The enemy of knowledge is not ignorance, it’s the illusion of knowledge (Stephen Hawking)

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so (Mark Twain)

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THE DAILY EDGE (9 March 2017)

Warm Weather May Bump NFP Print to Big League, Top Forecasters Say

Nonfarm payrolls will beat the 200,000 Bloomberg consensus estimate for February, according to leading forecasters of this data. Claims for unemployment insurance have hovered near almost 44-year lows, and economists, including top-rated jobs forecaster Jim O’Sullivan of High Frequency Economics, note that a warmer temperatures last month should boost outdoor jobs. (Bloomberg Briefs)

U.S. Productivity Rose at 1.3% Rate in 4th Quarter The productivity of U.S. workers increased last year at the slowest pace since 2011, a sign the economy continues to be plagued by long-term ailments despite recent momentum.

Productivity, or how many goods and services U.S. workers produced per hour, grew 0.2% last year compared with the prior year, the Labor Department said Wednesday. It expanded 0.9% in 2015 and 0.8% in 2014. (…)

The report also showed that unit labor costs—a measure of wages and benefits for American workers—grew at a 1.7% rate in the fourth quarter compared with the prior three months. (Table from Haver Analytics)

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Manhattan Rents Decline for Apartments of Every Size

Rents fell last month for Manhattan apartments of all sizes, the first across-the-board price decline in at least four years, as a construction boom brought more buildings to market and allowed some tenants to leave for bigger or newer units.

For studios, which held their own last year while costs for bigger apartments slid, the median rent dropped 2.6 percent, appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate said in a report Thursday. (…)

Apartments available for rent at the end of February numbered 6,872, a jump of almost 12 percent from a year earlier. The number of new leases fell 28 percent last month to 3,634. (…)

China Inflation Heads Off in Two Directions China’s consumer-price index in February was up just 0.8% from a year earlier, slowing from January’s 2.5% pace, while the producer-price index was up 7.8%, its biggest jump since September 2008.

OIL
  • Amazing!

US shale production is becoming more efficient.

Source: @nolahoubear (Via The Daily Shot)

  • Worrying!

  • Bulging!
  • Sinking!

Harold Hamm, the billionaire shale oilman, said the U.S. industry could “kill” the oil market if it embarks into another spending binge, a rare warning in a business focused on fast growth to compete with OPEC. 

The statement, at an energy conference in Houston on Wednesday, comes as top shale companies announce large increases in spending for this year, and the U.S. government says domestic oil output next year will surpass the record high set in 1970. (…)

Corporate Insiders Haven’t Been This Uninterested in Buying Stocks Since Reagan Was President

(…) There were a total of 279 insider buyers in January, the lowest in records of publicly traded companies that are required to disclose going back to 1988, according to the Washington Service, a provider of insider-trading data and analytics.

Meanwhile, the number of sellers has been above average, pushing a ratio of buyers to sellers in February to its lowest since 1988. (…)

“It’s not that insider selling is aggressive right now, it’s that there’s not a lot of insider buying,” Mr. Silverman said. (…)

Jeff Bezos Interview, RE/Code Conference

THE DAILY EDGE (22 February 2017)

SYNCHRONIZED ACCELERATION?

At 54.3 in February, the Markit Composite PMI Output Index dropped from 55.8 in January, according to the flash estimate. The latest reading signalled that private sector output growth moderated from the 14-month high recorded at the start of 2017 but still indicates a solid pace of economic growth overall.

Taken together, the PMI readings for the first two months of the year suggest that the GDP should rise by 2.5% in the first quarter, assuming no further change in momentum is seen in March.

However, latest survey data indicated that business optimism dipped to its lowest since September 2016, which suggests companies have become more cautious about spending, investing and hiring. A drop in new business growth to a five-month low adds to the risk that the upturn could slacken further in March.

The drop in the flash February PMI was caused by a broad-based weakening of business activity growth. The services ‘flash’ index fell to 53.9 from 55.6 in January, while the manufacturing ‘flash’ output index dipped to 55.7 from 56.7.

Manufacturing continued to be restrained by subdued exports, which once again barely rose in February. Producers blamed the strong dollar as a main cause of poor foreign sales, leaving domestic demand as the key source of new orders.

The survey’s employment index fell to a three-month low, though continued to run at a level broadly indicative of a respectable 165,000 jobs being added to the economy in February.

Although manufacturing hiring was sustained at the same pace seen in January, albeit down from December’s 18-month high, the rate of service sector job creation slipped for a second month running.

The February survey also found inflationary pressures to have subsided for a second successive month. Firms’ average input prices and average selling prices both rose at the slowest rates for three months, with the latter showing an especially modest increase.

The slower growth of companies’ costs suggests that there’s some scope for consumer price inflation to moderate from the 2.5% annual rate of increase seen in January.

Pointing up Manufacturers signalled that input cost inflation was at its highest level since September 2014. This was linked to increased prices for a range of raw materials, particularly metals and oil related inputs. However, factory gate price inflation was only marginal and slipped to a three-month low in February, thereby suggesting a continued squeeze on operating margins.

Via CalculatedRisk:

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), posted a strong gain in February of 0.4 percent, following a similar 0.4 percent gain in January. This follows a steady 0.3 percent gain every month during the third quarter of 2016. All data is measured on a three-month moving average (3MMA). Accounting for adjustments, the CAB is now up 5.0 percent over this time last year, marking its strongest year-over-year performance since September 2010.

In February all of the four core categories for the CAB improved, with the diffusion index strengthening to 71 percent. Production-related indicators were positive, with the housing report indicating slipping starts, but improving permits. This was coupled with an improvement in U.S. exports. Equity prices also improved at a robust pace, reflecting an improvement in consumer and business confidence. Overall the barometer continues to hint at gains in U.S. business activity through the third quarter.

Applying the CAB back to 1912, it has been shown to provide a lead of two to fourteen months, with an average lead of eight months at cycle peaks as determined by the National Bureau of Economic Research. The median lead was also eight months. (…)

The Markit Eurozone PMI registered 56.0 in February according to the preliminary ‘flash’ estimate. Up from 54.4 in January, the latest reading was the highest since April 2011.

The rise in the flash PMI means that GDP growth of 0.6% could be seen in the first quarter if this pace of expansion is sustained into March.

Growth accelerated in both manufacturing and services to rates not seen since early-2011, with the goods-producing sector again enjoying the faster rate of expansion, aided by exports being boosted by the weaker euro.

Pointing up February saw the largest monthly rise in employment since August 2007 as rising sales encouraged hiring. Service sector jobs were created at a rate not seen for nine years and factory headcounts showed the second-largest rise in almost six years.

Firms’ appetite to hire was also buoyed by improved confidence about the outlook. Business expectations about activity levels in a year’s time rose to the highest since comparable data were first available in July 2012.

The survey therefore indicates that companies are currently firmly-focused on expanding in the face of rising sales and fuller order books.

The big surprise was France, where the PMI inched above that of Germany for the first time since August 2012. Both countries look to be growing at rates equivalent to 0.6-0.7% in the first quarter.

France’s revival represents a much-needed broadening out of the region’s recovery and bodes well for the eurozone’s upturn to become more self-sustaining.

Inflationary pressures meanwhile continued to intensify. Firms’ average input costs rose in February at the steepest rate since May 2011, with rates accelerating in both services and manufacturing. The latter once again recorded the steeper rise, linked to higher global commodity prices, the weak euro and suppliers regaining some pricing power amid stronger demand.

Suppliers’ delivery times, a key indicator of supply chain capacity constraints and pricing power, signalled that delivery delays were the most widespread since June 2011.

An index based on the combination of input costs and suppliers’ delivery times provides a useful gauge of price pressures, and tends to move ahead of core inflation. This gauge is now at its highest since May 2011.

The ECB will be cheered by the signs of stronger growth and further upturn in price pressures. Only in 2004 and 2010 have we seen the combination of such robust growth and rising price pressures without the ECB tightening policy (see charts). However, policymakers will no doubt remain concerned that elections and Brexit could disrupt the business environment this year. No change in policy therefore looks likely until at least after the German elections in September.

ECB policy and PMI business activity

ECB policy and PMI price pressures

* Based on input prices and supplier delivery times indices  Sources for charts: IHS Markit, Eurostat.

  

More from Markit:

February also saw the largest overall increase in new business since April 2011. Inflows of new work grew at the strongest rates for almost six years in both manufacturing and services, reflecting a broad-based upturn in demand. Manufacturers’ order books again received an extra boost from rising exports, which also swelled to the greatest extent since April 2011 due to the combination of rising demand and the weaker euro.

Stronger influxes of new work meant backlogs of work accumulated at a rate not seen since May 2011, suggesting firms in both sectors lacked capacity to cater for current demand.

Average selling prices for goods and services also rose as firms passed higher costs onto customers. However, although rising at the steepest rate since July 2011, the rate of inflation remained muted compared to that seen for input costs, suggesting margins remained under pressure.

French firms continued to report falling selling prices while German output prices showed the
largest monthly increase since June 2011.

And yet:

  • Japanese manufacturing output growth accelerates
  • imageFlash Japan Manufacturing PMI™ at 35-month high of 53.5 in February (52.7 in January).
  • Flash Manufacturing Output Index at 54.3 (53.2 in January). Sharpest rate of growth for three years.
  • Record-high business confidence at Japanese manufacturers.

Japan’s manufacturing engine shifted into a higher gear during February, as faster increases in output, new business and employment were reported. Subsequently, business confidence was at a survey-high, with goods producers buoyed by the strongest upturn in the sector for 35 months.

Encouragingly, with backlogs of work accumulating for the first time in 14 months, the added pressures on capacity should ensure growth will be maintained at a solid pace during at least the first half of this year.

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Office Landlords Struggle to Raise Rents

(…) Green Street Advisors, of Newport Beach, Calif., has revised its projections for rent increases through 2020 to about 3% annually from 4% annually.

The firm said that rent increases in 2016 also were less than expected. (…)

Last year, for example, new supply equaled 1.2% of the total U.S. office space, compared with 0.3% in 2012, according to Green Street. Between this year and 2021, new supply is expected to equal 7.6% of total space, the firm said.

Meanwhile, job growth is slowing in some markets. In New York, office jobs grew by 21,700 in 2016 compared with 44,900 in 2015, according to the city’s Office of Management and Budget. The agency is projecting job growth of 1.3% and 0.9% in 2017 and 2018 respectively.

In Silicon Valley, vacancy is growing in some markets partly due to merger-and-acquisition activity, according to Phil Mahoney, vice chairman of Newmark Cornish & Carey, a real-estate services firm. (…) “We have over 1 million square feet of sublease space in Santa Clara,” Mr. Mahoney said. “We really haven’t seen that much in this whole cycle.” (…)

Why Trump’s Immigration Crackdown Could Sink U.S. Home Prices
The Inevitable Turn in World’s Most Important Property Market

(…) Prices for new homes edged up 0.2% in January from the previous month, the slowest growth in more than a year, according to the country’s statistics bureau. Average prices in the biggest cities—including Shanghai and Shenzhen, which kicked off the rally in 2015—had basically stopped going up. (…)

And while the bubble may not be getting bigger, the problems haven’t gone away. Land bought by developers at the peak of the frenzy sits on their books, and the money borrowed to buy that land will have to be repaid. The net debt of Cinda Real Estate, a state-owned developer that splurged billions of dollars on land during the boom, for example, increased 57% to $5.1 billion compared with a year ago, as of September. The other problem: Mortgage growth has been astronomical over the past year. Homeowners and speculators continue to believe that the government will never let the market crash. (…)

SENTIMENT WATCH

From the Daily Shot:

A year ago, we heard “sell everything” from RBS.

Source: CNBC, @charliebilello

Now it’s “buy everything”? A contrarian indicator?

Source: CNBC, @charliebilello