Month: May 2017

U.S. Productivity Falls by Most in a Year; Labor Costs Climb

• Productivity rose 1.1 percent from the first quarter of 2016; unit labor costs, which are adjusted for changes in efficiency, were up 2.8 percent from a year earlier
• Adjusted for inflation, hourly compensation fell at a 0.8 percent rate last quarter, after no change in the fourth quarter
• Output rose at a 1 percent rate, following a 2.7 percent gain in the fourth quarter
• Hours worked increased at a 1.6 percent pace, after a 1 percent advance; compensation for each hour worked rose at a 2.4 percent annual pace
• Latest drop in productivity compares with an average annual gain of 0.6 percent from 2012 through last year
• Among manufacturers, productivity rose at a 0.4 percent rate in the first quarter after a 2 percent gain

Service industry continues to rise at historically subdued pace in April

The seasonally adjusted Markit U.S Services Business Activity Index continued to record
above the crucial 50.0 no-change mark during April, registering 53.1, up from 52.8 in the previous
month.

(…) April’s rate of expansion was well down on the survey average, which in part reflected
another month of relatively subdued growth in new business. Albeit up since March, the latest rise in sales was the second-slowest in the past seven months. (…)

Faced with under-whelming growth in new business, the vast majority of companies (90%)
reported no-change to their workforce numbers during the month. The net result was the weakest growth in employment signalled by the survey since July 2010.

(…) backlogs have now fallen for three months in a row.

US service providers signalled a further increase in their average operating expenses during April.
Moreover, the rate of inflation accelerated for a second month in succession to reach its highest
level since July 2015. Alongside a wide range of goods and services reported to have risen in price, panellists also commented on increased labour costs.

Finally, competitive pressures served to restrict service providers’ ability to increase their own
charges. Subsequently, average output prices rose at the slowest rate for five months.

The final seasonally adjusted Markit U.S. Composite PMI™ Output Index rose to a level of
53.2 in April, up from 53.0 in the previous month. While a slight improvement, and indicative of a solid increase in private sector output, the rate of growth remained down on those seen on average over the past six months.

Although manufacturing output continued to rise at a slightly faster rate than services activity, the rate of growth in the goods producing sector was the weakest seen for seven months.

(… ) the surveys suggest that business activity is growing at a slower pace than seen over the first
quarter as a whole.

 

Fed Sees Growth Rebounding, Stays on Track for Rate Rises

(…) The Fed’s postmeeting policy statement was fairly upbeat. It said slower growth in the January-to-March period was “likely to be transitory,” echoing officials’ recent public comments suggesting the bar to knock the central bank off its policy path is higher now than in previous years. (…)

The Fed’s policy statement Wednesday emphasized continued job gains, which it characterized as “solid.”

Officials also noted firmer spending from businesses, which has lagged behind in recent quarters. The statement noted modest gains in household spending but said the fundamentals underpinning personal consumption “remained solid.” (…)

• Q2 BOUNCE WATCH

The U.S. real GDP grew a feeble 0.7% in Q1. Many hope that Q1 was an anomaly and that a stronger trend will emerge in Q2, much like in 2015 when Q1 growth of 0.8% was followed by 3 quarters averaging +2.3%. The problem with that so called GDP seasonality is that during the 7 years of this recovery cycle, Q1 growth has been slower than the following 3 quarters 4 times, making the odds not all that great.

The other problem is that since Q3’15, growth of U.S. GDP has averaged 1.8%, suggesting a very generalized weakness that is unlikely to get stronger with the change in seasons…

…or the change in President. The last problem is hat Q1’17 data got worse in March as David Rosenberg demonstrated yesterday benchmarking several March data with their Q1 averages:

• Housing starts: –11.6%
• Monthly real GDP: +0.8%
• Manufacturing production: –0.5%
• Aggregate hours worked: –0.2%
• Core capex shipments: +2.6%
• Core capex orders: +0.7%
• Real retail sales: –0.2%
• Exports: –4.1%

I can add that wages and salaries, a strong part of the “fundamentals underpinning personal consumption”, rose only 0.1% in March after +0.45% on average in Jan-Feb. and that nominal consumer expenditures were flat in March after +0.1% in the previous 2 months. So the momentum entering Q2 is not favorable.

We can now add the first April data, hard and soft:

• Light vehicle sales rose 1.6% MoM in April but were 1.9% below their Q1 average and 3.0% lower than last year.
• Markit’s U.S. manufacturing PMI declined from 55.0 in January, to 54.2 in February, to 53.3 in March and to 52.8 in April. The more important Services PMI has followed a similar trend. Markit summed up its April PMI saying that “the surveys suggest that business activity is growing at a slower pace than seen over the first
  quarter as a whole.”

Hmmm…

April signals slowest increase in Chinese business activity since June 2016

The Caixin China Composite PMI™ data (which covers both manufacturing and services) signalled a further slowdown in growth momentum at the start of the second quarter. This was highlighted by the Composite Output Index posting 51.2 in April, down from 52.1 in March, and the lowest reading for ten months.

Latest data saw a loss of momentum across both the manufacturing and service sectors during April. While manufacturers recorded the weakest rise in production since last September, service providers saw the slowest increase in business activity for 11 months. Weak services growth was illustrated by the seasonally adjusted Caixin China General Services Business Activity Index registering at 51.5, down from 52.2 at the end of the first quarter, to signal only a modest rise in activity levels.

Although business activity growth eased in April, the amount of new business placed with service providers expanded at a quicker pace in April. Some panellists mentioned that new products and improving market conditions had boosted new order intakes. That said, the rate of expansion remained weaker than the historical series average. Meanwhile, manufacturers saw growth in new work ease for the second successive month to a marginal rate. At the composite level, total new business increased at the softest pace since last September.

Services companies continued to add to their payrolls at the start of the second quarter. However, the rate of employment growth eased to the weakest in 2017 so far and was moderate overall. At the same time, manufacturers continued to cut their staff numbers in April, with the rate of decline quickening to a three-month record. As a result, composite employment fell for the first time since the end of 2016, albeit only slightly.

Data indicated a lack of pressure on operating capacity across services companies, as shown by a renewed fall in backlogs of work. Though marginal, it was the first time that unfinished workloads had fallen across the sector since last September. In contrast, outstanding business continued to rise across the manufacturing sector, though only modestly. Subsequently, composite backlogs of work accumulated at the slowest pace in a year.

Cost pressures eased across both monitored sectors in April. Service providers registered only a modest rise in input costs that was the weakest in six months. Manufacturers meanwhile saw a rate of input price inflation that, though solid, was the softest recorded since last September. Higher raw material costs were cited as a key factor pushing up cost burdens across both sectors. Overall, composite input prices increased at the slowest rate in seven months.

Similar trends were seen for prices charged in April, with both manufacturing and services companies raising their prices. Though marginal, April marked one of the fastest rates of charge inflation seen across the service sector for three-and-a-half years. However, it was the weakest rise in factory gate prices recorded since last August. (…)

Eurozone economic growth at six-year high in April

This was signalled by the final Markit Eurozone PMI® Composite Output Index rising to 56.8 in April, up from 56.4 in March and the earlier flash estimate of 56.7. Activity has expanded for 46 months in a row.

Output growth accelerated at manufacturers and service providers, with rates of increase hitting 72-month records in both cases. The slightly sharper expansion was again registered in manufacturing.

Underpinning growth of economic activity was a strong increase in incoming new business. New orders rose for the twenty-ninth month running, with the rate of expansion staying close to March’s high. (… ) Rising backlogs of work also suggested that new order growth was sufficiently robust to test capacity and provide a buffer of incomplete work.

Rates of expansion were broadly similar across the ‘big-three’ nations in April. Indeed, the spread between the Composite PMI Output Index readings for Germany, France and Italy was the joint narrowest in the euro area survey history. Rates of expansion eased slightly in Germany and France, but hit a near ten-year high in Italy.

Euro area employment rose again in April, continuing a trend seen over the past 30 months. Although the rate of job creation slowed, it was still one of the best seen over the past decade. (…)

Rising global commodity prices, the weak euro and tightening supply chains all contributed to input cost inflation, the rate of which remained elevated in April. Meanwhile, average selling prices rose at a pace close to March’s near six-year high.

The upturn in eurozone service sector business activity gathered pace at the start of the second quarter. Output rose at the quickest pace in six years, as highlighted by the final Markit Eurozone PMI® Services Business Activity Index posting 56.4 in April, its highest level since April 2011.

The headline index was also above its earlier flash estimate of 56.2, and has signalled expansion throughout the past 45 months. The latest output growth was broad-based, with solid increases registered across the ‘big-four’ nations and Ireland.

Growth of new business remained strong across the eurozone service sector. The rate of increase was well above its long-run trend, despite easing to a three-month low. Business optimism† also stayed close to March’s six-year high.

The ongoing growth of new business also tested the capacity of eurozone service providers, leading to a further increase in backlogs of work. This also underpinned job creation, as staffing levels rose for the thirtieth straight month and to one of the greatest extents over the past nine years.

Service sector employment rose in all of the nations covered by the survey in April. (…)

Input cost inflation slowed to a three-month low in April, but nonetheless remained among the highest rates seen over the past five years. This reflected a combination of salary pressures, higher fuel and energy prices, and increased raw material costs.

Part of the burden was passed on by businesses in the form of higher prices charged for services, which increased for the sixth month running.

The April Eurozone PMI is historically consistent with a GDP growth rate of 0.7%, with similar rates of expansion signalled for both Germany and France. Even faster gains are being indicated in Spain and Ireland and Italy is also seeing growth perk up, highlighting the increasingly broad-based nature of the current upturn.

Price pressures remain elevated, and the survey’s price indices suggest that core inflation will trend higher in coming months.

Given the apparent slowdown in the USA and China, who are Europe manufacturers selling to? Exports account for some 30% of the EU’s total economic output and the USA (17%) and China (8%) get some 25% of all EU exports.

(Topdown Charts)

Meanwhile:

• Brent Crude Falls Below $50 in London for First Time Since March

• Metals Extend Sell-Off

• Trump’s Commodities Rally Is Almost Gone

House GOP Leaders Say They Have Votes for Health-Care Bill House Republican leaders said the chamber would vote Thursday on their bill to replace most of the Affordable Care Act, in a show of confidence that they can lock down enough GOP support.