HOUSTON, WE HAVE A …LIFTOFF
Another example of narrow analysis:
Weak Wages Put Liftoff at Risk A long-awaited liftoff in the U.S. economy is facing pressure from stubbornly weak wage growth, muddying the outlook for consumers and challenging the Fed, counting on a pickup as it unwinds the central bank’s extraordinary support for the recovery.
Growth in wage and salary income slowed to just 0.2% in April from the prior month, marking the weakest monthly increase of the year, the Commerce Department said Friday. After adjusting for inflation, wage and salary income was up 2% from a year earlier. The figures came in a report showing that U.S. consumer spending fell in April for the first time in a year even while inflation crept up. (…)
Personal consumption, a broad measure that captures spending on everything from food to utilities, declined a seasonally adjusted 0.1% from March, the Commerce Department said. Adjusted for inflation, spending actually declined 0.3% in April from the prior month.
The retreat partly reflected a tough comparison against March, when spending surged largely due to higher winter heating demand. But the retreat was also likely a reflection of purchasing power that remains weak almost five years into the recovery. The latest report showed wage growth largely stagnant, hovering around levels seen since the recession’s end.
The Commerce Department’s report Friday showed the April consumer-spending slowdown was broad-based. Services consumption fell 0.1% after surging 0.8% in the prior month, largely the result of a decline in gas and electricity consumption. Spending on goods also fell 0.1% in April after jumping 1.4% in March.(…)
The continued pressure on wages comes as overall consumer inflation shows signs of climbing slowly after a long period of subdued prices. That could pinch consumers’ purchasing power still further. The Commerce Department’s price index for personal consumption expenditures—the Fed’s preferred inflation gauge—rose 1.6% in April from a year earlier, the quickest pace since November 2012. (…)
The harsh winter is supposed to have disturbed monthly income and spending stats so it is best to look at trends including more than a single month.
- Wages and salaries rose only 0.2% M/M in April but that followed a 0.6% jump in March. The 0.4% average monthly gain for March/April is a slight acceleration from the 0.35% average for Jan/Feb. First 4 months of 2014: +1.5% or +4.6% annualized. Last 4 months of 2013: +1.1% or +3.3% annualized.
- Disposable personal income in nominal terms: First 4 months of 2014: +1.6% or +4.9% annualized. Last 4 months of 2013: +0.4% or +1.2% annualized.
- Disposable personal income in real terms: First 4 months of 2014: +1.1% or +3.3% annualized. Last 4 months of 2013: +0.0% or +0.0% annualized.
- Consumption expenditures in nominal terms: First 4 months of 2014: +1.7% or +5.2% annualized. Last 4 months of 2013: +1.3% or +4.0% annualized.
- Consumption expenditures in real terms: First 4 months of 2014: +1.1% or +3.3% annualized. Last 4 months of 2013: +0.9% or +2.7% annualized.
It sure seems to me that we do indeed have a liftoff here, whatever the bond market believes.
The Commerce Department‘s price index for personal consumption expenditures–the Fed’s preferred gauge–climbed 1.6% in April from a year earlier. That was the fastest pace since November 2012, marking the latest sign U.S. inflation is lifting from historically low levels.
Core prices, which exclude volatile food and energy components, rose 1.4% from the prior year, the fastest rate since March 2013, the Commerce Department said Friday. The report showed both overall prices and core prices rose 0.2% in April from March.
The core PCE deflator rose by 0.1% monthly between September 2013 and February 2014 (+1.2% annualized). It advanced 0.2% in each of March and April (+2.4% annualized).
The Institute for Supply Management-Chicago Inc.’s business barometer rose to 65.5 this month from 63 in April. The median forecast of 46 economists in a Bloomberg survey projected the index would fall to 61. Readings greater than 50 signal growth.
Gains in manufacturing, which makes up about 12 percent of the economy, have been supported by rising demand for durable goods such as automobiles, appliances and machinery.
China to Cut Reserve Requirement Ratio for Some Banks China said it will cut the reserve requirement ratio for some of the nation’s banks, the government’s latest step to support growth in the world’s second-biggest economy.
(…) Housebuilding, real estate and related sectors accounted for 16 per cent of GDP in 2013. Mainstream economic forecasters seem to be expecting a drop in construction of several percentage points, replicating the experience of earlier slowdowns. A drop of this scale would directly reduce the level of real GDP by only about 0.5 -1.0 per cent. Some economists (eg Qu Hongbin at HSBC) talk of a downside scenario in which GDP might fall by about 2 per cent, but they generally add that this could be substantially offset by policy easing.
While these may be sensible central forecasts, there is clearly a rising probability of a harder landing, given the current imbalance in the market. The lesson from the US crash is that in a downside case the impact of a property crash can be much greater than predicted in advance by mainstream forecasters.
How bad might this be? No-one can be sure, but if we assume for illustration that construction/real estate output in China falls by 25 per cent compared to previous trends over three years, which is roughly half of the decline experienced by overall construction in the US collapse, the total hit to Chinese GDP would be 4 per cent, thus reducing the annual growth rate by 1.3 per cent for three years.
This does not allow for any knock on effects on consumer spending, nor for any collapse in the financial sector. Neither of these effects are likely to be very large. Unlike in the US case, equity withdrawal from the housing market is not permitted in China, so the boost to consumer spending has been much smaller. And Chinese households are required to provide at least 30 per cent equity in any home purchase, so the chances of negative equity and bad debts should be much less than in the US crash.
A collapse in the shadow banking sector cannot be ruled out, given the extent of its recent expansion.
The St Louis Fed’s economic blog recently estimated the worst case effects of a collapse in the Chinese shadow banking sector by comparing it directly with the US example. They point out that shadow banking in China is less than half as large as it is in the US, so even if the collapse were as painful in the US case, and the economic effects were as bad, the impact on Chinese GDP would be “only” about 4 per cent. This would probably be spread over several years and would directly reduce global GDP by about 0.6 per cent in total.
These worst case effects, at 4 per cent of Chinese GDP, spread over three years, are certainly not negligible. Admittedly, they are little more than stabs in the dark, and the uncertainty is enormous. But they are not of the same scale as the Great Financial Crash.
And, given the increasingly obvious intention of the Chinese authorities to ease policy further, they are far from inevitable.
China’s official purchasing managers’ index came in at 50.8 in May, the highest reading this year and up from 50.4 in April.
Most subindexes in the official PMI rose in May. Output increased to a four-month high and the measure of new orders was at the highest since November. The employment gauge fell to 48.2 from 48.3, continuing to signal contraction.
Not much meat around that official bone. Markit will soon release its more reliable final China PMI (chart below from Zerohedge).
MONEY LOSING IPO BACK AT ALL-TIME HIGH:
From Grant Williams’ TTMYGH:
Yep… the share of companies coming to market with negative earnings reached 74% in early 2014, a level surpassed only in…….. drumroll, please…….. February 2000.
(Fox Business): According to CB Insights, 600 startups in the IPO pipeline have raised more than $55 billion — that’s nearly $100 million apiece. And 47 venture-backed companies — including Palantir, Pinterest, Box, Spotify, Fab, and Square — are valued at more than a billion dollars.
Someone has to do the dirty work and Barry Ritholtz did it on Marc Faber. This is a slide from one of Barry’s presentation (This Is Your Brain On Stocks):
- Marc Faber Says Stocks Have Likely Peaked for 2009 –Bloomberg, 9/25/2009
- Faber on Hyperinflation: “Not A Matter Of If But When” –Business Insider, 9/23/2010
- ‘The Bear Market Is Starting’ Marc Faber –CNBC, August 3, 2011
- Faber: The Dollar’s Value In The Future Will Be Zero –Business Insider, 4/18/ 2011
- Marc Faber: We Could Experience A 1987-Style Crash This Year –Business Insider,5/10/2012
- Marc Faber: Look out! A 1987-style crash is coming. –CNBC, August 8, 2013
- 2014 crash will be worse than 1987’s: Marc Faber –CNBC, April 10, 2014
(…) Happiness research – yes, there is such a thing – reveals that while there’s nothing wrong with deriving happiness from one’s success, happiness is an integral part — and, for some of us, maybe even a prerequisite — of achieving success in the first place.
And it all starts with attitude. Here’s one finding that might surprise: it seems that positivity – not exactly happiness, but certainly a close relative – is more important than raw intelligence when it comes to professional success. An oft-cited 1984 meta-review concluded that high IQ can explain only about 25 percent of the variance in how successful a group of people will be in their careers. And in a 2011 TED Talk, Shawn Achor, a former Harvard University psychology professor and current CEO of consulting firm GoodThink Inc., says the other 75 percent comes from traits such as optimism and the ability to see stress as a challenge and not simply something we must endure. (…)
While it’s somewhat commonsensical that happier people should be better able to navigate the challenges of the workplace better than those mired in cynicism or negativity, the results of ever-increasing amounts of happiness research are backing up that thesis with actual numbers. Achor points to a study conducted by researchers Sonja Lyubomirsky, Laura King, and Ed Diener that shows happy workers are 31 percent more productive than unhappy ones and have 23 percent fewer stress-related ailments. Other research shows positive attitudes improve sales effectiveness by 37 percent.
Making positivity a part of the job can yield rich benefits for companies as well. At Ritz-Carlton and other corporations, workers are encouraged to follow the 10/5 practice: If an employee walks within 10 feet of a guest or co-worker, he or she should make eye contact and smile. Get within 5 feet, and a greeting is in order. How effective is it? Ritz-Carlton has opened up its own Leadership Center, where companies pay $2,050 a head for their executives to learn how to improve corporate culture and customer service the Ritz-Carlton way. In Achor’s 2013 book, “Before Happiness,” he cites the example of a Louisiana hospital system that received demonstrably improved scores on patient satisfaction surveys after its 11,000 employees adopted the smiling-and-greeting technique.
Few among us need to be reminded that making our happiness contingent on external measures of “success” — reaching a career milestone or building up a large nest egg of cold hard cash — won’t necessarily make us happy. But research seems to be showing that the reverse might actually be true. Says Achor: “Greater success does not bring greater happiness. But greater happiness does raise success rates dramatically.”