U.S. Payrolls Rise 223,000 as Jobless Rate Matches Historic Low

Payrolls increased 223,000 following a revised 159,000 gain, Labor Department figures showed Friday. The median estimate of analysts surveyed by Bloomberg called for 190,000 jobs. Average hourly earnings increased 2.7 percent from a year earlier, more than projected, while the jobless rate fell to 3.8 percent from 3.9 percent to match April 2000 as the lowest since 1969. (…)

Revisions to prior reports added a total of 15,000 jobs to payrolls in the previous two months, according to the figures, resulting in a three-month average of 179,000. (…)

The tight job market is helping lift worker pay. Average hourly earnings rose 0.3 percent from the prior month, topping projections for 0.2 percent, following a 0.1 percent gain, the report showed. The 2.7 percent gain for the 12 months ended in May followed a 2.6 percent advance.

A separate measure, average hourly earnings for production and non-supervisory workers, was even more upbeat, increasing 2.8 percent from a year earlier, the most since mid-2009. That followed a 2.6 percent gain in April. (…)

• May’s increase for non-farm payrolls (+223K) as well as its diffusion were the best in three months. Strong hiring in cyclical sectors is consistent with continued economic expansion in Q2, that quarter’s real GDP growth now expected to come in at more than 3% annualized. The household survey’s full-time employment also hit an all-time high thanks to biggest monthly increase in 18 years. (…) As today’s Hot Chart shows, the share of full-time jobs in total employment climbed to a decade-high of 82.7%, which partly explains the uptick in hourly wages. Indeed, workers moving from part-time to full-time status tend to earn better wages. (…) (NBF)

• Stronger US jobs data boost dollar and Treasury yields

U.S. Consumer Spending Strengthened Further in April

Personal-consumption expenditures increased a seasonally adjusted 0.6% in April from the prior month, the Commerce Department said Thursday. That was the largest increase in five months and above the 0.4% rise that economists surveyed by The Wall Street Journal expected.

(…) spending at the pump was a leading contributor to the 0.7% increase in outlays on goods in April, as gas prices climbed that month. Meanwhile cold weather meant demand for household utilities drove the 0.5% increase on services outlays. (…)

Personal income—reflecting Americans’ pretax earnings from wages, salaries, investments and other sources—rose 0.3% in April, in line with expectations. It increased 0.2% in March.

Real disposable personal income, or after-tax income adjusted for inflation, rose 0.4% on the month in April.

While consumers are earning more and spending more, they are saving less. The personal saving rate in April was 2.8%, compared with 3% in March.

As Americans’ incomes rise, so is inflation. The price index for personal-consumption expenditures, the Federal Reserve’s preferred inflation measure, was up 2% from a year earlier and rose 0.2% from March. Excluding volatile food and energy costs, prices rose 0.2% in April, compared with economists’ expectations of a 0.1% rise. So-called core inflation was up 1.8% in April from a year earlier.

The facts:

• Wages & Salaries are clearly accelerating. After allowing for employment rising 1.5% YoY, per employee wages are rising above 3%.
• Disposable income is rising in line with personal income, meaning there is little tax effect at the consumer level.
• Americans keep spending more than they earn. The savings rate offers no buffer for unexpected events.
• Core inflation has stabilized at a 2.0% annualized rate in the past 6 months.
• Real disposable income is thus rising about 2.0% annualized. Given the already low savings rate, real spending should grow at a similar pace.

U.S. Pending Home Sales Decline to Three-Month Low

The National Association of Realtors (NAR) reported that pending sales of existing homes fell 1.3% (-2.1% y/y) in April to an index level of 106.4 (2001=100). It was the third month of decline and left the index at the lowest level since January. Sales were 5.8% below the peak in March of 2016. The Realtors Association indicated that home demand remained strong, but the number of homes on the market was limited. (…)

U.S. Tariffs Raise Fear of Trade War The Trump administration raised the prospect of a global trade war by imposing tariffs on imports from its closest neighbors and allies, who swiftly pledged to retaliate with levies of their own.

Businesses Voice Concerns Over Tariffs

(…) The Trump administration’s tariffs could raise prices on consumer products from beer cans to car parts, executives said, and inject new unpredictability into manufacturing, agriculture and consumer businesses. (…)

Kubota Tractor Corp., in Grapevine, Texas, anticipates raising prices for machinery with big steel parts, such as farming implements and huge wheel rims, by between 2% and 5% as a result of the tariffs, said Todd Stucke, the company’s senior vice president. He and other manufacturing executives said the complexity and unpredictability of the administration’s trade actions are making it hard to plan. (…)

• The Alliance for American Manufacturing says an influx of imported steel and aluminum to get ahead of tariffs cost the U.S. 13,500 jobs last year, the WSJ’s Greg Ip writes. Yet prices are up nearly 40% this year because of strong demand, creating a windfall for foreign suppliers. (WSJ)

Costco to Raise Starting Wage to $14 an Hour

The retail chain, second only to Walmart Inc. in terms of U.S. sales, said it would increase its starting hourly wages by $1 to $14 or $14.50 an hour. Other hourly workers will receive raises of between 25 cents and 50 cents. The new wages take effect on June 11. (…)

Richard Galanti, Costco’s finance chief, estimated the annual cost of the wage increases will be between $110 million and $120 million pretax. However, he said the company expects an effective tax rate of 28% this fiscal year, compared with about 35% last year. (…)

The two biggest operators of dollar stores, Dollar General Corp. and Dollar Tree Inc., cited higher wage costs when they reported results on Thursday. Target Corp. also raised its starting hourly pay to $11 last year and has set plans to lift it to $15 an hour by 2020. (…)

• Dollar Tree Inc. and Dollar General Corp. shares had one of their worst days in years Thursday as the discount retailers blamed a cold start to spring for lower-than-expected sales, and experienced higher freight and wage costs. (WSJ)

THE PMIs

U.S. PMI signals further steep improvement in business conditions

The seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registered 56.4 in May, down fractionally from 56.5 in April. The reading marked the second-strongest improvement in the health of the sector since September 2014. The upturn was largely driven by sharp increases in production and new business.

The greatest lengthening in supplier delivery times since the series began in October 2009 also contributed to the headline figure.

Factory output continued to increase at a robust pace in May, despite the rate of growth softening slightly. More favourable demand conditions and greater client demand were widely cited as driving the expansion of production.

Reflective of stronger demand conditions, new orders increased sharply in May. Moreover, the rate of growth was the second-fastest since September 2014 (after April 2018). Alongside the acquisition of new clients, panellists also noted that customers were demonstrating a greater propensity to spend. In contrast, new export orders increased only marginally.

As the rate of new business growth continued to outstrip that of output, backlogs rose again in May, increasing at the fastest rate in over two-and-a-half years. As a result, firms added to their payrolls again, with the rate of job creation picking up slightly during the month though failing to match the highs seen earlier in the year.

Meanwhile, price pressures remained elevated. Although rates of both input cost and selling price inflation eased slightly, they were nonetheless the second-fastest since September and June 2011 respectively (both after April 2018). Panellists reported that higher input costs were often due to suppliers being able to hike prices in response to strong demand.

Increased pressure on supply chains led to the greatest deterioration in vendor performance in the series’ history. Consequently, stocks of purchases rose at the quickest pace for four months as firms increased their efforts to create safety stocks.

Eurozone manufacturing upturn slows further in May

The final IHS Markit Eurozone Manufacturing PMI® posted a 15-month low of 55.5 in May, down from 56.2 in April and unchanged from the earlier flash estimate. The rate of increase has eased in each of month since hitting a record high in December. The PMI has signalled expansion for 59 months in a row and remained above its long-run average (51.9).

The upturn remained broad-based by sector, with growth recorded across the consumer, intermediate and investment goods industries. However, rates of increase eased in all three cases. The steepest expansion was again registered in the investment goods category and the weakest in consumer goods.

All eight of the nations covered saw manufacturing operating conditions improve during May. Growth was led by the Netherlands, Austria and Germany, despite all three seeing their respective rates of expansion slow. Spain and Italy also saw weaker growth, while accelerations were registered in France, Ireland and Greece.

Manufacturing production and new orders both rose further during May, although rates of increase were the weakest in around one-and-a-half years. New export business also continued to improve, albeit at a weaker pace. The increases in all three variables remained widespread, with growth seen in all of the nations covered by the survey.

Capacity constraints remained evident at both manufacturers and their suppliers during May. Manufacturing backlogs of work increased for the thirty-seventh successive month, although the pace of increase eased to its weakest since September 2016. Supplier delivery delays remained widespread and among the highest seen in the survey history, although the incidence of delays was the lowest since last September.

Staffing levels increased for the forty-fifth consecutive month. However, similar to the trends in output and new work, the rate of jobs growth slipped to a 14-month low. Staffing levels were raised in all of the nations covered by the survey, with the steepest increases in Austria, the Netherlands and Germany. However, only France, Spain and Greece saw employment rise at a faster pace than in April.

May saw the rate of input price inflation faced by eurozone manufacturers remain strong and quicken for the first time since January. In contrast, output price inflation eased to a five-month low but nonetheless remained well above its historical average. Germany registered the sharpest increase in both input costs and output prices during the latest survey month.

China’s manufacturing sector expands modestly in May

The headline seasonally adjusted Purchasing Managers’ Index™ (PMI™) was unchanged from the previous month at 51.1 in May. The reading signalled a further modest improvement in the health of the sector. Operating conditions have now strengthened in each month for the past year.

Chinese manufacturers signalled that new orders expanded at a slightly quicker, but still moderate, pace during May. While some panellists commented on improved client demand, others mentioned that subdued market conditions had weighed on overall growth. Concurrently, new export business fell for the second month running, albeit marginally.

Production levels rose at a fractionally faster pace in May that nevertheless failed to match growth rates seen at the start of the year.

Manufacturers in China raised their input buying again in May, though at a modest rate that was softer than recorded in April. However, low stock levels among vendors contributed to a further lengthening of average delivery times for inputs.

Stocks of purchases meanwhile rose only slightly, with the rate of accumulation similar to those seen in the prior two months. In contrast, inventories of finished items fell for the first time in four months (albeit marginally).

As has been the case since late 2013, employment fell in May. The latest reduction was commonly linked to cost-cutting efforts. Notably, the rate of job shedding picked up from the previous month. At the same time, backlogs of work rose further, which some panellists linked to insufficient production levels. However, the rate of accumulation moderated from April.

Cost pressures picked up in May, with average input prices rising at the fastest rate for three months. Respondents widely attributed higher cost burdens to greater raw material prices such as chemicals, metals and oil. As a result, prices charged for manufactured goods rose at a solid pace that was the fastest in 2018 so far.

• This is Bloomberg’s China economic dashboard. (The Daily Shot)

Source: @BBGVisualData, @economics; Read full article

Japan business conditions improve at slower pace

The headline Nikkei Japan Manufacturing Purchasing Managers’ IndexTM (PMI)® fell to 52.8 in May, from 53.8 in April, signalling a slower rate of improvement in the Japanese goods producing sector. Furthermore, the index pointed to the joint-weakest expansion in nine months, on a par with October 2017. However, the latest index reading was in line with the average observed across the current 21-month upswing.

Japanese manufacturers pointed to improving demand conditions during May, with new sales to both domestic and overseas clients rising. Although total new order growth eased on the previous month, a stronger increase in new export orders was recorded. China, Taiwan, Europe and North America were cited as sources of international custom. That said, the upturn in foreign demand was markedly weaker than the expansions seen at the beginning of the year. Nonetheless, a twentieth successive month of increasing new business inflows prompted firms to boost production line activity in May. Output growth was solid, albeit weaker than the three-month high seen in April.

A rise in outstanding business was recorded in May, signalling that greater influxes of new orders had exerted pressure on production capacities. To accommodate for higher workloads, Japanese goods producers raised employment. However, in line with softer new order growth, rates of expansion in backlogs and employment both eased from April.

Supply chain pressures were also evident, with average lead times for the delivery of inputs lengthening to the most marked extent in seven years. Panellists attributed this to material shortages and strong input demand. Anecdotal evidence also suggested that operating costs were partly affected by shortfalls in supply. The rate of input price inflation remained sharp and accelerated to the joint-fastest in 41 months. Consequently, higher raw material costs motivated firms to hike selling charges. Output prices have now risen for 17 successive months, the longest period of charge inflation since the survey began in 2001. (…)

Fading Canada Consumer Leaves Growth at Weakest Since 2016

Gross domestic product expanded at a 1.3 percent annualized pace in the January-to-March period, the slowest in almost two years, Statistics Canada said Thursday in Ottawa. The median forecast in a Bloomberg economist survey was for a reading of 1.8 percent, and output trailed even the lowest prediction. (…)

The quarter ended with a monthly output gain of 0.3 percent for March, faster than the 0.2 percent median in a Bloomberg survey. There were also signs of strength in business spending, while exports rose for a second straight quarter.

Bank of Canada Deputy Governor Sylvain Leduc, speaking to reporters following a speech in Quebec City, said he found the data encouraging.

“What we’ve seen today in terms of national account numbers are really reassuring for us, reinforcing our views,” Leduc said. (…)

The New Tech That Terrifies OPEC U.S. shale oil drillers are boosting efficiency with giant pads and walking rigs, lowering prices to a point that could hurt exporters like Saudi Arabia.

(…) Instead of killing shale it spurred a wave of innovation that transformed drilling in the U.S. into a highly efficient industrial process, dramatically lowering costs and boosting output. During the next oil bust, it will be the Saudis who have to worry. (…)

The number of drilling rigs now active in the Permian is the same as back in October 2011, yet the region is producing three times as much crude.

Just a few years ago, a well would be drilled and then the rig would be disassembled and moved to a new location—a time- and labor-intensive process. Today it is more common for rigs to sit on giant pads, which host multiple wells and the necessary infrastructure, and for them to move on their own power to a new well yards away. These rigs drill over a wider area and increasingly are being guided by instruments developed for offshore drilling that see hundreds of feet into the rock. They inject more sand underground to break open the rocks, boosting output. (…)

That also may make America’s reserves last longer. Encana’s approach, which it calls “the cube,” targets different layers simultaneously, which can boost the amount that can be recovered economically by about 50%, Mr. Suttles said. (…)

Producers reckon that the core of the Permian is still profitable in the high $30-to-mid-$40-a-barrel range for U.S. benchmark crude. According to the International Monetary Fund, not a single Middle Eastern OPEC country can finance its budget at Brent crude below $40 a barrel.

That’s productivity:

A Calm Chinese Stock Market? It’s Engineered by the State

Three years after a national uproar when Chinese stocks plunged by nearly half in just over two months, traders and brokers say regulators are increasingly stepping in to influence trades and make China’s markets appear less volatile, especially during political events when Beijing wants to project stability.

The steps, aided by advanced surveillance techniques to monitor traders, include warning brokerage firms to police trades that are out of step with government wishes and phoning investors directly when they act out of line. (…)

On the sidelines of the annual legislative meetings in March, Jiang Yang, vice chairman of the China Securities Regulatory Commission, said the regulator has spent years developing “penetrative supervision” of market participants, creating a “giant network of surveillance” that he said helps protect retail investors. (…)

India’s Economic Expansion Outpaces Rival China India’s economic expansion accelerated to the fastest pace in nearly two years, pulling further ahead of rival China, as the effects fade from the government’s crackdown on cash and adoption of a new tax.