Global economic growth ticked higher for a second successive month in April, according to the JPMorgan Global PMI™, compiled by Markit, but was still one of the weakest rates seen for over three years. The PMI is broadly consistent with global GDP growing at an annual rate of just 1.5% (at market prices) compared with a long-run average of 2.3%. Developed world growth continued to edge higher from February’s recent low, though remained weaker than at any time seen since early-2013, while emerging markets returned to stagnation. (…)
But, but,wages are pushing upwards as this excellent RBC Capital piece demonstrates:
Exhibit 1: We’ve continued to highlight that the tightening in the labor market remains relentless. The share of small firms unable to fill positions jumped back to the cycle high of 29% (from 25% last month). What is interesting is that given the sheer number of labor supply (which, to be sure, continues to decline), we would expect this number to be much closer to just 20%. The gap that exists between the actual and the modeled estimate likely reflects the skills mismatch. Indeed, the share of small firms that cannot find qualified applicants rose sharply in April to 46% from 41%. And as we highlighted in the last NFIB goaround, the lack of “skills” is not merely concentrated in the more technical/sophisticated areas. Small businesses lamented that the lack of “social skills, appearance, and attitude are deficiencies that disqualified the applicants as often as a lack of specifically needed job skills or a poor work history”…
Exhibit 2: … As we know from the latest employment report, this tightness is finally beginning to pay dividends through accelerating average hourly earnings–which are running at 2.5% and leading metrics suggest more upside toward 3% is in the offing. A critical dynamic in this narrative is that job openings continue to be concentrated in sectors that pay a higher wage, on average, than the broad prevailing rate. Indeed, the average weighted wage for job openings is already running at a 3% y/y clip on a 6-month trend basis (the straight y/y hit a 10-month high at 3.7% y/y). In other words, there are further wage gains in the pipeline…
Exhibit 3: … Finally, we don’t anticipate that this tightening in the labor markets will be quelled by an inflow from folks currently “not of the labor force.” This comes down to simple math. Despite the sensationalized fact that there are a “record” 94 million folks not in the labor force, we have to be cognizant of the reasons (and thus the probability that these folks will re-enter). Note that 94% of people not in the labor force flat-out do not want a job. Of the remainder that want a job, nearly 60% of those (or 4% of the total not in the labor force) have not looked in the past year. Others are constrained by family or other obligations and a mere 0.7% of the pie are actually discouraged. In levels terms, discouraged workers have averaged just over 600k over the last 12 months—or slightly more than 300k above the all time low! That gets you 1.5 months’ worth of the current monthly nonfarm payroll pace.
Sure looks like a Fed falling behind the curve: RBC continues:
Exhibit 1: With the NFIB and JOLTS surveys now in, we can update our proprietary labor market “tightness” index. Following a small dip in Q1, our index is back in an uptrend thus far in Q2. Note how far behind this labor tightening curve the Fed remains. When our index breached the zero line in the past, the Fed was starting its tightening campaigns. Our index is currently sitting at 0.7 standard deviations from the norm, which is a level of labor market tightness that typically coincides with the end of a tightening cycle. A scenario where the Fed has to play catch-up to much faster than anticipated wage growth (and by extension, inflation in general) cannot be ruled out…
Exhibit 2: … For now, the prospects of a wage spike seem low. Indeed, our model of ECI wages suggests that while there is likely further acceleration from here, at best we should be looking at a 3% y/y clip toward the end of 2016. However, if we are truly now into the “full employment” zone, one can also not rule out that these leading wage metrics begin to accelerate at a faster clip.
Global Oil Glut to Shrink Despite Iranian Output Surge, IEA Says Iran’s oil production has risen faster than expected, reaching levels not seen since before Western sanctions were tightened in 2011, but a global oversupply of crude is still shrinking, the International Energy Agency said.
The Islamic Republic ramped production up by 300,000 barrels a day month-on-month in April, hitting 3.56 million barrels a day, according to the IEA’s closely watched monthly oil-market report. The output is now at levels not seen since international sanctions were extended to curb the country’s nuclear program.
Iranian exports increased at greater rate, with preliminary data suggesting a month-on-month rise of 600,000 barrels a day to about 2 million barrels a day. However, the dramatic increase from 1.4 million barrels a day seen the previous month, may have been helped by loadings that spilled over from March, the Paris-based agency said.
China was Iran’s largest customer, importing 800,000 barrels a day of crude.
Despite the strength of Iran’s rebound, global oil markets are moving closer to balance in the second half of the year as unplanned disruption to production in countries such as Canada and Nigeria are helping to run down a global overhang of crude inventories.
Global oil stocks will diminish to 200,000 barrels a day in the last six months of the year from 1.3 million in the first half, it said. The IEA has previously projected supply will exceed demand by an average of 1.5 million barrels a day in the first six months of 2016. (…)
Production outside the Organization of the Petroleum Exporting Countries will decline by 800,000 barrels a day this year, the adviser to industrialized nations said, an acceleration from the previous forecast for a drop of 710,000.
In April, non-OPEC production fell 125,000 barrels a day to 56.6 million barrels a day as planned and unplanned outages add to declines caused by lower oil prices and spending cuts. Output is expected to drop further in May due to the wildfires in Canada, it said.
The IEA maintained its forecast for global demand growth broadly at 1.2 million barrels a day for this year, but said the risks to future forecasts lay to the upside.
“Any changes to our current 2016 global demand outlook are now more likely to be upward than downward, as gasoline demand grows strongly in nearly every key market, more than offsetting weakness in middle distillates,” the IEA said.
OPEC’s April output rose by 330,000 barrels a day in April to 32.76 million barrels a day, its highest level since 2008, on higher supplies from Iran, Iraq and the United Arab Emirates, which more than offset outages in Kuwait and Nigeria, the IEA said.
The grouping’s April output is about 500,000 barrels a day more than the average required for this year, the report showed.
Saudi Arabia’s output was steady in April near 10.2 million barrels a day, it said.