NEW$ & VIEW$ (21 MAY 2013)

Posted on May 21, 2013 by Denis Ouellet

Chicago Fed: Economic Activity Was Slower in April

According to the Chicago Fed’s National Activity Index, April economic activity slowed from March, now at -0.53, down from March’s -0.23. This index has been negative (meaning below-trend growth) for eleven of the past fourteen months. (Doug Short)

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The next chart highlights the -0.70 level and the value of the CFNAI-MA3 at the start of the seven recession that during the timeframe of this indicator. The 1973-75 event was an outlier because of the rapid rise of inflation following the 1973 Oil Embargo. As for the other six, we see that all but one started when the CFNAI-MA3 was above the -0.70 level.

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Developed Economies See Slight Growth

Developed economies returned to growth in the first three months of the year, although the euro zone continued to lag behind the U.S. and Japan, according to figures released by the Organization for Economic Cooperation and Development.

In the United States, the CLI continues to point to economic growth firming. In Japan, it indicates that growth should remain above trend.
In the Euro Area as a whole, the CLIs continue to indicate a gain in momentum. In Germany, the CLI shows that growth is returning to trend. In France, the CLI points to growth close to trend rate. As in April, the CLI points to a positive change in momentum in Italy.

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

German Central Bank Sounds Upbeat Note

The German economy is due to recover at a stronger clip in the current quarter than in the first three months of the year, but the euro-zone debt crisis remains a significant risk, Germany’s central bank wrote Tuesday.

Both an expected recovery in construction after weather delays in the winter and encouraging signs from the industrial sector support the outlook, the Bundesbank said. (…)

The bank said that not only would a “catch-up effect” in the construction sector following a rough winter contribute to growth, but the “noticeable increase in industrial new orders after the weak beginning of the year generates hope that exports and equipment investment,” two traditional growth drivers of the German economy, will increase. (…)

Markit’s latest PMIs were not that upbeat:

Germany’s manufacturing sector started the second quarter of 2013 with declines in output, new orders and employment. As a result, the final seasonally adjusted Markit/BME Germany Purchasing Managers’ Index® posted below the neutral 50.0 mark in April. At 48.1, down from 49.0 in March, the latest reading indicated a moderate worsening of overall business conditions, and the rate of deterioration was the most marked since December 2012.

The final seasonally adjusted Markit Germany Composite Output Index – which measures the combined output of the manufacturing and service
sectors – dropped to 49.2 in April, from 50.6 in March. This was below the 50.0 no-change value for the first time in five months and signalled a marginal reduction of overall private sector output in Germany.

Chile’s Economy Slows Sharply, As Hit From Copper Price Fall Dazes The decline of copper prices this year has started to undermine the economy of Chile, the world’s leading source of the red metal.

The Andean nation Monday reported annual gross domestic product growth of 4.1% in the first quarter, less than the 4.5% expected. Even adjusted for the Easter holiday, which fell in March this year and April last year, growth was still 4.7%, pretty good relative to most other parts of the world. But it was a full percentage point below Chile’s 5.7% expansion in the last quarter of 2012.
Moreover, its seasonally adjusted quarterly growth was just 0.5%, making for an annualized rise of about 2%.
No one expects Chile’s economy to downshift to that extent this year after growing 5.6% in 2012. But it’s now highly likely to grow closer to the bottom end of the central bank’s 4.5% to 5.5% forecast range.

LONG TIME CLOSE FRIENDS PARTING WAYS

Highly unusual divergence.

U.K. Inflation Rate Falls More Than Forecast to 2.4% U.K. inflation slowed more than economists forecast in April to a seven-month low and producer prices rose the least since 2009 as fuel costs fell.

EARNINGS WATCH

S&P’s just updated earnings tally to May 17:

Of the 465 (93%) companies having reported, 66% beat and 26% missed. The miss rate rose to 58% last week, up from 48%, 28% and 21% in each of the previous weeks respectively.
Q1 EPS are now estimated at $25.74, down 0.8% from last week but up 1% from the estimate on March 28. Q2’13 estimate is $26.69, up $0.06 from last week but down 3% from March 28. The full 2013 estimate, at $109.69 is down $0.20 from last week and 1.3% from March 28.
Trailing 12-month EPS should total $98.32, down $0.22 from last week and up only 1.5% QoQ and +0.2% YoY.

Earnings preannouncements for Q2 as of May 16 (from Factset):

MARKET HISTORY

Here is an interesting statistic to think about for a moment.

The current rise in the stock market has gone uninterrupted for 181
days which is the longest period in the history of the stock market.
Think about that for a moment.

Over the last 113 years of stock market history we are now witnessing the longest rise – ever. Every single time in history, when the markets have gone on extended runs, they have NEVER, not once, lasted as long as the current artificially fueled advance. What do you think is likely to happen next? (Lance Roberts)

NEW$ & VIEW$ (17 MAY 2013)

Posted on May 17, 2013 by Denis Ouellet

PHILLY FED SURVEY: ANOTHER WEAK REGIONAL PMI

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from 1.3 in April to -5.2 this month. The current activity index has shown no pattern of sustained growth over the past seven months, generally alternating between positive and negative readings. The number of firms reporting decreased activity this month (29 percent) edged out those reporting increased activity (24 percent).

The demand for manufactured goods remained weak, with the current new orders index declining from -1.0 to -7.9. The shipments index also indicated weakness, decreasing more sharply from 9.1 to -8.5. Firms reported a notable increase in inventories this month: The current inventories index increased from -22.2 to 4.1.

Labor market conditions showed continued weakness, with indexes suggesting lower employment overall. The employment index decreased 2 points to -8.7, its second consecutive negative reading. The percentage
of firms reporting employment decreases (22 percent) exceeded the percentage reporting increases (14 percent). The workweek index declined 10 points to -12.4, remaining negative for the fifth consecutive
month.

Jobless Claims Spike by 32,000

The number of U.S. workers seeking new unemployment benefits jumped last week after trending down much of the spring, showing the uneven nature of the job market’s recovery.

It was the largest one-week gain in new benefit requests since November 2012. The prior week’s level was revised up by 5,000.
The four-week moving average of claims, which smooths week-to-week volatility, increased by 1,250 to 339,250. The prior week’s average, which was revised up slightly, was the lowest level since January 2008, just after the most recent recession started.

(Bespoke Investment)

Executives upbeat on world economy

Positive trend continues from start of year

Of the more than 1,600 business people polled, 27 per cent expected conditions to improve, against 21 per cent who expected the outlook to worsen. The rest thought conditions would stay the same.
The figures continue the positive trend that began earlier this year, when executives were more upbeat on the global outlook than gloomy for the first time since mid-2011. In February, 29 per cent thought conditions would improve and 22 per cent thought they would deteriorate.

Strangely, I don’t read the story with quite the same “upbeat” suggested by the title. Given that current world conditions are nowhere near good, the fact that only 27% expect them to improve is nothing to write home about. It also seems to me that the ratios have deteriorated some since February. World shippers were likely not among the upbeat folks in this survey. Read on:

Maersk Warns of Subdued Demand

“Global demand for seaborne containers is expected to increase by 2% to 4% in 2013, lower on the Asia-Europe trades but supported by higher growth for imports to emerging economies,” the company said.
Indications for the first quarter of 2013 “show modest improvements in the global demand for container transport, reflecting the weak economic situation, especially in developed countries.”
“Demand is expected to stay subdued in 2013 while capacity will grow significantly. Accordingly, conditions for the container industry remain challenging and managing supply will be even more important this year,” it said.

Japanese machinery orders see monthly rise

Companies more confident about investing in equipment

Japanese core machinery orders jumped a bigger-than-expected 14.2 per cent in March, the quickest monthly pace in eight years, in a sign a weaker yen and surging stock prices are making companies more confident about investing in equipment.
Manufacturers surveyed by the government expect core orders to fall 1.5 per cent in April-June from the previous quarter after flat growth in the first three months of this year, the Cabinet Office data showed.

Growth shows signs of fatigue in Mexico

Estimates suggest worst quarterly figures since 2009

Spain Posts First Trade Surplus on Record

Imports dropped 15 percent in March from the same month a year ago while exports rose 2 percent.

Europe Car Sales Post First Gain in 19 Months on Germany

Registrations in April increased 1.8 percent to 1.08 million vehicles from 1.06 million cars a year earlier, the Brussels-based European Automobile Manufacturers’ Association, or ACEA, said today in a statement. Four-month sales fell 7 percent to 4.18 million vehicles. (…)

Car sales in the region fell 8.7 percent in January and 10 percent in February and March.
Regional car sales last month were helped by the most of the Easter holiday shifting to March this year from April in 2012. The decline may resume for the rest of this year, though at a slower rate than in the earlier months, according to estimates by IHS Automotive Research.
Auto sales in Germany, Europe’s biggest economy, rose 3.8 percent in April, ending five months of drops. Registrations surged 15 percent last month in the U.K., the only car market of Europe’s top five to grow in 2012, and 11 percent in Spain. French auto sales fell 5.3 percent and demand in Italy dropped 11 percent. (…)

S&P affirms negative outlook on India; warns of downgrade risk

Storm cloud Finally, this China update from CEBM Research:

The conclusion from our mid-month steel trader survey is that actual sales remained weak and the traditional peak season was almost non-existent this year. Furthermore, nearly all respondents do not expect a strong rebound in the steel market next month. (…)

The cement market has continued to recover over the past two months.

Most construction machinery dealers surveyed mentioned that sales in the first half of May were lower than their expectations. It is likely that construction machinery sales in May will achieve only modest Y/Y growth. In general, the peak season for construction machinery sales has passed, and the market in May has become tepid.

Bank credit has been tightened. Respondents from Shanghai mentioned that since a contract scandal involving false inventories was revealed recently, banks have tightened mortgages and some have even raised lending rates by 30% to 40%.

In summary (chart from ISI)

U.S. INFLATION

US consumer prices drop most in four years

The labour department’s consumer price index edged 0.4 per cent lower, the largest decrease since December 2008 when the US was suffering some of the darkest days of its financial crisis. The decline was greater than the 0.2 per cent dip in March and economists’ expectations of a 0.3 per cent decline.
Much of April’s drop was driven by an 8.1 per cent slide in petrol prices, the most since December 2008, following a less severe 4.4 per cent fall in March. The average price for a gallon of unleaded petrol fell by about 13 cents in April, ending the month at $3.51, according to AAA.
This drove overall energy prices down 4.3 per cent in April, following a 2.6 per cent drop in the previous month. Food prices rose 0.2 per cent.
This weakness extended to the measure for core prices, which excludes the volatile food and energy segments. Core prices increased 0.1 per cent, less than projected.

Data Quirks May Ease Fed’s Mind on Inflation Slowdown

One set of inflation measures, which Fed watches very closely, is down a lot more than another set of inflation measures, which the public watches closely.

The disparity between core PCE (1.13%) and core CPI (1.70%) is especially striking. (…)

There’s reason to be cautious about the PCE number. Though Fed officials favor it — because they believe it does a better job reflecting changes in the economy — there have been some quirks in it lately.
One of them is a measure known as “financial services furnished without payment.” This is the government’s way of tracking what households pay for bundled bank services like access to ATM machines or check-writing. “This would be any service provided by a bank for which there is no explicit payment,” says Brent Moulton, the associate director of the Bureau of Economic Analysis. Without a market price to go on, the Commerce Department imputes a cost to consumers for these services based on complex formulas that move as interest rates shift.
It turns out that right now interest rates are shifting in a way that drives down the imputed value of this service. In the first quarter the price of this service fell 2.2% from a year earlier and since the second quarter of 2011 it has fallen on average by 1% annually, according to the Bureau of Economic Analysis. These measures are down largely because interest rates are falling, Mr. Moulton said, not necessarily because the actual cost of the service is going down. Strip out the quirky number and the decline in core consumer prices was 0.2 percentage points less severe in the first quarter than the official figure, according to Bureau of Economic Analysis data. A measure which strips out all imputed prices in the core consumer price index was up 1.31% in March, again more than the 1.13% number.
Underlying inflation, in other words, perhaps wasn’t slowing quite as much as the Fed’s favored measure suggested.
Because the Labor Department’s consumer price index doesn’t perform these kinds of imputations, its consumer price measures warrant close monitoring right now. The CPI index has its own quirks — including the heavy weight it places on home rental costs. Still, it might be telling a meaningful story about the true underlying inflation trend. Up 1.7% from a year earlier, the core consumer price index change suggests that inflation has indeed slowed, but not to the alarmingly low levels that the PCE numbers imply.
That — along with stable inflation expectations — helps explain why Fed officials themselves haven’t yet expressed too much concern about inflation getting too low or deflation threats growing.

There’s more: US INFLATION IS ACTUALLY STUCK AT 2.0%

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (1.8% annualized rate) in April. The 16% trimmed-mean Consumer Price Index increased 0.1% (1.0% annualized rate) during the month. The BLS reported that the seasonally adjusted CPI for all urban consumers fell 0.4% (-4.3% annualized rate) in April. The CPI less food and energy increased 0.1% (0.6% annualized rate) on a seasonally adjusted basis.

Over the last 12 months, the median CPI rose 2.1%, the trimmed-mean CPI rose 1.6%, the CPI rose 1.1%, and the CPI less food and energy rose 1.7%

Pointing up However you slice it, U.S. inflation is 2.0% so far in 2013. Core CPI, median CPI and the 16% trimmed-mean CPI have all rise at a 2.0% annualized rate since December 2012. The 0.5% jump in core CPI in Jan-Feb has not been followed by a decline. Rather, core prices have kept rising by 0.1% per month. The median CPI has gained 0.2% monthly in all of the last 6 months but one. All this to say that, in spite of strong desinflationary trends across the world, U.S. core inflation is showing no signs of slowing below 2.0%.

Housing-Permit Surge Suggests Blip

Housing starts fell 16.5% in April to a seasonally adjusted annual rate of 853,000 units, the lowest level since last November but still up 36% from the level of a year earlier.

Multifamily homes with at least five units plunged 37.8%. Single-family home construction dropped by 2.1% to an annual rate of 610,000 units in April, the second straight monthly drop and the lowest level reported this year. Housing starts can be volatile, due in part to weather, and can be subject to large revisions.

Building permits, which are less volatile and serve as a leading indicator of future construction, rose to the highest level since June 2008. They increased 14.3% to an annualized rate of 1.02 million in April. (…)
The pullback in housing construction comes amid reports from home builders that they are deliberately slowing their rate of expansion in order to boost prices at a time when inventories of homes for sale are already extremely low. Rising land costs in some markets, higher costs of building materials, and difficulty in finding skilled workers have also cut into their margins.

Nearly 60% of builders in April said that they had slowed their sales pace in at least one new-home community by limiting the release of new homes or boosting prices, according to a survey released earlier this week by research firm Zelman & Associates. That dynamic isn’t limited to solely California and other Western markets that have witnessed the strongest price growth, according to the Zelman report. Builders in less-heated markets from Texas to the Carolinas to Detroit have also been managing sales.

Tepid Earnings Season Doesn’t Sway Investors

A so-so first-quarter earnings season hasn’t dented investors’ enthusiasm for stocks.

Of the 458 companies in the Standard & Poor’s 500-stock index that have reported results, 70% have beaten forecasts for earnings, in line with the average for the past four years. If results continue as projected, first-quarter earnings will rise 3.4% from the previous year, according to FactSet.
Meanwhile, sales have come in below forecasts, declining 0.2%, while analysts had expected 0.5% growth. Among companies that have reported, 48% beat Wall Street’s projections for sales, below the average of 52% from the past four years, according to FactSet.

China Wages Rose Sharply in 2012 Wages in China continued to climb at a double-digit pace last year despite a slowing economy, with inflation-adjusted wage growth actually accelerating from 2011.

Average wages for employees at non-private enterprises were up 11.9% from the year before in nominal terms, to 46,769 yuan ($7,543), the National Bureau of Statistics said in a statement Friday, compared with a 14.4% pace in 2011.
Non-private enterprises include state-owned companies, listed companies and joint ventures.
Average wages for employees at private companies were up 17.1% to 28,752 yuan, compared with an 18.3% pace in 2011.
With inflation taken into account, wages of employees at nonprivate companies were up 9% in 2012 from a year earlier, exceeding 2011′s 8.5% pace. Real wages in the private sector were up 14%, accelerating from 12.3% in 2011.

Bergsten Warns of Currency Wars in Peterson Valedictory Speech In his valedictory speech as the head of one of the most respected economic think tanks in the world, Fred Bergsten issued a clarion call about “a clear and present danger” that continuing “currency wars” represent to the U.S. economy, global trade and the international monetary system.

“Virtually every major country is seeking depreciation, or at least non-appreciation, of its currency to strengthen its economy and create jobs,” he said in prepared remarks to the Peterson Institute of International Affairs Thursday afternoon.
Those currency tensions, and the policies that are fueling them, are costing the U.S. economy millions of jobs and threatening to create the kind of global problems that contributed to the Great Depression, he said.

NEW$ & VIEW$ (16 MAY 2013)

Posted on May 16, 2013 by Denis Ouellet

U.S. Industrial Production Moves Lower

Activity in the factory sector is weakening. Industrial production fell 0.6% during April following a 0.3% March increase, earlier reported as 0.4%. Declines in activity were broad-based amongst industries last month. Factory sector production fell 0.4% (+1.4% y/y) following its unrevised 0.2% March slip. Utility output reversed course and fell 3.7% (+3.4% y/y) following a 6.4% March owing to warmer-than-normal temperatures.
The drop in factory sector output reflected across-the-board industry weakness. Consumer goods production fell 0.6% (+2.3% y/y) as motor vehicle output dropped 1.2% (+5.2% y/y). Elsewhere, appliance, furniture & related goods production fell 0.8% and was unchanged y/y. In the nondurables area, apparel output fell 1.6% (-2.9% y/y) while paper production dropped 0.6% (-1.9% y/y). For business equipment, output fell 0.5% (+3.5% y/y). Output of information processing and related equipment fell 0.5% (+3.2% y/y) and transit equipment production fell 0.5% (+5.9% y/y). Excluding the output of high tech products & motor vehicles, production fell 0.5% (+1.8% y/y) during April.
The capacity utilization rate fell to 77.8% from a downwardly revised 78.3% in March.

Pointing up Everything is slowing! Might it be because of the following?

Currencies react to Bank of Japan’s recent monetary moves

These are big, big moves!

The Wall Street Journal Dollar Index, which tracks the dollar against a basket of currencies, has advanced 6% since the start of the year. The rise again the yen is even stronger.

EMPIRE STATE MANUFACTURING TURNS SOUTH

The general business conditions index fell four points to -1.4, its first negative reading since January. The new orders index also edged into negative territory, and the shipments index fell to zero. Employment
indexes were mixed, showing both a modest increase in the number of
employees and a slight decline in the length of the average workweek.

New orders have been weakening for 3 months before crossing below the zero line (-1.17)in May.

Interesting:

After Prices Paid, the next largest decline came in the Average Workweek, which fell from 5.7 in April to negative 1.1 in May. The decline in the average workweek comes on the heels of the Non-Farm Payrolls report two weeks ago, where the average workweek also showed a sizable decline. It is still early, but this could be an early indication that employers are cutting hours in an effort to stay below the thresholds that would require providing health coverage under the Affordable Care Act. (Bespoke Investment)

Home-Sales Expectations Hit 5-Year High

The National Association of Home Builders said Wednesday that its housing-market index was 44 in May, up three points from April. All three components of the index rose, with builders’ expectations of sales for the next few months hitting the highest level since February 2007.

High five Curb your enthusiasm:

A reading above 50 in the NAHB index means that more builders view conditions as good rather than poor. The overall gauge hasn’t been in positive territory since April 2006. At the height of the building bubble, readings were in the high 60s and low 70s.

(Charts from Haver Analytics)

Look at this next chart from BMO Capital remembering that Canada is the U.S. main trading partner.

JAPAN, the only growth game in town:

Japan Reports Growth Surge

The country’s gross domestic product, the broadest measure of goods and services produced across the economy, grew at an annualized pace of 3.5% in the first three months of the year, as consumers loosened their purse strings and exports to the U.S. picked up, lifted by a weaker yen.
The figures reported by the government early Thursday marked a sharp improvement from the tepid 1% growth rate at the end of last year, which followed six months of contraction.

A government official said the GDP data showed consumers spent more overall, particularly on recreation, cars and dining out, and exports were lifted by stronger car exports to the U.S.

The price of imported goods from Japan fell 0.6% during April, the largest monthly decline since September 2008. The fall in import prices from Japan over the past three months parallels a drop in the Japanese yen relative to the U.S. dollar, the Labor Department said. Japan, the fourth largest trading partner with the U.S., is an important supplier of consumer goods and vehicles.

Baring teeth smile It will not take much more before U.S. manufacturers start complaining about the weak Yen.

Of course, quite a lot happened after the end of Q1 as well.
It was just in early April that the BoJ announced open-ended QE and promised to double the monetary base, while prime minister Shinzo Abe pledged to boost competition in the quasi-monopolistic power sector. Since then the yen broke 100, the stock market continued soaring, and in recent days Japanese government bond yields have sold off. Even activist investors from the US are taking notice.
But it is early days yet. The unexpectedly strong first quarter growth numbers were driven mainly by exports — to be expected given the yen’s continued decline. (FT Alphaville)

How long will the ROW allow Japan to poach?

CHINA

Foreign Investment in China Lags

Foreign direct investment in China sputtered in the first four months of the year, despite renewed signs of strength from the U.S. and the European Union, showing only a modest 1.21% rise from a year ago.

Foreign direct investment in China was $38.3 billion in the January to April period, including $8.4 billion in April, for a feeble 0.4% rise from April 2012. (…)
Investment from the U.S. was up 33.2% over last year in the four-month period, inflows from the EU rose 29.7%, while Japanese investment climbed 9.2%. But investment from the rest of Asia was very weak, rising just 0.21% from a year earlier.

More signs of weakness: China’s freight traffic was unchanged MoM in April, +7.8% YoY, same as in March. YTD to April: +8.7% YoY, down from +12% in 2012. Looks slower to me. April coastal container throughput was up 8.6% YoY, +8.4% YTD.

China Signals Concern at Yen Weakness as Japan Growth Quickens

Japan’s policy of monetary easing “makes it hard for China to increase exports to Japan,” Shen Danyang, a ministry spokesman, said at a briefing in Beijing today. The rising yuan is eroding profit margins of Chinese exporters, he said. (…)

A survey by the ministry found that the profit margins of 78 percent of exporters are narrowing, and 73 percent will report flat or lower profits for 2013, Shen said. Exporters at the Canton Trade Fair in April and May didn’t want to accept long-term orders because of concerns that the yuan will gain, he said.

Beijing signals concern at rising jobless

Li warns on challenge of finding work for graduates

(…) In a nationwide teleconference on Monday that was widely reported in state media on Wednesday, Mr Li said that nearly 7m tertiary students would enter the job market in July in China, the largest number in the country’s history.
He said it was an “important task” to find jobs for all these graduates, who make up a demographic considered potentially threatening to Communist Party rule if they become disaffected in large numbers.
“In the first few months of the year, as economic growth has slowed the employment trend has remained stable but employment pressures remain and the problem of employment for tertiary students is particularly prominent,” Mr Li said, according to a transcript of his speech.
But Mr Li also disappointed many investors by ruling out a large government-directed stimulus or investment boom this year.
“To achieve this year’s development targets the room to rely on stimulatory policies and direct government investment is not big and we will need to rely on market mechanisms,” Mr Li said. Relying on government efforts to boost growth “is not only difficult to sustain but also creates new problems and risks”. (…)
Disgruntled students have played a powerful destabilising role throughout modern Chinese history, leading enormous social movements in 1919, in the 1966-1976 Cultural Revolution and in the Tiananmen Square movement in 1989. (…)
Of the nearly 7m students who graduate in July most of them have not yet found jobs and the employment rate for these people is lower than in the past, according to state media reports.
By late last month, just 28 per cent of graduating students in Beijing had been hired while the rate was 29 per cent in Shanghai and 47 per cent in southern Guangdong Province.
The official urban unemployment rate in China was just 4.1 per cent by the end of March but the figure is regarded as deeply unreliable because it does not capture many demographic groups such as fresh graduates.

EUROPE

European Recession Is Longest Since War

The euro-zone debt crisis has mutated into Europe’s longest slump of the postwar era, with no recovery in sight for a broad swath of the continent.

(…) Depression-like conditions in Southern Europe, combined with slowing global growth, are dragging down the core economies: Germany is barely growing and France is steadily contracting.

The 17-nation euro zone, which accounts for 17% of world GDP, remains the weakest link in the global economy, mired well below its level of economic activity before the 2008 financial crisis. Social strains, political paralysis and rising debt burdens are reigniting doubts about its economic future. (…)
Business surveys for April suggest the euro-zone economy could well shrink again in the second quarter. (…)

Sustained Pain

Italy airs pessimistic view on recovery

Government has little room for stimulating growth

(…) “I don’t see any signs of recovery at the moment,” commented Emma Marcegaglia, president-elect of Business Europe.
“The credit crunch is strong, internal demand and the construction sector are very bad, exports are slowing and investments have stopped. The recession is very severe,” she told the Financial Times.
At best, she said, the eurozone’s third-largest economy might see a bottoming out of its longest postwar recession in the final quarter of 2013. On the bright side, analysts noted the pace of contraction was declining more slowly than in the final quarter of 2012 when GDP shrank 0.9 per cent. (…)
By July the government needs to find a further €2bn to avoid a scheduled increase in sales tax although declining tax revenues put that goal in doubt, with Rome promising Brussels that it will stick to its budget targets in order to escape from the European Commission’s excessive deficit procedure. (…)
Bankers are starting to sound rather more upbeat however. Reporting quarterly results in recent days, the heads of Italy’s largest banks share the view that the recession is bottoming out.
The strongest indicator came from loan loss provisions which fell in the first three months of the year from the end of 2012 at UniCredit, Italy’s largest bank by assets. Intesa Sanpaolo, its largest retail bank, said inflows of bad loans were down by a third, quarter on quarter.

Euro Zone Runs Record Trade Surplus

Adjusting for seasonal effects, exports grew 2.8% from February, while imports fell 1.0%, to give a surplus of €18.7 billion, up from €12.7 billion in February.

March is really the first solid month in a while. Let’s see a couple more months, given that the EZ export markets all seem to be slowing now, perhaps because their own exports to the EZ are collapsing.

Slovenia Premier Bratusek Defies Markets With No-Aid Vow

(…) Bratusek says time is what she needs to fix the banks — by deploying a rescue package she opposed before she came to office — and that her nation won’t need an international rescue. By next month, she promises, her coalition government will begin swapping as much as 4 billion euros ($5.2 billion) in bad bank loans for government-guaranteed debt. After eight weeks in office, investors are questioning whether she can deliver.

“Talk is cheap,” Egon Zakrajsek, a Slovenian-born Federal Reserve economist in Washington, said in an e-mail. Slovenia needs “fundamental economic and social reforms” to restore market confidence and “neither the current government nor any of its predecessors has been able to deliver.” Zakrajsek said he was commenting in a private capacity. (…)
Slovenia’s overhaul drive has “failed to deliver on transparency and thus credibility, consistent with our concerns about implementation risks,” Mai Doan, an emerging-markets economist at Bank of America Merrill Lynch in London said in a note to clients today. The program could “disappoint the European Commission, which would probably prefer more rigorous measures and transparency.”
Opening the door to a bailout would expose Bratusek to the risk of having to impose Greece-like austerity measures in return for aid.

EARNINGS WATCH

Wal-Mart Second-Quarter Forecast Trails Estimates

Wal-Mart Stores Inc., the world’s largest retailer, forecast second-quarter profit that was less than analysts estimated as shoppers struggle amid the slow U.S. economy and higher taxes.
Earnings per share will be $1.22 to $1.27, the Bentonville, Arkansas-based company said today in a statement. Analysts had projected $1.29, the average of 24 estimates compiled by Bloomberg.
Sales at U.S. Wal-Mart stores open at least 12 months excluding fuel fell 1.4 percent, the first decline after six straight gains. Analysts estimated a 0.1 percent decline.

Look at the rare long flattening in earnings. The tail wind to equities from rising profits has disappeared. Hmmm….

NEW$ & VIEW$ (6 MAY 2013)

Posted on May 6, 2013 by Denis Ouellet

Job Gains Calm Slump Worries

Nonfarm payrolls rose by 165,000 last month and the jobless rate ticked down to 7.5%, the lowest level since December 2008. The Labor Department also significantly raised hiring estimates for the two prior months, by a combined 114,000 jobs. (…)

The increase in 176,000 private-sector jobs, on top of a loss of 11,000 government jobs, was concentrated in a handful of service industries. The professional and business-services sectors added 73,000 jobs, including 31,000 temporary workers. Manufacturing employment stalled and construction employment contracted after gains earlier in the year.

High five But, as Markit notes:

So far this year, 783,000 new jobs have been created, comprised of a 813,000 rise in the private sector and a 30,000 drop in government jobs. That compares less favourably with last year, when a 899,000 increase
was seen in the four months to April, buoyed by a 916,000 increase in the private sector.

Sad smile In reality, after 4 months, the U.S. economy, still on hyper-strong financial heroin, has created 13% fewer jobs than during the same months in 2012.

Americans actually worked less last month because of a 0.2- hour drop in the workweek, resulting in total hours worked dropping 0.4% for the month. The U-6 underemployment rate, which covers folks who are working part-time but want full-time gigs or have stopped looking for work, ticked up to 13.9% from 13.8%, the first rise since last July, Philippa Dunne and Doug Henwood of the Liscio Report note. And in the household survey, some 306,000 joined the ranks of the self-employed, more than the total 293,000 overall gain. (Barron’s)

And this from NBF:

Private employment expanded by a consensus-beating 176,000 during the month. The rise, however, was not widespread as only 53.9% of industries increased their headcounts, the lowest proportion in eight
months (the goods sector actually shed 9,000 jobs in April).

The end result is that aggregate hours worked are only up an annualized 0.14% early in Q2, the weakest showing since Q4 2009. As today’s Hot Chart shows, this development is consistent with a significant slowdown in real nonfarm business GDP.

Spring Swoon Alive and Well in Manufacturing

The manufacturing sector failed to add any jobs last month after a meager 2,000 increase in March payrolls, a black spot on the otherwise rosy jobs report. Those numbers add to other economic data showing that demand for factory goods is falling and the sector is seeing a broad slowdown this spring. And that spring swoon could turn into a summer slide.

(…) with car sales slowing and dealer inventories climbing, the auto industry growth is likely to ease. (…)

Vehicle sales peaked in November and have fallen in four of the past five months but auto production continued at double-digit year-on-year rates through March, he said. That disconnect could result in longer summer shutdowns or slow down at some factories, robbing manufacturing of one of its growth engines.
If the auto sector is starting to sputter, the defense industry has stalled. Military factory orders plunged 34% in March, the month across-board-government cuts backs known as the sequester began. Defense spending has been volatile in recent months, but is down 25% from a year ago. (…)

Factory Orders Fell 4% in March

Demand for U.S. factory goods in March fell 4% to a seasonally adjusted $467.29 billion, the latest evidence that manufacturing sector began to slow during the month.

(…) Orders for long-lasting items, including cars and machinery, fell 5.8%, slightly worse than last week’s initial estimate.
Demand for civilian aircraft and parts fell 48.3% in March. Orders for metals dropped 3.2% and machinery demand eased 0.8%.
Meanwhile, March orders for nondurable products, reported for the first time Friday, fell 2.4%. (…) Petroleum refining fell 7.3% in March, partially reflecting lower prices. Food processing, clothing and chemical production also declined during the month. (…)
Defense capital goods orders fell 34.4% in March, the first month of the so-called sequester.
Outside of defense, factory orders fell 3.5%
Total factory shipments, including durable and nondurable goods, decreased 1% during March, compared with small gains the prior two months, the Commerce Department said. (…)

ISM Services Weaker Than Expected

This was the lowest reading since last July. Combining both the ISM Manufacturing and Services indices based on their weighting in the overall economy, the ISM for April came in at 52.8 versus last month’s reading of 54.0.

EUROZONE RETAIL SALES KEEP FALLING

Total retail volume fell 0.1% MoM in March after a 0.2% decline in February. Real retail sales have dropped 0.4% since September 2012. Core sales volume slumped 0.5% in March, following a 0.7% drop in February. Core sales volume is down 1.0% since September 2012.

This Eurostat data is for March. Markit’s retail PMI released last week said that sales continued to decline at a “sharp rate” in April:

Spanish Jobless Claims Dwindle

The ministry said the number of people filing for jobless benefits fell 0.9% in April from the prior month, to 4.99 million. Although the figures aren’t adjusted for distortions caused by seasonal trends, they show the second-largest fall in joblessness for any April since 2007, before the global financial crisis later that year sparked a deep recession across Europe in 2008 and 2009 from which countries have struggled to recover.

Portugal Unveils Budget Cuts

The prime minister’s plan would cut the number of public employees by 5%, lengthen their workweek and raise the retirement age by a year, to 66.

The plan, which aims to save €4.8 billion ($6.1 billion) through 2015, is certain to face resistance from the Socialist-led opposition and trade unions.

The government has promised to cut its budget deficit to 3% of gross domestic product by 2015, two years later than initially planned and the year Mr. Passos Coelho’s term ends. Last year’s deficit was 6.4%.

France Says Austerity Over on Germany Flexibility

French Finance Minister Pierre Moscovici declared the era of austerity over after his German counterpart offered flexibility on deficit cutting amid renewed bickering between Europe’s two biggest economies. (…)

Moscovici’s declaration amounts to an acknowledgment that France will avoid a sanction for missing 2012 budget-deficit targets and for failing to reach the European Union ceiling of 3 percent of GDP this year. The shortfall will amount to 3.9 percent of GDP this year and 4.2 percent next year with no policy change, the commission said.
There is a “certain flexibility” in allowing France, as well as Spain, to meet its deficit targets, Schaeuble told the Bild am Sonntag newspaper in an interview published yesterday. “This comes with clear conditions for the necessary reforms. The commission will make concrete proposals by the end of May which then will be discussed and decided upon among the euro area finance ministers.” (…)

Indonesian growth slips to two-year low Domestic consumption helps keep growth above 6%

(…) Gross domestic product grew 6 per cent in the first quarter compared with a year earlier, according to government data released on Monday, lower than the 6.1 per cent delivered in the last quarter of 2012.
(…) the breakdown of the GDP data shows that the pace of growth in investment across the economy is starting to slow because of the knock-on effects of lower export commodity prices.

Australia Retail Sales Fall

March retail sales were down 0.4% from February, the Australian Bureau of Statistics reported Monday, whereas economists had expected a 0.1% increase. First-quarter sales, meanwhile, rose by 2.2%—the biggest quarterly gain in six years—as consumers took advantage of heavy price discounts offered by retailers. (…)

Australian retail sales declined toward the end of last year as the mining-dominated economy slowed alongside China, the nation’s biggest trading partner. They rose 1.3% in January and February, though, as house prices and consumer sentiment picked up.

EARNINGS WATCH

The earnings season is near complete as 84% of the S&P 500 companies have declared Q1 results. The beat rate computed by S&P is at 69% while the miss rate is at 22.7%.

Q1 earnings are now estimated at $25.78, up from the March 28 estimate of $25.49 but down from last week’s surprising $26.20 number. Nearly 28% of the 97 companies reporting last week missed (vs 21% up to then), including 44% of companies in Consumer staples (vs 14%), IT (21%) and Utilities (33%).

In addition, Factset calculates that 63 S&P 500 companies have issued negative EPS guidance for Q2 2013, while 17 companies have issued positive EPS guidance. While the 79% negative ratio is not much different than that preceding Q1, there is some concern in the fact that 63 companies have guided negatively so far this season compared to 50 at the same stage in Q1, although there have been 17 positive pre-announcements this year, up from 11 last year.

In light of the above, analysts are busy revising their estimates: while Q1 EPS remain 1.1% above their March 28 forecast, current estimates for the next 3 quarters are now 2.5%, 1.7% and 1.0% lower than their March 28 estimates.

In all, EPS (per S&P) are estimated up 6.4% YoY in Q1, +5.3% in Q2, +16.4% in Q3 and +27.3% in Q4 for full years earnings up 13.6% YoY to $109.94. We will see how that evolves in coming weeks…FYI, this chart from S&P shows the incessant decline in 2013 estimates. My experience with estimates is that a good rule of thumb is that yearly estimates are generally 15% too high, meaning that it would be safer to use EPS around $101 for 2013 if you wish to use forward earnings.

For now, trailing earnings should reach $98.36 after Q1, up 1.6% from trailing EPS after Q4’12. Trailing earnings remain within their very narrow $97.40-98.70 range of the last 5 quarters, confirming that earnings have completely stalled since the end of 2011.

Unsurprisingly, this has coincided with a complete flattening of revenues since Q4’12. Q1’13 revenues are estimated up 1.5% YoY but down 0.5% from their Dec. 2011 level. It is, indeed, very difficult to grow earnings when revenues stall. Here’s what Moody’s wrote last week, to be read in the context of deteriorating conditions in the economies of most of the U.S. trading partners:

Slower global expenditures now weigh on US business activity. It may be difficult to appreciably rejuvenate business sales without a rejuvenation of US exports. After slowing from Q1-2011’s 16.3% to Q1-2012’s 6.8%, the yearly increase by US exports eased to merely 2.1% in Q1-2013. The first quarter’s even slower 0.5% yearly rise by US merchandise exports was weighed down by outright declines of -8.0% for sales to the EU and of -8.5% by shipments to Japan.

U.S. exports have declined at a 4.9% annual rate in Q1. Recent PMIs offered little hope on that front.

This is why second half earnings growth projections of more than 20% appear rather heroic at this juncture.

While trailing earnings stalled, equities have roared ahead +21.8% since May 2012. During that period, U.S. inflation has declined from 2.3% to 1.5%. Under the Rule of 20, such a decline in inflation raises the fair PE by 4.5% (from 17.7 to 18.5). The remaining 17.2% advance in equity values is a re-rating of equity markets from a 27% undervaluation to a 12% undervaluation as of last Friday.

On the above chart, notice how the Rule of 20 Fair Index Value (yellow line) has moved sideways during the last 12 months while the S&P 500 Index (blue) has jumped. Stable earnings and inflation caused the sideway movement in fair value. This is why the Rule of 20 Value (black) has gone up from its May 2012 15.1 reading to its current 17.6.

Syria Strikes Raise Alarm

Strikes that Syria attributed to Israel hit an area around a research facility near Damascus, raising concerns of a widening conflict

NEW$ & VIEW$ (2 MAY 2013)

Posted on May 2, 2013 by Denis Ouellet

Initial Jobless Claims: -18K to 324K vs. 345K consensus, 342K prior (revised).

U.S. Vehicle Sales Move Lower

After several months at the highs for the economic recovery, U.S. vehicle sales have begun to decline. Unit sales of light motor vehicles during April fell 2.3% m/m (+5.7% y/y) to 14.92M (SAAR) according to the Autodata Corporation. These sales compare to the recovery peak of 15.54M in November. Sales disappointed expectations for 15.3M according to Bloomberg.

U.S. Construction Spending Reverses Earlier Rebound

Reversals and revisions can change the picture of an economic series. Such was the case with the latest construction put in place numbers. Building activity fell 1.7% (+4.8% y/y) in March and reversed a 1.5% February rise. Moreover, it added to a 4.0% January decline which was double the last estimated drop. As a result, the level of construction activity was 4.1% lower than at yearend 2012.

Fed Steps on Gas as Inflation Slows

The Federal Reserve said it would press forward with an $85 billion-a-month bond-buying program and hinted it might even dial it up. The move comes amid a U.S. and global inflation slowdown.

(…) the Fed, in a statement released after Wednesday’s meeting, evinced no sign it is leaning toward pulling back. Instead, it struck a more neutral tone and emphasized it could “increase or reduce” the size of its monthly bond purchases, depending on inflation and job growth in the months ahead. (…)
“Fiscal policy is restraining economic growth,” the Fed said bluntly about U.S. tax and spending policies aimed at short-term budget-deficit reduction. Fed Chairman Ben Bernanke has called on the Obama administration and Congress to agree to a budget plan that reduces deficits in the long run without cutting much right away while the economy is weak.
The global inflation slowdown is one of the more surprising developments confronting the Fed and other central banks, and has become more apparent in recent few weeks. (…)
The U.S. Commerce Department reported Monday that consumer prices rose just 1% in the 12 months ending in March, well below the Fed’s 2% target. In the 17-member euro zone, inflation hit 1.2% in April, the lowest rate in more than three years and also well below the ECB’s target of just under 2%. (…)
Several indicators suggest inflation pressures have receded in recent weeks. Futures prices for commodities, including oil, cotton, sugar and gold, are all down from a year earlier.

U.S. ISM Composite Factory Sector Index & Prices Weaken Further

The April composite index of manufacturing activity from the Institute for Supply Management slipped to 50.7 from an unrevised 51.3 in March. During the last ten years, there has been a 69% correlation between the ISM index and the q/q change in real GDP.
Leading the overall index down was a lower employment reading. The sharp decline to 50.2 brought it to nearly the lowest level of the economic expansion. During the last ten years there has been an 88% correlation between the employment index and the m/m change in factory payrolls.
Also down sharply last month was the inventories series (46.5). Offsetting these declines were gains in supplier deliveries (50.9), a rise which indicated slower delivery speeds, production (53.5) and new orders (52.3). The new export orders index (54.0) also fell m/m but remained much higher than the November low of 47.0.

Alcoa Battling Aluminum Surplus

Alcoa Inc. said it will consider cutting up to 11% of its current smelting capacity as the U.S. aluminum giant tries to weather low prices for the industrial metal.
Aluminum prices have fallen by more than one third since 2011 due to a prolonged slump in the raw-aluminum market.
Russia’s United Co. Rusal PLC, the world’s largest producer of aluminum by volume, has already announced plans to reduce output by 300,000 tons, or 7% of production, in 2013, and permanently close 275,000 tons of capacity by the end of 2015.
(…) it is up to big aluminum makers outside China to cut production and aim for a total reduction of 1.5 million tons over the next three years, he said. “Industrywide, it should be a common agenda,” he said. Global production of raw aluminum reached 45.2 million tons in 2012, up 33% from 33.9 million tons in 2006.
Those cuts would be in addition to 568,000 metric tons, or 13%, of smelting capacity that the company currently has idle.

U.S. Case-Shiller Home Price Index Posts Stronger Increase

Home prices are generating improved upward momentum throughout the country. The seasonally adjusted Case-Shiller 20 City Home Price Index increased 1.2% (9.4% y/y) during February and built on a 1.0% January rise. The 3-month annualized rate of increase of 13.4% was the strongest since late-2005. Home prices in the narrower 10 city group rose 1.2% (8.6% y/y) in February.

Six Months After Sandy, Small Firms Struggle

Six months after Hurricane Sandy slammed into the Eastern Seaboard, thousands of entrepreneurs and small-business owners up and down the coast are struggling to get back on their feet.

SENTIMENT WATCH

Russell 2000 Back Below 50-DMA

The Russell 2000 is having an especially bad day today with a decline of just under 2%. This puts the index on pace for its worst day since April 15th’s 3.78% decline. Today’s decline has put the Russell 2000 back below its 50-day moving average as well. More importantly, though, while the S&P 500 closed at an all-time high yesterday, the Russell 2000 made its second lower high since March 15th. Not a good sign for smallcaps and the broad economy.

Is it time to sell in May and go away?

This is from Zacks Research which clear shows its bias (my emphasis), before yesterday’s drop:

For starters, each May is different. And there have been some VERY profitable summers in years past. So it’s never wise to just take this saying at face value and truly walk away from the markets. (In fact, if things looked really bad, then it’s best to short the market).

The resilience of stocks to be pressing all-time highs after 3 straight weeks of soft economic reports (including a scary showing for Chicago PMI in contraction territory) is making it hard to say what exactly would make stocks go lower at this stage. Meaning that investors seem quite comfortable with the ebb and flow of Muddle Through Economic growth. And as long as the Fed is on the side of investors, with all that QE, then no reason to walk away.

Doug Short remains objective:

Market lore is full of monthly associations: The January Effect, Sell in May and Go Away, Summer Rallies, the September Slump, Manic-Depressive October, December Rallies, etc.
The first chart shows the average monthly gains/losses, excluding dividends, since 1928 for all twelve months. May is one of the three months with a negative average. Incidentally, the monthly average of all months lumped together is 0.59%. So May has underperformed the mean by 0.73%.

The next three charts divvy up our 85-year period into three parts: 1928-1949, 1950-1981, and 1982-present. The rationale is that the first chart includes the Crash of 1929, Great Depression, WWII, and ends around the time of the secular market bottom in 1949. The second chart covers the cycle from the beginnings of the post-war rally through the Decade of Stagflation and market bottom in 1982. The third chart begins with the great Boomer market that followed and runs to the present.

May has been a performance laggard in two of the three timeframes and the worst performer in one of the three (1950-1981).

Lest the charts above give the false impression that May is a consistently poor performer, let’s close with a distribution of performance over the past 85 years.

Across the entire 85-year timeframe, May has an average of -0.14%. But if we exclude the three negative outliers, the average jumps to 0.59%, which is spot on the overall monthly mean. Pretty amazing!

Let’s hope May 2013 behaves more like it did in 1933 and not like one of those naughty negative outliers (or any of the red markers, for that matter).

NEW$ & VIEW$ (1 MAY 2013)

Posted on May 1, 2013 by Denis Ouellet

It seems that U.S. housing is the only area offering fresh positive stuff these days. That is if you are not in the market for a new house.

Housing Market Heating Up

Home prices are rising at the fastest rate in seven years, as buyers return to a market where property is in short supply.

Prices increased 9.3% in February from a year earlier while mortgage-interest rates hovered near record lows, according to the Standard & Poor’s/Case-Shiller index that tracks home prices in 20 major metropolitan areas. All 20 cities posted year-over-year gains for the second consecutive month, which hasn’t happened since 2005, before the crash.

In some of the hardest-hit markets, the gains have been particularly heady. Home prices rose 23% from one year ago in Phoenix and 18.9% in San Francisco. Nationally, the median home price in March stood at $184,300, well below the peak of $230,400 in 2006 but up from $154,600 in January 2012. (…)
For now, recent data suggest home-price gains are likely to continue. Sales of previously owned homes rose by 10.3% from one year ago in March, even as supplies of homes for sale fell by 16.8%. The Wall Street Journal’s quarterly survey of market conditions in 28 metropolitan areas showed very low supplies of homes available in a rising number of markets, including a less-than-three-month supply in a dozen markets, including the two hottest—Phoenix and San Francisco. (…)
At current mortgage rates near 3.5%, home values would need to rise by 32% nationally—and by as much as 48% in markets across the Midwest and north Florida—for affordability to return to its long-run average, according to an analysis by John Burns Real Estate Consulting in Irvine, Calif.

Krueger: Sequester Hits Harder, Earlier Than Expected

The economic fallout from deep federal government spending cuts has come sooner than expected, White House chief economist Alan Krueger said Tuesday.

ADP Says U.S. Companies Employed Fewer Workers Than Forecast

Companies added 119,000 workers to payrolls in April, figures from Roseland, New Jersey-based ADP Research Institute showed today.

China Manufacturing Weakens

A gauge of China’s manufacturing activity showed fresh signs of weakness in April, undercutting hopes of a stronger upturn in demand from the world’s second-largest economy.

The official Purchasing Managers’ Index came in at 50.6 in April, below expectations of a reading in line with the 50.9 recorded in March.

Note that the seasonally adjusted (by ISI) number is 49.1 vs 49.6 in March.

All but one of the official PMI subindexes—with the exception of a steady measure of raw material stockpiles—were down in April from the previous month.

The official PMI sub-index for new orders fell to 51.7 in April from 52.3 in March while the measure of new export orders slid into contraction territory with a reading of 48.6 in April, compared with 50.9 in March.
The sub-index for purchasing prices of raw materials tumbled 10.5 percentage points to 40.1 percent, the first reading below 50 after the sub-index stayed above the demarcation level for seven consecutive months.
The sub-index for finished goods inventories moved down 2.5 percentage points from the previous month to 47.7 percent, while the sub-index for production shrank slightly by 0.1percentage points to 52.6 percent.
The CFLP data also showed that the employment sub-index for April declined 0.8 percentage points to 49.0 percent, indicating job cuts, while the sub-index for supplier delivery times fell slightly to 50.8 percent.

Eurozone retail sales continue to fall sharply in April

Markit’s retail PMI® data signalled little respite for the Eurozone’s retailers at the start of the second quarter. Sales fell on a monthly basis for a survey record eighteenth consecutive month, and the rate of
decline remained sharp despite easing slightly since March. Retailers subsequently cut more staff and lowered their purchasing activity.

Retail PMI data by country signalled steep falls in sales in both France and Italy, and an ongoing flat trend in Germany. The month-on-month rate of decline in France eased from March’s record pace, but remained severe.

(…) Retailers across the Eurozone continued to cut workforces in April, extending the current sequence of job shedding to over a year. Moreover,
the rate of decline was little-changed from March’s 43-month record. Retail employment rose in Germany for the thirty-fifth successive month, but at only a marginal rate, while job shedding at French and Italian retailers remained sharp in the context of historic survey data.

(…) retailers’ gross margins continued to fall sharply, and they cut the value of purchases for the twenty-first successive month. Subsequently, stocks of goods for resale declined for the eight consecutive month, the
second-longest sequence in the survey history.

Denmark Exhausts Stimulus Avenues as Housing Losses Persist

Denmark’s government says it has exhausted all avenues for adding stimulus as the economy shows signs of sinking into its third recession since the global financial crisis started.
“We’ve used whatever leeway there is,” Economy Minister Margrethe Vestager said in a telephone interview from Copenhagen late yesterday. “There’s no more space to stimulate the Danish economy.”

Seoul offers exporters $10bn of help

Companies dealing with sluggish global demand and weaker yen

South Korea exported goods and services worth $46.3bn in April, the government said on Wednesday. This was a 0.4 per cent year-on-year rise, but down by 2.4 per cent from March’s figure.

Seoul said it would seek to revive export growth by increasing from Won71tn ($64.5bn) to Won82.1tn the value of public loan programmes aimed at small and midsized exporters. (…)

However, he cautioned that Seoul would closely monitor the weakening Japanese yen, a source of growing concern for South Korean policy makers. This follows a warning last month from finance minister Hyun Oh-seok that the yen’s slide was already having an impact on the South Korean economy.
Despite a recent fall in the US dollar value of the South Korean won, it has strengthened by 21 per cent against the yen over the past seven months, as markets anticipate expansionary fiscal and monetary policy under Japan’s new government. (…)
On Monday, data showed that South Korea’s industrial production suffered a month-on-month fall of 2.6 per cent in March: the third successive decline.

Solid rises in output and new orders support continued expansion of Japanese manufacturing economy

The headline seasonally adjusted Markit/JMMA Purchasing Managers’ Index™ (PMI™) rose to 51.1 in April, up from March’s 50.4 and a 13-month high. The PMI has shown steady improvement since the start of 2013 and has posted readings above the 50.0 no-change mark in each of the past two survey periods.

April’s survey data indicated a further rise in manufacturing output. Growth was modest, but still the sharpest in over a year as a particularly strong performance from the investment goods category offset ongoing weakness in the consumer and intermediate sectors.

Similar market group trends were observed for new orders data, with investment goods producers supporting a solid increase in sales for the sector as a whole. There was evidence of improved domestic and overseas demand, with clients reportedly investing in plant equipment and raising inventory holdings. A depreciation of the yen helped to support a solid rise in new export sales.

SENTIMENT WATCH: BAD SURPRISES? SO WHAT!

The chart below shows the 26-week rolling correlation of the Economic Surprise Index and changes in the S&P 500. A declining line represents periods where economic data and the S&P are becoming less correlated, or even moving inversely to each other. The most recent correlation below -0.7 indicates that stocks and negative economic data are moving in almost perfectly opposite directions. (Bill Hester via John Hussman)

Slovenia Junks Its Bond Sale After Downgrade

Slovenia stunned investors when it halted a bond sale just before Moody’s downgraded the country’s debt to “junk.”

The government said it would proceed with the bond issue. However, Slovenia will likely see higher borrowing costs, some investors said. Now that its bonds are rated junk, they will be off limits to investors that buy only investment-grade debt. Slovenia’s 10-year bond yielded 5.847% on Tuesday, compared with 5.69% a day earlier. (…)
Moody’s said it was concerned about Slovenia’s undercapitalized banking sector and deteriorating government balance sheet.

Rift Emerges Over Saudi Oil Policy

A rare public dispute over oil policy in Saudi Arabia emerged as the kingdom’s oil minister and a senior member of its royal family disagreed over long-term production targets for the world’s largest crude exporter.

The Middle Eastern kingdom, which produces around 10% of the world’s oil, needs to increase its crude production capacity by a fifth to 15 million barrels a day by 2020 in order to meet rising domestic consumption and maintain its current export capacity, said Prince Turki al-Faisal, a former intelligence chief and ambassador for the kingdom. (…)
The comments from the prince, who has no formal government position, but is a prominent member of the kingdom’s royal family, were contradicted by Saudi Oil Minister, Ali al-Naimi. There is currently no need to increase crude production capacity beyond 12.5 million barrels a day, Mr. Naimi said.
Saudi Arabia currently produces around 9 million barrels a day of oil, leaving 3.5 million barrels a day as spare capacity. (…)
Prince Faisal’s comments also run counter to the official position of the state-controlled Saudi Arabian Oil Co., also known as Aramco. Aramco declined to comment Tuesday, but its top executive has previously ruled out increasing capacity to 15 million barrels a day despite acknowledging that domestic use of crude would rise and thus limit exports.
Aramco’s Chief Executive Khalid al-Falih ruled out increasing Saudi production capacity to 15 million barrels a day in 2011, despite acknowledging that domestic use of crude would rise and thus limit exports, because he said expansion plans in other producing countries such as Iraq and Brazil should be enough to satisfy world markets. (…)
Saudi Arabia last year consumed around 3 million barrels per day of oil, according to the U.S. Energy Information Administration, almost double its 2000 level and putting it on track to use more than 5 million barrels a day if a 7% annual growth rate were to continue.
Aramco’s Mr. al-Falih acknowledged in 2011 that, if left unchecked, domestic energy consumption would rise to 8.2 million barrels of oil a day by 2030. (…)

Remember: the Saudis need $100 oil to balance their budget.

NEW$ & VIEW$ (30 APRIL 2013)

Posted on April 30, 2013 by Denis Ouellet

Consumer Spending Rises 0.2% Americans boosted spending in March, partly due to high heating bills, but slow income growth suggests consumers may have trouble propping up the economy in coming months.

Much of last month’s spending increase was due to colder-than-normal weather. Outlays for services jumped 0.7%, partly reflecting payments to utilities. Spending on goods fell. (…)

Personal incomes, meanwhile, were up only 0.2% last month. Savings as a percent of disposable income held steady at 2.7% in March.

The price index for personal consumption expenditures, the Fed’s preferred measure for inflation, was up only 1% year-over-year in March. The closely watched core PCE index, which excludes volatile food and energy prices, was up a modest 1.1% from a year earlier.

Here’s the run down from Haver’s table below:

Personal income declined 2.3% in Q1. Wages and salaries: +0.3%. DPI:-2.7%.

U.S. Pending Home Sales Reach a New High

According to the National Association of Realtors (NAR), pending sales of single-family homes during March rose 1.5% (7.0% y/y) after a 1.0% February decline, revised from -0.4%. The latest level was the highest since April 2010. The sales rebound in the aftermath of the removal in 2010 of the home buyers tax credit has raised home sales by more than one-third from the low.
Last month’s sales gain reflected mixed performance around the country. Sales in the South rose 2.7% (10.4% y/y) to a three-year high. The 1.5% rise in sales in the West, however, left them down 4.4% y/y. Sales have moved erratically sideways since early-2011. Sales in the Midwest nudged up 0.3% (13.7% y/y) to nearly the highest level of the economic expansion. In the Northeast, sales were unchanged m/m but were up a modest 6.3% versus March of last year.

Euro-Zone Jobless Rate Rises

The euro zone’s unemployment rate rose to a fresh high while the annual rate of inflation hit its lowest level since 2010, a combination that increases the chance of an ECB rate cut.

The European Union’s official statistics agency Tuesday said the rate of unemployment across the 17 countries that share the euro rose to 12.1% from 12.0%, the highest level since records began in 1995.

German Unemployment Climbs in Sign Economic Recovery Delayed

Figures released by German’s Labor Ministry showed the number of people without shops rose by 4,000 in April, having risen by 12,000 in March. However, the unemployment as calculated using Germany’s own methodology was unchanged at 6.9%, near its lowest level since reunification in 1990.

Eurostat also said the annual rate of inflation fell to 1.2% in April from 1.7% in March, to hit its lowest level in more than three years. Core is +1.0%.

Spanish Sovereign Spreads Drop Below 300 Basis Points

While the ratings agencies continue to lower their ratings and outlooks of European sovereign debt issuers, investors can’t seem to get enough of the paper. Take the case of Spain. Last summer, traders couldn’t dump the paper fast enough as spreads on 10-year Spanish sovereign debt widened out to more than 600 basis points (bps) above 10-year German Bunds. Now less than a year later, spreads on that same Spanish debt have narrowed by more than 50% to 294 bps. This represents the lowest level since December 2011.

Ironically, the last time spreads on Spanish debt were this low was in late 2011 in the aftermath of the MF Global meltdown following its poorly timed bullish bets on European debt. The only difference between then and now is that back then spreads were widening out from much lower levels, while today they have come down significantly from even higher levels.

Taiwan’s Economy Expanded Slower Than Estimated Last Quarter

Gross domestic product rose 1.54 percent in the three months through March from a year earlier, after increasing 3.72 percent in the fourth quarter, the statistics bureau said in a preliminary report in Taipei today.

Taiwan’s export orders and industrial output for March unexpectedly fell, while Japanese and South Korean production missed forecasts as faltering demand limits Asia’s recovery.

U.S.: Crude oil imports continue to plummet

Just-released data from the U.S. Energy information Administration (EIA) continue to show the formidable impact on global energy trade patterns caused by the surge in U.S. crude oil production. As today’s Hot Chart shows, U.S. volume imports of crude oil plummeted to their lowest level since 1996 in April. At this juncture most of the decline has been at the expense of OPEC. As shown, U.S. net volume imports from the oil cartel have dropped more than 40% since 2007.

NEW$ & VIEW$ (29 APRIL 2013)

Posted on April 29, 2013 by Denis Ouellet

[image] Growth Stays Soft The U.S. economy perked up in the first quarter, but federal budget cuts and caution by businesses highlighted mounting pressures that could weaken the recovery again in the coming months.

The nation’s gross domestic product, the broadest measure of goods and services produced across the economy, expanded at an annualized 2.5% pace in the first three months of the year after growing just 0.4% in the fourth quarter.

First Look at the First Quarter

The Sinister Season Once again, the economy appears to be slowing in the spring, despite predictions to the contrary.

(…) The spring of 2013 appears to be following the script from 2012, and 2011, and 2010. Do you sense a pattern here? Keen-eyed Stephanie Pomboy, who runs the MacroMavens advisory, does, and it seems to be recurring right on schedule. “Everything from purchasing-manager surveys (both regional and national) to retail sales and employment to durable goods and consumer sentiment has taken a sudden and significant turn for the worse,” she writes. And, just in case it’s déjà vu all over again, she reminds her subscribers that stocks slid 10% in eight weeks last year. (…)

The Standard & Poor’s 500 is up some 16% from its November low, while the breadth of economic indicators (specifically Citigroup’s U.S. Economic Surprise Index, which tracks better-than-expected indicators versus downside surprises) peaked well short of the highs seen in the spring in 2012, 2011, and 2010. And it is rolling over yet again.
What’s more worrisome is that the “cornerstone of the bull case for the economy” — housing — shows signs of sputtering, Pomboy points out. (…) But recent housing indicators contrast with the stocks’ performance. “Existing home sales and single-family starts both disappointed, while new-home sales rose a modest 1.5% on the back of a 6.8% decline in price,” Pomboy writes in her latest note to clients. “At the same time, mortgage applications for home purchase, the best window into noninvestment buying activity, continue to hover just above their crisis lows. While the going story is that the problem is insufficient inventory, the folks in the business of creating said stock aren’t quite so sanguine. The NAHB Index of home-builder sentiment has declined three months in a row, a fact which would be troubling enough were these not three months that seasonally tend to see sentiment rise” (her emphasis).

Will Consumers’ First-Quarter Party Lead to Second-Quarter Hangover?

Markit offers little encouragement:

(…) even this weaker-than-hoped growth rate exaggerates the true underlying momentum in the economy, as growth of final demand slowed compared with the fourth quarter. (…) just as the weakness of the headline number in the fourth quarter understated the true health of the economy, the upturn in the first quarter exaggerates the pace of recovery. Excluding inventories, growth was just 1.5% compared with 1.9% in the fourth quarter.

The concern is that growth could weaken again in the second quarter as the economy once again sees a ‘spring swoon’. Markit’s flash Manufacturing PMI fell sharply in April, signalling the weakest pace of expansion since last October. The disappointing PMI suggests that the boost to the economy received in the first quarter from the 1.3% increase in manufacturing output may not be repeated in the second quarter. Official data have already pointed to a weakening of the manufacturing sector in March.

The main problem facing the manufacturing sector in the second quarter is slower export sales, after flash PMI surveys indicated a general darkening of the global economic climate in April. This points to a waning of the growth impetus received from foreign demand: exports increased at a rate of 2.9% in the first three months of the year, reversing a 2.8% fall in the fourth quarter.

Things seem to be getting worse

Most U.S. PMIs declined recently, the ISM (51.3, down abruptly from 54.2) flirting with the 50 level where it was in November and December 2012. China’s PMI has been hovering just above 50 for 5 consecutive months while the Eurozone PMI remains deeply negative.
Even the PMI Services are getting weaker.
Economic surprises have turned negative across the world.
Most industrial commodity prices have been weak lately.

Price Drop Pinches Steelmakers

Steel prices have unexpectedly fallen 5% in the past month, setting off a scramble among steelmakers to maintain prices and market share despite a nationwide steel glut.

(…) In recent weeks, however, things got so bad—with some price offers slipping to as low as $570 a ton on benchmark hot-rolled coil, down from $640 a ton at the beginning of the year—that at least three large steelmakers announced they were suspending these discount programs.

ISI Company surveys show signs of peaking

CHINA

Piaget Remains Upbeat on China

Executives at Compagnie Financiere Richemont’s Piaget watch-and-jewelry brand remain upbeat on China’s luxury demand despite a recent hurdle.

(…) “We talk a lot about slowdown and many people say that stores in China are empty, but if you look at stores all over the world, they are full of Chinese who are buying,” said Mr. Leopold-Metzger. (…)
But in recent months, Beijing’s crackdown on gift-giving and showy government displays of wealth has taken a toll on high-end timepiece demand. Swiss watch exports to China, the world’s No. 3 market for Swiss watches, fell nearly 26% in the first three months of the year, according to the Federation of the Swiss Watch Industry. (…)
French luxury company Hermès International RMS.FR -1.78% SCA recently reported its slowest revenue growth in more than three years due in part due to a watch-sales decline from China, executives said.

China’s April flash MNI was stable at 58.5 (58.2 in March) but ISI’s seasonal adjustment shows that it declined to 52.8 in April.

But China’s data also point to a weaker rather than a stronger spring. HSBC’s flash PMI fell to 50.5 in April. ISI says freight traffic rose 7.8% YoY in March, down from +9.6% in Jan-Feb combined.

Japan Signals More Stimulus Before Vote

Japan’s chief cabinet secretary says the economy is about to get a new dose of fiscal spending as the Abe administration looks to maintain its momentum heading into elections.

EUROPE

Eurozone economics are also getting worse, if that’s possible. Zerohedge:

(…) As European macro data in the last month has plunged at its fastest rate in 6 years, equity markets have, of course soared back to near multi-year highs (EuroStoxx 600 up 5% in the last week alone). We only hope that the equity markets really do know something different this time – as opposed to the last two times we saw this kind of disconnect. The answer -Draghi’s ‘whatever it takes’ promise is maintaining a 30% illusion of wealth in European equities over their macro reality.
It’s different this time – the disconnect that we have seen twice before in the last 5 years is ‘transitory’

ECB data on bank lending confirm that no change in trend is imminent. Loan demand keeps falling and credit conditions remain tight.

(Capital Economics)

France needs a scapegoat:

French socialists attack ‘selfish’ Merkel

Leaked document reveals tensions between two countries

(…) “The [European] project is today battered by a marriage of convenience between the Thatcherite leanings of the current British prime minister – who only conceives of a Europe à la carte and of rebates – and the selfish intransigence of Chancellor Merkel, who thinks of nothing but the deposits of German savers, the trade balance recorded by Berlin and her electoral future.” (…)

“French socialists want Europe. What they fight is a Europe of the right and its triptyque: deregulation, deindustrialisation and disintegration,” the document said.

Italy found a saviour:

Italy’s Progress Fuels Recovery

Markets applauded political progress in Italy, extending a rally in stocks and allowing Rome to secure the lowest funding cost at a debt auction in over two years.

Italy auctioned €3 billion ($3.91 billion) of five-year bonds and €3 billion of 10-year bonds. The yield on the five-year debt was 2.84%, down from 3.65% at the last debt auction March 27, while the ten-year yield was 3.94%, down from 4.66%. The yields mark the lowest funding costs Italy has achieved at a debt auction since October 2010. Demand was also up strongly compared with the country’s last auction.
The yield on traded 10-year Italian bonds fell 0.08 percentage point to 3.975%, within a whisker of the 3.895% low yield seen last week, according to data from Tradeweb. (…)
The weakness in the economy was highlighted Monday by a survey from the national statistics institute Istat showing that Italian manufacturing confidence dropped in April, reversing the positive trend seen in the previous three months, on a worsened outlook for production. The drop reflects a deterioration from an already low level of expectations for new orders and a decline in the general outlook for production, Istat said.

Euro-Zone Firms Lose Confidence

The European Commission, the executive arm of the European Union, said Monday that confidence fell among businesses across the industrial, services, retail and construction sectors. Its business climate indicator fell to minus 0.93 in April from minus 0.75 in March, marking the lowest level since November. (…)
The commission’s survey showed the mood worsening among businesses and consumers as a whole in several countries considered to be among the euro zone’s strongest, such as Germany, France, Austria and Finland, as well as some that have suffered most during its fiscal crisis. Confidence fell in Italy, and plunged in Cyprus.

EARNINGS WATCH

Companies Feel Pinch on Europe Sales

Hiding behind the profit gains of America’s biggest companies is a worrying slowdown in sales growth, reflecting the combined effects of Europe’s malaise, a stronger dollar and sluggish consumer spending.

(…) With earnings reports in from more than half the companies in the Standard & Poor’s 500-stock index, first-quarter revenue for the group is expected to shrink 0.3% from a year earlier, according to Thomson Reuters. That would cut short the sales improvement reported at the end of last year and mark the third quarter out of the past four in which revenues have failed to grow by 1% or more. (…)
One big problem for U.S. companies is Europe. Executives weren’t expecting much from the region last quarter. But many found conditions tougher than anticipated. And some of them are increasingly worried that while Southern Europe’s hardest-hit countries may be bottoming out, there is room left for the bigger economies like France and Germany to deteriorate. (…)
The European Union accounts for about a fifth of the global economy, and Deutsche Bank estimates about 17% of the profit and revenue for companies in the S&P 500 comes from Europe. (…)
General Electric Co. watched conditions in Europe fall through its forecasts early this year. Orders had risen at the end of last year. But by the middle of the first quarter, they were down 8% from what GE had expected, finance chief Keith Sherin said.
By the end of the quarter, GE’s revenue from Europe was down 17% from a year earlier. European orders were off 17%, with gas turbines and jet engines about a third, and those for health-care equipment about 5% below. (…)
Companies operating in Europe also are reporting signs of spreading gloom. Advertising giant Omnicom Group Inc.’s business slowed in Europe’s healthier core in the first quarter, a sign that European companies may be tightening their purse strings.

“Our business is stabilized, I would say, in the south,” John Wren, Omnicom’s CEO, said on an April 18 earnings conference call. “What we saw in the first quarter were setbacks in France and in Germany.”

Return of risky lending practices

Situation is similar to pre-2007 housing market mania

(…) A bigger source of worry at the moment is the commercial mortgage-backed securities market, where CMBS vehicles are stuffing themselves with riskier mortgages on buildings such as office blocks, shopping centres and apartment complexes.
Moody’s, the ratings agency, has been raising the alarm. On its calculations, the loan-to-value ratio of commercial mortgages has hit a “tipping point” of 100 per cent. It took 10 years to reach that point after the widespread adoption of CMBS in the 1990s, Moody’s says; it has taken just two years since the resumption of CMBS buying after the crisis to get back there.
The higher leverage in commercial property looks safe, given improving rents and occupancy rates, but interest-only mortgages are back, and Moody’s worries that if interest rates are higher in a few years’ time it simply will not be possible to refinance these mortgages when they come due. That could plunge lots of properties into default – and the investors who clamoured for that little extra yield from CMBS will rue their choice.
Whether it is leveraging up ailing shopping centres or declining PC manufacturers, the risks ought to be clear. But the demand for yield may be too powerful a siren song.

BARRON’S COVER

On the Rise A lost generation? No way! The Millennials are finally poised to start spending, which is good news for the economy and stocks.

(…) Yet the Millennials are far from the slackers the media and popular culture portray — a generation of adult children living at home with Mom and Dad, texting away and refusing to grow up. The evidence suggests that their march up the career ladder hasn’t been aborted so much as a delayed by economic circumstances and personal choice. Once they get going, however, and marrying, starting families, and moving into their high-earning years, their influence could approach that of their baby-boom parents. (…)

FOR ONE THING, THE MILLENNIALS — sometimes called Generation Y, and defined by many demographers as ranging from ages 18 to 37 — make up the largest population cohort the U.S. has ever seen. Eighty-six million strong, it is 7% larger than the baby-boom generation, which came of age in the 1970s and ’80s. And the Millennial population could keep growing to 88.5 million people by 2020, owing to immigration, says demographer Peter Francese, an analyst at the MetLife Mature Market Institute.

This echo-boom generation totals 27% of the U.S. population, less than the 35% the boomers represented at their peak in 1980. When the baby-boom generation drove the economy in the 1990s, growth in gross domestic product averaged 3.4% a year. As the Millennials hit their stride, they could help lift GDP growth to 3% or more, at least a percentage point higher than current levels.

The Millennials already account for an annual $1.3 trillion of consumer spending, or 21% of the total, says Christine Barton, a partner at the Boston Consulting Group, which defines this cohort as ages 18 to 34. As the economy pulls out of an extended period of sluggish growth, helped in part by this rising generation, annual growth in consumer spending is likely to revert to its long-term average of 3.5% to 4% from about 2% now. Likewise, consumer spending on durable goods could rise sharply.

The Millennial generation has already made a big mark on one industry: education. The number of students enrolled in college in the U.S. climbed by 30% from 2000 to 2011, helping to fuel a building boom on campuses across the country. But that’s something many schools could regret in coming years, given the past decade’s sharply declining birth rate.

Owing in part to the Millennials’ surge, apartment demand is strong around the country. Housing could be the next major industry to benefit from their size and maturation, but Wall Street could reap the biggest rewards. The MY ratio, which compares the size of the middle-aged population of 35-to-49-year-olds with that of the young-adult population, ages 20 to 34, explains why.

Middle-aged folks have higher incomes than younger people, and a greater urgency to save for retirement. They invest their savings, which drives up stock prices. When the MY ratio is rising, meaning the older cohort outnumbers the younger, the stock market typically does well. The ratio has been falling since 2000, which has exerted a drag on stock prices.

Alejandra Grindal, a senior international economist at Ned Davis Research, notes the MY ratio will bottom in 2015 and then rise through 2029. It is one of several reasons the firm is bullish on stocks. (…)
Above all, the Millennials are connected — to the Internet and each other. They brought us Facebook and popularized YouTube, Twitter, and phrases like 24/7, which describes how much time they spend on the ‘Net and personal electronic devices. Nielsen estimates that 74% of young adults between the ages of 24 and 34 own smartphones, up from 59% in mid-2011. According to Advertising Age, consumers in their 20s switch between communications platforms and devices 27 times per nonworking hour. (…)
As for those ages 25 to 34, the unemployment rate was 7.4% in March, below the national average of 7.6%, and well below 8.9% in January 2012. Dick Hokenson, an economist who heads ISI Group’s Global Demographics Research team, says 25-to-34-year-olds have recovered almost 75% of the jobs they lost to the recession. “They’re finding jobs; they’re moving out and doing normal things,” he says.

Again, the numbers tell a cautiously hopeful story. Nineteen percent of U.S. men ages 25 to 34 live with their parents, says Mark Mather, a demographer with the nonprofit Population Reference Bureau. But that is up only five percentage points from 2007. The percentage of 25-to-34-year-old women still living at home is 9.7, up from 9% in 2007.

There is almost $1 trillion of student debt outstanding in the U.S. today, which could limit the purchasing power of Millennials. “These people have a mortgage and no house,” Francese says.

But here, too, total figures are misleading. The average student loan among Gen Y-ers is $25,000, and the median loan is nearly $14,000, according to the Federal Reserve Bank of Kansas City. Less than 1% of student loans are larger than $100,000. (…)
AS THE MILLENNIALS’ EMPLOYMENT situation improves, more young adults living at home will pack their bags and move out. That could spur an increase in U.S. household formation, which turned negative in 2007-08. Since then, the number of newly created households has recovered to about a million a year, still well below an annual average of 1.5 million since the 1970s, according to Census Bureau data.

Greater financial security could mean an increase in the birth rate, which typically slumps during economic downturns. Francese sees the average birth rate for U.S. women rising to 2.1-2.2 in coming years from a depressed 1.9 recently. (…)
That suggests they will also start buying homes. Pat Tschosik, a consumer strategist at Ned Davis Research, figures there will be more home buyers than sellers in the 12 years ending with 2019, giving the housing market a boost.(…)

THE MILLENNIALS ALSO could have a big impact on Detroit, which saw annual vehicle sales plummet to 10.4 million in 2009 from an average of 17 million a year in the early to mid-2000s. This year sales are likely to recover to 15.3 million, before rising gradually to 17 million in 2017, says Jeff Schuster, senior vice president of forecasting at LMC Automotive, formerly a division of J.D. Power & Associates. (…)

THE GOOD NEWS FOR Wall Street is that Millennials know they need to save, and they’re not afraid of stocks, which account for more than 70% of their portfolios, according to Vanguard. They are also poised, along with their Gen X predecessors, to come into some serious money as the boomers age and die. The two younger generations combined could see their wealth grow to $28 trillion in the next five years from $2 trillion now, as they earn more and claim their inheritance, says Christopher Tsai, head of Tsai Capital in New York. (…)

Demographics Behind Smaller Workforce Americans are leaving the labor force in unprecedented numbers. But the trend has more to do with retiring baby boomers than frustrated job seekers abandoning their searches.

(…) For one thing, the participation rate was falling long before the recession, and that drop would almost certainly have continued even if the downturn had never happened. The main reason is demographics: Americans are much more likely to work between the ages of 25 and 54 than when they are older or younger. But with the baby boomers aging, and many of their children now at least 16 years old but not yet into the prime of their working lives, it is the older and younger ends of the working-age population that are growing most quickly. Adjust for the changing population, and the “missing” workforce shrinks to about 4.3 million.

Moreover, even as young people make up more of the working-age population, they are becoming less likely to work. That is partly the result of rising rates of college attendance and partly of declining rates of employment among high schoolers. Both are long-term trends that were likely accelerated by the recession, as young people went to college in part to avoid the brutal job market, and as employers spurned teenagers for more experienced employees. No doubt many of those teens and 20-somethings would rather be working, but they aren’t sitting idle waiting for the job market to rebound. All but about 350,000 of the missing young people are full-time students.

Lastly, the financial crisis and recession—along with longer-run trends such as improved life expectancy—have led many older Americans to postpone retirement, although a far smaller share of them work than people who are in their prime working ages. That adds about 1.2 million additional older workers to the labor force, offsetting some of the decline among other age groups.

Put it all together, and the labor force is missing about three million workers who aren’t in school or retired. That is still significant: Add those workers to the unemployment rolls and the jobless rate would jump to 9.3%. But it suggests the decline in participation is about more than a weak economy. (…)

BYD to Sell ‘Made in U.S.’ Buses Chinese car maker BYD is setting up shop in the U.S., with small ambitions but a clear goal: Get the government to subsidize the sales of its American-made electric buses.

BYD spokesman Micheal Austin said the company’s U.S. production facility meets “Buy America” procurement guidelines, enabling its customers to tap federal subsidies that cover up to 80% of the cost of the electric buses they buy. The availability of government aid was one of the main motivations behind BYD’s move to the U.S., he said. (…)
Buy America provisions are designed to ensure that government-sponsored transportation infrastructure projects in the U.S. use products made in the country. When it comes to buses, the rules stipulate that U.S.-made parts should account for more than 60% of the cost of all components. Final assembly must take place in the U.S. (…)
BYD’s Mr. Austin said assembling a bus in the U.S. would cost $100,000 more than doing so in China. He said an electric bus could sell for up to $800,000. “But the economic value of having a plant there far outweighs the costs,” he said, since the buses would qualify for government funding.

LONG TIME CLOSE FRIENDS PARTING WAYS

Positive trend continues from start of year

Companies more confident about investing in equipment

Estimates suggest worst quarterly figures since 2009

U.S. INFLATION

JAPAN, the only growth game in town:

CHINA

Li warns on challenge of finding work for graduates

EUROPE

Government has little room for stimulating growth

Indonesian growth slips to two-year low Domestic consumption helps keep growth above 6%

It seems that U.S. housing is the only area offering fresh positive stuff these days. That is if you are not in the market for a new house.

Companies dealing with sluggish global demand and weaker yen

The Sinister Season Once again, the economy appears to be slowing in the spring, despite predictions to the contrary.

ISI Company surveys show signs of peaking

CHINA

Leaked document reveals tensions between two countries

Italy found a saviour:

Situation is similar to pre-2007 housing market mania