Job Openings Edged Down, but Quitting Rose in March The number of job openings ticked down in March, but the share of employed workers who voluntarily left their jobs rose slightly, offering the latest indication of a slowly healing labor market.
The number of job openings ticked down in March, but the share of employed workers who voluntarily left their jobs rose slightly, offering the latest indication of a slowly healing labor market.
Job openings decreased to 4.01 million in March from 4.13 million in February, though they were 3.5% above the year-earlier level of 3.87 million, according to Labor Department data released Friday. March was just the fourth month since May 2008 in which job openings stood above 4 million.
The number of unemployed workers for every job opening rose slightly to 2.6, up from February’s post recession low of 2.5. At the depths of the downturn in 2009, there were nearly 6.5 unemployed workers for every opening, and last March, the ratio stood at 3 to 1.
Still, current levels are well shy of where they were before the recession, when there were fewer than 2 unemployed workers for every opening. And they are near the levels reached during the peak of the previous recession that began in 2001.
The ratio of unemployed job seekers to job openings is now near the average seen from 2002 to 2004, when the unemployment rate averaged 5.8%. “This suggests that there is little slack remaining in labor markets and that future wage growth will be stronger than it was at similar levels of the unemployment rate during past cycles,†wrote Michael Gapen, chief U.S. economist at Barclays Capital.
Others have argued that the number of unemployed undercounts slack in the labor market because there are more workers on the sidelines who want jobs but won’t actively look for work until conditions improve. In Senate testimony on Thursday, Federal Reserve Chairwoman Janet Yellen pointed to historically high levels of part-time workers who would prefer full-time jobs and workers who have been unemployed for more than six months as evidence of “a substantial amount of slack†in the labor market.
Obamacare peculiarities are likely pushing many workers into the part-time camp. They all would prefer a full-time job but the ACA incites employers to keep the workweek below 30 hours.
Meanwhile, the number of workers who voluntarily resigned in March rose to 2.48 million, up slightly from February to the highest level since July 2008. The “quits rate,†or the voluntary resignations as a share of total employment, stood at 1.8% in March. February’s initial reading of 1.7% was also revised to 1.8%, matching the post-recession high set last December.
Economists say that seeing more people leave their jobs voluntarily signals growing confidence in the labor market, a sign of an improving economy. While the March reading is above recession lows of 1.3% from 2009 and 2010, it remains below from the 2.1% average for 2007, before the recession set in that December.
Other data in Friday’s report pointed to sluggish growth. The number of total hires fell by 74,000 to 4.63 million, leaving the hiring rate, or number of hires as a share of all employed workers, unchanged at 3.4%. While that was up from 3.2% a year earlier, the hiring rate has idled between 3.3% and 3.4% for the past nine months.
Markets Watch, Warily, for a Small Bump in Inflation
The next small steps up in inflation could set off big tremors in financial markets.
The two main U.S. inflation gauges, the Labor Department’s consumer-price index and the Commerce Department’s personal consumption expenditures price index, are hovering near the lowest levels ever seen outside of recessions.
Both sit poised to drift upward. Wholesale and import prices show signs of picking up, suggesting some inflation in the pipeline, and some items that briefly declined in price over the past year—such as prescription drugs, financial fees and garments—have started climbing again. (…)
Fed officials expect inflation to move from near 1% to 1.5% by year-end. If it moves up sooner or more than they expect, officials could consider raising rates sooner than planned. Either way, a turn upward will become a bigger focus of coming Fed debates. (…)
Slowing health-care costs were key to restraining inflation over the past year. The medical costs index of the CPI was climbing at an annual rate of 3.1% in January 2013, then decelerated to as low as 1.9% in July. Yet that slowdown appears driven by temporary federal budget cuts, which crimped payments to health-care providers, and looks unlikely to repeat.
Falling import prices also suppressed overall inflation, as prices dropped on goods shipped from China and Japan. After declining much of last year, import prices climbed in this year’s first quarter as international food and energy prices rose, as did prices of industrial supplies and materials.
Housing costs, which pushed up inflation measures over the past year, could continue to exert upward pressure. An April survey from the National Multifamily Housing Council, an industry group, said the apartment market in the U.S. had again tightened, suggesting rents would climb in coming months.
As unemployment has dropped, the pace of wage gains has picked up from historic lows, suggesting consumers have more scope to support prices. Average hourly wages climbed 2.3% in April, up from 1.3% in October 2012, which had been the slowest pace in records dating to the 1960s.
(…) A drought in California and turmoil in Ukraine—once dubbed the breadbasket of Europe—could push grocery prices higher. Since February alone, corn prices have climbed by 17% and wheat prices by 30%.
Gains in housing and food prices would hit lower-income families especially hard. Those earning less than $20,000 spend more than half their budgets on groceries and housing, compared with one-third spent by those earning more than $150,000, according to Labor Department data. (…)
Hop prices soar on US craft beer boom Artisan beer maker growth squeezes supply of key ingredient
(…) In the US, where the movement was born, the $14bn craft beer industry has seen annual double-digit production growth over the past few years. This has doubled the price of the specialist aroma and flavour hops favoured by craft brewers to about $7 to $10 a pound over the past five years – the highest since 2007-08 when the market was hit by a severe drought.
Craft beers use between four to 10 times more hops than the average lager produced by multinational beer companies and are often described as “hop bombsâ€. (…)
Appetite for new beers pushed the total number of US craft breweries to 2,768 last year, a 15 per cent jump on 2012. Their brews now account for almost 8 per cent of the total US beer market.
The popularity of their craft beers has spread to the UK, continental Europe and Japan, as well as emerging markets, and there is increasingly intense competition for hop crops around the world.
“[Craft brewing] is like a pandemic that’s spreading everywhere. Even China has 1,000 craft brewers,†says Alex Barth of the Barth-Haas Group, a leading hop trader headquartered in Germany. (…)
U.S. businesses are being destroyed faster than they’re being created
The American economy is less entrepreneurial now than at any point in the last three decades. That’s the conclusion of a new study out from the Brookings Institution, which looks at the rates of new business creation and destruction since 1978.
Not only that, but during the most recent three years of the study — 2009, 2010 and 2011 — businesses were collapsing faster than they were being formed, a first. Overall, new businesses creation (measured as the share of all businesses less than one year old) declined by about half from 1978 to 2011.
Malls Hit as Penney, Sears Shrink Nearly half of U.S. malls have both Sears and J.C. Penney as anchor tenants. The negative turn for the once-reliable chains is promising more stress for malls at a time when the Internet is steadily stealing traffic.
Nearly half of the 1,050 indoor and open air malls in the U.S. have both of those struggling chains as anchor tenants, according to real-estate research firm Green Street Advisors. Of those malls, nearly a quarter are struggling with sales below $300 per square foot and vacancy rates above 20%, meaning they will have a hard time finding new tenants if old ones leave. (…)
Sales per square foot at the nation’s malls grew just 2.6% last year—their slowest pace since 2009, according to International Council of Shopping Centers. Vacancy rates are stubbornly high, at an average of more than 8% at regional malls, not far off a 2011 peak in of 9.4%, according to data company Reis Inc. (…)
U.S. Firms Pack Up for Tax Benefits
When Vidara Therapeutics International Ltd. put itself up for sale this year, it sparked a bidding war among U.S. companies interested in one of the small drug maker’s most-promising assets: its Irish address.
Vidara drew at least four suitors, people familiar with the matter say. One potential buyer set a maximum price but ultimately raised its offer 25% above that and still lost the bidding, one of the people says.
The contest shows how eager many U.S. companies are to establish legal residency overseas, putting distance between themselves and tax authorities in Washington. The most notable is Pfizer Inc., PFE -0.48% which on May 2 raised its bid for British rival AstraZeneca PLC to $106 billion, pursuing a deal that would offer tax and strategic benefits.
While some companies cite the U.S.’s 35% corporate-tax rate—the world’s highest—as a factor, it isn’t the only force behind the trend. The other is politics. U.S. companies say it is becoming more clear that the divided Congress won’t overhaul the tax code nor let them return money earned and already taxed abroad back to the U.S. at a discounted rate.
Together the two factors have spurred some companies to pack their bags. Additionally, pioneers of establishing residence abroad such as industrial conglomerate Eaton Corp.ETN -0.42% , fruit company Chiquita Brands CQB -2.79% and computer-chip maker Applied Materials Inc. AMAT -0.08% have gotten past initial political heat without ill effects.
The process is called inversion because the buyer often takes on the legal home of the seller. Inversions allow companies to shield income earned outside the U.S. from American taxes. They don’t erase the tax burden on existing overseas cash, but legal experts say companies can establish internal lending arrangements that effectively free up the cash. (…)
A move by President Barack Obama to crack down on inversions has added urgency to the search for a foreign partner, deal advisers say. “Everybody is looking for one,” says Joseph Johnson III, a partner at law firm Goodwin Procter. “It’s like musical chairs. There’s a sense the music is going to stop, that we’re going to run out of good targets, and nobody wants to be stuck standing alone.”
(…) About 1,700 U.S. companies excluding banks held $1.5 trillion in cash off shore at the end of last year, a sum that has nearly doubled since 2008, according to ratings company Standard & Poor’s. To bring that cash home, the companies would have to pay the difference between the U.S. and foreign tax rates. (…)
Corporate executives and tax experts see little hope of change. “Congress is paralyzed on all tax matters,” says Edward Kleinbard, a professor at University of Southern California’s Law School and a former chief of staff for the congressional Joint Committee on Taxation. “As companies’ expectations for Congress to act have waned, they have to exercise self-help.”
In the late 1990s and early 2000s, more than a dozen companies including Fruit of the Loom Ltd. and oil-rig operator Transocean Ltd. RIGN.VX +0.40% decamped for the Cayman Islands and Bermuda. But an Internal Revenue Service crackdown on tax havens has made it nearly impossible for companies today to simply pick up and move.
That has left mergers as one way out. Deals that transfer at least 20% of a U.S. company to foreign shareholders allow the combined entity to relocate almost anywhere. Ireland, which offers a 12.5% corporate tax rate and other perks, is a favorite destination. The Netherlands and the U.K., which has cut its own tax rate and is proposing special treatment for patent income, are maneuvering to land U.S. corporate expats as well.
At least a dozen such deals have been conducted since 2011 and more seem to be on the horizon. Companies such as Alkermes ALKS -1.63% PLC, which inverted to Ireland in 2011 and has since tripled its revenue, are natural targets for midsize U.S. drug makers, analysts say.
Activist hedge fund Jana Partners LLC recently pressured Walgreen Co. WAG -0.04%to invert to the U.K. as part of a planned second step in its merger with British pharmacy chain Alliance Boots. Doing so could lift the combined company’s earnings by more than $1 billion in the first year alone, Deutsche Bank estimates.
Inversions also can offer companies a tax-efficient platform from which to supercharge acquisitions. Inc. VRX.T +0.63% inverted through a 2010 merger with Canada’s Biovail Corp., and has since gobbled up larger targets, filtering their revenues through its sub-5% tax rate.
“Companies in the strike zone are all at least thinking about doing an inversion,” saysChristopher Cox of Cadwalader Wickersham & Taft LLP, which advised Elan in its sale to Michigan-based Perrigo Co. PRGO +2.08% last year. “They’d be foolish not to.”
Mohamed A. El-Erian: Expect a Rougher Ride in Markets
(…) Yet all was not smooth, contributing to quite a bit of intraweek volatility. Chinese and European data suggested that the global recovery is not as robust as many had hoped. Optimism about the impact of a perceived softening in Russian President Vladimir Putin’s position on Ukraine was dashed by disturbing on-the-ground realities. And investors showed little tolerance for any bad news from stocks with markedly high valuations.
Don’t expect this market tug of war to subside easily in coming weeks. Over the next few days, new data on U.S. retail sales, housing, inflation and industrial production will provide a fuller picture of the strength of the economic rebound from a weather-depressed first quarter, but they will not tip the balance decisively one way or another. That said, savvy investors will be keeping a close eye on two evolving trends that could well become more significant drivers of market behavior going forward.
First, the Fed is in the midst of a transition from relying on two policy instruments (asset purchases and forward policy guidance) to just one (guidance). Importantly, and as-yet not fully recognized by investors, this is part of a more fundamental evolution in the Fed’s approach — one that, as departing Governor Jeremy Stein put it last week, makes forward guidance “more qualitative as well as less deterministic” and, therefore, “a less precise guide to our future actions.”
Expect markets to become more volatile in the weeks and months ahead, as investors internalize to a greater extent the importance of this policy pivot. They should be requiring more compensation for the risk of buying volatile and, especially, harder-to-sell assets.
The Ukrainian situation will also be more important as it becomes more difficult to restore order and ease tensions. Despite its growing willingness to use military force, Kiev is consistently losing its authority in the east and south of the country — and not so much to Russia as to different local factions, as illustrated by last weekend’s self-rule referendums organized by self-proclaimed leaders in Donetsk and Luhansk. The further the situation deteriorates, the harder it will be to implement whatever diplomatic agreements the major powers eventually achieve.
The hope for markets is that the global economy will mitigate high valuations and various destabilizing forces by gaining momentum and reaching escape velocity. Unfortunately, there is as-yet insufficient data to suggest that this will happen anytime soon.
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Eastern Ukraine Votes for Independence. Now What?
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Putin Speaks On Ukraine Independence Vote: “Respects” Result, Calls For “Civilized Implementation”
Tech Stocks Are Still ‘Too Silly’ Young technology-company stocks fell out of favor in the blink of an eye. But their valuations remain sky-high and many investors say they have a lot more room to decline before bouncing back.
(…) Now, many investors say valuations are still so rich that further declines are still in store. Tesla trades at 89 times next year’s earnings, according to FactSet. That is down from a price-to-earnings multiple of 117 in March, but still about six times more expensive than the S&P 500. Daily-deals site Groupon Inc. GRPN +6.98% trades at 35 times next year’s earnings. (…)
Riskier corners of the market have taken a bruising. The Russell 2000 index of small-capitalization stocks last week briefly dropped 10% from its recent peak. The Russell 2000 Growth index, home to many of the small fast-growing companies that have taken a hit lately, is down 7.1% so far this year. (…)
Just How Dumb Are Investors? Investors may not be as stupid as some researchers think, but they still need to fight their own fear and greed.
A new study finds that the average investor in all U.S. stock funds earned 3.7% annually over the past 30 years—a period in which the S&P 500 stock index returned 11.1% annually. That means stock-fund investors underperformed the market by approximately 7.4 percentage points annually for three decades, according to Dalbar, a financial-research firm in Boston that has updated this oft-cited study each year since 1994.
How is that possible? The return of a fund—or a market index like the S&P 500—is calculated as if investors put all their money in at the beginning and keep it there, untouched, until the end of the measurement period. But most people put money in and take it out along the way—investing a recent bonus, making a housing down payment, paying tuition, withdrawing money in retirement.
Making matters worse, most funds lag the S&P 500, accounting for roughly one percentage point of the gap Dalbar finds between the performance of investors and the broad market. Fees and expenses account for at least another percentage point.
But the biggest factor is that investors chase returns—jumping aboard after a streak of hot performance and diving over the gunwales after it goes bad. Because of that buy-high, sell-low behavior, investors in the typical fund have a lower average return than the fund itself. (…)
The European Central Bank sent an unusually strong signal Thursday that it would likely cut interest rates or take other stimulus measures in June to combat the too-low inflation that threatens Europe’s fitful recovery. 
Unlike with his tough talk in 2012, though, Mr. Draghi will have to back up his words with action in June—or shred his credibility in the markets. The ECB president’s comment may also prove to have less impact on currency markets than his 2012 promise had on government bond prices, given the many factors driving the euro, including the expansionary policies of other major central banks. 
Thursday’s comments by Mr. Draghi cap a steady escalation in the ECB president’s rhetoric. Earlier this year, he said the bank was willing to take “decisive action,” though that failed to spur much traction in markets. Last month, he upped the ante, saying the ECB was “unanimous” in its willingness to take steps such as asset purchases if needed to keep the inflation rate from falling too much—a remark that signaled even Germany’s conservative Bundesbank was on board.
THE REACH FOR YIELD, EURO EDITION: Deflation risk.
Yu Qiumei, a senior statistician at the National Bureau of Statistics, attributed the April CPI reading to drops in vegetable and pork prices, which fell 7.9 per cent and 7.2 per cent from a year ago respectively. “China inflation will keep a mild upward trend in the future and the April reading might be the trough for the first six months of this year,” Yu said in a statement.
Chinese Car Makers Struggle
BofA Warns, Big Trouble In Small Caps If This Line Is Crossed
