NEW$ & VIEW$ (12 FEBRUARY 2014)

Note: BEARNOBULL.COM also published: Good Read: How Technology Can Drive The Next Wave Of Mass Customization

  • Fed to Keep Course on Bond-Buy Cuts The U.S. economic outlook would have to take a distinctive turn for the worse before the Fed considers halting its reduction of bond purchases, Yellen said.

(…) Some recent economic data have been soft, Ms. Yellen noted in her steady-as-she-goes comments before the House Financial Services Committee, but she doesn’t want to overreact to that. (…)

Asked what would cause the Fed to alter its course, Ms. Yellen responded it would take a “noticeable change” in its outlook for growth, employment or inflation. (…)

  • BOE Raises U.K. Growth Outlook The Bank of England said the U.K. economy will grow much faster this year than it previously thought but that interest rates will remain low for some time to come.

The bank now forecasts that the U.K. economy will grow by 3.4% this year, much quicker than the 2.8% forecast in November.

The BOE also said it expects upcoming data will show the unemployment rate in the U.K. fell to 7% in January, more than two years earlier than officials predicted in August when they chose 7% as the point at which they would consider a rise in interest rates. This policy, known as forward guidance, has been a cornerstone of Governor Mark Carney’s leadership since he took the helm at the BOE in July.

In its quarterly inflation report, the U.K. central bank stepped away from tying a rise in its benchmark interest rate to progress on unemployment, saying officials will now take a broader look at how many hours Britons are working and other labor-market signals to assess whether they need to tighten policy. (…)

The Canadian was asked repeatedly whether the public will comprehend the role of the 18 new economic variables the BOE included in its forecasts as signposts for future changes in policy. (…)

“For a sustained and balanced recovery, the degree of stimulus will need to remain exceptional for some time,” Mr. Carney said. (…)

As Inventories Soar, Car Makers Bet on Pricing

On Tuesday, automotive sales tracking firm ALG Inc. warned industry inventory levels in January were the highest since August 2009, when the recession was in full force. It took U.S. dealers in January an average of 59 days to sell a new vehicle, nine days longer than the same period a year earlier and the highest level since the 68-day peak in 2009.

None of the auto makers say they plan to reduce production to counter the inventory overhang. Paring output would reduce pressure to discount, but auto maker’s book revenue when they ship vehicles to dealers and any slowdown would hit first-quarter revenue.

They are counting on dealers to cut the backlog—without a wholesale change in manufacturers’ incentives or production schedules. (…)

So far, says IHS IHS +0.45% automotive analyst Tom Libby, GM and other car makers figure “it is cheaper to offer these incentives than to shut the plants. The problem is once you turn it on, [discounting] it is hard to turn it off, and now we are looking at another challenging month with February.”

Mortgage Applications Decrease in Latest MBA Weekly Survey

The seasonally adjusted Purchase Index decreased 5 percent from one week earlier.

Angel Boehner breaks with Tea Party, backs away from debt fight

The current era of budget brinksmanship in Washington appears to be over, as Republican leaders shift strategy ahead of midterm elections in November.

House Speaker John Boehner, the de facto leader of the Republican opposition to President Barack Obama in Washington, broke with the hardline Tea Party faction of his party and called a vote on raising the statutory debt ceiling in the United States on Tuesday. (…)

Mr. Boehner’s tactical shift Tuesday follows a bipartisan budget agreement in December and an agreement last week on renewed farm policy that had languished in Congress for more than two years.

Sarcastic smile China’s Exports Power Higher China’s exports jumped unexpectedly in January, a potentially positive sign that could help reverse recent worries about the health of emerging markets.

The country’s exports rose 10.6% compared with January last year, up from a 4.3% year-over-year rise in December, official customs data show. This is well ahead of the median 0.1% growth forecast by 11 economists polled by The Wall Street Journal and suggests a gradual recovery of demand in western economies is helping to boost China’s trade. (…)

Economists had forecast that very strong Chinese exports in January 2013 would make this year’s growth look lackluster. The result is even more surprising given that the Lunar New Year holiday, when factories shut down and workers return home, fell in January this year.

Some analysts said the results could signal the return of businesses overstating the value of their shipments to get money past China’s strict capital controls and into the country for investment. The practice came to light last year, after a divergence between China’s exports and corresponding import figures from other territories raised eyebrows last year.

“On top of the 20% or so increase [in January] last year, we have another 10% rise? That’s hard for me to believe,” said Liu Li-Gang of ANZ Bank. (…)

Imports also strengthened more than expected, growing 10% in January compared with 8.3% in December. (…)

China land sales pull in record $672bn Latest evidence of rising property market

Chinese land sales hit a record $672bn in 2013 following a lull the previous year, providing more evidence that the country’s property market is once again in full throttle. But although construction activity is likely to bolster the economy in 2014, there are signs that land sales could slow, weakening local governments’ ability to raise money.

Land sales hit Rmb4.1tn, the Ministry of Land and Resources said, eclipsing the previous record of Rmb3.5tn in 2011. Land zoned for real estate use, which accounts for about one-quarter of zoned land sales, rose by nearly 27 per cent year-on-year.

Euro Zone Output Falls in December Euro zone industrial output fell in December, suggesting that while the economy likely expanded for a third straight quarter it did so at a muted pace.

imageIndustrial output across the then 17-country euro zone—Latvia increased the figure to 18 after joining the single currency area in January of this year—fell 0.7% in December from November, and grew just 0.5% compared with a year earlier.

The And, the strength previously reported in November took a hit in revisions. Eurostat now calculate that industrial output grew 1.6% on the month and 2.8% on the year after originally reporting a monthly gain of 1.8% and an annual rise of 3%.

As with the strength in November that was broad-based, so the decline in December was also spread across countries and sectors.

Eurostat data show industrial output in Germany fell 0.7% on the month, Italy posted a 0.9% monthly fall while French factory output was 0.3% weaker in December than in November. By sector, energy production slid 2.1% compared with November, as did output of capital goods.

In reality, the monthly stop and go simply continues with no real movement overall. IP has declined during four of the last 6 months and ended up unchanged over the period. Since July, German IP is up 0.6% (+1.2% a.r.), France is unchanged, Italy –0.8% (-1.6%) and Spain +0.2% (+0.4%).

The good news is that Markit’s January Manufacturing PMI for the Eurozone was 54.0 with strong numbers for new orders and new export orders.

This is puzzling considering that EU retail sales volume was down 1.6% in December and –1.8% (-5.5% a.r.) since September, the most important period of the year and that the U.S. economy seems to have entered a soft patch.

German Growth Forecast Raised

The German government Wednesday slightly raised its 2014 economic growth forecast for Europe’s largest economy to 1.8% from an earlier estimate of 1.7%, citing strong domestic demand.

Germany’s economics ministry said higher exports and investment are expected to stimulate growth this year and next. The ministry expects Germany’s gross domestic product—a measure of goods and services produced across the economy—to expand 2% in 2015.

Confused smile OECD admits eurozone forecasting errors Recovery outlook based largely on repeated false assumption

“The OECD did not underestimate fiscal multipliers,” he said. “It was the repeated assumption that the euro crisis would dissipate over time, and that sovereign bond yield differentials would narrow, they turned out to have been the most important source of error.”

Am I reading what I am reading? The forecasts simply assumed that things would eventually get better. Like driving a car blind and assuming it will take you where you want to go. Here’s what Pier Carlo Padoan, deputy secretary-general and chief economist of the OECD wrote in today’s BloombergBriefs:

A number of lessons that are now being put into practice at the OECD. Near-term monitoring of the economy needs to be improved, through indicator models, assessments of vulnerabilities and discussions with business contacts, so as to be better able to spot impending downturns. Better account also needs to be taken
of international linkages, spillovers and financial market developments. To recognize the uncertainty around all forecasts, and their underlying assumptions, greater
use should be made of quantitative scenario analyses around our baseline view.

In short, just do your job well.


NEW$ & VIEW$ (11 FEBRUARY 2014)

Note: BEARNOBULL.COM also published: Emerging Market Growth Weakest In Four Months

Small business optimism up slightly in January 2014The Small Business Optimism Index increased by 0.2 points to 94.1. Only three of the Index components improved, two were unchanged, and five were lower indicating that the small business half of the economy was still adding little to growth beyond that needed to support population growth.. Technically, January marks the third monthly increases in a row, but unfortunately, each monthly increase is lower than the last. But while improvements are losing steam, the increase still beats a decline.

NFIB owners increased employment by an average of 0.12 workers per firm in January (seasonally adjusted), half the December reading, but a solid number. While these numbers look historically good, the problem is that there are many fewer firms. Seasonally adjusted, 13 percent of the owners (down 1 point) reported adding an average of 3.7 workers per firm over the past few months. Offsetting that, 11 percent reduced employment (up 1 point) an average of 3.3 workers, producing the seasonally adjusted net gain of 0.12 workers per firm overall. Forty-six percent of the owners hired or tried to hire in the last three months and 38 percent (83 percent of those trying to hire or hiring) reported few or no qualified applicants for open positions. Job creation plans surprised on the upside, rising 4 points to a net 12 percent. This is the best reading since September 2007.

Twenty-two percent of all owners reported job openings they could not fill in the current period (down 1 point). This suggests that the unemployment rate did not change much in January. Fourteen percent reported using temporary workers, unchanged from December.

 Small business jobs data through January 2014 Small business job creation plans through January 2014 Small business unfilled job openings through January 2014

Small biz create a lot of jobs. Hence we need more small biz, which is not happening as much as before as this chart from John Mauldin’s friend Philippa Dunne at The Liscio Report shows:

This is a chart of new businesses being created. New businesses are the true engine of economic growth and job creation. Policy makers need to think about this chart with every decision they make. They need to determine why the trend is clearly down and how to reverse it.

Obamacare’s impact on job creation is now well established. Even before the CBO said so last week, the National Small Business Association had detailed business owners’ problems:

As the Affordable Care Act (ACA) continues to make headlines for problems with the online enrollment and ongoing delays to various aspects of the law, small businesses continue to struggle with the cost and complexity of providing health care benefits for their employees. To offer insight into how America’s small businesses are dealing with rising health care costs, what kind of benefits they offer and how ACA is impacting their business, NSBA recently surveyed more than 780 small-business owners and is pleased to provide the results of that survey this document, the NSBA 2014 Small Business Health Care Survey. (…)

imageToday the average monthly per-employee cost of health insurance premiums for a small firm is $1,121. When asked in 2009 for the estimated monthly cost of their health benefits package, per employee, small firms reported $590 per month. Beyond health insurance premiums, employers report additional health-care related spending to the tune of $458 per month, per employee. Furthermore, a whopping 91 percent reported increases in their health plan at their most recent renewal, and the majority expect to continue seeing cost increases in the coming year.

Three-fourths of small firms report they plan to purchase insurance through their existing broker in the coming year and less than one-in-ten plan to purchase health insurance through the Small Employer Health Options Program (SHOP exchange)—even before the administration announced the one-year delay to SHOPs.

To deal with these rising costs, 34 percent of small businesses report holding off on hiring a new employee while 12 percent report they had to lay off an employee. Fifteen percent report they plan to drop coverage in the coming year—up from just two percent who reported dropping coverage in the last year.

Despite increased reporting on ACA, the majority of small firms still have a limited to no understanding of how they will be impacted by the law. When asked about the real-world costs of understanding ACA, small businesses report spending on average 13 hours and $1,274 per month—and that’s just on the administrative side of understanding the law itself.

Today, we learn that President Obama reads Mauldin:

Health-Law Mandate Put Off Again Most employers won’t face a fine next year if they fail to offer workers health insurance, the Obama administration said, in the latest big delay of the health-law rollout.

The Treasury Department, in regulations outlining the Affordable Care Act, said employers with 50 to 99 full-time workers won’t have to comply with the law’s requirement to provide insurance or pay a fee until 2016. Companies with more workers could avoid some penalties in 2015 if they showed they were offering coverage to at least 70% of full-time workers.

The move came after employers pressured the Obama administration to peel back the law’s insurance requirements. Some firms had trimmed workers’ hours to below 30 hours a week to avoid paying a penalty if they didn’t offer insurance. (…)

The new rules for companies with 50 to 99 workers would cover about 2% of all U.S. businesses, which include 7% of workers, or 7.9 million people, according to 2011 Census figures compiled by the Small Business Administration. The rules for companies with 100 or more workers affect another 2% of businesses, which employ more than 74 million people. (…)

Under the final rule released Monday, companies would be allowed to offer coverage to a subset of employees, such as those working 35 hours or more a week, during the phasing-in year. (…)

The Treasury also set new rules for how the requirement would apply to workers such as volunteers and seasonal employees, saying that employers wouldn’t be penalized for failing to offer those people coverage, regardless of the number of hours they were working. (…)


The CLIs continue to point to economic growth firming in the United States and the United Kingdom and to growth above trend in Japan. The CLI for Canada indicates a positive change in momentum. In the Euro Area as a whole, and in France and Italy, the CLIs continue to indicate a positive change in momentum. In Germany, the CLI shows signs of firming growth. In the emerging economies, the CLIs point to growth around trend in China, Brazil and Russia, and to growth below trend in India.image


Ed Yardeni provides his own analysis of the CLI’s:

(…) Then again, they may be less relevant given the emerging markets crisis that emerged during January. Over the past couple of weeks, we’ve analyzed the magnitude of the problem and concluded that the crisis is likely to be contained to the Fragile Five, and shouldn’t morph into a global contagion. If so, then the solid forward momentum signaled by the latest OECD leading indicators suggests that the global economy should absorb the latest shock relatively well. Let’s review the latest data:

(1) Advanced economies advancing. Most encouraging is that the composite leading indicator for all of the 34 members of the OECD rose to 100.9, the highest level since February 2011. That confirms the upbeat readings of the more volatile JP Morgan Global Composite Output PMI, which remained upbeat during January at 53.9. Over the past year, there have been steady monthly gains in the indexes for the US, Europe, and Japan. The same can be said about all the major economies of Europe and the peripheral ones too.

(2) Emerging economies submerging. The OECD also compiles leading indicators for the BRICs. They remained depressed during December, with India falling to a record low. 

Importantly from the JP Morgan Global PMI is that forward indicators remain strong:

The level of incoming new business also expanded for a sixteenth month running in January. Despite easing to its weakest since last October, the rate of new order
growth remained above the average for the current sequence of increase.

Emerging Markets are in a different zone:

New business growth in global emerging markets was little-changed from December, but slower than the average for the final quarter of 2013.

OECD Jobless Rate Falls to 7.6% Unemployment across the 34-nation Organization for Economic Cooperation and Development fell for the third straight month in December, driven by falling jobless rates among young people and men

The OECD said Tuesday the unemployment rate for its members—mostly countries with developed economies—fell to 7.6% from 7.7% in November and 7.8% in October, having been steady at 7.9% for much of 2013.

The sustained decline suggests the labor market has started to benefit from the modest economic recovery that took root across developed economies last year.

In another encouraging development, the rate of youth unemployment fell to 15.5% from 15.6% in November. (…) The number of people without jobs fell to 46.2 million from 46.9 million in November, but remained 11.5 million higher than in July 2008, before the global financial crisis and ensuing economic slowdown.

The U.S. and Japan led the decline in unemployment, while Spain and Ireland also recorded significantly lower rates in December. However, jobless rates increased in Canada, Israel and Mexico. (…)

Sad smile Barclays to Slash Up to 12,000 Jobs The bank will cut up to 9% of its 139,600-strong workforce this year, with 7,000 jobs to go in Britain and the rest spread across its global operations.
Borrowing Costs Pose Risks in China

(…) Driven by a surge in borrowing in recent years, Chinese companies amassed an estimated $12.1 trillion of debt at the end of last year, according to Standard & Poor’s. That compares with an estimated $12.9 trillion for U.S. businesses, now the world’s most indebted. The ratings company estimates that debt at Chinese companies is poised to exceed the U.S. total this year or next. (…)

According to J.P. Morgan Chase, China’s corporate debt was 124% of gross domestic product in 2012, up from 111% in 2010 and 92% in 2008. J.P. Morgan economist Haibin Zhu said the number likely rose further in 2013.

Corporate debt in comparable emerging economies is 40% to 70% of GDP, while in the U.S. the figure is 81%, according to J.P. Morgan. (…)

The increase in borrowing costs was driven in part by a rise in rates on government bonds. The yield on China’s benchmark 10-year government bond reached 4.75% in late November, the highest since January 2005 and up from 3.68% at the end of 2012, according to WIND Info and Thomson Reuters. The yield has since fallen to 4.51%. For short-term bonds like the ones sold by Evergreen, the average interest rate on new issues now stands at about 6.26%, up from 4.38% at the beginning of this year and 2.77% in 2005. (…)

Rising money-market rates and bond yields have also translated into higher rates on bank loans, which account for the bulk of corporate lending in China. Smaller, private firms have been hit the hardest. According to Lily Li, financial director of a medium-size, privately owned pharmaceutical firm in Shanghai, banks are now charging at least 8% for a one-year loan, compared with a little over 6% a year ago.(…)

Want to know more about China’s shadow banks: Meet China’s Biggest Shadow Bank by the Peterson Institute for International Economics

imageCEBM Research thinks that rising rates will not negatively impact property market.

Current tightening-biased monetary policy has restrained total social financing growth and has put upward pressure on borrowing costs. However, aggregate demand has remained stable, largely supported by property sector demand. While rising borrowing costs has put sectors with meager profits in a tough spot, the property sector has been able to cope with elevated financing costs; Property developers should be able to cope with further increases in the cost of financing.

So far…Fingers crossed

Indeed, the above mentioned Peterson Institute’s article links rising interest rates, shadow banks and the property market:

It comes as no surprise that real estate developers have been the primary recipient of this emergency funding. Squeezed by central government efforts to dampen the housing boom, real estate developers are frequently cut off from formal bank loans.  As is the case with the growth of shadow banking in other parts of the financial system, Cinda has found a way to circumvent these restrictions by offering credit to property developers through the NFE channel. The Cinda IPO prospectus states that 60 percent of distressed receivables are attributable to the real estate sector.

What makes the whole situation a bit dubious is that Cinda has financed these purchases through a massive borrowing spree at below market rates. Over the last 3.5 years, the size of CINDA’s borrowings increased 13x, while the interest on these borrowings has fallen dramatically (paid interest was less than three percent). Despite the claim from the IPO prospectus that the borrowing was primarily from “market-oriented sources,” it seems unlikely that any market-oriented actor would loan out funds at a rate significantly below inflation and less than half of the benchmark lending rate.

The cost of funding issue is important because while Cinda’s distressed asset business is profitable, its profitability is dependent on low borrowing costs. In 2012 total interest expense is equal to 50 percent of its net income. A large increase in borrowing costs could wipe out the company’s profitability.

And don’t think this has no consequences for your non-EM investments: Currency crisis at Chinese banks ‘could trigger global meltdown’

(…) The growing problems in the Chinese banking system could spill over into a wider financial crisis, one of the most respected analysts of China’s lenders has warned.

Charlene Chu, a former senior analyst at Fitch in Beijing and now the head of Asian research at Autonomous Research, said the rapid expansion of foreign-currency borrowing meant a crisis in China’s financial system was becoming a bigger risk for international banks. (…)

Ms Chu has been warning since 2009 about the growth of a shadow banking system in China that has helped fuel the credit expansion seen in the country in the wake of the Western financial crisis.

However, fears are growing that the build-up of foreign borrowing by the Chinese, particularly in US dollars, is creating an even greater build-up of risk than that seen before the crisis of 2008.

Figures published by the Bank for International Settlements (BIS) in October showed foreign currency loans booked in China, as well as cross-border borrowing by Chinese companies, had reached $880bn (£535bn) as of March 2013, from $270bn in 2009.

Analysts say this figure is now likely to exceed $1 trillion and is continuing to grow, raising the prospect of the potentially dangerous vulnerability of the Chinese financial system to a rising dollar. (…)

George Magnus, senior independent economist at UBS, said the Chinese banking system resembled that of Japan during the 1980s in the years leading up to the country’s financial crash.

“If the dollar were to appreciate it could cause problems for those banks that have borrowed in dollars. Anywhere you have a banking system that uses a non-domestic currency, there is a possibility of a mismatch that could cause issues when the value of your liabilities runs away from you,” said Mr Magnus. (…)

The yuan has continued to rise against the dollar since the beginning of the year, even as virtually every other developing country’s currency, from the rand to the ruble, has fallen victim to a bout of market jitters.

But the question of just what one yuan should be worth, and whether the wall of money trying to get out of China outweighs the wall of money trying to get in, is among the most important facing the global economy.

If Lombard Street is right and the yuan stumbles, China’s growing importance as a market for everything from copper to Cabernet Sauvignon will be badly curtailed.

Kazakhstan Devalues Amid Outflows From Emerging Markets
France Set to Miss Deficit Targets

(…) The auditor—the Cour des Comptes—said the government is overoptimistic about the impact of some cost-cutting measures and its tax revenue forecasts appear too high.

“There is a significant risk that the public deficit exceeds the latest government forecast for 2013,” the president of the auditor, Didier Migaud, said at a press conference in Paris. “Given numerous uncertainties and significant risks, meeting the 2014 target is not assured.” (…)

“Almost 40 years of deficits are not without consequence: they have led the France into a dangerous zone,” Mr. Migaud said.(…)

Zero Hedge Bears no Bull…Gartman Does It Again… Again

It is becoming more uncomfortable to make fun of Dennis Gartman’s always incorrect calls (see here and here and here and here) than to watch Richard Simmons’ Obamacare commercials, but… well – it’s just too funny.

Just days after confidently explaining to the CNBC audience and all his newsletter-followers that the S&P 500 could see a 15% correction: “I just think you’re going to have a very severe, very substantive and really quite ugly correction that will probably make a lot of people wail and gnash their teeth before it’s done,” (February 3rd (Ugly Correction coming – S&P 500 at 1,742)

…the world-renowned Dennis Gartman has done it again: “vociferously, I’d say I was wrong

adding in his usual authoritative manner – prideless to the end: “The one thing I will tell you is: You can’t be short. It’s still a bull market. That’s what’s really important. It’s one thing to lose money. It’s another thing not to make money. And if you’re short, you’re losing money.” (February 10th (I’d say I was wrong… you can’t be short – S&P 500 at 1,799.5)

But wait, there’s more… despite thinking stocks could drop 15% and now that stocks are in a bull market, Gartman notes, “I’m still neutral on equities…”

The above may explain the below:

(Bespoke Investment)


NEW$ & VIEW$ (10 FEBRUARY 2014)

Slow Jobs Growth Stirs Worry Over Recovery A hiring chill hit the U.S. labor market for the second straight month in January, reflecting employers’ reluctance to take on new workers despite some of the nation’s strongest economic growth in years.

U.S. payrolls rose a seasonally adjusted 113,000 in January after December’s lackluster gain of 75,000 jobs, marking the weakest two-month stretch of job creation in three years, the Labor Department said Friday.

Yet the unemployment rate ticked down to 6.6%—the lowest level since late 2008. The decline came because more people found jobs last month as opposed to last year when it fell in part because of unemployed Americans abandoning their job hunts and dropping out of the labor force. (…)

The report left several puzzles unanswered, including the dichotomy of solid growth and weak hiring. Throughout the recovery, businesses have been able to boost production at a faster pace than employment. That trend could also be supporting GDP growth despite the hiring slowdown. (…)

The latest data suggest weather may have slowed hiring in December, but not in January. (…) Payrolls in construction, an industry often hardest hit by frigid temperatures, grew by 48,000 last month after December’s decrease of 22,000. The manufacturing sector added 21,000 jobs last month. The construction and manufacturing sectors tend to pay higher wages than retail jobs, which declined by 13,000 last month.

The health-care sector added just 1,500 jobs in January after a gain of 1,100 jobs in December. The sector had supplied a steady stream of jobs for years, raising more questions about whether the rollout of the Affordable Care Act last fall is restraining hiring.(…)

To be sure, the report offered a few bright spots. In January, the size of America’s labor force actually grew, by nearly 500,000 people, as more people got jobs and looked for work.

In addition, the ranks of the long-term unemployed—those out of work for six months or more—thinned, dropping to 3.6 million from 3.9 million. Some of that may have been partly due to more than 1.3 million Americans losing federal unemployment benefits in December; some of those workers may have given up their job search or taken jobs they otherwise wouldn’t. The Senate failed to advance a renewal of those benefits this past week. (…)

This was the WSJ’s rundown of Friday’s NFP report, a good reflection of the confusion. After all, the narrative before December’s NFP report was that the U.S. economy was accelerating north of 3.0% GDP growth and 2014 would be a much better year overall. The reverse in the narrative was exacerbated by the plunge in the ISM Manufacturing PMI for January.

Most if not all the negatives have been well publicized by the media. So, here’s a dose of optimism from factual data, just to keep us all balanced:

  • The annual revisions to the 2013 data were good news. The BLS had already said that March 2013 employment would be revised up by 369,000 jobs. The revisions from March through to December 2013, however, show an additional 140,000 jobs. The new data suggest the economy added 194,000 jobs a month in 2013, roughly 11,300 more than the previous estimates. This is 6.1% more new jobs per month on average than originally estimated. While December new jobs were only revised up by 1k, November’s were revised up by 33k. Monthly changes were revised up 52k in total for the first 6 months of 2013 and up 84k for the second half with 71k of the 84k revisions occurring in the last 3 months of the year. Upward revisions are a positive sign.
  • The Labor Department conducts two surveys for the employment report. The establishment survey of employers gave us the disappointing 113,000 nonfarm payrolls gain, while the household survey showed 638,000 new jobs added last month (or a still robust 616,000 removing the population control effect.)  While the two job measures often vary month-to-month, in the long run they track one another. Looking at year-over-year growth rates, the household employment numbers seem to be catching up to the steady rise in payrolls as reported by U.S. establishments. (WSJ)
  • In addition to the unemployment rate, Labor also calculates a broader measure of underemployment that includes the unemployed plus persons marginally attached to the labor force and people who can only find part-time work because of economic conditions. The rate has fallen by almost two percentage points in the past year, with a one-point decline in just the last three months.  At 12.7%, January’s rate is the lowest since November 2008. One driver: the rapid drop in workers who are working part-time but want full-time work. The number has dropped from more than 8 million in October to 7.3 million in January. Considering the strong number of jobs reported by households, those no longer working part-time probably gained full-time employment. That’s a plus for consumer spending and incomes. (WSJ)
  • There are two logical responses to losing [long term unemployment] benefits: either accept any job that is going, even at much lower wages than you want, or else stop looking.(…) Less in keeping with the benefits story, the percentage of the population participating in the labour force picked up from 62.8 to 63 per cent, suggesting that more people came into the labour force. (FT)
  • The percentage of working-age Americans with a job rose to 58.8% last month, the highest since October 2012.
  • The well publicized dismal January ISM Manufacturing report added to the slowdown fears. However, other reports tend to confirm that economic momentum continues. Markit’s U.S. Manufacturing PMI, which has tracked official data on factory orders better than the ISM, suggests that “ the underlying trend in new orders appears to have been as strong, if not slightly stronger, than late last year.” As the WSJ chart on the right shows, manufacturing employment has been gaining momentum in the past 4 months.
  • Markit’s Services PMI, a far more useful indicator for job creation, reached 56.7 in January, up from 55.7 in December with continued strong new orders and employment gauges. Markit says that “The headline index suggests service sector output continued to expand at a robust pace in January, with the latest increase in overall business activity the fastest for four months.”
  • The recent NFIB release revealed improved employment at small companies, the best job creators in the U.S.: “Overall, it appears that owners hired more workers on balance in December than their hiring plans indicated in November, a favorable development (apparently undetected by BLS).”

imageMarkit also believes that the underlying employment trend is better than what the official data paint:

The hiring trend depicted by the official data is also bleaker that the picture painted by Markit’s PMI™ surveys, which have shown companies across
manufacturing and services continuing to take on extra staff in significant numbers in recent months (in the region of 180-195,000) alongside resilient growth of
output and order books.

The PMIs, which had correctly signalled the robust rate of economic expansion in the second half of last year, indicate that growth remained robust at the start of 2014, with the January PMIs broadly consistent with GDP continuing to grow at an annualised rate of at least 3% in the first quarter. Such solid growth implies that the hiring trend is likely to revive again in February.

Good Sign for Jobs: More Quitting The Outlook: The percentage of U.S. workers who voluntarily left their job—the “quit rate”—hit 1.8% in November, the highest during the recovery, in a healthy sign for the labor market.

The percentage who voluntarily left their job—the nation’s “quit rate”—hit 1.8% in November, the highest in the recovery and up from a low of 1.2% in September 2009, according to the Labor Department. About 2.4 million workers resigned in November. Some retired or simply chose not to work. But most quit to hunt for a new job or because they had already found one.

Figures for December, due Tuesday, will probably show further gains in quitting, economists say. (…)

imageWhile more Americans are quitting, U.S. employers are still moving slowly to hire. A separate measure from the Labor Department that tracks the number of hires as a share of overall employment remained at 3.3% as of November, the latest data available, the same level as a year prior and well below the 3.8% average between late 2000 and 2006. “You want to see quits and hires going one for one,” says Jason Faberman, senior economist at the Federal Reserve Bank of Chicago.

Economists say part of the reason the quit rate is rising is that more of the jobs the economy is creating are in industries like retail and restaurants, known for higher turnover and relatively low pay. Roughly 20% of November’s quits were in the “accommodation and food services” sector, up from 17.5% in the same month two years ago. By contrast, only 5.2% of November’s quits were in manufacturing, which tends to pay more, down from 5.9% two years before. As the share of jobs in high-turnover sectors grows, the overall quit rate would be expected to rise.

Meanwhile, the longer-term picture suggests Americans are becoming less peripatetic when it comes to their jobs. The quit rate actually edged down during much of the 2000s, even when the economy was booming. After the 2001 downturn, quitting levels failed to return to their prerecession highs. Some 51% of U.S. workers have been with the same employer for at least five years, up from 46% in 1996, according to a January 2012 survey by the Labor Department.

One reason for the growing stability is America’s aging population. Older workers change jobs less frequently than younger ones. But there are other drivers, including growing health-care costs that make some workers reluctant to leave the safety of jobs with good benefits.

If such trends persist, it is likely that labor-market churn will continue decreasing over time. That could exacerbate an already deeply entrenched problem: long-term unemployment. Without more Americans leaving jobs for more promising positions, it is that much harder to find slots for people out of work for months and trying to get back in the game.

To end the rundown of Friday’s NFP report: Average hourly earnings rose five cents. The length of the workweek was steady at an average of 34.4 hours. In effect, real wages have been rising throughout 2013 after declining the previous 28 months. But there is this problem:

Low-Wage Hours At New Low As ObamaCare Fines Loom

Low-wage workers clocked the shortest workweek on record in December — even shorter than at the depth of the recession, new Labor Department data showed Friday.

The figures underscore concerns about the ObamaCare employer insurance mandate’s impact on the work hours and incomes of low-wage earners.

It’s impossible to know how much of the drop relates to ObamaCare, but there’s good reason to suspect a strong connection. The workweek has been getting shorter in many of the same industries where anecdotes have piled up about employers cutting hours to evade the law’s penalties.

While weather likely played some role in December, that’s not the driving factor. The low-wage workweek in November had already matched the prior record low — set in July 2013, just as the Obama administration delayed the employer mandate until 2015.

Further, January’s data not yet broken down by industry subgroup show that rank-and-file retail workers saw another big fall in average work hours, matching a record-low 29.7 hours a week.

In December, office supply chain Staples cut the schedules of part-time workers to a maximum of 25 hours per week, below the 30-hour threshold at which the Affordable Care Act’s employer mandate kicks in.

In November, David’s Bridal reportedly cut even full-time salespeople and stylists below the 30-hour mark.

ObamaCare’s penalties won’t apply until 2015, but they will reflect 2014 staffing levels, giving employers little time to adjust.

More Jobs, Fewer Hours

IBD’s gauge of the low-wage workweek, now at 27.4 hours, includes the 30 million nonmanagers working in private industries where pay averages up to $14.50 an hour.

These industries boosted payrolls by 700,000 (nonsupervisors) in 2013, or 2.4%, but hours worked grew at half that rate. In effect, shorter hours would have explained 323,000, or 47%, of those new jobs.

Again, weather wasn’t the primary factor. Even if the workweek had held steady in December, the workweek would have been responsible for one-third of the jobs added in low-wage private industries last year.

That’s not to say that overall job creation is weaker than it appears. That’s because the workweek has moved higher for non-low-wage workers. This group, including managers and those in higher-paying industries, is now clocking a longer week than prior to the recession.

That divergence explains why many economists and nonpartisan arbiters like the Congressional Budget Office have concluded that ObamaCare has had no impact on part-time employment. The effect doesn’t show up in aggregate workforce data, but that is the wrong place to look.

Finally, CalculatedRisk has a set of charts supporting slow but on going improvements in the U.S. labour situation:

Not to say that all is good. We may well be in another soft patch (weaker housing, autos, energy costs, retailing, high inventories) but nothing too serious, especially since interest rates are backing down amid much softer fiscal headwinds.

ISI’s company surveys, conducted weekly and covering a broad corporate spectrum, are holding up nicely in spite of the apparent excess inventories in the economy:


Speaking of higher energy costs, Joao Peixe at points out:

As natural gas prices climb, reaching over $5/mcf again on 4 February, and with an unseasonably cold winter, local utilities say that natural gas customers’ bills are 30-40% higher now than last winter.

Last week, we saw natural gas prices rise above $5 for the first time in three years, then falling back a bit only to rise again on 4 February, with March futures trading above $5.25/mcf—or more than 6%, according to expert trader Dan Dicker.

Customers are footing the bill for higher gas prices and the coldest November-January period in four years in the Midwest and Northeast.

In Omaha, Nebraska, weather has been about 30% colder this year than last, and utility regulatory officials saying that gas use among customers is up while bills are up by 34-38% over last year.

Utilities are paying high prices for gas because demand has been higher and consumption rates at a level that has reduced storage by about 17% over the average of the previous five years. (…)

As Dicker noted for The Street, “Low stockpiles caused by sequestration and a rush of domestic exploration and production companies away from natural gas production in favor of shale oil is taking its toll and providing the first real and consistent support of prices since 2007. Suddenly, natural gas markets are vulnerable to price spikes and traders are afraid to be short.”

If you think we’ve seen all of the bad weather for the year, the Browning Newsletter will discourage you, whether you live on the East, Central or West USA:

In 80% of similar years, late winter remained cold in the Eastern and Central US through February. In 60% of these years, there was little to no slowing of the eastward sweep of storms, so while temperatures were cold, they were not as extreme as they were in mid-winter. The jet stream became less variable, hitting the Midwest and Upper South, but not as extreme in Texas and Gulf. At the same time, in 80% of similar years, more cool air and precipitation entered the Pacific Northwest and Western Canada. (In 40% of these years, some of this precipitation even hit California.)

Here’s the bad news. This shows sign of being one of those 20% of years where the drought lasts all winter! Even though it has been more common during the past
century for the infamous “Ridiculously Resilient Ridge to fade in late winter – allowing a “Fabulous February” or “Miracle March” to break or at least alleviate the Western drought – meteorologists don’t think it is likely this year. The High in the atmosphere is showing no sign of leaving.

Meteorology is like the stock market: a game of probabilities.

Canada sees slight bump to job numbers

Employment rose by 29,400 jobs, recouping some of December’s losses. The jobs gain, along with a drop in the number of people looking for work, lowered Canada’s jobless rate to 7 per cent, the same level as a year ago.

U.S. consumer credit posts biggest jump in 10 months

Total consumer credit rose by $18.8 billion to $3.1 trillion, the Federal Reserve said on Friday. That was the biggest gain since February. Revolving credit, which mostly measures credit-card use, rose by $5 billion in December after climbing $465 million in November. Revolving credit figures can be volatile.

Non-revolving credit, which includes auto loans as well as student loans made by the government, increased $13.8 billion in December. (Chart from Haver Analytics)

French Economy Continues to Sputter

(…) a survey by statistics bureau Insee showed industrial production dipped 0.3% in December from November. Economists expected only a 0.1% decline. It had risen 1.2% in November.

In a separate report, the Bank of France forecast the economy will grow 0.2% quarter-on-quarter at the start of this year, marking a slowdown from the 0.5% expansion the central bank has forecast for the final three months of 2013. (…)

Sentiment in manufacturing was stuck at the same level in January as December, at 99, just below the long-term average reading of 100, the central bank’s survey showed. Sentiment in services improved slightly, but remained even further below the long-term average at 94 in January.

The Bank of France survey echoes others—Insee’s business sentiment survey for January was also stuck at the same level as December.

imageThe weak industrial-production figures in December were partly explained by mild weather decreasing demand for energy in France. But manufacturing output was also disappointing as it failed to record any growth. (…)

Markit’s Composite PMI for France registered 48.9 in January from 47.3 in December (chart above). Markit’s Retail PMI for France has been below 50.0 since October and French retailers remain pessimistic:

The value of goods ordered by French retailers for resale decreased for a twenty-eighth consecutive month in January. Moreover, the rate of contraction accelerated since December.


The Q4’13 earnings season is turning out to be pretty reasonable.

While the market has pulled back quite a bit this earnings season, the underlying data for corporate America has been strong.  As shown below, 65% of companies that have reported this season (1,100+) have beaten bottom line EPS estimates, while 64% have beaten top line revenue estimates.  If these beat rates hold, it would be the strongest earnings beat rate seen since Q4 2010 and the strongest revenue beat rate since Q2 2011.

  • Factset updates us on S&P 500 companies :

Overall, 344 companies (69%) have reported earnings to date for the fourth quarter. Of these 344 companies, 72% have reported actual EPS above the mean EPS estimate and 27% have reported actual EPS below the mean EPS estimate. The percentage of companies reporting EPS above the mean EPS estimate is
slightly above the 1-year (71%) average, but slightly below the 4-year (73%) average.

In aggregate, companies are reporting earnings that are 3.3% above expectations. This surprise percentage is equal to the 1-year (3.3%) average, but below the 4-year (5.8%) average.

The blended earnings growth rate for the fourth quarter is 8.1% this week, above last week’s blended earning s growth rate of 7.8%. The Financials sector has the highest earnings growth rate (24.5%) of all ten sectors. It is also the largest contributor to earnings growth for the entire index. If the Financials sector is excluded, the earnings growth rate for the S&P 500 falls to 4.9% (unchanged from last week).

In terms of revenues, 68% of companies have reported actual sales above estimated sales and 32% have reported actual sales below estimated sales. The percentage of companies reporting sales above estimates is well above the average percentage recorded over the last four quarters (54%), and well above the average percentage recorded over the previous four years (59%). If the final percentage for the quarter is 68%, it will mark the highest percentage of companies reporting sales above estimates since Q2 2011 (72%).

In aggregate, companies are reporting sales that are equal to expectations (0.0%). This percentage is below the 1-year (0.4%) average and below the 4-year (0.6%) average. The blended revenue growth rate for Q4 2013 is 0.8%, above the growth rate of 0.3% at the end of the quarter (December 31).

At this point in time, 71 companies in the index have issued EPS guidance for the first quarter. Of these 71 companies, 57 have issued negative EPS guidance and 14 have issued positive EPS guidance. Thus, the percentage of companies issuing negative EPS guidance to date for the first quarter is 80% (57 out of 71). This percentage is above the 5-year average of 64%, but slightly below the percentage at this same point in time for Q4 2013 (86%).

For Q1 2014, analysts are now expecting earnings growth of only 1.5%. However, earnings growth is projected to improve in each subsequent quarter for the remainder of the year. For Q2 2014, Q3 2014, and Q4 2014, analysts are predicting earnings growth rates of 8.2%, 12.2%, and 11.7%. For all of 2014, the projected earnings growth rate is 9.4%.

Pointing upGuidance changes are only slightly worse than at the same time 3 months ago (for Q4’13) and one year ago (for Q1’13).

The biggest drag on Q4 revenue growth is from the Finance and Energy sectors, revenues in Finance down -12.6% (with results from 78.5% of the S&P 500’s Finance sector results already out) and -5.4% in the Energy sector (55.6% of the sector’s total companies have reported). Excluding both of those sectors, revenue growth for the remaining S&P 500 companies that have reported results doesn’t look that bad – up +4.4%, compared to +4.6% in 2013 Q3 for the same group of companies and the 4-quarter average of +3.4%. Revenue growth has improved for the Transportation and Technology sectors and somewhat for the Industrials as well.

So, margins keep rising as the Factset chart shows. Revenues ex-Finance, ex-Energy, are rising nicely in real terms and are not decelerating just yet. Productivity rose 3.2% QoQ in Q4’13 (+1.7% YoY) while unit labour costs fell 1.6% (-1.3% YoY). Mean reverting is not visible.

World economy also looks reasonably good after all the January PMIs (Chart from Moody’s):



From BofAML via ZeroHedge:

February is bad for risk, especially after a down January

February is a month when the S&P500 tends to take a breather. Since 1950 it has averaged a return of -10bps and risen 55% of the time. HOWEVER, after a negative January the month of February turns much nastier. In such instances, it averages a decline of -1.4% and with the odds of a decline rising to 63%.

Here’s the chart for the 12 months of the year, courtesy of RBC Capital:image


NEW$ & VIEW$ (7 FEBRUARY 2014)

U.S. Worker Productivity Growth Is Steady and Firm

Nonfarm business sector productivity grew 3.2% last quarter (1.7% y/y) following its 3.6% Q3 rise. For all of last year productivity rose 0.6%, down from the 1.5% rise in 2012. Output gained 4.9% last quarter (3.3% y/y) and hours worked increased 1.7% (1.6% y/y). Compensation rose a steady 1.5% (0.4% y/y) but when adjusted for inflation it increased 0.6% in Q4 (-0.9% y/y). Unit labor costs fell 1.6% and were down 1.3% y/y. For all of last year costs rose a fairly steady 1.0%.

In the factory sector, worker productivity rebounded at a 2.0% annual rate last quarter (2.1% y/y). For the year productivity rose 2.0%. Output surged at a 6.6% rate (3.3% y/y) while hours worked gained 4.4% (1.2% y/y). Worker compensation increased at a 1.0% rate (1.2% y/y). Adjusted for price inflation, compensation edged 0.2% higher (-0.0% y/y. Unit labor costs fell 1.0% (-0.9% y/y) in Q4 and for all of last year costs declined 0.8%.


U.S. exports fell overall in December

Exports fell 1.8% from a month earlier to a seasonally adjusted $191.29 billion in December while imports rose 0.3% to $229.99 billion, widening the U.S. trade gap to $38.70 billion, the Commerce Department said Thursday.

In December, U.S. merchandise exports to the European Union tumbled 8.9%. Sales to other major trading partners—including Canada, Mexico, Japan and China—also fell. (Chart from Haver Analytics)


The terrible retail sales data for Europe in December should be enough to scare people. Absolute Return Partners’ Neils Jensen has this other worry:

imageThe problems in mainland Europe are well advertised and I see no need to repeat them all here. Suffice to say that the Eurozone banking system continues to be seriously under-capitalised. The ECB recognises this and has published a preliminary list of 124 Eurozone banks that it will subject to an Asset Quality Review (AQR) later this year. The market seems to expect a shortfall of tier one capital of around €500 billion; however, a recent study conducted by two academics on behalf of CEPS (see here) suggests that the actual number will be much higher – at the order of €750-800 billion (chart 6). (…)

A more likely consequence of the 2014 AQR is sustained pressure on lending activities across the Eurozone, a trend which is already underway. Most banks in the Eurozone have seen the writing on the wall and are already preparing for higher capital standards. Of the larger countries, only in France does the penny not seem to have dropped yet.

imageThe Eurozone is probably only one shock away from outright deflation. Consumer price inflation is running at 0.7% year-on-year, and that number is inflated by austerity driven tax hikes. According to Ambrose Evans-Pritchard, if those tax rises are stripped out, then (and I quote) “Italy, Spain, Holland, Portugal, Greece, Estonia, Slovenia, Slovakia, Latvia, as well as euro-pegged Denmark, Hungary, Bulgaria and Lithuania have all been in outright deflation since May […]. Underlying prices have been dropping in Poland and the Czech Republic since July, and France since August.” Not good. The inflation trend is unequivocally down and there is nothing to suggest that it is about to change (chart 8).

Actual deflation may well be the explanation for the dismal retail sales of the past 4 months. Sorry to repeat myself, but the numbers are terrifying:

Total retail volume dropped 1.6% MoM in December in the EA17. Over the last 4 months, retail volume is down 1.8%, that is a 5.4% annualized rate! Core sales volume dropped 1.8% in December and is down 1.5% since September (-4.6% annualized). Real sales dropped 2.5% in Germany (-2.4% in last 4 months), 3.6% in Spain (-6.0%), 1.0% in France (-1.2%).

Japan Earnings High, But Risks Loom After years of being pummeled by a strong domestic currency and a global economic downturn, Japanese corporate profits are near where they were in 2008.

The combined operating profit outlooks for the fiscal year ending March 31 by companies listed on the first section of the Tokyo Stock Exchange totals ¥31 trillion ($305 billion), on expected revenue of ¥621 trillion. That is within striking distance of the record ¥36 trillion profit and ¥639 trillion revenue logged in the year ending March 2008, according to SMBC Nikko Securities Inc. (…)

A total of 896 listed Japanese companies expect a 36% rise in operating profit to ¥23.99 trillion for this fiscal year through March on a 9.4% rise in revenue to ¥472.87 trillion, according to SMBC Nikko. The data cover 66% of companies listed on the first section of the Tokyo Stock Exchange with business years ending in March that had released earnings as of Thursday.

Including the companies still to release earnings this month, the combined outlooks for operating profit and revenue figures are ¥31 trillion and ¥621 trillion, respectively, according to SMBC Nikko.

The combined full-year operating profit outlook is down 0.1% from their previous outlooks, weighed down by the big downward revisions of a few companies. (…)

In the third quarter between October and December, companies’ operating profits jumped 55% from the same period a year earlier, with a 14% rise in revenue.(…)

For the full business year ending March, 124, or about 9%, of Japanese companies raised their previous outlook, while 64 lowered them. The rest kept their outlooks unchanged.

Investors Bolt From Stock Funds to Bonds

Traditional U.S. stock mutual funds and exchange-traded funds together saw withdrawals of $18.8 billion in the week ended Feb. 5, their biggest weekly withdrawals on record. The abrupt reversal, led by ETFs, comes after U.S. stock funds attracted $172 billion in 2013, the biggest inflow since the financial crisis.

Meanwhile, taxable bond mutual funds and ETFs soaked up $10.7 billion, their biggest intake on record, Lipper’s data showed. (…)

Investors also continued to yank cash out of emerging-market stocks for the fourth week in a row. Emerging-market stock funds shed $2.7 billion in the most-recent week, the biggest outflow since February 2011, compared with $2.6 billion a week earlier.

Virtually all of the shift came from money sloshing out of U.S. stock ETFs and into bond ETFs, funds that can often see big weekly swings in assets. Just $386 million flowed out of traditional U.S. stock mutual funds in the most recent week. Traditional bond mutual funds attracted $1.2 billion. (…) (Charts from ZeroHedge)



I consider myself a contrarian investor. Not a contrarian for the sake of being a contrarian but a contrarian nevertheless. My inclination to go against the prevailing view is based on one very simple piece of knowledge acquired through 30 years of trial and error. When an investor states that he is bullish, he is more often than not close to being fully invested, hence he has used most, if not all, of his dry powder. Obviously, the more people who find themselves in this situation, the less purchasing power there is on an aggregate basis. At this point the market is at or near its peak. Precisely the opposite is the case when most investors are bearish. They have sold most if not all of their holdings, at which point the market is more likely to go up than down. (Niels C. Jensen, Absolute Return Partners)

Going back all the way to 1928 on the S&P 500 shows an average of three 5%+ corrections each year. Outside of last year, since 1961 there have been only three years when the market didn’t have more than one 5%+ correction. Suffice to say, volatility is the norm, not the exception, with this current one clearly overdue.



HSBC China Composite PMI™ data (which covers both manufacturing and services) signalled an expansion of total output for the sixth successive month in January. However, the rate of growth eased to a marginal pace that was the weakest in the current sequence. This was signalled by the HSBC Composite Output Index posting at 50.8 in January, down from 51.2 in December.


Production levels rose at Chinese manufacturers in January. That said, the rate of expansion eased to the weakest in four months and was only slight. Service providers also signalled increased business activity in January. However, the HSBC China Services Business Activity Index signalled only a marginal increase of activity and posted at 50.7 in January, down from 50.9 in December.

Latest data signalled that total new business placed at Chinese goods producers was little changed from the previous month in January. Meanwhile, Chinese service providers reported a further expansion of new order books over the month. That said, it was the weakest rise in new business since last June. As a result, total new orders rose marginally at the composite level.

Employment data for January continued to signal divergent trends across China’s manufacturing and service sectors. Manufacturers reported further job shedding over the month, while service providers noted a slight increase in staff numbers. Furthermore, it was the strongest reduction of payroll numbers in the manufacturing sector since March 2009. At the composite level, employment declined slightly for the third successive month.

Outstanding business at manufacturing plants increased for the sixth month running in January. However, the rate of accumulation eased to a fractional pace that was the weakest in the current sequence. In contrast, service providers reported a further reduction of outstanding work in January. Though slight, it was the fastest rate of backlog depletion since April 2013. Consequently, the level of work-in-hand fell marginally at the composite level.

Total input costs faced by Chinese manufacturers fell for the first time in six months during January and at a marked pace. Meanwhile, service providers signalled a moderate increase in cost burdens at the start of 2014, though the rate of inflation was well below the historical average. As part of efforts to boost sales, both manufacturers and service providers cut their selling prices in January. Moreover, it was the strongest rate of discounting in the service sector since June 2012.


NEW$ & VIEW$ (6 FEBRUARY 2014)



Yesterday, I reported on the very severe decline in retail sales in December. To repeat, especially since I have yet to find a mainstream media with this important factual news (even uber-bear ZeroHedge missed it):

Total retail volume dropped 1.6% MoM in December in the EA17. Over the last 4 months, retail volume is down 1.8%, that is a 5.4% annualized rate! Core sales volume dropped 1.8% in December and is down 1.5% since September (-4.6% annualized). Real sales dropped 2.5% in Germany (-2.4% in last 4 months), 3.6% in Spain (-6.0%), 1.0% in France (-1.2%).

These numbers were from Eurostat. Today, Markit released its January Eurozone Retail PMI. Read their release considering that it is based on surveys conducted in Germany, France and Italy. The overall reading is up just above the 50 mark, but only because Germany had a solid January following a dismal December. France and Italy continued to experience poor sales trends, even after a very soft December.

imageJanuary eurozone retail PMI® data from Markit showed the first rise in sales for five months. And although only slight, the increase was the fastest since April 2011. Germany was the driver of growth, posting its most marked improvement in trade since August. France’s drag on the currency union’s overall performance meanwhile diminished as sales there fell at a much slower pace than in December, whereas Italy saw another solid decrease.

The Markit Eurozone Retail PMI registered at a 33-month high of 50.5 in January. Although indicative of only marginal growth, this latest index reading was nevertheless a marked improvement from 47.7 in December. Sales were still notably lower compared with the situation one year ago, however.

Stocks of goods for resale at eurozone retailers rose to the greatest extent in more than a year-and-a- half in January. With spending on resale items having fallen on the month, data suggested that this was in part due to sales being lower-than-expected. Indeed, retailers confirmed that they had generally underperformed relative to their targets.

Pointing up This is very worrying. The all-important December sales were terrible and January was only better in Germany (thanks in part to mild weather). Retailers are thus stuck with high unsold inventories which will negatively impact manufacturing in coming months. Given that U.S. retailers also seem to be overstock post Christmas, manufacturers of consumer goods are probably globally feeling the pain at this moment.

Retailers’ sales chilled by weather, low consumer confidence

(…) Kohl’s Corp (KSS.N) on Thursday said sales in January were “significantly” lower than expected as shoppers stayed away. The department store chain reported a 2 percent decline in quarterly comparable sales, those online and at stores open at least a year, despite a good start to the holiday season.

Analysts expect a group of nine retailers that report these results on a monthly basis to show a 2 percent rise in comparable sales for January, well below the 4.9 percent growth of a year earlier, according to Thomson Reuters.

Some chains managed to register sales gains, but those came either at the expense of rivals or profit margins.

Costco Wholesale Corp (COST.O) said its same-store sales rose 5 percent in January, with fresh food a popular item for its bargain-seeking members. That contrasted with a quarterly decline at Wal-Mart Stores Inc’s (WMT.N) Sam’s Club chain.

Victoria’s Secret parent L Brands Inc (LB.N) posted a much bigger-than-expected jump of 9 percent in comparable sales. But the company said its profit margin was “significantly” lower after it had to deepen discounts and hold sales events longer. The retailer expects only modest sales gains in February.

The consumer mood seemed to sour last month. The Thomson Reuters/University of Michigan’s consumer sentiment index slipped to 81.2 in January from 82.5 in December. Confidence fell acutely among households with annual incomes below $75,000. (…)

Cato Corp (CATO.N), a chain of low-priced clothing stores; Fred’s Inc (FRED.O), which sells general merchandise; and Stein Mart Inc (SMRT.O), an off-price clothing retailer, all blamed Mother Nature for declines in comparable sales.

Sterne Agee analyst Charles Grom said higher home heating bills could crimp consumer spending “well into April.”

Clothing chains that cater to teens had another dismal month in January. The Buckle (BKE.N) reported a 6.6 percent drop in comparable sales, while at Zumiez Inc (ZUMZ.O), they fell 7.6 percent.

The disappointing sales results follow recent poor reports from many stores. Baird analyst Mark Altschwager estimated that comparable sales at J.C. Penney Co Inc (JCP.N) fell 3 percent last month. And last week, Wal-Mart said its profit for the fourth quarter ended January 31 would come at or slightly below its forecast.

Getting shoppers into stores, a source of major concern for retailers during the holiday season, did not seem to improve last month. Walgreen Co (WAG.N) managed to report a jump in comparable sales, but the drugstore chain said traffic fell 2.2 percent.

Meanwhile, ECB Keeps Rate Unchanged The European Central Bank kept interest rates on hold, resisting calls for additional stimulus to guard against threats to a nascent recovery in the euro zone

“The reason for today’s decision not to act has really to do with the complexity of the situation that I described and the need to get more information,” Draghi said in Frankfurt today after the ECB left interest rates on hold. “We are willing, and we are ready to act.”

“We remain firmly determined to maintain the high degree of monetary accommodation and to take further decisive action if required,” Draghi said. “We firmly reiterate our forward guidance. We continue to expect the key ECB interest rates to remain at present or lower levels.”

“I tried to give you a sense of how complex is the picture which would explain why before taking any decision today we would wait,” Draghi said. “Things may get better, or they may stay where they are, or they may get worse.”

They are also driving blind in Europe. At least, Draghi admits it.

US retailers feel the food aid squeeze Big grocers report falling sales because of welfare cuts

The neediest Americans will be hurt by an $8.6bn cut to food aid in a bill that was approved by Congress this week and will be signed into law by President Barack Obama on Friday. But another set of welfare beneficiaries will lose out too: big grocery retailers. (…)

At Walmart, which is better known for penny-pinching, analysts estimate that around 20 per cent of shoppers use food stamps. The company said last week that sales at its US stores had fallen in the past quarter partly due to $11bn of food stamp cuts that began in November and will extend over three years. For a household of four, that reduced monthly payments by $36 to $668, according to equity analysts at Cowen & Co.

The cut approved this week, which is spread over a decade, works out at an annual reduction of $860m. It will shrink benefits for 850,000 households – or about 4 per cent of all recipients – by an average of $90 a month, according to the Congressional Budget Office.(…)

At Target, 17 per cent of shoppers use food stamps – known as the Supplemental Nutrition Assistance Program – and at Costco the figure is 13 per cent, says Cowen & Co. (…)

The very fact that this is happening in the USA is incredible!


World Food Prices Drop to 19-Month Low as Sugar to Grains Slide

World food prices fell in January to a 19-month low, as costs for everything from sugar to grains slid amid ample global supplies, the United Nations’ Food & Agriculture Organization said.

An index of 55 food items dropped to 203.4 points last month from 206.2 in December, the Rome-based FAO wrote in an online report today. The index is down 4.5 percent from a year earlier and is at the lowest level since June 2012, as costs of grain, sugar, vegetable oils and meat fell, with only dairy prices rising.

More Men in Their Prime Are Out of Work More than one in six men ages 25 to 54 don’t have jobs. It’s partly a symptom of a U.S. economy slow to recover from the worst recession in 75 years and also a chronic condition that shows how technology and globalization are transforming jobs faster than many workers can adapt.

(…)  Some are looking for jobs; many aren’t. Some had jobs that went overseas or were lost to technology. Some refuse to uproot for work because they are tied down by family needs or tethered to homes worth less than the mortgage. Some rely on government benefits. Others depend on working spouses.

Having so many men out of work is partly a symptom of a U.S. economy slow to recover from the worst recession in 75 years. It is also a chronic condition that shows how technology and globalization are transforming jobs faster than many workers can adapt, economists say.

The trend has been building for decades, according to government data. In the early 1970s, just 6% of American men ages 25 to 54 were without jobs. By late 2007, it was 13%. In 2009, during the worst of the recession, nearly 20% didn’t have jobs.

Although the economy is improving and the unemployment rate is falling, 17% of working-age men weren’t working in December. More than two-thirds said they weren’t looking for work, so the government doesn’t label them unemployed.

For women, the story is different. In the 1950s, only about a third of women ages 25 to 54 had jobs. That rose steadily until the 1990s, and then leveled off for reasons that aren’t clear. At last tally, about 70% were working; 30% weren’t.(…) 

Inflation Fuels Crises in Two Latin Nations

(…) For Brazil, fewer exports of its cars, auto parts, food and manufactured goods to one of its major trading partners, Argentina, stands to further hold back its already slowing economy. Uruguay, whose economy is more dependent on Argentina’s, is concerned about a run on Argentine banks and a drop in tourism from its neighbor.

Venezuela, economists say, has started to selectively default—failing to pay European airlines, American oil service companies and Colombian food exporters, among others, as it struggles with fast-depleting reserves. (…)

Price Pressures



Markit’s Services PMI confirms that cold weather did not result in significant disruptions in the overall economy. This is a strong report overall.


imageAt 56.7 in January, up from 55.7 in December, the seasonally adjusted final Markit U.S. Services PMI™ Business Activity Index Business Activity Index posted above the neutral 50.0 value for the third successive month. Moreover, the latest reading indicated a robust pace of output expansion that was the steepest since September 2013. The index was also above the average seen since the series began over four years ago (55.5).

The headline index suggests service sector output continued to expand at a robust pace in January, with the latest increase in overall business activity the fastest for four months. Service providers added to their staffing numbers at the start of the year, which in turn contributed to a reduction in backlogs of work for the first time since October 2013. Looking ahead, service providers report the most optimistic expectations for business activity for three years.

Higher levels of services business activity reflected a further strong rise in new work. That said, the pace of new business growth eased slightly from the five-month high registered in December. Companies that reported an increase in new work generally cited improved conditions in the wider economy and an associated upturn in clients’ willingness-to-spend.


January data pointed to a solid expansion of staffing levels within the service economy. Anecdotal evidence attributed rising employment numbers to increased levels of new work and improving confidence about the business outlook. Moreover, the latest survey indicated that service providers are the most optimistic about the 12-month business outlook since January 2011. Meanwhile, a solid rate of job creation in the service economy resulted in a slight reduction in work-in-hand (but not yet completed) at the start of the year.

Pointing up On the inflation front, service providers’ average cost burdens continued to increase at a robust pace in January. The latest rise in input prices was the fastest for three months. Pressures on margins from greater cost burdens contributed to an increase in output charges for the seventh successive month in January.


The seasonally adjusted final Markit U.S. Composite PMI™ Output Index (covering manufacturing and services) registered 56.2 in January, little-changed from 56.1 in December and above the 50.0 threshold for the third successive month.


NEW$ & VIEW$ (5 FEBRUARY 2014)

Markets Misled By Factory Order Book Signal

Stock markets have fallen sharply in what looks to be an over-reaction to a steep deterioration in the ISM survey. The ISM’s manufacturing new orders index suffered its largest fall in points terms since December 1980, plummeting 13.2 points from 64.4 in December to 51.2 in January. The drop in new orders contributed to a steep fall in the survey’s headline PMI, which dropped from 56.5 to 51.3.

Analysts had been wrong-footed, having expected the PMI to merely dip to 56.0. The severity of the miss against expectations induced new worries that the US economy was not as healthy as previously thought. Benchmark equity indices dropped by around 1%. However, the market reaction to the survey looks overblown.

First, analyst expectations were too high to start with. In its report, the ISM noted unusually cold weather was at least partly to blame for the decline. January had seen record low temperatures across swathes of the US, which Markit’s flash PMI (published 23 January) had already shown to have caused a slowdown in manufacturing activity. Analysts should have factored this into their ISM predictions.

imageSecond, the fall in the ISM new orders index needs to be looked at in context of prior months, in which the survey had been signalling far stronger growth of factory orders than official data had been registering. The ISM new orders index had been running above 60 in the five months prior to January, with an increase to 64.4 in December. To put this in context, the ISM data suggest that the second half of 2013 therefore saw a rise in new orders of a magnitude commensurate with the sharp rebound from the depths of the financial crisis seen in late-2009. However, official data have recorded a mere 0.2% rise in factory orders between June and November of last year, including a 0.5% fall in October, which is likely to have been linked to disruptions caused by the government shutdown.

Markit’s PMI, in contrast, to the ISM, has tracked official data on factory orders well (see chart). The survey has shown weak growth of orders in the third quarter of last year, with a marked easing due to the October shutdown, after which growth revived in the final two months of the year. January’s final Markit PMI data showed reasonable, if unexciting, growth of orders at US factories. The increase was the weakest for three months (the index dipped from 56.1 in December to 53.9), but once an estimated allowance is made for the number of companies reporting disruptions due to the adverse weather, the underlying trend in new orders appears to have been as strong, if not slightly stronger, than late last year.

The fall in the ISM’s new orders index in January therefore needs to be viewed as a hit from the cold weather plus – and most importantly –a correction from misleadingly high readings late last year.

Markit is grinding its own axe but their point is absolutely valid. The ISM was clearly off track in recent months. Financial markets will learn to put their trust in Markit’s surveys.

Developed World Leads Global Trade Revival In January

imageWorldwide PMI™ survey data signalled an increase in goods exports for a seventh straight month in January, indicating that the upturn in global trade flows seen late
last year has persisted at the start of 2014. However, a widespread weakness of exports from emerging markets reveals how the upturn is being largely concentrated in the developed world.

A GDP-weighted aggregated global export orders index derived from the manufacturing PMI surveys conducted by Markit acts as a reliable guide to official trade data, which are only available with a substantial delay. This PMI index fell slightly for a second month running in January, down to a four-month low. However, the decline was at least in part attributable to the weather-related disruption in the US (excluding the US the global index would have remained steady at 52.0), and at  51.2 the index has now been above the 50 level, thereby indicating rising global exports, for seven straight months.

Comparisons with official data indicate how the PMI accurately foretold the upturn in global trade in imagethe second half of last year from the stagnation seen during the second quarter. The January PMI reading is consistent with global exports rising at an annual rate of approximately 8%. The latest available official data registered a 6.9% annual increase in November. Extreme cold weather disrupted US trade flows in January, pushing the world’s largest economy to the foot of the global PMI export orders rankings. Besides the US, the only other countries seeing falling export orders in January were emerging markets, including three of the BRIC economies: China, Russia and Brazil.

China’s exports fell for a second successive month, contributing to the country’s first overall deterioration of manufacturing conditions for six months in January. Russia meanwhile saw exports fall for a fifth successive month.

The decline in Brazil was only very marginal, but adds further to the contrast between the ongoing plight of Asian and South American emerging markets against robust growth in many developed world economies.

The top half of the trade league table was in fact dominated by developed countries and eastern European nations that are benefitting from rising trade with Germany. January’s PMI survey indicates that the eurozone’s largest member state has entered 2014 on a firm footing, with GDP on course to rise by over 0.6-0.7% in the first quarter. The Czech Republic led the overall global trade rankings, followed by the UK, then Germany and the Netherlands.

The export-led revival of eurozone peripheral countries was meanwhile underscored by both Italy and Spain occupying fifth and seventh place respectively. Ireland likewise saw a robust rise in export orders and even Greece enjoyed a modest upturn.

Related: Manufacturing highlights growing developed and emerging market divergences

EM Currencies May Reflect Normalization, Not Crisis

Pointing up This is the best piece I have seen on the EM crisis.From Robert Sinche, Pierpont Securities, via BloombergBriefs.

(…) Each month the Federal Reserve takes its basket of EM other important trading partner (OITP) currencies and adjusts its value relative to (U.S.) inflation to estimate a real trade weighted value of the U.S. dollar versus the basket of OITP currencies. The latest reading, for December 2013, showed the real trade-weighted U.S. dollar was only about 1 percent above its 30-plus year low set in April 2013, about 15 percent below its average since 1980 and still 30 percent below its recent high in February 2003. After adjustment for relative inflation, the U.S. dollar remains undervalued relative to a basket of EM currencies.

imageIn this context, it should not come as a great shock that U.S. manufacturers are increasingly competitive and that some have been returning production to the U.S. from selected EM countries.

During recent years, Fed initiatives to stimulate the economy through quantitative easing appeared to be a catalyst for a weaker U.S. dollar. While the central bank under Ben S. Bernanke did not pursue a “currency war” with emerging countries, QE did mark a retreat for the U.S. dollar, improving domestic competitiveness and limiting imported deflation pressures. It should not come as a great surprise that the tapering of the pace of Fed asset purchases is triggering a correction in the sharp undervaluation of the dollar.

In this context, is the recent correction in the U.S. dollar versus emerging markets currencies a sign of crisis, or a shift towards a normalized value? After all, based on movements in the nominal trade-weighted U.S. dollar versus OITP currencies, the real trade-weighted dollar increased only about 2 percent during January, taking the index up to the 95- 96 range. Compared to the (real) U.S. dollar surge versus OITP currencies in the 1997-98 Asian currency crisis (a more than 20 percent rise during seven months) or the 2008-09 global economic crisis (a 13.3 percent gain during seven months), the 2-3 percent rise in January is only a minor adjustment. If not for the simultaneous weakening of global equity markets, in some cases, a well advertised and healthy correction, it is not clear the adjustment in EM currencies would be garnering so much attention.

As a result, it appears very unlikely that EM currencies will reverse and rebound any time soon. Instead, the preferable course would be a continued, moderate decline in many EM currencies (heavyweights China yuan and Hong Kong dollar excluded) that re-establishes more reasonable, competitive values for many emerging economies. India might be a leading indicator; the rupee fell almost 25 percent versus the U.S. dollar from early May through early September, setting off
sharp adjustments in Indian growth and, particularly, import demand. With a short lag, the economy, including India’s rupee, has stabilized, with data released this past Monday showing the 3rd consecutive reading above 50 for the HSBC/Markit PMI for Indian manufacturers.

The key for many EM countries will be the policy initiatives taken as their currencies weaken, with those adopting sound monetary and fiscal policies having the higher probability of benefiting economically from a moderate improvement in competitiveness. For the U.S., conversely, a gradually strengthening dollar versus many EM producer economies opens the potential for subdued import prices that should help keep inflation below-target, a potential complication for Fed policy makers as the economy slows during the early months of this year.

The Bank of Canada is showing the way, openly letting the CAD decline even after its recent 10% retreat. The Canadian economy needs a lower currency and the BOC is more than happy to let markets do the job.



This is not in the mainstream media today but it is major stuff. Total retail volume dropped 1.6% MoM in December in the EA17. Over the last 4 months, retail volume is down 1.8%, that is a 5.4% annualized rate! Core sales volume dropped 1.8% in December and is down 1.5% since September (-4.6% annualized). Real sales dropped 2.5% in Germany (-2.4% in last 4 months), 3.6% in Spain (-6.0%), 1.0% in France (-1.2%).


Note that U.S. retail sales are also pretty weak based on weekly chain store sales:

What Do Auto Prices Need to Do? ‘Keep Melting’ Some analysts say prices will need to keep falling if U.S. car sales are going to hit the level needed to mop up all the new vehicles rolling off factory floors.

With rising inventory, increasing production capacity, and slowing demand, February is shaping up to be an important indicator of the health of the auto industry,” Morgan Stanley writes after January’s weaker-than-expected sales. Weather “clearly played a materially negative role,” Morgan Stanley says, particularly for the Detroit Three as much of their sales are in the Midwest and Northeast.

The firm thinks the industry “stands at a cross-road,” where “pricing is going to have to keep melting” if US sales are to get to a seasonally-adjusted annual rate of 17 million sales in the next 12-18 months. The best of the auto replacement cycle is over, Morgan Stanley thinks, with “the incremental buyer moving from someone who needs to replace their car to one who wants to…making bank willingness to lend and credit availability more important than ever.


The Federal Reserve recently released its Senior Loan Officer Opinion Survey (SLOOS). Conducted each quarter, the survey examines changes in the standards and terms of lending, as well as the state of business and household demand for loans. This quarter’s survey is based upon responses from 75 domestic banks and 21 U.S. branches and agencies of foreign banks. On the commercial lending side, results broadly reflected 1) an easing of lending standards on C&I loans and an increase in demand versus the prior survey; and 2) continued easing in commercial real estate (CRE) lending standards accompanied by the ongoing strengthening of demand. Shifting to the household lending side, the survey’s key takeaways were that 1) a small number of domestic banks tightened standards on prime residential mortgages, even as borrower demand declined for a second consecutive quarter; 2) a small fraction of lenders eased standards on credit card, auto and other loans; and 3) demand strengthened for all three categories, which represents four consecutive quarters of a net increase or flat demand. (Raymond James)

 image image

The next chart from CalculatedRisk shows the MBA mortgage purchase index. The 4-week average of the purchase index is now down about 14% from a year ago.


(…) Of the 3 percentage point decline in labor force participation since the end of 2007, about 1.5 percentage points is due to long-term trends, mostly the retirement of Baby Boomers, CBO said. The aging of this group has swelled the proportion of the population aged 55 years or older — a group that is less likely to work than younger people. The downward pressure from this group on the participation rate would have happened regardless of the 2007-2009 recession.

Temporary factors — namely the anemic recovery — account for another 1 percentage point of the labor force participation decline, the equivalent of roughly 3 million people, the CBO said. The lack of good job opportunities in a weak economy discourages some people from looking for work, perhaps sending some of them back to school. As the economy strengthens and demand for workers rebounds, these people will re-enter the labor force, the CBO said, predicting that the “dampening effect” this factor has on participation will end by 2018.

Finally, about 0.5 percentage point of the decrease in labor force participation since 2007 was due to people who have dropped out permanently, and not because of demographic trends. These people wouldn’t have left if not for the harsh recession and unusually weak recovery that followed. Some who had trouble finding work decided to sign up for Social Security Disability Insurance instead. Others departed for early retirement or “chose alternative unpaid activities, such as caring for family members, and will remain out of the labor force permanently,” the report said. The report was released Tuesday alongside the CBO’s budget and economic outlook.

Looking ahead, the CBO predicts the participation rate will continue its downward drift downward even after the economy fully recovers. The CBO said the labor force participation rate will stay at about 62.9% in 2014 but fall to 60.8% by the end of 2024.

While those who temporarily stopped looking for work will return to the labor force between 2014 and 2017, that recovery “will be more than offset by the downward pressure on participation stemming from other changes,” especially aging, the CBO said. (…)

  • Health Law to Cut Into Labor Force The Congressional Budget Office report forecasts that more people will opt to work less as they seek coverage through Affordable Care Act.

The new health law is projected to reduce the total number of hours Americans work by the equivalent of 2.3 million full-time jobs in 2021, a bigger impact on the workforce than previously expected, according to a nonpartisan congressional report.

The analysis, by the Congressional Budget Office, says a key factor is people scaling back how much they work and instead getting health coverage through the Affordable Care Act. The agency had earlier forecast the labor-force impact would be the equivalent of 800,000 workers in 2021.

Because the CBO estimated that the changes would be a result of workers’ choices, it said the law, President Barack Obama‘s signature initiative, wouldn’t lead to a rise in the unemployment rate. But the labor-force impact could slow growth in future years, though the precise impact is uncertain. (…)

The report indicates that, in effect, some workers will either leave the workforce entirely or cut back on hours because the law lets them get coverage on their own without regard to their medical history, in some cases with a subsidy.

The report also said that in the next few years, some of the hours that were given up would be picked up by the many Americans seeking jobs. (…)

The CBO estimated that insurance premiums on the health-care exchanges were 15% less than originally forecast, and, more broadly, the agency said the recent slowdown in the growth of Medicare costs had been “broad and persistent” and projected “that growth will be slower than usual for some years to come.” (…)

(…) Roughly 36 million people in the U.S. had some graduate school under their belts (though not necessarily an advanced degree) in early 2013, the Census Bureau said Tuesday. That’s up from 29 million in early 2008, during the recession. (…)

Overall, the number of Americans with at least some college, including undergrad and grad school, rose 11% since 2008 to 121 million in 2013.

But there was a downside. Just as more people received degrees, a lot of students entered graduate programs but never completed them. The number of people with some graduate school but no degree jumped 38% from 2008 to 2013.

The rise in enrollment varied across programs. For example, the number of Americans with an associate’s degree increased almost 19% between 2008 and 2013. Those who had earned a bachelor’s degree, but with no graduate school, climbed just 3%.

A defining feature of the U.S. recovery is that unemployment has remained historically high. That has left many college graduates in jobs outside their fields or that pay less than those workers would earn during healthier times. Workers’ pay, even among many college grads, hasn’t kept up with the rise in prices.

Those with advanced degrees still earn far more, on average, than other workers. But their earnings relative to high-school graduates dipped during the recovery.

On average, Americans with an advanced degree who worked full-time, year-round earned $89,253 in 2012. That’s about 2.7 times more than the $32,630 earned, on average, by high-school grads with no college.

That premium has dipped since 2009, when full-time workers with advanced degrees earned 2.8 times the pay of high-school grads.

Meanwhile, those with only a bachelor’s degree earned, on average, $60,159 in 2012. Those with at least some college or an associate’s degree earned $35,943, and those who hadn’t completed high school earned $21,622.

Cold Weather Heats Natural-Gas Prices

Natural-gas futures jumped nearly 10% Tuesday on expectations another wave of colder-than-average weather will generate even more demand for the heating fuel.

Households across the Midwest and Northeast have consumed record amounts of natural gas this year amid frigid temperatures. Forecasters are calling for cold weather to persist through mid-February, with some predicting below-normal temperatures into March.

The resulting spike in heating demand has revived the formerly sleepy gas market, sending investors scrambling to exit from bets that prices would stay low and into new wagers that futures will rally further.

On Tuesday, natural gas for March delivery shot up 9.6%, to $5.375 a million British thermal units. Futures are within striking distance of a four-year high of $5.557 set last Wednesday.

(…)  Declines in the nation’s natural-gas stockpiles have reawakened supply concerns and injected volatility into the futures market.(…) As of Jan. 24, natural-gas inventories stood at 2.193 trillion cubic feet, 17% below the five-year average level for that week. The EIA is scheduled to release its storage data for the week that ended Jan. 31 on Thursday. (…)

Japanese wage rises remain elusive Base salaries fall adding to Abenomics concerns

(…) Total worker earnings rose 0.8 per cent in December compared with the same month a year earlier, government data showed on Wednesday.(…)

Overtime pay increased by 4.6 per cent in December, Wednesday’s data showed, while bonus pay rose by 1.4 per cent. Base earnings continued to decline, however, falling by 0.2 per cent.

Taking inflation into account, real wages for Japanese workers fell by 1.1 per cent in December and are “unlikely to turn to positive territory in the near future, especially after the consumption tax rate hike,” said Masamichi Adachi, economist at JPMorgan.

In a country where laying off workers is difficult and expensive, compensation levels, rather than jobs, have been the main casualty of economic weakness. Economists say unemployment has now fallen far enough – it hit 3.7 per cent in December, the lowest level since late 2007 – to put natural upward pressure on wages, but it remains unclear how much given that the bulk of the new jobs are lesser-paid part-time or contract positions.

“The secular shift of labour composition in the workforce should weigh on the rise in average wages,” Mr Adachi said.


The “Super Bowl Indicator” says that a win for a team from the NFC division (i.e., the Seahawks) means the stock market will be up for the year. Some may laugh, but this theory has been correct 81% of the time.

However, let’s not ignore the balance of the 19%: in 2008, the New York Giants, an NFC team, won the Super Bowl, but the stock market suffered its largest downturn since the Great Depression.

Pizza Italy accuses S&P of not getting ‘la dolce vita’ Culture clash triggers $234bn threat over downgrade Confused smile

(…) Standard & Poor’s revealed on Tuesday it had been notified by Corte dei Conti that credit rating agencies may have acted illegally and opened themselves up to damages of €234bn, in part by failing to consider Italy’s rich cultural history when downgrading the country. (…)

Notifying S&P that it was considering legal action, the Corte dei Conti wrote: “S&P never in its ratings pointed out Italy’s history, art or landscape which, as universally recognised, are the basis of its economic strength.” (…)