 2009.

SENTIMENT WATCH

Global Earnings Downgrades Worst In 12 Months

As we head into earnings season in the US (amid hopeful margin expansion), the big picture for earnings remains bleak. Markets are back close to highs as negative guidance is piling up and as Citi notes, their global earnings revision index is at its worst since early July 2012.

But not in America:

Analysts Boost S&P 500 Target 11%, Lower Earnings Growth

The same equity analysts who lowered second-quarter profit growth predictions to almost nothing in 2013 are raising price forecasts, convinced the economy is growing fast enough to lure more investors and boost valuations.

Standard & Poor’s 500 Index earnings rose 1.8 percent last quarter, down from a projection of 8.7 percent six months ago, according to more than 11,000 analyst estimates compiled by Bloomberg. At the same time, share-price targets for companies are rising at the fastest rate in two years. The U.S. equity gauge will increase 8.9 percent to a record 1,777.91 should the forecasts prove accurate. (…)

Analysts are looking past profit growth this year and predicting improving investor sentiment will push stocks higher. They’ve boosted price estimates for the S&P 500 by 11 percent from 1,608.50 on Dec. 28, the fastest rate since July 2011, according to data compiled by Bloomberg.

U.S. equity volume, in retreat since 2009, is showing signs of picking up. Trading on all American markets has averaged 6.77 billion shares a day since the start of June, compared with 6.35 billion between January and May and 6.42 billion in 2012, according to data compiled by Bloomberg.

Well, if earnings are not cooperating, P/Es ought to rise! Why? “Improving sentiment”!”

What about rising interest rates…The same people calling for higher rates are calling for higher P/Es.

Hmmm…

Fingers crossed Fingers crossed Maybe this might help:

A Turn in Economic Indicators

 

NEW$ & VIEW$ (10 JUNE 2013)

MAY U.S. EMPLOYMENT

1. THE FACTS

Jobs Rise Enough to Soothe Markets

Employers added 175,000 jobs in May, maintaining a pace that hasn’t brought unemployment down quickly but has been enough to ease worries of a summer slowdown after a run of murky economic reports.

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(…) “Adding it all up, today’s report has a little something for everyone,” said Michael Feroli of J.P. Morgan Chase. “If the last week or two of soggy data generated renewed…fears, today’s report should help to mollify those concerns. On the other hand, the figures do little to suggest the economy is shifting into higher gear.”

Muddling Through

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2. THE BETTER STUFF

We were most encouraged by the fact that the household survey (from which the unemployment rate is derived) showed an 185,000 monthly increase in full-time employment, the best such performance in 2013.
This is a crucial development for continued household formation and higher home prices.

The demographics of job creation certainly argue for such a scenario to take place. As today’s Hot Chart shows, employment for people aged 25+ is now virtually back to its pre-recession peak. Impressively, more than half of the jobs created in May were for people aged 25-34. This sets the
stage for more consumer-driven spending growth in H2 2013. Youth employment might be depressed in the U.S., but that is mostly concentrated in the younger age cohorts (16-24). (NBF Financial)

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3. THE NOT SO GOOD STUFF

Not so long ago, the media would have highlighted the fact that monthly trends are down, both in total and in private employment. A slower swoon, but a swoon nonetheless.

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And this from Bloomberg:

Bulk of U.S. Payroll Gain in Jobs Paying Less-Than-Average Wages

Occupations paying below-average wages accounted for more than half of last month’s U.S. payroll increase, a dynamic that may restrain consumer spending and the economic recovery.

Retailers, the hospitality industry and temporary-help agencies accounted for 96,300, or 55 percent, of 175,000 jobs added in May, figures from the Labor Department showed today in Washington.

The composition of the employment gain caused hourly earnings for all employees to stagnate at $23.89 on average last month, up a cent from April. They rose 2 percent over the past 12 months, compared with year-to-year increases averaging 3.5 percent in the 10 months leading up to the recession that began in December 2007.

The leisure and hospitality industry, which includes hotels, restaurants, casinos and amusement parks, added 43,000 workers to payrolls last month. On average, those employees are paid $13.45 an hour, the lowest of any of the 10 major employment categories, according to the Labor Department.

Retailers added 27,700 jobs in May, with an average hourly wage of $16.63. Temporary help accounted for 25,600 jobs with an average wage of $15.74 an hour.

In contrast, construction companies, which pay employees an average $26.06 an hour, added 7,000 jobs in May. Manufacturing, which pays $24.22 an hour, lost 8,000 jobs.

Twenty-one percent of all job losses during the recession were in occupations paying median hourly wages of $13.83 or less, according to the National Employment Law Project in New York, a non-profit employee-advocacy group. By contrast, those occupations accounted for 58 percent of new positions during the recovery from February 2010 to March 2012.

As a result, average hourly earnings have sharply decelerated from a +2.1% annualized rate during 2012 to +1.35% during Q1’13 and to +1.17% during the last 3 months. This combination of slowing employment growth and slowing wage growth is obviously not conducive to much enthusiasm on consumer spending. Keep in mind that inflation remains in the 1-2% range and that oil prices have stopped falling.

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And yet:
 

Fed on Track to Ease Up on Bond Buying

Federal Reserve officials are likely to signal at their June policy meeting that they’re on track to begin pulling back their $85-billion-a-month bond-buying program later this year.

A good-but-not-great jobs report Friday ensured officials wouldn’t want to act right away and would instead want to see more data before taking a delicate step toward winding down the program. But they could point at their next meeting to improvement they’re seeing in the economy, a prerequisite to reducing the so-called quantitative-easing program.

Plotting out a move is a tricky task, in part because investors are on edge about the Fed’s plans for the program. Fed Chairman Ben Bernanke signaled last month that the central bank could start pulling back the program “in the next few meetings,” a view echoed by other officials in recent weeks, including some of the program’s most vocal supporters. (…)

Many Fed officials believe the job market and the broader economy have made enough progress to warrant considering a partial pullback in their bond buying, but they still have reservations about the outlook that give them pause.

Most notably, officials are expecting the combination of federal tax increases and spending cuts to weigh on growth in the second and third quarters. Many want to see how the economy weathers that fiscal drag before altering the bond-buying program.

Officials believe the private sector, aided by a rebounding housing market and solid consumer spending, has enough momentum to drive a pickup in growth later in the year. Moreover, the effects of state and local government cutbacks show signs of waning.

Are we heading towards another policy mistake?

Housing’s Up, but Is Foundation Sound?

(…) Housing bulls see the slow economic recovery releasing pent-up demand, first for rental housing and then for home purchases. More young adults—many of them among the 65 million “echo” boomers born to baby boomers between 1981 and 1995—are moving out of their parents’ homes and into apartments. Others that had delayed home purchases during the bubble are ready to buy.

Rising prices in many parts of the country today show what happens when demand outstrips supply. To be sure, some homes are being held off the market by owners who can’t sell because they owe more than their homes or worth. Others are reluctant to sell at prices that leave them with little money to make a down payment on their next home.

Meanwhile, bulls still see too few homes being built, even after accounting for that “shadow” inventory. Population growth will require 14 million additional housing units this decade, around three-quarters of them single-family homes, according to Zelman & Associates, a research and advisory firm. Analysts at Zelman estimate that only 5.7 million of those units will be built by 2015, meaning the U.S. would need to add two million homes a year over the last four years of the decade—spurring a big boost of construction that would ripple through the economy. (…)

Equally important is that home prices have stopped falling, convincing consumers that they’re no longer at risk of catching a falling knife. (…)

The bear case, the outlines of which are laid out in a forthcoming paper by Joshua Rosner, managing director of Graham Fisher & Co., draws attention to several forces that had helped housing—and the economy—expand over the past few decades but whose end will now hinder growth. (…)

The democratization of credit ended during the bust, and a new period of much tighter credit standards has replaced it. Mortgage lending has seen little expansion amid a slew of new regulations and tougher capital rules.

Tight credit isn’t the only problem, argue the bears. Many Americans will face trouble qualifying for loans because they have too much debt relative to incomes that aren’t growing fast—particularly first-time buyers from the “echo” boom who have taken on heavy student-debt loads over the past decade. All of this is likely to unfold in a rising-interest-rate environment. (…)

Skeptics also haven’t taken comfort in the housing rebound because they see it as too dependent on investors. “We shouldn’t look at it as a fundamentally recovered housing market,” says Mr. Rosner. Sooner or later, he says, there needs to be “a handoff from the investor purchase to the primary-resident purchase.”

How that handoff unfolds will go a long way toward deciding whether the bulls or the bears have the last laugh.

Good read on U.S. housing:  Blackstone Denies It Is the Cause Of Housing Bubble 2.0

 Consumers Boost Borrowing for Cars, Education

 

Consumer credit, a measure of lending that excludes home mortgages, rose by $11.06 billion to a seasonally adjusted $2.820 trillion, a Federal Reserve report showed Friday. That’s a little short of economist expectations of a $13.4 billion advance, but overall figures have now grown steadily for 20 straight months.

Non-revolving credit, which includes student loans and auto financing, rose by $10.38 billion to $1.970 trillion on a seasonally adjusted basis. It was the 20th consecutive monthly increase.

More detailed figures aren’t seasonally adjusted so comparisons are imperfect. But the Fed numbers suggest a good chunk of that increase was related to borrowing for cars, trucks, boats, motor homes and the like.

Revolving credit, which is mainly credit-card debt, rose only $682.3 million to $849.81 billion. Outstanding credit card debt bottomed out two years ago and has only crept ahead in fits and starts since.

 Home Loan Rates Near 4% Send Buyers Scurrying

Mortgage applications to purchase homes fell 1.6 percent last week and are 6 percent below a three-year high at the beginning of last month. Applications to refinance loans dropped 15 percent, the fourth straight decline, to the lowest level in more than a year, according to the Mortgage Bankers Association.

Surprised smile  Canada posts biggest job gains in more than a decade as sentiment firms up

A surprising 95,000 jobs were created last month, marking the biggest gain in almost 11 years and just shy of the record 95,100 of August, 2002. The surge pushed the unemployment rate down a notch to 7.1 per cent, Statistics Canada said Friday.

Even though such month-to-month numbers can be volatile, the economy still likely created at least 38,000 jobs even when standard errors from the survey are taken into account.

CHINA

 

China’s Export Growth Slumps

China’s exports edged up a meager 1% in May over a year ago while imports slipped 0.3%. That left a wider surplus of $20.4 billion—up from $18.16 billion in April, according to customs figures.

The export rise was less than a 5.6% gain forecast by economists polled by The Wall Street Journal and well below the 14.7% climb year over year in April. The April figure was widely believed to have been distorted by exporters inflating their data, trying to skirt capital restrictions and move capital into China to take advantage of a rising Chinese currency.

Exports to Hong Kong, a key focus of suspected data problems, showed the clearest evidence of an impact of tighter regulations. Exports in May rose 7.7% year on year, but they were up 69.2% in the first four months of the year compared with the same period in 2012.

Exports to large markets such as the U.S. and the EU were down 1.6% and 9.7% in May compared with a year ago, according to The Wall Street Journal calculations.

China’s CPI grows 2.1%

China’s consumer price index, a main gauge of inflation, grew 2.1 percent year-on-year in May,down from 2.4 percent in April.

In May, food prices, which account for nearly one-third of the weighting in China’s CPI, increased 3.2 percent year on year, NBS data showed.

On a monthly basis, the CPI in May edged down 0.6 percent from April, compared to a rise of 0.2 percent in April from March.

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Non-food CPI fell 0.1% MoM, after having risen 0.2% in April and 0.1% in March.

China’s May PPI down 2.9%

China’s producer price index, which measures inflation at the wholesale level, fell 2.9 percent year-on-year in May, the National Bureau of Statistics announced on Sunday.

The figure marked a further drop of 0.6 percent from April’s, according to data released by the NBS. For the January-May period, the PPI fell 2.1 percent.

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China’s fixed-asset investment up 20.4% in Jan-May

China’s urban fixed asset investment rose 20.4 percent year-on-year to 13.12 trillion yuan ($2.13 trillion) in the first five months.

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China’s retail sales up 12.9% in May

China’s retail sales grew 12.9 percent year-on-year to 1.89 trillion yuan ($306.8 billion) in May, the National Bureau of Statistics announced

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Nominal retail sales rose 1.17% MoM in May, compared to 1.25% in April and 1.11% a year ago. Sales of gold, silver and jewelry rose 38.4% YoY in May and are up 31.3% YTD.

China’s Risky Move to Slow Credit

(…) Total social financing, China’s widest measure of credit, fell by about one-third to 1.19 trillion yuan ($194 billion) in May from April, the second month of substantial decline, the People’s Bank of China said Sunday. And new bank loans, a subset of total social financing, also have fallen substantially in the past two months.

[image]Total social financing consists of all manner of financing including banks, trusts, financing companies, trade credit, corporate bonds, certain kinds of interbank lending and informal lending by individuals, among other kinds of credit.

Regulators, however, have a way to go to curb overall lending. In the first five months of 2013, total social financing was up 52% from 2012. (…)

In May, both traditional bank loans and nontraditional lending fell. (…)

China’s industrial output was up 9.2% year-to-year in May, off fractionally from April’s growth rate, and much slower than the rates of expansion routinely recorded in 2010 and 2011.

Pointing up  Electricity output, a barometer of industrial activity, rose 4.1% year-to-year in May versus 6.2% in April. Construction starts by area, a key measure of the health of the property market, were up just 1% in the January-to-May period, versus the same five months last year. (…)

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ELSWHERE
 
German Industrial Production Increases Most in a Year

Production jumped 1.8 percent percent from March, when it gained 1.2 percent, the Economy Ministry in Berlin said today. That’s the third consecutive increase and the strongest gain since March last year. From a year earlier, production rose 1 percent when adjusted for working days.

Poland Warns on Further Volatility Curbs

Poland’s central bank took the market by surprise by intervening on the local currency market in order to limit the Polish zloty’s volatility Friday, and central bank Governor Marek Belka said they could do it again.

The zloty, Polish bonds and other emerging market assets have been under immense pressure since the Federal Reserve indicated in late May that it may consider unwinding its bond-buying stimulus program if the U.S. economy continues to improve. The prospect of tighter policy in the U.S. has prompted investors to exit riskier assets and rush to safe-haven currencies and bonds.

Italian Economy Contracts as French Confidence Stalls: Economy

Italian gross domestic product fell 0.6 percent from the previous three months, the Rome-based National Statistics Institute, said today, after a May 15 estimate of a 0.5 percent drop. A French index of sentiment among factory managers was unchanged at 94, while an index of service companies fell to 88 from 89, according to the Bank of France.

Exports dropped 1.9 percent in the first three months, the first quarterly fall since the second quarter of 2009, today’s report showed. Industrial output unexpectedly declined in April.

Sweden Industrial Output Declines as Domestic Demand Falters

Industrial production fell an annual 0.8 percent after sliding a revised 0.1 percent the previous month, Stockholm-based Statistics Sweden said today. Output fell a monthly 0.5 percent after rising a revised 0.6 percent the previous month.

Industrial orders rose an annual 1.7 percent in April and plunged a monthly 10.3 percent, Statistics Sweden said. Domestic orders slid 4.6 percent in the year while export orders rose 6.5 percent.

Sweden’s exports, which account for about half of the country’s output, fell 5.5 percent in the first quarter from the same period last year as countries in Europe cut spending to reduce debt.

Philippine Peso Falls to Lowest Level in a Year  The Philippine peso on Monday depreciated to its lowest level against the U.S. dollar in a year, and analysts think it may retreat further along with other Asian currencies as the U.S. economy gains traction and U.S. Treasury yields improve.

Japan sharply revises up Q1 growth
Rate stronger than initial estimate of 3.5%, in a boost to Abe

Government data released on Monday showed that the economy expanded at an annualised rate of 4.1 per cent between January and March, lifted by strong household spending and a pick-up in private residential investment. That was much higher than the preliminary estimate of 3.5 per cent, which was already the fastest rate recorded by any Group of Seven economy.

Composite Leading Indicators (CLIs), OECD, June 2013

The United States and Japan are the only countries where the CLIs point to economic growth firming. In other major economies, the CLIs point to limited growth momentum.

In the Euro Area as a whole, the CLI continues to indicate a gain in growth momentum. In Germany, the CLI shows that growth is returning to trend. As in April and May, the CLI points to a positive change in momentum in Italy. In France, the CLI does not indicate any change in momentum.

The CLIs for the United Kingdom, Canada, China and Brazil point to growth close to trend rates. The CLI indicates that growth is losing momentum in Russia, whereas for India, it continues to indicate growth below trend.

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Fears of hyperinflation grip Venezuela
Prices rise by highest monthly amount on record in May
 
Sudan orders halt to South Sudan oil
President tells army to prepare for holy war

South Sudan had started to pump 200,000 barrels per day in April. Its output was around 300,000 bpd before the shutdown.

SENTIMENT WATCH

U.S. Expansion Poised for Longevity Without Many Excesses

Record $12.5bn outflows from bond funds
Selling wave across all major classes in past week

Two-thirds of the total outflows came from US funds, where nervousness over the Federal Reserve’s next moves in monetary policy is at its height.

(…) The accelerating outflows are already showing up in junk bond prices, which have fallen sharply, sending yields higher. The average yield has surged from its historic low of 4.95 per cent on May 9, to 6.20 per cent on Thursday night, according to a Barclays index.

Forecast Calls for a Summer of Swings

Investors are bracing for a stormy summer, as steady asset-price gains fueled by bottomless central-bank liquidity have given way to sharp swings jolting stocks, currencies and commodities alike.

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Good FT piece by David Rosenberg today: The Fed has turned things upside down

  • That is how the Fed has turned things so upside down and inside out. Investors in the Treasury market today are not there for the income but for the prospective capital gain should yields decline. And when you look at the sectors that have done best this year on a risk-adjusted basis, they are the stodgy defensives for the most part that carry a 3.5 per cent dividend yield – investors are here not for the capital gain (though it is always welcome) but for the income. Equities for income and bonds for capital gains. How fascinating.
  • Yet, in the past month, more than 60 per cent of the incoming US economic data have come in below expectations versus 34 per cent above expectations. Two months ago, only 42 per cent of data were disappointing and 53 per cent surprising to the upside.
  • While there has been some reversal in recent weeks, the defensive segment of the stock market is up nearly 20 per cent so far this year versus just over 10 per cent for the cyclicals in the largest outperformance in a good 15 years.
  • Cyclical stocks command an average yield of only 1.8 per cent and you can see how income-hungry investors in the stock market are paying up for the yield characteristics: at a price/earnings multiple of nearly 19 times, the defensives command a 20 per cent multiple premium over their economically-sensitive cousins.
 

NEW$ & VIEW$ (4 JUNE 2013)

Sad smile  Weak Signs for Output

U.S. factories in May posted their worst month since the end of the recession, as weakness overseas overwhelmed a still-shaky manufacturing recovery at home.

(…) The ISM report showed weakness across the board, with current production declining, employment remaining stagnant, and new orders falling—an especially worrisome sign because it provides little hope for improvement in the months ahead. Brad Holcomb, chairman of the ISM’s manufacturing-survey panel, flagged the decline in new orders as particularly troubling. “I don’t recall the last time” more industries saw declines in new orders than growth, he said.

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“It’s not a glitch,” John Silvia, chief economist at Wells Fargo, said of Monday’s report. “It suggests that there is a more fundamental slowdown in the U.S. economy.”

Mr. Silvia estimates economic growth, as measured by gross domestic product, has slowed to 1.2% in the second quarter, from an already tepid 2.4% rate in the first three months of the year. (…)

Surprised smile  SURPRISE ISM

That report pushed the Citigroup U.S. Economic Surprise Index to its second-lowest reading since early February. The index — which measures the degree to which economists’ consensus estimates have been too optimistic or pessimistic about data releases – fell to negative-22.6. It has been in negative territory for all but two trading days since mid-April. (…)

It’s not just manufacturing data that have been weak. Jobless claims have risen in three of the past four weeks, economic growth during the first quarter was revised lower last week and inflation has slowed to a near standstill.

Auto  U.S. Car Sales Signal Plateau

Overall, consumers and businesses bought vehicles at an annualized rate of 15.3 million vehicles, according to researcher Autodata Corp., the fourth month this year that sales have exceeded a 15 million vehicle pace. However, May’s sales pace was only slightly above the average for the first five months of 2013.

In anticipation of another strong year, U.S. car makers are limiting their traditional summer shutdown to keep cranking out cars. Ford plans to increase its third quarter U.S. production by 10% from a year ago to 740,000 vehicles. (…)

Some auto makers are paying extra rebates to push dealers to increase sales, a practice known as stair-step incentives. For example, Chrysler dealers who met certain month-end sales goals were paid a rebate of $600 a vehicle, while Nissan dealers got up to $500 a vehicle for hitting its targets, according to dealers.

The payments can amount to anywhere from $50,000 for a small dealer to several hundred thousand dollars for larger dealership groups, dealers say. Chrysler and Nissan declined to comment on their programs.

CalculatedRisk

Trend to watch:

 

Haver Analytics

Sad smile  U.S. Construction Spending Inches Higher

 

U.S. construction activity remains limited to private housing.

 

 

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Haver Analytics

Green with envy  Government to Hold Back Growth for Years

Shifting government finances are likely to take an even bigger bite out of growth over the next few years than many now expect, economists at the San Francisco Fed warned Monday.

In a research note, Brian Lucking and Daniel Wilson write fiscal policy headwinds will subtract one percentage point from growth over the next three years beyond the normal fiscal drag that usually comes during times of recovery. If not for the current and likely future stance of fiscal policy, the economy would be growing at a faster rate, which would allow for more robust job growth and, presumably, a more normal stance of monetary policy for the Federal Reserve.

“Federal fiscal policy has been a modest headwind to economic growth so far during the recovery,” the economists wrote. But due to a more rapid than expected contraction in the budget deficits, due largely to rising tax revenue, “federal budget trends will weigh on growth much more severely over the next three years.” (…)

“While our estimates show that fiscal policy has held back the recovery slightly to date, the effect over the next three years looks much bigger,” they wrote. “The excess fiscal drag on the horizon comes almost entirely from rising taxes.”

Fingers crossed  CONSUMER HOPES

American consumers always seem to come to the rescue. Weekly chain store sales jumped 1.9% last week, offering hope for a decent summer for retailers. The 4-week m.a., although still in a downtrend,  is up 2.8%, its best showing since January.

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Fingers crossed  Spanish Job Seekers Fall

[image]The number of registered job seekers in Spain fell in May by a record amount and for the second consecutive month, the latest sign that unemployment in the recession-hit economy may be close to peaking.

Spain’s labor ministry said Tuesday the number of people filing for jobless benefits fell 2% to 4.89 million in May from April, the lowest mark since December last year. The number of job seekers fell by 98,265, the largest drop in the month of May ever, the ministry said. The decline was almost double the average fall in May, traditionally a good month for employment because of strong hiring ahead of the summer holiday season.

Still, seasonally-adjusted claims, a gauge of underlying unemployment trends, were practically flat—a fall of just 265 from April—and overall jobless claims still rose 3.8% from May last year.

Spain’s Crisis Fades as Exports Transform Country

Spanish exports climbed to a record 223 billion euros ($291 billion) last year as a drought in orders at home pushed companies to upgrade products and go abroad. (…)

The European Commission forecast in May that exports will grow 4.1 percent this year, almost twice the European Union average rate. Exports of goods and services as a share of GDP, at 32 percent, was the highest last year since at least 2000, Eurostat figures show. Sales are rising at double-digit rates in fast-growing markets in Asia and Africa, according to Trade Ministry data. (…)

In the last two years, the number of companies that export has jumped by more than 10 percent each year, compared with an increase of 1.7 percent in 2010, data from government agency Icex show. (…)

Exports with high-technology content increased by 14 percent in 2011, after a 17 percent surge in 2010, according to the most recent data available, published by the statistics institute. (…)

U.K. Retail Sales Rose in May on Furniture Demand, BRC Says

Sales at stores open at least 12 months, measured by value, increased 1.8 percent from a year earlier, the London-based trade group and KPMG said in an e-mailed report today. Total sales rose 3.4 percent.

Canadians still piling on consumer debt – but at a slower pace

The good news is that – compared with the fourth quarter of last year – consumer debt in the first quarter fell 2 per cent to $26,935, the first quarterly decline since the third quarter of 2011 and the biggest one since TransUnion started tracking the variable in 2004.

Another encouraging sign is that the year-over-year increase of 3.48 per cent is lower than the increases of the previous two quarters: 5.87 per cent in the fourth quarter of 2012 and 4.60 per cent in the third quarter of last year.

Beijing Caps Home Prices to Control Demand (Pointing up This is a long BB article worth reading. Some excerpts:)

The city has enforced citywide price caps since March by withholding presale permits for any new project asking selling prices authorities deem too high, according to developer Sunac China Holdings Ltd. (1918) and realtor Centaline Group. Local officials will need further tightening as they struggle to meet this year’s target of keeping prices unchanged from last year, said Bacic & 5i5j Group, the city’s second-biggest property broker. (…)

New-home prices in Beijing rose by 3.1 percent in April from the previous month, the biggest gain among the nation’s four so-called first-tier cities, and climbed by the most after Guangzhou in May, according to SouFun Holdings Ltd. (SFUN) They rose in each of the first five months of this year. (…)

New-home price gains in April, the biggest since they reversed declines in November, came even after Beijing on April 8 raised the minimum down payment on second-home mortgages to a record 70 percent and banned single-person households from buying more than one residence, a response to former Premier Wen Jiabao’s urge to counter surging values. (…)

Japan Wages Gain in Boost for Abe’s Drive to Reflate Economy

Monthly wages including overtime and bonuses rose 0.3 percent from a year earlier to 273,427 yen ($2,746), the Labor Ministry said today in Tokyo. The index of regular earnings, excluding overtime and bonuses, for full-time employees rose to 100.9 in April, the highest since October 2008, according to today’s report.

Major Japanese companies may boost summer bonuses by 7.4 percent, the most since 1990, according to a survey published last week by Keidanren, the country’s biggest business lobby.

Sick smile  Japan’s Market Skid Has Bulls Reeling

[image]At a hedge-fund conference in Las Vegas last month, Michael Novogratz, a principal at New York’s Fortress Investment Group, called Japan “the most exciting place to invest in the world.”

The bet paid off big, at first: The benchmark Nikkei 225 index soared 83% over the seven months to late May. Foreigners fell in love again with a market they had long ago left for dead.

Then, the rally turned with a vengeance. The Nikkei sank 7.3% on Thursday, May 23. It fell 3.2% the next Monday, 5.2% the following Thursday and then 3.7% on Monday of this week. It has fallen 15% in just eight trading days. Mr. Novogratz didn’t return phone calls seeking to determine what he has done with his investments.

US funds left bruised by heavy bond losses
Sharp rise in global yields takes toll

US funds that invest in higher-rated bonds with average maturities of under 10 years lost an average 1.8 per cent in May, marking their worst performance since the depths of the financial crisis in October 2008, according to Lipper, a research group.

Such a broad decline has been rare for these funds. With more than $900bn in assets, these investment vehicles have attracted the lion’s share of inflows from savers in search of regular income and low risk since the crisis.

Ben Bernanke may have to refresh his notions of wealth effect!