American Job Openings Now Outnumber the Jobless For the first time since record-keeping began in 2000, the number of available positions exceeded the number of American job seekers.

U.S. job openings rose to a seasonally adjusted 6.7 million at the end of April, a record high, and more than the 6.3 million Americans who were unemployed during the month. Openings had exceeded the available labor pool beginning in March, according to revised figures released Tuesday. (…)

• Shale Country Is Out of Workers and Dangling 100% Pay Hikes The industry will hire just about anyone with the most basic skills.

(…) In the country’s busiest oil patch, where the rig count has climbed by nearly one third in the past year, drillers, service providers and trucking companies have been poaching in all corners, recruiting everyone from police officers to grocery clerks. So many bus drivers with the Ector County Independent School District in nearby Odessa quit for the shale fields that kids were sometimes late to class. (…)

• Airlines struggle with global pilot shortage SYDNEY/BANGKOK/MONTREAL A growing shortage of airline pilots is putting the industry’s recent growth at risk as planes sit idle, higher salaries cut into profits and unions across the globe push for more benefits.

Truck Orders Soaring on Growing Freight Demand

Trucking companies ordered 35,600 trucks in May, more than double the orders from the same month a year ago, according to preliminary figures by ACT Research. That leaves manufacturers with an order backlog of more than 200,000 trucks, or 8.4 months of production.

“This is an astonishing rate of order placement,” Kenny Vieth, president of the Columbus, Ind.-based ACT, said Tuesday. “What’s facilitating it is that truckers are absolutely crushing it on freight rates and profitability right now.” (…)

Truckstop.com, an online freight service that matches available loads to trucks in the sector’s spot market, says it is seeing 500,000 to 600,000 loads a day posted on its system. The market usually carries about 250,000 available loads a day.

“It’s out of control,” said Brent Hutto, chief relationship manager at Truckstop.com. (…)

FTR Vice President Don Ake said truck makers are facing shortages of some components as parts suppliers struggle to keep up with the “red-hot market.”

With all sectors of the economy growing, Mr. Ake said, “the truck-equipment industry is competing for components with other industries, competing with other industries for raw materials and competing for labor.”

Trucking seems to signal a booming U.S. economy which is not obvious from GDP data:

Business sales are growing but are not exploding when taking the recovery in the oil patch into account. Inventories are rising somewhat faster though.

Widening Tariffs Threaten to Take a Big Economic Toll

Historic Rise in Lumber Costs Ripples Through Economy

(…) The housing recovery was already pushing lumber prices higher last year when forest fires tore through western Canada, where loggers harvest about a third of the lumber consumed in the U.S. The blazes exacerbated shortages following wood-boring beetle infestations that wiped out millions of acres of North American timber.

Then, later in the year, the U.S. levied tariffs on Canadian lumber of around 20%. Without enough domestic lumber to meet demand, buyers have mostly had to pay up.

“Lumber shipments from Canada to the U.S. are higher than ever, but the price of lumber went up in excess of the duty,” Jean-Jacques Ruest, interim chief executive of Canadian National Railway Co., told investors at a conference last week. “So what they did is create an inflation and there was no impact in the trade because housing starts are strong.” (…)

Meritage Homes Corp. CEO Steven Hilton told investors recently that higher lumber prices have this year added about $3,000 on average to the cost of each house it builds. At Home Depot Inc., wood product prices are up about 30% year-over-year.

“We don’t see that abating at all,” said Ted Decker, the retailer’s executive vice president for merchandising. “Certainly don’t want it to go a whole lot higher, but for right now we’ve been able to pass on and not see degradation in units.” (…)

(CalculatedRisk)

Farmers Face Broadening Trade Threats as Tariff Spat Heats Up U.S. farmers, already losing sales to China, are facing new threats to sales in other big overseas markets as trade tensions spread globally.

Mexico this week imposed tariffs on major U.S. exports such as cheese and pork, while Canada and the European Union are considering tariffs on imports of U.S. food and farm goods from corn to orange juice to peanut butter, in response to the U.S. placing tariffs last week on steel and aluminum imports from those countries. In addition, analysts say, China could target other crops and products after Trump administration officials last week outlined potential tariffs on $50 billion worth of Chinese goods.

The rapid-fire exchange of tariffs and trade threats leaves U.S. farmers and agricultural groups fearing tougher sells in their most important overseas markets, with duties adding to the cost of U.S. goods in markets that imported $70 billion worth of U.S. farm products last year, according to the U.S. Department of Agriculture. (…)

Uncertainty can drive foreign buyers to seek alternative suppliers, said Dan Halstrom, chief executive of the U.S. Meat Export Federation, which develops markets for U.S. beef, pork, lamb and veal. (…)

Still, the uncertainty over trade talks is affecting business decisions in the Farm Beltand could linger even if the current tariff threats recede.

In Missouri, some ranchers are shrinking herds, fearing tariffs could further pressure sliding cattle prices. That could mean fewer customers for the bulls Mr. Guernsey’s family sells as sires, he said. In the eastern corn belt, some farmers are putting on hold plans to buy new land or build new grain-storage bins. (…)

U.S. dairy producers, for instance, have been counting on exports to help the struggling sector move past a multiyear milk glut. Mexico, which doesn’t produce enough cheese to meet growing domestic demand, is a big customer, buying nearly one-third of all U.S. cheese sold abroad, according to agricultural consultancy Informa Economics.

“Mexico is our No. 1 export destination,” said David Ahlem, chief executive of California-based Hilmar Cheese Co., one of the U.S.’s largest cheese producers. Preserving the Mexican market was one of the company’s top trade priorities, Mr. Ahlem said. (…)

Nafta has underpinned a trade boom for U.S. meat, crops, fruit and vegetables. Mexico is the top importer of U.S. apples and is imposing a 20% duty on the fruit. (…)

China Offers to Buy $70 Billion in Goods to Fend Off Tariffs China offered to purchase nearly $70 billion of U.S. farm, manufacturing and energy products if the Trump administration abandons threatened tariffs, according to people briefed on the latest negotiations with American trade officials.

(…) That proviso could make the deal a non-starter in Washington, where the White House has said it plans to move ahead with the tariffs shortly after June 15, as a way to pressure China to make more sweeping changes in its economy. (…)

Slumping Real Yields Reflect Slow-Growth Pains The retreat signals that investors don’t believe the world is poised for a sudden acceleration in economic growth

COMPOSITE PMIs

• U.S. services business activity growth accelerates to fastest since April 2015

The seasonally adjusted final IHS Markit U.S. Services Business Activity Index registered 56.8 in May, up from 54.6 in April. The latest survey data signalled the fastest output expansion since April 2015. The sharp increase in business activity was widely attributed to more favourable economic conditions and greater client demand. Increased marketing activity and customer interest was successfully converted to client wins in May, with new business levels rising at a steep pace. Although slightly weaker than that seen in April, the rate of expansion of new work was the third-sharpest seen over the past three years.

In line with sustained upturns in business activity and new orders, service sector firms increased their hiring in May. The upturn in staffing levels was the strongest since September 2015 and above the long-run series average.

A pick-up in job creation was not sufficient to prevent a further rise in backlogs, however. Faster rises in new business compared to output drove a solid increase in outstanding business in May. Backlogs were accumulated for the thirteenth consecutive month and the latest backlogs growth rate was the quickest in over three years. Panellists also noted that difficulties in sourcing raw materials delayed business processes.

Inflationary pressures intensified in May, as input cost inflation accelerated to the fastest since October 2013. Anecdotal evidence suggested the latest rise in cost burdens was due to higher material inputs, often linked to tariffs, higher interest rates and rising energy and fuel prices.

Output charges also increased at a quicker rate, with inflation accelerating to a three-month high. Panellists stated that higher input costs were partly passed on to clients through greater charges. The strong pace of inflation was above the long-run series average.

The final seasonally adjusted IHS Markit U.S. Composite PMI™ Output Index rose to 56.6 in May from 54.9 in April. The quicker overall upturn was driven by stronger growth in the services sector.

The latest composite index reading signalled a pick-up in growth momentum and the fastest expansion since April 2015.

• Euro area economic growth at one-and-a-half year low in May

The final IHS Markit Eurozone PMI® Composite Output Index posted 54.1 in May, unchanged from the earlier flash estimate and its lowest level since November 2016. (…) Rates of increase eased in both the manufacturing (18-month low) and service (16-month low) sectors. (…)

May saw growth of eurozone new business ease to an 18-month low, with all of the big-four nations seeing slower rates of increase. Capacity pressures remained evident nonetheless, with backlogs of work rising – albeit to the weakest extent since January 2017 – to extend the current sequence of increase to three years.

Job creation was registered for the forty-third successive month in May. The pace of growth also slowed to its weakest since last August. (… )

The combination of slower growth of output, new orders, backlogs and employment suggest that the outlook for the euro area economy is less bright than in quarter one. This was backed up by PMI data on business confidence, which showed optimism dipping to its lowest level in one-and-a-half years.

Inflation of input costs accelerated for the first time in four months in May, with rates of increase strengthening in Germany, France and Spain. In contrast, average output charges rose at the slowest pace so far in 2018, as weaker increases in Germany and Italy offset accelerations in France and Spain.

The rate of expansion in eurozone service sector activity continued to cool in May. At a 16-month low of 53.8, the final IHS Markit Eurozone PMI® Services Business Activity Index was below April’s 54.7 and the earlier flash estimate of 53.9.

The slowdown reflected trends in Germany and France. Rates of increase eased to 20- and 16-month lows respectively, with Germany seeing the slowest expansion of services output among the ‘big four’ nations.

The weaker expansion of activity in the eurozone service sector was matched by the trend in new business, with new orders rising at the slowest pace in almost one-and-a-half years. All of the big four nations saw milder growth of new work received.

(…) Price pressures strengthened in May, with rates of inflation in input costs and output charges both picking up. Selling prices rose in Germany, France and Spain, but fell again in Italy. (…)

The survey signals GDP growth of 0.4-0.5% for the second quarter, but there is much uncertainty as to whether the pace will continue to weaken in coming months.

On the upside, companies reported business to have been disrupted by an unusually high number of holidays in May, especially in France and Germany, suggesting growth could rebound in June. But many other companies reported that demand has softened compared to earlier in the year. (…)

The slowdown since earlier in the year has been broad-based, though Spain has shown the greatest degree of resilience. Crisis-torn Italy has meanwhile reported the weakest expansion of the four largest euro member states for the fourth month running. (…)

• Chinese business activity continues to rise modestly in May

The Caixin China Composite PMI™ data (which covers both manufacturing and services) indicated that growth of Chinese business activity remained modest in May. The Composite Output Index was unchanged from April’s reading of 52.3, to signal a steady and moderate pace of expansion. However, growth remained slower than that recorded at the start of 2018.

Latest data signalled that the upturn in activity was broad-based, with both manufacturers and services companies noting increases in output during May. Manufacturing production rose at a fractionally quicker pace than in April, albeit one that was still modest overall. Meanwhile, the rate of services activity growth was unchanged from the previous month, with the seasonally adjusted Caixin China General Services Business Activity Index holding steady at 52.9. However, rates of expansion remained subdued in both sectors compared to those seen earlier in the year.

The amount of new business placed with Chinese services companies rose further in May. According to panellists, firmer client demand and new product offerings helped to boost sales. That said, the rate of growth softened since April and was modest overall. In the manufacturing sector, new order books increased at a slightly quicker, though still moderate, pace in May. (…)

May survey data indicated that rates of input price inflation picked up across both the manufacturing and service sectors. However, the upturn in service sector costs remained moderate overall. Meanwhile, the increase in cost burdens faced by goods producers was the strongest seen since February. As a result, composite input prices rose at a solid pace that was slightly stronger than that seen in April.

Reflective of the trend for input costs, companies continued to raise their prices charged in May. However, competitive pressures reportedly restricted the overall pricing power of service providers, with their charges increasing at the slowest rate for eight months. Concurrently, factory gate prices rose at a solid and accelerated pace that was the quickest recorded since last December. The latter contributed to the quickest upturn in composite output charges in 2018 so far. (…)

Drilling down, we find this very troubling chart:

May data indicated a second monthly fall in new export orders. There were also signs that a stronger yuan has started to reduce export competitiveness. Despite a recent depreciation, the yuan is still up 2.1% against the US dollar so far this year. There were very few mentions of rising sino-US trade tensions in the survey’s anecdotal evidence, suggesting Chinese manufacturers were not overly concerned about tit-for-tat trade measures.

The lack of mentions of trade tensions probably means that they are not biting just yet. But they will.

Here’s Haver Analytics’ conclusion from the May PMIs:

On balance PMI data are not very encouraging any more. There is still growth. There is much less momentum. For EMU and its largest members the composite PMIs are lower than their respective 12-month averages. That is true for Japan too. China is at its 12-Mo average while the US boasts a stronger composite that its 12-month average on above average readings for each sector, manufacturing and services. The global economy has lost all the momentum it was showing at the end 2017 while the US has greater gains. Will these trends continue as the Federal Reserve in the US raises rates?

I am more worried about China where Services are keeping the Composite steady amid deteriorating Manufacturing, particularly Exports which reflect weakening global demand.

Senior ECB officials bolster end of QE expectations Remarks on economy highlight policymakers’ view that recent weakness is transitory

(…) The ECB executive board member said there is “growing evidence that labour market tightness is translating into a stronger pick-up in wage growth”, according to prepared remarks to the Congress of Actuaries in Berlin.

Jens Weidmann, president of Germany’s Bundesbank and a member of the ECB’s governing council, echoed Mr Praet’s bullish take on inflation in a video message to the gathering of actuaries, according to wire reports. Inflation is “now expected to gradually return to levels compatible with our target”, he said.

He added that market expectations that the ECB will halt its vast bond-buying programme by the end of this year “are plausible”. (…)

Social Security Expected to Dip Into Its Reserves This Year Social Security’s cost will exceed its income this year for the first time since 1982, forcing the program to dip into its nearly $3 trillion trust fund to cover benefits.

(…) This is three years sooner than expected a year ago, partly due to lower economic growth projections, according to the latest annual report the trustees of Social Security and Medicare released Tuesday. The program’s income comes from tax revenue and interest from its trust fund.

The trust fund will be depleted in 2034 and Social Security will no longer be able to pay its full scheduled benefits unless Congress takes action to shore up the program’s finances. Without any changes, recipients then would receive only about three-quarters of their scheduled benefits from incoming tax revenues.

The report also said that Medicare’s hospital insurance fund would be depleted in 2026, three years earlier than anticipated in last year’s report. Absent changes, the program then would be able to handle 91% of costs. (…)

SENTIMENT WATCH

Bridgewater: “We Are Bearish On Almost All Financial Assets”

(…) In one of Bridgewater’s latest Daily Observations authored by co-CIO Greg Jensen, the firm writes that “2019 is setting up to be a dangerous year, as the fiscal stimulus rolls off while the impact of the Fed’s tightening will be peaking” a point echoed yesterday by the head of the Indian central bank, Urjit Patel, who warned that unless the Fed ends its balance sheet reduction which comes as a time when the Treasury is soaking up dollar liquidity by issuing substantial amounts of Treasuries to fund the Trump budget, the tightening in financial conditions could lead to a global conflagration started by emerging markets.

Markets are already vulnerable, as the Fed is pulling back liquidity and raising rates, making cash scarcer and more attractive – reversing the easy liquidity and 0% cash rate that helped push money out of the risk curve over the course of the expansion. The danger to assets from the shift in liquidity and the building late-cycle dynamics is compounded by the fact that financial assets are pricing in a Goldilocks scenario of sustained strength, with little chance of either a slump or an overheating as the Fed continues its tightening cycle over the next year and a half. (…)

“We are bearish on financial assets as the US economy progresses toward the late cycle, liquidity has been removed, and the markets are pricing in a continuation of recent conditions despite the changing backdrop.”