Although the Dow hit 22,000 earlier this week, the rest of the stock indices were choppy. And despite positive earnings reports, underlying economic numbers aren’t so great. Earlier this week, personal income disappointed, rising just 0.1% and short of the estimated 0.4% gain. The Fed’s key inflation guide, the Personal Consumption Expenditures Price Index (PCE Price Index), came in at 1.5%, lagging a half percent behind the central bank’s target of 2%. Observed Lance Gaitan, Dent Research, August 4, 2017.
In July Gaitan submits, we added 209,000 jobs, beating expectations of 178,000. The headline unemployment rate fell to 4.3% and the participation rate ticked a little higher. Wage growth was a little lower than expected at 0.3% on an expectation of 0.4%. But, overall, not too bad.
Thanks to Dent Research, provided here is our weekly information roundup ending the week of August 4, 2017. We start each subject with what you hear in the news and finish with what that information means to you. We hope this information will help you separate the noise from the news.
U.S. Economy Added 209,000 Jobs in June… The unemployment rate fell 0.1% to 4.3%, and labor force participation edged up 0.1% to 62.9%
What it means – Goldilocks. In terms of what the markets wanted to hear, this report is perfect. The number of jobs created beat expectations, but weren’t so high as to raise the fear of sudden wage inflation. Labor force participation moved up a bit, showing that we’re pulling some of the long-term unemployed off the sidelines. A little deeper in the report, hourly earnings rose 0.3% for the month and are 2.5% higher for the year. Again, it’s good news for workers, but not enough to spook anyone.
But if life is so good, then why are thousands of people showing up for Amazon job fairs where their best hope is to land a gig as a warehouse picker? Maybe things aren’t so awesome in the real world.
The employment numbers always include the birth/death adjustment, where the Bureau of Labor Statistics guesstimates the net number of employees not captured in their survey. This month, their calculation added 158,000 jobs. I wonder how much those mythical jobs pay…
Factory Orders Up 3% on Aircraft Orders… Excluding transportation equipment, factory orders fell 0.2% last month.
What it means – The decline in ex-transportation equipment orders last month follows a drop in May and a flat reading in April. That makes a full calendar quarter with no growth outside of planes.
Orders for capital goods, a proxy for business investment, were almost as weak, coming in flat last month. These numbers partially explain why inflation remains low, which makes it harder for the Fed to justify more rate increases this year.
Japanese Wages Fell 0.4% for the Year through June, and Dropped 0.8% Adjusted for Inflation… Compensation fell, even though unemployment sits at a 23-year low of 2.8%.
What it means – Economically, Japan can’t get out of its own way. The government has tried for years to foster inflation and growth, but every step forward is followed by two steps back.
The latest drop in compensation is the first annual decline since, wait for it, May 2016. The point is, it’s happened often over the last two decades.
There was a bit of good news. Wages for temporary workers rose 3.1% in the same period to the highest level since August 2009. Unfortunately, these workers are paid a fraction of what regular employees receive. Japan is still barreling down the road to oblivion.
OPEC and Non-Members That Cut Production Are Unclear on Exit Strategy… OPEC members and a group of other producers agreed to cut supply last year to boost prices, with mixed results. As time goes on, the agreement’s March 2018 end date draws closer, and there’s no clear consensus on what will happen.
What it means – In the weeks just after this group agreed to production cuts, oil prices rebounded by 20%, far outpacing the drop in output, which gave the suppliers added revenue. That was the good news. But as the days rolled by, it became clear that American frackers also ramped up production and that many of the agreement participants didn’t stick to their production quotas. So, prices dropped back to the mid-$40s.
Oil prices rebounded in the last two weeks based on easing supply worries and slower growth in the U.S. rig count, but now there’s a new worry. What happens when the quotas end next March? The sudden jump in supply could put producers right back in the same quandary – too much oil and falling prices. As I’ve said before, it couldn’t happen to a nicer bunch.
Many of these producers extract oil for less than $10 per barrel, but they’ve based their national budgets – meaning public spending – on much higher levels, often higher than $70 per barrel. In the years since fracking took off, American oil producers have pushed down the breakeven price from the mid- $80s to less than $45 in many cases. As they get more efficient at production, we pay less for energy.
That’s a great trade, no matter how much budgetary pain it causes in other countries.
Auto Sales Improved Slightly in July, from 16.5 Million to 16.7 Million… The sales rate remains far below last year’s 17.5 million.
What it means – Sales declined dramatically over last year almost across the board, with General Motors down double-digits. The auto industry is adjusting to lower sales volume after combining big incentives and sales to less creditworthy customers for several years. Now that those two initiatives have run their course, Americans simply don’t need as many new cars. It’s not a hard concept to grasp, but it’s a difficult reality for many to accept.
The one bright spot for manufacturers is the possibility of a major shift to electric vehicles in the years ahead. But to make that happen, they’ll have to build cars a lot more attractive, and efficient, than the Chevy Volt and Bolt.
Swiss Banks Paid $970 Million in Negative Interest To Central Bank in First Half of 2017... The Swiss National Bank started charging banks to hold their deposits, essentially negative interest, in January 2015. The rate is now minus 0.75%.
What it means – Apparently, a lot of people would rather pay negative interest than part with their cash. The major Swiss banks, UBS, Credit Suisse, and Julius Baer, reported that cash holdings barely dipped from the first quarter of this year to the second, holding steady at just over 20%. This is well below the levels just after the financial crisis, but still far above cash levels of the mid-2000s.
Wealthy individuals are willing to pay for the privilege of holding large sums of cash, even as the central banks of Europe do everything they can to encourage spending and investment.
Maybe Europe’s banking and financial system isn’t quite as “recovered” as financial officials would have us believe.
Former Greek Statistics Chief Convicted of Breach of Duty… An appeals court convicted Andreas Georgiou of failing
Next Week – The second week of August includes a report on consumer prices, and public speeches by four Fed officials.
The proof is in the planning.
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