The next jobs report could stink because of 35,000 people
Friday's jobs report would be better if Verizon workers were not on strike. Economists forecast that nonfarm payrolls grew by 160,000 in May, unchanged from the prior month, according to Bloomberg.
But they think the job gains could have been higher. Nearly 40,000 Verizon workers walked off the job after contract negotiations fell apart; unions had been in talks with the company about plans to cut benefits over a three-year period.
They announced a deal on Monday that could end the seven-week strike. But the dent to the jobs report has already happened. The strike was on during the reference period for the establishment survey, which usually includes the 12th day of the month. Here's Barclays' Jesse Hurwitz, writing in a recent client note:
As we had expected, the Verizon worker strike that began on April 13 and continued through the May reference week will likely depress monthly nonfarm payroll growth in next Friday's report. The magnitude of the BLS strike estimate is in line with media reports and our expectations (30-40k) and bolsters our confidence that information sector payrolls will register a sharp temporary decline in May. Specifically, we expect the gross strike effect to show up in the Labor Department's estimate of wired telecommunications carriers employment (NAICS code 5171), which is a subcomponent of information payroll employment.
U.S. companies are selling debt in euros to buy back shares
U.S. companies are scrambling to compete with European companies to issue low-price euro-denominated bonds and take advantage of the quantitative easing currently being conducted by the European Central Bank, according to Fitch Ratings.
Since March of last year, the ECB has been buying back about 80 billion euros of mostly government bonds every month, in a program that was recently expanded and extended to include corporate bonds. The ECB is aiming to drive down the interest rates paid by companies on their bonds and encourage banks to lend, boosting the economy and pushing low inflation readings upward.
Unlike their European counterparts who are issuing debt either to refinance existing debt or fund mergers-and-acquisitions activity, U.S. companies getting in on the act are using the proceeds of bond sales to buy back shares, according to Fitch.
A quarter of the €32 billion in Eurobonds issued or announced by U.S. companies that provided a use of proceeds said it was for stock purchases, up 4.5 times on the level in 2015, said the rating agency. U.S. companies accounted for 21% of all euro-denominated issuance in 2016 so far, after a record 23% in 2015. “This makes U.S. corporates the single largest issuer group by geography, exceeding company bond debt from Germany (16%) and France (12%),” said the rating agency.
Many millennials expect to work until they die
Worried you'll never be able to retire? If you're a millennial, you're not alone, according to a global survey of adults aged 20 to 34 by Manpower Group, a staffing company.
Faced with big piles of student debt, pricey housing and sluggish wage growth, many young adults doubt they'll be able to retire like much of their parent's generation. More than a third expect to work well into their 70s. About 1 in 8 said they figure they'll have to work until they die.
Among the countries surveyed, millennial retirement expectations are lowest in Japan, where more than a third of young adults say they plan to work until the end of their lives.
Those expectations are in stark contrast to the working history of their parents' generation. While more than a third of Japanese millennials expect to work for the rest of their lives, fewer than 1 in 5 of their parent's generation is working past the age of 65. In the U.S., millennials are somewhat more optimistic about quitting work at some point, with only 12 percent seeing retirement out of reach. Just 17 percent of American boomers aged 65 or older are still working.
Gold Weakness a Buy-Sign; Not An End For The Bulls
Some Oakland residents will receive a basic income "....with no strings attached.”
Four months ago, Y Combinator launched a five-year study aimed at “giving people enough money to live on with no strings attached.” Today, the YC Research-funded Basic Income project announced that it’s starting a “short-term” pilot study in Oakland, California to better understand if its methods work.
“Oakland is a city of great social and economic diversity, and it has both concentrated wealth and considerable inequality,” wrote organization president Sam Altman. “We think these traits make it a very good place to explore how basic income could work for our pilot.”
Those participating in this inaugural study will receive “unconditional” income, meaning that they’ll receive funds with no strings attached. Altman hopes that with the unspecified amount provided, it’ll promote freedom and as such, Y Combinator will be able to examine how people “experience that freedom” — they can volunteer, work, not work, or move to another country.
The next few months will be spent designing the pilot before being implemented. Y Combinator said that it has already been in contact with Oakland city officials and community groups soliciting feedback, so it’s not as if the organization is barging in thinking it can magically change things overnight and doing things how they want. Public events are also planned to hear more opinions from local residents.
Economy “Improves”, Americans Get Poorer
We were not surprised by the big news last week. We saw it coming. Figures from the Conference Board research group revealed productivity sinking for the first time in three decades. We promised to explain why it was such a big deal.
Rate hike fantasies have been a recurring theme since 2009. Given that the market for federal funds is dead as a doornail (banks continue to hold huge excess reserves with the Fed and therefore have no need to borrow any in the interbank market), rate hikes are currently purely for show anyway. On Friday, Fed chief Janet Yellen appeared at a function organized by her alma mater, Radcliffe (which later merged with Harvard). Bloomberg was on the scene:
“It is appropriate – and I have said this in the past – for the Fed to gradually and cautiously increase our overnight interest rate over time,” Yellen said Friday during remarks at Harvard University in Cambridge, Massachusetts. “Probably in the coming months such a move would be appropriate.” Yellen will host her colleagues on the Federal Open Market Committee in Washington June 14-15, when they will contemplate a second interest-rate increase following seven years of near-zero borrowing costs that ended when they hiked in December. A series of speeches by Fed officials and the release of the minutes to their April policy meeting have heightened investor expectations for another tightening move either next month or in July. “The economy is continuing to improve,” she said…”
The economy has been “improving” for seven years. We’re beginning to wonder how much better it can get! And yet, the federal funds rate – controlled by the Deep State through its intermediary, the Fed – is still at an emergency level. It sits at a mere half percentage point above zero.
Is Retail Sending a Recessionary Signal?
A large number of traditional brick-and-mortar retailers have gotten hit in recent weeks and months on weak earnings reports. Notable names include Macy's, Sears, Target, Nordstrom, Office Depot, Kohls, Gap, Staples, and JC Penney.
This is important because many view retail as an important canary in the coalmine when it comes to a looming recession as consumers pull back on certain discretionary items like apparel.
In a recent interview with Financial Sense Newshour, Gary Dorsch, Editor of Global Money Trends magazine, argued that weakness in the brick-and-mortar retail space has less reliability in signalling recession given the structural change in consumer spending habits to e-commerce, which has gone from less than 1% of total sales in 2000 to 7.8% as of Q1 2016.
Given the continued growth of e-commerce and, of course, Amazon, which just reached a new all-time high, Dorsch cautioned listeners to view the recent brick-and-mortar decline as an industry-specific disruption. That being said, if Amazon were to suffer a sharp downturn on weak sales, that would raise a major red flag in his mind.
HSBC Said to Cut Senior Investment-Banking Jobs to Lower Costs
HSBC Holdings Plc is cutting senior investment-banking positions as part of the lender’s ongoing plan to reduce costs across the company, according to a person with knowledge of the matter.
The cuts reflect a gradual trimming of jobs, said the person, who asked not to be identified because the move hasn’t been announced publicly. Reuters earlier on Tuesday reported the reductions would affect dozens of employees.
A year ago, Chief Executive Officer Stuart Gulliver outlined a three-year plan to pare back HSBC’s global network by shutting money-losing businesses and eliminating as many as 25,000 jobs. Gulliver’s cost cuts helped the bank beat analysts’ estimates for first-quarter profit, when the CEO said he was confident of hitting expense targets by the end of 2017.
First-quarter profit fell 15 percent at the investment bank, which is run by Samir Assaf. In February, Assaf hired Matthew Westerman, the former chairman of investment banking in Europe at Goldman Sachs Group Inc., to be HSBC’s co-head of global banking.
Alan Greenspan: "We're Running To A State Of Disaster"
Back in March, the former Fed chairman said that we're in trouble because "productivity is dead in the water, and real capital investment is way below average because business people are very uncertain about the future." Greenspan went on to add that entitlement programs are crowding out capital investment, and thus crowding out productivity."
Alan Greenspan is back delivering more warnings about the state of the global economy, hammering home the same key points made back in March. "We have a global problem of a shortage in productivity growth and it's not only the United States but it's pretty much around the world, and it's being caused by the fact that populations everywhere in the Western world are aging, and we're not committing enough of our resources to fund that. We should be running federal surpluses right now not deficits. This is something we could have anticipated twenty five years ago and in fact we did, but nobody's done anything about it. This is the crisis which has come upon us."
Of course nobody has done anything about it Alan, your prior employer makes it so that precisely zero fiscal accountability needs to take place. Entitlements are still a hot button issue with Greenspan (as they should be for everyone), saying that if we don't fix this issue we're headed for a disaster. Greenspan wants entitlements (and the America's inability to fund them in any way shape or form) to be the central issue of the presidential debate.
"Entitlements are crowding out savings, and hence capital investment. Capital investment is the critical issue in productivity growth, and productivity growth in turn is the crucial issue in economic growth. We're running to a state of disaster unless we turn this around."
Why everyone disagrees about the economy
People are skeptical of politicians. Skeptical of institutions. Skeptical of things we used to admire, like money managers and journalists.
And we're really skeptical of economic data. Tell a group of people that the unemployment rate is 5% and a significant portion will react like you referenced the tooth fairy. Fifty-seven percent of Americans thought the economy was in recession in 2014, according to an NBC/WSJ poll. Inflation was less than 2% in 2013, but 39% thought it was at least 5%, and 22% said it was double digits.
An important question is why people are so skeptical of economic data. Why is there a gulf between what's reported and what people believe? One answer is that conspiracy theories never go out of style. But another force is becoming more important by the day, and helps explain everything from data skepticism to the rise of presidential candidates who wouldn't stand a chance a few years ago.
Most economic data references "the economy," in the aggregate or average. But no one lives in the economy. They live in their economy. And the difference between "the" and "their" is now enormous, and growing.
Staples CEO Stepping Down After Failed Office Depot Acquisition
Staples announced today that its chairman and chief executive officer, Ron Sargent, is giving the public his two-week notice: he’ll be stepping down on June 14, after the company’s next shareholders meeting. Sargent has been CEO of the office superchain since 2002, and has worked for Staples since 1989, when the company was only three years old.
“With the termination of the merger, we mutually agreed that now is the right time to transition to new management to lead Staples through its next phase of growth,” Robert Sulentic, the board’s Independent Lead Director, said in a statement. New management with a plan for growth other than acquiring the chain’s only national competitor in selling office supplies to medium and large businesses, that is.
Staples really, really wanted to acquire Office Depot, a national competitor in retail office-supply stores and in the corporate contract supply business.
The Federal Trade Commission was granted an injunction stopping the merger earlier this month. The retailers didn’t bother putting up a defense against the agency’s claim that their merger would be bad for competition and for their corporate customers.
UnitedHealth to exit California's Obamacare market
UnitedHealth Group is leaving California's insurance exchange at the end of this year, state officials confirmed Tuesday. The nation's largest health insurer announced in April it was dropping out of all but a handful of 34 health insurance marketplaces it participated in. But the company had not discussed its plans in California.
UnitedHealth's pullout also affects individual policies sold outside the Covered California exchange, which will remain in effect until the end of December. "United is pulling out of California's individual market including Covered California in 2017," said Amy Palmer, a spokeswoman for the state exchange.
It's expected that UnitedHealth will continue offering coverage to employers in California and to government workers and their families through the California Public Employees' Retirement System. Representatives of UnitedHealth didn't immediately respond to a request for comment Tuesday. In April, UnitedHealth's Chief Executive Stephen Hemsley said the company was unwilling to keep losing money on the exchange business overall.
"The smaller overall market size and shorter term, higher-risk profile within this market segment continue to suggest we cannot broadly serve it on an effective and sustained basis," Hemsley said in a conference call with investors in April.
Oil Rallies: What Comes Next?
Cashless Britain advances as contactless and debit cards thrive
Britain has passed another milestone on the path to a cashless society, with 2015 the first year that cash was used for less than half of all payments by consumers. Cash usage will be eclipsed by debit cards and contactless payments by 2021, according to Payments UK, which represents the major banks, building societies and payment providers.
In 2015 cash made up 45.1% of payments, compared with 64% in 2005, and is expected to fall to just a quarter by 2025. It will largely be replaced with payments by contactless cards, which have soared in popularity.
Contactless payments grew threefold in 2015, with more than a billion “wave and pay” transactions over the year. Since the start of 2016 contactless use has gathered pace, particularly on the London Underground network. On the high street, one in six card purchases are now contactless, with Tesco leading the way.
But Payments UK’s annual review of how households pay for goods and services reveals that the death of the cheque has been much exaggerated. It said that 546m cheques were written in 2015, despite the fact most retailers now refuse to accept them. The Payments Council, the predecessor to Payments UK, provoked a storm of protest in 2009 when it proposed a complete withdrawal of cheques by 2018. Following a consumer revolt the plans were abandoned, and today the body says cheques remain a “convenient and secure method” for making payments.
How Many Americans Have Gone Through Foreclosure?
During the Great Recession, many Americans lost their homes due to foreclosure. In fact, according to real estate data company RealtyTrac, there were 6,324,545 completed foreclosures from January 2006 to April 2016.
“It is a big number,” Daren Blomquist, Senior Vice President of RealtyTrac said in an email. “Normal would be around 250,000 bank repossessions per year. These last 10 years represented the biggest loss of home ownership and shifting of real estate wealth since the Great Depression.”
The market has improved, but that doesn’t make it immune to foreclosures. “The foreclosure crisis is largely behind us, although still certainly lingering in certain pockets,” Blomquist said. “Unfortunately, we are already seeing signs of another housing bubble in certain markets, so people should continue to be cautiously optimistic when it comes to the housing market.”
But Blomquist says people who can truly afford to buy a home may still benefit from it. “Homeownership done responsibly is still one of the best ways to build wealth,” Blomquist said.
Republicans set to unveil plan to replace Dodd-Frank
Later this year, the Dodd-Frank Wall Street Reform and Consumer Protection Act will reach its sixth anniversary, but if Congressional Republicans have their way, Dodd-Frank won’t reach anniversary number seven and many of the financial reforms enacted by the landmark law will be repealed or replaced.
According to the Republican arm of the House Financial Services Committee, Rep. Jeb Hensarling, R-TX, who chairs the House Financial Services Committee, is planning to announce a Republican plan to replace Dodd-Frank.
Hensarling plans to reveal the Republicans’ plan in a speech on June 7 at the Economic Club of New York, the House Financial Services Committee said Tuesday. During the speech, Hensarling is expected to announce a Republican-crafted plan to replace Dodd-Frank with a “pro-growth, pro-consumer” alternative, that includes the potential significant regulatory relief for financial institutions, as well as a dramatic overhaul of the Consumer Financial Protection Bureau.
While specific details on the plan are sparse at this point, Hensarling did reveal some of what can be expected in a recent speech at the National Center for Policy Analysis. In that speech, given earlier this month, Hensarling called Dodd-Frank a “a monument to the arrogance and hubris of man.” According to Hensarling, the country is “suffering” from the “slowest, weakest, most tepid recovery” in the country’s history.
Consumer spending surges. Why Americans are opening their wallets.
Consumer spending appears to be back on track. In a Commerce Department report released Tuesday, consumer spending rose by 1 percent in April, when adjusted for inflation. That's the biggest surge since August 2009, just after the Great Recession officially ended. Economists had projected spending to rise by 0.7 percent in April.
Consumer spending accounts for two-thirds of all economic activity in the United States, and it was slow going in the first part of 2016. February saw a 0.2 percent increase, and March was flat. April’s jump in spending shows that consumers are beginning to express more confidence in the economy after a rough start to the year. They also have more money to be able to do so. Personal income rose by 0.4 percent for the second month in a row. Wages and salaries also grew, by 0.5 percent.
“After a six-month lull, consumers emerged able and willing to spend more freely in early spring,” Gregory Daco, head of US macroeconomics at Oxford Economics, told the Wall Street Journal Tuesday. “This is good news for the economy as solid employment, firming wage growth and upbeat confidence should support the upbeat momentum in” for the rest of 2016.
As consumers begin to spend slightly more, they’re also saving a little bit less. Research from the Federal Reserve Bank of St. Louis shows that the national personal savings rate fell from 5.9 percent in March to 5.4 percent in April. But April’s consumer spending increase should not automatically equate a long-term decrease in household savings, Michael Gapen, Chief US Economist at Barclays, writes in an e-mailed report to the Christian Science Monitor.
Strengthening the Safety Net to Mitigate the Effect of Future Recessions
Gold selling off much like it did before December rate hike
Gold futures ended May with their first monthly decline of 2016, echoing a selloff that preceded the Federal Reserve’s December rate increase. The go-to handicapper for market-driven forecasts on Federal Reserve interest-rate moves is the Fed fund futures market. Pricing there puts the probability of a June rate increase at more than 20%; and traders put those odds at nearly 60% for a hike in July at the latest.
Speculative gold investors may be even more convinced. And they’re showing their hand. What’s more, they guessed right some six months ago, when the Fed raised its benchmark short-term interest rate for the first time since 2006.
In the week to May 24, net long gold positions held by financial investors (meaning those not using the metal itself for commercial purposes) declined by 56,000 to 156,500 contracts, according to Commodity Futures Trading Commission data. This was the steepest weekly fall since the data series began 10 years ago, said commodities analysts at Commerzbank.
Financial speculators turned to selling at the same time that gold had shed some $100 an ounce since hitting a 15-month high just above the closely watched $1,300 line in early May. Long speculator positions were reduced on a similarly radical scale in early November 2015, when 100,000 net-long contracts were shed over just two weeks.
Will the Fed be Blind Sided by Stagflation?
Most Central Bank watchers know that our Federal Reserve has a dual mandate of stable prices in the context of maximum employment. But its use of the words "stable and maximum" is somewhat misleading. For instance, one would assume that "stable" inflation would lead the Fed to pursue no change in prices and "maximum" employment would be a rate targeted at 0 percent unemployment; but this is not the case.
For some antithetical economic reason central bankers have unanimously redefined stable prices as adopting a 2 percent inflation target. The Fed has also morphed the term maximum employment rate to mean a 5-6 percent unemployment rate, clinging to the misguided belief that full employment is the progenitor of inflation, despite no supporting economic or historical evidence.
For instance, the 12.2 percent (YOY) rise in the CPI in November 1974 led to the cyclical high of unemployment in May of 1975, which also coincided with the 1973-75 recession. Likewise, in 1979, the YOY high in CPI of 14.6 percent was followed by another cyclical high in unemployment of 10.8 percent in late 1982.
The Misery Index hit a high of 20.76 during 1980. And one now has to wonder what the true Misery Index (the unemployment rate plus the inflation rate) would be if both inflation and unemployment were calculated properly. What the Fed doesn't understand is that full employment can exist in perfect harmony with stable prices. That's because having more people producing goods and services can never by itself lead to an environment of rising aggregate prices. And, most important, an increasing rate of inflation increases the rate of unemployment.