Tag: news

While the Fed will surely be displeased that after two ~275K prints in a row, the US labor market stalled again by nearly 50%, with August payrolls rising only by 151K, what Yellen will be most focused on is not the number of jobs, but rather the wage growth, or more specifically the lack thereof. As we noted earlier, on an average hourly basis, in August wages rose only by 0.1%, below the 0.2% Wall Street hoped for, and the lowest monthly increase since February.

As usual, however, hourly wages gave only half the story, because the US economy is a product of aggregate hours and wages, and it was here that a major problem emerged. As the chart below shows, when looking at the largest private sector grouping of US payrolls, the total production and non-supervisory workers which amount to roughly 83% of the entire workforce, the aggregate hours worked rose just 1.1% over the past 12 month, the lowest increase since July 2010.

 

And the flipside to this was that average weekly earnings for all employees not only declined from $884.08 to $882.54 over the past month (with weekly earnings for production and non-supervisory workers likewise declining from $727.92 to $727.10), but that on an annual basis, the 1.5% increase was the worst print in 32 months.

 

This report confirms what we showed several days ago, namely that the bulk of wage growth has gone to low-paid workers, however now that the tailwind of state minimum wage hikes has passed, the overall wage growth is sliding once again.

 

In short: if Yellen hikes into an environment in which wages are falling (and as reported last night, in which small businesses are seeing increasing delinquencies and are borrowing less), it will be nothing less than the Fed’s attempt to push the economy into a recession.

via http://ift.tt/2bYlqLB Tyler Durden

Via Dana Lyons' Tumblr,

September has historically gotten a bad rap in the stock market; has it really been that bad?

Most investors are probably somewhat aware, either through education or experience, of the dubious reputation of the forthcoming seasonal period in the stock market. Specifically, the months of September and October are arguably the 2 rockiest months for stocks, historically. But is the reputation deserved? Is it based on statistical evidence, or merely bad anecdotal memories. We took a look at the numbers.

October gets an especially bad rap and, based on its history, it is deserved…somewhat. Over the past 100 years, the Dow Jones Industrial Average has experienced an average drawdown (i.e., maximum intra-month loss) of -4.69%. That is far and away the worst of any month. Just one other month even comes within 90 basis points of that drawdown. However, October has also shown great propensity to bounce back from such losses. Its average return of 0.32% is tied for 9th best and its median return of 0.97% is actually the 6th best of any month, or in the upper half.

September, on the other hand, has been relatively weak for stocks all around, with no redeeming qualities. September’s average drawdown of -4.14% is the only one close to that of October. However, it has not shown the propensity to rebound like October has. Over the past 100 years, September is the only month showing an average loss for the Dow. Furthermore, its average loss is a full -1.00%.

 

At -1.00%, September’s average return is at a discount so large versus the other months that simple “coincidence” would be a far-fetched explanation. It other words, it is statistically significant. September has certainly suffered its share of out-sized losses (e.g., -30.70% in 1930, the largest monthly loss in history) and these large losses have served to skew the average returns further to the negative. However, at a nearly -0.50%, the median return is far and away the worst of any month as well (June’s -0.16% is the only other negative median return).

Now, obviously these averages and medians are the product of 100 years of samples. Some Septembers have been good for stocks while more have been bad. So the seasonal tendencies typically amount to a slight headwind or tailwind. In the case of September, though, the preponderance of historical evidence would suggest that stocks may be dealing with a decided headwind in September.

*  *  *

More from Dana Lyons, JLFMI and My401kPro.

via http://ift.tt/2cf5KkE Tyler Durden

Well that escalated quickly…

 

 

But the entire fed Funds Futures complex just repriced out any rate hikes…

 

 

We’re gonna need more jawboning!

via http://ift.tt/2ckQwxW Tyler Durden

Gold is leading the way but everything is rallying on thge back of a payrolls print that disappointed expectations and unwound J-Hole jawboning… 

 

 

and the USD Index is dumping…

We will see if this exuberant kneejerk lasts.

via http://ift.tt/2c6Nwoc Tyler Durden

With Wall Street expecting another solid month of payroll growth, following multiple-sigma outlier prints in June and July, the whisper expectations was for a miss on the back of the previously discussed “August Curse” which has seen a consistent miss to the month, and that is precisely what happened when moments ago the BLS reported that in the month of August only 151K jobs were added, missing the consensus of 180K job growth by nearly 30,000 jobs.

The unemployment rate remained flat at 4.9%, despite expectations of a decline to 4.8%, while hourly earnings rose just 0.1%, also missing expectations of 0.2% increase, and down sharply from last month’s 0.3% rebound.

via http://ift.tt/2c01QxJ Tyler Durden

Submitted by Michael Shedlock via MishTalk.com,

Middle-class households are finding more of their Obamacare costs are coming out of their own pockets.

Self-covered individuals are hit hardest, but employers providing coverage have fought back against rising costs by reducing plan benefits.

Deductibles are up 67% since 2010. That’s seven times more than wages. And the cost of prescription drugs is out of sight.

Please consider Burden of Health-Care Costs Moves to the Middle Class

Overall, health-care spending across the economy reached 18.2% of gross domestic product as of June, up from 13.3% in 2000, according to Altarum Institute, a health research group.

 

David Cutler, a Harvard health-care economist, said this may be “a story of three Americas.” One group, the rich, can afford health care easily. The poor can access public assistance. But for lower middle- to middle-income Americans, “the income struggles and the health-care struggles together are a really potent issue,” he said.

The Kaiser Family Foundation, a health-care research nonprofit, found deductibles for individual workers have soared in the past five years, rising 67% since 2010 without adjusting for inflation, roughly seven times earnings growth over the same period. A separate Kaiser analysis of tens of millions of insurance claims found patient cost-sharing rose by 77% between 2004 and 2014, driven by a 256% jump in deductible payments.

Shifting Burdens

In the 15 years since B.J. Welborn, 66, started taking the leukemia medication Gleevec, its list price has risen from under $24,000 for a year’s supply, to over $121,400, according to drugmaker Novartis. Now on Medicare, Ms. Welborn has a co-pay of $491 for a 30-day supply of Gleevec, seven times the co-pay on her old Blue Cross Blue Shield plan. She estimates she now pays between $11,000 and $12,000 a year for the drug.

Skyrocketing Drug Costs

My math says that if a one-month supply costs $491, a year’s supply costs $5892 not $11,000 to $12,000. However, even $5892 seems excessive. And it is. Blame regulation. Also blame fear of “death panels”.

Death Panel Discussion

Please consider Why Drugs Cost So Much.

ELI LILLY charges more than $13,000 a month for Cyramza, the newest drug to treat stomach cancer. The latest medicine for lung cancer, Novartis’s Zykadia, costs almost $14,000 a month. Amgen’s Blincyto, for leukemia, will cost $64,000 a month.

Why? Drug manufacturers blame high prices on the complexity of biology, government regulations and shareholder expectations for high profit margins. In other words, they say, they are hamstrung. But there’s a simpler explanation.

 

Companies are taking advantage of a mix of laws that force insurers to include essentially all expensive drugs in their policies, and a philosophy that demands that every new health care product be available to everyone, no matter how little it helps or how much it costs. Anything else and we’re talking death panels.

 

An article in The New England Journal of Medicine last fall focused on how companies buy up the rights to old, inexpensive generic drugs, lock out competitors and raise prices. For instance, albendazole, a drug for certain kinds of parasitic infection, was approved back in 1996. As recently as 2010, its average wholesale cost was $5.92 per day. By 2013, it had risen to $119.58.

 

Novartis, the company that makes the leukemia drug Gleevec, keeps raising the drug’s price, even though the drug has already delivered billions in profit to the company. In 2001 Novartis charged $4,540, in 2014 dollars, for a month of treatment; now it charges $8,488. In its pricing, Novartis is just keeping up with other companies as they charge more and more for their drugs. They know we can’t say no.

Just Say No

Supposedly we cannot say no because it will lead to charges of “death panels”.

Well, why can’t we say no? Do people have the right to demand $64,000 a month for Amgen’s Blincyto.

That sound amazing? A one year’s supply of Gleevec costs $121,400!

Why not $250,000 a month or $2,000,000 a month?

Where does it stop?

What If?

If Medicare and insurance companies came flat out and stated “the most we will pay for any drug is $500” an month, guess what would happen?

In case you do not know the answer here it is: No drug would cost more than $500 a month.

Such a rule does not demand drug manufacturers provide drugs, it simply states what government would pay. Might some people die as a result?

Perhaps. But perhaps not.

Would the manufacturers rather get $500 a month or nothing? Perhaps to make a point, drug manufacturers would rather get nothing, but that would make the pharmaceutical company the death panel, not the government.

I’m not saying $500 is the magic number. I just provided an example.

Case for Zero

• Why should government guarantee any payment for drugs?
• Why should government demand insurers provide coverage for every drug?
• Why shouldn’t we allow drug imports from Canada and Mexico?
• Why not try a free market and see what happens?

If Obamacare did not force insurers to provide coverage for every drug, and if Medicare put a cap on costs, prescription drug prices would crash.

The same applies to operations and every other aspect of health care. Government is the problem, not the solution.

via http://ift.tt/2bHZlDl Tyler Durden

In just half an hour, the August payrolls report, critical in framing the Fed's September decision according to Stanley Fischer, will be released. As previewed earlier, here are the consensus expectations:

• Change in Nonfarm Payrolls Exp. 180K, Prev. 255K, Jun. 287K
• Unemployment Rate Exp. 4.80% , Prev. 4.90%, Jun. 4.90%
• Average Hourly Earnings Exp. 0.20%, Prev. 0.30%, Jun. 0.10%

Broken down by bank, the expected payrolls change is as follows:

• JPM +150k
• Deutche Bank +160k
• Goldman +165k
• Citi +170k
• Wells +176k
• BofA 180k
• MS +185k
• UBS +200k
• Barclays +200k
• Nomura +200k
• CS +200k
• SocGen +225k

As the graph below from Jim Reid shows, August has tended to be a weaker month relative to the rest of the year. Indeed since the start of the sample the average monthly payrolls reading is +186k while the average August reading is just +150k (which is the joint lowest with July). Although July's number went against this trend, will both July and August buck their seasonal trend?

Leading into the number the manufacturing ISM (49.4 vs. 52.6) showed broadbased weakness: New orders (49.1 vs. 56.9), production (49.6 vs. 55.4), employment (48.3 vs. 49.4) and inventories (49.0 vs. 49.5) all declined in August and this may have helped bring expectations down for today’s payrolls below the consensus noted on Bloomberg. Fed rate hike probabilities weren’t greatly moved (September down 2% to 34% and December unchanged at 60%) but we did see the Greenback come under pressure (Dollar index -0.38%) and 2y and 10y Treasury yields fall as much as 4bps and 6bps respectively from the pre-ISM highs. The S&P 500 ended the day unchanged after rallying back from early losses while US credit was a smidgen wider (CDX IG +1.1bps).

* * *

Per RanSquawk, the latest NFP report expected at 0830ET remains as crucial as ever amongst market participants following the latest Jackson Hole symposium. Furthermore, last month finalised the consensus that May's report (11K) was purely an anomaly that has not been repeated. More importantly, the report does come ahead of September's FOMC rate decision on the 21st, with analysts looking to establish whether the report itself could realistically put September on the table if the figures were of an exceptional standard or whether, despite the gravity of the report, there are simply too many other data points to be considered.

The Jackson Hole symposium was the main event of last week whereby full attention was on Fed Chair Yellen's rhetoric and subsequent commentary by Vice-Chair Fischer. Chair Yellen stated that the case for a rate hike has strengthened in recent months while the economy is closing in on their inflation and employment objectives. Vice-Chair Fischer provided some of the most influential comments by stating that Yellen's comments were consistent with a potential hike in September. In terms of the expectations themselves, the headline expectation is still representative of strong jobs growth at 180K, while unemployment is expected to decline by 0.1pp to 4.80% while average hourly earnings are forecast to decline slightly to 0.2% on a monthly basis.

As ever, the data continues to be at the forefront of investors' minds with the latest ISM manufacturing release on Thursday decidedly on the negative side. As such, this may have abated some of the speculation that this jobs report could stoke the fire for a hike in September. Furthermore, the employment component of ISM also came in below the expected 49.6, coming in at 48.3. The Nonfarm productivity release which was in focus amongst individuals came in-line with expectations while ADP also saw minimal movement on the forecasted figures at 177K.

Market Reaction

As ever with the NFP release, the headline is likely to garner much of the initial focus with algorithms and fast money moves jumping on any large discrepancies. The wider context will always be considered, and to reiterate, if there was an absolutely stellar report, this could put September very much in focus for a hike. However, this year has continued to illustrate expectations over a potential hike ahead of a jobs report so the wider context has the potential to be taken with a slight pinch of salt. Furthermore, there will be various data releases out of the US ahead of the next meeting. Overall, if there is a strong report, the USD will strengthen across the board with treasuries coming under pressure, while equities have often seen a turbulent reaction due to indecision in the marketplace, yet some outperformance could be seen in financial names given the rate hike implications.

Indicatively, the last three months have seen huge outlier prints (a massive miss and 2 major beats – outside of normal ranges).

Goldman is less exuberant, expecting a 165k increase in nonfarm payroll employment in August, below consensus expectations for a 180k gain.

Payroll growth has been quite strong over the past couple months, rebounding to +292k in June and +255k in July following a disappointing +24k in May, leaving the trailing 3- and 6-month averages at roughly 190k.

Our below-consensus forecast primarily reflects seasonal quirks specific to the August payroll period. Since 2011, August payroll growth has fallen short of Bloomberg consensus expectations by an average of 49k, only to be revised up by an average of 71k in subsequent releases. Industry-level payroll data indicate that the education sector (specifically, education services and state & local government employment, the latter largely reflecting public schools) accounts for much of the upward revision, which mostly occurs from the first to the second estimate of payroll growth (Exhibit 1). In our view, the initial August weakness and subsequent revisions reflects seasonal adjustment challenges related to shifts in the timing of school calendars. Since this pattern failed to hold last year, we are estimating a more conservative 20k impact this year.

Arguing for a stronger report:

• Job availability: The Conference Board’s labor differential—the difference between the share of consumers saying jobs are plentiful vs. hard to get—rose 1.7pt to +2.6, reaching a new post-crisis high.
• Job cuts: According to the Challenger, Gray & Christmas report, job cuts fell a touch on a seasonally adjusted basis in August. Announced job cuts in the energy sector fell sharply in August, possibly reflecting a stabilization in energy sector employment.

Neutral factors:

• Jobless claims: The four-week moving average of initial jobless claims during the survey week rose by 6k to 264k. Despite the modest increase, the level of initial claims remains near all-time lows, suggesting minimal layoff activity across the economy.
• Service sector surveys: The employment components of the service sector surveys were mixed in August. The Richmond Fed (+1pt to +13) and Dallas Fed (+2.0pt to +5.8) surveys improved, although the NY Fed (-6.4pt to +2.8, not seasonally adjusted) and Markit PMI surveys deteriorated. Service sector employment rose 201k last month, and has increased 179k on average over the last six months.

Arguing for a weaker report:

• ADP: ADP reported a 177k gain in private payroll employment in August, slightly below a revised +194k increase in July. Service-sector job gains softened a bit to 183k, manufacturing employment was flat, and construction employment fell 2k.
• Manufacturing surveys: The employment components of the manufacturing surveys were mostly weaker in August. The ISM manufacturing (-1.1pt to 48.3), Philly Fed (-18.4pt to -20), Dallas Fed (-2.4pt to -5) and Kansas City Fed (-5pt to -10) and Markit PMI deteriorated, while the Richmond Fed (+1pt to +7) and Chicago PMI edged up. Manufacturing employment rose by 9k in July, but has declined by 6k on average over the last six months.
• Online job ads: The Conference Board’s Help Wanted Online (HWOL) report showed a 3.7% decline in new online job ads in August, and little change to total jobs listed. However, we put only limited weight on this indicator at the moment in light of recent research by Fed economists that argued that the HWOL ad count—which has departed significantly from the job openings figures in the official Job Openings and Labor Turnover Survey (JOLTS)—has been influenced by price increases for online job ads.

We expect the unemployment rate to decline to 4.8% in August from an unrounded 4.878% in July. The headline U3 rate was unchanged in July, but up from a low of 4.7% in May, while the broader U6 underemployment rate edged up 0.1pp to 9.7%. The household survey was strong last month, showing a 420k increase in employment. Because the increase in employment was roughly matched by a similar increase in the labor force, the unemployment rate was unchanged. The labor force participation rate ticked up to 62.8%, close to where it has been since the beginning of the year. With trend employment growth still running at more than double our 85k estimate of the breakeven rate, we expect the labor market to reach full employment by early 2017 and to surpass it thereafter.

Average hourly earnings for all workers are likely to remain flat in August, in large part reflecting unfavorable calendar effects. As a result, we expect the year-on-year rate to decline to 2.3% from 2.5%. Nevertheless, the broader wage data remain encouraging: our wage tracker—which aggregates four measures of wage growth—stands at 2.6% year-on-year, a sign that diminishing slack is boosting wage growth.

The August employment report will be an important input into the FOMC decision at the September 20-21 meeting. A below-consensus number may well lead the bond market to reduce its expectations for a rate hike, but it is possible that Fed officials would look through moderate weakness given 1) the strength of the June/July payroll gain, 2) their sub-100k estimate of the “breakeven” payroll gain, and 3) the well-publicized tendency for weak first prints in August.

* * *

Finally, keep in mind the "August Curse": August Non-farm Payrolls have been weaker than consensus expectations in each of the last 5 years and in 14 of the last 18 years of available data.

Note: This data compares the initial data print with the consensus expectations at the time of the print.

And furthermore, going back 25 years, no month has produced less jobs than August, as Ryan Detrick points out.

via http://ift.tt/2bPgk0K Tyler Durden