Q4 Productivity and Costs
- Q4 Productivity and Costs: -2.2% vs. -2.3% expected, -1.8% prior .
Unit labor costs +4.1% vs. +3.3% expected, +2.7% prior.
Beige Book: Hiring, Spending Solid at Start of Year The U.S. economy continued to expand across most of the country at the start f the year amid broad-based hiring and rising consumer spending, according the Fed’s latest beige book survey of regional economic conditions.
The Fed found modest or moderate growth in eight of its 12 districts, according to the beige book report released Wednesday. Elsewhere the pace of economic activity was increasing only slightly or slowing.
Payrolls “remained stable or expanded” across broad range of sectors, though “wage pressures remained moderate and were limited largely to workers in skilled occupations,” the report said. Prices for goods and services were flat on increasing slightly. (…)
The charts below show average hourly earnings growth rates. Retail and restaurant workers will be happy to learn that they are considered skilled workers by the Fed…
Big Firms Finally Start to Ramp Up Spending Large companies across the U.S. are gearing up to increase capital spending, and the new business investment could give another boost to the strengthening U.S. economy.
(…) capital investment rose 15% in the fourth quarter to a five-year high of $166 billion, according to an analysis of capital-spending figures for 423 large companies from financial-data firm Calcbench—the third-fastest rise since early 2010. (…)
Among 358 large companies that have reported year-end results, capital expenditures rose by 9% during 2014, according to data from S&P Capital IQ. That outpaces 2013’s meager 2% increase and nearly matches 10% growth in 2012.
Total U.S. business investment isn’t quite that strong. In the fourth quarter, it rose at a 4.8% rate, slower than in the third quarter, the Commerce Department said Friday. But the full year’s investment in equipment, buildings and intellectual property rose faster than during 2013. (…)
EUROZONE RETAIL SALES KEEP SURGING
Continuing the trends of the last several months (see CONSUMERS TO DRIVE ACCELERATING GROWTH), January Eurozone retail sales jumped 1.1% MoM in real terms, the fourth consecutive monthly gain. Since October 2014, real retail sales have accelerated to a 8.3% annualized rate, +9.0% in the last 2 months.
Core real sales are even stronger, rising 10.9% annualized since October, +8.4% in the last 2 months.
Germany is the main growth engine: +19.1% annualized since October, +21% in the last 2 months. Even France is participating, albeit much more modestly: +4.6% since October, +3.0% in the last 2 months. (Eurostat)
This is much, much better than what we have seen in the U.S. since last fall…That helps explain why the U.S. equity market is the third slowest of the 24 major global markets YtD, even though Consumer Discretionary stocks are up 6.0% versus +2.4% for the S&P 500 Index.
German Factory Orders Decline in Sign of Manufacturing Weakness
Orders, adjusted for seasonal swings and inflation, dropped 3.9 percent after a revised increase of 4.4 percent in December, data from the Economy Ministry in Berlin showed on Thursday. The typically volatile number compares with a median estimate of a 1 percent decline in a Bloomberg News survey. Orders slid 0.1 percent from a year earlier. (…)
Domestic orders fell 2.5 percent and export orders slid 4.8 percent, led by a 9 percent slump in euro-zone orders, the ministry’s report showed. Orders for investment goods fell 4.2 percent, compared with a 0.6 percent decline for consumer items.
January’s drop is largely a consequence of the relatively high increase in orders in the previous month and weaker bulk orders, the ministry said. The trend for orders and the industrial economy remains upward, it said.
China Lowers Growth Target China lowered its economic growth forecast to about 7% this year at the opening of the country’s biggest political event of the year, ushering in what leaders have dubbed a “new normal” of slower growth.
The move signaled Beijing won’t take dramatic action to raise the growth rate above last year’s level, which at 7.4% was its lowest level in nearly a quarter-century. At the same time, its leaders signaled concerns that an even sharper drop in growth risks higher unemployment and social unrest.
In remarks before the country’s lawmakers on Thursday, Premier Li Keqiang listed the challenges to the Chinese economy, including sluggish investment growth, overcapacity, deflationary pressure and increasing public demand for better social services.
The new target “takes into consideration what is needed and what is possible,” Mr. Li said at the opening of the National People’s Congress, China’s annual parliament. Of the challenges, he said, “We must face these problems head on.”
(…) Several times he referred to the necessity of not letting growth slide further. He called for “a medium-high-level growth rate,” and suggested that falling below that would stall the drive to raise incomes. That could leave China in the “middle-income trap”—unable to create enough jobs and fund the transition to an economy driven by services, small business and innovative companies. (…)
In his address Thursday, Mr. Li said China was committed to reform on a number of long-touted fronts to overcome structural “tigers in the road” that impede progress. Among those measures are greater use of cleaner fuel, an expansion of the value-added tax, tighter control over local government debt, further paring of red tape and the rollout of bank deposit insurance.
“As the force that has traditionally driven economic growth is weakening, it is imperative that we intensify structural reform,” Mr. Li said in a hall packed with some 3,000 delegates.
But the premier also warned that reform must be tempered with enough growth to further the nation’s development goals and stem social unrest. China retained its goal for new urban job creation of about 10 million compared with actual creation of over 13 million last year and capped unemployment at 4.5%. (…)
China Sets Wider 2015 Fiscal Deficit in Bid to Cushion Slowdown
The government projects a budget shortfall of 1.62 trillion yuan ($258 billion) in 2015, the Ministry of Finance said in a report presented to the National People’s Congress in Beijing today. That amounts to about 2.3 percent of gross domestic product, it estimated.
China’s central government is assuming some of the debt incurred by local-government financing vehicles as it reshapes its fiscal framework.
RUSSIA’S DEEPENING RECESSION
The HSBC Purchasing Managers’ Index, compiled by Markit from its twin surveys of manufacturing and services, fell from 45.6 in January to 44.7, running below the 50.0 no-change level for a fifth successive month and down to its lowest since May 2009.
The survey data highlight the growing impact of the recent oil price rout on the Russian economy, as well as the damaging effect of sanctions from the West. The service sector suffered particularly badly, with both business activity and new orders dropping to the greatest extents since March 2009.
Although manufacturing output returned to growth after declining in January, the pace of expansion was only modest due to a slump in exports. While domestic orders for goods rose, most likely reflecting import substitution, exports posted one of the sharpest monthly declines since 2009 as sanctions continued to hit trade flows.
Employment fell sharply again as companies scaled back capacity in line with the deteriorating outlook. Headcounts have now fallen continuously for 20 months.
Brazil raises rates to six-year high Central bank tries to rein in rising inflation
Exxon chief says oil prices will stay low Tillerson points to 12 per cent capital spending cut this year
Rex Tillerson’s comments came as the world’s largest listed energy company said it would cut capital spending by 12 per cent this year even while increasing its oil production by 7 per cent, in a sign of how the industry is pushing to cut costs in response to the plunge in crude prices.
Mr Tillerson told an annual meeting for analysts in New York that oil prices had crashed because demand growth in China and elsewhere had slowed, while US supplies were “coming like a freight train”. Those conditions could persist, he suggested.
“My view is people need to kind of settle in for a while,” he said: “There’s a lot of supply out there. And I don’t see a particularly healthy world economy.” (…)
Mr Tillerson said the precedent of the shale gas industry, where production has continued to grow even as prices slumped and the number of rigs drilling wells dropped sharply, suggested that US oil output would be more robust than assumed.
The same companies that had cut costs and increased productivity in shale gas were often involved in shale or “tight” oil as well, he added, meaning that the industry would not be crushed by low prices and competition from other regions. “I think you’re going to see some of the same resilience on the tight oil side, too. And therefore it will compete globally,” he said. (…)
VEHICLES SALES PER CAPITA
A reader made several observations yesterday to the U.S. vehicle sales data. Here’s a partial answer to his questions from Doug Short:
1 thought on “NEW$ & VIEW$ (5 MAR. 2015): Labor costs, Capex, Euro retail sales all rising; China and Russia slowing…”
Wow, did Doug Short post that per capita auto sales chart after my comment here? Interesting.
Another non-mainstream metric I’d like to introduce is a method of calculating a purchase price of a consumer purchase. This metric Cost Per Use. For example, if you watch a television daily for 8-years and it costs you $500 to purchase, the cost per use is $0.17 per day. If you purchase a pair of $50 sandals that are in style for one summer season, you may wear them 30-times, for a cost per use of $1.66 per use. I believe this metric is driving consumer purchases.
An iPhone plus services may run $2,000 over 2-years, or $2.73 per day. However, when figured on an hourly basis, you get the cost down to under $0.20 per hour based upon a 16-hour day.
Another heuristic method for analyzing sales is the social value of the purchase. There needs to be a new system that can assign a social multiplier value to the purchase of things like an iPhone and related aps as well as buying lunch at Chipotle Mexican Grill and groceries at Whole Foods versus purchases of prepaid cell phones, lunch at McDonald’s, and groceries at Walmart.
While a steak may cost $20 per Lb. at Whole Foods, if the social multiplier of a purchase at Whole Foods is say 4X over a similar purchase at Walmart, the purchase price could be more aptly compared over the social demographic of the network being studied.
Coming up with a social multiplier would be very difficult, but I believe this and the cost per use metrics could illustrate how the purchase habits of millennials can actually be quite frugal when viewed through these contexts.
Anyway, I guess my point is there are some new metrics driving consumer purchases, whether people are aware of them or not.
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