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Monday 05.01.2017

US economy slows, but Fed likely to stay the course

Since the Federal Reserve (Fed) upped its benchmark interest rates by a notch in mid-March, the skies have grown a shade darker for the world's largest economy. The softening outlook may have sapped some of the justification for policymakers to make the two further rate hikes expected this year. Even so, most analysts say the Fed looks poised to stick with the prevailing view of three increases in the key lending rate this year, likely in June and December.The U.S. central bank's monetary policy committee meets Tuesday and Wednesday, and even before the recent soft data they were not expected to move at this meeting. The Fed raised rates in March and December amid the wave of economic optimism that greeted President Donald Trump's rise to the White House, with Wall Street and consumer sentiment smashing records and while inflation ticked higher amid accelerating job gains. But since the last meeting, weak consumer spending, with back-to-back drops in retail sales, saw quarterly growth sink to its lowest level in three years.

Job growth fell by more than half in March, and the pace of new home construction slowed. So did durable goods orders, with orders of for big-ticket items excluding the transportation turning negative for the first time in six months. Consumer confidence also began to dwindle in April after record highs.

Meanwhile, inflation, which the Fed is mandated to control, retreated after steady gains since the summer. The "core" Consumer Price Index, which excludes volatile food and fuel prices, actually contracted for the first time in seven years.

The core Personal Consumption Expenditures price index, the Fed's preferred inflation indicator, held steady at an annual rate of 1.8 percent, below the Fed's 2 percent target.

More people working into their 60s, 70s and beyond

Mary Rose “Rosie” Boyd tried retirement, but she admits she grew tired of it and returned to the workforce. “I thought that I wanted to stay at home because that seemed so wonderful, but it turned out to be not so wonderful,” said Boyd, 77. “I didn’t have enough to do and I didn’t have all the people to talk to.

“I’ve always worked in restaurants and I’ve been fortunate to work with some of the most wonderful managers. And, of course, the extra cash comes in handy.” Boyd, who has worked in the hospitality industry since she was 17, is one of a growing number of Iowans and Americans who work beyond age 65 — until recent years considered the traditional retirement age.

More older Americans are working than at any time since the turn of the century, and they are spending more time on the job than did their peers in previous years, according to a Pew Research Center analysis of data from the U.S. Bureau of Labor Statistics. In May 2016, 18.8 percent of Americans 65 and older — or roughly nine million people — reported working full- or part-time jobs, continuing a steady increase that dates to at least 2000.

An annual survey of 4,550 full-time and part-time workers by the Transamerica Center for Retirement Studies found that 51 percent plan to keep working, at least part-time, in retirement. The primary motivations to continue working, cited by 61 percent of respondents, were income and health insurance benefits.

University of California IT Workers Sue After Losing Jobs To Outsourcing

IT workers at the University of California intend to file a lawsuit challenging their dismissal after they were replaced by offshore workers, arguing that those sacked from the UC San Francisco campus were discriminated against based on age and national origin.

Around 80 people lost their positions in the department, including 50 full-time workers and 30 contractors, in a move that is unheard of in the public sector, where offsourcing is much less common than in the private sector. UCSF hired the India-based firm HCL to handle its services instead of the American workers.

Randall Strauss from Gwilliam Ivary Chiosso Cavalli & Brewer, the attorney representing the ex-employees, argued that “to take a workforce that is overwhelmingly over the age of 40 and replace them with folks who are mainly in their 20s – early 20s, in fact – we think is age discrimination.” The group also represents and “reflects the diversity of California” – to allow them to be “replaced with people who come from one particular part of the world” is discrimination based on their national origin, continued Strauss. The lawsuit will be filed in Alameda County Superior Court.

On Wednesday, details about UCSF’s financial situation emerged that may help the IT workers in their case. A report by a California state auditor found an undisclosed $175 million in funds in the university’s budget; the outsourcing would be estimated to save $10 million a year for the next 5 years.

Mike Maloney-China, Russia & India Buying Gold

Venezuela raises minimum wage again

Venezuela's president hiked the nation's minimum wage another 60% on Sunday in response to the country's ongoing economic crisis. President Nicolas Maduro announced the change on his weekly television show. It's the latest in a series of hefty increases to the minimum wage that have been issued as the country's currency plunges in value.

Though the wage hike sounds significant, the country's price of food, goods and medicine is skyrocketing, which has made basic purchases too expensive for many Venezuelans.

The crisis has driven Venezuelans into the streets to protest, where chaos and violence have ensued. As of last Wednesday, at least 28 people have been killed since the unrest erupted, according to Venezuela's attorney general.

Unemployment in Venezuela is expected to pass 25% this year, and it could reach as high as 28% next year. The rate was 7.4% in 2015. Venezuela's economy shrank a massive 18% last year -- its third year of recession -- and it's expected to be in the red this year, and next too.

Oil prices fall on expected surge in USA shale output

USA crude oil production rose to 9.25 million barrels per day, official data showed, up nearly 10 percent since mid-2016. Gasoline stocks posted a counter-seasonal build of 1.5 million barrels, despite heavier refining activity.

According to Oil and Gas Investor’s article headlined Oil Prices Edge Higher From OPEC Boost, Brent crude futures were up 27 cents at $55.16 a barrel (bbl) at 6:06 a.m. CT (11:06 GMT), while West Texas Intermediate crude was up 20 cents at $52.61.

Oil prices were largely flat on Thursday after steep losses the previous session, with rising US production weighing against comments from leading Gulf oil producers that an extension to OPEC-led supply cuts was likely. Oil dropped the most in six weeks after a report showed US gasoline supplies increased for the first time since February, while crude output keeps rising. Traders said that the rising U.S. crude production posed a concern that the oil supply overhang would continue, while the jump in petrol stocks implied a stutter in demand. “The reality of rising U.S. output and massive inventories are weighing on prices”.

After strong gains overnight, the price for Brent crude oil, the global benchmark, was down 0.1 percent to $52.88 per barrel. Distillate stocks reached their lowest levels since November 2015, the EIA said.

The health care industry is bound to collapse soon, experts say

The US health care sector may be incubating the next big Lehman-style disaster that could tip the economy into a full-blown recession, according to industry analysts.

Forget about the subprime mortgage collapse. The health care sector is nursing its own toxic mess, with soaring debt, the analysts say. “As a nation, we have to step up our game and get on top of it; this is a huge issue,” said Chris Oretis, a former Washington lobbyist who now works as executive vice president in the life insurance secondary markets at GWG Holdings.

As industry spending and debt servicing rage out of control, health care is ranked as the No. 1 US “systemic recession risk” in a new report. The sums at stake are staggering: Spending in the sector accounted for $3.3 trillion in 2015, and is 18 percent of the US economy today. The industry generates 16 percent of private sector jobs nationwide, up from 10 percent in 1990.

US health care spending is forecast to grow by an average 5.6 percent annually in the coming decade, according to a report by the Center for Medicare and Medicaid Services (CMS), a projection based on no changes out of Washington and in the Affordable Care Care through 2025. Meanwhile, national spending on health care is forecast to outpace US gross domestic product growth by 1.2 percent. CMS has estimated that spending will comprise 19.9 percent of GDP by 2025, up from 17.8 percent in 2015.

All Americans Should Embrace Their 2nd Amendment Rights

Americans’ Fear of Layoffs Is at a Record Low

Workers haven’t felt this secure in their jobs in a very, very long time. As of early April, only 8% of employed American said they were “very” or “fairly” likely to be laid off in the next 12 months – the lowest level ever recorded since Gallup started asking the question in 1975.

That number fits well with the recent narrative described by economists, including Federal Reserve officials. With the unemployment rate at a 10-year low as of March, the American job market is now near full employment, Fed Chair Janet Yellen has said.

The Gallup poll is based on telephone interviews of about 550 Americans at the beginning of the month. Concerns about layoffs, as recorded by the survey, reached an all-time high in 2010, with 21% of Americans saying they were “very” or “fairly” likely to be laid off following the Great Recession.

Other Gallup studies conducted this year show about 46% of employees said their company was hiring in March. Workers are also more confident about the future of the U.S. economy.

Broke Chicago Schools Seek Court Help as $721 Million Pension Bill Looms

Chicago’s debt-ridden schools are running out of options. The nation’s third-largest school district -- whose credit rating has tumbled well into junk -- must make a $721 million pension payment by June 30 and officials are scrambling to find the funds. Ending the year early, canceling summer school, and slashing classroom spending are all possible, the Chicago Board of Education said in connection with a lawsuit that’s seeking to wrest more cash from Illinois.

“They’re trying any way they can to try to make the state provide more funding,” said Daniel Solender, head of municipals at Lord Abbett & Co., which manages about $19 billion of debt.

A local judge Friday dealt a blow to the schools’ lawsuit against Governor Bruce Rauner and the state board of education, which challenges funding practices that have made the district the only one in Illinois that pays most of its pension costs. Cook County Judge Franklin Valderrama rejected the board’s assertion that the funding system is discriminatory to the heavily minority-student district, though he gave Chicago until May 26 to file an amended complaint, the Chicago Sun-Times reported.

Escalating pension bills are the crux of the financial squeeze that’s threatening the solvency of the school system. For years it has been draining reserves, shortchanging its pensions and borrowing to pay bills. Its retirement system is short by $9.6 billion, and this year’s required payment will eat up 13 percent of the district’s operating budget.

David Stockman: Trump’s tax plan is ‘dead on arrival’ and Wall St. is ‘delusional' for believing it

David Stockman has a stern message for investors: They're living in a fantasy land about Trump. In a recent interview on CNBC's "Futures Now," the former director of the Office of Management and Budget under President Reagan said that "Wall Street is totally misreading Washington," and President Trump's promises of tax reform will be "dead before arrival."

The president is "essentially a 70-year old kid in a candy store who wants one of everything: More for defense, veterans, border walls, law enforcement, infrastructure and 'phenomenal' tax cuts, too—without the inconvenience of paying for any of it," said Stockman.

Of the proposed tax bill announced this week, he said, "It's a wonderful fantasy…but there's no way to pay for the $7.5 trillion cost of the main features."

The White House announced a one-page tax reform plan on Wednesday, and some of the points Stockman highlighted include: Three tax brackets, double standard deduction and the reduction of corporate and non-corporate business taxes down to 15 percent.

UPS air maintenance workers threaten strike ahead of shareholders meeting

A union representing 1,200 U.S. air maintenance workers at United Parcel Service Inc (UPS.N) turned up pressure on the company on Sunday to settle a three-year contract dispute, saying it would seek clearance to strike.

The union is taking its grievances directly to UPS shareholders, running as an advertisement an open letter to David Abney, the company’s chief executive, ahead of a Thursday shareholders meeting.

The letter, which has been delivered to board members, was signed by nearly 78 percent of members of Local 2727 of the Teamsters union, asking the company to maintain air mechanics’ current health plan and not demand other concessions. “We’re not willing to back off of this and we will strike over it,” said Tim Boyle, the local president.

The company said that it continues to negotiate in good faith with the union. "Talks continue under the control of the National Mediation Board, which has scheduled sessions several months out," said Mike Mangeot, a spokesman for UPS Airlines, in a statement.

Goldman: U.S. Economy "now at full employment"

A few excerpts from a note by Goldman Sachs economists Jan Hatzius and Daan Struyven:

On a broad range of measures, the US economy is now at full employment. Headline unemployment has fallen below most estimates of the structural rate, the discouraged worker share is back to pre-recession lows, and the still somewhat elevated share of involuntary part-timers is arguably structural.

And while the employment/population ratio remains well below its pre-recession level, the gap is fully explained by a combination of population aging and declining participation of prime-age men. This trend among prime-age men has continued for over six decades, has not stood in the way of a strong recent wage acceleration in that demographic, and therefore looks structural.

Job growth remains well above the pace needed to stabilize unemployment. The speed of the likely overshoot is comparable to the average postwar cycle, and we have lowered our end-2018 unemployment rate forecast to 4.1% from 4.3% prior.

How Much Gold Is There?

How much gold is there in the world? Short answer: not much. That’s good news because gold’s value lies in its scarcity. After all, nobody picks up gravel off the ground and stores it in a safe. But if you find a gold nugget, you can take that to the bank – quite literally. Most people are vaguely aware that gold is scarce. But just how little there actually is might surprise you.

According to the World Gold Council, the best estimates suggest miners have pulled about 183,600 tons of gold out of the ground throughout history. That sounds like a lot. But if all of the gold ever mined was melted down into a giant cube, it would measure just 21.3 meters on each side, which translates to just under 70 feet. To put that into perspective, that’s about as tall as a seven-story building.

To look at it another way, if you formed all of the gold ever mined into 400-ounce bars and stacked them on top of one another, the stack wouldn’t even reach to the of the Statue of Liberty’s waist.

The scarcity of gold takes on more significance when placed in the context of declining production. In fact, some analysts believe the world hit “peak gold” production in 2015 or 2016. Peak gold means the amount of gold mined out of the earth will begin to shrink every year, rather than increase, as it has done pretty consistently since the 1970s.

‘The Euro is dead’: Le Pen pushes anti-EU message in final stretch of French presidential campaign

France’s presidential candidates are pushing their rival views of Europe, as far-right Marine Le Pen calls the shared euro currency “dead” and centrist Emmanuel Macron visits a Holocaust memorial and calls for unity.

A day after European Union leaders nailed down their negotiating stance over Britain’s departure, attention is now on France as its voters decide May 7 whether to choose Le Pen, whose anti-EU stance could unravel post-war unity, or Macron, who wants greater European cooperation and trade.

“I think the euro is dead,” Le Pen is quoted as saying in Sunday’s Le Parisien. While she is sticking to plans for a referendum on France’s membership in the EU, Le Pen offered to allow big companies that operate internationally to continue using the euro while ordinary citizens would use a new franc.

Le Pen is also trying to win over those worried about the worried about the environment and paid a surprise visit Sunday to a factory whose waste is at the heart of a political debate on the Mediterranean coast.

American Airlines gave its workers a raise. Wall Street freaked out.

American Airlines agreed this week to do something nice for its employees and arguably foresighted for its business by giving flight attendants and pilots a preemptive raise, in order to close a gap that had opened up between their compensation and the compensation paid by rival airlines Delta and United.

Wall Street freaked out, sending American shares plummeting. After all, this is capitalism and the capital owners are supposed to reap the rewards of business success. “This is frustrating. Labor is being paid first again,” wrote Citi analyst Kevin Crissey in a widely circulated note. “Shareholders get leftovers.”

Indeed, major financial players were so outraged by American’s decision to pay higher wages that they punished airline stocks across the board. American itself took it hardest on the chin, of course, but the consensus among stock analysts was that higher pay at American could signal higher pay at other airlines too, with negative consequences for the overall industry.

But taking a broader view, this blinkered Wall Street perspective on labor compensation is, arguably, exactly what’s gone wrong with the American economy. Any given company obviously benefits when it’s able to get away with paying its workforce less. But one company’s workers are another company’s customers. A world in which labor never gets paid is ultimately one in which nobody has much of anything but leftovers.

Mexican manufacturers bet on Nafta

Young People Are Struggling, So Furniture Stores Target "The Bank Of Mom And Dad"

Companies trying to sell couches, or apartments, or pretty much any other signifiers of adulthood are being reshaped by a simple fact: many young people simply aren't in the market for their stuff anymore.

The financial crisis and weak economic recovery locked millions of young people out of the labor force, and for many who do have jobs, they're not particularly well-paying ones. Those jobs leave people burdened by student loans and unable to build up the cash needed to get a place of their own.

The data is striking and unambiguous. More young people are living at home, fewer are creating new homes together with a significant other, and it's a stark reversal from before the financial crisis. In the eight years from 2007 to 2015, the number of Americans aged 18 to 34 increased by 3 million, but the number living away from their parents decreased by 500,000.

Economists often talk about "household formation," and it's a crucial part of the economy. When people leave their parents and create a new home — as couples or roommates, or a new family — they spend money on everything from shower curtains to a couch and an internet connection. There's an entire economy built around this: Home Depot alone sold $95 billion worth of stuff last year.

Puerto Rican governor argues Medicaid money is 'not a bail out'

"I want to stress this upon you," Puerto Rican Governor Ricardo Rossello told reporters gathered at his office in San Juan on Saturday morning. "Our narrative is different from previous narratives."

Rossello, a Democrat who's surprisingly fluent in the language of fiscal conservatism, took great pains to emphasize his administration's emphasis on implementing tough reforms. "We are assuming responsibility. We are taking hard measures here in Puerto Rico in order to have a path forward," Rossello said. "But we also need a runway. We just arrived and it can't just be the cliff right now."

The 38-year-old first term governor pushed back on language President Trump used in a Thursday tweet about negotiations over legislation to avoid a government shutdown. After House Democrats attempted to push for payments covering a Medicaid shortfall in Puerto Rico, the president referred to the measure as a "bailout." On Saturday, Rossello insisted that characterization was unfair, explaining, "What we're asking for in terms of Puerto Rico and for health on the Medicaid cliff is not a bailout."

To the contrary, he contended the funding is "essentially the continuation of what was also given to the states, which is much less in Puerto Rico, so that we can have an opportunity to negotiate with the MCOs [Medicaid Managed Care Organizations]..."

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