|
New Zealand Q2 GDP rose by 0.7% q-o-q and 3.9% y-o-y compared to the forecast of 0.6% and 3.8% respectively. The country’s growth was broad based with strongest industries in quarter are professional services (+4.2% q-o-q), wholesale trade (+2.2% q-o-q), construction (+2.2% q-o-q) and retail (+1.4% q-o-q). Household spending up for 1.3% in Q2 compared to 0.1% in Q1. Overall, services increased 1.4 percent, the highest since December 2006 quarter. So this strong and above trend GDP growth shows that New Zealand economy is performing well compared to developed nations.
|
|
|
Source: FxWire Pro
|
gdp growth
Quartz Daily Brief—Japan’s GDP surge, NY Times editor ousted, Flappy Birds comeback, modern art madness
|
Good morning, Quartz readers!
What to watch for today
Fast-food service gets slow. Workers in fast food chains across six continents are striking over low pay. US workers are demanding a minimum wage rise to $15 per hour, and protests are planned at hundreds of McDonald’s, Burger King and KFC branches around the world.
The ECB stays on the hook. Both GDP growth and inflation for the euro zone are expected to increase but neither figure will likely be strong enough to relax concerns about Europe’s recovery, keeping the pressure on the European Central Bank to do something more radical.
Wal-Mart sings the winter blues. The US retail chain is set to post a slight drop in first quarter profits, dragged down by store closures and a harsh winter. Wal-Mart could have better news from its e-commerce sales, though—they rose about 30% last year.
A gloomy outlook for Russia, which is is heading for its slowest economic expansion in five years. First-quarter GDP growth is predicted to be just 0.7%, versus 2% growth in the previous quarter. A report from the European Bank for Reconstruction and Development predicts stagnation for Russia and a 7% contraction for Ukraine.
Erdogan responds to Turkey’s mine anger. The prime minister’s visit to Soma, where a disaster has killed over 200 miners so far, was met with angry hecklers, and protests took place across the country.
While you were sleeping
A bomb killed two and injured dozens in Bangkok. The explosion at an anti-government protest site is the worst incident to hit the country since February. The military has so far stayed above the fray, but violence raises the likelihood it could get involved.
The New York Times’ first female executive editor got fired. Jill Abramson was dismissed due to a cryptic “issue with management in the newsroom,” and replaced with the paper’s first African-American executive editor, Dean Baquet. Earlier in the day Natalie Nougayrède, editor-in-chief of France’s Le Monde, quit after a long-running newsroom conflict.
Japan’s GDP rose at its fastest pace in three years. Shoppers trying to beat a sales tax rise pushed Japan’s GDP growth to an annualized 5.9%, ahead of analyst expectations (and, if only briefly, China). Separately, the Bank of Japan said consumer prices and nominal wages are rising, suggesting that the inflation outlook is improving.
Sprint and T-Mobile may get a chance after all. US regulators may not be as united against a merger between the wireless companies as it once seemed, the Wall Street Journal reported. One commissioner has privately expressed concern that two companies might not survive on their own.
AIG completed its last major spinoff. AerCap finalized its purchase of International Lease Finance Corp, a former AIG subsidiary, for $7.6 billion. The result will be the world’s largest independent aircraft-leasing firm.
Al Qaeda is developing its own encryption software. The move is a reaction to disclosures about the NSA’s far-reaching surveillance of the internet, but it may backfire—encryption is really hard to get right.
Flappy Birds is making a comeback. The cult hit mobile game, withdrawn from app stores by its Vietnamese creator, will make a return in August, CNBC reports. This time around it will be “less addictive,” says Dong Nguyen.
Sponsor content by Quartzlive
How will your business reach a billion new consumers? Ev Williams, co-founder of Twitter, Medium, and Blogger, will be joining Quartz as a keynote speaker at The Next Billion Seattle on June 2. His platforms have connected nearly a billion people around the globe. Register now and learn how your business can take off in an increasingly connected world.
Quartz obsession interlude
Gwynn Guilford on how China may have missed its chance to stop its housing bubble from popping. “China’s housing market is slumping fast: major developers have slashed prices as much as 15% since March, reports Bloomberg, and housing starts fell 25% in the first quarter of 2014, according to Nomura. Heavily reliant on housing investment, China’s economic growth is swooning. The People’s Bank of China finally took action earlier today, ordering big banks to start churning out more mortgages to homebuyers. Will more mortgages fix the problem? Analysts are skeptical.” Read more here.
Matters of debate
The Nigerian military is almost as bad as Boko Haram. Security forces are known for theft, beatings, and arbitrary executions.
Lucky streaks are real, even if luck isn’t. Gamblers make smarter bets after winning, and dumber bets after losing.
Don’t sell your ideas using someone else’s name. It diminishes your authority and undersells your idea, says Twitter co-founder Jack Dorsey.
Blame Thomas Edison for your sleep deprivation. “No one did more to frame the issue as a simple choice between productive work and unproductive rest.”
The Ukraine crisis is great for Elon Musk. Russia’s space launch threat could make the SpaceX CEO into a real-life Tony Stark.
Surprising discoveries
Military infographics are amazing. The Pentagon’s Powerpoint jockeys love fighter jets and name-checking the commander-in-chief.
Android switchers can get stuck in iPhone purgatory. The SMS-replacement iMessage app is never gonna let you go.
The US government has a zombie apocalypse plan. It comes with a disclaimer: “This plan was not actually designed as a joke.”
Your favorite junk food is getting pricier. Rising costs will push up prices at Chipotle, McDonald’s, Pizza Hut and Taco Bell.
Modern art is getting crazier. After a record-setting $745 million auction, one art dealer said: “I don’t know what money means anymore.”
Our best wishes for a productive day. Please send any news, comments, anti-Edison rants, and favorite military infographics to hi@qz.com. You can follow us on Twitter here for updates throughout the day.
You’re getting the Europe and Africa edition of the Quartz Daily Brief. To change your region, click here. We’d also love it if you shared this email with your friends. They can sign up for free here.
Stock Markets Anticipate Tomorrow’s Nonfarm Payrolls Report
China’s Finance Minister Lou Jiwei noted last night that the Chinese government saw 7.2% or 7.3% GDP growth in 2014 as acceptable, even though its official target is for 7.5%, potentially implying that the government sees growth missing to the low side. He stated that the goal would be to add jobs more than stimulate growth, in addition to the other objectives of reducing pollution and corruption.
US equities generally trended higher today, but tech stocks lagged despite strong performance from Chinese Internet providers such as SINA (SINA). The S&P 500 gained 0.17% today after reaching an intraday high of 1882. Health care and utilities stocks were the worst performers due to a three basis point rise in the 10-year Treasury yield. Financial stocks led, continuing their streak of outperformance from the past two weeks.
Jobless claims showed a surprise drop to 323,000 in the prior week, better than the 336,000 that had been expected. January factory orders declined by 0.7%, slightly worse than the -0.5% that had been expected, and December orders were revised down to a -2.0% monthly rate from -1.5%.
Shares of Plug Power (PLUG) fell 6.22% today after the fuel cell company announced a 3.9 million share offering that should net the company approximately $21.5 million. The stock had risen 45% since last Friday on news of a deal to supply fuel cells to Wal-Mart (WMT).
Tomorrow morning the Bureau of Labor Statistics will release the government’s February nonfarm payrolls report. The consensus economist estimate is that the US added 150,000 net jobs in the month. However, due to a weak ADP private payrolls and ISM services report on Wednesday, a number of economists have lowered their estimate, which indicates that market participants are expecting the final figure to be below the consensus. Also scheduled for release is the January trade balance.
In overseas news, Germany will release industrial production from January. Economists are expecting month-over-month growth of 0.8% after a decline of 0.6% in the month prior. Also scheduled for release is Japan’s leading economic indicators and Switzerland’s unemployment rate.
The only two earnings reports scheduled for tomorrow are Foot Locker (FL) and Big Lots (BIG).
Quartz Daily Brief—Indian inflation, German GDP, Huawei sales, marijuana penny stocks
|
|
Daily Brief sponsored by  |
What to watch for today
Germany GDP data. Analysts expect 2013 GDP growth of about 0.5%, but the government is projecting 2014 will be much stronger, at about 1.7%.
Thailand protesters set a deadline. Hardline anti-government demonstrators threaten to blockade the Bangkok stock market and air traffic control authority if prime minister Yingluck Shinawatra does not step down by 8 pm local time.
India’s “stubbornly high” inflation eases. December rates are expected to decline from November’s record 11.24%, and could fall as far as 9.92% due to lower vegetable prices.
Good news from Bank of America. US banks JPMorgan Chase and Wells Fargo are doing great, so analysts expect more good news from BofA, whose stock is already up 45% in the past year even though investment banking and home loans are in the doldrums.
While you were sleeping
China lending drops. Banks lent out a much lower-than-expected 482.5 billion yuan ($79.9 billion) in December, well below the previous month’s 624.6 billion yuan, as the central bank hit the brakes on credit expansion.
Growth waxes, austerity wanes. The World Bank raised its forecast for global economic growth to 3.2% for 2014, up from 3%, due to wealthier countries shift their emphasis toward spending.
Huawei sales gain. The Chinese telecom equipment maker said 2013 sales were between 238 billion yuan ($39.4 billion) and 240 billion yuan, up about 8%, as it expanded into smartphones and sold more 4G mobile wireless gear.
More battery woes for Boeing? Japan Airlines grounded a 787 Dreamliner after a smoking, leaking battery was spotted. Last year, problems with the most flammable battery on the market grounded the world’s entire Dreamliner fleet.
Horse-trading on Iran sanctions. As US president Barack Obama fought his own party in order to stop harsh new sanctions on Iran, Russia could be undermining negotiations by trading goods for oil equal to 50% of Iran’s current output.
A dagger in the internet’s heart. A US appeals court struck down a central internet tenet: everyone’s data should travel at equal speeds. Verizon claimed the ruling will make service better, but most pundits believe it will enable Verizon to make more money while reducing consumer choice.
Cars are too expensive, says Ford. The company will sell Americans smaller, cheaper vehicles that do well outside the US, partly in a bid to reverse the trend of younger people driving less than ever.
Sponsor content by Intel
Production of 2 in 1 devices expected to increase. A new breed of 2 in 1 devices are slated to hit the market and leverage the best functionalities of a computer and a tablet.
Quartz obsession interlude
John McDuling on the hazards of getting high on marijuana stocks. “The sudden explosion of interest in weed stocks even prompted FINRA, Wall Street’s self-regulatory organization, to last week warn investors about the potential for scams and frauds. It noted that some marijuana companies—though it didn’t name them—had been employing well-known tricks used in stock scams, like frequently changing their names and business focus.” Read more here.
Matters of debate
Black & Decker’s new logo is a master class in compromise.Picking apart a new logo reveals surprising design tradeoffs.
The French care more about sex scandals than they let on. Media reaction to president François Hollande’s reported affair with an actress belies a survey showing that 77% of voters think it should stay private.
Stop pretending your email address is private. Google+ now makes it easier for strangers to email you, but email stopped being “personal” a long time ago.
Surprising discoveries
Bananas are actually horrible for monkeys. A Scottish zoo announces that it won’t allow primates to gorge themselves on the unhealthy treats any longer.
Medicare overpaid for penis pumps. The US government pays double for each device.
Would you let the internet name your daughter? These parents are. The current leading name is Cthulhu All-Spark McLaughlin.
Best wishes for a productive day. Please send any news, comments, penis-pump deals and better names than Cthulhu to hi@qz.com. You can follow us on Twitter here for updates throughout the day.
You’re getting the Europe and Africa edition of the Quartz Daily Brief. To change your region, click here. We’d also love it if you shared this email with your friends. They can sign up for free here.
Quartz Daily Brief—Euro zone inflation, US GDP growth, Google’s mysterious barge, mood sweaters
|
Good morning, Quartz readers! This week, would you mind helping us spread the Daily Brief? Just forward this email to anyone you think might enjoy it. They can sign up here.
What to watch for today
The future of euro zone inflation. Don’t expect the European Central Bank to cut interest rates again, after it surprised analysts by doing so last month. But markets are waiting for the bank’s first inflation forecast, expected to look as far ahead as 2015, and an upward revision to euro-zone growth forecasts.
British lives get better. A pledge to improve living standards will be front and center of UK chancellor George Osborne’s Autumn Statement today, so the income-tax threshold could rise. Also on the agenda are a capital gains tax on property sales and an expected upgrade in growth projections.
An uptick in America’s economic output. Forecasters are expecting GDP growth to be up slightly to 2.9%—some are saying as much as 3.1%—compared to last month’s first estimate of 2.8%.
Banksy hits the auction block. The second Banksy piece to be auctioned in the US, “Flower Girl,” goes under the hammer in Beverly Hills and is expected to fetch up to $300,000. The silhouette of a girl looking at a plant topped by a security camera was first painted on the wall of a Hollywood gas station in 2008.
While you were sleeping
Biden discussed China’s airspace zone. The vice president told a group of US business executives in Beijing that China’s airspace zone “caused significant apprehension in the region.” Having already met with President Xi Jinping, Biden’s tour through Asia takes him to South Korea later today.
China Mobile will finally offer the iPhone. Apple and China’s largest cell phone operator signed a long-awaited deal to offer the device (paywall), according to the Wall Street Journal. China Mobile is one of the world’s last big carriers not to offer the gadget; the deal will also give Apple a boost in a crucial market.
Westfield is investing in New York City. Australia’s biggest shopping mall operator is spending $800 million to take over all of the World Trade Center’s retail space, bringing its total investment to $1.4 billion by buying out stakes in the project from New Jersey and the Port Authority of New York.
Radioactive material was located in Mexico. Thieves stole a truck carrying cobalt-60, used in cancer treatment, but authorities have recovered the vehicle and the material. “They will eventually have to go to a hospital, and we’ll be waiting for them,” an official said of the men.
Google’s barge is under investigation. The executive director of the agency that supervises development in the San Francisco Bay is examining permits for a mysterious barge Google is building in the area.
A coming dementia epidemic? New analysis from Alzheimer’s Disease International says the number of people with the condition will triple by 2050, rising from 44 million today to 135 million, thanks in part to longer life expectancies in Southeast Asia and Africa.
Quartz obsession interlude
Lily Kuo and Gang Yang on the genius tricks Beijing drivers use to get a license plate. “Since 2011, the plates have been awarded in a lottery system that people joke is more difficult to win than the country’s actual lottery. It was put in place as cars poured on to Beijing’s roads, causing traffic jams and choking fumes—they more than doubled (link in Chinese) in 10 years, to 5.2 million in 2012. Last month, Beijing announced it would make things even tougher, by cutting the number of new license plates it issues to drivers by over a third to further battle congestion and pollution. Starting next year officials will make things tougher still…” Read more here.
Matters of debate
Katie Couric is wrong about the HPV vaccine. The daytime talk show host is bowing to anti-vaccination alarmists despite a lack of evidence showing the HVP vaccine is dangerous.
The Iranian nuclear deal doesn’t solve much. Here are six reasons why we shouldn’t relax just yet.
Young people need unpaid internships. Forcing employers to pay interns will make it even harder for inexperienced workers to find jobs.
For the next decade the moon will be back at the center of the space race. For a bunch of reasons, including the fact that it’s a lot closer than Mars.
Surprising discoveries
A sweater that displays your mood. The garment, which relies on Galvanic Skin Response (GSR), uses sensors to change color depending on how you feel.
A third of all US bank tellers get government help. Researchers say tellers’ average $12.40 hourly wage means many receive federal assistance in the form of Medicaid, tax credits, or food stamps.
How the NSA finds “co-travelers.” The US spy agency tracks the movements of phones all over the world from one cell tower to the next to identify people who might be with a known suspect.
Rappers love Twitter. It gets more mentions in lyrics than other social media.
Our best wishes for a productive day. Please send any news, comments, mood sweaters, and social media-related rap lyrics to hi@qz.com. You can follow us on Twitter here for updates throughout the day.
You’re getting the Europe and Africa edition of the Quartz Daily Brief. To change your region, click here. We’d also love it if you shared this email with your friends. They can sign up for free here.
Quartz Daily Brief—Bank earnings, China’s new floor, Portugal’s deepening crisis, wearable computers for dogs
|
Good morning, Quartz readers!
What to watch for today
Egyptians back on the streets? Supporters of ousted president Mohamed Morsi called for more protests on Friday to oppose his detention. Clashes between the military and protesters have killed around 90 people in the last week.
The BoJ will release its monthly report for July. The report is due a day after the central bank said Japan’s economy was recovering for the first time in 2.5 years. Not all parts of the country are feeling the benefits.
US banks report second-quarter profits. Healthy gains from trading and investment banking are anticipated. JP Morgan’s earnings are expected to rise to $1.42 per share on revenue of just under $25 billion, and Wells Fargo is expected to book a profit of 92 cents a share, but its revenue is expected to decline 6% year-on-year.
Status quo in Mexico. Mexican central bankers are expected to leave their official interest rates unchanged at 4%. Inflation is dropping toward the central bank’s 4% target ceiling, and some analysts expect rate cuts later in the year aimed at boosting Mexico’s economy.
While you were sleeping
China’s finance minister said he would accept slower growth. Speaking at a joint US-China dialogue, Lou Jiwei said GDP growth of 6.5% wouldn’t be a “big problem,” though he is confident of achieving 7% growth this year. Even that figure is less than the government’s official 7.5% target.
Portugal sank further into crisis. A presidential proposal on Wednesday for urgent cross-party cooperation and early elections seems to have backfired. Portugal’s leadership is trying to recover from the resignation of two senior ministers, but only succeeded in pushing up bond yields, sending the country into “a deeper crisis than it was a week ago” (paywall).
Singapore is sizzling. Its economy expanded by an impressive 15.2 percent in the three months through June compared with the previous quarter, beating all estimates for the fastest growth since 2011. Strong local demand compensated for the uneven global recovery.
Carl Ichan upped the stakes for Dell. The billionaire investor said he would increase his offer for the PC maker for a fourth time in an attempt to outbid founder Michael Dell, who wants to take the company private.
Apple and Google are friendly. The two rivals have had “lots and lots” of meetings, according to Google chairman Eric Schmidt, and are in “constant business discussions.” The two companies are fierce competitors in several market segments, not least smartphones and software.
Steve Ballmer restructured Microsoft. The broad reorganization is aimed at pulling sprawling units together, as it aims to focus more on devices (paywall) such as tablet computers and the services that run on them. It’s also a way for Ballmer to consolidate power.
US stocks hit highs. The S&P 500 index and Dow Industrials both had record closing levels, as comments Wednesday by Federal Reserve chairman Ben Bernanke eased concerns the US central bank was close to tapering its bond buying.
Quartz obsession interlude
Gwynn Guilford on how China’s banks continued to lend despite the central bank’s directions: “The ‘Big Four’ state-owned banks—China Construction Bank, Industrial and Commerical Bank of China, Bank of China and Agricultural Bank of China—lent a combined $27.7 billion in the first week of July (link in Chinese), reported the Shanghai Seucrities News (SSN). That’s compared with $44 billion for all of June. Some $35.4 billion of that was lent out in the first ten days of June, before rates hit prohibitive heights.” Read more here.
Matters of debate
China’s dangerous shadow banking can be a fabulous opportunity for those who bet against it.
The recession’s legacy will be empowered cities. And America is leading the charge.
The high-end art market is blatantly manipulated by galleries. That is bad news for art lovers and most artists.
China’s blackout of US websites isn’t just a media freedom issue. It’s also inconsistent with free-trade commitments under the WTO.
Globalization is the unsung hero of the empowered global middle class. Protests are about getting globalization right, not a fight against it.
Surprising discoveries
3D printed rocket parts could make space travel cheaper. Production costs could fall by 70%.
You no longer need water to irrigate a field. This chemically engineered powder will do just fine.
Human-powered helicopters are now reality. You just have to cycle really hard.
The 9/11 mastermind redesigned the vacuum cleaner.CIA officials were trying to keep Khalid Sheikh Mohammed occupied to undo the psychological effects of interrogation
The inventor of Google Glass is developing wearable computers for dogs.They may let pets send messages to humans.
Our best wishes for a productive day. Please send any news, comments, magic powder and prison inventions to hi@qz.com. You can follow us on Twitter here for updates during the day.
You’re getting the Europe and Africa edition of the Quartz Daily Brief. To change your region, click here. We’d also love it if you shared this email with your friends. They can sign up for free here.
Superstorm Sandy Strikes Again
Jobless Claims surged 20% above estimates to 439,000. Most experts are pointing fingers at Hurricane Sandy as the culprit and thus just a momentary blip in the data.
Other economic reports like Empire State Mfg and Philly Fed also showed poor readings. And also considered tied to Hurricane Sandy. And thus also a likely blip.
Also not helping matters is that the Eurozone economy shrunk for the 2nd straight quarter making it an official recession. No shocker here. Just a question of whether it deepens or they re-emerge with better numbers in 2013. Most important for US investors to know about this situation is that their weakness is not currently harming our GDP growth.
Unfortunately given the fragile psyches of investors as they contemplate the Fiscal Cliff, all this negative economic news led to another day in the red for stocks. 1300 still seems like our short term destination. Any sign of a Fiscal Cliff remedy will have us quickly moving back up towards the old highs… and likely beyond in 2013.
Best,
Steve Reitmeister (aka Reity… pronounced “Righty”)
Executive VP, Zacks Investment Research
1565: What Will It Take to Hit Old Highs?
During this year’s edition of the European debt scare, US stocks got as low as 1266 on the S&P. Any thoughts of climbing back to the old highs at 1565 (established in October 2007) were nothing more than a pipe dream.
Now we see that the European debt concerns are relatively contained. And the US economy keeps chugging along. This combination has inspired a rally to the post Great Recession highs, putting the dream of reaching the all-time highs back within our reach.
What will it take to get there?
I see 4 main factors that need to stay on track for this to happen. I will follow that up with my prediction about “if and when?” we will hit those highs. Read on.
1) US Economy Stays on Track: I never bought into the premise that we would see GDP growth north of 3% after the Great Recession. I saw greater merit in the case for “Muddle Through” economic growth more in the +1-2% range. And for the last three years, that is exactly what was on tap, which was good enough to generate earnings growth and higher share prices. Most signs point to a continuation of this growth and possible acceleration if housing, construction and employment keep on the upswing.
What about the Fiscal Cliff you ask? Politicians will always do whatever is necessary to get re-elected. And so the Cliff will most likely be trimmed to nothing more than a speed bump, allowing the Muddle Through economy to stay on track.
2) European Mild Recession…And Nothing More: The continent has already tipped into recession. However, their politicians, just like ours, will find a way to spark some growth to get re-elected. Right now it looks like the European recession will be a mild one that they can shake off within a year. And with that the US economy can continue on its current course. However, if conditions get worse, or their debt crisis devolves further, then their troubles will have negative effects on our economy and stock market.
3) China Soft Landing: No large economy can continue to grow at 10%+ a year. So we all know that the Chinese economy has to cool down. The government has targeted growth at 7.5% this year as part of the soft landing process. Some fear that they can’t pull it off. However, they have one of the best balance sheets of any nation with plenty of stimulus potential at the ready. Plus they have an important leadership transition later this year that they want to go smoothly. So odds are that they will do everything within their power to keep growing at a healthy pace and thus not be a serious detriment to our economy and stock market.
4) Other Investment Options Remain Unattractive: Right now cash accounts are paying virtually nothing. Bond rates are at all-time lows which is not good for bond investing. The long term run in precious metals is likely over. And there is no serious boom in sight for real estate prices. This makes stocks the “Belle of the Ball” when it comes to investing alternatives. That will likely keep a steady flow of demand for stocks which leads to higher prices.
What Do I Think Will Happen?
There are still too many concerns on investors’ minds to race up to 1565 right now. They need more proof that all 4 of the factors above stay on a positive track. In particular, the status of the Fiscal Cliff needs to be resolved, because any real whiff of that coming fully on board spells recession and rapidly declining stock prices.
Assuming my theory is correct that these fears are overblown, then 1500 is a good possibility in 2012. This sets the paces for an assault on 1565 early next year.
Best,
Steve Reitmeister
Just 3 Ingredients Matter
When we last spoke I shared that the near future for stocks depends on…
” …the blend of these 3 ingredients: European debt, Chinese growth, and US economy (with Q1 earnings as the current centerpiece).”
So when we review the scorecard for Friday we quickly understand why shares slumped once again.
Europe = Bond rates on the rise and other soft economic data.
Earnings = Light calendar with mixed results from banks and Google.
China = +8.1% GDP growth is slightly below expectations. But this should not concern anyone as it this does not support the “hard landing” crowd.
These 3 ingredients will continue to be the main concern this coming week with earnings taking center stage. I suspect earnings will prove slightly better than expected, but its Europe that is the wild card. So let’s dig in deeper on that in our future analysis.
Best,
Steve Reitmeister (aka Reity… pronounced “Righty”)
Executive VP, Zacks Investment Research
GLOBAL ECONOMY WEEKAHEAD-Looking for takeoff in U.S. jobs
By Stella Dawson
WASHINGTON, April 1 (Reuters) – Sorting out trends in the U.S. labor market is tricky business these days.
There is plenty of evidence to support the view that unemployment is stalled at 8.3 percent for much of theyear, and a case to argue that job growth is poised for takeoff.
Three interlocking factors are seen in play – the pace of productivity gains, size of the labor force and the outlook for GDP growth. Dial any one factor up and it can change thejobs outlook significantly.
The consensus for March employment data out on Friday is that 201,000 new jobs were added outside the farm sector, a downshift from the 245,000 average monthly pace the United States has enjoyed since December. Thiswould hold the jobless rate around its current rate of 8.3 percent, unless a surge of people who had been discouraged flood back into the labor market again and again start looking for work.
The optimistic school of economists forecast that jobgains could be as high as 275,000 in March and reach 300,000 new jobs a month by later this year.
Ian Shepherdson, chief U.S. economist at High Frequency Economics, builds his case around slowing productivity growth, which he sees as a sign ofimproved job growth around the corner.
Productivity surged after the recession, reaching 6.1 percent pace in 2010 before hiring started to kick in, and then it fell back last year to 0.9 percent by the fourth quarter – repeating a pattern seenafter the last three recessions.
Yet GDP growth appears to be holding around 2-2.5 percent in the January-to-March period, roughly its trend rate. The only way national output could remain firm while the number of widgets produced per worker was falling is if more people are working.
Shepherdson argues this suggests job growth will be strong in March and continue throughout the year. The second reason he is optimistic stems from the first, namely that small-sized firms, whichfrequently are in the service sector, are later to join the hiring spree and when they do, he said they tend to have lower productivity.
“Hairdressers, plumbers and electricians cannot meet the rising demand by cranking up machines, so as theystart hiring people again, it lowers the productivity rate. But it will show up in payroll growth, creating more positive growth momentum for the economy,” Shepherdson said.
In other words, a virtuous circle starts to feed upon itself,generating more jobs.
Job growth in the ISM services index is already back to the levels seen before the crisis in 2006 and temporary jobs are at boomtime levels, Shepherdson said – all signs that small businesses in the service sector willcontinue hiring.
OECD chief economist Pier Carlo Padoan agrees the U.S. labor market appears to be turning the corner.
“Our view is that unemployment will continue to go down,” he said in releasing its forecast that the U.S. economyexpanded by 2.9 percent in the first quarter, a more optimistic view than Reuters consensus forecast of 2.2 percent GDP growth.
Household confidence is rising, helped by a healthier jobs market and easier access to cheap credit, which allowspeople to reduce their debt loads and start spending again, he said.
The self-reinforcing mechanism where optimism fuels demand, which fuels job growth is kicking in, said the Institute of International Finance in its March economic monitor.
“The chances of a virtuous cycle leading to sustained above-trend growth have increased,” it said.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For IFR’s forecast of the week ahead in U.S. economic data,
pleasedouble-click on: http://http://graphics.thomsonreuters.com/12/03/IFRPV040212.pdf ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
CASE FOR CAUTION
Federal Reserve Chairman Ben Bernanke, however, was far more cautious in a speech last week. While he acknowledged a wide range of indicators suggesting that the job market has improved, conditions are far from normal. “We cannot yet be sure that the recent pace of improvement in the labor market will be sustained,” he said.
There are 5 million fewer jobs than before the recession; hours worked remain 4 percent below their pre-crisis peak. The number of long-term unemployed is high and job gains so far may simply be a bounceback afterextraordinarily steep layoffs, he said.
And there are several conundrums. Usually GDP growth needs to be 2 percentage points above its trend rate to lower unemployment by 1 percentage point, yet unemployment has fallen from around 10 percenteven as GDP growth has been sluggish.
One explanation could be that people have dropped out of the workforce, discouraged by how few jobs there are taking early retirement. Indeed the number of people in the labor force has fallen to 64 percent, its lowest since 1984, from an average of 66 percent between 2003-07. Fewer people seeking work lowers the jobless rate.
The risk is they could return, pushing up unemployment once again. Bernanke warned it is unclear what lies behind these changes and it merits careful watching.
Michael Feroli, chief U.S. economist at JP Morgan, is more optimistic. He sees moderate job growth continuing as the business expansion matures.
But a mild winter and some quirks in how seasonal adjustments are calculated may have over-magnified recent job gains. JP Morgan now looks for a temporary boost in jobs through April before payrolls settle into a 200,000-per-month pattern for the rest of this year.
(Reporting by Stella Dawson,Editing by Gary Crosse)
Pelias' views 