World Economy Edges Closer to a Recession as Trade Fears Spread
(…) New Zealand’s central bank on Wednesday stunned investors by dropping its benchmark rate by 50 basis points, double the expected reduction and sending the kiwi tumbling. Thailand also surprised, cutting by 25 basis points. India’s central bank lowered its rate by an unconventional 35 basis points. (…)
Morgan Stanley economists predict that if the U.S. puts 25% tariffs on all Chinese imports for four to six months and the country hits back, a global economic contraction is likely within three quarters. The tensions also extend beyond the U.S and China to include Japan and South Korea as well as Britain’s future relationship with the European Union. (…)
While central banks would likely cut interest rates and perhaps resume quantitative easing, that may no longer be enough to revive animal spirits this time and governments might not be fast enough to loosen fiscal policy.
“With no end in sight, there are significant downside risks to our forecasts for U.S. and global growth,” Bank of America Corp. economists warned clients this week. “If the trade war escalates — this could include a more explicit currency war — uncertainty would be considerably higher and financial conditions much tighter.” (…)
U.S. JOLTS: Job Openings Rate Slips; Hiring Rate Steadies
The Bureau of Labor Statistics reported that the total job openings rate eased to 4.6% during June from 4.7% in May, revised from 4.6%. It remained below the 4.8% record logged early this year. The job openings rate is the job openings level as a percent of total employment plus the job openings level. The ability to find workers to fill openings remained difficult. The hiring rate held steady at 3.8%. It has been below the openings rate since mid-2014. Employers are still reluctant to let people go. The layoff & discharge rate has returned to the record low of 1.1%. Individuals remain ready to find new work. The quits rate in June held steady at a near-record 2.3% where it’s been since last year.
The private-sector job openings rate also held steady m/m at 4.9%. It remained below the 5.2% record reached in November. The rate has increased from 4.6% early last year and from the 2.0% average at the recession low in 2009. (…) The government sector job openings rate improved to a near-record 3.1%, up sharply from the 2009 low of 1.2%.
Job availability fell slightly m/m, but nevertheless remained plentiful. The level of job openings eased a modest 0.5% (-0.6% y/y) to 7.348 million after improving 0.2% to 7.384 million in May. These figures are just below the record high. Private-sector openings fell 1.8% y/y while government sector job openings jumped by one-third y/y.
Hiring activity remained stable. The private-sector hiring rate held at 4.2% and remained below January’s expansion high of 4.4%.(…) The hiring rate in government remained at 1.6%.
Haver Analytics focuses on opening and hiring rates. I prefer to look at the actual number of openings and hires. Openings have dropped 3.6% since peaking at the end of 2018. The decline is worse in the private sector: –4.8%
The YoY trends: total non-farm: openings –0.6%, hires –2.2%. Private sector: openings –1.8%, hires –2.0%.
Hmmm…how tight is this labor market?
China Keeps Official Yuan Rate Just Stronger Than 7 Per Dollar China set a daily anchor for trading in its currency at the weakest since 2008 but again avoided moving that official rate beyond the symbolic 7-yuan-per-dollar level.
China Deals ‘Body Blow’ to Struggling U.S. Farm Belt Farmers, agricultural groups decry retaliatory move to stop buying U.S. crops and livestock
China’s move will affect farmers raising fuzzy green soybean pods in Illinois, milking cows in California and feeding hogs in North Carolina, all of whom have seen business suffer as a result of tariffs that Chinese officials implemented last year. (…)
Feeding China’s growing appetite has meant big business for the U.S. farm economy. China was one of the biggest export destinations for U.S. agricultural commodities from 2009 to 2017 alongside Canada and Mexico, according to the U.S. Department of Agriculture. In 2017, Chinese buyers imported $19.5 billion in farm goods. (…)
That dropped to $9.1 billion last year as China’s tariffs on U.S. soybeans, pork, milk and other products made them more expensive for importers there, prompting some to seek alternatives and scale back imports from the U.S. Over the first six months of this year, China’s agricultural imports from the U.S. were down 20% from the same period last year. (…) Jim Mulhern, chief executive of the National Milk Producers Federation, said dairy exports to China have dropped 54% so far this year.
Given the scale of China’s agricultural imports, it would be hard for U.S. farmers to make up for those sales even with much higher exports to other nations, economists say. (…)
The USDA last week began signing up farmers for a program that will disperse about $14.5 billion to U.S. farms, following a roughly $10 billion program last year. Farmers say the government payments will help but likely won’t make them whole. (…)
Research firm Trade Partnership Worldwide LLC projected in February that tariffs on U.S. exports could cost the country’s agricultural sector 59,000 to 71,000 jobs over the next two years. (…)
The sheer scale of China’s need for farm commodities including soybeans make it likely that the country would need to turn to the U.S. eventually, said Terry Reilly, senior agriculture futures analyst at brokerage firm Futures International. (…)
Archer Daniels Midland Co. , after reporting a 58.5% decline in quarterly earnings last week, warned that China is becoming more comfortable buying food elsewhere, recently approving poultry imports from Russia and pork shipments from Argentina.
“People find alternatives, and eventually, they become a little bit more comfortable with those alternatives,” said Juan Luciano, ADM’s chief executive. “This is not good for the U.S. farmer. This is not good for the percentage of U.S. in the export markets.” (…)
Cautious calm returns as White House softens trade war rhetoric
This Reuters’ headline is not supported by any factual “White House rhetoric” in the body of the article. I searched around and really found nothing to support that. Same with this other Reuters’ headline: Trump dismisses fears of long-lasting trade war
Tariff Fears Caused a U.S. Import Surge. Now Warehouses Are Full
A short drive outside Los Angeles lies one of the world’s biggest warehouse complexes. Gene Seroka says its 1.8 billion square feet of capacity — enough room to house 9 million cars — is “bursting at the seams.”
The warehouse district is part of the Inland Empire, serving the port of Long Beach and the twin port of Los Angeles, where Seroka is executive director. Together they handle almost half of American’s maritime trade with China. If you live in the U.S., especially the western half, your toothbrush, television or shoes may well have passed through the Empire. (…)
Now, Seroka says that spare room is down to an unprecedentedly low level of about 1%-2%. Try to squeeze in more stuff, in other words, and it’ll be impossible to drive forklifts around or even walk the aisles. (…)
Reuters’ Exclusive: China warns India of ‘reverse sanctions’ if Huawei is blocked – sources
China has told India not to block its Huawei Technologies [HWT.UL] from doing business in the country, warning there could be consequences for Indian firms operating in China, sources with knowledge of the matter said.
India is due to hold trials for installing a next-generation 5G cellular network in the next few months, but has not yet taken a call on whether it would invite the Chinese telecoms equipment maker to take part, telecoms minister Ravi Shankar Prasad has said. (…)
A high-level group of officials, led by the Principal Scientific Adviser to the Indian government K Vijay Raghavan and including representatives from the departments of telecoms, information technology and the intelligence services, has been looking into whether to open the 5G trials to Huawei.
The committee has found no evidence to suggest Huawei has used “back-door” programs or malware to collect data in its current operations in India, the first source and another official in the federal telecoms ministry said.
The interior ministry, which is responsible for the security of the infrastructure, had issued no directive to curtail Huawei’s entry, the telecoms official said.
“We can’t simply reject them just because they are Chinese,” said the official. (…)
Global Oil Prices Slide Into Bear Market Brent crude has fallen more than 20% from an April high amid fresh concerns that the U.S.-China trade war will hurt the global economy and curb fuel consumption.
Heavy-Duty Truck Orders Hit Lowest Level in Nine Years Decline comes as truckers point to excess capacity and dimming industrial shipping demand
(…) FTR, which tracks equipment purchases by freight transportation carriers, said orders for heavy-duty trucks in North America fell to 9,800 in July, down 82% from a year ago. Separately, ACT Research said it counted 10,200 orders last month, the fewest it has measured in a month since February 2010. Figures for both groups were preliminary, with final reports due later this month. (…)
DAT Solutions LLC, which matches available trucks to companies looking to move goods in trucking’s spot market, said its measure of capacity in that arena was up 22.6% in July from a year ago while demand was down 37.3%. Several trucking companies said in their second-quarter earnings reports that increases in contract rates also have pulled back since the start of the year.
Truckers say a big part of the waning demand comes from weakness in the manufacturing sector. (…) FTR now expects factory output of heavy-duty trucks to decline 22% next year to about 275,000 units, down from the 353,000 units forecast for 2019, Mr. Ake said. (…)
America’s Pension Funds Fell Short in 2019 Public plans with more than $1 billion in assets earned a median return of 6.79% for the year ended June 30, the lowest since 2016
Public pension plans fell short of their projected returns this year, adding to the burden on governments struggling to fund promised benefits to retired workers. (…) Public pension plans project a median long-term return of 7.25%, according to data collected by Wilshire Associates in 2018. (…)
But those returns still haven’t brought pension funding levels close to what is needed to pay for future benefits. State and local pension plans have about $4.4 trillion in assets according to the Federal Reserve, $4.2 trillion less than they need to pay for promised future benefits. Contributing factors include increasing lifespans, overoptimistic return assumptions, and government decisions to skimp on pension payments. (…)
Robots and firms
(…) Figure 1, constructed from the ESEE dataset, provides a clear indication that firm heterogeneity in the adoption of robots matters greatly for the labour market effects of robot technology. It demonstrates that firms that adopted robots between 1990 and 1998 (‘robot adopters’) increased the number of jobs by more than 50% between 1998 and 2016, while firms that did not adopt robots (‘non-adopters’) reduced the number of jobs by more than 20% over the same period. From macro-level information on robot use, as employed in the existing literature, it is impossible to identify and investigate this striking pattern in the data. (…)
Figure 1 Evolution of firm-level employment for robot adopters versus non-adopters
Notes: The figure depicts the evolution of average firm-level employment (measured by the number of workers) in a balanced sample of firms from 1990-2016, separately for robot adopters (solid black line) and non-adopters (dashed grey line). Robot adopters are defined as firms that entered the sample in 1990 and had adopted robots by 1998. Non-adopters are firms that never use robots over the whole sample period.
We provide strong support for a hitherto neglected mechanism, namely, that robot adopters expand their scale of operations and create jobs, while non-adopters experience negative output and employment effects in the face of tougher competition with high-technology firms. Aggregate productivity gains are partly driven by substantial intra-industry reallocation of market shares and resources following a more widespread diffusion of robot technology, and a polarization between high-productivity robot adopters and low-productivity non-adopters.
1 thought on “THE DAILY EDGE: 7 AUGUST 2019”
Just jumped down the rabbit hole of money velocity, wondering about liquidity, wondering what the hell is going on these days. My conclusion should ring a bell to anyone who has ever pondered if trump is the right person to be ruling the world. As step one, step back a few years and recall that trump went bankrupt at least 5 times — and most of those great deals he managed, went to court, where as part of settlement, details as to how his debt was restructured are in closed records, that apparently not even the IRS can obtain.
Step 2 is essentially taking a leap of faith that trump’s hidden bankruptcy exploits are a pattern which is now being repeated, i.e., instead of playing the big stakes leverage game with his debt and his bankers and his messes, he’s playing his same game with America and our treasury and Fed. Ponder his abusive threats to Fed Chairman Powell to lower rates on one hand, while on the other hand, he explodes the deficit by trillions — playing Peter against Paul in a game that ends in bankruptcy, where he walks away blaming someone else.
With that summation keep in mind that the global economy and the subtle recovery from The Great Recession was at best fragile — then trump entered the picture, providing the world with his style of economic chaos, which will only increase in intensity and insanity.
It’s worth reading a few background blog posts to gain a bit of understanding as to why this is a dangerous time, not just because of trump, but because the global economy is fragile. Look no further than a decline in private investment: “DeLong and Summers (1991) found that the post-World War II cross-
country dataset contained an extraordinarily strong correlation between
growth and private investment in machinery and equipment. Public
investment by state-owned monopolies did not do it. Investment in
structures did not do it. The correlation was very strong in OECD-class
and middle-income economies.”
Also see:
==> ll economies rely heavily on the business sector to lead the growth process. Yet, a sharp decline in GDP per dollar of business debt occurred in the U.S. during the past nine years, reinforcing the underlying trend since the early 1950s. In 1952, $3.42 of GDP was generated for every dollar of business debt, compared with only $1.39 in 2017. In the corporate sector, where capital as well as technology is most readily available, GDP generated per dollar of debt fell from $4.50 in 1952 to $2.50 in 2007 to $2.21 last year. The dismal trend in productivity confirms this conclusion. The percent change for productivity in the last five years (2017-2012) was equal to the lowest of all five-year spans since 1952. It was also less than half the average growth over that period.
http://econintersect.com/pages/investing/investing.php?post=201804282237
==> “But within a few quarters, we will be facing outright deflation. The Fed is going to monetize at least a portion of what will be a $1+ trillion dollar US deficit. They have announced they are going to purchase $800 billion in mortgage-backed and other types of consumer loan assets. That will be a direct infusion of dollars into the economy. That is serious monetization. But they may feel they have no choice if they want to keep the US economy from going Japanese.”
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