A Nascent Sign of Faster Wage Growth Ahead Businesses want more labor, but economy wide data show they aren’t pumping up pay just yet. New data, out Tuesday, suggest that tight-fistedness may finally be ending. If so, faster pay growth will add a significant support to consumer spending in the second half and beyond.
(…) According to the June survey of small firm owners by the National Federation of Independent Business, a net 21% of small businesses report lifting compensation in the last few months. That is the highest reading since the end of 2007, right before the Great Recession started.
Small companies are probably lifting wages to attract qualified job applicants and retain valued employees. Historically, a greater willingness among small businesses to dole out pay raises tends to be a leading indicator for rising growth in the average hourly wage for production workers. In turn, that subset of employees’ pay front-runs the growth in all private pay. (The Labor Department’s all-employee data only go back to 2006.)
Even with the time lag, the uptrend in small-firm pay suggests economy-wide wage growth will soon accelerate. As a result, households’ pot of spending money should expand faster than the inflation rate as long as food and gasoline prices don’t suddenly shoot up.
Better buying power for existing workers, coupled with more job seekers finding employment and paychecks, will provide a big boost to personal incomes. That means consumers will be better able to increase spending in the second half.
My point for a while now. And there is more:
The Bureau of Labor Statistics reported in its Job Openings & Labor Turnover Survey (JOLTS) that the job openings rate increased to 3.2% during May from an unrevised 3.1% in April. The latest level was the highest since September 2007. The job openings rate is the number of job openings on the last business day of the month as a percent of total employment plus job openings. The actual number of job openings rose 19.5% y/y to 4.635 million.
The private-sector job openings rate surged to 3.5%, its highest level since June 2007 and up from the recession low of 1.7%. The rate in leisure & hospitality businesses increased to a new high of 4.6%. The rate in professional & business services surged to 4.6%, the highest level since January 2006. In the health care & social assistance sector, the job openings rate improved to 3.9%. The rate in construction rose to 2.1%, down versus the 2.7% in November. In manufacturing it edged up to 2.4%. Still lagging was the job openings rate in the government sector which was stable m/m at a low 1.9%.
The hires rate slipped to 3.4% from its recovery high of 3.5%. The hires rate is the number of hires during the month divided by employment. The private sector hires rate remained at 3.8% where it’s been for six months. Amongst leisure & hospitality firms, it slipped to 5.7%. In professional & business services it fell to 5.1% and the hires rate in retail trade slipped to 4.9%. In construction the rate improved to 5.2%, though it remained below the 6.9% pace in early-2011. In education & health services, the hires rate slipped to 2.5%. In the factory sector, the hires rate held at 2.0% and remained below the 2.5% high late in 2010. The government sector hires rate held at a low 1.3%.
The number of hires reversed the prior months’ gain but remained up 3.9% y/y. Private sector hires gained 3.7% y/y as new retail trade jobs surged 17.4% y/y and hiring in professional & business services increased 5.6% y/y. Leisure & hospitality employment rose 5.0% y/y but factory sector hires declined 2.8% y/y. Education & health services jobs fell 4.3% y/y and new hires in construction were off 5.7% y/y. Government sector hiring increased 6.6% y/y but the level of hiring was the lowest since January.
The job separations rate slipped to 3.2% but the actual number of separations increased 2.1% y/y.Separations include quits, layoffs, discharges, and other separations as well as retirements. The private sector separations rate slipped to 3.6%, about where it’s been since December, and the government sector’s rate held at 1.3%. The layoff & discharge rate fell to 1.1% and equaled the series’ low. The private sector layoff rate fell m/m to 1.3% and the government’s rate held at 0.4%.
The JOLT numbers are for May. Tightness will surely have become more evident when the June numbers are released. Consider these charts up to June:
Weekly hours are above their previous peak in many key sectors which implies that labor demand will remain strong. Already, manufacturing overtime hours are at 3.5 hours per week (top right chart). These are all better paying jobs.
Noisier noise for Ms. Yellen.
The $19.6 billion increase in credit followed a revised $26.1 billion gain in April, Federal Reserve figures showed today in Washington. Non-revolving lending, which includes auto and school loans, advanced by the most in a year. (…)
Revolving debt, including credit-card balances, rose $1.79 billion in May following an $8.85 billion April advance that was the biggest since November 2007.
Non-revolving credit, which includes car and education loans, gained $17.8 billion in May, the biggest increase since February 2013, after climbing $17.3 billion in the previous month.
BloombergBriefs highlights a chart similar to mine yesterday although they use a 13-wk m.a. vs 4-wk in my chart.
Shale boom confounds forecasts as U.S. set to pass Russia, Saudi Arabia Four years into the shale revolution, the U.S. is on track to pass Russia and Saudi Arabia as the world’s largest producer of crude oil, most analysts agree. When that happens and by how much, though, has produced disparate estimates that depend on uncertain factors ranging from progress in drilling technology to the availability of financing and the price of oil itself.
Forecasts for U.S. shale oil production vary from an increase of 7.5 million barrels per day by 2020 – almost doubling current domestic output of 8.5 bpd — to a gain of 1.5 million bpd, or less than half of what Iraq now produces.
The disparities are a function of the novelty of the shale boom, which has consistently confounded forecasts. In 2012, the U.S. Energy Information Administration (EIA) estimated that production from eight selected shale oil fields would range from 700,000 bpd of so-called tight oil to 2.8 million bpd by 2035. A year later, those predictions had been surpassed. (…)
Shale production from the oldest shale patch, the Bakken of Montana and North Dakota, alone may rise to as much as 1.74 million barrels per day in the second half of this decade, according to the highest of six estimates compiled by Reuters. The lowest was 1 million bpd. Even that range belies disagreement over just how fast output will grow — and when it may peak. (Graphic: link.reuters.com/ref32w)
The EIA, the U.S. agency responsible for energy forecasts, predicts that tight oil output will rise 37 percent from about 3.5 million bpd in 2013 to 4.79 million barrels per day by 2020. The forecast includes the Bakken, Three Forks and Sanish, Eagle Ford, Woodford, Austin Chalk, Spraberry, Niobrara, Avalon/Bone Springs and Monterey. (…)
The agency has already made some big adjustments to previous estimates. It recently slashed its forecast recoverable reserves for California’s Monterey shale to just 600 million barrels, 96 percent less than the total amount of oil in place, citing the difficulty in pumping it out economically.
IHS Energy’s projections are higher, with an estimated 6 million bpd from the Bakken, Eagle Ford and sections of the Permian and Niobrara by the end of 2020.
At the low end, Energy Aspects Ltd sees production of 3.5 million barrels a day from shale by 2017, a 1.5-million bpd increase from its current output estimate of 2 million bpd. (…)
McKinsey & Co.’s forecasts illustrate the uncertainty. While the consulting firm uses a reference case that puts tight oil production at the equivalent of 7.1 million bpd by 2020, it said the number could range from 5 million to 9 million bpd.
In its annual outlook released last month, BP estimated that U.S. tight oil production will increase to 4.5 million bpd in 2035. Exxon Mobil Corp. (XOM.N) says global tight oil production, driven by North America, will rise 11-fold from 2010 to 2040, when it will account for 5 percent of global liquids output. Exxon added that in 2015, North American tight oil supply in 2015 will likely surpass any other OPEC nation’s current oil production, with the exception of Saudi Arabia. Iran is the second largest OPEC producer, with about 4.2 million bpd. (…)
China’s consumer-price index rose 2.3% in June from a year earlier compared with a 2.5% year-over-year rise in May, the National Bureau of Statistics said Wednesday. The gauge of inflation remains below Beijing’s annual target of 3.5% year for 2014 and slightly undershot the median 2.4% gain forecast by a poll of 21 economists by The Wall Street Journal.
China’s producer-price index, a gauge of prices at the factory gate, fell 1.1% in June from a year earlier, slower than a 1.4% year-over-year decline in May. The index has remained in negative territory for 28 straight months.
The U.S. House of Representatives is scheduled to vote Wednesday on a plan to permanently extend a lucrative business tax break aimed at spurring investment.
Known as bonus depreciation, the tax break lets companies deduct half the cost of some capital equipment purchases immediately, instead of slowly deducting the depreciation over many years.
The House Ways and Means Committee sent bill H.R. 4718 to the floor in May. A yes-vote is expected from the Republican-controlled House, but it’s unclear when or how the bill might move toward a vote in the Senate.
Rep. Pat Tiberi (R., Ohio) sponsored the House bill and said making bonus depreciation permanent “helps grow the economy and encourages job growth.” The extension of the tax deduction could cost about $262.9 billion in lost tax revenue over the next decade, according to estimates from The Joint Committee on Taxation. (…)
“Making a Market Call”
Actually, making two calls: This is on July 3rd via Barron’s:
“The jobs report was pretty darn good,” Jeff Saut, the St. Petersburg, Florida-based chief investment strategist at Raymond James Financial Inc., said in a phone interview. He helps oversee about $450 billion. “We’re going to get a multiple expansion. Earnings are going to continue to come in better than expected. We’re in a secular market that has years left to run.”
This Saut again is on July 7 via GreenLight Advisors:
(…) I have revisited the summer of 2011 because I have been getting similar readings for a pickup in volatility arriving in mid-July 2014, very much like what we saw in June of 2011. Moreover, the stock market’s internal energy readings are likewise at levels last seen during the summer of 2011. Now history doesn’t necessarily repeat itself, but it does indeed sometimes rhyme. Accordingly, I am making a “call” for the potential of the first decent pullback of the year to begin in mid-July or early August; and am recommending culling non-performing stocks from portfolios to raise cash. If said decline fails to materialize, we can always recommit the cash to more favorable situations because longer-term I believe this secular bull market has years left to run.
But, in truth, what is exactly a “call for a potential pullback…”? Fully hedged!