Edge and Odds

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Edge and Odds

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U.S. SERVICES PMI AT 61.0 IN JUNE

The performance of the U.S. service sector picked up again in June, with output, new business and employment all rising at the fastest rates since the survey began almost five years ago. Survey respondents suggested that business activity was buoyed by improving underlying economic conditions and greater confidence among clients, as well as a catch-up effect following weather related disruptions to workloads in the first quarter of 2014.

Adjusted for seasonal influences, the final Markit U.S. Services Business Activity Index registered 61.0 in June (61.2 flash), up from 58.1 in May. The index has now picked up in three of the past four months, with the latest reading signalling the strongest rate of output growth since the survey began in October 2009. Moreover, the average reading during the second quarter of the year (58.0) was the strongest since Q1 2012.

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At 61.0 in June (61.1 flash), up from 58.4 in May, the seasonally adjusted final Markit U.S. Composite PMI™ Output Index (covering manufacturing and services) rose for the second month running. The latest index reading signalled the fastest pace of expansion since this series began in late 2009 (exceeding the previous post recession high seen in February 2010). June data pointed to stronger rises in both manufacturing output and service sector business activity.

imageA continued rebound in service sector activity during June reflected another acceleration in new business growth from the 18-month low registered in March. Higher levels of client spending in turn led to some pressures on operating capacity, as highlighted by a rise in backlogs of work for the second consecutive month. That said, the latest rise in unfinished work was only moderate and the rate of backlog accumulation slowed since May.

Service sector payroll numbers increased again in June. The rate of job creation accelerated for the second month running and was the fastest since the survey began in October 2009. Companies that added to their staffing levels generally cited the launch of new projects, efforts to boost capacity and optimism about the outlook for the wider U.S. economy.

June data signalled that service providers remain highly upbeat about their prospects for output growth over the next 12 months, although the degree of positive sentiment slipped to its least marked since February. Survey respondents reporting an optimistic outlook for business activity mostly cited improving economic fundamentals.

Meanwhile, service sector input cost inflation accelerated for the third month running to its fastest since January. However, prices charged inflation was relatively subdued, and slipped to a nine month low in June.

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THE ISM:

The NMI® registered 56 percent in June, 0.3 percentage point lower than the May reading of 56.3 percent. This represents continued growth at a slightly slower rate in the non-manufacturing sector. The Non-Manufacturing Business Activity Index decreased to 57.5 percent, which is 4.6 percentage points lower than the May reading of 62.1 percent, reflecting growth for the 59th consecutive month at a slower rate.

The New Orders Index registered 61.2 percent, 0.7 percentage point higher than the reading of 60.5 percent registered in May. The Employment Index increased 2 percentage points to 54.4 percent from the May reading of 52.4 percent and indicates growth for the fourth consecutive month and at a faster rate. The Prices Index decreased 0.2 percentage point from the May reading of 61.4 percent to 61.2 percent, indicating prices increased at a slightly slower rate in June when compared to May. According to the NMI®, 14 non-manufacturing industries reported growth in June. Respondents’ comments vary by industry and company; however, the majority indicate that steady economic growth is continuing.

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NEW$ & VIEW$ (3 JULY 2014)

SHOWTIME!
  • June Nonfarm Payrolls: +288K vs. consensus +212K, +224K previous (revised from 217K).
  • Unemployment rate: 6.1% vs. 6.3% consensus, 6.3% previous.
Gas Prices Wallop Wallets As Americans drive to barbecues and the beach in coming days, they will be paying more for gas than on any Independence Day weekend since the record highs of 2008.

A gallon of unleaded gasoline cost an average of $3.67 Wednesday, almost 20 cents above last year’s price, according to automobile club AAA. In California, drivers have been paying well over $4 a gallon for weeks. (…)

A jump in gasoline prices is unusual for this time of year. Prices typically peak around Memorial Day, the start of the summer driving season. According to AAA, prices at the pump fell by an average of 21 cents a gallon in June in the past three years. But they rose this year due to the turmoil in Iraq. (…)

In reality, this is not a big deal, yet.image

Retail Rents on Rise as Space at a Premium Shopping-center owners continued to increase rents in the second quarter as a host of retailers in expansion mode jockeyed for dwindling available space in existing high-quality centers.

REFLATION
Germany Approves Minimum Wage

Germany’s parliament gave the green light to the country’s first national minimum wage Thursday despite criticism from employers who said the new law could result in job losses.

Wrapping up months of tough negotiations, 535 of the 601 lawmakers that cast their vote adopted a statutory wage floor of €8.50 ($11.60) an hour, starting from 2015, with a two year-transition period granted to some sectors. The law also excludes some groups from the minimum wage who are believed to be at the greatest risk of being priced out of the job market, such as the long-term unemployed, those under 18 and short-term interns. (…)

ECB Leaves Interest Rates Unchanged The European Central Bank held interest rates unchanged despite signs of persistently weak inflation that threatens the region’s fragile recovery.
Sweden Cuts Main Interest Rate Sweden’s Riksbank made a surprisingly large cut to its main interest rate, lowering borrowing costs for the first time in six months to boost a sagging inflation rate.

The Riksbank said it would cut its main repo rate to 0.25% from 0.75%. (…)

The Governor of the Riksbank Stefan Ingves said at his news conference that Swedes were already borrowing too much and that Sweden’s high and rising household debt levels were unsustainable. However, he also made clear that it was for others outside the Riksbank to deal with. (…)