The Cass Freight Index represents monthly levels of shipment activity, in terms of volume of shipments and expenditures for freight shipments. Cass Information Systems processes more than $26 billion in annual freight payables on behalf of its clients. The Cass Freight Index is based upon the domestic freight shipments of hundreds of Cass clients representing a broad spectrum of industries.
The May freight shipments index rose 1.3 percent from April. This represents the high point so far for 2016, but it was still 5.8 percent below May 2015 and 7.0 percent lower than May 2014. This year we have failed to see the robust growth in shipments that we expect to see this time of year. In May, railroad carload shipments and container shipments were up 1.9 and 2.1 percent respectively. (…)
Freight payments declined 0.4 percent in May, coming in at 10.1 percent below May 2015. This slow downward trend is completely opposite of the upward trend of previous years. The restrained growth in freight shipments—coupled with abundant available capacity—has pushed down rates. In addition, according to DAT Solutions, “total carrier revenue has been impacted by a 35 percent drop (10 cents per mile) in the fuel surcharge compared to last May.” The low demand is giving shippers more bargaining power to drive down rates. Many trucking companies, such as Swift Trucking, are adjusting the size of their available fleet by parking trucks. In Swift’s case, 300 trucks were removed from its active fleet this Spring.
From the WSJ:
Werner Enterprises Inc., the country’s fifth-largest truckload carrier, says the weaker demand is hitting its earnings: the company says it’s now expecting its earnings for the second quarter to come in at roughly half what Werner earned last year. The company cites the weak demand but says driver pay and “difficult” negotiations with shipping customers are hurting. There may not be much help in the pipeline: Drewry Shipping Consultants Ltd. says its talks with big shippers suggest they expect this year’s peak season to be flat or down this year compared to last year.
As Low-Skilled Jobs Disappear, Men Drop Out of the Workforce Prime-age men are dropping out of the labor force in rising numbers. A new White House study looks at the causes.
A new White House study highlights the sharpest decline among men with lower levels of educational attainment and concludes much of the cause is a loss of economic opportunity for those would-be workers. (…)
Labor-force participation among men between the ages 25 to 54 topped out at 97.9% in 1954. For about five decades, it has been heading steadily lower, punctuated by steeper falls during recessions. That’s a troubling phenomenon for individuals who should be at their peak, improving prospects for themselves and their families and contributing to the economy.
Participation appears to have stabilized but it’s still below levels at the end of the recession despite years of steady job creation, falling unemployment rates and signs of a tighter labor market. (…)
The White House study zeros in on the sharp divergence in participation rates by educational attainment and ethnicity. In the mid-1960s, participation figures nearly matched for those with a college degree and those with a high school degree or less. Last year, the rate for college-educated men was 94%, while the rate for men with at most a high-school diploma was 83%. The rate also has declined most steeply for black men.
Some working men may opt to retire early, go to school or take care of their families. But that’s likely only a small slice of the group. Less than a quarter of prime-age men who aren’t in the workforce have a working spouse. (…)
White House economists also note relatively low male participation rates compared with other developed economies. A lack of government support helping match or train the unemployed for jobs may be to blame.
“Absent policy changes, this long-standing decline could continue, as more Baby Boomers move into retirement, and as younger cohorts enter the labor force at lower rates,” the CEA said.
The FT adds:
Labour-force participation among men of prime working age has dropped by more in the US than in any other OECD country apart from Italy in the past quarter century. (…)
Among so-called prime-aged men between the ages of 25 and 54, the participation rate fell more steeply than in all but one other country in the OECD from 1990 to 2014, the report found. It is now the third-lowest among 34 OECD nations. (…)
Why China’s Developers Can’t Stop Overpaying for Property Chinese prices for land have hit record highs, even though making money from that land will prove exceedingly difficult.
(…) Prices for land, the main ingredient of the property world, have hit record highs in auctions this year in many Chinese cities. The average land price per square meter for the top 100 cities in the first five months of this year jumped nearly 50% from the same period last year, according to Wind Information. Some land prices are even higher than housing prices nearby.
State-owned developer Poly Real Estate, for instance, bought a piece of land in a Shanghai suburb for 5.5 billion yuan ($835.5 million) last month. This translates to roughly 44,000 yuan per square meter of buildable space. Houses in the region meanwhile go for around 40,000 yuan per square meter. After taking into account construction costs, taxes and other expenses, property prices would have to nearly double for the developer to make money.
Prime land in the biggest cities always costs a lot, but increasingly the voracious buyers are showing up in less prime locations and smaller cities. In Suzhou, a city near Shanghai, with a population of 1.1 million, land sales in the first five months of this year have already exceeded the total of last year. And average prices have doubled.
Most of the buyers of the most expensive parcels are state-owned enterprises. (…)
Cinda Real Estate, a subsidiary of state-owned “bad bank” China Cinda Asset Management, has splurged on at least 35 billion yuan of land over the past year, even though the market value of the company, listed in Shanghai, is just 7.3 billion yuan.
To fund the purchases, Cinda’s net debt has swelled to more than three times its shareholders’ equity. It still managed to raise 3 billion yuan last month in a bond financing at 5.5%, mostly because of its state backing.
The domestic bond market and growth in asset-backed securities have made financing easier for developers, causing companies to chase whatever assets they can. Continuing reforms of state-owned enterprises could also be a trigger, as these firms have incentives to inflate their balance sheets to gain clout in consolidation talks. For some which have already invested heavily in real estate, keeping land prices high makes sense. (…)
Question from CEBM Research?
China SOEs recruited into stimulus drive Reliance on SOEs as policy tool thwarts effort to boost efficiency
China’s slowing investment, which hit a 16-year low in May, has forced Beijing to press the country’s lumbering state groups into service, demanding that they ramp up spending in an attempt to avert an economic hard landing.
The move is a setback for Beijing’s efforts to make the country’s 160,000 state-owned enterprises more like their private sector peers. SOEs, which account for about a fifth of economic output, trail far behind private companies in terms of profitability. Despite their inefficiency, SOEs’ share of overall fixed-asset investment reached 35.4 per cent in May, the highest since 2011, official data showed last week. (…)
As recently as May 2015, investment by private companies was still growing faster than at state groups. But the trends diverged in the second half of last year. With storm clouds gathering over the economy, private companies drew in their horns. In response, the government unleashed a wave of fiscal spending and loose credit to fund SOE investment in roads, railways, sewers and slum redevelopment. (…)
The current approach differs from the stimulus launched in 2008 in response to the global financial crisis, which focused on using credit expansion to fund construction of new factories. That included an investment boom by private companies, which account for 88 per cent of all manufacturing investment, according to China International Capital Corp. By contrast, 72 per cent of infrastructure investment comes from SOEs. (…)
Naira Plunges After Nigeria Ends Dollar Peg Nigeria’s currency plummeted more than 40% against the dollar on Monday, the latest sign that low crude prices continue to disrupt the economies of some major oil-producing nations.
G20 protectionist measures on the rise WTO warns of growing trend as antitrade rhetoric surges
(…) “Although increasing household debt and rapidly increasing house prices in Canada demonstrate conditions similar to those in the U.S. prior to the financial crisis, the seven largest Canadian mortgage lenders have the capacity to absorb a similarly pronounced mortgage loan shock without catastrophic losses,” Moody’s said in its report.
Its simulation employed a 25-per-cent slump in house prices nationally, along with an additional 5-per-cent depreciation in the supercharged markets of Ontario and British Columbia. Foreclosure and collection costs were assumed at 10 per cent. Under these conditions, Moody’s estimated total system losses would be $18-billion, of which about two-thirds would be borne by banks. Moody’s said bank capital levels would slump, likely prompting regulators to require banks to issue additional shares.
But in a nod to the banks’ earning power and diversification, Moody’s believes lenders would recover from losses associated with a sharp housing downturn in as little as three months.
“The majority of banks would be able to absorb losses within one quarter of earnings or, assuming the current average dividend payout ratio of 45 per cent, two quarters of retained earnings,” Moody’s said. “Therefore we believe that while a U.S.-severity mortgage event would lead to substantial losses, it would not threaten rated bank solvency.”
There would be differences among the banks, though. Given its size, Royal Bank of Canada would suffer the biggest overall losses. Canadian Imperial Bank of Commerce, though smaller, has a somewhat tighter focus on Canadian retail lending and would suffer the biggest hit to its capital levels. (…)
Moody’s noted that Canadian lenders benefit from key differences with their U.S. peers.
For one, the Canadian government essentially guarantees mortgage insurance through the Canada Mortgage and Housing Corp. As well, there are lower rates of risky subprime lending in Canada and stronger lending practices, and authorities have already reduced risks by raising minimum down payments and bolstering underwriting practices.
However, Moody’s warned that the banks are not immune to losses that could arise from other factors.
High levels of consumer debt would become a big problem if rising interest rates drove up borrowing costs – and the challenges would be greater if job losses rose during an employment shock, increasing mortgage delinquencies.
Riskier loans made by smaller lenders, which are subject to less-stringent underwriting standards, form a small part of the market but could exacerbate price declines during a housing market downturn.
The agency also noted that the government could require lenders to share more of the risks associated with mortgages – an idea given life after CMHC said it would explore the possibility of making lenders pay a deductible on mortgage insurance claims.
“In the aftermath of the U.S. mortgage crisis, many banks were forced to repurchase mortgages sold to the Federal Home Loan Mortgage Corp. (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae) owing to inadequate origination documentation,” Moody’s said.
“We do not believe Canada is immune to such risk: in a stressed mortgage environment, mortgage insurers may increase claims rejection for purposes to preserve capital, and the political environment could prompt a shift of the risk-sharing burden to the banks and away from taxpayers.”