Year: 2021

Weak Pace of Job Gains Points to a Slow U.S. Recovery U.S. employers put the labor market back into growth mode in January, but the addition of only 49,000 new jobs suggested a long road remains for the recovery.

The U.S. economy added 49,000 jobs last month. The small gain came after payrolls fell steeply in December, the first decline since the coronavirus pandemic triggered business shutdowns last spring. The unemployment rate fell to 6.3% in January from 6.7% a month earlier, in part reflecting fewer people searching for jobs. (…) Also, the number of people reporting themselves as employed increased, consistent with a generally upward trend in hiring since last spring. (…)

The labor-force participation rate was 61.4% in January, down from 63.3% in February 2020, before the virus hit. Some people aren’t looking for work out of fear of contracting the virus. Others are burdened by increased child-care responsibilities or discouraged by limited job opportunities. (…)

Just over four million people were out of work for 27 weeks or longer in January, the Labor Department said, compared with nearly 1.2 million a year ago. Others who lost their jobs earlier in the virus crisis have regained employment, but at much lower wages. (…)

• Temporary Jobs Propped Up January Hiring Gains in nonpermanent employment and public schools offset losses in restaurant and entertainment sectors

Employment in temporary-help services rose by 80,900 in January from the prior month, a larger gain than the overall net increase in payrolls of 49,000, the Labor Department said Friday. (…)

“You’d obviously rather see permanent hiring, but it’s a sign permanent hiring is coming—if the vaccines are rolled out and the economy continues to improve.”

Similarly, the number of average hours worked in a week rose to 35 last month from 34.7 in December, a sign that businesses are asking existing staff to do more, another potential precursor to stronger hiring.

Hiring at public schools and colleges was a bright spot in January, adding a combined 85,000 jobs. Private schools added 34,000 jobs. (…) local government jobs haven’t been as badly hurt as some projected early on in the pandemic. Rising home values have propped up property taxes, an important source of funding for schools in many parts of the country. (…)

Employment is 9.9 million (6.5%) below its February level. Services employment is down 9M (6.8%) while manufacturing (red, right scale) employment is down 583k (4.5%), all trending similarly.

The good news is that the Payrolls Index (employment x hours x wages) emerged in positive YoY territory at +0.6%.

Payrolls actually rose 1.1% MoM in January, after +0.6% and +0.5% in November and December respectively. Americans with jobs are doing better overall. The Payroll Index is now only 0.2% below its February level.

By comparison, in 2008-09 employment dropped 6.3% from peak to trough and payrolls 5.2%. Now, employment is down 6.5% but payrolls are back to their previous peak.

Of the 9M jobs lost during the pandemic, 3.8M (42%, -22.9%) are in Leisure and Hospitality and 1.3M (14%, -5.3%) in private Education and Health Services. Another 1.3M (14%, -10.0%) State and Local Government jobs have been lost. In all, 70% of the lost jobs are in these 3 segments, likely to strongly bounce back as the pandemic subsides. The American consumer and the economy are not in a similar funk as in 2009.

The WSJ editorial board argues just that:

• Wrong Stimulus, Wrong Time Biden wants twice the spending of 2009, though the economy is far stronger now.

(…) Democrats compare the current moment to the recession of 2009 and Barack Obama’s $800 billion spending bill. They say this one needs to be larger. But that comparison works in the opposite direction because the current economy is far stronger than it was in February 2009.

Then the economy was still in a recession that didn’t end until June 2009. The jobless rate was rising and would peak at 10% in October 2009. Today the economy has been growing for two quarters, including 4% in the fourth quarter. The jobless rate is already down to 6.3%, a rate it didn’t hit during the Obama years until spring 2014. The black unemployment rate in January (9.2%) is already lower than it was during the first 79 months of the Obama Presidency. (…)

Personal bankruptcies, home foreclosures and loan delinquencies last fall were the lowest since at least 2003. The mortgage delinquency rate was 0.7% in the third quarter of 2020 compared to 7% in the first quarter of 2009. Home-buying and prices are surging thanks to record low interest rates, and people can take equity out of their homes to spend if they need it.

Wages are increasing across most industries as employers compete for workers. (…)

According to a recent House Budget Committee estimate, $1 trillion from last year’s bills hasn’t been spent—including $59 billion for schools, $239 billion for health care and $452 billion in small business loans. State and local governments added 67,000 jobs in January. They don’t need more federal cash. (…)

About wages:

It’s time to raise the federal minimum wage (by Jay Carney, Senior Vice President, Amazon Global Corporate Affairs)

(…) In 2018, Amazon announced a starting wage of at least $15 an hour for all of Amazon’s full-time, part-time, temporary, and seasonal employees across the U.S.—in addition to the comprehensive healthcare, paid leave and upskilling benefits that begin on day one. In most parts of the country, Amazon’s starting wage is even higher than $15 an hour, and many of our hourly employees make more. In 2020, we created more than 275,000 new jobs across the U.S. and currently provide over 800,000 Americans with industry-leading pay and benefits. We believe $15 an hour is the minimum anyone in the U.S. should be paid for an hour of labor. We also believe it’s good for business.

Once we increased our starting wage to $15 an hour, the positive impact on employee morale and retention—and the surge in job applicants—was immediate. In fact, the month after we raised our starting wage, applications for hourly positions more than doubled. Employees who saw their paychecks increase told us that they had an easier time providing for their families and were able to spend on things like car repairs and home improvement projects. In short, the investments we made in our hourly employees were quickly transferred to local businesses and economies. And the ripple effect didn’t stop there. We were thrilled when several other major companies—including Target, Best Buy, and Costco—also increased wages to at least $15 an hour for their employees. We are hopeful that more follow suit. (…)

Another viewpoint from a Delaware restaurant owner:

(…) The president and his team may understand Delaware politics, but I’m not sure they understand the difficulties of Delaware restaurants. How else to explain his proposal to raise the minimum wage for our servers and bartenders from $2.23 an hour to $15—an increase of more than 400%—which would be a death knell for our industry? (…)

Most confusing about the president’s proposal is why it is necessary. Tipped workers in Delaware and most states may be paid a lower cash wage, but if they don’t earn at least the $9.25-an-hour minimum wage with tips included, the employer has to make up the difference. Before the pandemic, my tipped workers earned $20 to $30 an hour on average.

Were the tipped wage to rise more than 400%, our restaurant would have two options: We either close, or we could adopt a “service charge” that would leave our tipped workers with less take-home pay. (…)

Yellen predicts full US employment next year if stimulus is passed Treasury secretary says benefits of $1.9tn package outweigh inflation risks

New OECD Weekly Activity Tracker Illustrates Divergent Economic Outcomes

China’s Car Sales Rose 25% in January China’s car sales surged in January from the low base of a year earlier, when the coronavirus began sweeping the world’s largest auto market.

Flood of Cash Pushes Borrowing Costs to Unusual Lows in Europe Some companies can now borrow at lower rates than those set by the European Central Bank

(…) Bas van Geffen, quantitative analyst at Rabobank, said this is a sign that banks in particular just have too much cash and are shifting it around to wherever they can minimize the losses from negative rates. “It’s a bit like passing on the hot potato,” he said.

More Americans Say Finances Reason for Moving Than Covid Fears

In June, 28% of those who moved due to the pandemic cited the higher risk of being infected with Covid-19 where they had been living as the most important reason, according to a Pew Research Center poll. Just 18% said financial reasons, including job loss.

But Pew’s November survey showed a complete reversal, with a third of respondents citing financial reasons and unemployment as their primary motivator for relocating. Just 14% cited fears of contracting Covid-19 — half of the June share. (…)

Those age 18 to 29 were more likely than any other group to move due to the outbreak, in part due to college campuses closing and going to remote learning. In fact, a Pew Research Center analysis in September found a majority of young adults lived with their parents — a level not seen since the Great Depression era. Hispanic and Black adults were also more likely to relocate due to the virus than Whites, the survey found.

(…) Adults in lower-income households were more likely to move than their wealthier counterparts as a result of the pandemic. But about 1 in 10 who moved due to the virus relocated to a vacation home.

Some people have moved back, with 31% saying they returned to the same home where they were living before the health crisis. Some 69% of those who moved due to the pandemic said they are currently living in a different home than where they previously lived.

COVID-19

• Slow Rollout of Shots Forces Businesses to Shift Plans Some executives see recovery in travel, shopping by spring; others don’t expect pickup until later this year or 2022

(…) The rapid shifts have complicated financial forecasts and made consumer behavior hard to predict. (…)

The airline industry’s trade group cautioned that a recovery could be smaller than expected in 2021 after demand plunged by roughly two-thirds in 2020. Bookings in January 2021 were down 70% from a year ago. (…) “The world is more locked down today than at virtually any point in the past 12 months.” (…)

Rick Gates, senior vice president of pharmacy and health care at Walgreens Boots Alliance Inc., said in an interview the company expects a return to normalcy as the vaccine is distributed, but much will depend on how long immunity lasts. The company worries that Covid-19 could turn out to be a more permanent fixture of life, a serious and deadly flulike illness that will require annual vaccines, he said. (…)

• More than 131 million doses have been administered across 73 countries, according to data collected by Bloomberg. The latest rate was roughly 4.69 million doses a day. In the U.S., more Americans have now received at least one dose than have tested positive for the virus since the pandemic began. So far, 42 million doses have been given, according to a state-by-state tally. In the last week, an average of 1.46 million doses per day were administered. At this rate, it will take an estimated 10 months to cover 75% of the population with a two-dose vaccine.
• Biden Says Immunity Unlikely Before End of Summer: President Joe Biden said it’s unlikely the U.S. will reach herd immunity for the coronavirus before the end of the summer due to a shortfall in vaccine availability. “The idea that this can be done and we can get to herd immunity much before the end of this summer is very difficult,” Biden said in an interview with CBS News that aired on Sunday. (Bloomberg)

Mass vaccination blitz (Axios)

1. The NFL’s 32 teams have pledged their stadiums as COVID-19 mass vaccination sites, commissioner Roger Goodell told President Biden. See the letter.
2. The Defense Department will send more than 1,000 active-duty military personnel to support mass coronavirus vaccination sites. The Pentagon hopes the military can administer 450,000 vaccinations a day. Go deeper. FEMA’s full request was for 10,000 troops to be deployed to 100 mass vaccination sites. It’s unclear if or when this will happen.

China has pushed back a target to inoculate 50 million people against Covid-19 by almost two months amid concerns over supply and hesitancy among the population around vaccines. (Bloomberg)

China’s new vaccination plan, which was recently communicated to health officials, shifted the timeline for reaching 50 million shots to the end of March, people familiar with the matter said. Bloomberg and other media reported in December that China intended to reach that target by the Lunar New Year holiday, which starts this Thursday.

A representative for China’s National Health Commission said the country is not likely to reach 50 million shots before the New Year holiday, but that “the vaccination process is proceeding as planned.”

Rollout of AstraZeneca Covid-19 Vaccine Halted in South Africa A small clinical trial in South Africa found that AstraZeneca’s Covid-19 vaccine doesn’t appear to protect recipients against mild and moderate illness from a fast-spreading new strain of the virus.

EARNINGS WATCH

From Refinitiv/IBES:

Through Feb. 5, 286 companies in the S&P 500 Index have reported earnings for Q4 2020. Of these companies, 83.6% reported earnings above analyst expectations and 13.6% reported earnings below analyst expectations. In a typical quarter (since 1994), 65% of companies beat estimates and 20% miss estimates. Over the past four quarters, 76% of companies beat the estimates and 20% missed estimates.

In aggregate, companies are reporting earnings that are 17.7% above estimates, which compares to a long-term (since 1994) average surprise factor of 3.6% and the average surprise factor over the prior four quarters of 12.4%.

Of these companies, 79.0% reported revenue above analyst expectations and 21.0% reported revenue below analyst expectations. In a typical quarter (since 2002), 61% of companies beat estimates and 39% miss estimates. Over the past four quarters, 67% of companies beat the estimates and 33% missed estimates.

In aggregate, companies are reporting revenue that are 3.2% above estimates, which compares to a long-term (since 2002) average surprise factor of 1.0% and the average surprise factor over the prior four quarters of 1.8%.

The estimated earnings growth rate for the S&P 500 for 20Q4 is 2.4%. If the energy sector is excluded, the growth rate improves to 6.2%. The estimated revenue growth rate for the S&P 500 for 20Q4 is 1.1%. If the energy sector is excluded, the growth rate improves to 4.4%. [Rising margins].

The estimated earnings growth rate for the S&P 500 for 21Q1 is 21.0%. If the energy sector is excluded, the growth rate improves to 22.5%.

Going forward, Tech and Health Care are no longer the only games in town in terms of earnings growth:

Trailing EPS are now $141.49. Full year 2020 EPS are seen closing at $140.01, rising to $173.04 in 2021 and $199.84 in 2022.

P/Es: 22.4x 2021e, 19.4x 2022e.

In its February Market Update, Fiera Capital expects P/Es of 22.5 one year out and S&P 500 targets between 3710 under a subdued 3.5% economic recovery (30% probability) and 4160 under a rapid 7.0% recovery (55% probability).

Treasury Long Bond Reaches 2% Milestone as Global Yields Awaken Advancing talks on U.S. fiscal stimulus and rising expectations for inflation are driving up yields.

(…) Growing expectations for consumer-price gains are reflected in higher rates for inflation-linked debt. The 10-year breakeven rate — the difference in yields between the 10-year Treasury note and its inflation-protected counterpart — touched 2.21% Monday, according to data compiled by Bloomberg.

Yet economic data show consumer prices stood at 1.4% as of December, well below the Fed’s goal. That’s raising questions over whether the prospect of on-target inflation remains some ways off. (…)

Oil’s advance to a one-year high has also fed into inflation expectations and the underperformance of longer-maturity debt. Another catalyst is long-end Treasury supply, with auctions of 10-year and 30-year debt among the sales slated for the coming week. (…)

Cathie Wood Has Wall Street’s Hottest Hand. Maybe Too Hot. ARK Investment’s money under management grew more than fivefold from March to the end of last year. But when funds get too big, too fast, they often can’t sustain their performance.

That’s partly because all that money makes it hard for fund managers to maneuver as nimbly as they did when they were small. Copycats mimic their every move, and it’s a lot easier to sell a few shares of a stock on the way up than it is to sell oodles of them on the way down. (…)

Money chases performance. ARK managed a total of $11.4 billion at the end of March 2020. By year end, that had swollen to $58.2 billion. (…) When you have millions of dollars, you can easily invest in a few small companies. Once you have billions, you may have to spread investments across more and bigger companies; otherwise, your trades could wreak havoc on your holdings. (…)

This year, stocks are lifting off even before ARK buys them. On Jan. 13, the firm filed a prospectus to launch a new fund, ARK Space Exploration ETF. Although the fund hasn’t yet received regulatory clearance, satellite and other space-related stocks shot up 8% to 10% the next day. (…)

According to FactSet, 43.5% of ARK’s total equity holdings are in stocks of which the firm owns at least a tenth of all shares outstanding. At Vanguard Group, by contrast, only 9.7% of total equity positions are in such concentrated holdings. (…)

What might happen if the same investors who flung billions of dollars into ARK’s funds over the past year yank the money back out?

“Not concerned about it,” says Ms. Wood. “I mean, Tesla a year ago was 10 times smaller than it is today.” (Tesla Inc.’s total market value was $77 billion at year-end 2019; this week, it exceeded $810 billion.) “That’s telling us, reinforcing our sense, that the market is beginning to understand the exponential growth opportunities out there,” which will create ample liquidity over time, she says. (…)

An old Wall Street proverb warns that it can be hard to get out of stocks when markets go bad: “Liquidity is there only when you don’t need it.”

Another warns, “When you have a few shares of a stock, you own it, but when you have lots of shares, then the stock owns you.”

The Battery Is Ready to Power the World After a decade of rapidly falling costs, the rechargeable lithium-ion battery is poised to overhaul the car industry, disrupt the power grid and challenge the dominance of oil and gas.

Very interesting WSJ piece, notably

• Nearly 65% of lithium-ion batteries come from China. By comparison, no single country produces more than 20% of global crude oil output.
• Lithium is mostly mined in Australia and Chile, where it is found in underground brine deposits, although efforts to increase U.S. output from mines in Nevada and North Carolina are gaining attention from investors.
• Companies are working on new configurations—such as solid-state batteries, which don’t transfer ions through liquid—that could significantly enhance the power and further lower battery prices. The value of such a breakthrough could be measured in the billions of dollars, if not trillions.
• Globally, battery-powered electric cars made up around 4% of all new cars sold last year in the world’s largest markets—the U.S., Europe and China—up from around 1% in 2017, according to data from Deutsche Bank. In 2025, the bank expects that share of the market to be 22%.
• Developers and utilities are looking at another evolutionary step in the industry: building batteries to harvest and dispatch inexpensive and clean power from wind and solar farms, and not just for a couple of hours after sunset.
• That threatens not only peakers, but many traditional power plants financed under the assumption that they would be able to competitively sell electricity at all hours of the day for decades. Batteries “are right on the precipice of being highly disruptive,” said Chris McKissack, chief executive of GlidePath Power Solutions LLC, an Illinois-based company that builds renewable energy generation. He estimates there are well more than 100 gigawatts of gas- and coal-fired power plants—out of a total 800 gigawatts plants that burn these fuels—that could be immediately rendered uneconomic and unnecessary. “This presents a massive opportunity for battery storage,” he said.
• Today, battery prices are about $125 per kilowatt-hour, after big increases in manufacturing capacity lowered costs, and tweaks to chemistry and design yielded further savings. Battery costs are widely expected to fall further, said Venkat Viswanathan, an associate professor of mechanical engineering at Carnegie Mellon University. He expects them to go as low as $80 per kilowatt-hour in two to three years before bottoming out.
• Last year, the U.S. established a consortium of agencies to promote a domestic battery industry, citing the role the industry plays in consumer electronics and national defense. It also used the Defense Production Act to speed development of mines for rare-earth elements. During her Senate confirmation hearing to become Energy Secretary last month, Jennifer Granholm signaled her interest in domestic production, saying, “We can buy electric car batteries from Asia or we can make them in America.” (…)

The whole article is available in Edge and Odds’ Special Friends Place.

Consider that 65% of L-i batteries are made in China and that these batteries will control our lives in many more and important ways in the future. Also, consider that China controls rare earth supply, ingredients in magnet manufacturing crucial for most modern technology products. Lastly, understand the importance of semiconductors, particularly nanochips, whose main supplier is Taiwan’s TSMC. Now you understand China’s most recent drive to secure control of Taiwan: it would essentially secure control of the 3 principal physical components of modern technology (think computers, transportation, power grids, defense, etc.).

Developing expertise and capacity in each of these areas requires some 10 years of R&D. Hence the need for the U.S. and the E.U./U.K. to find ways to attract and retain the world’s best tech talents, short of establishing true friendship and collaboration with China.

• From Lightbulbs to 5G, China Battles West for Control of Vital Technology Standards Whoever has control of industrial norms for telecommunications, electricity transmission and artificial intelligence is in a position to dominate

(…) To the consternation of many Western countries, Beijing is employing state funding and political influence to try to define the norms for all manner of cutting-edge technologies that span telecommunications, electricity transmission and artificial intelligence. (…)

China’s ascent in standardization coincides with stagnation among the world’s longtime leaders. At ISO and similar groups, Chinese delegates hold roughly twice as many secretariat positions compared with a decade ago. The positions provide influence over proposals, debates and priorities. The number occupied by the old guard—including the U.S., Germany and the U.K.—remains relatively stable. (…)

Chinese executives and politicians now have a saying: Third-tier companies make products. Second-tier companies make technology. Top-tier companies set standards. (…)

Western funding for standards development, which can take years of costly research and negotiations, has dwindled. Without a change, “we shouldn’t be surprised if we end up playing by Chinese rules,” said Christoph Winterhalter, chief executive of the German Institute for Standardization, known as DIN. (…)

In many next-generation technologies, China leads on standards proposals because it leads the field. When EU officials recently launched a project to build advanced lithium batteries, they were surprised to learn China was already establishing an ISO lithium committee, hosting its Chinese secretariat and appointing committee managers. (…)

In projects from Indonesia to Nigeria, Beijing also is using its Belt and Road Initiative to promote Chinese standards, in such established industries as rail and power transmission. China offers countries subsidies to win the work and then uses its standards to lock in partner nations that would face major costs switching to international standards, industry officials say. (…)

Apple’s Electric-Vehicle Talks With Hyundai Break Down Talks between Hyundai Motor Group and Apple have failed to lead to an agreement for the South Korean auto giant to assemble vehicles for the iPhone maker.