The Bureau of Labor Statistics’ Job Openings and Labor Turnover survey for the month of January showed that despite downward annual revisions, the labor market momentum clear in the monthly Employment Situation Report (especially the headline Nonfarm Payrolls figure) continues at pace. Below we show monthly job openings and the job openings rate, both of which remain at post-crisis highs.
One slightly negative sign this month is that the private quit rate has still not been able to crack 2.2%. If we don’t see a resumed upward momentum in this data, we’re going to start getting worried about upward pressure on wages materializing. For now, a 2.2% private quit rate is okay, nothing better.
There was good news though. Despite reports of large layoffs in the oil patch, the private sector discharge rate remains near the lows for the recovery, suggesting that there’s no sign yet of slowing demand for workers across the economy as a whole.
NFIB POINTS TO MARGIN SQUEEZE:
Fifty-three percent reported hiring or trying to hire (up 5 points), but 47 percent reported few or no qualified applicants for the positions they were trying to fill. (…) A net 12 percent planning to create new jobs, down 2 points but a solid reading. Twenty-nine percent of all owners reported job openings they could not fill in the current period, up 3 points and the highest reading since April 2006.
Fourteen percent cited the availability of qualified labor as their top business problem, the highest since September 2007. The job openings figure is one of the highest in 40 years and this suggests that labor markets are tightening and that there will be more pressure on compensation in the coming months.
I put much weight to such surveys like the PMIs and the NFIB. They are timely, objective and from the horse’s mouth. The latest NFIB charts reveal that:
- Sales have weakened in recent months and are much worse than expected.
- Yet, employment is accelerating, indicating higher volume of sales.
- Tight labor market + rising job openings = rising wages. But prices are deflating due to declining commodity prices and the rising dollar. This looks like a meaningful margin squeeze.
And this with interest costs through the floor. Financing costs are heading up sometimes in 2015 as the Fed begins to normalize interest rates (chart from Alphanow):
The quarterly Duke University/CFO Magazine Global Business Outlook Survey, released Wednesday, polled about 1,000 business executives–mostly CFOs–around the world.
Two out of three big U.S. exporters–those with at least one-fourth of their total sales overseas–said the appreciation of the dollar has had a negative impact on their businesses. And nearly one-fourth of big exporters said they have reduced their capital spending plans as a result. (…)
Also in the Duke survey:
- About 70% of U.S. companies said they expect to increase wages by at least 3%. Wage growth should exceed 3% in the tech, services and consulting, manufacturing and health care sectors; wages in the energy, retail and communications sectors are expected to increase less than 2%.
- On a scale from 0 to 100, U.S. CFOs rate the economic outlook at 65, the most optimistic expectation for the U.S. economy since 2007.
- Only 23% of European CFOs believe the European Central Bank’s quantitative easing program will actually increase inflation.
(…) “What we are hearing from dealers is Komatsu is being aggressive.” (…)
The dollar is now page one stuff:
No End in Sight for Surging Dollar There is no end in sight for the global forces pushing the dollar higher.
There is no end in sight for the global forces pushing the dollar higher. The euro is now hurtling down toward parity as the European Central Bank launches its bond-buying program. Meanwhile, economic weakness in other parts of the world – a disappointing batch of January-February data in China and an unexpected decline in U.K. manufacturing – are underscoring the comparative strength of the U.S. economy. One problem is that with a slump in the U.S. stock market already capturing concerns about earnings growth, this rising dollar is going to keep eating into U.S. corporate returns, with the export lobby likely to start making noise about it. The WSJ dollar index is now up 22.8% since May and is trading close to a 12-year high. And analysts believe the greenback still has a long way to go higher in the months and years ahead.
The Almighty Dollar Options for capitalizing on the dollar’s rise.
Hmmm…This chart from Bespoke Investment suggests this is sell high time for the dollar””.
Fed Eyes June for Key Rate Decisions The Federal Reserve is strongly considering removing a barrier to raising short-term interest rates, by dropping its promise to be “patient” before acting.
CHINA AT THE CROSSROADS
Fresh Signs of Weakness in China China’s economy showed fresh signs of sluggishness in January and February, with industrial output growth at its slowest pace since the global financial crisis despite efforts to boost growth.
Industrial production, which is seen as a proxy for the country’s economic growth, grew 6.8% in the first two months, its lowest level since the 2008 financial crisis. That is down from 7.9% in December and well-short of a median forecast of 7.6% from a Wall Street Journal survey of 14 economists. Factories were hit by overcapacity, high inventories and tight financing, economists said. (…)
Fixed-asset investment in nonrural areas—long a driver of growth—rose 13.9% over the two-month period from a year ago, after gaining 15.7% in 2014, according to the statistics bureau.
Retail sales grew 10.7%, the statistics bureau said, compared with an 11.9% increase in December. Sales for retail and catering services registered weaker growth during the weeklong Lunar New Year holiday, when they usually flourish, according to the Commerce Ministry. A diminishing inflation rate, the government’s vigorous anticorruption campaign and the property sector’s woes were lowering consumer enthusiasm for banquets, luxury goods and home-related purchases, economists said. (…)
Housing sales were even gloomier, falling 16.7% from a year ago in the January-February period. New construction starts for residential and commercial property, measured on a total square meter basis, were down a whopping 17.7%, according to official data.
With buyers on the sidelines, developers aren’t building new stock, providing a major drag on the economy, and now it seems on jobs. While official numbers haven’t been released, China’s human resources minister said Tuesday the slowdown has made “job creation more difficult,” a stark reversal from earlier assessments that employment was holding up despite pain in certain sectors. Fiscal tightening on the local government level represents another brake on growth. (…)
Renminbi settles into reverse gear Currency to retreat further as multiyear carry trade fades away
(…) for a currency long seen as lacking a reverse gear, the recent drop to a 28-month low is nonetheless gaining attention, with some predicting far more severe problems down the road. (…)
But since late October, the renminbi has been falling again, losing 2.2 per cent against the dollar. This time the move seems driven by the market, not the PBoC, meaning that few anticipate any imminent change in course. Some analysts expect the trend to accelerate. (…)
Data released last week showed that foreign exchange deposits in China rose at the fastest pace on record in January, a sign that corporations are choosing to hold on to their US dollar earnings in anticipation of a continued slide in the renminbi. Overall forex deposits rose $82.3bn during the month, compared with an increase of $134bn for the whole of 2014. (…)
About a quarter of China’s outstanding corporate debt is denominated in US dollars, according to Morgan Stanley, compared with just 8.5 per cent of revenue. The bank says exposure to the rising dollar in certain sectors is “significant”, picking out China’s real estate developers and material producers in particular. Pending dollar interest payments are another reason to hold or buy greenbacks. (…)
Car sales plunged 38 per cent in Russia last month compared with the same period a year ago in a fresh sign of the economy’s deterioration as it hurtles towards recession.
The decline in February, reported by the Association of European Businesses, was the worst monthly fall since 2009. It follows a 4.4 per cent drop in January retail sales — the first such decline in more than five years — and a collapse in real wages. (…)
The AEB expects a 24 per cent decline this year to about 1.9m vehicles.
Manufacturers have been quickly raising prices in Russia by about a fifth on average to offset the falling rouble.
US shale oil production is expected to see a net gain of just 1,000 b/d in April, according to the US Energy Information Administration’s latest Drilling Productivity Report published Monday.
The data shows net production from the Bakken, Eagle Ford and Niobrara shale plays all falling in April — the first time they will have contracted since the EIA started publishing the DPR in November 2013. Only the Permian region will show a significant projected net gain in April, at 21,000 b/d, compared with the February report’s projection for March growth of 30,000 b/d.
The DPR uses recent data on the total number of drilling rigs in operation, along with estimates of drilling productivity and estimated changes in production from existing oil and natural gas wells. The projection is based on seven key shale plays — the Bakken, Eagle Ford, Haynesville, Marcellus, Niobrara, Permian and Utica. These regions accounted for 95% of US oil production growth between 2011-13. (…)
Nevertheless, overall, US crude production continues to rise. As of the week ending February 27, the EIA’s supply projections estimated output at 9.324 million b/d, up from 9.134 million b/d at the beginning of the year.
The four-week moving average for week 4 of each month shows the rate of increase slowing rapidly from September 2014 through January 2015 in line with the projected deceleration in shale output, but jumping again in February.
The month-on-month increase in the four-week moving average dropped steadily from 229,000 b/d in September to 55,000 b/d in January, but rose 98,000 b/d in February. This may reflect the rise in the NYMEX front-month crude contract from $47.71/barrel at the end of January to $53.54/b February 17. The contract had subsided back below $50/b by end-February.
It is tempting to come up with complicated reasons for the unusual and outsize moves in financial markets in recent days, including a sharp appreciation of the dollar, large volatility in stocks and precipitous drops in European government bond yields.
Yet the simplest explanation may well be the best one: The U.S. jobs report Friday confirmed the multidimensional decoupling taking hold in the global economy. The resulting divergence in prospects for economic performance and monetary policy — in the U.S. and across countries — has consequences for prices in the bond, equity and foreign-exchange markets, both in relative and absolute terms. (…)
Related: LONESOME COWBOY