NFIB
The Index of Small Business Optimism increased 0.2 points to 93.8, positive but don’t start writing home about it. Four of the 10 Index components posted a gain, four declined and two were unchanged. The entire gain in the Index was accounted for by a 5 point gain in Expected Business Conditions which remains 9 percentage points below last year’s reading. The political climate continued to be the second most frequently cited reason (after weak sales) for why the current period is a bad time to expand. (…)
Hiring activity increased substantially, but apparently the “failure rate” also rose as more owners found it hard to identify qualified applicants. (…)
Fourteen percent cited weak sales as their top business problem, up 3 points from April. Overall, this is not a strong sales picture. Seasonally adjusted, the next percent of owners expecting higher real sales volumes was unchanged at a net 1 percent of owners, a weak showing. This is well below the average 14 point reading in the first three months of 2015. (…)
Inflationary pressures remain dormant on Main Street. (…)
Overall, the percent of owners reporting that they raised worker compensation remains high for this recovery while the net percent of owners raising prices remains near zero, indicating that these costs are not being passed on to customers.
Fed Survey Shows Consumers Expect Slower Earnings, Income, Spending Growth
(…) The trendline projections do not portend high “confidence” if one wants to use that particular word.
The low-end is particularly telling. It suggests those consumers are deep in debt, wanting to pay down credit, not spend more.
(…) Instead of believing its own survey that shows spending assumptions are headed down, the Fed has faith in all sorts of consumer confidence numbers that I believe are mostly garbage. (…)
Four Polls Put U.K. on Course to Leave EU asSun Backs Brexit
German 10-Year Bund Drops Below Zero for First Time Yields on the 10-year government debt of Germany dipped below zero on Tuesday for the first time on record, in a dramatic sign of the outsize effect of central-bank policy and investors’ search for safe havens.
Eurozone Industrial Output Rebounds
(…) The European Union’s statistics agency said on Tuesday that industrial production rose 1.1% from March, and was 2.0% higher than in April 2015. That was a stronger outcome than anticipated, with economists surveyed by The Wall Street Journal last week having estimated output rose 0.6% on the month.
The rise in output was led by consumer goods, a confirmation that rising household spending has continued to drive the recovery as the jobless rate falls and lower energy prices boost disposable incomes. Figures also released by Eurostat on Tuesday showed employment rose by 0.3% in the first quarter, the same rate of job gains as in the final three months of 2015. (…)
In truth, it is difficult to conclude much from the see-saw pattern. Last 3 months: –2.4% a.r.; last 4 months: +4.9% a.r.; last 6 months: +2.2%.
THE WEIGHT OF INDEBTEDNESS
(…) The message really is that we have a fundamentally weak economic outlook on our hands and major imbalances have yet to be fully addressed.
The global nonfinancial debt-to-GDP ratio has actually risen to new record highs this cycle, and no major country has really managed to contain, let alone reverse, this upward tend.
Summing up all the debt in the government, nonfinancial business and household sectors, all these liabilities collectively now represent an amazing 250% of GDP, actually expanding 10 percentage point from the bubble peak of the last cycle nearly a decade ago. (David Rosenberg)
IEA: Oil Markets to Balance Out Oil markets are moving close to balance in the second half of this year on stronger-than-expected demand and supply disruptions, the International Energy Agency said.
(…) “Less oil has been stockpiled than we originally expected,” and the oversupply in the first half of this year is likely to stand around 800,000 barrels a day, down from the 1.5 million barrels initially anticipated, the Paris-based IEA said in its closely watched monthly oil-market report. (…)
“But we must not forget that there are large volumes of shut-in production, mainly in Nigeria and Libya, that could return to the market, and the strong start for oil demand growth seen this year might not be maintained,” the adviser to industrialized nations said.
“An enormous inventory overhang,” is likely to dampen prospects of a significant increase in oil prices, it said.
Global oil demand in the first quarter of 2016 has been revised up to 1.6 million barrels a day, and growth for this year will be 1.3 million barrels a day, the IEA said. (…)
The IEA said that outages in OPEC and non-OPEC countries cut global oil supply by nearly 800,000 barrels a day in May, the first significant drop since early 2013. Non-OPEC oil supplies are estimated to have plunged by more than 650,000 barrels a day last month, as a devastating wildfire in Alberta slashed Canadian oil sands production.
OPEC, which pumps about a third of the world’s crude, saw its output falling by 110,000 barrels a day in May to 32.61 million barrels as big losses in Nigeria due to oil sector sabotage more than offset higher output from the Middle East.
Iran’s crude output rose by 80,000 barrels a day to 3.64 million barrels—the highest since June 2011. The Persian country, which has emerged as OPEC’s fastest source of supply growth this year, is expected to see its production averaging slightly below 3.6 million barrels a day and in 2017 it could run just above 3.7 million barrels a day, the IEA said.
MARGIN CALL (Continued)
Last April 11, I wrote MARGIN CALL NO MARGINAL RISK, warning of an impending margin squeeze that could soon impact employment as business people would try to protect their profits amid the demand lull.
What these charts suggest is that profits are not about to turn up anytime soon unless something radically changes on the demand side of the economy. This something radical needs to show up pretty soon, otherwise employment growth will begin to fade, taking us into a vicious state of slow growth and rising wages.
This is a follow up from from Moody’s with my additions on the chart:
NFIB margin squeeze live!
FYI:
- IHS Automotive says sales of self-driving heavy-duty trucks could reach 60,000 vehicles by 2035. (Trucks.com)
- The Nicola Motor Co. says it has received more than 7,000 reservations for electric Class 8 trucks it plans to produce. (Commercial Carrier Journal)
1 thought on “NEW$ & VIEW$ (14 JUNE 2016): NFIB & Margin Squeeze”
Your concern with margin compression, which I share, assumes workers do not respond to increased wages with increased consumption. That assumption might prove to be correct, but I think it is important to remind myself that it is just an assumption, and a little bit intuitively sketchy at that. Wages and thrift might be subject to the same paradox: what makes sense at the micro level for business, such as driving compensation down by off-shoring, makes no sense at the macro level because it lessens the ability of employees to consume the very products and services business sells.
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