U.S. Retail Sales Up 1.2% in May
Retail sales rose 0.2% in April, up from a previously estimated flat reading. Sales rose a revised 1.5% in March, marking the strongest monthly gain in five years.
The three consecutive monthly improvements helped offset declines from December through February.
From a year earlier retail sales are up 2.7%.
Strong auto and gas sales led the May advance, but the improvement was broad based.
Excluding autos, sales increased 1%. And excluding gasoline, sales also rose 1% in May. When excluding both categories, sales were up 0.7% last month.
U.S. Manufacturers Temper Expectations for Hiring and Investment
The National Association of Manufacturers in a quarterly outlook survey found its members now expect capital investment to grow 1.9% over the next 12 months, down from a 2.3% forecast in March. Full-time employment is expected to expand only 0.8%, down from 1.9%, and wages are seen rising 1.6%, down from 1.9%.
And in a new measure of manufacturers’ outlook, NAM debuted an index, now pegged at 51.7, down from 59.9 in March and 61.7 in December. Numbers greater than 50 suggest the manufacturing sector is expanding.
Reflecting the stronger dollar, manufacturers now expect exports to grow only 0.4% over the next 12 months, down from an expected rate of 2.3% in March.
Los Angeles Boosts Minimum Wage
The City Council on Wednesday approved a raise in the minimum wage to $15 an hour by 2020, giving a boost to similar efforts elsewhere but prompting objections from business groups that said it could lead to job losses.
The move will increase the city’s minimum wage in increments from California’s current $9 an hour, ultimately making it more than twice the current federal floor of $7.25. California’s minimum is set to rise by a dollar next year. (…)
The wage boost is part of a shift toward local jurisdictions taking a lead on a policy once considered the province of the federal government. Los Angeles joins Seattle and San Francisco in pushing the wage level to $15 within the next three to five years.
Minimum-wage proposals are being evaluated in at least seven cities, including Portland, Me., Sacramento, Calif., and Olympia, Wash., according to the National Employment Law Project, an advocacy organization that promotes the increases. Last year, 14 states raised their wage floors. (…)
Advocates in Oregon, California and Washington, D.C., have moved to place voter measures on 2016 ballots that call for a $15-an-hour minimum. (…)
In one of the first independent analyses on the impact of rising wages on restaurant companies, Moody’s estimates operating profit margins could shrink by one to four percentage points as a result of more cities and states raising starting pay for hourly workers.
Casual dining chains such as Olive Garden or Applebee’s, which provide table service, are likely to feel the biggest impact because they generally require more servers than fast-food restaurants, and have to make up for shortfalls between the minimum wage and tip wages in certain states.
For casual dining companies with 20% of their labor pool affected by the minimum wage, for example, Moody’s said operating margins could narrow by 2.3 percentage points, to an average of 9.7% from 12%, if the minimum wage rose to $10.10. (…)
Moody’s analysis was based on the federal minimum wage rising to $10.10 an hour from $7.25, as President Obama proposed last year in an effort that ultimately failed in Congress. If more cities or states follow the lead of Los Angeles and Seattle—where $15-an-hour minimums have been approved—restaurant companies could experience more than double the margin declines Moody’s projected.
China Economy: Slowdown Eases, But Slog Remains
Industrial production grew 6.1%, faster than previous months but still near the slowest pace since the global financial crisis. Fixed-asset investment grew 9.9% in May, better than in April, but still well below historical standards.
The all-important property market also continues to mend. Housing sales in May were up 30% from a year earlier. And notably, inventories of unsold homes fell for the first time in over two years, though the levels remain remarkably high, especially in the industrial northeast of the country.
(…) New construction starts remain in contraction territory. (…)
Auto sales grew just 1.2% in May, the slowest pace in four years, notes ANZ.
Total financing in the economy in May was up just 12.2% from a year earlier, the slowest pace in years. (…)
Global Oil Demand Rising, IEA Says Low oil prices and economic growth have helped drive up consumer demand for energy across the world in 2015, the International Energy Agency said, a phenomenon seen from U.S. gasoline stations to Chinese auto dealerships.
(…)The IEA said world demand for oil would increase 1.4 million barrels a day this year, 300,000 barrels a day faster than it previously forecast, to a daily average of 94 million barrels this year. Global demand in 2014 was about 92.6 million barrels a day, the IEA said.
That was driven in part by gasoline demand growth of 4.2% in the U.S., where the IEA noted an “increased willingness of U.S. drivers to put additional ‘miles on the clock.’” American vehicle miles traveled statistics, the IEA said, were up 3.9% in the first quarter of 2015.
In the other giant consumer of oil, China, the IEA said consumer confidence levels were expanding despite a slowing economic engine there. The agency cited “slowing but still relatively buoyant car sales data” in China, along with “resurgent sales” of gas-guzzling sport-utility vehicles. (…)
Some of the demand growth won’t likely be repeated, the IEA said, including colder-than-expected winter conditions in Europe that forced residents to spend more on heating. Gasoline prices in the U.S. have risen 33% to an average of $2.67 this week since a low of $1.98 in January, according to the U.S. Energy Information Administration.
And crude oil prices have rebounded to about $66 a barrel in recent days, from lows of less than $47 a barrel in January, which could put a brake on demand.
“This partial rebound lessens, at least for now, support to demand across much of the world,” the IEA report said, noting that demand would grow by only 1.2 million barrels a day in the second half.
Part of the reason:
Problem is, supply has also increased…
Iraq pumped about 3.8 million barrels a day in May, according to a monthly report by the Organization of the Petroleum Exporting Countries, a level that, if sustained, would set a national record. Saudi Arabia said it put out 10.3 million barrels a day, a historically high figure up almost 600,000 barrels since its pivotal decision last year to abandon its usual strategy of defending oil prices by cutting production.
Overall, OPEC said its 12 nations produced 30.98 million barrels a day in May—the highest level since September 2012 and a nearly 4% increase since May 2014. Together, Saudi Arabia and Iraq accounted for over three-quarters of that growth. (…)
Even if prices were to fall to $20 a barrel, “we don’t think we will reduce exports. We will increase production,” Falih Alamri, director general of the state-run Iraqi State Organization for Marketing of Oil, said at an Iraq oil conference in London.
Iraq has no choice, he said. The country owes foreign investors who have pumped billions of dollars into its fields, Mr. Alamri said. Iraq currently exports 3.2 million barrels a day but wants to average 3.3 millions barrels a day this year, he added.
Production could reach 6 million barrels a day by the end of the decade, he said in a speech read on behalf of Iraq’s oil minister, Adel Abdel Mahdi. (…)
Meanwhile
World Bank Cuts 2015 Global Growth Forecast to 2.8%
The development institution on Wednesday said that it now expects the world economy to grow by 2.8%, 0.2 percentage point slower than it estimated in January. (…)
Sharp contractions in Brazil and Russia, alongside weaker growth in Turkey, Indonesia and scores of other developing economies are offsetting healthier growth in Europe and Japan, the bank said in its Global Economic Prospects report.
The bank expects global economic growth in 2016 to accelerate to 3.3%, barring trouble in emerging markets as the U.S. Federal Reserve moves toward raising rates. The forecast also assumes recoveries in the eurozone and Japan take hold.
Although the U.S. economy is gathering steam, a brutal winter sapped output in the first quarter and prompted the bank to downgrade prospects for this year by 0.5 percentage point to 2.7%. (…)
(…) Indonesia’s economy — Asean’s largest by far — slowed to its lowest pace of annual growth in more than five years in the first quarter of this year, driven in part by a fall in government spending and flat consumer demand. 
The kingdom’s production rose to a record high of 10.3m barrels a day in April and there is no sign that it plans to reverse its policy at next month’s meeting of Opec, the producers’ cartel, in Vienna.