- The final Markit Eurozone PMI® Composite Output Index posted 54.4 in January, unchanged from December and a tick above the earlier flash estimate of 54.3.
- Growth of manufacturing production and service sector business activity both steadied at the solid rates achieved at the end of last year.
- Output increased across the ‘big-four’ economies during January. Solid expansions were seen in Germany, Spain and France. Growth slowed slightly in Germany and Spain, however, to four- and three-month lows respectively.
- The rate of job creation in the euro area was the fastest since February 2008. Employment rose at quicker rates in Germany (three-month high), France (19-month high) and Italy (six-month high), but slowed slightly in Spain and Ireland.
- Growth of new business remained solid with the rate of increase accelerating to a 14-month high, leading to a further accumulation of backlogs of work. Moreover, the Future Output Index – which tracks companies’ expectations about levels of output in one year’s time – rose to its highest level since the series began in July 2012.
Inflationary pressures intensified further in January.
- Input costs increased at the fastest rate in over five-and-a-half years, reflecting higher global commodity prices, increased import costs due to the weak euro
and supplier price hikes. Meanwhile, improved pricing power led to a further increase in average output charges. Selling prices rose at a rate matching December’s 65-month record.
- The latest reading is comparable to GDP rising at a quarterly rate of 0.4%, indicating that the economy is starting 2017 on a solid footing. Meanwhile, faster growth of new business and an upturn in confidence about the year ahead to the highest since the region’s debt crisis bodes well for the robust pace of growth to be sustained in coming
- At 53.7 in January, unchanged from December, the final Markit Eurozone PMI® Services Business Activity Index signalled an expansion of output for the forty-second successive month. The final reading was slightly above the earlier flash estimate of 53.6.
- Eurozone services employment rose for the twenty-seventh successive month in January, with the rate of growth rising to a six-month high.
- The seasonally adjusted Purchasing Managers’ Index™ (PMI™) posted 51.0 in January, down from December’s 47-month record of 51.9, consistent with only a marginal rate of improvement.
- Manufacturers reported a further rise in client demand during January, as highlighted by a sustained increase in new orders. That said, the
rate of expansion slowed since December’s recent peak and was moderate overall. This was despite a renewed upturn in new export
business, which increased at a solid pace that was the fastest since September 2014.
- Efforts to cut down on costs contributed to a further decline in overall manufacturing employment during January. The rate of job shedding
quickened slightly to its strongest for three months, but remained moderate overall. A lack of personnel and higher new orders led to a
further increase in the amount of backlogged work.
- With production rising at a softer pace, growth in purchasing activity also slowed in January. However, vendor performance continued to
deteriorate amid reports of issues with transportation. Furthermore, average lead times increased at the quickest pace since February 2011.
- Stocks of finished goods declined for the first time since June 2016.
- Chinese manufacturers faced a further steep increase in input costs, with the rate of inflation easing only slightly from
December’s recent peak. As a result, companies raised their prices charged for the eleventh successive month. Though solid, the rate of
increase was the slowest seen in the past four months.
Growth in nonfarm output per hour during Q4’16 increased at a 1.3% rate (1.0% y/y) following a 3.5% rise in Q3, revised from 3.1%. These latest two increases followed three consecutive quarters of decline. During all of 2016, productivity increased 0.2%, the weakest rise since 2011. Output rose at a 2.2% rate (2.2% y/y) while hours-worked improved 0.9% (1.1% y/y).
The gain in productivity was accompanied by a 3.0% increase in compensation, which was weaker than the 3.7% gain during Q3. The 2.9% y/y increase left it roughly equal to the gains during all of 2015 and 2014. Adjusted for price inflation, compensation fell 0.4% (+1.1% y/y).
Unit labor costs increased 1.7% (1.9% y/y) following a 0.2% increase in Q3, revised from 0.7%. During all of last year, unit labor costs increased 2.6%, the strongest gain since 2007.
In the manufacturing sector, productivity increased 0.7% (0.4% y/y) following no change in Q3, revised from 0.4%. During all of last year, productivity increased 0.6% after a 0.3% rise in 2015. Factory output rose 0.8% (0.2% y/y) and hours-worked remained steady (-0.2% y/y). Compensation improved at a 4.1% rate (2.6% y/y) following a downwardly revised 3.4% increase. The gain in compensation lifted unit labor costs by a steady 3.3% (2.2% y/y). During all of last year, unit labor costs increased 2.6%, up from the 2.2% gain in 2015.
(…) The firm [ADP] surveyed 400-plus global HR executives and found that companies expect to hire extensively in the coming year to address anticipated growth — 41 percent will add workers, compared to 32 percent who did so last year. But an even greater number see the skills gap impacting their businesses in the future. (…)
Four-fifths of executives surveyed said that a shortage of sufficiently skilled workers will affect their companies in the next 12 months. The most-represented sector in the survey is manufacturing, which the Trump White House calls the “backbone of our economy.”
Complaints of hard-to-fill factory jobs are backed up by Bureau of Labor Statistics data: 324,000 manufacturing spots were open in November, up from 238,000 a year earlier. (…)
Demand vs Supply: what happens next?
- 268 companies (70.4% of the S&P 500’s market cap) have reported. Earnings are beating by 3.3% (2.8% ex-Financials) while revenues are surprising by 0.1%.
- Expectations are for revenue, earnings, and EPS growth of 4.1%, 5.8%, and 7.9%, respectively (5.7% ex-Financials).
- EPS is on pace for 8.9%, assuming the current beat rate for the remainder of the season. This would be 7.4% excluding the benefit of easy comps at AIG and GS.
Jason Furman slideshow: Border adjustment as tax policy and as macroeconomic policy.
Click on the link for 13 minutes about risk from the master.
Computer outbluffs world’s top poker players Texas Hold ’em tournament set men against AI program
(…) An artificial intelligence system developed at Carnegie Mellon University has just racked up $1,766,250 worth of chips against four of the world’s top professional players after a marathon 20-day poker binge.
Among the claimed breakthroughs was the computer’s success in outbluffing its human opponents — a new milestone in the ongoing contest between man and machine. (…)
“This is not just about poker. The algorithms we have developed . . . can take any imperfect information situation and output a good strategy for that setting,” said Mr Sandholm, who developed the system with Noam Brown, a PhD student.
The technology could be used to compete against humans in business negotiations, military strategy, and the high-frequency trading systems used by the biggest banks, he said. (…)
“Half-way through the challenge even, we really thought we were going to win,” said Daniel McAulay, one of the professional players. “We really got a beat-down.”
The CMU team used a supercomputer each night to analyse the day’s games and improve the software. Rather than try to study its opponents’ winning tactics, the system examined the weaknesses in its own game and patched up the three most obvious failures each day.
That eventually enabled it to outflank most of its opponents’ tactics, which Mr Sandholm called “the most psychologically devastating” aspect of the system for the humans playing against it. (…)
“We tried everything we could, it was just too strong,” said Jason Les, another of the poker professionals. “It became very demoralising showing up every day and losing this hard. I thought it would be a lot closer.”
The technology behind Libratus will almost certainly be spun off into a new start-up company and developed for commercial use, said Mr Sandholm, who has studied negotiating strategy for 27 years. One of his earlier programmes is used by two-thirds of US transplant centres to decide which patients should receive new kidneys.