U.S. Small Business Optimism Improves Slightly
The National Federation of Independent Business reported that its Small Business Optimism Index increased 1.1% during April to 93.6 following declines in three of the four prior months.
An improved 8% of firms reported that now was a good time to expand the business, but expectations for the overall economy remained dour. One percent of firms expected higher real sales in six months, roughly the lowest in five months.
Employment prospects brightened slightly. Eleven percent of firms expected to increase employment, the most in three months; however, a higher 46% of respondents found few or no qualified candidates to fill job openings, up from March’s 41% low. A sharply increased 29% of firms had positions they were not able to fill right now. A greater 24% of firms raised worker compensation over the last twelve months, but a lessened 15% were expecting to raise it in the next three months.
Small businesses’ pricing ability improved as a lessened 1% of firms were lowering prices. Expectations about the future ability to raise prices, however, eased as a fewer 16% of firms were planning to raise them.
U.S. JOLTS: Job Openings Rate Strengthens, But Hires Ease
The job openings rate increased to 3.9% during March from 3.8% in February, revised from 3.7%. The increase was to a level which equaled the record high. The private sector job openings rate held steady m/m at 4.1%, slightly below the record. This rate compared to 2.2% in the public sector. Hiring was stronger as past vacancies were filled. The hires rate in March eased to 3.7%. The private sector rate declined m/m to 4.0%, and compared to 1.7% in the public sector.
The actual number of job openings increased 2.7% in March to 5.757 million (11.1% y/y), and neared July’s record high. A 12.7% y/y rise in private sector openings was led by an 18.6% y/y increase in construction. That was followed by an 18.2% y/y rise in education & health services, and a 15.3% y/y increase in professional & business services. Manufacturing sector job openings increased 14.5% y/y, and openings in retail trade rose 9.6% y/y. Job openings in leisure & hospitality improved 4.7% y/y.
The number of hires declined 4.0% m/m to 5.292 million in March, but they were up 3.6% y/y. Private sector hiring increased 2.7% y/y, reflecting a 9.6% y/y rise in construction. Leisure & hospitality jobs improved 8.4% y/y, and education & health services jobs rose 5.4% y/y. Professional & business services employment was little changed y/y, while public sector jobs jumped 15.5% y/y.
The total job separations rate eased to 3.5%, down from its cycle high of 3.6%. The actual number of separations increased 1.2% y/y.
The layoff & discharge rate eased to 1.2%, and was near the record low. The private sector rate of 1.3% also was near the all-time low and compared to 0.5% in the public sector. Layoffs overall declined 13.3% y/y in the private sector, but were up 1.9% y/y in the public sector.
Macy’s Massacred After Slashing Outlook On “Uncertain Consumer” As Inventories Reach Record Highs
Retail Imports Plummeted in March Amid High Inventory Levels
Ports covered by the Global Port Tracker report, released monthly by the National Retail Federation and research firm Hackett Associates, handled 1.32 million inbound twenty-foot equivalent units, or TEUs, in March. That was down 14.2% from February, missing an earlier forecast for 1.35 million TEUs.
It was also down 23.7% from a year earlier, but the comparison is misleading because of a burst in import volume in March 2015 as West Coast ports cleared cargo that had been backlogged due to a labor dispute. Container volume numbers will continue to be difficult to compare year-over-year for the next two months.
Analysts also lowered their projections for the import total for the first half of the year, saying volume forecast at 1.8% growth from a year earlier would only reach 1.4%.
“’Lackluster’ has been the best characterization for what we’re looking at for the rest of the year and what we’ve seen in the first quarter,” said Daniel Hackett, a partner at Hackett Associates. “We are looking at anemic growth…The good news is that it’s positive, but it’s just not strong growth.”
Part of the pared down outlook is due to barely-growing consumer spending, and recent reductions in manufacturing activity, Mr. Hackett said. Production numbers in the U.S. and China have slowed since the last report, though they remain positive. (…)
Inventory levels also remain high. According to the latest data from the U.S. Census Bureau, the overall inventory-to-sales ratio among U.S. businesses reached 1.41 at the end of February, the highest level since the middle of 2009. The ratio, which measures how many months it takes to sell off inventories based on the current sales pace, was even higher among retailers, at 1.51.
Inventory is “just climbing and climbing and climbing,” Mr. Hackett said. “We don’t know if it’s because consumers really aren’t spending that much money. The evidence is certainly showing that consumers are not increasingly opening their wallets despite the fact that wages are up, and employment is going up,” or if it is “just the way that business is changing.”
The high ratio may suggest retailers are having trouble selling off stockpiles. But Mr. Abisch said high inventory levels may be a result of the impact e-commerce is having on retailer supply chains.
As more consumers put a premium on rapid delivery of goods, companies fear they will lose sales if they wait weeks for orders to arrive from China under traditional inventory strategies and instead may be importing and holding goods closer to consumers. (…)
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Luxury Condo Boom Is Ending in Manhattan Demand in Manhattan’s super-high-end condo market has dried up amid global economic jitters, just as the market has been flooded with supply.
(…) The slowdown appears confined to this rarefied segment of New York’s condo market; demand remains strong and supply more limited for more moderately priced units. But it is a scenario also playing out in other super high-end markets that subsist on billionaires’ spare cash. Prices have fallen, for example, in London’s luxury property market, the high-end art sector and even the classic car market. (…)
Civil Engineers Find Trillion-Dollar Infrastructure Funding Gap
The U.S. needs to invest $1.4 trillion in infrastructure between now and 2025 and $5.2 trillion by 2040, a civil engineering trade group said Tuesday, almost double what the country is projected to spend over that period.
The report from the American Society of Civil Engineers paints a dismal picture of the country’s economy in the decades ahead unless local, state and federal governments dramatically increase their infrastructure spending. Funding gaps could cost the economy almost $4 trillion and 2.5 million jobs by 2025 and $14.2 trillion and 5.8 million jobs by 2040, the report said. (…)
Last year’s five-year highway bill did not significantly increase funding levels. (…)
China debt: People’s Daily echoes Soros’ debt fears
(…) On Monday the People’s Daily, the Chinese Communist party’s flagship newspaper, published a front-page interview with an “authoritative figure” who warned that the country’s soaring debt levels could lead to “systemic financial risks”. (…)
“A tree cannot reach the sky,” the figure said. “Any mishandling [of the situation] will lead to systemic financial risks, negative economic growth and evaporate people’s savings. That’s deadly.” (…)
The authoritative figure’s intended audience on Monday was almost certainly domestic, namely the more complacent government and party officials who complain privately about what they perceive as the international media’s unwillingness to “write a good story” about the Chinese economy. (…)
The official also warned that the trajectory of China’s economic growth, which fell sharply from an annual figure of 12 per cent in 2010 to 8 per cent in 2013 and has since dribbled slowly downwards, will continue to be “L-shaped”.
The supply-side mantra and L-shaped growth warning were both emphasised in the wake of the party’s annual Central Economic Work Conference, held in December. According to the conference’s communiqué, average economic growth would be 6.5 per cent until 2020 — in other words, no V or even U-shaped acceleration back to the boom-time growth of old.
There is, however, a fundamental contradiction in this otherwise sobering analysis that the Chinese government has still not officially acknowledged. If Beijing really is going to let heavy industrial companies go under, refrain from monetary stimulus and now — as Monday’s article in the People’s Daily more or less promised — finally address the debt issue, how could it avoid a more severe slowdown to growth, say, of 3-4 per cent?
An increasing number of analysts now believe a marked deceleration in short-term economic growth, while painful, will be inevitable if the Chinese government really does tackle the debt issue head-on. The alternative to a full-on implosion, of the sort experienced in Asia in 1997-98 and globally in 2008, is hardly beguiling either: think Japan’s lost decade followed by years of economic stagnation.
In his comments that so irked the People’s Daily in January, Mr Soros alluded to this dilemma when he predicted a hard landing for the Chinese economy. But for the time being, that is one scenario that neither the party nor its flagship newspaper are ready to acknowledge. No one wants to have to tell Mr Xi that the 6.5 per cent economic growth rate that he ordered up just five months ago could come with such a high price.
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Dividend Cuts Hit a Seven-Year High
(…) Based on data from the Standard and Poors monthly dividend report, through the first four months of the year, 213 US companies have announced dividend cuts (upper chart right), which is the most cuts through April since the depths of the Financial Crisis in 2009, when 298 companies cut their payouts. (…) (Bespoke)
Disquiet over junk bond rally grows Rising default rate adds to doubts over long-term outlook
(…) Nonetheless, with the average yield now back to below 8 per cent, some investors and analysts are concerned that the junk bond market has run ahead of itself. Some measures of corporate indebtedness have been climbing to pre-crisis peaks, and the amount of cash holdings compared with interest payments are at the lowest since 2009, according to Bonnie Baha, head of developed market credit at DoubleLine, the bond fund manager. (…)
UBS credit strategist Matthew Mish points out that the number of bonds with a triple-C rating has rocketed from 430 in 2007 to 1,350 today, or 40 per cent of the entire market. He predicts that as much as $1tn of debt rated below investment grade will end up in some form of distress.
That is already beginning to manifest itself. Another four defaults last week raised the global total to 57 so far this year, of which 43 were in the US. Among the latest defaulters tallied by Standard & Poor’s are Oklahoma-based White Star Petroleum and Perpetual Energy, a Canadian oil and gas explorer, but a smattering of non-energy companies are also in a pickle. New York grocer Fairway filed for Chapter 11 bankruptcy last week.
The US default rate is still below its long-term average of about 4 per cent, but heading north. S&P’s trailing 12-month default rate hit a six-year high of 3.9 per cent in April, and the rating agency predicts it will climb to 5.3 per cent by March next year — or as high as 7 per cent in its pessimistic scenario. Mr Mish argues that the “recovery rates” are also likely to be much lower than in the past due to the deteriorating quality of the bonds.
Nervousness over another summer reversal is now coming to the fore. The average US junk bond yield has crept up from a low of 7.5 per cent late last month to 7.8 per cent this week. (…)
China Warns Economists to Brighten Outlooks