- May Nonfarm Payrolls: +280K vs. consensus +225K, +221K previous (revised from 223K).
- Unemployment rate: 5.5% vs. 5.4% consensus, 5.4% previous.
U.S. Productivity Falls 3.1% In First Quarter
The productivity of nonfarm workers, measured as the output of goods and services per hour worked, decreased at a 3.1% seasonally adjusted annual rate in the first quarter, the Labor Department said Thursday. That was revised down from an initial estimate of a 1.9% slide.
Productivity dropped in the first quarter as output decreased at a 1.6% pace and hours worked rose at a 1.6% rate.
A gauge of compensation costs, unit labor costs, increased at a 6.7% annual rate in the first three months of the year. The figure was revised up from an earlier estimate of 5%.
From a year earlier, productivity was up 0.3% and unit labor costs rose 1.8%. (…)
Productivity has now fallen for two consecutive quarters, the first time that has happened since 2006.
More broadly, productivity has been trending lower for years. In the latest economic expansion, productivity growth has averaged 1.1%, versus 2.6% in the prior expansion. (…)
IMF Urges Fed to Wait on Interest Rates Until 2016 The International Monetary Fund Thursday slashed its forecasts for U.S. economic growth, calling for the Federal Reserve to hold off its first rate increase in nearly a decade until 2016.
In its annual review of the U.S. economy, the IMF said a series of negative shocks, including a strong dollar and bad weather, had sapped momentum for job creation and expansion, prompting a downgrade to its growth expectations to 2.5% for the year. Its last estimate in April was for a 3.1% expansion. (…)
Given the “significant uncertainty around inflation prospects, the degree of slack and the neutral policy rate, there is a strong case for waiting to raise rates until there are more tangible signs of wage or price inflation,†the fund said. (…)
Regardless of the when the Fed raises rates, the IMF warned that the increase could trigger “significant and abrupt rebalancing of international portfolios with market volatility and financial stability.†Inflation also could rise faster than expected, potentially provoking a sudden shift upward in borrowing costs.
“In either case, asset price volatility could last more than just a few days and have larger-than-anticipated negative effects on financial conditions, growth, labor markets, and inflation outcomes†around the world, the IMF said. “Spillovers to economies with close trade and financial linkages could be substantial.â€
CHINA CAR SALES WEAK
The CEBM Auto Actual Sales vs. Expectations Index registered a negative -33% in the month of May, reflecting a weak overall auto sales environment in China. May auto sales declined on both M/M and Y/Y basis by approximately 5% to 10%. Respondents surveyed by CEBM indicate that due to a weak overall auto market, a slowdown in the economy, and the fact that the Chinese auto market is entering into a slow season, auto sales in June are not expected to see any meaningful uptick. In fact, a further decline is likely, with the forward-looking CEBM Expectations Index for Auto Sales registering a negative -50% for the month of June (not seasonally adjusted), or -34.5% after adjusting for seasonality.
Germany’s Manufacturing Orders Rise Bundesbank raises economic growth forecasts
New orders were 1.4% higher on the month in adjusted terms, data from the economy ministry showed. This surpassed median expectations of 0.5% growth in a Wall Street Journal survey of economists. In monthly terms, foreign orders grew by a robust 5.5%, with those from the eurozone rising by 6.8%. Non-eurozone foreign orders were up 4.7%, while domestic orders slipped 3.8%.
(…) experts saw little reason to be concerned about the fall in domestic orders, pointing out that the dip followed a 4.3% rise in March.
Total data for March were also revised slightly upward, with the ministry reporting a 1.1% monthly increase, beating the 0.9% rise originally reported. April’s headline figure was 1.7% above the first-quarter average, the data showed. (…)
In calendar-adjusted terms, the central bank said that growth this year would be 1.5%, far surpassing the 0.8% it forecast at its previous twice yearly forecast in December. “Domestic economic activity is benefiting from the favorable labor market situation and the substantial income increases,†said Bundesbank President Jens Weidmann in a press statement.
“Although foreign trade is currently being hampered by dampening global dynamics, it is simultaneously being buoyed by the euro’s depreciation and the strengthening cyclical recovery in the euro area,†he added.
For 2016, the Bundesbank said that German growth would be 1.7%, also above the 1.5% seen in December. The bank also forecast growth of 1.7% in 2017.
Opec agrees to roll over oil output ceiling Cartel members are broadly in agreement with Saudi strategy
(…) “Production is a sovereign right. They are free to do as they want,†Mr al-Naimi told reporters at an open session for the press before the meeting. (…)
If so, what OPEC for now?
M&A boom
Is the takeover surge a sign of trouble?
The value of deals in US-bound mergers and acquisitions amounted to $243bn in May, according to Dealogic — a monthly record. The previous monthly peaks were in May 2007 and January 2000, when deals worth respectively $226bn and $213bn were struck.
Meanwhile, so far this year, $1.85tn deals have been done globally; if this continues 2015’s total could top the annual record of $4.6tn deals s in 2007. (…)
And what is particularly striking is that the current M&A frenzy is affecting not just one industry, as during the tech boom, but a wide range, including retail, oil, pharma and tech. (…)
And what is doubly unnerving is that, while the M&A drive was initially funded by excess cash and stock, it now seems to be more debt-fuelled too. This week, for example, Dealogic also revealed that corporate bond issuance in 2015 has hit a record level of $543.4bn. That has pushed the investment grade debt-to-equity ratio to 85 per cent, compared with 72 per cent in 2010. (…)
Junk Bonds Proving Haven in Global Bond Rout That’s Erased Gains
Junk bond returns are beating investment grade by the most since 2009, according to Bank of America Merrill Lynch indexes. Investors in speculative-grade notes globally earned 4.3 percent this year, while the higher-rated bonds forfeited 0.03 percent, the first loss for the period since 2008, the data show. (…)
Speculative-grade companies have sold $528 billion of bonds worldwide since average borrowing costs fell to a record low of 4.92 percent in June last year. They gained greater access to markets, in part, because credit risk is declining. The global speculative-grade default rate dropped to 2.2 percent in April, from a long-term average of 4.5 percent, according to Moody’s Investors Service. (…)
(Charts via BloombergBriefs, BI and John Maukdin)
(…) Overall, trade was a major drag on the economy in the opening months of 2015. In the first quarter of the year, a surge in inflation-adjusted imports and falling exports subtracted 1.9 percentage points from gross domestic product, the broadest measure of output. Overall GDP contracted at a 0.7% annual pace, the government’s latest reading showed last week. 
And this:
“If non-OPEC outside North America hasn’t managed to grow for five years with prices above $110, it’s not going to grow at $80,” he said. (…)
In early trade Thursday, the yield on the 10-year bund hit 0.99%, its highest level since September and a jump of more than 0.40 percentage point since the start of the week. The Stoxx Europe 600 fell 1.6%. (…)