U.S. Productivity Growth Accelerates; Unit Labor Costs Decline
Output per hour in the nonfarm business sector grew at an unrevised 3.0% annual rate (1.5% y/y) in the third quarter following a 1.5% Q2 gain. It was the quickest productivity increase in three years. A 3.3% rise had been expected in the Action Economics Forecast Survey. Output rose 4.1% (3.0% y/y) while hours-worked gained 1.1% (1.5% y/y).
Unit labor costs declined 0.2%, revised from +0.5%, following a 1.2% fall. A 0.2% rise had been expected. Compensation costs increased 2.7% last quarter (0.8% y/y), revised from 3.5%, after a 0.3% gain.
In the manufacturing sector, productivity declined 4.4% (+0.3% y/y) last quarter, revised from -5.0%, following a 3.6% Q2 rise. Output fell 1.1% (+1.5% y/y) while hours-worked lengthened 3.5% (1.2% y/y).
Unit labor costs in the factory sector strengthened 4.8% during Q3 (0.3% y/y) following a 1.2% decline. Compensation per hour grew 0.2% (0.6% y/y) following a 2.3% rise.
U.S. Trade Deficit Deepens as Petroleum Imports Surge
The U.S. trade deficit in goods and services increased to $48.7 billion in October from $44.9 billion in September, revised from $43.5 billion. A $46.6 billion deficit had been expected in the Action Economics Forecast Survey. Total exports were little changed (5.6% y/y) after a 1.1% increase in September. Imports strengthened 1.6% (7.0% y/y) after a 1.2% rise.
Deterioration in the goods deficit to $68.1 billion from $64.0 billion led the increase in the total deficit. Merchandise imports gained 1.8% (7.4% y/y), the largest monthly rise since January. Industrial supplies & materials imports rose 4.3% (13.8% y/y), reflecting a gain in petroleum imports. Nonauto consumer goods imports increased 1.6% (1.5% y/y) after a 0.7% rise, while auto imports gained 0.2% (1.5% y/y) following a 1.8% decline. Foods, feeds & beverage imports gained 0.1% (8.1% y/y) following a 1.8% surge. Nonauto capital goods imports eased 0.4% (+10.7% y/y) after a 2.8% surge. (…)
The value of nonpetroleum imports increased 1.3% (6.7% y/y), about the same as in September. (…)
FROM THE MOST RECENT BEIGE BOOK:
- Pre-holiday reports of consumer spending on retail and autos were mixed but largely flat.
- Residential real estate activity remained constrained, with most Districts reporting little growth in sales or construction.
- Employment growth has increased since the previous report, with most Districts characterizing growth as modest to moderate.
- Reports of tightness in the labor market were widespread. Most Districts reported employers were having difficulties finding qualified workers across various skill levels, and several Districts reported that an inability to find workers with the required skills was a key factor restraining hiring plans. Wage growth was modest or moderate in most Districts. Wage increases were most notable for professional, technical, and production positions that remain difficult to fill. Many Districts reported that employers were raising wages as well as increasing their use of signing bonuses and other nonwage benefits to retain or attract employees.
- Price pressures have strengthened since the last report. Most Districts reported modest to moderate growth in selling prices and moderate increases in non-labor input costs. In particular, construction-material costs rose in most regions, with many Districts citing increased lumber costs and/or increases in demand for materials due to hurricane rebuilding efforts.
- Residential real estate prices generally increased as well. There were also reports of increases in costs in the transportation sector. Additionally, several Districts noted input cost increases in manufacturing. In many cases, these increases in transportation and manufacturing were passed through to consumers. Fuel prices also rose, with multiple Districts reporting upward pressure on oil and natural gas prices. However, agricultural price pressures remain mixed.
Challenger Shows Worst November For Job Cuts Since 2012
The sectors with the largest job cuts in November were Healthcare, Consumer products, and Services.
GE Plans 12,000 Job Cuts as New CEO Revamps Power Unit
- That plan is part of a larger effort to cut $3.5 billion of expenses across the company through 2018.
- The reductions, accounting for about 18 percent of GE Power’s workforce, include both professional and production employees.
- While GE didn’t specify where the job cuts will come, the bulk will be outside the U.S., according to a person familiar with the matter who asked not to be identified discussing the details.
Positions in France won’t be affected due to stipulations in an agreement when GE bought Alstom SA’s energy business in 2015.- “Alstom has clearly performed below our expectations,†Flannery said last month, referring to the assets acquired from the French company.
- (…) At the end of 2016, GE had around 295,000 employees.
Bank of Canada keeps rate hike options open
Stephen Poloz is no closer to pulling the trigger on another interest-rate hike in spite of a run of good economic news.
The Bank of Canada Governor underscored the cautious tone as he kept the central bank’s benchmark overnight rate at 1 per cent on Wednesday – its final rate decision of 2017. And he offered no clear indication about when the bank might hike again.
The Bank of Canada has already raised interest rates twice this year – in July and September – as it works to gradually return rates to more normal levels.
“While higher interest rates will likely be required over time, [the bank] will continue to be cautious, guided by incoming data in assessing the economy’s sensitivity to interest rates, the evolution of economic capacity, and the dynamics of both wage growth and inflation,” the bank said in a statement accompanying its rate decision. That sentence repeats nearly word for word the language of its statement in October, when the bank also left rates unchanged.
Investors had been looking for a hint from the central bank that another hike might be coming as early as January after a string of surprisingly good economic reports – on jobs, growth and exports. They didn’t get it, and the Canadian dollar promptly lost nearly a full cent on Wednesday to 78.39 cents (U.S.). (…)
Among the things possibly holding Mr. Poloz back is potential failure of talks with the United States to renegotiate the North American free-trade agreement. The threat of NAFTA’s demise has put a chill on business investment in Canada, particularly in the manufacturing sector.
The bank’s statement mentions only that the global outlook is still facing “considerable uncertainty” related to “geopolitical developments and trade policies.” (…)
Indeed, much of the Bank of Canada’s statement highlighted positives for the economy, including “above potential” second-half GDP growth, “very strong” job gains, “robust” consumer spending and October’s resumption in export growth.
Even inflation, which has remained stubbornly below the central bank’s 2-per-cent target for years, is showing signs of life amid “diminishing” labour-market slack, according to the statement.
“Inflation has been slightly higher than anticipated and will continue to be boosted in the short term by temporary factors, particularly gasoline prices,” the bank said.
Another outlier in the otherwise bullish outlook is the slowing housing market. But a cool down of the hottest housing markets in Toronto and Vancouver is exactly what the central bank wants in the face of record household debt. Canadians owe $1.68 (Canadian) for every dollar of disposable income. (…)
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The BoC remains complacent about labour market slack
The Bank of Canada (BoC) kept its overnight rate at 1% today but recognized that the recent uptrend in core inflation reflects “the continued absorption of economic slack†on the back of “very strong†employment growth and “improving wages†that supported “robust consumer spending in the third quarterâ€. We already know that the jobless rate fell to a 40-year low in November, that hourly wage inflation accelerated to a two-year high, and that core inflation moved higher. So surely, more capacity was absorbed in the fourth quarter.
Yet, the BoC still claims that its in-house measure of labour market tightness shows slack. As argued in our most recent special report, the BoC’s indicator understates labour market tightness because it is skewed by two components. Correct for this anomaly as we did and Canadian labour markets are just as tight as they were a decade ago. If we are right, wage inflation will continue to percolate and force our central bank to raise rates perhaps as early as January 2018. NAFTA-related uncertainty, not labour market slack, is the only reasonable argument left for keeping interest rates below inflation at this point in the economic cycle. Be wary of our data-dependent central bank’s foot dragging. (NBF)
Weak revenues set to temper US banks’ optimism Fourth-quarter results likely to douse some cheer over prospects for looser regulation
(…) John Gerspach, chief financial officer at Citigroup, told a Goldman Sachs-sponsored conference this week that revenues from trading would be down in “the high teens†from a year earlier. In response, analysts at Credit Suisse cut forecast profits for the bank as a whole by about 4 per cent for the final three months of the year. Elsewhere, top executives at Bank of America and JPMorgan Chase said trading revenues were likely to drop about 15 per cent. “The environment hasn’t really changed. Volatility remains pretty low across the spectrum,†said Marianne Lake, JPMorgan’s chief financial officer. (…)
Citigroup CFO Sees $20 Billion Hit If Senate Tax Bill Signed
Citigroup Inc. expects to take a noncash charge to earnings of about $20 billion if the U.S. Senate’s version of the tax reform bill is enacted, Chief Financial Officer John Gerspach said.
The hit to profit would mostly stem from the bank writing down its deferred tax assets in the period the bill is signed, Gerspach said Wednesday at an investor conference in New York. About $3 billion to $4 billion of the charge would come from the taxation of unremitted foreign earnings.
JPMorgan Chase & Co. said Tuesday it expects a charge of as much as $2 billion, largely driven by foreign earnings facing taxation, while Capital One Financial Corp. said Wednesday it would expect a $1.8 billion adjustment to its deferred tax assets. (…)
Much of the DTAs are excluded from counting as regulatory capital, so the writedowns won’t have a large impact on those ratios. Gerspach said the reduction to regulatory capital would be about $4 billion and that means the amount it has planned to return to shareholders through dividends and stock buybacks over the coming years won’t change.
Still, it’s a larger reduction to regulatory capital than the bank’s illustration in July, which had assumed a $2 billion cut. (…)
That is a $7.55 hit (9.2%) to book value per share. C now trades at about the new BVPS with expected ROE of 8.0% in 2018. By comparison, BAC is at 1.2x BVPS with a 9.3% ROE. JPM: 1.6x with 11.3% ROE.
Speaking of banks, here’s a research piece unlike what you are used to read from brokerage analysts:
Draft letter to US regulators says financial system ill-prepared for cryptocurrencies
Ray Dalio: