LEADING ECON. INDIC.

Conference Board Leading Economic Index Increased in March

The Conference Board LEI for the U.S. increased for the third consecutive month in March. This month’s gain in the leading economic index was driven by positive contributions from all the financial and labor market indicators. In the six-month period ending March 2014, the LEI increased 2.7 percent (about a 5.6 percent annual rate), slower than the growth of 3.3 percent (about a 6.6 percent annual rate) during the previous six months. In addition, the strengths among the leading indicators remain widespread.

No recession in sight.

Chicago Fed: Economic Growth Moderated in March

Led by declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) decreased to +0.20 in March from +0.53 in February. Two of the four broad categories of indicators that make up the index made positive contributions to the index in March, and two of the four categories decreased from February.

The index’s three-month moving average, CFNAI-MA3, increased to a neutral reading in March from -0.14 in February, marking its third consecutive nonpositive value. March’s CFNAI-MA3 suggests that growth in national economic activity was at its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests limited inflationary pressure from economic activity over the coming year.

The CFNAI Diffusion Index increased to +0.04 in March from -0.14 in February. Fifty-one of the 85 individual indicators made positive contributions to the CFNAI in March, while 34 made negative contributions. Thirty-three indicators improved from February to March, while 51 indicators deteriorated and one was unchanged. Of the indicators that improved, nine made negative contributions.

Builder’s Weak Results Hammer Hopes for Spring Home-Sales Pickup

NVR, which builds homes under the brands Ryan Homes, NVHomes, Fox Ridge Homes and Heartland Homes, on Monday said its sales contracts signed in the first quarter declined 5.3% from the same period a year earlier. That decline was slightly greater than analysts’ consensus forecast of a 4% drop.

More troubling is that the weak showing came as NVR boosted its count of communities where it is building by nearly 11%. That means NVR’s sales on a per-community basis – which, akin to retailers’ same-store sales figures, is a measure closely watched by investors – declined by 14%.

Together, the readings offer the latest evidence that the spring selling season– a crucial period for sales because families typically want to lock into a school district by the end of summer—will fail to meet industry expectations. (…)

NVR’s first-quarter struggles bolster the theory that more than just bad weather hampered the housing market in the first quarter. Many observers say that lofty home prices, still-tight mortgage qualification standards and the sluggish economic recovery are hindering both new and existing home sales.

“If anything, [NVR’s results] probably tell you that the spring season so far is lukewarm,” said Alex Barron, president of Housing Research Center. “In all of the markets that we track, the first couple of months [of the year] were weak, March was significantly better and April so far seems to be so-so.”

NVR didn’t fully blame its first-quarter shortfall on bad weather. An NVR spokesman declined to comment. But Wells Fargo Securities analyst Adam Rudiger reported in note to clients Monday that NVR executives told him “it was too early to tell if the spring season was simply delayed due to weather or if it was more a sustained period of weakness.”

(…) March typically is the first big sales month of the spring.

Thomas Lawler, an independent housing analyst based in Leesburg, Va., noted that many of NVR’s communities are clustered in the mid-Atlantic states, which suffered harsh weather in the first quarter. However, weather can’t be the only factor behind NVR’s weak quarter, he said. (…)

Ms. Yellen was right, we need more data…

Here’s some advanced data for April:

WEEKLY CHAIN STORE SALES

Chain store sales rose 1.2% YoY in January (4wk m.a), 1.9% in February and 1.1% for March/April combined (to Apr. 19) to account for different Easter timing.

Gasoline Prices Rise as U.S. Increases Gas Exports Drivers in the U.S. are facing rising gasoline prices ahead of summer-vacation season, just as refiners here are shipping more gas to other countries.

A new pipeline, built to release a glut of crude oil that was stuck in the middle of the country, is now feeding oil to refineries on the Gulf Coast that churn out gasoline and diesel. While these fuels still make their way to the Southeast and the East Coast, growing amounts are being sold to Mexico, the Netherlands, Brazil and other countries. (…)

Gasoline stockpiles nationwide are at their lowest point for this time of year since 2011, according to the U.S. Energy Information Administration. Meantime, the retail price for a gallon of regular gasoline averaged $3.68 on Monday, up 4.2% from a year ago, according to the EIA. That is the highest price since March 2013. (…)

Total petroleum exports, mostly gasoline and diesel, averaged about 3.6 million barrels a day last week, according to the EIA, up 25% from the same period last year. The figure includes a small amount of oil exports that are allowed by the U.S. government, which effectively banned them in 1975.

Research firm ESAI Energy estimates that the U.S. will become a net gasoline exporter by next year.

(…) Citing low levels of gasoline supplies, some fund managers say pump prices are unlikely to weaken until after the summer vacation season.

As a group, hedge funds and other money managers held $9.3 billion of bullish bets on Nymex gasoline prices, the most in a year, according to the U.S. Commodity Futures Trading Commission. (…)

The EIA expects prices at the pump to average $3.57 between April and September, a penny less expensive than last year, citing lower international oil prices. AAA forecasts gas prices to average between $3.55 and $3.75 a gallon this summer, but if crude-oil prices stay as high as they are, prices at the pump could rise more, Ms. White of AAA said. (…)

Miles driven chart from Doug Short:

Netflix Previews a Price Increase Netflix said it plans to increase its U.S. prices for new members by a dollar or two.

Netflix said the price increase for the $7.99 a month service, the first since 2011, would help pay for its continued investment in original programs, including series such as “House of Cards” and “Orange Is the New Black.”

That would be a 12.5-25% price increase for Netflix’ 34 million paid subs.

Labor Shortages Pop Up, but Wage Growth Still Lags

One interesting item in the Federal Reserve‘s beige book, released last week, was a report from the Minneapolis Fed that “in the energy-producing areas of North Dakota, the U.S. Postal Service and its union recently agreed to pay increases of up to 20% for rural carriers.” According to the Associated Press, the postal service is having a hard time, competing even with fast-food restaurants to find workers in western North Dakota, the site of the Bakken oil fields and a state with a 2.6% jobless rate.

When demand for labor outstrips supply, wages rise. And the Fed is looking closely at wage trends to determine how much slack there is in the labor markets.

Other enterprises are facing a shortage of some skilled workers. The first-quarter survey by professional-services firm PwC shows 28% of U.S. multinational manufacturers expect the lack of qualified workers will be a barrier to growth in the next year. That is the highest reading since 2007, just as the last expansion was unraveling.

According to the March survey done by the National Association for Independent Business, a net 22% of small-business owners say they have positions they cannot fill right now because there are few or no qualified applicants for the opening. That is up from a single-digit response rate at the start of the recovery.

However, while demand for certain skills is running ahead of supply, for most occupations there remains an excess of labor. Consequently, when it comes to setting pay, the advantage remains with the employer rather than the employee.

For instance, only 12% of the executives polled by PwC think the pressure for increased wages will be a barrier to growth in the next year. The NFIB says a rising share of small businesses are increasing compensation but that is up from a low rate earlier in the recovery, and the percentage is still below the numbers posted in the last expansion.

For the entire private sector, Labor Department data show the yearly growth in average hourly pay has been stuck at about 2% for most of the recovery even as the unemployment rate has fallen. As is true in good times and bad, certain workers are doing much better, while other workers are falling behind. A changing economy creates winners and losers.

Amazon Sales Take a Hit in States With Online Tax

Amazon.com Inc. (AMZN) is taking a hit in states that are collecting an online sales tax.

In one of the first efforts to quantify the impact of states accruing more tax revenue from Web purchases, researchers at Ohio State University published a paper this month that found sales dropped for Amazon when the online charge was introduced. In states that have the tax, households reduced their spending on Amazon by about 10 percent compared to those in states that don’t have the levy. For online purchases of more than $300, sales fell by 24 percent, according to the report titled “The Amazon Tax.”

The findings add to concerns about how much the world’s largest online retailer can expand. The Seattle-based company, which reports quarterly earnings on April 24, has been grappling with decelerating revenue growth amid heavy spending by Chief Executive Officer Jeff Bezos on new initiatives. Amazon has enjoyed an edge against brick-and-mortar retailers because consumers didn’t have to pay a sales tax for purchases from the e-commerce site, yet that has eroded as states including California and Texas have unveiled the levies.

“There is no ambiguity,” Brian Baugh, one of the report’s authors from Ohio State’s Fisher College of Business, said in an interview yesterday. “It has been their competitive advantage.”

The push by states to collect taxes on Internet purchases has gathered momentum in the past few years. Amazon collects sales tax in 20 states, according to its website. More are set to follow as the company has become a popular target to help state governments generate more revenue to cover budget shortfalls; Florida is set to begin charging a tax on May 1. States lose an estimated $23 billion a year in uncollected sales taxes from Web retailers. (…)

Some analysts have previously said the online taxes had a minimal effect on Amazon’s sales. In a 2012 report, Matt Nemer, an analyst at Wells Fargo & Co., said consumers in Texas, which had recently introduced the levy, generally weren’t aware of the tax and doubted it would “materially impact” Amazon’s revenue.

The Ohio State University researchers who wrote this month’s paper tracked the spending of about 245,000 households that shelled out at least $100 on Amazon during the first six months of 2012, and then kept tabs on them through the end of 2013. About a third of the subjects lived in California, New Jersey, Pennsylvania, Texas and Virginia — states where new tax laws were implemented during that time.

In addition to quantifying the sales impact, the researchers also concluded that brick-and-mortar stores didn’t hugely benefit from households reducing their spending on Amazon. That’s because many shoppers simply turned to online alternatives.

In total, brick-and-mortar retailers enjoyed a 2 percent bump in purchases in states that introduced an online sales tax, while competing online retailers got a 20 percent increase, the study found.

The biggest sales uptick — 61 percent for big-ticket items — went to merchants that use Amazon Marketplace. These outfits pay Amazon a fee to offer products through the Amazon website, yet don’t collect taxes. The products are typically available alongside Amazon’s own listings.

That means Amazon still indirectly benefits, since it collects a fee from merchants on its marketplace.

“If they make one extra click on Amazon, they can continue to realize these tax savings while still enjoying the whole Amazon ecosystem,” Baugh said.

Yuan Falls to 14-Month Low

China’s yuan fell to its weakest level in more than a year Tuesday as Beijing signals it isn’t done pushing the currency lower, a move aimed at shaking out speculators who bet on gains and flood the economy with excess cash.

The yuan fell as low as 6.2390 versus the dollar in the afternoon, its lowest level since February 2013, bringing losses for the year to 3% and making it the worst performing currency in Asia. The losses were triggered after The People’s Bank of China set the morning daily reference rate weaker for a third trading session.

Iraq Oil Output Exceeds Hussein Era

The problem: getting it out of the country.

Iraqi oil fields pumped 3.6 million barrels of crude a day on average in February, 50% more than four years ago. That beat—if only for a month—the country’s annual-output record, 3.5 million barrels a day, in 1979 during Iraq’s petroleum heyday.

But Iraq’s government has been slow to modernize the infrastructure to move that oil from wells to tankers. (…) Underscoring the industry’s fits and starts, Iraqi production fell last month by some 340,000 barrels a day, a decline of more than 9% from the February high, according to the International Energy Agency. An attack on an oil-export pipeline in northern Iraq was to blame.

Iraqi officials often order foreign operators to cut output from some of the country’s biggest fields ahead of bad weather or amid equipment breakdowns, Western executives working in Iraq say. “They don’t have the storage,” says Diane Munro, an oil-market analyst at the IEA. “They have problems at the pumping stations.”

The stakes aren’t just high for Baghdad. A global oil market has quietly grown dependent on rising Iraqi supplies. Coupled with the boom in U.S. shale-oil production and oil-sands output in Canada, growing Iraqi production has helped stabilize prices amid climbing global demand and big disruptions in places like Libya and Syria.

The IEA forecasts that Iraq will be the single largest contributor to global-production growth over the next 20 years. The agency is counting on steep Iraqi growth in its long-range price forecasts, predicting the country will produce about eight million barrels a day by 2035. But it warns that if Baghdad falls short of that target by three million barrels a day, global oil prices will be 10% higher than they would have been.

Growing Iraqi output is also crucial for Baghdad and Washington. Oil sales supply about 90% of Iraq’s budget, making them a key pillar of stability.(…)

Infrastructure isn’t the only problem. Bureaucracy, corruption and violence are all getting in the way of increasing exports. Last year, oil-field service companies Schlumberger Ltd. and Baker Hughes Inc. temporarily suspended operations in Iraq amid widespread religious protests.

Shell’s Mr. Njikamp says equipment routinely sits for three weeks at a dock near Majnoon waiting for customs clearance. (…)

Russia Could See Second-Quarter Recession

According to the Economy Ministry, Russia’s economy shrank by 0.5% in the first three months this year compared with the preceding quarter and is on track to post growth of around 0.5% in the whole of 2014.

The Economy Ministry has projected a 1.8% decrease in gross domestic product this year if net capital outflow stays at the levels of the first quarter—more than $60 billion. Mr. Oreshkin said his ministry expected net capital outflow to slow substantially and reach no more than $80 billion.

Speaking of inflation, Mr. Oreshkin said that inflation is set to peak in May or June, reaching 7.5% on the year, and then inflation will gradually subside below 6% in the whole of 2014.

EARNINGS WATCH

S&P updated its database as of April 17 after 84 companies reported. The beat rate is 63% and Q1 EPS are expected at $27.50, up $0.25 from the estimate on April 10 and only $0.10 lower that the estimate at the end of Q1. It’s early but so far, so good…

Factset provides more details:

Overall, 82 companies have reported earnings to date for the first quarter. Of these 82 companies, 66% have reported actual EPS above the mean EPS estimate and 34% have reported actual EPS below the mean EPS estimate. The percentage of companies reporting EPS above the mean EPS estimate is below both the 1-year (71%) average and the 4-year (73%) average.

In aggregate, companies are reporting earnings that are 1.9% above expectations. This surprise percentage is below both the 1-year (+3.1%) average and the 4-year (+5.8%) average.

In terms of revenues, 50% of companies have reported actual sales above estimated sales and 50% have reported actual sales below estimated sales. The percentage of companies reporting sales above estimates is below both the 1-year (54%) average and the 4-year average (58%).

In aggregate, companies are reporting sales that are 0.3% below expectations. This surprise percentage is below the 1-year (+0.3%) average and below the 4-year (+0.6%) average.

The blended earnings decline for the first quarter is -1.3% this week, lower than the decline of -1.7% last week. If this is the final percentage for the quarter, it will
mark the first year-over-year decrease in earnings since Q3 2012 (-1.0%).

The blended revenue growth rate for Q1 2014 is 2.1%, below the estimated growth rate of 2.4% at the end of the quarter (March 31).

At this point in time, 15 companies in the index have issued EPS guidance for the second quarter. Of these 15 companies, 9 have issued negative EPS guidance and 6 have issued positive EPS guidance. Thus, the percentage of companies issuing negative EPS guidance to date for the first quarter is 60% (9 out of 15). This percentage is below the 5-year average of 65%.

Although companies are reporting an earnings decline (-1.3%) for Q1, earnings growth for the S&P 500 is projected to be much higher for the remainder of the year. For Q2 2014, Q3 2014, and Q4 2014, analysts are predicting earnings growth rates of 7.6%, 10.7%, and 11.0%. For all of 2014, the projected earnings growth rate is 8.2%.

Two In Five Americans Now Earn Degrees After High School The steady increase in the proportion of Americans earning degrees after high school graduation continued in 2012 for the fifth straight year.

The jump to 39.4% is an increase of 0.7 percentage point over 2011, according to the annual Lumina Foundation report “A Stronger Nation.” That marked the largest one-year gain in the last five years since the foundation started tracking the figure. The report indexes education completion of Americans 25 to 64 years old.

Educational attainment remains deeply impacted by race and geography. While 44% of whites and 59% of Asians have a post-secondary degree, just 20% of Hispanics and 28% of blacks have one. (…)

From my April 7 post THE U.S. LABOR MARKET: WHERE IS GODOT?

(…) in 2010, nearly 70% of bachelor’s degrees were in social sciences, psychology, visual and performing arts and communication and journalism while less than 25% graduated in engineering (13%), computer sciences (7%) and maths (3%). Americans appear ill-prepared for a new on-going revolution in the job market spurred but the powerful combination of data, software and sensors (…)

Hopefully, these ratios have changed in recent years. From The Economist (The future of jobs, The onrushing wave):

The combination of big data and smart machines will take over some occupations wholesale; in others it will allow firms to do more with fewer workers. Text-mining programs will displace professional jobs in legal services. Biopsies will be analysed more efficiently by image-processing software than lab technicians. Accountants may follow travel agents and tellers into the unemployment line as tax software improves. Machines are already turning basic sports results and financial data into good-enough news stories.

Jobs that are not easily automated may still be transformed. New data-processing technology could break “cognitive” jobs down into smaller and smaller tasks. As well as opening the way to eventual automation this could reduce the satisfaction from such work, just as the satisfaction of making things was reduced by deskilling and interchangeable parts in the 19th century. (…)