THE DAILY EDGE (7 September 2016)

U.S. Service-Sector Index Shows Slowest Growth Since 2010 A gauge of U.S. service-sector activity sank in August to its lowest level in more than six years, signaling slowing growth in key sectors of the U.S. economy ahead of a policy meeting of Federal Reserve officials.

The Institute for Supply Management on Tuesday said its nonmanufacturing index fell to 51.4 in August from 55.5 in July, the lowest reading since February 2010, and well below a consensus expectation of 55.0 from economists surveyed by The Wall Street Journal. (…)

Anthony Nieves, who oversees the ISM survey, said it was too early to gauge whether a sustained slowdown had arrived, and noted that despite attempts to adjust for seasonality, this could just be an August lull. He added that July’s growth rate was “not a sustainable level.”

But many of the details of Tuesday’s report showed steep drops, particularly in key indexes such as business-activity and new orders. Both dropped from near 60 in July to below 52 in August, indicating substantial slowdowns in growth. The employment index edged lower in August to 50.7, from 51.4 in July.

A total of 11 nonmanufacturing industries tracked by ISM reported growth last month, while seven sectors reported contraction.

(…) monthly economic data suggest GDP growth will be at least 3% at an annualized rate, while the weighted average of the two ISM indexes is at a level that historically signals GDP growth of only 0.5%. (…)

Bespoke Investment:

(…) it was truly an ugly reading.  Not only was it the weakest report relative to expectations since April 2011, but it was also the lowest monthly reading since February 2010, and the biggest monthly drop since November 2008.

It may be an “August lull” although Monday’s Markit’s Services PMI also clocked at 51.0 from 51.4.

• First Factories, Now Services Signal Cracks in U.S. Economy

The Labor Market Conditions Index Goes Negative

The latest LMCI update came in at -0.7. The previous month was revised upward to 1.3 (previously 1.0). The cumulative index (discussed below) peaked eight months ago in December 2015.

Hmmm…

Judge Allows Hanjin Ships to Dock Safely in U.S. Ports Container ships operated by South Korea’s Hanjin Shipping Co., now stranded at sea, soon should be able to dock in U.S. ports, but it remains unclear if the company can afford to pay the army of workers needed to unload the ships.

Heavy-Duty Truck Orders Extend Slump Trucking fleets ordered about 14,000 big rigs in August, down sharply from a year ago, as a weak freight market weighed

(…) Trucking fleets ordered 14,000 Class 8 trucks, which are used for long-haul routes, down 35% from a year earlier and marking the weakest August since 2010, according to research firm FTR. (…)

Even so, the August orders marked an improvement from July, when orders fell to their lowest level since the recession, and a spike in cancelled orders last month wasn’t repeated. However, trucking companies need to buy as many as 19,000 trucks a month just to replace vehicles that are taken out of service. (…)

Manhattan’s Luxury Real Estate Slowdown Is Spreading to Other Price Tiers

(…) When looking at the second highest tier of the price bucket, or sales just below the top 20 percent of the market but above the bottom 60 percent, the slowdown is increasing at an even faster clip. (…)

According to Rao, much of the slowdown can be attributed to a huge boom in supply as developers rushed to build luxury condos in 2014, as well as a stronger U.S. dollar that made it more expensive for foreign buyers to snatch up U.S. real estate.  (…)

Now Companies Are Getting Paid to Borrow European companies Henkel and Sanofi sold bonds with negative yields, taking advantage of ultralow interest rates spurred by the ECB’s corporate bond-buying program.

(…) Both deals will put buyers only narrowly in the red—they each priced with a yield of minus-0.05%—and both were part of larger packages that included bonds with low but positive yields, the notices said. (…)

Tuesday’s deals, however, are among just a handful of corporate offerings that have actually been sold at negative yields. They include offerings of euro-denominated bonds earlier this year by units of British oil giant BPPLC and German auto maker BMW AG, according to Dealogic. Germany’s state rail operator, Deutsche Bahn AG, also has issued euro-denominated bonds at negative yields. (…)

Americans Drive to a New Record in Gasoline Consumption It took nearly nine years for total fuel use to surpass its prerecession peak

Americans purchased about 406 million gallons of gasoline per day, on average, in June, according to data the U.S. Energy Information Administration released last week. That just surpassed a previous record set in July 2007. Given that fuel consumption typically peaks for the year in July or August, when road-trip season is in full swing, Americans likely purchased an all-time record volume of gasoline this summer. (…)

But miles driven recovered to prerecession levels in late 2014, so efficiency is also playing a role. And when gasoline reached record-setting prices, buyers favored smaller, fuel-efficient vehicles to pickup trucks and SUVs. Many of those smaller cars are still on the road.

The average fuel economy of vehicles purchased in August was 25.3 miles per gallon, according to the University of Michigan Transportation Research Institute. That’s up more than 25% from October 2007, the first month for which data is available.

But lower fuel prices the past two years have renewed interest in larger vehicles. Average fuel economy of newly purchased cars and trucks was a half mile per gallon less in August than in the same month in 2014.

Gasoline Glut Threatens a Crude-Oil Rally Fueled by Car Travel Surging demand from drivers in the richest countries helped power a big rally in crude this year. But many analysts say that surge is ending.

In the U.S., lower gasoline prices led consumers to drive a record three trillion miles in the past 12 months. In June, gas consumption hit an all-time high, 9.7 million barrels a day. And in July, pickup trucks, SUVs and other gas guzzlers reached a record share of auto sales. (…)

Data last week showed U.S. stockpiles of crude and refined fuels growing to a record. Supplies of crude, gasoline and diesel are so high that even record demand hasn’t been enough to balance the market. Global gasoline storage has been filled to a near-record level all summer, almost 500 million barrels, according to Citigroup Inc.

The trend has forced investors and analysts to tear up predictions that oil prices would rally in the second half of this year. Morgan Stanleysliced its third-quarter forecast to $45 from $50 a barrel, saying it had overestimated demand that is now decelerating in important markets. (…)

Martin Wolf: The tide of globalisation is turning

Trade liberalisation has stalled and one can see a steady rise in protectionist measures

Percentage of Uninsured Historically Low Some 8.6% of people in the U.S. said they lack health insurance in a new survey

That translates to about 27.3 million people who lacked medical insurance when they were asked about it between January and March as part of the Centers for Disease Control and Prevention’s National Health Interview Survey. The previous survey, covering the whole of 2015, had put the figure at 9.1%, or about 1.3 million more people. CDC officials said the latest reduction wasn’t statistically significant.

For supporters of the 2010 Affordable Care Act, the data show the law has had an impact in its stated goal of lowering the number of people without coverage, through a combination of public and private health insurance. The uninsured rate, according to the CDC survey, stood at 16% in 2010, the year the law was passed, and 14.4% in 2013, the year before its main provisions were implemented. (…)

Health plans say premiums will continue to rise unless the number and makeup of enrollees change significantly, with more young, healthy individuals signing up for coverage to balance the costly claims incurred by older and less healthy people who currently have it. (…)

And the young consumers prized by insurers are almost twice as likely to be uninsured as older ones. Some 15.9% of 25-to-34-year-olds were uninsured in early 2016, the survey found. Among 45-to-64-year-olds, only 8.1% were uninsured.

Hispanic adults aged 18 to 64 were significantly more likely to be uninsured, with 24.5% of those interviewed reporting they lacked a health plan at the time of the interview.

For white respondents the figure was 8.4%, while among black respondents 13% said they didn’t have coverage.

Separately, the figures also show a notable uptick in people enrolled in a high-deductible health plan, which have become popular offerings by employers and individual insurers in recent years as the enrollee bears a greater share of the costs in exchange for lower premiums.

Around 40% of people under age 65 were in such a plan when interviewed earlier this year, the CDC said. That proportion has steadily climbed from 25.3% in 2010.

SENTIMENT WATCH

• It didn’t take very long: the Citi US Economic Surprise Index is back below zero as a result of the ISM disappointment. (The Daily Shot)

• BofA: “Bad News Is Good News Has Played Out”, Any More Weak Data “Will Be Met With Market Skepticism”

• Be Careful What You Buy in Emerging Markets, BlackRock Warns

• The Swiss Begin To Hoard Cash