The National Federation of Independent Business‘s small-business optimism index increased to 98.3 in May, from 96.9 in April. Economists surveyed by The Wall Street Journal projected the index to increase but only to 97.3 in May. The report noted the index has moved slightly above the index’s 42-year average of 98.0.
The earnings trend index jumped 9 percentage points to minus 7%. “Improved profit trends accounted for over half the index gain, a rather unusual but welcome development,” the report said.
Sales activity increased sharply during the three months ended in May. The net percentage of businesses reporting higher nominal sales in the time period jumped 11 percentage points to 7%. Moreover, small business owners expect the environment to keep improving. The business conditions expectations increased 3 points to minus 3%.
Higher sales are leading small companies to hire new employees. On balance, owners added a net 0.13 workers per firm over the past three months, the NFIB said, the fifth consecutive month of “solid” job increases.
Small-business owners also said they were not done with expanding payrolls. The index covering hiring plans increased 1 point to 12% in May.
Small firms continue to face a tough time finding qualified applicants. In May, 29% of companies had job openings they could not fill right now, the highest reading since April 2006.
A stronger economy is leading more small-business owners to mark up prices. In the three months ended in May, the net percent of owners who raised selling prices stood at 6%, up 4 percentage points from April’s reading.
The WSJ article is clearly upbeat. The NFIB’s own assessment is more muted:
The NFIB May survey results confirm that the economy is moving ahead, but at an uninspiring pace.
May is the best reading since the 100.4 December reading but nothing to write home about. The 42 year average is 98.0, a bit lower than the 99.5 average through 2007. Eight of the 10 Index components posted improvements. Overall, the Index remained in a holding pattern, a few points below the pre-recession average, although at the 42 year average, and showing no tendency to “break out” into a stronger pattern of economic growth. (…)
Expected real sales volumes posted a 3 point decline, falling to a net 7 percent of owners expecting gains, after a 5 point decline in January and February, a 2 point decline in March and a 3 point decline in April. Overall, expectations are not showing a lot of strength. (…)
The net percent of owners planning to add to inventory was unchanged at a net 4 percent, in sympathy with the more widespread reduction in stocks. Inventory investment might have been even stronger in light of the liquidation had expectations for real sales gains improved rather than softened. (…)
Reports of increased labor compensation rose a point to a net 25 percent of all owners. Reports of gains this frequent occurred in December 2014 and January of this year, but those are the highest readings since January 2008 when employment last peaked before the recession.
Business Roundtable: CEOs Scale Back Plans for Hiring, Investment U.S. business leaders have scaled back hiring and investment plans for the next six months, a reflection of heightened uncertainty after a patch of slower economic growth.
The Business Roundtable‘s measure of the economic outlook among chief executive officers slipped to 81.3 in the current quarter from 90.8 in the first quarter, the lobbying group said Monday.
The survey of 128 CEOs reflects expectations for sales, capital spending and hiring in the next six months.
The survey showed 70% of CEOs expect sales to increase in the next six months, down from 80% in the first-quarter survey and the lowest level since 2012. Only 35% plan to increase capital spending, down from 45%, and 34% plan to boost hiring, down from 40%.
China’s consumer-price index rose 1.2% in May from a year earlier, slower than the 1.5% year-over-year rise in April, the National Bureau of Statistics said Tuesday.
The producer-price index, which measures prices of goods at the factory gate, dropped 4.6% in May from a year earlier, matching a 4.6% year-over-year fall in April but slightly worse than market expectations.
Much of the easing in the consumer-price index in May was linked to milder increases in food prices, which were up 1.6% on year in May, below the 2.7% rise in April. Comparisons with relatively faster inflation a year ago also made this year’s data look worse.
The consumer-price index was down 0.2% in May compared with April, the third consecutive on-month decline. The producer-price index was down 0.1% on month in May, moderating from a 0.3% on-month drop in April.
What the WSJ failed to mention: annualised non-food inflation increased from 0.9 per cent in April to 1 per cent in May.
The North American oil rig count dropped from its peak in early October at 1,609 to 646 for the week-ending May 29, yet productions is headed in the opposite direction — US oil output hit 9.586 million b/d, its highest daily rate since the EIA began weekly production reports in 1983. The EIA recently forecast another million b/d of oil production growth until it peaks in 2020 at 10.603 million b/d.
While the most fecund basins are still the Permian, Bakken and Eagle Ford, producers have lasered in on the most productive parts of those basins, leading to greater productivity per rig.
In October 2014, the average new-well oil production per rig in the Bakken was 486 b/d, in the Eagle Ford it was 599 b/d, and in the Permian 207 b/d. In the ensuing seven months to June, the same basins saw new well output per rig increase to 631 b/d in the Bakken, 720 b/d in the Eagle Ford, and 296 b/d in the Permian, according to the EIA’s Drilling Productivity Report.
How did the companies do it? The answers differ from company to company and basin to basin, but there were some common themes.
You can get the details from the Platts article but here are some examples, all stemming from technology and North American entrepreneurship:
- Well costs fell 24% from 2014 to the end of May to $8.3 million, with a target of reaching $6.5 million, the company said.
- (…) the technique offers $500,000-$1 million savings per well and shaves off 10-15 days per well (…)
- Another saving comes from expanded use of dissolvable plugs in the Eagle Ford Shale, the company said. (…) The savings is about $300,000 per well and completion time is reduced by three days per well.
- Canada’s oil sands patch is also making technological strides. MEG Energy has tweaked existing enhanced modification steam and gas push (eMSAGP) technology, which is typically used years after steam assisted gravity drainage (SAGD) is employed, but MEG is using it earlier in the production cycle. (…) This has allowed MEG to reduce steam injection to existing wells by 55% and help cut the cost of production.
The efficiency gains, big and small, are why internal rates of return for basins across the shale-scape are over 10% even with WTI at $50/b, according to Platts’ Bentek Energy calculations. WTI settled at $59.13/b Friday.
OPEC’s actions were a wake-up call, but now the tables have turned and, as ConocoPhillips CEO Ryan Lance warned last week, OPEC needs to prepare for even more competition on the “real possibility” the US crude export ban gets lifted.
HSBC to Slash Jobs in Overhaul HSBC said it would reduce its head count by 50,000 as part of a global overhaul to improve the profitability of its sprawling operations.
In yesterday’s Barron’s:
Look Out Below: The Average Stock is Falling Thanks to a few strong stocks, major indexes are holding on, but the average stock is already in decline.
(…) The S&P 500 still has a series of higher highs and lower lows intact (see Chart 1). That is the basic definition of a bullish trend (…)
But the S&P 500 tracks big stocks, and is capitalization weighted. The bigger the stock the more it counts, and that can mask small stock weakness. Tech behemoths such as Apple (ticker: AAPL ) and banking giants such as JP Morgan Chase ( JPM ) are indeed doing a lot of the heavy lifting. To combat this problem, I like to look at the New York Stock Exchange composite index as the champion of the average stock. True, it still does favor larger stocks, and it includes non-domestic stocks such as bond funds and foreign shares, but the sheer number of issues contained dilutes their effects.
Warts and all, the NYSE composite gives me another angle on market breadth. And right now, it has moved below short-term trendlines drawn from the October 2014 closing low.
I find this to be an important development, although it is hidden from the view of most investors and financial media. But even this does not tell us that the bear is here just yet. What it does tell us is that a decent correction is already in progress. Nearly half of its component issues are already trading below their 200-day moving averages. (…)
That is why it is a great surprise, from the technical point of view, to see the Select Sector SPDR Consumer Products exchange-traded fund ( XLP ) as one of the worst performers over the past month. It was second only to energy and utilities, and those two have bigger problems than just a shaky stock market. (…)
This makes three of the nine major SPDR sector ETFs trading below that 200-day average. Industrials ( XLI ) and basic materials ( XLB ) are very close behind. And do not forget that transports – a subset of industrials – already has a serious breakdown in place (see Getting Technical, Transport Stocks Crack; Now It’s Time to Worry, May 26). (…)
Stock investors brace for Fed rate rise Shares of utilities and real estate investment trusts underperform
Emerging market bond sell-off gathers pace Largest monthly outflow in EM debt since the ‘taper tantrum’