6 Things To Ponder: Bulls, Bears, Valuations & Stupidity
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World View & Market Commentary.
Forest first; Trees second.
Focused on Real & Knowable facts that filter through the "experts" fluff and media hyperbole. Where we've been, what the future may hold and developing a better way forward.
Overall payroll employment fell for the third straight month but there was a moderate gain in the private sector. Also on the positive side, wages were up. Overall payroll jobs in August slipped 54,000 after falling a revised 54,000 in July (yes, they are the same) and contracting 175,000 in June. The August overall number was less negative than the consensus forecast for a 90,000 decrease. The June and July revisions were net up 123,000.
A big part of the latest month's weakness was seen in the government sector, which still includes layoffs of temporary Census workers. Government jobs dropped 121,000 after falling 161,000 in July. In contrast, private nonfarm employment continued to rise, gaining 67,000 in August, following a revised boost of 107,000 the month before. Analysts had called for a 40,000 advance for private payrolls in August. July had previously been estimated to be a 71,000 increase.
Average hourly earnings improved to 0.3 percent from up 0.2 percent in July. The August number topped the market estimate for a 0.1 percent gain. The average workweek for all workers was unchanged at 34.2 hours in July. The market forecast was for 34.2 hours.
Turning to the household survey, the unemployment rate came in at 9.6 percent, compared to 9.5 percent in July. The consensus projected a 9.6 percent figure for August.
Overall, today's report shows that the economy is not going back to recession. Still, growth is less than robust. For now, it appears to be a growth recession (less than long-term trend), but not an outright recession. The bottom line is that the private sector is holding up better than expected.
On the news, equity futures jumped sharply and interest rates firmed.
Initial jobless claims may be edging down, at least they have the past couple of weeks. Initial claims for the August 28 week came in at 472,000 compared with a revised 478,000 in the prior week and the 2010 peak of 504,000 the week before that. The four-week average fell 2,500 to 485,500 yet is still about 25,000 higher than a month ago, which is not a positive indication for tomorrow's employment report.
Continuing claims fell 23,000 to 4.456 million in data for the August 21 week. Here the four-week average, at 4.485 and down more than 100,000 from a month ago, probably offers a positive indication for tomorrow's report. Note that a decline in continuing claims reflects both hiring but unfortunately also reflects the expiration of benefits. The unemployment rate for insured employees is unchanged at 3.5 percent.
There are no special factors in today's report, a report that probably won't affect expectations for tomorrow's data. The job sector is flat at best, a description that likewise fits consumer spirits and consumer spending.
HighlightsProductivity and Costs for Quarter 2 were released this morning with nonfarm productivity falling 1.8%. This is down from Q1’s drop of .9%, but slightly better than the forecast drop of 1.9%. The trend is clearly negative in this regard. This data is also very skewed from my perspective as it is based on “productivity” calculated in the same manner as GDP (including financial engineering, if you call that productive). That said, to have productivity falling means that businesses have hit the wall in terms of simply throwing people out the door and maintaining prior levels of “production.” Labor costs were expected to rise 1.2%, but rose 1.1% which is up significantly from Q1’s .2% annualized rise. Here’s Econoday:
The Monster Employment index fell two points in August to 136. The report said the decline reflects caution among employers. Manufacturing and warehousing, the latter group often focused on as a leading indication for job demand, both showed weakness in August.
HighlightsThe market is taking these as "disaster avoided for now." If I hear the term “new normal” one more time, I’m very likely to become violently ill, I must have read or heard that term more than a dozen times in the past week alone. No, it’s not a “new normal,” it’s called DEBT SATURATION, the point at which more credit cannot be forced onto “consumers,” as incomes cannot support more.
Due to the slowdown in output and businesses already having cut labor costs to the bone, productivity fell notably in the second quarter. Nonfarm business productivity declined an annualized 1.8 percent in the second quarter after a 3.9 percent advance in the prior quarter. The market had forecast a 1.9 percent dip in productivity. Unit labor costs rebounded an annualized 1.1 percent in the second quarter, following a drop of 4.6 percent in the first quarter. The median forecast was for a 1.2 percent boost in labor costs.
The drop in productivity reflected in part a slower 1.6 gain in nonfarm business output after a 5.0 percent jump in the first quarter. Also, hours worked jumped to a 3.5 percent pace from 1.1 percent in the first quarter.
Year-on-year, productivity was up 3.7 percent in the second quarter-down from 6.3 percent in the previous quarter. Year-ago unit labor slipped to an annualized minus 2.8 percent from minus 2.9 percent in the first quarter.
While the latest productivity report is not as favorable for profits as the recent string of gains, the good news is that companies may have pressure to start hiring. Any notable and apparently sustainable boost in company demand should result in additions to payrolls. Economic uncertainty, of course, will dampen hiring enthusiasm.
Today's numbers are close to expectations. At the same time, initial jobless claims barely missed analysts' median forecast. Markets are little changed on the release.
Unit sales of new domestic-made cars and light trucks slipped about four percent in August compared with July, offering a mildly negative indication for the August retail sales report. Domestic cars and light trucks sold at an 8.4 million annual rate vs. July's 8.7 rate. Yet less aggressive incentives in August are likely to narrow the gap in dollar terms. Note that fleet sales to non-consumers, which vehicle manufacturers do not break out, adds noise to the comparison. Sales of domestics make up about three quarters of new car and light truck sales. New car and light truck sales make up two thirds of the motor vehicle category which in turn makes up about one sixth of total retail sales.
U.S. Avoids Recession as Data Can’t Get Much Worse
Sept. 2 (Bloomberg) -- The U.S. economy is so bad that the chance of avoiding a double dip back into recession may actually be pretty good.
The sectors of the economy that traditionally drive it into recession are already so depressed it’s difficult to see them getting a lot worse, said Ethan Harris, head of developed markets economics research at BofA Merrill Lynch Global Research in New York. Inventories are near record lows in proportion to sales, residential construction is less than half the level of the housing boom and vehicle sales are more than 30 percent below five years ago.
“It doesn’t rule out a recession,” Harris said. “It just makes it less likely than otherwise.”
The possibility of the economy lapsing into another contraction during the next year is 25 percent, he said in a Sept. 1 report. Harris cut his forecast for growth this year by 0.1 percentage point to 2.6 percent and lowered his 2011 estimate by a half point to 1.8 percent, according to the report.
The Mortgage Bankers Association's purchase index rose 1.8 percent in the August 27 week, only a slight increase from a very low level which the report says points to no improvement for new home sales in August nor existing home sales for September. On the refinancing side, the index is up 2.8 percent to a 15-month high as borrowers take advantage of even lower mortgage rates. The rate on the average 30-year loan dropped 12 basis points in the week to 4.55 percent.
Bear markets exist for the purpose of exposing and eliminating the greed, the corruption and the fraud that thrived in the preceding primary bull market.
To my mind, the biggest fraud of the last fifty years has been the rise and acceptance of fiat "money." For that reason, I expect fiat money to meet its end before this bear market breathes its last. Judging by the size of the top, this could be the biggest bear market since the '30s. I believe this bear market means to take us back to basics and truth. That alone implies the end of central bank-created money and the rise of gold and probably silver. It may also end that immoral inflation machine, the Federal Reserve. Wall Street and its bankers now run the nation. That too will end.
The history of money in the US is a legend of lies, manipulation, immorality and greed. I think this bear market will end those lies, one way or another.
The consumer made a comeback in July-in both income and spending. Personal income in July posted a 0.2 percent gain, following no change in June. The July figure was a little lower than the consensus expectation for a 0.3 percent rise. More importantly, the wages & salaries component rebounded 0.3 percent after slipping 0.1 percent in June. This component would have been even stronger had it not been for a dip in government payrolls from laying off temporary Census workers. Private industry wages and salaries gained 0.5 percent in July, following a 0.1 percent dip in June.
The Fed is depending on the consumer to counter a faltering housing sector and Bernanke & Company got its wish at least for July. Overall personal consumption increased 0.4 percent in July, following a flat number in June. The latest beat the market forecast for a 0.3 percent gain. By components, durables jumped 0.9 percent, nondurables rose 0.3 percent, and services gained 0.4 percent
Who would have thought that an uptick in inflation would be good? Given the deflation mongering in some sectors, a 0.2 percent rise in the headline PCE price index for July looks good, following two months of down 0.1 percent. The core rate edged up 0.1 percent after a flat reading in June. The median forecast for the core had called for a 0.1 percent uptick.
Year on year, personal income growth for July came in at up 3.0 percent, advancing from up 2.4 percent in June. PCEs growth improved to 3.4 percent in July, compared to 3.2 percent in June. Year-ago headline PCE inflation firmed to 1.5 percent from 1.4 percent in June. Year-ago core PCE inflation is unchanged at 1.4 percent.
Today's report is not stellar but it is welcome news that the consumer sector bounced back and should help support overall economic growth.