Edge and Odds

The enemy of knowledge is not ignorance, it’s the illusion of knowledge (Stephen Hawking)

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so (Mark Twain)

Edge and Odds

Invest with smart knowledge and objective odds

THE DAILY EDGE (8 December 2016)

U.S. JOLTS: U.S. Labor Market Activity Holds Steady

The total job openings rate stood at 3.7% during October, unchanged from September. It remained down from the record high of 3.9% in July. The private-sector job openings rate fell, however, to 3.9% from 4.0%, but was up slightly from last year’s 3.8% low. In the government sector, the job openings rate held at 2.3% for the third straight month. (…)

The actual number of job openings declined 1.7% (+2.1% y/y) to 5.534 million, and has moved erratically sideways for over a year. Private-sector openings declined 1.8% (+1.7% y/y) to 5.022 million to the lowest level this year. Construction job openings more than doubled y/y, while the number in education & health services rose 12.4% y/y. Factory sector openings gained 3.5% y/y. On the weak side, professional & business services openings declined 19.4% y/y, while leisure & hospitality openings fell 5.0% y/y. Education & health services openings were off 1.6% y/y. Government sector job openings declined 1.3% y/y.

The total hires rate held at 3.5%, down from February’s high of 3.8%. The private-sector hiring rate was stable m/m at 3.9%, and remained below the high of 4.2% reached in February. (…)

The number of hires eased 0.4% (-2.2% y/y) to 5.099 million in October. It was the lowest level since May. Private-sector hiring was little changed (-2.1% y/y) as jobs in leisure & hospitality increased 5.9% (-2.8% y/y). Construction employment rebounded 4.5% (4.5% y/y) following a sharp September decline, but factory sector hiring declined 2.9% (+2.7% y/y). The number of professional & business services jobs declined 5.6% (-3.6% y/y) and jobs in retail trade experienced a 3.5% decrease (-0.8% y/y). Government sector hiring declined 4.9% (-2.5% y/y). (…)

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  • More U.S. Factory Workers Are Saying ‘I Quit’ The number of U.S. workers quitting a manufacturing job rose to the highest level in more than eight years in October.
  • The report continues to show strength in the overall labor market, with voluntary quits remaining elevated while layoffs hit new lows.

Poll: U.S. economic outlook unmoved so far after Trump win Donald Trump’s shock White House win has not altered U.S. economic forecasts much, with economists in a Reuters poll expecting three rate rises by the end of next year based on little follow-through on most of the soon-to-be president’s protectionist campaign promises.

(…) The expected burst of government spending has, however, not brightened prospects for growth, which is likely to meander between an annualized pace of 2.1 to 2.3 percent in each quarter next year, after notching 2.2 percent in the current quarter.

Analysts such as those at FT Advisors, for example, who have historically held some of the most bullish views, expect growth to peak at only 3.0 percent in the second quarter. (…)

Obviously, these 120 economists polled by Reuters were not part of the polls we showed yesterday:

Jim Clifton is Chairman and CEO at Gallup:

(…) Conventional wisdom — as reported in many major newspapers and media — tells us the U.S. economy is “recovering.” Well-meaning economists, academics and government officials use the term “recovery” when discussing the economy, implying that growth is getting stronger.

The study, released today, finds there is no recovery. Since 2007, U.S. GDP per capita growth has been 1%.

The Great Recession may be over, but America is dangerously running on empty.

20161202_GrowthSlowdown_chart

Think of our country as a company, America Inc., which has more than 100 million full-time employees, with about $18 trillion in sales and $20 trillion of debt. The most serious problem facing it is no growth. In addition, America Inc. has three soaring expenses threatening to bankrupt the company and its shareholder-citizens: healthcare, housing and education.

As this report notes, in 1980, these three sectors accounted for 25% of total national spending — today, they account for more than 36%. They also account for most of the total measured inflation over the same period. And without inflation in these sectors, real annual productivity — defined as GDP per capita growth — would have been an estimated 3.9% instead of 1.7%.

My own opinion is that America Inc. is too big to “turn around” like one would a company or any other organization. There is no quick fix to something this huge and complex. But there is a long-term fix, which is to get GDP increasing to 3% and higher while slowing the increasing costs of healthcare, housing and education.

When real growth returns, productivity will increase, and America Inc.’s empty tank will refill.

(…) Mr. Trump’s pressure tactics won’t take away Mexico’s comparative advantage in labor-intensive manufacturing. In fact, it’s become 10% cheaperto manufacture in Mexico thanks to the plunge in the peso that followed his election. His tactics will, however, encourage other companies to seek special arrangements, even at the expense of consumers and taxpayers.

Past protectionism was usually aimed at foreign companies, not domestic ones. Still, it’s a useful guide to what awaits Mr. Trump. In 1977, President Jimmy Carter slapped restrictions on imported Japanese televisions to protect American producers. The result? As Japanese sales went down, South Korea’s and Taiwan’s went up. When those imports were restricted, imports from Mexico and Singapore went up. Japanese and Taiwanese companies began assembling televisions in the U.S. using imported subassemblies, which weren’t restricted.

When Mr. Carter imposed limits on imports of shoes from Taiwan and South Korea, those countries raised the quality and thus value of the shoes they did sell. In industry after industry, the hoped-for job revival never happened; in some sectors, jobs went down. (…)

(…) On a visit to London, the supply-side guru claims the president-elect’s policies will generate a much improved economic outlook through tax cuts. He adds that Mr Trump will moderate his tendencies towards protectionism and calls on the Federal Reserve chair, Janet Yellen, to “keep her monkey paws off my economy”.

Mr Laffer, a member of Ronald Reagan’s economic policy advisory board throughout his presidency, also says Mr Trump should welcome a strong dollar and not worry about a growing trade deficit. (…)

Meanwhile:

Global economy on course for best quarter of the year

China Exports Snap Seven-Month Losing Streak as Imports Surge
  • Exports to the U.S., China’s largest trading partner, rose 8.1 percent 
  • In yuan terms, exports rose 5.9 percent and imports jumped 13 percent
  • Copper imports climb, ore purchases surge to record
  • Coal imports surge to most since 2014, crude imports rise
  • Steel exports set to contract for first year since 2009

China’s statistics chief admits some economic data are false Acknowledgement of ‘fraud and deception’ follows suspicions about stable GDP figures

(…) “Currently, some local statistics are falsified, and fraud and deception happen from time to time, in violation of statistics laws and regulations,” Ning Jizhe, director of the National Bureau of Statistics, wrote in a column for Communist party mouthpiece the People’s Daily on Thursday. (…)

Ninja China’s Banks Are Hiding More Than $2 Trillion in Loans Rampant use of an accounting sleight of hand means Chinese banks don’t have to set aside capital to cover potential losses, sowing fears of a crisis.

In 2014, the Chinese city of Haimen on the mouth of the Yangtze River set out to build a large apartment complex and turned to Bank of Nanjing Co. for about $29 million in financing.

The bank was happy to oblige but it didn’t call the money a loan, according to people familiar with the matter. It was added to Bank of Nanjing’s balance sheet as an “investment receivable,” a loosely regulated category of assets that allows bank officials to set aside little or nothing for potential losses.

Bank officials aren’t shy about the accounting sleight of hand, which is rampant across China. The bank had about $39 billion in investment receivables in the third quarter, nearly as big as its loan portfolio, and profits have climbed by more than 20% a year.

As of June, 32 publicly traded Chinese banks had a total of $2 trillion in investment receivables as of June, up from $334 billion at the end of 2011, according to a tally by The Wall Street Journal of the latest available information from data provider Wind Information Co.

The investments are equivalent to 20% of the same banks’ total loans in dollar terms, up from 6% at the end of 2011. The 32 banks have about 70% of all the banking assets in China. (…)

If Chinese banks were required to count their investment receivables as loans, the banks would need to raise as much as $212 billion in capital, estimates UBS analyst Jason Bedford. That is not far short of the $262 billion raised by all Chinese banks in 2015. (…)

THE DAILY EDGE (7 December 2016)

Surprised smile Economic confidence in the US is at multi-year highs. (The Daily Shot)

  • Investors Business Daily Economic Optimism Index:
  • Gallup Economic Confidence Index (as of December 5th):

Gallup adds:

The recent increase in economic confidence appears mostly to be a reaction to the presidential election — chiefly among Republicans, who are much more likely to view the economy positively after Donald Trump’s victory. Republicans have shifted dramatically from a decidedly negative evaluation of the economy before the election to a positive one after it.

Economic Confidence Index, by Political Party, Recent Weekly Averages

  • The Trump Trade is alive and well, with banks and small caps continuing to outperform.
  
U.S. Productivity Rose at 3.1% Rate in Third Quarter The cost of labor in the U.S. grew more quickly than previously thought in the spring and summer, the latest sign that Americans’ wages are picking up.

(…) But the government made big revisions to unit labor costs, a measure of the expense imposed on firms to compensate workers for their output. Such costs grew at a 0.7% rate in July through September, more than double the agency’s initial estimate of a 0.3% gain. (…)

Unit labor costs grew at a 6.2% pace in the second quarter, up from the prior estimate of a 3.9% increase. (…)

Before the third quarter, productivity had declined for three consecutive quarters. Productivity was flat in the third quarter compared with a year earlier. From 1947 to 2015, productivity grew an average 2.2% a year. (…) (Table from Haver Analytics)

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U.S. Factory Orders Surge as Aircraft Soars

Manufacturing sector orders jumped 2.7% during October (1.3% y/y) following a 0.6% September gain, revised from 0.3%. Durable goods bookings increased 4.6% (1.8% y/y), revised from the advance estimate of a 4.8% rise. Transportation orders increased 12.0% (5.1% y/y) as orders for nondefense aircraft & parts nearly doubled m/m (26.3% y/y).

Orders outside of the transportation sector increased 0.8% (0.5% y/y).

Unfilled orders increased 0.7% (-1.1% y/y) after three straight months of 0.2% decline. Outside of transportation, order backlogs improved 0.2% (0.7% y/y).

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High five However, after removing defense and aircraft orders (which tend to be volatile), the situation isn’t as rosy. On a year-over-year basis, capital goods orders and shipments continue to languish. (The Daily Shot)

Home Construction Loan Volume Picks Up the Pace

The volume of U.S. home construction loans grew at the fastest rate in more than two years in the third quarter, according to federal data, a sign that tight postrecession lending conditions might be easing for home builders. (…)

Access to capital has been especially difficult for small private builders, who are responsible for nearly two-thirds of single-family home construction across the country. (…)

The latest quarterly data on home construction loans studied by the NAHB shows that the volume of outstanding loans increased by 4.8% in the third quarter, to $68.3 billion. That marks 14 consecutive quarters of growth for such loans.

A separate NAHB survey of builders and developers found that credit conditions were improving last quarter, with 23% of those surveyed reporting easing credit conditions and 71% saying conditions remained about the same. (…)

U.S. Trade Deficit Widened Sharply in October The U.S. trade deficit widened sharply in October as exports weakened following a summer surge, and imports jumped, setting up a likely drag on overall economic growth in the final months of 2016.

The trade gap for goods and services surged 17.8% from a month earlier to a seasonally adjusted $42.6 billion in October, the Commerce Department said Tuesday. That was the steepest one-month rise since March 2015, and took the deficit to its highest level since June. (…)

Exports fell 1.8% from September, the largest drop since January, and imports rose 1.3% in October. The fall in exports included declining shipments of soybeans, corn and consumer goods while the import rise included stronger domestic demand for foreign-made pharmaceuticals, cellphones and capital goods.

On a non-seasonally adjusted basis, imports from China and Mexico hit their highest levels in a year. Exports to China were the most since December 2013 and exports to Japan were at the highest level since August 2014. (…)

Exports during the first 10 months of the year were down 3.1% from the same period in 2015, and imports declined 2.9% year-to-date, according to Tuesday’s report. (…)