Officials debate while the economy accelerates: hotel, transportation and construction industries all show more vigor.
Fed Debates Early Rate Increases Federal Reserve officials debated at their July policy meeting whether they might need to raise interest rates sooner than expected in light of a strengthening recovery, but they were restrained by lingering doubts about whether the economy’s gains would persist.
The minutes of the meeting, released Wednesday with their regular three-week delay, show an intensifying debate inside the central bank about when to respond to a surprisingly swift descent in the unemployment rate and a pickup in consumer prices.
Some Fed officials say this long-sought economic progress warrants moving toward tighter credit soon, but they were outnumbered at the meeting by those who wanted more evidence before signaling that rate increases are on the way. (…)
Many officials agreed at the meeting that if the jobless rate kept falling more quickly than expected and inflation rises, “it might become appropriate to begin removing monetary policy accommodation sooner than they currently anticipated,” the minutes said. (…)
Fed officials also were at odds over how to describe the job market. Some disagreed with a new sentence in the central bank’s policy statement declaring that “significant underutilization of labor resources” persisted. (…)
U.S. Jobless Claims Fall New applications for unemployment benefits fell last week to levels that haven’t been seen regularly in eight years, the latest sign of an improving labor market.
Initial claims for unemployment benefits fell by 14,000 to a seasonally adjusted 298,000 in the week ended Aug. 16, the Labor Department said Thursday. That was lower than the 302,000 new claims forecast by economists surveyed by The Wall Street Journal. Claims for the previous week were revised up slightly to 312,000.
The four-week moving average of claims, which smooths out weekly volatility, increased by 4,750 to 300,750.
Why Are Jobless Claims Falling So Fast? The number of people filing new claims for unemployment benefits fell last week to 298,000, marking the third time in the last five weeks they have fallen below the 300,000 level.
(…) Economists believe that one reason for a lower rate of layoffs is a labor market that has become generally less dynamic over the last few decades.
Employers have become less likely to lay off workers over time, though they have also grown more cautious about hiring. Similarly, workers have grown more reluctant to change jobs, possibly stunting career development and earnings growth as a result.
But more recently, most of the fall in jobless claims has been driven by a decline in the number of the newly laid off who don’t bother to apply for government benefits in a generally improving economy. (…)
Here’s a clue:
Meanwhile, while officials debate, in the real world:
U.S. HOTEL INDUSTRY BOOMING
This highly GDP-sensitive industry is booming at an accelerating rate.
Smith Travel Research (STR) today reported that U.S. industrywide hotel RevPAR grew at a robust +9.9% pace last week (the week ended August 16) from year-ago levels (the prior six weeks saw RevPAR growth of 10.5%, 11.0%, 9.8%, 7.1%, 4.2%, and 9.0%, respectively). The calendar comparison was clean. The year-ago comp was a tough +5.9%. Occupancy improved 4.2% industrywide last week from year-ago levels (up 290 bp to 73.3%). (Raymond James).
The United States’ hotel industry is sitting pretty in the midpoint of the industry’s cycle; group business is beginning to grow; and any meaningful supply growth will not occur for probably another 24 months. (…) Supply is at 0.7%, while the 20-year average is 1.7%.
Linehaul rates for truckload shipping continue to rise. On average, North American shippers paid 7.2% more in July of this year than last in their TL linehaul rates. With the concentrated 2014 bid season now over, and 95+% of the public carriers’ freight based on contract rates, it is likely that the new contracts contain significantly higher rates than the ones they replaced.
The message on supply and demand is the same (thus the rate increases): Freight volumes are growing (despite a June decline that should prove to be a brief seasonal dip) and capacity continues to shrink as a high number of carriers are exiting the business.
The last three months have shown steadily increasing demand for design services and the Architecture Billings Index (ABI) is now at its highest level since 2007. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the July ABI score was 55.8, up noticeably from a mark of 53.5 in June. This score reflects an increase in design activity (any score above 50 indicates an increase in billings). The new projects inquiry index was 66.0, following a very strong mark of 66.4 the previous month.
The AIA has added a new indicator measuring the trends in new design contracts at architecture firms that can provide a strong signal of the direction of future architecture billings. The score for design contracts in July was 54.9.
“Business conditions for the design and construction marketplace, and those industries associated with it, appear to be well-positioned for continued growth in the coming months,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “The key to a more widespread boost in design activity continues to be the institutional sector which is starting to exhibit signs of life after languishing for the better part of the last five-plus years.”
Li & Fung Ltd. LFUGY +2.23% , a key middleman in the global apparel supply chain, reported first-half revenue that fell short of consensus estimates and warned that U.S. and European retail sales are likely to remain “challenging.”
The Hong Kong-based company, which works with 15,000 factories globally to supply goods to major U.S. chains including Target Corp. TGT +1.82% and Wal-Mart Stores Inc., WMT +0.11% said Thursday that its revenue increased 3% to $8.71 billion in the first half, slightly below the consensus estimate of $8.73 billion from S&P Capital IQ. (…)
The company, in a filing with the Hong Kong Stock Exchange, warned that key brands it works with are “delaying order decisions until they get better indications about consumer confidence.” The result is that, while Li & Fung has visibility in its orders for the crucial back-to-school and early holiday seasons, it remains unsure of orders for the fourth quarter and spring seasons, it said. (…)
Eurozone bond yields hit fresh lows Market moves following data showing growth in August
Time to dust off euro crisis strategies Draghi magic is wearing thin and feedback loop remains in place
(…) In recent weeks it seems Mr Draghi’s spell has been wearing off. European lead indicators are weak. France is flat lining, Italy is back in recession and the conflict in Ukraine is hurting business confidence in Germany. There has been some derating of equity markets but it is the persistently weak relative earnings trend that has the Euro Stoxx 50 index making new lows against the S&P 500. (…)
However, the old feedback loop remains largely in place, with banks heavily exposed to their sovereign, legacy debt excluded from discussions on banking union, and a single deposit protection scheme elusive.
A downward shock to European growth or a steady rise in US interest rates could put upward pressure on peripheral yields, hurting banks, triggering asset price falls and pushing the more fragile economies back into recession when they are already on the verge of deflation.
Worse still, economic weakness would lead to calls for self-defeating austerity when the exact opposite is required. (…)
With the S&P 500 on pace for its third straight week of gains, investors are getting hopping on the bullish bandwagon – in a big way. According to this week’s survey of individual investors from the American Association of Individual Investors (AAII), bullish sentiment rose by 6.3 percentage points to 46.11%. Adding this week’s increase to last week’s jump of 8.92 percentage points, the two-week increase in bullish sentiment (15.2) is the largest two-week increase since last July. This week’s level of bullish sentiment is also the first reading above 40% since early June and actually represents the highest reading of bullish sentiment so far this year. While less than half of individual investors are bullish, we are getting close to that 50% threshold that has spelled short-term trouble in the past.
As bullish sentiment surges, bears are moving to the sidelines. This week’s level of bearish sentiment declined from 26.96% last week down to 23.65%, which is the lowest weekly reading since early July. The last time bearish sentiment saw as big a two-week decline as it has the last two weeks (14.58 percentage points) was back in late October of last year.