Category Archives: China

Fed comments and charts, Employment from outside the labor force, Public sector employment, Small Business Index, Labor market conditions index

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The reason the Fed is talking hike is because they believe the continued modest growth is reducing the excess capacity in the economy, and they are concerned about hitting the wall of full employment with their 0 rate policy and multi $ trillion portfolio, both of which they believe to be highly accommodative.

That is, they believe the car is creeping along in the fog towards what they believe is a wall with their foot on what they believe is the accelerator, and they want to lighten the pressure on the presumed accelerator before they hit the presumed wall.

However, they also know the growth in employment is only very slightly staying ahead of population growth, and, likewise, most all of the drop in the rate of unemployment is due a drop in the labor force participation rate, and not to employment growth. And they also know most of the newly employed were not considered in the labor force when they were hired, raising questions about what the labor force participation rate is actually measuring. And further evidence of a continued high level of slack are the continuing low levels of wage increases, as well as low reported inflation readings in general, which remain well below Fed targets 6 years into their 0 rate and QE initiatives.

And then there is the counterfactual, with their models telling them the economy would have been a whole lot worse without their accommodative policies. Believing that suggests that any backing off from current policy risks a substantial setback.

My conclusion- no telling what they might do. These are human beings navigating in a fog with an inapplicable map, and they think the brake pedal (lowering rates) is the gas pedal.

San Francisco Fed’s Williams Sees Rate Increase ‘This Year,’ If Risks Dissipate

By Jon Hilsenrath and Michael S. Derby

July 1 (WSJ) — “All of the data that we have had up until now has been, I think, encouraging. It …has been about as good, or better, than I was expecting, in terms of the U.S. economy,” San Fran Fed president John Williams said. “But there are some pretty significant—and I would say have now grown larger—headwinds that have developed.” The change in financial conditions since the July Fed meeting, in the form of falling stock prices and a rising dollar, “have been pretty big,” he said. “It’s not the case that nothing has changed since our last [policy] meeting.”

Sure looks to me like most everything peaked when oil prices collapsed:
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So, interesting how the jobs are coming from ‘outside the labor force’ when it’s been the presumed and unique ‘shrinking labor force’ that’s resulted in most of the decline in the unemployment rates:
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Employment growth has been nearly matched by population growth, so, again, it’s only via the ‘shrinking labor force’ argument that there’s been ‘improvement’:
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President Obama remains the all time Tea Party hero when it comes to reducing the size of govt:
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From RHB- you can see which one leads:
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NFIB Small Business Optimism Index
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Highlights
A solid gain in job openings and a solid bounce back for earnings trends helped lift the small business optimism 4 tenths to 95.9 vs Econoday expectations for 96.0. The index shows no immediate effect from troubles in China and global volatility. Hiring, capital spending and inventory investment plans firmed slightly, collectively adding 2 points. But the two outlook components collectively declined 4 points in readings that do not point to a big second-half finish for the economy.
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Labor Market Conditions Index
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Highlights
The August employment report proved mixed but not the labor market conditions index which rose 3 tenths to 2.1. This is a soft level compared to the mid-single digit trend of 2013 and 2014 but is still the highest reading of the year, since December. Adding to the strength is a 7-tenths upward revision to July. Payroll growth in August was weak but not the unemployment rate which fell 2 tenths to a recovery best of 5.1 percent. This index is based on a broad set of 19 components and could be cited by the hawks as evidence of labor market improvement at next week’s FOMC.

This hasn’t updated yet but you can see today’s print of 2.1 doesn’t impress:
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France PMI, Germany PMI, EU PMI, EU Retail Sales, UK service PMI, US Trade, ISM Non Manufacturing, Saudi Pricing

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France : PMI Composite
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Highlights
French private sector activity in August expanded at a significantly slower pace than indicated in the flash report according to the final PMI data for the month. At just 50.2, a 7-month low, the key composite output index was revised down an unusually large 1.1 points versus its preliminary reading to stand 1.3 points below its final July mark and close enough to 50 to signal a period of virtual stagnation in economic activity.

The flash service sector PMI was reduced by 1.2 points to 50.6, also a 7-month trough. As previously indicated, what growth there was reflected stronger new orders and rising backlogs although the growth rate of both hit multi-month lows. Certainly firms were not confident enough to add to headcount although, rather surprisingly, business expectations still climbed to their highest level since March 2012.

Meantime, another increase in input costs saw margins squeezed still further as service provider charges continued to fall.

The final PMI figures suggest that the French economy was really struggling last month. Total output was only flat in the April-June period and the survey data so far suggest little better this quarter.

Germany : PMI Composite
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Highlights
August’s flash composite output index was revised up a full point to 55.0 in the final data for the month. The new level was 1.3 points above July’s final reading, a 5-month high and strong enough to indicate a solid performance by the economy in mid-quarter.

The adjustment to the composite output gauge came courtesy of the service sector for which the preliminary PMI was revised some 1.3 points firmer to 54.9, also its best reading in five months. New orders rose strongly, backlogs were up and employment posted its largest gain since February. Against this backdrop, business expectations for the year ahead climbed to a 4-month peak.

What little progress they continue to make will evaporate with a strong euro, which I see as inevitable given their trade surplus:

European Union : PMI Composite
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Highlights
The final composite output index for August weighed in at 54.3, a couple of ticks stronger than its flash estimate and 0.4 points above its final July mark.

The flash services PMI was nudged just 0.1 points higher but, at 54.4, now matches June’s 4-year high. Increased output was supported by rising new orders and a sizeable increase in backlogs which, in turn, helped to ensure that employment growth remained respectably buoyant. Firms also became more optimistic about the economic outlook and business expectations for the year ahead climbed higher following July’s 7-month low. Meantime, inflation developments were mixed. Hence, although higher wages and salaries prompted another rise in input costs, margins were squeezed further as service provider charges declined for a remarkable forty-fifth consecutive month.

Regionally, the best performer in terms of the composite output measure was Ireland (59.7) ahead of Spain (58.8) and Italy (55.0 and a 53-month high). Germany (55.0) also had a good month but France (50.2 and a 7-month low) all but stagnated and remains a real problem for Eurozone economic growth.

The final PMI figures suggest that the Eurozone economy is on course for something close to a 0.4 percent quarterly growth rate in the current period, a slight improvement on the second quarter’s 0.3 percent rate. While this would be good news, faster rates of expansion will likely be needed if inflation is to meet the ECB’s near-2 percent target over the central bank’s 2-year policy horizon.

European Union : Retail Sales
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Highlights
Retail sales were slightly weaker than expected in August but with July’s decline more than halved, annual growth of purchases still comfortably exceeded the market consensus. Volumes were 0.4 percent firmer on the month after a 0.2 percent drop in June for a workday adjusted yearly rise of 2.7 percent, up from 1.7 percent last time.

July’s monthly rebound was led by a 0.8 percent jump in purchases of auto fuel and without this, non-food sales were just 0.1 percent higher having only stagnated in June. Food recorded a 0.2 percent advance. As a result, overall sales in July were 0.3 percent above their average level in the second quarter when they also increased 0.3 percent.

Regionally the advance was dominated by a 1.4 percent monthly jump in Germany. Spain (0.6 percent) also made a positive contribution but France (minus 0.2 percent) saw its first decline since March. Elsewhere, there were solid gains in Estonia (2.5 percent), Malta and Portugal (both 1.1 percent) but Slovakia (minus 0.2 percent) struggled.

Growth of retail sales has slowed in recent months, in keeping with signs that consumer confidence may have peaked, at least for now. According to the latest EU Commission survey, household morale improved slightly in August but still registered its second weakest reading since January. Consumption may continue to rise over coming months but the signs are that its contribution to real GDP growth will be only limited.
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I’ve been suggesting exports would slow more than what’s been reported so far, though year over year numbers are in decline. It may show up in revisions down the road:
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International Trade
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Highlights
The nation’s trade gap narrowed to a nearly as expected $41.9 billion in July following an upward revised gap of $45.2 billion in June (initially $43.8 billion). The improvement reflects a monthly rise of 0.4 percent in exports, which were led by autos, and a 1.1 percent contraction in imports that reflected a decline in pharmaceutical preparations and cell phones which helped offset a monthly rise in imports of oil where prices were higher in July.

Aside from autos, exports of industrial supplies, specifically nonmonetary gold, were strong in July while exports of capital goods also expanded. This helped offset a monthly decline in exports of civilian aircraft and consumer goods. Turning again to imports, other details include a rise in capital goods in what is the latest sign of life for business investment.

By nation, the gap with China widened slightly, to an unadjusted $31.6 billion in the month, while the gap with the EU widened more substantially to $15.2 billion, again unadjusted which makes month-to-month conclusions difficult. Gaps with Mexico and Canada both narrowed.

This report is another positive start to the quarter and will lift early third-quarter GDP estimates. But these will be cautious estimates as recent market turbulence pushes back conclusions and will make August’s trade data especially revealing.

Lower but still indicating ok expansion:
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Saudi price setting adjustment:

Aramco Cuts All October Crude Pricing to U.S., Northwest Europe

By Anthony DiPaola

Sept 3 (Bloomberg) — Saudi Arabia, the world’s largest crude exporter, cut pricing for all October oil sales to the U.S. and Northwest Europe and reduced the premium on its main Light grade to Asia by 30 cents a barrel.

State-owned Saudi Arabian Oil Co. cut its official selling price for October sales to Asia of Arab Light crude to 10 cents a barrel more than the regional benchmark, the company said in an e-mailed statement. The discount for Medium grade crude for buyers in Asia widened 50 cents to $1.30 a barrel less than the benchmark.

Brent, a global oil benchmark, fell almost 50 percent last year as Saudi Arabia and other OPEC members chose to protect market share over cutting output to boost prices. Brent fell from over $100 a barrel in July 2014 to less than half that six months later. It traded at about $50 on Thursday.

The Organization of Petroleum Exporting Countries led by Saudi Arabia decided on June 5 to keep its production target unchanged to force higher-cost producers such as U.S. shale companies to cut back. The producer group has exceeded its target of 30 million barrels a day since May 2014.

Saudi Arabia reduced production in August to 10.5 million barrels a day, the first decline this year, according to data compiled by Bloomberg.

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China, Saudi Output, Credit Check

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This monetarist stuff doesn’t work:

China removes regulation on loan-to-deposit ratio

Aug 28 (Xinhua) — China’s top legislature on Saturday adopted an amendment to the Law on Commercial Banks, removing a 75-percent loan-to-deposit ratio stipulation. China has kept the 75-percent ratio since the law was enacted and put into effect in 1995. “The ratio was set to prevent overly quick expansion of commercial banks’ credit scale and control liquidity risk, but it has become improper for current needs,” said Shang Fulin, chairman of the China Banking Regulatory Commission. Such an outdated ratio is now hindering the already market-oriented banks to better support the real economy, Shang said.

And this kind of stuff will further slow things down:

Obama

By Carlos Tejada

Aug 30 (WSJ) — China Places Cap on Local Government Debt () Chinese lawmakers have placed a 16-trillion-yuan cap on local government debt. The Standing Committee of China’s National People’s Congress imposed a 600 billion yuan limit on the direct debt local governments are allowed to run up this year. That would be on top of 15.4 trillion yuan on debt owed by local governments as of the end of 2014. The caps don’t include indirect liabilities, which officials said totaled 8.6 trillion yuan. The latest government estimate put China’s local debt load at 17.9 trillion yuan as of the middle of 2013, up from negligible levels just six years before, including debt held indirectly.

Saudi output fell only a small amount, indicating that demand held reasonably steady at that level at their posted prices, and that they remain comfortably control of price:
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Growth still slowing:
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This one’s showing steady growth, though low still very low:
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Personal Income and Outlays, Consumer Sentiment, Japan Household Spending, China Profits

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Everything pretty much as expected and the same, helped by vehicle sales which are both volatile and leveling off:

United States : Personal Income and Outlays
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Highlights
There’s no hurry for a rate hike based on the July personal income and outlays report where inflation readings are very quiet. Core PCE prices rose only 0.1 percent in the month with the year-on-year rate moving backwards, not forwards, to a very quiet plus 1.2 percent. Total prices are also quiet, also at plus 0.1 percent for the monthly rate and at only plus 0.3 percent the yearly rate.

On the consumer, the data are very solid led by a 0.4 percent rise in income that includes a 0.5 percent rise in wages & salaries which is the largest since November last year. Other income details, led by transfer receipts, also gained in the month. Spending rose 0.3 percent led by a 1.1 gain in durables that’s tied to vehicle sales. The savings rate is also healthy, up 2 tenths to 4.9 percent.

The growth side of this report is very favorable and marks a good beginning for the third quarter. This at the same time that inflation pressures remain stubbornly dormant. And remember this report next month will reflect the August downturn in fuel prices. With the core PCE index out of the way, next week’s August employment report looks to be the last big question mark going into the September 17 FOMC.

First the recession then the tax hikes and sequesters ratchet down after tax income, and the growth rate is both low and never enough to ‘catch up’:
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And over the last year you can see how the drop in oil capex after the price fell did the same thing though on a smaller scale, at least so far:
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This is further decelerating from already weak numbers, not to forget health care premiums count as consumption expenditures, with a one time adjustment in progress as previously uninsured people become insured and begin paying premiums:
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This is a quarterly number updated yesterday. The ‘one time’ increase may be cresting:
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Starting to decelerate, even with low gas prices:
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Japan : Household Spending
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China’s industrial profits fell faster in July

Aug 28 (Xinhua) — Profits of China’s major industrial firms fell 2.9 percent year on year in July, sharply down from the 0.3-percent decline posted in June. The NBS attributed the poor performance to weak domestic demand and a continuous fall in factory gate prices, which have suffered 41 consecutive months of declines. Profits at industrial companies with annual revenues of more than 20 million yuan (about 3.1 million U.S. dollars) totaled 471.6 billion yuan in July. During the first seven months, industrial profits dropped one percent from a year earlier, compared with a fall of 0.7 percent registered in the first half of the year, the NBS said.

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Redbook retail sales, Inflation adjustment, China, House prices, Consumer confidence

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Still depressed
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Lower than the Fed thought:

U.S. inflation probably lower than reported, Fed study says

Aug 24 (Reuters) — U.S. inflation in the first half of the year was probably “markedly lower” than reported according to the San Francisco Federal Reserve Bank. Researchers at the regional Fed bank had earlier found that the very weak readings for economic growth in the early part of the year were likely due to inadequate adjustments for seasonal fluctuations. The same researchers applied similar methodology to inflation data and found that core PCE inflation was probably overstated by 0.3 and 0.2 percentage points in the first two quarters of the year, respectively.

This does nothing for output and employment:

China’s central bank pumps in billions to ease liquidity strain

Aug 25 (Xinhua) — The People’s Bank of China (PBOC) conducted 150 billion yuan (23.4 billion U.S. dollars) of seven-day reverse repurchase agreements (repo). The reverse repo was priced to yield 2.5 percent, unchanged from the yield on a net injection last week of 150 billion yuan using reverse repos, according to a PBOC’s statement. The PBOC also channelled another 110 billion yuan via its medium-term lending facility. Despite the cash injection the benchmark overnight Shanghai Interbank Offered Rate (Shibor) climbed by 1.3 basis points to 1.879 percent.

Not a good sign:

S&P Case-Shiller HPI
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Highlights
Inventories may be low and sales rates firm, but both Case-Shiller and FHFA are pointing to a surprising flat spot for home-price appreciation. Case-Shiller’s 20-city adjusted index fell 0.1 percent in June vs Econoday expectations for a 0.1 percent rise. Year-on-year, 20-city prices, whether adjusted or unadjusted, are unchanged at plus 5.0 percent. This rate has been inching higher but looks like it may be ready to fall back unless prices pick up.
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A bit less than expected and still at very depressed levels:

New Home Sales
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Settled back to depressed levels from last month’s blip up:

Richmond Fed Manufacturing Index
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Consumer confidence bounced up with lower gas prices, as it’s one man one vote, not one dollar one vote, and so hasn’t been a reliable indicator of retail sales.
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quick macro update

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It all started when the FICA tax cuts and a few of the Bush tax reductions were allowed to expire at the end of 2012, followed by the sequesters a few months later 2013. That resulted in 2013 GDP growth of a bit less than 2% or so that might have been closer to 4% without the tax hikes and spending cuts.

Going into 2014 GDP I suggested growth might be closer to 0 than to the 3.5% being forecast. It again printed about in the middle averaging a bit over 2% (with some ups and downs…), and then towards the end of 2014 the price of oil collapsed and it was discovered there had been $hundreds of billions of planned capital expenditures that would be cut, domestically and globally, after which I again suggested GDP growth for the year- this time 2015- would now be near 0, and in fact could well be negative. Additionally, it was revealed the extent to which it was the large and growing oil capex expenditures up to that time that had been supporting at least 1% GDP growth up to that point. And so far GDP growth for 2015 has been less than 2014, even after 2014’s recent downward revisions, and along with slowing GDP has come slowing corporate revenues and earnings growth. All subject to further revisions, of course, which lately have been downward revisions.
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Meanwhile, in the first half of 2014 the euro began falling against the $ as well as other currencies. The fall coincided with the ECB threatening and then following through with negative rates and QE, much to the consternation of global portfolio managers, including Central Bankers, pension funds and hedge funds, who collectively proceeded to lighten up on their euro allocations. And along the way, issues surrounding Greece further frightened the portfolio managers into further selling of euro assets. This relentless selling pressure drove the euro down, particularly vs the US dollar. Specifically, a euro based portfolio manager might, for example, sell his euro securities, and then sell the euros to buy dollars, and then use the dollars to buy US stocks. Or a CB might manage its reserves such that the % of euro assets declined vs dollar assets. And a hedge fund might simply buy the $US index, which is about half dollar/euro and a way to sell euro and other currencies vs the dollar. All of this, along with several other ways to skin the same cat, constituted euro selling that drove the dollar up and the euro down, and at the same time produced buyers of US stocks.

Fundamentally, however, the opposite was happening. The euro area had a (small) trade surplus, which was removing euro from global markets, but not as fast as the sellers were selling, and the euro went ever lower. But as it did this it made the euro area that much more ‘competitive’ (euro area goods and services were that much less expensive in dollar terms) which resulted in an ever larger trade surplus, with the latest release showing a record trade surplus of about 24 billion euro per month. And at the same time, the increased euro exports helped support the economy and generated forecasts for improved future growth, all of which supported euro stocks.

It now appears the curves (finally) crossed, with the euro area trade surplus now exceeding the euro portfolio selling which seems to have run its course, which caused the euro to bottom and start to appreciate. This started generating adverse marks to market for those short euro and long US stocks, for example, who subsequently began reversing their positions by buying euro and selling US stocks. And the strong euro also threatens euro area exports and therefore output, employment, and GDP forecasts, causing euro stocks to sell off as well.

So far I’ve left out what turned out to be the catalyst for this reversal- China. When China moved to allow the yuan to trade lower against the dollar, it was deemed a credible threat to both euro and US exports, and world demand in general, which set off the latest wave of selling.
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So what’s next?

More selling of US stocks and buying euro to reverse those positions. Hedge funds might move quickly, but, for example, pension funds often do their reallocating at quarterly and annual meetings, so it could all take quite a bit of time.

Additionally, buying of euro will drive the euro up, as there is no ‘excess supply’ being generated. Quite the reverse, in fact, as the trade surplus works to make euro that much harder to get. That means the euro will appreciate until the trade surplus reverses (whether there is any causation or not…), which should prove highly problematic for the euro economy and euro stocks. The other side of this coin is the weaker dollar that should lend some support to the US stock market, though a collapsing euro area economy with it’s associate debt issues and political conflicts might do more harm than the weak dollar does good, not to mention the weakening domestic demand in the post oil capex world with no relief in sight from other sectors.

Lastly, the stock market has been maybe the best leading indicator, and probably because of it’s direct effect on perceptions of wealth and its influence on spending and investing decisions. And the Fed doesn’t target stocks,
but it doesn’t ignore them either, as it too recognizes the influence it can have on output and employment, especially on the downside.

Of course all of this can be reversed for the better with a simple fiscal expansion, as the underlying problem remains- the Federal deficit is too small in the absence of sufficient private sector deficit spending needed to offset desires to not spend income. (Yes, it’s always an unspent income story…)

But politics, at least for now, renders that sure fire remedy entirely out of the question.

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credit check, rail traffic, ecri index, china pmi

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Still no sign of acceleration, as some deceleration continues:
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Rail Week Ending 15 August 2015: Continued Deterioration Of Year-over-Year Rolling Averages

(Econintersect) — Week 32 of 2015 shows same week total rail traffic (from same week one year ago) contracted according to the Association of American Railroads (AAR) traffic data. Intermodal traffic expanded year-over-year, which accounts for approximately half of movements. and weekly railcar counts continued in contraction.

07 August 2015: ECRI’s WLI Growth Index Returns to the Dark Side – Economic Slowing Forecast.

(Econintersect) — ECRI’s WLI Growth Index which forecasts economic growth six months forward – just slipped back into negative territory. This index had spent 28 weeks in negative territory then 15 weeks in positive territory – and now returned to negative territory. ECRI released their coincident and lagging indicators for July this week.

China Manufacturing PMI Plummets to 6-Year Low

(Econintersect) — China’s manufacturing sector reported the lowest PMI (Purchasing Managers’ Index) reading in 6 years with an August 2015 Caixin/Markit “Flash” (preliminary) survey result of 47.1. Readings below 50 reflect a contracting manufacturing sector. The low value for the survey result was a surprise. This was down from a July reading of 47.8 June reading of 49.4 and was the sixth consecutive reading below 50. Analysts surveyed by Bloomberg indicated expectations were for a reading of 49.7.

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Retail Sales, Jobless Claims, Import Export Prices, Business Inventories, Japan Machine Orders, Freight Transportation, Gas Prices

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This is being touted as a strong report, but, again, looks to me like it’s dropped since year end and at best is moving sideways from there, and not to forget that a large share of auto sales are imports.

But I do agree the Fed is heck bent on raising rates in Sept, even without ‘some’ improvement, and will do so unless there’s a stock market decline severe enough to hold them back. So far that’s not happening.

Retail Sales
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Highlights
Big upward revisions underscore a very solid and very important retail sales report. Retail sales rose 0.6 percent in July with June revised to unchanged from an initial reading of minus 0.3 percent and with May revised to a jump of 1.2 percent from 1.0 percent. The revisions to June and May point to an upward revision for second-quarter GDP.

Vehicle sales, as expected, were the standout in July, jumping 1.4 percent to nearly reverse June’s 1.5 percent slide and nearly matching May’s historic 1.9 percent surge. But even outside vehicles, retail sales were strong with the ex-auto reading rising a solid 0.4 percent. Restaurants, in another strong signal of consumer strength, rose an outsized 0.7 percent following June’s 0.5 percent gain. These are very strong gains for this component. Excluding both vehicles and gasoline, retail sales rose 0.4 percent, again another solid reading.

Strength in both vehicles and restaurants point to the health of the US consumer and will likely give the hawks the courage, despite all the troubles in China, to push for a rate increase at the September FOMC.

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Tough times for department store sales continue, which explains some of the weakness in construction:

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‘Some’ deterioration:

Jobless Claims
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‘Some’ deterioration for Fed hopes of higher inflation. It’s been failing to hit its target for longer than I can remember…

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Excess inventory building in June helps Q2 GDP but the likely subsequent production cuts will hurt Q3. The now persistently too high inventory to sales ratio is overdue for a correction:

United States : Business Inventories
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Highlights
Inventories rose relative to sales in June but the news isn’t that bad given that the build was centered in autos. Business inventories rose 0.8 percent in June which was well ahead of a 0.2 percent rise in sales. The mismatch lifts the inventory-to-sales ratio to 1.37 from 1.36.

But retail inventories at auto dealers were to blame, up 1.4 percent in June and contributing to a 0.7 percent rise for the retail component. Inventories at manufacturers and wholesalers, the two other components of the business inventory report, also rose, up 0.6 and 0.9 percent respectively.

Inventories are on the heavy side but the concentration in autos is welcome given how strong sales are, evidenced by the 1.4 percent surge for the motor vehicle component of the July retail sales report released earlier this morning. Note that this report, along with the retail sales report, are likely to lift revision estimates for second-quarter GDP.

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Global weakness continues:

Japan : Machine Orders
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Highlights
June seasonally adjusted machine orders (excluding volatile items) declined for the first time since February. They dropped a larger than anticipated 7.9 percent on the month and were up 14.7 percent on the year. Core orders were up 16.6 percent based on the original series. This was in contrast to expectations of a 17.5 percent increase.

Core machine orders are considered a proxy for private capital expenditures. The downward move followed a 0.6 percent gain a month before. The government repeated its assessment that machine orders would advance in the third quarter.

Nonmanufacturing orders excluding volatile items were up 5.0 percent while manufacturing orders dropped 14.0 percent. All orders including volatile items dropped 6.2 percent on the month. Manufacturing orders likely softened on continued weaker export demand while the sluggish domestic economy weighs on nonmanufacturers.”

Another weak looking index:

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And I’d call this ‘some’ deterioration in the ‘labor market’. Looks like it was weakening before the 2014 oil capex boom supported it, and then has fallen off since the oil price collapse:

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This is to the point I’ve been making that surveys are one man one vote, not one dollar one vote, so optimism remained high even as retail sales, for example, were fading. Yes, a lot more people saved $10 per week on gas but an equal amount of income was reduced for sellers of oil, including those earning royalties and holding leases, and investors of all sorts, and seems the spending cuts on domestic product by that group outweighed the additional spending from pump savings.

Fueled by low pump prices, U.S. motorists to drive more in August – survey

By Jarrett Renshaw

August 11 (Reuters)

U.S. motorists are paying an average of $2.58 per gallon, nearly a dollar less than a year ago, according to AAA, the nation’s largest motorist advocacy group. And a quarter of respondents expected prices to continue to decline, up from 10 percent a month ago.

The survey found that nearly 80 percent of people say gas prices influence how they feel about the economy. And with gas prices down nearly $1 from a year ago, U.S. motorists are feeling positive about the direction of the economy, the survey found.

“There is good news for retailers as consumer optimism picks up during peak vacation season,” said NACS Vice President of Strategic Industry Initiatives Jeff Lenard.

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MTG Purchase Apps, EU Industrial Production, China Industrial Production, JOLTS

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Yes, purchase apps are up 20% vs last year, but you can see from the chart the
number of applications has leveled off and declined a bit more recently this year, and remains
at depressed levels:

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The slump in industrial production is global:

European Union : Industrial Production
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Highlights
Industrial production declined more than expected in June. Following a decline of 0.2 percent on the month, output excluding construction dropped 0.4 percent. Annual workday adjusted growth was 1.2 percent, down from 1.6 percent last time.

Durable consumer goods led the monthly declines, falling by2.0 percent from the previous month, followed by capital goods (down 1.8 percent) and intermediate goods (down 0.5 percent). Energy production (up 3.2 percent) was the sole sub-category to record a monthly advance.

Regionally, the biggest declines were seen in Portugal (down 2.1 percent) and Ireland (down 2.0 percent) while the Netherlands (up 3.9 percent) and Slovakia (up 1.4 percent) led to the upside. In the larger countries, Germany’s industrial output contracted 1.4 percent on the month while output in France also weakened 0.1 percent.

The disappointing figures will likely impact analysts’ expectations for Eurostat’s flash estimate of second quarter Eurozone GDP, which is scheduled for Friday.

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And the latest from China was below expectations as the downtrend continues:

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This turned a bit lower which ordinarily doesn’t mean much, but when the Fed is looking for ‘some’ improvement this is not that:

United States : JOLTS
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Highlights
Job openings contracted in June to 5.249 million from 5.357 million in May. The decline likely reflects, at least in part, new hiring as the hiring rate rose 1 tenth to 3.7 percent. But layoffs point to weakness in labor demand with the layoff rate up 1 tenth to 1.3 percent. The quits rate was unchanged at 1.9 percent. Job growth has been no better than moderate this year and this report, which is mixed, doesn’t point to acceleration.

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China, Germany, Productivity, NFIB Index, Redbook, Wholesale Trade

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A few thoughts:

China’s US Tsy holding had been falling perhaps because they were selling $ to buy Yuan to keep it within in the prior band.

Pretty much all exporting nation’s currencies have already weakened vs the $, including the Yen and Euro, so this is a bit of a ‘catch up.’

In a weakening global economy from a lack of demand (sales) and ‘western educated, monetarist, export led growth’ kids now in charge globally, the path of least resistance is a global race to the bottom to be ‘competitive’. And the alternative to currency depreciation, domestic wage cuts, tends to be less politically attractive, as the EU continues to demonstrate.

The tool for currency depreciation is intervention in the FX markets, as China just did, after they tried ‘monetary easing’ which failed, of course. Japan did it via giving the nod to their pension funds and insurance companies to buy unswapped FX denominated securities, after they tried ‘monetary easing’ as well.

The Euro zone did it by frightening China and other CB’s and global and domestic portfolio managers into selling their Euro reserves, by playing on their inflationary fears of ‘monetary easing’-negative rates and QE- they learned in school.

The US used only ‘monetary easing’ and not any form of direct intervention, and so the $ remains strong vs all the rest.

I expect the Euro to now move ever higher until its trade surplus goes away, as global fears of an inflationary currency collapse are reversed and Euro buying resumes as part of global export strategies to export to the Euro zone. And, like the US, the EU won’t use direct intervention, just more ‘monetary easing’.

Ironically, ‘monetary easing’ is in fact ‘fiscal tightening’ as, with govts net payers of interest, it works to remove interest income from the global economy. So the more they do the worse it gets.

‘No matter how much I cut off it’s still too short’ said the hairdresser to the client…

The devaluations shift income from workers who see their purchasing power go down, to exporters who see their margins increase.
To the extent exporters then reduce prices and those price reductions increase their volume of exports, output increases, as does domestic employment. But if wages then go up, the ‘competitiveness’ gained by the devaluation is lost, etc., so that’s not meant to happen.

Also, the additional export volumes are likewise reductions in exports of other nations, who, having been educated at the same elite schools, respond with devaluations of their own, etc. etc. in a global ‘race to the bottom’ for real wages. Hence China letting their currency depreciate rather than spend their $ reserves supporting it.

The elite schools they all went to contrive models that show you can leave national deficit spending at 0, and use ‘monetary policy’ to drive investment and net exports that ‘offset’ domestic savings. It doesn’t work, of course, but they all believe it and keep at it even as it all falls apart around them.

But as long as the US and EU don’t have use of the tools for currency depreciation, the rest of the world can increase it’s exports to these regions via currency depreciation to lower their $ and Euro export prices, all of which is a contractionary/deflationary bias for the US and EU.

Of further irony is that the ‘right’ policy response for the US and EU would be a fiscal adjustment -tax cut or spending increase- large enough to sustain high enough levels of domestic spending for full employment. Unfortunately, that’s not what they learned in school…

The drop in expectations is ominous, particularly as the euro firms:

Germany : ZEW Survey
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Highlights
ZEW’s August survey was mixed with a slightly more optimistic assessment of the current state of the economy contrasting with a fifth consecutive decline in expectations.

The current conditions gauge was up 1.8 points at 65.7, a 3-month high. However, expectations dipped a further 4.7 points to 25.0, their lowest mark since November 2014.


The drop in unit labor costs and downward revision of the prior increase gives the Fed cause to hold off on rate hike aspirations:

United States : Productivity and Costs
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Highlights
A bounce back for output gave first-quarter productivity a lift, up a quarter-to-quarter 1.3 percent vs a revised decline of 1.1 percent in the first quarter. The bounce in output also held down unit labor costs which rose 0.5 percent vs 2.3 percent in the first quarter.

Output in the second quarter rose 2.8 percent vs a depressed 0.5 percent in the first quarter. Compensation rose 1.8 percent, up from 1.1 percent in the first quarter, while hours worked were little changed, up 1.5 percent vs 1.6 in the first quarter.

Looking at year-on-year rates, growth in productivity is very slight at only plus 0.3 percent while costs do show some pressure, up 2.1 percent in a reading, along with the rise in compensation, that will be welcome by Federal Reserve officials who are hoping that gains in wages will help offset weakness in commodity costs and help give inflation a needed boost.


Up a touch but the trend remains negative:

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Redbook retail sales report still bumping along the bottom:

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A decline in sales growth and rise in inventories is yet another negative:

United States : Wholesale Trade
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Highlights
A build in auto inventories as well as for machinery drove wholesale inventories up a much higher-than-expected 0.9 percent in June. Sales at the wholesale level rose only 0.1 percent in the month, in turn driving the stock-to-sales ratio up 1 notch to a less-than-lean 1.30. This ratio was at 1.19 in June last year.

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