NEW$ & VIEW$ (12 JULY 2016)

Fed’s Labor Market Conditions Index Drops

The U.S. labor market continued to slow in June but at a more moderate pace as the economy moved closer to full employment, according to an index prepared by the Federal Reserve.

The Fed’s Labor Market Conditions Index declined 1.9 points in June after falling 3.6 points in May. The index has fallen for six consecutive months, the longest decline since the end of the recession in 2009. (…)

Fed officials have touted the LMCI as a more comprehensive view of the labor market than the one provided by individual data releases from the Department of Labor and other agencies.

Recently, however, Fed Chairwoman Janet Yellen has sought to play down its relevance in the current context, in her June 15 press conference.

In her Senate Banking Committee appearance the following week, Ms. Yellen said the overall level of the index—which the Fed doesn’t release—. The recent declines, she said, simply suggest that the growth is starting to slow.

“There is a loss of momentum, that is what the negative numbers show,” she said. “But a loss of momentum in terms of the pace of improvement.”

Confirming the trends seen on this chart from Lance Roberts:

Truckers, Railroads Slashed Jobs in June Trucking companies cut payrolls by 6,300 jobs amid tepid shipping demand, excess capacity.

Trucking companies cut 6,300 jobs last month, the biggest month-to-month reduction so far this year in a business that has been scaling back capacity amid tepid demand and declining pricing leverage. Several of the nation’s largest carriers have warned of lower second-quarter profits while new heavy-duty truck orders have reached their lowest point in years.

Freight rail operators, hit by steep declines in energy shipments, continued to cut jobs with 1,600 fewer jobs in June. Railroads have cut their employment rolls by 29,600 jobs in the past 12 months. (…)

Employment in goods-producing industries increased by 9,000 jobs, the Labor Department’s Bureau of Labor Statistics said, after declining in May. (…)

RAIL TRAFFIC (From the AAR):

Total rail traffic volume on U.S. railroads in June 2016 was 2,540,265 carloads, containers, and trailers, down 170,607 units (6.3%) from June 2015. June was the fourth straight month in which carloads and intermodal volume were both down compared with the prior year. That hasn’t happened for four straight months since late 2009 during the Great Recession.

For the second quarter of 2016, total rail volume was 6,525,296 units, down 8.2% (581,977 units) from the second quarter of 2015. For the first half of 2016, total volume was 13,008,219 units, down 7.4% (1,033,635 units) from the first half of 2015.

  

It’s not mainly coal and grain:

Carloads excluding coal and grain were down 4.2% in June 2016 from June 2015, their biggest percentage decline in five months. Year-over-year carloads have fallen in 15 of the 16 months since March 2015.

Conference Board’s Employment Trends Index Jumps 1.4% in June A basket of U.S. employment indicators jumped in June, further indication that the nation’s job market sprung back powerfully from an anemic May and remains on solid footing.

The Conference Board said its employment trends index rose 1.4% last month to 128.13 after having declined 1.3% in May. From a year earlier, the index gained 1.8% in June.

The board’s employment trends index, which seeks to show employment trends more clearly by filtering out the volatility of monthly data, is an aggregate of eight indicators, including jobless claims, job-openings data from the Bureau of Labor Statistics, and industrial production figures from the Fed.

All eight of the basket’s gauges rose last month, paced by an improvement in the number of workers who are working part time jobs because they can’t find a full-time position. A drop in jobless claims, to the lowest level since mid-April, also helped, and employers reported ongoing difficulties finding qualified employees to fill open jobs. (…)

SMALL BUSINESS OPTIMISM SEES THIRD MONTH OF MODEST GAINS

The Index of Small Business Optimism increased 0.7 points to 94.5, still well below the 40 year average of 98, but the third monthly gain in a row, although the gains are very small. Four of the 10 Index components posted a gain, three declined and three were unchanged. (…)

Fifty-six percent reported hiring or trying to hire (unchanged), but 48 percent reported few or no qualified applicants for the positions they were trying to fill. Fifteen percent of owners cited the difficulty of finding qualified workers as their Single Most Important Business Problem and the highest reading in this expansion. (…)

The net percent of all owners (seasonally adjusted) reporting higher nominal sales in the past 3 months compared to the prior 3 months rose 4 percentage points to a net negative 4 percent, an improvement, but still negative. Eleven percent cited weak sales as their top business problem, down 3 points from May. Overall, trends have been improving, becoming less “negative”, but not a sign of much strength. (…)

A seasonally adjusted net 22 percent of owners reported raising worker compensation, down 4 points. The net percent planning to increase compensation fell 1 point to a net 14 percent.

CEO Dimon: J.P. Morgan to Raise Pay for Employees J.P. Morgan Chase will boost pay for 18,000 of its lower-tier employees over the next three years, its chief executive, James Dimon, announced Tuesday in an op-ed appearing on the New York Times website.

(…) Mr. Dimon said the bank will raise minimum pay for affected employees to between $12 to $16.50 an hour, the level of increase depending on geography and “market factors.’’ The bank’s minimum salary for U.S. employees is $10.15 an hour, he said.

Many of the affected employees serve as bank tellers and customer service representatives, Mr. Dimon said, explaining that the increase will help the bank attract and retain “talented people in a competitive environment’’ and is “the right thing to do.’’

“Wages for many Americans have gone nowhere for too long,” Mr. Dimon said. (…)

BTW: Pay for big bank chief executives jumps nearly 8%

The chiefs of the top six US banks did particularly well — their packages rose by an average of just over 10 per cent and are almost twice as large as those of their European rivals, according to an analysis by compensation company Equilar and the Financial Times of the 20 most highly paid international bank chiefs in Europe, the US, Canada and Australia. (…)

Mr Dimon’s package rose 36 per cent to $27.6m, and 92 per cent of the bank’s shareholders voted to approve it. He will have to meet three years of performance targets before he is paid out in full. (…)

BlackRock says Brexit will trigger U.K. recession over coming year

Britain will fall into recession over the coming year and growth in each of the next five years will be at least 0.5 percentage points lower as a result of Britain leaving the European Union, BlackRock said on Tuesday.

“Our base case is we will have a recession,” Richard Turnill, chief investment strategist at the world’s largest asset manager, told reporters at the firm’s investment outlook briefing.

“There’s likely to be a significant reduction of investment in the UK,” he said, adding that Brexit will ensure political and economic uncertainty remains high. (…)

“The market is not entirely priced for that yet,” said Scott Thiel, BlackRock’s deputy CIO and head of global bonds. This means sterling will fall further, although not as low as parity against the dollar unless in “extreme circumstances.”

The BoE will resume buying gilts before dipping its toes back into the corporate bond market, Thiel said, noting the European Central Bank’s success in narrowing corporate bond spreads through its bond purchases in that market. (…)

The Brexit fallout will result in “materially lower” growth in the euro zone as investment plans are deferred, and have a “moderately” negative impact on U.S. and Asian growth, Turnill said.

Overall, BlackRock expects global investment returns to remain low across all asset classes thanks to more QE from the BoE, ECB and Bank of Japan, and the Federal Reserve keeping interest rates lower for longer than previously expected.

In a low-yielding environment, they favor emerging market bonds, developed market investment-grade corporate debt, and selected bank debt in the euro zone’s periphery countries.

Equities are also a good bet even though Wall Street is trading at its highest levels ever, with easy global monetary policy continuing to support prices.

The dividend yield on global stocks is currently around 2.6 per cent, an attractive proposition compared to ultra-low and even negative bond yields, said Charles Prideaux, BlackRock’s head of active investments, EMEA.

Eurozone Growth The eurozone will grow at slower pace in the coming years due to political and economic uncertainty following the U.K. vote to leave the European Union, the International Monetary Fund said.

IMF Lowers Forecasts for Italy’s Economic Growth The International Monetary Fund said the U.K.’s decision to leave the European Union will increase uncertainty and will likely weigh on Italy’s economic performance.

Bank of France Business Indicator Is Flat

China Consumer Inflation Softens

The National Bureau of Statistics reported Sunday that China’s Consumer Price Index rose 1.9% in June from a year earlier, a little less than May’s 2.0% increase. The key inflation reading slightly exceeded a median 1.8% gain forecast by 15 economists surveyed by The Wall Street Journal.

China’s Producer Price Index declined 2.6% year-over-year in June, which was a little weaker than expected, compared with a 2.8% drop in May. The index has lingered in deflationary territory for more than four years, although it has decelerated less rapidly in recent months. (…)

Saudi lifts oil output for June – Opec

Saudi Arabia’s oil production increased to almost 10.6m barrels a day in June, after a run of largely steady output since last August.

The kingdom normally pumps more to meet a seasonal surge in domestic demand during the summer months. This time last year, production rose to similar levels,reports Anjli Raval.

June saw a sharp increase, a jump of 280,000 b/d from the prior month, according to data reported by the Saudi government to Opec, the producers group.

Figures given to JODI, the oil database, by the kingdom show production hovered around 10.2m b/d for the last nine months. November and December saw a drop below this level.

The self-reported numbers are higher than estimates provided to Opec by secondary sources, such as oil analysts and consultants, who said Saudi Arabia produced 10.3m b/d in June. (…)

The sharp rise in Opec’s total June production — of more than 260,000 b/d to 32.9m b/d — according to secondary sources, affirms a continuation of the group’s strategy.

Alongside Saudi Arabia, Iran, Libya and Nigeria accounted for much of the increase, according to secondary estimates. Venezuela saw a decline in production.

China’s South China Sea Claims Dashed by Hague Court Ruling