Tag: finance

The brief April bounce in US Services economy has died as PMI slipped back to 51.3 as Markit warns "the service sector reported one of the weakest expansions since the recession." This weakness was followed by ISM Services which plunged to its lowest since Feb 2014, crushing the hopes of the April bounce. Employment plunged into contraction and New Orders tumbled, with the surveys pointing to GDP growing at an annualised rate of just 0.7-8% in the second quarter.

Bye bye April bounce!!

ISM Services Breakdown shows weakness across the board…

Seasonally-adjusted New Orders plunged…New Orders Index -5.7pts (biggest drop since Feb. 2008) to 54.2 (lowest since Feb. 2014).

Respondents did not offer much hope…

• "Projects from the oil companies are becoming less and less. Budget problems for capital projects." (Construction)
• "There has been a general slowing-down from the momentum we saw last month." (Professional, Scientific & Technical Services)
• "Slower start to the second quarter." (Arts, Entertainment & Recreation)
• "Holding steady. No real increase, but expansion plans on for late Q3 or Q4 in preparation for 2017." (Finance & Insurance)
• "Pending labor concerns to replace an aging workforce of highly-skilled staff support positions." (Educational Services)
• "High pressure on cost reduction due to declining top line sales." (Retail Trade)
• "Significant drop in shipments for the month. Estimate a decline of nine percent for the markets we serve. Overall retail traffic has slowed. Pricing has stabilized in the market." (Wholesale Trade)

As Markit noted, summarizing the disappointing state of the US Services economy:

“The service sector reported one of the weakest expansions seen since the recession in May, adding to signs that any rebound of the economy in the second quarter may be disappointingly muted.

 

“With optimism about the business outlook dropping to a new post-crisis low, companies are expecting conditions to remain challenging in coming months, citing uncertainty about the presidential election as well as broader worries about weak demand at home and abroad.

 

“Add these disappointing service sector numbers to the downturn now being seen in manufacturing, and the PMI surveys point to GDP growing at an annualised rate of just 0.7-8% in the second quarter, notwithstanding any marked change in June.

 

 

“The slowdown and further drop in optimism continued to cause companies to pull-back on recruitment, with the survey signalling just under 130,000 extra jobs being created in May, driven entirely by the service sector.”

It seems like the last pillar of sustainable smoke and mirrors has broken.

Charts: Bloomberg

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The incredible miss in May's jobs data (only adding 38,000 jobs, the lowest since September 2010) caused Rick Santelli to explode into another one of his epic rants – slamming the fact that the headline unemployment number will be touted and the central banks have created such a mess.

"Ten more months of thirty something thousand and we'll be under 3% unemployment! This totally summarizes the disconnect between good jobs, the jobs number, the unemployment rate and what motivates the fed and its dual pillars"

 

"The future president, whoever that may be, if you're running on this record on jobs and you look at that 4-handle on the unemployment rate, the only thing you should be able to discern is that if the fed uses any of this in their model as a high priority, it explains why policy is just so horrible"

 

"The dynamic of the jobs market, in questioning productivity, productivity is the whole key to everything, and you get all of these rules, all of these bad policies, the fed is maybe the biggest worst enemy – I take that back, it's probably the ECB and the Bank of Japan, because the more negative the world grows, the more you're going to see strange dynamics like this"

Here is the video for everyone's viewing pleasure (Santelli starts at 1:25)

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Firts, a few notes from FTN on today’s report which the firm classified quite simply as “awesomely bad”:

U.S. Jobs ’Awesomely Bad’, Particularly Poor Timing

 

• “There are excellent statistical reasons to ’throw out’ this result, something the market and the Fed may ultimately do, but not this month,” FTN Financial strategist Jim Vogel writes in note.
• Increasingly negative revisions to nonfarm payrolls are not a sign of labor market health, regardless of what other indicators or Beige Book might tell FOMC
• Economists might start making excuses for May as they see longer-term trend and expect 4-mo. trend to eventually catch up, possibly with outsized recovery in June data
• Even without downward revisions, NFP of +100K would’ve been bad; and if you add in +35K Verizon strikers to today’s number, would only be in the mid-70s

So much for that. as for the question what today’s “awesomely bad” jobs report does to future rate hike odds, here is Goldman who now sees a less than 50% probability of a rate hike in either July or September, and of course, no probability in June.

Weak May Payroll Report Likely to Stay Fed’s Hand in June

 

BOTTOM LINE: Nonfarm payroll employment increased by just 38k in May, far below consensus expectations. The unemployment rate fell to a new cyclical low due to a drop in labor force participation. In light of the weaker-than-expected employment report, we have revised our subjective odds of the timing of the next FOMC rate increase. We now see probabilities of 0% for June, 40% for July, and 30% for September.

 

MAIN POINTS:

 

1. Nonfarm payroll employment increased by just 38k in May, well-below consensus expectations for a 160k increase. Earlier months were also revised down by a net 59k, making the result much weaker than expected overall. Employment in telecommunications related jobs declined by 37k, reflecting the strike at Verizon Communications. However, the weakness extended much beyond that category. Goods-producing employment fell by 36k—the largest decline of the recovery—with declines in each of its major components (mining, construction and manufacturing). Excluding the Verizon strike, employment in service-providing industries increased by 98k, down from 144k in April. Temporary help services jobs contracted by 21k, and growth in trade/transportation/utilities was unchanged. A small number of categories improved: education and health employment gained a solid 67k and government employment rebounded, with a 13k following a 7k drop in April.

 

2. Average hourly earnings increased by 0.2% (mom), or 2.5% from a year earlier. The 12-month gain was above our expectations due to upward revisions to prior months. The average workweek was unchanged at 34.4 hours.

 

3. The household survey measure of employment gained just 26k after a decline of 316k in April. However, because of another decline in labor force participation, the unemployment rate fell to a cycle low of 4.7% (4.692% unrounded). At this level the unemployment rate is now in line with Fed officials median projection for end-2016, and below their longer-run estimate (from the March FOMC meeting).

 

4. In light of the weaker-than-expected employment report, we have revised our subjective odds of the timing of the next FOMC rate increase. We now need see probabilities of 0% for June, 40% for July, and 30% for September. Although the report lowers the odds of near-term action, in our view, it also arguably raises the range of possible outcomes. If employment growth rebounds next month but the unemployment rate remains low, the case for hiking after June would become quite strong. Alternatively, if sluggish employment growth were to persist, the FOMC could remain on hold for longer than we currently expect.

In other words, should “weather” persist, which is what Blackrock’s Jeff Rosenberg blamed today’s jobs collapse on, the Fed will not be able to hike. And just like that the Fed is now slave to not only what China will do, but just how hot (or rainy) it will be this summer.

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While we already assessed the quantitative aspect of today’s jobs report, which we characterized as abysmal because even when factoring in the 35,000 Verizon job losses, there was some 130,000 unexplained layoffs (sorry, it wasn’t the weather), it is time for a look at the qualitative aspects of the report. And, we are sad to report, that things here go from bad to worse: while in the recent past disappointing headline payrolls were at least offset by an improvement in full-time jobs, this did not happen in May. Instead, in what may have been a BLS “kitchen sink” month, the US government reported that in May 59,000 full-time jobs were lost. This, however, was “offset” by 118,000 part-time jobs as America’s transformation to a part-time worker society is bag with a vengeance.

Worse, over the past two months, the US labor force has seen a whopping 312K full-time jobs lost, offset by 118K part-time job gains.

The longer-term trend also shows a clear reversal pattern as increasingly more part-time jobs are created to replace axed full-timers.

And keep in mind you ain’t seen nothing yet: once the full impact of soaring Obamacare costs hits in a few months, business will scramble to reclassify workers as part-time to circumvent the law’s profit-extracting limitations.

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In what appears to be a widespread problem, Germany’s Spiegel reports that customers are unable to withdraw cash from Deutsche Bank ATMs due to a “technical glitch.”

 Via Google Translate,

A German bank spokeswoman declined to comment on the problem first.

 

But the bank finally conceded a technical glitch in online banking.

 

 

The deposits and withdrawals were partially displayed twice or not ready, the bank said.

 

“None of these payments twice shown has taken place,” it says in the statement.

 

Apparently slipped some accounts due to the alleged double deduction into the red. “I could not pay by card. By double counting our account is in the red. Also withdraw money I could not, because our credit limit is not sufficient,” wrote a user on a Facebook.

With everything that is going on, one can only wonder if desperate times have led to desperate measures… or, of course, this could simply be a “technical glitch” which just happened to occur on a Friday evening – the busiest time for cash withdrawals.

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So much for that much anticipated rebound in the participation rate. After it had managed to rise for 5 months in a row through March, hitting the highest level in one year, the disenchantment with working has returned, and the labor force participation rate promptly slumped in both April and May, sliding 0.4% in the past two months to 62.60%, just shy of its 35 year low of 62.4% hit last October. This can be seen in the surge of Americans who are no longer in the labor force, who spiked by 664,000 in May, hitting an all time high of 94.7 million. As a result of this the US labor force shrank by over 400,000 to 158,466K, down from 158,924K a month ago, and helped the unemployment rate tumble to 4.7%, the lowest level since 2007.

Adding the number of unemployed workers to the people not in the labor force, there are now over 102 million Americans who are either unemployment or no longer looking for work.

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The worst jobs data since September 2010 has thrown ice cold water on The Fed’s decision-making process and thrown a spanner in the market’s narrative that everything is awesome. June rate hike odds crashed to 2% and July rate-hike odds plunged from 48% to 36%. The reaction to this sudden revelation of reality is striking as stocks plunge, gold soars, the US Dollar dumps and bond yields spike lower…

Rate hike odds have plunged…

And the reaction is ugly…

As Gold Soars most in 3 months…

Charts: Bloomberg

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If anyone was “worried” about the Verizon strike taking away 35,000 jobs from the pro forma whisper number of 200,000 with consensus expecting 160,000 jobs, or worried about a rate hike by the Fed any time soon, you can sweep all worries away: moments ago the BLS reported that in May a paltry 38,000 jobs were added, a plunge from last month’s downward revised 123K (was 160K). The number was the lowest since September 2010!

The change in total nonfarm payroll employment for March was revised from +208,000  to +186,000, and the change for April was revised from +160,000 to +123,000. With these revisions, employment gains in March and April combined were 59,000 less  than previously reported. Over the past 3 months, job gains have averaged 116,000  per month.

There is no way to spin this number as anything but atrocious.

The unemployment rate tumbled to 4.7%, the lowest since August 2007, driven entirely by a massive exodus of people from the labor force: 664,000 potential workers exited the labor force pushign the number ouf of the workforce to a record high 94.7 million.

A partial silver lining was in the wage section, which saw average hourly earnings rise by 0.2%, to $25.59, while average weekly earnings posted a modest 2.3% increase.

More details from the report:

Total nonfarm payroll employment changed little in May (+38,000). Job growth occurred in health care. Mining continued to lose jobs, and a strike resulted in job losses in information. (See table B-1.)

Health care added 46,000 jobs in May, with increases occurring in ambulatory health care services (+24,000), hospitals (+17,000), and nursing care facilities (+5,000). Over the year, health care employment has increased by 487,000.

In May, mining employment continued to decline (-10,000). Since reaching a peak in September 2014, mining has lost 207,000 jobs. Support activities for  mining accounted for three-fourths of the jobs lost during this period, including  6,000 in May.

Employment in information declined by 34,000 in May. About 35,000 workers in the  telecommunications industry were on strike and not on company payrolls during  the survey reference period.

Within manufacturing, employment in durable goods declined by 18,000 in May, with job losses of 7,000 in machinery and 3,000 in furniture and related products.

Employment in professional and business services changed little in May (+10,000), after increasing by 55,000 in April. Within the industry, professional and technical services added 26,000 jobs in May, in line with average monthly gains over the prior 12 months. Employment in temporary help services was little changed over the month (-21,000) but is down by 64,000 thus far this year.

Employment in other major industries, including construction, wholesale trade,  retail trade, transportation and warehousing, financial activities, leisure and hospitality, and government, changed little over the month.

The average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours in May. The manufacturing workweek increased by 0.1 hour to 40.8 hours, and manufacturing overtime was unchanged at 3.2 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls was unchanged at 33.6 hours. (See tables B-2 and B-7.)

In May, average hourly earnings for all employees on private nonfarm payrolls increased by 5 cents to $25.59, following an increase of 9 cents in April. Over the year, average hourly earnings have risen by 2.5 percent. Average hourly earnings of private-sector production and nonsupervisory employees increased by  3 cents to $21.49 in May. (See tables B-3 and B-8.)

The change in total nonfarm payroll employment for March was revised from +208,000  to +186,000, and the change for April was revised from +160,000 to +123,000. With these revisions, employment gains in March and April combined were 59,000 less  than previously reported. Over the past 3 months, job gains have averaged 116,000  per month.

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The markets opened weak yesterday when the ECB announced no new policies.

The ECB is out of options. Mario Draghi has cut rates into NIRP four times and spent nearly €1 trillion in QE. Looking at the EU’s inflation rate, you wouldn’t think the ECB had done anything.

Inflation peaked at 0.2% and is now negative again. Spot the impact of the ECB’s policies… you can’t.

Fortunately,  “someone” manipulated the markets higher after the ECB disappointed.

The manipulation was so obvious it’s ridiculous. Apparently “investors” were desperate to panic buy stock futures from 10AM until 4PM. But then magically, those same investors ceased to exist and the market flatlined for over 12 hours trading within a 3 point range.

This is the kind of action you expect in banana republics, not the US.

And all of it only shows you how desperate the Central Banks are growing.

On that note, we are already preparing our clients for this with a 21-page investment report titled the Stock Market Crash Survival Guide.

In it, we outline the coming crash will unfold…which investments will perform best… and how to take out “crash” insurance trades that will pay out huge returns during a market collapse.

We are giving away just 1,000 copies of this report for FREE to the public.

To pick up yours, swing by:

http://ift.tt/1HW1LSz

Best Regards

Graham Summers

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Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Leaders face a no-win dilemma: any change of course will crash the system, but maintaining the current course will also crash the system.

The end-state of unsustainable systems is collapse. Though collapse may appear to be sudden and chaotic, we can discern key structures that guide the processes of collapse.

Though the subject is complex enough to justify an entire shelf of books, these six dynamics are sufficient to illuminate the inevitable collapse of the status quo.

1. Doing more of what has failed spectacularly. The leaders of the status quo inevitably keep doing more of what worked in the past, even when it no longer works. Indeed, the failure only increases the leadership’s push to new extremes of what has failed spectacularly. At some point, this single-minded pursuit of failed policies speeds the system’s collapse.

2. Emergency measures become permanent policies. The status quo’s leaders expect the system to right itself once emergency measures stabilize a crisis. But broken systems cannot right themselves, and so the leadership is forced to make temporary emergency measures (such as lowering interest rates to zero) permanent policy. This increases the fragility of the system, as any attempt to end the emergency measures triggers a system-threatening crisis.

3. Diminishing returns on status quo solutions. Back when the economic tree was loaded with low-hanging fruit, solutions such as lowering interest rates had a large multiplier effect. But as the tree is stripped of fruit, the returns on these solutions diminish to zero.

4. Declining social mobility. As the economic pie shrinks, the privileged maintain or increase their share, and the slice left to the disenfranchised shrinks. As the privileged take care of their own class, there are fewer slots open for talented outsiders. The status quo is slowly starved of talent and the ranks of those opposed to the status quo swell with those denied access to the top rungs of the social mobility ladder.

5. The social order loses cohesion and shared purpose as the social-economic classes pull apart. The top of the wealth/power pyramid no longer serves in the armed forces, and withdraws from contact with the lower classes. Lacking a unifying social purpose, each class pursues its self-interests to the detriment of the nation and society as a whole.

6. Strapped for cash as tax revenues decline, the state borrows more money and devalues its currency as a means of maintaining the illusion that it can fulfill all its promises. As the purchasing power of the currency declines, people lose faith in the state’s currency. Once faith is lost, the value of the currency declines rapidly and the state’s insolvency is revealed.

Each of these dynamics is easily visible in the global status quo.

As an example of doing more of what has failed spectacularly, consider how financialization inevitably inflates speculative bubbles, which eventually crash with devastating consequences. But since the status quo is dependent on financialization for its income, the only possible response is to increase debt and speculation—the causes of the bubble and its collapse—to inflate another bubble. In other words, do more of what failed spectacularly.

This process of doing more of what failed spectacularly appears sustainable for a time, but this superficial success masks the underlying dynamic of diminishing returns: each reflation of the failed system requires greater commitments of capital and debt. Financialization is pushed to new unprecedented extremes, as nothing less will generate the desired bubble.

Rising costs narrow the maneuvering room left to system managers. The central bank’s suppression of interest rates is an example. As the economy falters, central banks lower interest rates and increase the credit available to the financial system.

This stimulus works well in the first downturn, but less well in the second and not at all in the third, for the simple reason that interest rates have been dropped to zero and credit has been increased to near-infinite.

The last desperate push to do more of what failed spectacularly is for central banks to lower interest rates to below-zero: it costs depositors money to leave their cash in the bank. This last-ditch policy is now firmly entrenched in Europe, and many expect it to spread around the world as central banks have exhausted less extreme policies.

The status quo’s primary imperative is self-preservation, and this imperative drives the falsification of data to sell the public on the idea that prosperity is still rising and the elites are doing an excellent job of managing the economy.

Since real reform would threaten those at the top of the wealth/power pyramid, fake reforms and fake economic data become the order of the day.

Leaders face a no-win dilemma: any change of course will crash the system, but maintaining the current course will also crash the system.

Welcome to 2016-2019.

This essay was drawn from my new book Why Our Status Quo Failed and Is Beyond Reform.

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