Job Openings at 14-Year High as Hiring Returns to Pre-Recession Levels For the first time since January 2001, the U.S. had more than five million job openings at the end of December, a sign of a labor environment shifting in favor of workers.
John Williams of the Federal Reserve Bank of San Francisco in the FT:
(…) Wage growth tends to lag the business cycle. As you see the economy improve you don’t see wage growth pick up step for step . . . I would not expect wage growth to get back to more normal levels consistent with 2 per cent inflation, our goal, until we really saw the labour market at full strength, which would be end of this year early next year . . . I expect us to be at full employment roughly at the end of the year, or early next year, so I would expect wages next year to be closing in on a more normal level. It is a lagged process. (…)
I do believe there is some kind of Phillips Curve relationship. What that means is when the labour market strengthens a lot, when it is actually stronger, even it is a hot labour market nationally, we have regularly over and over seen that wage pressures will build, inflationary pressures will build. This is a recurring theme of a very strong labour market, strong economy. Given where the labour market is today and where the trajectory is — like I said by the end of the year being at like 5 per cent unemployment, maybe even lower next year — that is a situation where I think based on all the history and the understanding of how this works, we would see wage and price inflation pressures building. That is in the context of a situation today where energy price declines and the strong dollar have reduced import price inflation, which are pushing down, so right now both core and overall inflation are being pushed down significantly by these two special factors — oil prices and the dollar. Going forward those influences will wane and this basic force of a strong labour market, strong economy, will become the dominant theme and to my mind push wages up to 3-3.5 per cent and push inflation back to 2 per cent. (…)
We have been lower for longer and we have been doing the right thing. One has to be careful not to take that to the point of saying we never act because you are never certain of the future . . . Here is my concern. You wait so long that you get behind the curve and then you have to raise rates really rapidly and that creates a lot of market turmoil and maybe even potential damage to the economic recovery. I would rather go gradually, thoughtfully in adjusting policy than waiting too long and having to catch up.
(…) given the global economic conditions it is true that we could be raising interest rates at the short end at a time when global forces are pushing long-term yields down . . . That doesn’t mean monetary policy isn’t working . . . it means there are two things going on at once and we have to take that into account . . . I have no doubt that if we raise rates sufficiently, assuming it was appropriate for our goals, that the yield curve would move. There is going to be arbitrage going on along the yield curve as there always has been. If people expect the Fed to raise over the next several years interest rates to 3 or 3.5 per cent short term, something like that, they sure won’t be taking a 1.66 yield on a 10-year Treasury . . . But I am not denying that there are these two divergent forces. The strength of the US economy and monetary policy moving towards a tightening cycle, or removing accommodation, while the rest of the globe is in the opposite direction. Which is going to make this a challenging environment to read all the tea leaves right to get this right. (…)
We should communicate as best we can. But this is not an argument not to execute the plan. Once you have got to the point where it is appropriate to do this, just do this . . . I don’t think we can go into this assuming we will have smooth sailing and there won’t be some kind of market reactions and upset, mainly because we are in this extraordinary period where much of the globe is moving in one direction and we are moving in the other. But I wouldn’t see this as being a huge risk or a danger or an argument against doing what is the appropriate thing.
NFI Big Disappointment
(…) After breaking the triple digit level for the first time since October 2006 in December, economists were predicting further improvement in January. The actual reading, however, was significantly weaker at 97.9. That 3.1 point miss relative to expectations was the biggest miss since November 2012. While this morning’s report was a disappointment, the headline index still remains above its average of 96.1 dating back to 2000.
From the NFIB report:
Earnings trends worsened by 4 percentage points, reaching a net negative 19 percent. Labor costs continue to put pressure on the bottom line but energy prices are down a lot. Two percent reported reduced worker compensation and 25 percent reported raising compensation, yielding a seasonally adjusted net 25 percent reporting higher compensation, unchanged from December. A seasonally adjusted net 12 percent plan to raise compensation in the coming months (down 5 points).
Daddy, is this a margin squeeze?
Freight Volumes Start Strong in 2015
The number of shipments fell 4.7 percent from December, but was 2.7 percent higher than the same month a year ago. In fact, the January 2015 shipments index is the highest start since January 2012. The American Trucking Associations reported that the growth in tonnage was flat at year-end. U.S. railroads have experienced some substantial increases in carloads and intermodal recently. The Cass Freight Indexes, however, did not capture a portion of these increases because the big growth occurred in commodities such as coal, sand and grain, which often move in large bulk or dedicated unit train moves. This type of move is generally not prevalent in the index database.
What about rail?
U.S. freight railroads originated 1,160,842 carloads in January 2015, up 5.6% (61,864 carloads) over January 2014. Total carloads averaged 290,211 per week in January 2015, the most for January since 2008. Some of the gain this year over last year is probably weather related — January 2014 had particularly nasty
weather in many areas.
In January 2015, 18 of the 20 carload commodity categories the AAR tracks saw carload gains compared with January 2014.
Excluding coal and grain, carloads were up 33,831, or 5.8% YoY.
U.S. railroads originated 1,005,067 containers and trailers in January 2015, up 8,658 units (0.9%) over January 2014, and an average of 251,267 units per week. That’s easily the highest weekly average for January in history.
Seasonally adjusted U.S. intermodal traffic was up 3.2% in January 2015 over December 2014.
U.S. plus Canadian carloads of motor vehicles and parts averaged 20,017 in January 2015, up 5.4% over January 2014 and the highest weekly average for January
since 2008.
GREXIT
Greece heads for eurozone showdown Parliament endorses hardline stance on bailout renegotiation
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A Evans-Pritchard Greece’s last minute offer to Brussels changes absolutely nothing
The art of Game Theory brinkmanship is to convince opponents that you are utterly defiant, almost insane, and willing to bring the temple crashing down on everybody’s heads. Then you smile and talk turkey.
Greece’s Syriza radicals are proving good at this, at least in demonstrating, or feigning, madness. Finance minister Yanis Varoufakis – by all reports the new heart-throb for the thinking German woman – is a theorist on the subject. He wrote a book, “Game Theory: A Critical Text” in 1995. Now he is putting it into practice with great relish. (…)
READY TO RUMBLE?
Currency Warriors Get a Boost at G-20 Meeting Finance ministers from the world’s largest economies have endorsed aggressive stimulus measures taken by many central banks as vital for boosting a weak global economy, even if it depreciates currencies.
The world’s top finance leaders on Tuesday in effect backed currency depreciation as a tool for promoting growth by signaling strong support for aggressive easy-money policies aimed at boosting the fragile global economy.
The support by finance ministers and central bankers from the Group of 20 largest economies for mass monetary easing—policies that have weakened exchange rates from Europe to Japan—is at odds with the traditional view that currency depreciation could have damaging effects on other economies.
It also reflects worry that economies in much of the world could get stuck in a low-growth rut without decisive cash injections from central banks. It marks an implicit acknowledgment of the failure across the globe to enact longer-lasting structural overhauls to major economies after years of relying on short-term spending and other temporary stimulus programs. (…)
U.S. administration officials, for now, appear to have concluded that any growth-dragging effects from a stronger dollar would be offset by faster overseas growth.
“It’s not going to be a good ride for the global economy if the one strong wheel is the United States,” said U.S. Treasury Secretary Jacob Lew , who attended the G-20 meetings along with Federal Reserve Chairwoman Janet Yellen . (…)
Notice who’s not finding it funny?
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South Korea Cuts Prices Amid Currency War South Korean export prices fell again in January, a sign that manufacturers are continuing to slash prices as they keep battling with Japanese firms for market share.
South Korean export prices fell again in January, a sign that manufacturers are continuing to slash prices as they keep battling with Japanese firms for market share.
Prices of South Korean exports fell 8.5% in January on year, compared with a 4.4% drop in December.
The won has weakened roughly 6% against the U.S. dollar over the past six months, compared with a nearly 15% decline of the yen.
Many South Korean firms produce a lot offshore, in places like China and Mexico. But these factories often buy parts from South Korea-based manufacturers, who lose out if the won appreciates relative to the yen.
South Korea’s export volumes also have stalled, falling 0.4% on year in January, amid weak global demand and a slowdown in China, its biggest regional trading partner.
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As The Rupee Stands Tall, India Fears Losing the Devaluation Game The rupee has stood its ground against the dollar over the last year, but in the emerging global competitive-devaluation game, the Indian currency is losing by being strong.
One-two punch for many states: crop and oil prices in boom-bust pattern:
U.S. Farmers to See Big Income Drop U.S. farm incomes will drop 32% this year to the lowest level since 2009, owing to a sustained slump in prices for such agricultural commodities as corn and soybeans, the Agriculture Department estimated.
Net farm income will fall to $73.6 billion from $108 billion in 2014, marking the second consecutive decline after farm incomes soared to record levels during a boom in the Farm Belt earlier this decade, the government said.
World’s Biggest Oil Trader Warns Crude Prices Could Dive Again
(…) The oil market is slightly oversupplied, making another downward move possible in the first half before supply and demand balance in the last six months of the year, Ian Taylor, chief executive officer of Vitol Group, said Tuesday. There are no signs of slowing U.S. output even as the country’s drillers idle rigs, he said. (…)
“The market looks a little bit long in the first half of the year,” Taylor said in an interview at a conference in London. “It’s very difficult to be sure you’ve seen the bottom, particularly when in the U.S. production is still going up. We think there are going to be quite dramatic builds in stock for the next few months.” (…)
Oil Drilling Slows as Crude Price Drops The U.S. oil boom is slowing down as drillers cut back in response to lower crude prices, new data set to be released shows.
Companies drilled 28% fewer oil wells in January across the continental U.S. than they did last June, before oil prices started falling from more than $100 a barrel to about $50 today, according to the study by Rice University’s Baker Institute for Public Policy.
But the amount of new crude they can pump from wells drilled in January totals an estimated 515,000 barrels a day, only 8.5% less than from the wells drilled in June, according to data provided for the study by DrillingInfo, an analytics firm. (…)
The new data suggest that U.S. shale producers are responding faster to the drop in prices than energy companies have in the past, which could translate into lower production and hasten a recovery in crude prices. Shale wells roar into life and then decline more quickly than conventional wells. (…)
Most of the decline appeared to come from conventional, vertical wells, and not the ones that bore horizontally through the rock and deliver the biggest volumes of oil and gas. (…)
Looking back at the last three big lows in Brent, Evercore ISI finds that they occurred about when the rig count had declined about as much as it has now.
Over the past 30 years, oil has made six big lows, all of them V-shaped. That’s what you see when you look at a 30-year chart. The six V-shaped bottoms took roughly 2 months to form, with considerable up and down action before heading sharply higher.
BTW: U.S. rail carloads of petroleum and petroleum products rose 6.9% in January 2015 over January 2014, marking the 60th-straight month in which year-over-year carloads for this category have risen. Canadian carloads for this category averaged 8,186 in January 2015, the most for any month ever.