Edge and Odds

The enemy of knowledge is not ignorance, it’s the illusion of knowledge (Stephen Hawking)

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so (Mark Twain)

Edge and Odds

Invest with smart knowledge and objective odds

WAGES

THE DAILY EDGE (12 January 2018)

Consumer Prices Rose 2.1% in December From a Year Earlier Inflation seen ending the year on a somewhat stronger note

Prices rose 0.3% in December when excluding the often-volatile categories of food and energy, the largest increase for so-called core prices since January 2017. Economists surveyed by The Wall Street Journal had expected core prices would rise a more modest 0.2% versus November.

Overall prices climbed 2.1% in December compared with a year earlier, easing a bit from November’s 2.2% annual gain. Prices excluding food and energy were up 1.8% from the end of 2016, firming slightly from the prior month’s annual increase. (…)

In a separate report Friday, the Labor Department said inflation-adjusted average weekly earnings for private-sector workers rose 0.2% in December from the prior month, as wages grew faster than prices and the average workweek was unchanged. (…)

Core CPI: last 3 months annualized: +2.4% vs +1.2% the previous 3 months.

Business-Level Inflation Falls Unexpectedly The producer-price index fell 0.1% in December from a month earlier, the first decline since August 2016

Prices fell broadly, particularly for services in industries like airline travel and apparel. Excluding volatile food and energy categories, so-called core prices also fell 0.1%. (…) Producer prices rose 2.6% in December compared with a year earlier, the largest calendar-year increase since 2011. Core prices climbed 2.3% last year. (…)

From Haver Analytics’ table, last 3 months annualized (previous 3 months): Core Final Demand: +2.8% (+1.6%), Core Goods: +3.2% (+2.0%), Intermediate Demand-Processed Goods: +8.2% +3.7%), all accelerating. Not in table: Intermediate Demand-Core Processed Goods: +4.9% (+1.2%).

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PPI Services declined 0.2% in December, after 9 consecutive increases and mainly because of the weakness in Trade Services, down in both November and December. Here’s how the BLS defines Trade Services:

Most of the decrease can be traced to a 0.6-percent decline in margins for final demand trade services. (Trade indexes measure changes in margins received by wholesalers and
retailers.)

  • Brent crude tops $70 a barrel as global inventories tighten

Wal-Mart Raises Its Minimum Wage After Tax Overhaul

(…) The giant retailer, which employs around 1.5 million people in the U.S., currently pays $9 or $10 an hour to most new store workers. The wage increase to well above the federal minimum could pressure restaurants, warehouses and smaller retailers that compete for low-skilled hourly workers.

On Thursday, the company also announced plans to cut roughly 10,000 jobs by closing about 10% of its 660 U.S. Sam’s Club warehouse stores. (…)

Retail rivalTarget Corp. recently lifted its starting pay to $11 an hour and Costco Wholesale Corp.starts hourly staff at $13.

Some manufacturers, too, are reacting. Fiat Chrysler Automobiles NV said Thursday it would pay $2,000 bonuses to about 60,000 U.S. salaried employees and invest $1 billion in a Michigan plant following the tax overhaul. (…)

The higher wage will add about $300 million in annual expenses for Wal-Mart while the bonuses will result in a $400 million hit to the current quarter’s profit, the company said. But the payout is just a sliver of what Wal-Mart, which had nearly $500 billion in revenue last year, stands to gain from the tax overhaul.

“The $300 million of incremental labor expenses in 2018 only represents about 15% of the potential cash windfall we estimate that [Wal-Mart] could enjoy,” wrote Ray Young, a retail analyst for Gordon Haskett Research Advisors. (…)

To combat wage pressures, Wal-Mart has tried to save on labor costs by adjusting the number of workers per store and more recently by automating many rote tasks. It is adding more self-service registers and using robots to scan shelves for items that are out of stock. Last year, Wal-Mart had around 15% fewer workers per square foot of store than a decade ago, according to an analysis by The Wall Street Journal. (…)

Wal-Mart’s average hourly wage for full-time U.S. store employees is expected to rise to around $14.50 an hour after the latest change, up from $13.85 an hour currently, said Mr. Lundberg. (…)

More pressure on these smaller guys:image

Alien More on robots: “British online grocer Ocado is testing a robot that would help maintain automation equipment in its warehouses.” (The Guardian via the WSJ)

More on wage inflation:

U.S.: Job creation now tilting towards sectors with higher wage inflation

(…) And while wage growth remains low, it is arguably heading in the right direction. As today’s Hot Chart shows, unlike in 2016, job creation now seems to be tilting towards sectors with higher wage inflation. (NBF)

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Take-Home Pay Is Set to Increase The government estimates that more than 90% of workers will have bigger paychecks under the withholding changes, and it says employers should implement the changes by Feb. 15.
Fed’s Dudley Worries Tax Cuts Risk Overheating U.S. Economy

Sad smile And then, there were none:

(…) ECB officials “widely” agreed that the bank would need to change its guidance to investors, though they stressed the move should take place “gradually over time to avoid sudden and unwarranted movements in financial conditions.” (…)

WORLD TRADE
China Reports Biggest-Ever Annual Trade Surplus With U.S. China’s chronically high trade surplus with the U.S. hit a record level in 2017, adding fuel to Trump administration criticisms about Chinese trade practices just as it weighs a range of penalties and other actions to curb the imbalance.

‘I will say that if we don’t make a fair deal for this country, a Trump deal, then….I will terminate.’ (President Donald Trump, in a WSJ interview, on the Nafta negotiations.)

Middle-Market Private Companies Earnings Growth Surged In Q4

Earnings at private, middle-market companies in the U.S. grew at their fastest pace since 2012 during the fourth quarter, according to a report by Golub Capital, a lender to these companies.

The report is based on the Golub Capital Altman Index, which measures the median revenue and earnings growth of more than 150 closely-held companies in Golub Capital’s loan portfolio. There are no energy companies in the index.

Earnings increased 12.8% in the fourth quarter of 2017 from a year earlier, the fastest rate of year-over-year growth since the inception of the index in 2012 and up from 4.9% growth in the third quarter. Revenue rose 11.5%, up from 6.8% in the third quarter. (…)

The information technology sector posted standout performance during the quarter, with earnings up 29.7%, according to the report. Revenue for the sector expanded 15.4% during the fourth quarter. (…)

The second-largest gains in earnings came from the industrials sector, which posted 15.6% growth for the quarter, while revenue rose 14%. (…)

The Spark Behind Iran’s Unrest: Millions of Defrauded Investors The collapse of investment firms offering outlandish returns fueled the protests that grew into the biggest challenge to the regime since 2009. Iranians blame the firms for pocketing funds and the government for not adequately regulating the industry.

(…) Protests have ebbed in recent days. But the working-class grievances that gave rise to the protests remain, including double-digit inflation, a 12% unemployment rate and the perception that systemic corruption is robbing the country’s wealth from the majority.

Iran’s economy, strained under international sanctions, structural mismanagement and the diversion of funds to battlefields in Syria, Iraq and Yemen, has been in disarray for years. The nuclear deal boosted economic growth—the International Monetary Fund expects 3.8% growth this year—but that hasn’t solved underlying problems. (…)

Mr. Rouhani caused a stir in early December when he revealed the details of his proposed government budget to the public, showing millions of dollars allocated to religious foundations and clerical offices outside the government’s control. The Islamic Revolutionary Guard Corps received around $8 billion. At the same time, he warned that cash handouts for the poor would be slashed and some fuel prices could rise 50%. (…)

Iranian analysts and economists say the [more than 7,000 such financial] firms were doomed to fail. They were owned and managed not by financial experts but by people with close links to religious institutions, the judiciary and the Revolutionary Guards. (…) A lack of regulation, accountability or transparency and a culture of corruption sped the collapse of many. (…)

THE DAILY EDGE (21 December 2017)

U.S. Housing Starts Grew In November U.S. housing starts rose last month to the highest level in more than a year, driven by gains in single-family home building in the South and West.

Housing starts rose 3.3% in November from the prior month to a seasonally adjusted annual rate of 1.297 million, the Commerce Department said Tuesday. Residential building permits, which can signal how much construction is in the pipeline, fell 1.4% to an annual pace of 1.298 million last month.

Single-family building in the South and West both reached their highest monthly rates since July 2007.

Housing starts in October, which rose after being held down by hurricane effects in September, were revised down to a 1.256 million annual pace from an initial estimate of 1.290 million. Permits, which tend to be more reliable, were revised up to a 1.316 million rate from a 1.297 million rate. (…)

In November, multifamily construction of buildings with two or more units ticked down 1.6% from a month earlier, while permits for this same category declined 6.4%.

U.S. Existing-Home Sales Jumped in November Sales of previously owned U.S. homes rose in November to the strongest pace in more than a decade, the National Association of Realtors said Wednesday.

Existing-home sales increased 5.6% in November from the prior month, to a seasonally adjusted annual rate of 5.81 million, the strongest reading since December 2006, the National Association of Realtors said Wednesday. (…)

Sales in November were up 3.8% from a year earlier, and grew on the month in all regions except in the West.

Haver Analytics adds:

The number of homes on the market declined 7.2% (-9.7% y/y) to 1.670 million, the lowest level since January. There was a record low of 3.4 months’ supply of homes available for sale.

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Source: Dimitri Delis, Piper Jaffray (via The Daily Shot)

Vacation Perks and Retirement Benefits Are Propelling Worker Pay Packages Overall compensation is rising at the fastest rate in two years, according to Labor Department data

Private-sector workers’ average hourly compensation, including both pay and benefits, advanced 4% from a year earlier in the third quarter, according to new Labor Department data. It’s the best gain in total compensation since the same quarter in 2015.

Benefits increased 4.6% from a year earlier, the best gain in more than two years. Back in 2014 and 2015, health-insurance benefits rose alongside the implementation of the Affordable Care Act.

The increase over the past year is being driven by more paid leave and retirement benefits. Retirement benefits, measured at an hourly rate, rose 11.2% from a year earlier. Paid leave improved by 5%. Insurance costs, which includes health insurance premium paid by employers, rose 3.5% from a year earlier. (…)

From a decade earlier, when the recession began, benefits have increased more than 30%, while wages and salaries are up about 25%.

The Labor Department report did show wages and salaries for private-sector workers advanced 3.7% from a year earlier, which was also the best gain in two years.

The data from the Employer Costs for Employee Compensation report is one of several recent measures showing somewhat firmer wage growth than the 2.5% annual improvement in average hourly earnings found in the closely watched jobs report. For example, weekly pay, which accounts for working more hours is rising at a better rate than hourly earnings.

Due to its methodology, the Labor Department cautions against reading too much into trends over time found in the Employer Costs for Employee Compensation report. But still it’s of interest to economists because it provides additional details on what’s driving compensation changes.

vacation-perks-and-retirement-benefits-are-propelling-worker-pay-packages
Tax reform has passed. What now? Having been told by Democrats that tax cuts will help only the rich, most Americans are in for a pleasant surprise

(…) The tax reform has important economic and political implications. Start with the economics. The bill doles out a fiscal stimulus of about 0.7% of GDP in 2018 and 1.4% of GDP in 2019. This should boost growth a little, but it will probably also quicken the pace at which the Federal Reserve raises interest rates to stop the economy from overheating. The Fed’s model says that deficit-financed tax cuts worth 1% of GDP eventually raise interest rates by 0.4 percentage points (see article). Janet Yellen, the Fed’s outgoing chair, told a press conference last week that the central bank does not want to stand in the way of faster economic growth, and will only concern itself with the tax bill to the extent that its affects inflation and employment. It surely will, because the fiscal stimulus dwarfs the likely boost to the underlying productive capacity of the economy. The Tax Foundation, a think-tank that is usually optimistic about the effect of tax cuts on growth, projects that the bill will increase long-run GDP by only 1.7%. By its calculations, this will add about 0.3 percentage points to annual GDP growth over the next decade. (Others are less optimistic.) (…)

Yet there are two areas of fresh complication. First, owners of so-called pass-through businesses, whose profits flow directly onto the tax-returns of their shareholders, will receive a large tax cut. That, and the cut to the corporate tax rate, will increase the incentive for individuals to ask accountants to turn their wages into business income.  Second, the bill contains complex new rules regarding international trade. For example, profits from exporting intellectual property are taxed at a lower rate of about 13%. Such rules are bound to be gamed by tax planners. And the export subsidy may violate World Trade Organisation rules—foreign finance ministers have already complained to Steve Mnuchin, the treasury secretary.

(…) Fewer than one in five Americans expect to benefit personally next year. Americans think, rightly, that the bill’s main beneficiaries are the rich. Yet its unequal effects will be sharpest only if its income tax cuts are allowed to expire after 2025. In the meantime, four in five Americans can expect a tax cut next year, according to the Tax Policy Centre, a think-tank. (…)

The most significant political consequences are long-term. The expiry of tax cuts for individuals is a ticking time-bomb in the tax code. It will explode just as America approaches a budget crisis, driven by rising spending on health care and pensions for the elderly. This gap will probably eventually be plugged by a combination of tax rises and spending cuts. But by cutting taxes now, Republicans have moved the starting point for any future negotiations. Deeper eventual cuts to entitlement spending now look likely. Some Republicans want to get started on that project now: Paul Ryan, the Speaker of the House, is keen to move onto welfare reform in 2018—a remarkable aim in an election year. (…)

Punch Another consequence stems from the way Republicans maneuvered to pass this bill with a simple majority (the bill passed the House by 224 votes to 201, in the Senate, 51-48) using sunset clauses that may never really sunset. No doubt this will be amply used in the future, even more so by Democrats if they ever retake the House. What that means is that the usual checks and balances on deficits and debt levels will no longer operate. Right when American baby boomers are turning 70 en masse.

(BloombergBriefs)

U.S. Treasury Sales Are About to Double 2018. Who’s Buying?

Government debt sales are set to more than double in 2018, lifting net issuance to $1.3 trillion, the most since 2010, according to JPMorgan Chase & Co. estimates. With the Federal Reserve shrinking its bond holdings and deficits poised to swell even before taking into account the tax overhaul, all signs point to higher financing costs. (…)

By Credit Suisse’s calculation, with the Fed pulling back and issuance surging, the slice of debt sales available for price-elastic buyers to absorb will rise to about 60 percent by the end of 2019, from 54 percent now. It would be their biggest share since the early 2000s.  (…)

with-treasury-sales-about-to-double-mnuchin-s-going-to-pay-up (1)

With entitlement costs heading higher, the U.S. debt burden was already projected to increase by $10 trillion in the next decade. Now the tax overhaul could boost the deficit by $1 trillion in the period. (…)

AT&T Plans $1,000 Bonus to Workers if Trump Signs Tax Bill

AT&T pegged the timing of the bonus to the measure’s enactment and said workers will get paid over the holidays if he signs the bill before Christmas.

The bonus would apply to all union-represented workers, non-union employees and front-line managers based in the U.S. The company recently employed about 250,000 people. AT&T said it was the first bonus of its kind from the telecom company.

AT&T’s plan to pay the bonus also comes as it faces a lawsuit from the Justice Department to stop its takeover of Time Warner Inc. (…)

  • Wells Fargo, AT&T Try to Show Unpopular Tax Cut Helps Workers

  • Similarly, Fifth Third, a Cincinnati-based bank with $142bn in assets, said it would pay more than 13,500 employees a $1,000 bonus while raising its minimum wage to $15 an hour. Senior managers and top executives would not receive a special payment, it said. (FT)

“BITCON”
  • Here is the Google search frequency for the phrase “buy bitcoin with credit card.”

Source: Google Trends, h/t @jessefelder (via The Daily Shot)

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