Thanks to Dent Research, provided here is our weekly information roundup ending the week on May 6, 2016. We hope this information will help you separate the noise from the news. We start each subject with what you hear in the news and finish with what that information means to you.
U.S. Economy Added 160,000 Jobs in April, Well Below Expectations… The April figure is far below the 2016 monthly average of 225,000.
What it means – Journalists will spill a lot of ink in tomorrow’s paper over this one. They shouldn’t waste the space. It’s one month, and is nothing more than a reminder that things aren’t all sunshine and roses across the economic landscape. The report did contain a positive – wages are up 2.5% over the same period last year. With inflation running around 1.5%, that gives the average worker a whopping 1% jump in buying power. That’s nothing to write home about.
For those keeping track of our old friend – the birth/death adjustment, which the Bureau of Labor Statistics uses to guess how many net jobs were added by small businesses that aren’t part of the survey – the model added 233,000 jobs in April. Without this, the headline number would have been down 73,000.
U.S. Productivity Dropped 1.0% in the First Quarter… Productivity has declined in four of the last six quarters.
What it means – Productivity measures the change in output compared with the change in labor costs. If companies are paying more, then arguably they should be producing more. Falling productivity implies companies are paying more but not getting the same increase in output. That’s bad.
Productivity gains fuel rising standards of living, and healthy corporate profits. Falling productivity implies that new workers aren’t productive, existing workers are tapped out, and that demand is more or less flat. If businesses sell more units, then additional workers should produce additional gains in output.
Without increasing productivity, businesses will resist raising wages, since the money will have to come out of existing earnings.
U.S. Factory Orders Up 1.1% in March after Falling 1.9% in February… Defense goods, especially aircraft, boosted orders. Capital goods, which are a proxy for business investment, rose a mere 0.1% after falling 2.7% in February.
What it means – After trending lower for more than six months, factory orders might be stabilizing at a lower level. But that’s not the same as a positive reversal. This is another sign that we’re plodding along, not falling into the depths of a severe downturn, but not making much progress toward a solid recovery either.
Japanese Yen Falls Below 106 per U.S. Dollar Before Rebounding… The yen started the year above 120 per dollar. It has strengthened in the face of continued QE by the Bank of Japan (BoJ), as well as negative interest rates.
What it means – No one knows what the BoJ will do next. I think that includes officials at the BoJ. The central bank keeps buying trillions of yen worth of government bonds, is now a top 10 owner of 90% of the stocks on the Nikkei 225 stock market average, and recently implemented negative interest rates. In the face of all that, the Japanese yen keeps appreciating. This doesn’t mean Japan is a great place to invest. It means other locales, like China, are so scary as to send investors running for safe havens.
The main drivers of change in the Japanese system are the BoJ and the government pension fund, which holds more than $1 trillion of investments. Neither of these institutions wants to torpedo the economy, which gives investors some comfort that their funds are stable.
Still, Japan risks not only another recession, but falling back into deflation. To fight these trends, the BoJ will have to do something. I still expect a money drop of some sort, where the government ships money to citizens on the condition they spend it. This would send the yen soaring well above 125.
The Reserve Bank of Australia Cut Interest Rates by 0.25%… The move from 2.00% to 1.75% was not expected. The central bank noted that it cut rates to fight deflationary forces.
What it means – Normally, monetary issues in a tiny country on the other side of the planet wouldn’t be of interest to anyone, but these aren’t normal times. The problems in Australia point to the continued issues in China, a main buyer of Aussie natural resources.
With the Chinese economy still on the ropes, it’s a good bet that more Chinese companies will default on their debt, potentially exposing the second largest economy on the planet to an all-out credit crisis. This is still the most likely catalyst for the next financial meltdown.
The European Commission (EC) Proposes Charging Member Nations $290,000 per Refugee Refused Asylum… EC officials are trying to force all member nations to share the burden of the refugee crisis.
What it means – Some far away bureaucratic commission demanding that a country take refugees or pay a hefty fine? If the Brits needed another reason to consider leaving the union, this is a good one! The U.K. isn’t part of this latest proposal because the country has received so many refugee applicants recently, but still, this flies in the face of sovereignty. Hungarian officials have already called the proposal outrageous and unworkable.
Next Week – The week of May 9 brings very few economic reports of note. The Census Bureau reports retail sales on Friday.
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