How Tight Is the U.S. Labor Market?
Research from the Federal Reserve Bank of San Francisco:
The current low unemployment rate compared with previous labor market peaks has raised some fears regarding whether the labor market has become too tight. In this Letter, we use a new method to isolate the effects of demographic changes on unemployment, and we find that the demographic-adjusted unemployment rate is still 0.3 to 0.4 percentage point higher than it was at past labor market peaks. This indicates that the labor market may not be quite as tight as the headline unemployment rate suggests.
An important caveat to this conclusion is that our analysis focuses only on the effects of demographics on aggregate unemployment. As emphasized in recent research, however, other labor market changes also may have affected aggregate unemployment since the mid-70s (see, for example, Daly, Hobijn, Sahin and Valletta 2011).
Given the caveat, the 0.3-0.4 pp gap is insufficient not to call this a peak.
HARD DATA WATCH
Economic Outlook from Freight’s Perspective – Gentlemen, Start Your Engines!
Both the Shipments and Expenditures Indexes have been positive for two months in a row. The 1.9% YoY increase in the February Cass Shipments Index is yet another data point which strongly suggests that the first positive indication in October may have indeed been a change in trend. In fact, it now looks as if the October Cass Shipments Index, which broke a string of 20 months in negative territory, was one of the first indications that a recovery in freight had begun in earnest.
Unlike in January, the February sequential pattern looked very promising (in January the YoY was up 3.2% but was down 6.4% sequentially). Since February is always one the weakest freight months for most modes of transportation (truck, rail and parcel), the sequential strength emboldens our view that the recovery is not a ‘flash in the pan’ but real. We also continue to receive almost-daily reports of stronger shipment volume in all modes from both hard data sources and industry anecdotes, which we will outline later in this report.
The Cass Freight Expenditures Index also continued to signal a turn in trend. Expenditures (or the total amount spent on freight) turned positive for the first time in 22 months in January, albeit against an easy comparison. Not since 2011—when the economy was still climbing out of the recession—had this index been so low. Our Expenditures Index in January 2016 was the worst in five years, as demand had weakened and crude oil had fallen below $30 a barrel. Although February 2016 was also weak, it was not nearly as weak as January 2016 and hence a slightly tougher comp. Since fuel surcharges are included in the Expenditures Index, fuel was a negative bias in the data last year.
Conversely, over the last several months, we have observed that part of the increase was a result of the steady increase in the price of fuel over the last six months. But, we are also seeing some improvements in pricing power of truckers and intermodal shippers. As an example, the proprietary Cass Truckload Linehaul Index (which measures linehaul rates and does not include fuel) only fell 0.8% on a YoY basis in the month of February, which was less than the 1.5% and 0.9% declines posted in November and December, respectively. The proprietary Cass Intermodal Price Index (which does include fuel) faired even better, increasing 4.9% in February. This was an acceleration from the 1.5% increase it posted in December and marked the fifth consecutive YoY increase after 21 consecutive months of decline.
Hotels: Hotel Occupancy Solid in early March
From HotelNewsNow.com: STR: US hotel results for week ending 11 March
The U.S. hotel industry reported positive results in the three key performance metrics during the week of 5-11 March 2017, according to data from STR.
In a year-over-year comparison with the week of 6-12 March 2016:
• Occupancy: +0.8% to 67.4%
• Average daily rate (ADR): +3.9% to US$128.61
• Revenue per available room (RevPAR): +4.8% to US$86.72
emphasis added
The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.
Used Car Prices Plunge Most in Any Month Since 2008, Only 2nd February Decline in 20 Years
According to NADA Used Car Guide, wholesale prices on used vehicles are getting crushed. (…)
Automakers grew incentive spending once again in February, making it the 23rd month in a row where spending was increased. On average, spending reached $3,594 per unit versus $3,043 per unit in February 2016 according to Autodata. (…)
Compared to January, days’ supply fell by 11 days in February, landing at 74 days for the period. Looking back, February 2016 saw a supply of only 69 days according to Wards Auto. (…)
NADA partially blames late tax refunds for some of the declines in March. (…)
WE know that used car prices are set to weaken given the tsunami of cars getting off-leases this year and next. The good news is that inventories are being worked down.
(Bespoke)
Oil Drops as U.S. Drilling Growth Threatens to Counter OPEC Cuts
Oil prices climb on talk that OPEC could extend supply cut
Meanwhile in China:
- The Capital Economics GDP tracker (economic activity proxy) has converged with the official figures.
Source: Capital Economics via The Daily Shot
-
China steps up battle against property bubble Big cities escalate efforts to curb the soaring prices that are stoking anger
(…) At the conclusion of the annual session of China’s rubber-stamp parliament last week, the government pledged to “contain excessive home price rises in hot markets”. (…)
In recent days, authorities in Beijing and four provincial capitals — Guangzhou, Zhengzhou, Changsha, and Shijiazhuang — have all introduced new property tightening measures. They include higher downpayment requirements on second homes and restrictions on purchases of second or third homes. The moves add to restrictions rolled out in other capitals this month, including Nanjing, Qingdao and Sanya in the resort island of Hainan. (…)
Barriers to Trade Are Multiplying Fast Absent from the communiqué was the normal commitment to free trade
Trade barriers are on the rise as protectionism takes hold.
Source: @WSJ; h/t Tom via The Daily Shot
Conservative House Republicans Say They Have Votes to Block Health Bill Conservative House Republicans said they have enough votes to block the GOP’s legislation to dismantle the Affordable Care Act, as House leaders proposed changes to the bill in an effort to draw support.
-
Republicans move to save healthcare reform bill Party makes last-ditch effort to bridge divisions and keep Trump’s promise on track
Trump’s Slipping Approval Could Delay Tax Reform
(…) A continued decline in President
Trump’s approval rating could embolden Democrats and some members of his own party to resist the new legislation, which may eventually weigh on markets. Tax reform, one of the primary drivers behind recent market performance, has
taken a back seat to priority one: repealing and replacing Obamacare and passing a new budget.
The administration’s plans for substantial infrastructure spending may not occur until after tax reform has been completed. Meaning the expected implementation time for the aspects of the president’s plans that would most benefit markets continues to move further out in time.
Disagreements over the AHCA may not weigh too heavily on markets, but delays or strong resistance over tax reform could have a significant impact. (Bloomberg Briefs)
President Trump’s Proposed Budget’s Impact on Infrastructure
On Thursday, March 16, President Trump released his first proposed budget as president. Often referred to as the “skinny” budget because it is released soon after a President assumes office, the budget proposal included many cuts to infrastructure programs that in the past have been successful.
The following statement is from Norma Jean Mattei, President, American Society of Civil Engineers regarding the release of President Trump’s proposed budget for Fiscal Year 2018:
“President Trump’s proposed budget would eliminate funding for many of the programs designed to improve our nation’s infrastructure, which last week was graded a ‘D+’ in ASCE’s 2017 Infrastructure Report Card. This budget unfortunately does little to raise that grade for our aging roads, water systems, dams, and other infrastructure, the deficiencies of which currently cost each American family $3,400 per year in disposable income. (…)
While the Administration has suggested that the cuts made in the FY18 budget will be restored through an infrastructure-specific package, that is not the way to effectively invest in, modernize, and maintain our aging and underperforming infrastructure. Government programs that have proven successful should continue to be funded through authorizations and appropriations, to ensure consistent funding from year to year.”
A new form of ‘portfolio insurance’ sparks fears Popularity of trend-following funds — and their promises — carries echoes for some of 1987 crash
On Wall Street, bad ideas rarely die. They often go into hibernation until resurrected in a new form. And portfolio insurance — a leading contributor to the 1987 “Black Monday” crash — is, for some, making a return to markets.
Institutional investors are allocating billions of dollars to “risk mitigation” or “crisis risk offset” programmes that are designed to act as a counterweight when markets are in turmoil. They mostly comprise long-maturity government bonds and trend-following hedge funds, which tend to do well when equities plummet.
But some analysts and fund managers worry that if taken to extremes, allocations to trend-following “commodity trading advisors” hedge funds, in particular, could play the same role as an investment concept called portfolio insurance did in 1987, when it was blamed for aggravating the worst US stock market collapse in history. (…)
CTAs, which are also called managed futures funds, are computer-driven vehicles that take advantage of financial markets’ tendency towards momentum. Assets that have gone up tend to go up further, and assets that are falling typically continue to slide. CTAs therefore often automatically bet against an already-falling market, shorting it to profit from further declines, and usually thrive when other strategies are unravelling. (…)
Rookie Currency Traders Are Causing Trouble at Crucial Moments
(…) Tucked deep into a report on foreign-exchange market liquidity was a brief paragraph on how rookie traders could be partly to blame — along with falling volumes and the growing prevalence of electronic trading — for the flash crashes that have roiled the $5.1-trillion-a-day currency market over the past two years. One case the BIS found particularly worrisome was the time last October that the pound plunged 9 percent in a matter of minutes during early trading hours in Asia. The organization concluded that “less experienced” traders handicapped by a limited knowledge of which algorithms to use at that moment “amplified” the rout. (…)