Surge in Durable-Goods Orders Masks Soft Business Investment Orders for aircraft soared in February, masking a pullback in business investment of long-lasting manufactured goods.
Orders for overall durable goods rose a seasonally adjusted 2.2% in February from a month earlier, the Commerce Department said Wednesday. That was the largest increase to a key measure of manufacturing since November 2013 and above economists’ forecasts of an 0.8% rise.
Excluding the volatile transportation segment, durable-goods orders rose only 0.2%.
A measure of business investment in the report, known as nondefense capital goods excluding aircraft, dropped 1.3% in February and reversed January’s gains. The figure was roughly flat in January and February, compared with the same period a year earlier. (…)
Poor reporting from the WSJ: the facts are: Feb. –1.3%, Jan. +0.8%, Dec. –1.6%, Nov. +3.0%, Oct. –0.6%, Sep. –1.2%. Last 6 months: –1.8% a.r., last 3 months: –8.7% a.r..
Businesses ramped up investment at the end of last year, but unusually cold weather so far this year may have led some to pull back. While there have been some employment gains and mild economic growth, the advances in the past year are still weaker than before the recession.
“There is thus far little evidence of an investment spending surge,” said J.P. Morgan economist Michael Feroli.(…) (Chart from Haver Analytics)
Weather again. Questions:
- How far in advance do you place orders for durable goods?
- Does harsh weather really impede one’s capability to place or receive orders?
This chart from Doug Short suggests that core orders may have reached their cyclical peak early in 2013 and have gone sideways in the past year.
U.S. Mortgage Loan Applications Move Lower but Loan Size Jumps
The 4-week average of the purchase index is now down about 19% from a year ago. The average loan size for home purchases increased to a record $279,300 last week.
Weak apps = weak housing demand.
Certainly not a first time buyer market!
U.S. jobs market dropouts increasingly likely to stay out
(…) According to economists who have analyzed Labor Department data, 6.6 million people exited the workforce from 2010 and 2013. About 61 percent of these dropouts were retirees, more than double the previous three years’ share.
People dropping out because of disability accounted for 28 percent, also up significantly from 2007-2010. Of those remaining, 7 percent were heading to school, while the other 4 percent left for other reasons.
In contrast, between 2007 and 2010, retirees made up a quarter of the six million people who left the labor force, while 18 percent were classified as disabled. About 57 percent were either in school or otherwise on the sidelines.
“This suggests the current drop in the labor force is more structural in nature,” said Sharif.
If so, there is less hope of luring people back to hunt for work as the jobs market tightens, as many Fed officials believed would be the case. (…)
Some Fed policymakers, such as San Francisco Fed President John Williams, are starting to acknowledge that structural factors are playing a big role in the labor force’s decline.
In a speech last month, Williams said the slack in the labor market could be “much less than assumed,” cautioning that inflation could rise more quickly than currently anticipated. (…)
The disappearing slack is underscored by a sharp decline in the ranks of the short-term unemployed.
These workers, whose skills are still sharp, are viewed as the most desirable by employers, economists say. Further, they appear to hunt for work more aggressively, according to a study released last week by former White House economist Alan Krueger. (…)
Some economists say the dwindling pool of attractive workers may already be leading employers to bid wages up. Average hourly earnings for production and nonsupervisory workers notched their biggest gain in four years in February, even as some broader measures showed little acceleration. (…)
But that was likely weather-related… There’s more:
Wage Pressures Looming in Two-Tiered Labor Market
(…) workers across some industries are seeing fairly solid wage gains. About 30 percent of workers are seeing hourly earnings growth above 2.5 percent already. By contrast, last year wage weakness was fairly uniform. This implies an upward drift in wage growth as the tight part of the labor market continues to expand.
Recent work from the Federal Reserve Bank of New York also highlights the two-tiered nature of the labor market. Specifically, for those that are already employed, work is very easy to find. For those who have been out of work for an extended period of time, labor market conditions remain poor. Why is this relevant? Because the researchers found that short-term unemployment has a much stronger impact on price inflation than long duration unemployment.
(BloombergBriefs guest commentary by Neil Dutta , Renaissance Macro Research)
The Real Inflation Fear – US Food Prices Are Up 19% In 2014
The spot price (not futures speculation-driven)of US Foodstuffs is the best performing asset in 2014 – up a staggering 19%…
h/t Bloomberg’s Chase van der Rhoer
CHINA: SLOW AND SLOWER
Bad News Piles Up for China’s Economy Signs of economic stress are mounting as Chinese companies report disappointing profits and state-owned banks take large debt write-offs.
(…) Standard & Poor’s, also on Wednesday, added to a chorus of concern over China’s debt. The ratings firm, in a quarterly Asia credit report, warned that policy makers may have to move sooner than expected to deal with massive lending by the so-called shadow banking sector, which encompasses local government financing vehicles, property developers and trust companies. (…)
S&P raised a fear that is gaining traction among China watchers: authorities may not be able to avoid some financial turmoil—and that will hit economic growth.
“Even viable investments could struggle to get financing,” S&P said. “China’s growth could fall sharply for at least a few quarters, led by investment.”
Countries that export heavily to China to feed its growth are worried any hiccups could impact their economies.
“You could see significant periods of turbulence in financial markets potentially affecting growth in China—and in commodity prices that would hurt Australia and New Zealand,” Grant Spencer, deputy governor of the Reserve Bank of New Zealand, said Wednesday. (…)
Goldman Sachs GS -0.93% last week cut its forecast for China’s first quarter annualized growth in 2014 to 5% from 6.7%. The gloom is reflected in Chinese corporate earnings: The world’s largest cellular operator, China Mobile, 0941.HK +2.22% reported last week its first decline in profits in 14 years. The country’s third-largest bank, Agricultural Bank of China, 601288.SH 0.00% posted its weakest profit growth last year since selling shares to the public in 2010. The bank doubled its volume of write-offs and transfers of bad loans in 2013 compared with the previous year. (…)
EARNINGS WATCH
The estimated earnings growth rate for Q1 2014 is 0.0%. On December 31, the earnings growth rate for Q1 2014 was 4.4%. Nine of the ten sectors have lower earnings growth rates today (compared to December 31) due to downward revisions to earnings estimates. (Factset)
Fed Rejects Citigroup’s Dividend Plan Citigroup Inc. failed to get Federal Reserve approval to reward investors with higher dividends and stock buybacks, a surprising blow to Chief Executive Michael Corbat’s effort to bolster the bank’s reputation following a 2008 government rescue.
Despite Citi’s failure, the results set the stage for large banks to provide billions of dollars to investors after years of restraint enforced by regulators after the financial crisis. On Wednesday, 16 banks, including J.P. Morgan Chase JPM -1.69% & Co. and Bank of America Corp. BAC -0.17% , announced dividends worth $22.8 billion, a 23% increase over last year, according to data from Thomson Reuters.
But Citigroup will have to wait, and the bank’s stock fell 5.9% in after-hours trading. Citi’s rejection—its second in three years—was based on deficiencies in how the bank plans for a future recession, including its ability to project revenue and losses across all its operations under a scenario of sustained economic stress, according to the Fed.
The five institutions that didn’t get approval—Citigroup, Zions Bancorp,ZION -1.31% and the U.S. units of HSBC HoldingsHSBC -0.43% PLC, Royal Bank of Scotland GroupRBS -2.15% PLC and Banco Santander SASAN.MC +0.05% —must submit revised capital plans and suspend any increased dividend payments. The foreign-bank units will be restricted from issuing increased dividends to their parent firms. (…)
And this:
(…) In the bank’s proxy statement detailing his 2013 total compensation of $14.5 million, the bank called out Mr. Corbat’s work on improving “risk outcomes and controls.” Tellingly, the bank also noted his efforts to make progress with regulators, citing the Fed’s approval last year of its capital plan. That didn’t call for any increase in the dividend, although it did include a share buyback of up to $1.2 billion. (…)
If there is any solace for Citi shareholders, it is that the bank’s capital isn’t going anywhere. It will continue to pile up on the balance sheet. Citi already has a stronger capital position than big-bank peers. Barring catastrophe, Citi should eventually be able to return more capital to investors. (WSJ)
SENTIMENT WATCH
‘Candy Crush’ Maker Tumbles 16% in Trading Debut
(…) the worst first-day trading of any IPO this year. (…) King was the most profitable company to go public since Facebook Inc. in 2012, according to Dealogic. (…) King priced amid a tough week for Internet stocks. Twitter shares are down 13% in the past week, and Facebook Inc. is off 12%. Zynga shares are down 9.7%.
