Target to Boost Minimum Wages in Battle for Workers Retail chain to start pay at $11 an hour, pledges to increase to $15 an hour within three years
The retailer, which employs about 323,000 people, said the new rate will apply to current staff as well as 100,000 temporary workers it plans to hire for the holidays. In the past, Target has resisted publicly commenting on its minimum wages. It quietly boosted starting pay to $10 an hour in 2016, after Wal-Mart Stores Inc. WMT -0.60% said it would increase wages for most of its U.S. workers. (…)
IHS Markit Flash U.S. PMI: Robust private sector growth sustained during September
Markit’s positive headline is not really supported by the facts. Slowing employment, particularly in Services, slowing orders growth in Manufacturing and stronger inflationary pressures don’t strike me as very positive and indicative of rising end demand.
At 54.6 in September, the seasonally adjusted IHS Markit Flash U.S. Composite PMI Output Index was down slightly from 55.3 in August but still comfortably above the 50.0 no-change value.
Robust business activity growth was supported by a further rise in new work received by private sector firms in September. However, the latest increase in new orders was the slowest for three months.
Weaker new business growth contributed to the softest pace of job creation since June. The moderation in employment growth was driven by the service sector, as manufacturing payroll numbers expanded at the quickest rate since December 2016.
Meanwhile, private sector cost inflation edged up to its strongest since June 2015. Increased cost pressures reflected the steepest rise in manufacturing input prices for almost five years.
Service providers indicated a strong expansion of business activity during September. A 55.1, the seasonally adjusted IHS Markit Flash U.S. Services PMI™ Business Activity Index was down only slightly from August’s 21-month peak. The average reading for the third quarter as a whole (55.2) was the highest since Q3 2015.
Survey respondents noted that the resilient economic backdrop had contributed to rising consumer and business spending. A further robust rise in new work led to solid employment growth and another increase in backlogs of work across the service sector in September.
Despite recording a sustained expansion of client demand, service providers are the least optimistic about the business outlook since September 2016. Some firms cited renewed concerns about their prospects for sales growth over the year ahead.
September data pointed to a slowdown in input price inflation from August’s 26-month peak. However, average prices charged by service sector firms increased at one of the fastest rates seen over the past three years.
Manufacturing business conditions continued to improve at a relatively subdued pace in September. At 53.0, up fractionally from 52.8 in August, the seasonally adjusted IHS Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) remained weaker than its post-crisis trend (53.9).
September data indicated that output volumes increased at a moderate pace that was unchanged from August’s 14-month low. Some manufacturers noted that Hurricane Harvey had led to temporary disruptions to production at their plants.
However, there were also signs of underlying fragility in September, with new orders expanding at one of the slowest rates seen over the past year. Latest data also indicated that new export sales remain close to stagnation.
Backlogs of work increased for the second month running in September, which encouraged some firms to boost their payroll numbers. The rate of employment growth was the fastest so far in 2017.
Input price inflation was the steepest since December 2012. A number of manufacturers linked rising raw material prices to higher transportation costs and supply disruptions from Hurricane Harvey. Latest data revealed intense pressure on supply chains, with vendor delivery times lengthening to the greatest extent since February 2015.
Historical comparisons of the PMI with GDP indicate that the surveys point to the economy growing at an annualised rate of just over 2% in the third quarter. Similarly, the overall rate of job creation remained solid, historically consistent with non-farm payrolls rising by 180,000 in September.
EUROZONE FLASH PMI: Eurozone upturn regains momentum in September
The eurozone economy ended the third quarter on a strong note, with growth of business activity picking up to its highest since May to register one of the strongest gains seen over the past six years. The headline IHS Markit Eurozone PMI rose to 56.7 in September, according to the preliminary ‘flash’ estimate, up from 55.7 in August.
Inflows of new orders showed the largest monthly increase since April 2011, representing a renewed surge in demand after the pace of new order growth had slowed in the prior two months. Growth accelerated in both manufacturing and services, albeit with the former continuing to lead the expansion. While service sector activity showed the largest rise since May, the increase in manufacturing output was the greatest since April 2011. The outperformance of manufacturing relative to services also increased to the widest since January 2014.
The goods-producing sector was again buoyed by rising exports, the rate of growth of which dipped slightly – linked to the recent appreciation of the euro – though remained slightly above the average seen so far this year.
The survey also brought further signs of capacity being stretched. Backlogs of work rose to the greatest extent since February 2011 as companies struggled to cater for the higher inflows of new work. Suppliers’ delivery times meanwhile signalled the highest incidence of manufacturing supply chain delays for almost six-and-a-half years.
The need to boost capacity resulted in the second largest increase in employment recorded by the survey over the past decade, falling just shy of March’s post-crisis peak.
Manufacturing’s superior performance was reflected by a record rise in employment. Whereas service sector jobs growth improved to close in on recent highs seen earlier the year, a far more marked rate of net job creation was seen in manufacturing, outpacing the prior 20-year record seen back in May.
The faster pace of business activity growth and upturn in demand in September was accompanied by rising price pressures. Input cost and selling price inflation gathered pace for a second successive month, with both reaching the highest rates since April.
Prices charged for services rose to the greatest extent since May, while the increase in factory gate prices was the joint-highest since June 2011.
The survey data point to 0.7% GDP growth for the third quarter, with accelerating momentum boding well for a buoyant end to the year.
Synchronized growth in Europe:
The Federal Open Market Committee last week announced that the long-anticipated shrinkage of the central bank’s $4.5 trillion balance sheet will begin in October.
To review the mechanics of monetary policy, when the central bank purchases securities, it pays for them with money created out of thin air, which then goes into the private economy. Conversely, when the central bank sells or redeems those securities, the real cash it receives is withdrawn from the economy. So, as the Fed allows its Treasuries and agency mortgage-backed securities to mature, Uncle Sam and his niece, Fannie Mae, and nephew, Freddie Mac, will have to replace those funds in private markets. Some of the $2.2 trillion of excess reserves sloshing around the banking system will probably be taken up in the process, which will still leave a surfeit for some time.
This, however, fails to capture the reality of a world in which money crosses borders freely in search of the highest returns. The Fed isn’t the dominant player around the globe by a long shot, notes Mark Grant, chief strategist of Hilltop Securities. Citing data from Yardeni Research, Grant points out that the People’s Bank of China has the Fed beat with $5.2 trillion in assets, followed by the European Central Bank with $5.1 trillion and the Bank of Japan with $4.7 trillion. The money created by the Fed is no different than that from the Swiss National Bank, the ECB, or the BOJ, Grant observes. And that foreign money heads to American shores for higher returns than its home markets’ sub-1%, or even negative, yields.
Similarly, JPMorgan economist Nikolaos Panigirtzoglou writes, the shrinkage of the Fed’s balance sheet will be offset by the central banks of the other G4 countries. JPMorgan estimates that the Fed will shrink its balance sheet by about a third, to $3 trillion, by 2021. But that will be mitigated by estimated ECB monthly purchases of 40 billion euros ($47.8 billion) of bonds in the first half of 2018, €20 billion in the second half, and no more after that. The BOJ is also projected to buy 60 trillion yen ($535.77 billion) a year.
“The Fed’s cutback is about $300 billion a year, while the other central banks are pumping in $300 billion a month,” as Hilltop’s Grant points out. “The money will go somewhere and, given that American yields are so much higher than those in Japan or Europe, a lot of it will find its way here.” (…)
Barron’s Randall Forsyth, and most economists for that matter, are living in a static world when they assume that the BOE and the BOJ will simply keep on giving by a set plan. What if evolving trends transform Draghi and Kuroda into hawks? As seen above, the Eurozone economy seems set to grow near 3.0% annualized in Q4 “with accelerating momentum” and inflation. Japan’s economy grew 2.5% annualized in Q2 and the BOJ seems to be borrowing from Draghi’s book bringing the yen lower to stimulate exports.
US business hands Trump his tariff moment Several trade cases may allow president to fulfil his protectionist promises
(…) Trade cases involving Chinese solar cells, South Korean washing machines and Canadian jets are expected to land on the president’s desk in the coming weeks. Each has its own complexities, and each faces opposition both at home and abroad. Yet they may prove hard to resist for a president eager to wield his protectionist pen. (…)
For the third quarter, 75 companies in the S&P 500 have issued negative EPS guidance and 43 companies in the S&P 500 have issued positive EPS guidance. While the number of companies issuing negative EPS is slightly below the five-year average (79), the number of companies issuing positive EPS guidance is well above the five-year average (27). (…)
At the sector level, companies in the Information Technology, Health Care, and Consumer Discretionary sectors account for 39 of the 43 companies that have issued positive EPS guidance for the third quarter.
- Information Technology: 18 companies have issued positive EPS guidance for the quarter (average = 10).
- Health Care: 11 companies have issued positive EPS guidance for the quarter (average = 4).
- Consumer Discretionary: 10 companies have issued positive EPS guidance for the third quarter (average = 6).
Overall, 54 companies in the S&P 500 have issued positive revenue guidance for the third quarter. This number is more than double the 5-year average (25). If 54 is the final number for the quarter, it will mark the highest number of S&P 500 companies issuing positive revenue guidance since FactSet began tracking revenue guidance in 2006. The current record is 45 (Q1 2011).
At the sector level, companies in the Information Technology, Health Care, and Consumer Discretionary sectors account for 49 of the 54 companies that have issued positive revenue guidance for the third quarter.
- Information Technology: 30 companies have issued positive revenue guidance for the third quarter (average = 15).
- Health Care: 8 companies have issued positive revenue guidance for the third quarter (average = 4).
- Consumer Discretionary: 11 companies have issued positive revenue guidance for the third quarter (average = 3).
Beyond stronger revenues and bookings, a number of S&P 500 companies in these three sectors (and other sectors) cited smaller negative impacts from foreign exchange, growth in Asia and China, and positive impacts from acquisitions as factors for improving EPS and revenue guidance for the third quarter and for the full year.
Nothing to do with the domestic U.S. economy. All foreign stuff or M&A.
But amid these positive pre-announcements, analysts were busy reducing their estimates on many other companies. Since September 1, 63% of the 1416 earnings revisions for S&P 500 companies were downward.
Thomson Reuters says that the estimated earnings growth rate for the S&P 500 for Q3 2017 is 6.2% (+4.3% ex-Energy). Apart from Energy earnings bouncing back from last year’s depressed levels, only IT is expected to display strong growth in Q3. The Consumer Discretionary and Health Care sectors, even with strong positive pre-announcements, are forecast to display tepid gains overall.
The estimated revenue growth rate for the S&P 500 for Q2 2017 is 5.0% +4.1% ex-Energy). If so, ex-energy margins will be flat overall. However, TR numbers suggest that 7 sectors (CD, CS, HC, M, RE, T, U) will experience lower margins in Q3.
That, of course, assumes no surprises, which in itself would be a surprise.
(…) Based on the Fed’s projected rate path and current term premiums, the 10-year Treasury yield seems about right. Nor should yields rise much as the Fed raises rates, because those rate increases would only raise the average level of short-term rates over the 10-year’s maturity slightly. Average rates over shorter maturities, such as for the 2-year Treasury, would rise more. The Fed’s projections suggest the yield curve will flatten. (…)
Leveraged Loans Are on Pace to Top Pre-Crisis Levels Lending to the most indebted companies in the U.S. and Europe is up, and investors worry what could happen if the global economic expansion fades.
GOP Health Push Hits More Snags Senate Republican leaders appeared to face a nearly insurmountable path to reviving their repeal of the Affordable Care Act, although changes to the legislation circulating Sunday night appeared designed to win over more conservative lawmakers.
Hurry up or wait: repealing Obamacare
If Republicans don’t pass a bill overhauling the Affordable Care Act this week, efforts will probably stall until after next year’s mid-term elections. The budget rule allowing them to pass legislation with a simple majority of 50 votes (plus the vice-president’s tie-breaking ballot), rather than a politically impossible 60, expires on Saturday. Only one such measure is permitted per fiscal year, and the party is eager to tackle tax reform. The looming deadline has driven four senators, led by Lindsey Graham of South Carolina and Bill Cassidy of Louisiana, to propose a last-ditch bill that would hand health reform to the states. Its critics reckon states might be stingy in covering the hard-up, and those with chronic conditions. It seems unlikely to pass. Three Republican defections could sink it—and two, including former presidential candidate John McCain, have already declared their opposition. Passage in the Senate would create an even bigger rush for the House. (The Economist)
Other than that:
Tensions Rise After U.S. Planes Skirt North Korea North Korea’s foreign minister warned in a United Nations speech that a rocket attack on the U.S. mainland was “inevitable” while U.S. warplanes flew off the east coast of North Korea in an explicit show of force.