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The Rape of America — The Core Federal Election Issue

 

The Rape of America — The Core Federal Election Issue


The 2016 US presidential election between leading candidates Republican Donald Trump and Democrat Hillary Clinton has been unusual in that allegations of rape have cropped up during the campaign with Bill Clinton accused of rape, Hillary Clinton accused as an accessory, and Donald Trump accused of groping women without their consent. However, the core issue of the campaign — indeed the reason the Trump campaign exists — is citizen anger at a growing sense that their country itself has been abused at the hands of a financial elite.  And this core campaign issue is lost as the back and forth sexual recriminations between the campaigns deflects attention from a critical issue.1

Something’s Wrong — And It’s Big

But citizens increasingly know something is wrong – and that realization is despite soaring stock markets and bond markets since the Great Financial Crisis of 2008.

The current US administration promotes an unemployment rate of 5% (down from 10% in 2009) as a sign that the economy has recovered from the Great Financial Crisis.

Flying in the face of this promotion is the fact that the number of adults not in the US labor force is 94 million people in September 2016 up from 80 million not in the labor force in October 2008. Excluding 14 million people from the US labor force so that they are not counted as unemployed helps to statistically reduce the unemployment rate.

And 41 million Americans now remain on food stamps up from 28 million in October 2008.

These statistics, and there are many more, show us that despite soaring financial markets fuelled by the Fed’s 0% interest rates, there is no real recovery underway.  Soaring financial markets with moribund labor markets and rising prices for essential goods do not signal a healthy economy. Donald Trump knows it as do US voters.

On September 5, 2016 Trump warned that the Federal Reserve had kept rates artificially low and “It’s an artificial market. It’s a bubble.” warning that the bubble economy that the Federal Reserve has created had resulted in “very scary scenarios”. On September 6 Clinton immediately responded to Trump by saying that “presidents and candidates should not comment on Fed actions”.  It was also revealed on September 6 that Goldman Sachs was banning partners from contributing to Trump’s campaign from September 1 forward.

The Rape of America (and Europe and Canada)

By (correctly) identifying the Fed as the source of economic distortions and the coming crash and impoverishment of the American people, Trump was alarming many in the financial industry by lighting fires of inquiry that cannot be put out. And the trail of evidence leads back not only to the Fed but to Goldman Sachs as well.

The rape of America has been a relatively simple process and involves a few key elements:

1) A debt-based currency system run by the central bank.

With a debt-based currency system and the ability of banks to instantly credit money into creation, the age-old formula of blowing bubbles can be effected by continually lowering interest rates and increasing the amount of currency in circulation thus driving speculation continually higher. This creates Trump’s “artificial markets”.

2) Recognize the inverse relationship between real interest rates and gold prices

Gold has historically limited the ability of central banks to blow bubbles by soaring in price. Former Clinton administration Treasury Secretary Larry Summers in his seminal 1985 paper with Barsky identified that the primary factor driving real gold prices was real interest rates (i.e. nominal interest rates minus the inflation rate). As inflation rises from loose central bank monetary policy, the real price of gold measured in constant dollars also rises and is the principal “tell” of those loose monetary policies. The principal driver of consumer goods inflation is monetary policy — as more money is created, goods prices also become more expensive. Indeed, the US dollar now buys 1% of what it could buy in 1913 when the Fed was created. But as was seen in the late 1970s, when inflation rages gold rages more. Central bankers are then forced to choose between abandonment of their paper money and bonds for real assets or to stop their money printing.

Now, Summers and Barsky were so certain of their observation that they wrote “(t)he negative correlation between real interest rates and the real price of gold that forms the basis for our theory is a dominant feature of actual gold price fluctuations.” [“Gibson’s Paradox and the Gold Standard“, Summers and Barsky, 1985 NBER working paper 1680 http://www.nber.org/papers/w1680.pdf].  The principal driver of the gold price was real interest rates — as they collapse due to inflation, the price of gold soars. The implication is that if you would like to sustain loose monetary policy for a protracted period, it is necessary to be able to control the price of gold.

And as we will see, the ability to control the bond market was almost lost in the late 1970s as both inflation and the price of gold soared forcing nominal interest rates up to the high teens before gold’s rise was arrested.

3) Convert the world’s principal gold markets from trading gold to trading paper gold thereby short-circuiting price discovery in the global gold and bond markets

The central characteristics of gold are that it is rare and of universally of value — gold has a 4,000 year history as a monetary asset as it cannot be debased or created without limit as fiat paper money can. With the 1987 creation of the London Bullion Market Association (LBMA) by the Bank of England (https://www.bullionstar.com/blogs/ronan-manly/from-bank-of-england-to-lbma-the-independent-chair-of-the-lbma-board/), gold trading was progressively thereafter converted to paper contract trading through the creation of “unallocated gold contracts” without gold backing and price discovery was thereby thwarted as these contract claims on gold can themselves be created and traded without limit (http://www.safehaven.com/article/42600/transition-of-price-discovery-in-the-global-gold-and-silver-market).  By deflecting claims for gold into paper gold contracts, today there are an estimated 400 million to 600 million oz of claims for gold at the LBMA without gold backing and daily gold trading has reached 200+ million oz of gold per day (vs global annual gold mine production of ~ 100 million oz).

Price discovery of gold, and the ability of the price of gold to respond to real interest rates, has thus been greatly arrested — the knock-on and targeted effect was that the bond market was also short-circuited allowing the secular reduction of interest rates (and creation of mountains of debt in our debt-based economies). Central bankers could now defy gravity — for a while.

The following graph using the Bureau of Labor Statistic’s consumer price index (CPI) method of calculating inflation from 1980 held constant shows the 1987 decoupling of the price of gold’s historic inverse relationship with real interest rates with the creation of the LBMA — gold no longer responded by rising in price as real interest rates became negative and central banks were free to blow bubbles. Note also in the graph (where the inverse price of gold is plotted on the right) that in late 1982 the price of gold started to surge driving real interest rates to almost 9% higher than the rate of inflation before money started to return to bonds from gold.


Source: Reginald Howe, GoldenSextant.com. 1980 CPI computations by John Williams at shadowstats.com

Another issue given Goldman Sachs response of banning Goldman partners from donationing to the Trump campaign is the key role of Goldman Sachs’ subsidiary J. Aron and Co. gold traders in advising central banks to sell and lease gold in the 1990s. Former gold banker and author Ferdinand Lips wrote at pages 123 to 124 in his book Gold Wars — The Battle Against Sound Money From a Swiss Perspective that he came to recognize in 1996 that Goldman’s J.Aron and Co. were the central advisors to central banks behind their gold policy to agressively sell and lease gold into the market — thereby further depressing the price of gold (http://www.safehaven.com/article/35086/the-role-of-goldmans-jaron-and-co-metal-division-in-capping-gold-prices). Mr. Trump’s reference to a bubble economy driven by central banks and artificially low interest rates leads inexorably back to Goldman Sachs and the LBMA.

4. Now, continually lower interest rates over the next 30 years creating a succession of financial bubbles — when the bubbles pop, bail-out the banks and not borrowers

With gold no longer properly signalling artificially low interest rates by central banks this enabled the creation of a of a fake bubble economy as identified by Trump. When you rig the global price of gold, you rig the global bond market.   Global credit market borrowing now totals $230 billion or 340% of global GDP more than double the historically sustainable level of 150% of GDP.

Central bankers have responded to the succession of bubbles and financial crises of their own creation by bailing-out the banks (lending up to $16 trillion to banks during the Great Financial Crisis) and prescribing lower interest rates and more debt compared to the needed monetary system reform and debt write-down to stabilize our economy. And Alan Greenspan who was appointed to the Fed in 1987 has retired and has been knighted as Sir Alan Greenspan by the UK establishment. A job well done.

The Bubbles are Popping but the Debt Remains

With the creation of the debt bubble and the consequent sequence of financial and economic bubbles, the US economy is now so distorted by Fed policy that even with the zero interest rates the economic output is growing at 1% and is declining. We are at the terminus point of exceptionally loose money started in 1987 by the Bank of England and the Federal Reserve.

With assets stripped from their hands and large numbers of Americans out of work and on food stamps, Mr. Trump’s words have not elicited reasoned discussion.   Not only has Trump been told not to talk like that but the recriminations back and forth of sexual impropriety have stopped discussion of this core campaign issue reflecting American voter concern. And the hackneyed accusation of anti-semitism against Trump further muddies the waters  (http://wallstreetonparade.com/2016/10/new-york-times-writer-suggests-donald-trump-is-an-anti-semite-for-his-reference-to-banking-conspiracy/) and with hedge fund donations to Trump totalling $19,000 vs 48.5 million for Clinton, we get some sense of the Candidate reflecting the interests of Wall Street. And this mirrors the Obama administration which executive structure was determined by Citibank (http://wallstreetonparade.com/2016/10/wikileaks-bombshell-emails-show-citigroup-had-major-role-in-shaping-and-staffing-obamas-first-term/).

The question now remains whether there will be any further discussion of this key issue broached by Trump and reform forced by the electorate or whether America will proceed with its politicians bickering about sex as the financial, economic and monetary system proceeds over the waterfall.


Notes:

1. The well documented alleged rape of nursing administrator Juanita Broaddrick in 1978 by former President Bill Clinton and Broaddrick’s subsequent intimidation into silence by Democratic candidate Hillary Clinton has revolted many long-time Democratic supporters (for a catalogue of some of Bill Clinton’s alleged crimes against women see: https://www.lewrockwell.com/2016/01/roger-stone/clintons-criminals/).  And Hillary Clinton’s successful 1975 legal defence leading to the release of a rapist who raped 12 year old Kathy Shelton and audio tapes of Clinton laughing at the process as well as her using a defence that the child had a “tendency to seek out older men and engage in fantasizing.” leaves observers disgusted.   The tape recording of Republican candidate Trump bragging about what women let a star like him do to them as well as the fusillade of accusations by women of unwanted groping and kissing by the Republican further leaves voters shocked — and not thinking. And more allegations are sure to follow in this political season.


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David B. Jensen, P.Eng., LL.B., MBA
Vancouver, BC
Canada

David Jensen

David Jensen, P.Eng., LL.B., MBA, is a Professional Engineer with a degree in Engineering from the University of Waterloo in Canada (1987). He worked through 1993 on the F-5 Fighter Overhaul program and the Bombardier Regional Jet programs. Mr. Jensen then graduated with a LL.B. degree in corporate and commercial law from the University of Calgary (1997) and an MBA from Univ. of B.C., majoring in Logistics and Supply Chain Management (1999). Returning first to aviation then, after reading Austrian School Economics, Mr. Jensen transitioned to the mining industry from the aerospace industry in 2004 first through his mining industry consultancy, then as Vice President of Corporate Development for Western Copper Corp., and most recently as President and COO of Skyline Gold. Mr. Jensen currently serves as President and COO of a private mining company and provides strategic, operational, risk assessment, and precious metals consulting services through his consultancy, Jensen Strategic.

Copyright © 2005-2016 David Jensen. All rights reserved.

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com

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Published at Mon, 17 Oct 2016 09:34:59 +0000

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NY Fed: October “General business conditions index slipped five points to -6.8”

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NY Fed: October “General business conditions index slipped five points to -6.8”

by Bill McBride on 10/17/2016 08:33:00 AM

From the NY Fed: Empire State Manufacturing Survey

Business activity continued to decline in New York State, according to firms responding to the October 2016 Empire State Manufacturing Survey. The headline general business conditions index slipped five points to -6.8.

After reaching their lowest levels of the year last month, both labor market indexes rose, but remained negative. The employment index increased ten points to -4.7 and the average workweek index edged up one point to -10.4, indicating that employment counts and hours worked continued to decline.

Indexes for the six-month outlook suggested that respondents were more optimistic about future conditions than in September. The index for future business conditions increased two points to 36.0.

This was below the consensus forecast of 1.0, and suggests manufacturing contracted in the NY region in October.

Read more at http://www.calculatedriskblog.com/2016/10/ny-fed-october-general-business.html#XxzQ45UFOVpibqc1.99

by Bill McBride on 10/17/2016 08:33:00 AM

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Published at Mon, 17 Oct 2016 12:33:00 +0000

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Wall St. dips as energy, health stocks offset BofA boost

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., October 14, 2016. REUTERS/Brendan McDermid

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., October 14, 2016.REUTERS/Brendan McDermid
By Chuck Mikolajczak | NEW YORK

Wall Street ended modestly lower on Monday as energy stocks retreated along with oil prices, while Amazon and Netflix weighed on the consumer discretionary sector.

Federal Reserve Vice Chairman Stanley Fischer warned that economic stability could be threatened by low interest rates and noted the central bank is “very close” to its employment and inflation targets, but said it was “not that simple” for the Fed to raise rates.

The comments from Fischer, a dove who has supported a rate hike, come as other Fed officials have recently said the current state of affairs may be about as good as it gets.

Conflicting statements on the timing of a rate hike from some Fed officials has been adding to uncertainty in markets, which have been grappling with changing dynamics in a tumultuous U.S. presidential election and nervousness regarding third-quarter earnings.

“Fischer’s stature is second only to Janet Yellen so when he speaks, people are going to pay closer attention to what he is saying,” said Art Hogan, chief market strategist at Wunderlich Securities in New York.

“To me, it is different slices of the same apple – we’ve got a Fed that desperately wants to raise rates one more time this year and that probably happens in December.”

Energy stocks .SPNY were 0.6 percent lower as U.S. oil prices CLc1 settled down 0.8 percent at $49.94 while Brent crude LCOc1 settled down 0.8 percent at $51.52 a barrel. Oil prices were weighed down by oversupply concerns, although losses were curbed amid a projected drop in American shale output.

The Dow Jones industrial average .DJI fell 51.98 points, or 0.29 percent, to 18,086.4, the S&P 500.SPX lost 6.48 points, or 0.3 percent, to 2,126.5 and the Nasdaq Composite .IXIC dropped 14.34 points, or 0.27 percent, to 5,199.82.

Investors are looking for corporate profits to turn a corner in the third-quarter after a string of declines. With 7 percent of S&P 500 companies having reported through Monday morning, expectations are for a decline of 0.1 percent for the quarter, an improvement from the 0.5 percent decline expected on Oct. 1, according to Thomson Reuters data.

Bank of America Corp (BAC.N) shares edged up 0.3 percent as its profit rose for the first time in three quarters and topped estimates.

Netflix Inc (NFLX.O) fell 1.6 percent ahead of its expected quarterly results, while Amazon.com Inc (AMZN.O) lost 1.2 percent, for its third straight decline, which pulled the consumer discretionary sector .SPLRCD 0.8 percent lower.

After the close, shares of the subscription video service surged about 20 percent in the wake of its results.

Hasbro Inc (HAS.O), was a bright spot among discretionary stocks during the session, surging 7.4 percent after the toymaker’s better-than-expected quarterly report.

Declining issues outnumbered advancing ones on the NYSE by a 1.51-to-1 ratio; on Nasdaq, a 1.48-to-1 ratio favored decliners.

The S&P 500 posted no new 52-week highs and 7 new lows; the Nasdaq Composite recorded 24 new highs and 89 new lows.

About 5.15 billion shares changed hands in U.S. exchanges, below the 6.54 billion daily average over the last 20 sessions.

(Reporting by Chuck Mikolajczak; Editing by Lisa Shumaker and Nick Zieminski)

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Published at Mon, 17 Oct 2016 14:04:34 +0000

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Fed: Industrial Production increased 0.1% in September

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Fed: Industrial Production increased 0.1% in September

by Bill McBride on 10/17/2016 09:22:00 AM

From the Fed: Industrial production and Capacity Utilization

Industrial production edged up 0.1 percent in September after falling 0.5 percent in August. For the third quarter as a whole, industrial production rose at an annual rate of 1.8 percent for its first quarterly increase since the third quarter of 2015. Manufacturing output increased 0.2 percent in September and moved up at an annual rate of 0.9 percent in the third quarter. In September, the index for utilities declined 1.0 percent; mining posted a gain of 0.4 percent, which partially reversed its August decline. At 104.2 percent of its 2012 average, total industrial production in September was 1.0 percent lower than its year-earlier level. Capacity utilization for the industrial sector edged up 0.1 percentage point in September to 75.4 percent, a rate that is 4.6 percentage points below its long-run (1972–2015) average.
emphasis added

Capacity UtilizationClick on graph for larger image.

This graph shows Capacity Utilization. This series is up 8.7 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 75.4% is 4.6% below the average from 1972 to 2015 and below the pre-recession level of 80.8% in December 2007.

Note: y-axis doesn’t start at zero to better show the change.
 

Industrial ProductionThe second graph shows industrial production since 1967.

Industrial production increased 0.1% in September to 104.1. This is 19.2% above the recession low, and is close to the pre-recession peak.

This was below expectations of a 0.2% increase.

Read more at http://www.calculatedriskblog.com/2016/10/fed-industrial-production-increased-01.html#UgvJfyISTH7ahmLS.99

by Bill McBride on 10/17/2016 09:22:00 AM

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Published at Mon, 17 Oct 2016 13:22:00 +0000

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LA area Port Traffic: Exports up Year-over-year in September

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LA area Port Traffic: Exports up Year-over-year in September

by Bill McBride on 10/16/2016 12:48:00 PM

From Port of Long Beach: September Cargo Weighed Down by Hanjin Bankruptcy

Port of Long Beach container volumes declined 16.6 percent year-over-year in September, as the effects of the Hanjin bankruptcy reached West Coast ports.

Longshore workers moved 546,805 twenty-foot equivalent units last month. This included 282,945 TEUs in imports, down 15 percent from September 2015, a month which capped off the Port’s best quarter ever. Exports dropped to 120,383 TEUs, a decrease of 4.2 percent. Empties were 27.2 percent lower at 143,476 TEUs.

Port officials said the number of containers handled during September was impacted not only by reduced calls by Hanjin-operated ships, but also by the absence of Hanjin containers on vessels operated by fellow CKYHE Alliance members. Hanjin Shipping containers account for approximately 12.3 percent of the Port’s total containerized volume.

Special note: Now that the expansion to the Panama Canal has been completed, some of the traffic that used the ports of Los Angeles and Long Beach will eventually go through the canal. This could impact TEUs on the West Coast in the future.

Container traffic gives us an idea about the volume of goods being exported and imported – and usually some hints about the trade report since LA area ports handle about 40% of the nation’s container port traffic.

The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).

To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average.
 

LA Area Port TrafficClick on graph for larger image.

On a rolling 12 month basis, inbound traffic was down 0.4% compared to the rolling 12 months ending in August.   Outbound traffic was up 0.5% compared to 12 months ending in August.

The downturn in exports last year was probably due to the slowdown in China and the stronger dollar.  Now exports are picking up a little.

The 2nd graph is the monthly data (with a strong seasonal pattern for imports).
 

LA Area Port TrafficUsually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March (depending on the timing of the Chinese New Year).

In general exports might have started increasing, and imports have been gradually increasing.

Read more at http://www.calculatedriskblog.com/2016/10/la-area-port-traffic-exports-up-year.html#BxTOiE5v1Ty4vsQA.99

by Bill McBride on 10/16/2016 12:48:00 PM

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Published at Sun, 16 Oct 2016 16:48:00 +0000

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Gundlach says Yellen speech suggests accommodative Fed for longer

Gundlach says Yellen speech suggests accommodative Fed for longer

Jeffrey Gundlach, Chief Executive Officer, DoubleLine Capital LP., speaks at the Sohn Investment Conference in New York City, U.S. May 4, 2016.REUTERS/Brendan McDermid

By Jennifer Ablan | NEW YORK

Federal Reserve Chair Janet Yellen’s speech on Friday on running a “high pressure” economy with a tight labor market to reverse some of the negative effects of the Great Recession of 2008 suggests the U.S. central bank will stay accommodative for longer, according to Jeffrey Gundlach, chief executive of DoubleLine Capital.

“I didn’t hear, ‘We are going to tighten in December,'” Gundlach said in a telephone interview. “I think she is concerned about the trend of economic growth. GDP is not doing what they want.”

Gundlach, who oversees more than $106 billion at Los Angeles-based DoubleLine, said the GDP Now indicator from the Atlanta Federal Reserve has been cut in half to 1.9 percent for the third quarter, after only 1.1 percent actual growth for the first half of this year.

“GDP Now keeps fading away,” he said. “If we get only 1.9 percent GDP for third – and fourth quarters – we are looking at only 1.5 percent GDP this year.”

Gundlach said Yellen’s remarks suggest that she embraces the hypothesis introduced by former U.S. Treasury Secretary Larry Summers, who said secular stagnation, or a lack of demand, is pushing down global growth.

Yellen said there are “plausible ways” that running the U.S. economy hot for a while could fix some of the damage caused to growth trends by the Great Recession. In her speech to a Boston Fed conference on Friday, she said that increased business sales would “almost certainly” help boost the economy. “A tight labor market might draw in potential workers who would otherwise sit on the sidelines,” she said.

Gundlach said he read Yellen as saying, “‘You don’t have to tighten policy just because inflation goes to over 2 percent.’

“Inflation can go to 3 percent, if the Fed thinks this is temporary,” he said. “Yellen is thinking independently and willing to act on what she thinks.”

Gundlach said Yellen’s remarks “are in the same range” of European Central Bank President Mario Draghi’s ‘Do whatever it takes’ speech in 2012.

Gundlach noted the long-end of the yield curve “hated” Yellen’s remarks, because they suggest the Fed would allow inflation to run beyond the 2 percent level.

With the 10-year Treasury note now at a yield of 1.80 percent, which is up 48 basis points since early July, Gundlach said he is less bearish on government bonds. “I’m still defensive but one notch less than maximum negative on Treasuries,” he said, noting that the yields on Treasury bills, notes and bonds are now above their 200-day moving averages.

(Reporting by Jennifer Ablan; Editing by Leslie Adler)

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Published at Fri, 14 Oct 2016 22:31:49 +0000

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Q3 GDP Forecasts

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Q3 GDP Forecasts

by Bill McBride on 10/14/2016 08:43:00 PM

From the Altanta Fed: GDPNow

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2016 is 1.9 percent on October 14, down from 2.1 percent on October 7. The forecast of third-quarter real personal consumption expenditures growth fell from 2.9 percent to 2.6 percent after this morning’s retail sales report from the U.S. Census Bureau.
emphasis added

From the NY Fed Nowcasting Report

The FRBNY Staff Nowcast stands at 2.3% for 2016:Q3 and 1.6% for 2016:Q4.

From Merrill Lynch:

Retail sales increased 0.6% in September, as expected. However, “core” retail sales which nets out autos, building materials and gasoline, only increased 0.1%. This was below the consensus expectation of 0.4%. The August data were not revised but July retail sales were lowered to show a decline of 0.2% versus the prior estimate of a drop of 0.1%. As such, despite the fact that we were forecasting 0.1% mom for September core sales, our tracking estimate for GDP declined due to the downward revision to July. We sliced 0.2pp from our tracking, bringing our estimate of 3Q GDP growth to 2.7%.

CR Note: Looks like real GDP growth around 2.0% to 2.5% in Q3.

Read more at http://www.calculatedriskblog.com/2016/10/q3-gdp-forecasts.html#Yy5xmtrt33rmhMsu.99

by Bill McBride on 10/14/2016 08:43:00 PM

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Published at Sat, 15 Oct 2016 00:43:00 +0000

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Investors seek profit turnaround to drive stocks higher

 

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., October 14, 2016.REUTERS/Brendan McDermid

Investors seek profit turnaround to drive stocks higher

By Lewis Krauskopf | NEW YORK

A heavy slate of U.S. corporate earnings could set the course next week for a wavering U.S. stock market.

Better-than-expected big bank earnings on Friday somewhat helped shore up Wall Street’s confidence, which has been shaken by a rocky beginning to third-quarter reporting season, marred by disappointing results from industrial and healthcare companies.

But with the bulk of results still to come, investors are counting on large U.S. companies to stop a year-long streak of profit declines. Next week’s reports include Microsoft (MSFT.O), General Electric (GE.N), Johnson & Johnson (JNJ.N) and Bank of America (BAC.N).

Mixed initial results have added to other concerns in recent days that hurt equities, including weak economic data in China, worries over Britain’s exit from the European Union, and the likelihood of a Federal Reserve interest rate hike before year-end.

After a second straight week of losses, the S&P 500 sits about 2.5 percent below its all-time closing high set two months ago.

“The exuberance you saw this summer as it got to new highs was built on the premise that prices were leading a breakout in earnings,” said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland.

Investors “were looking for a pretty strong breakout in the second half of the year to make up for a very weak first half, and I just don’t know that that’s in the cards,” McCain said.

With 34 S&P 500 companies reporting so far, third-quarter earnings are expected to slip 0.4 percent, according to Thomson Reuters I/B/E/S.

But given how many better-than-expected reports typically occur, investors are eyeing the quarter to potentially end with earnings in positive territory.

S&P 500 profits fell 5 percent in the first quarter and 2.1 percent in the second.

“At the end of the day, it really is all about earnings. Every economic data point filters down into earnings,” said Karyn Cavanaugh, senior market strategist at Voya Investment Management in New York.

“When we actually move to positive, I think psychologically that will be a point for investors to say, ‘Wow, this really is probably the best place to be in terms of investing. You have to be in equities’,” said Cavanaugh.

Strong earnings forecasts will be important for supporting historically expensive stock valuations. The S&P 500 trades at nearly 17 times earnings estimates for the next 12 months, against its historical average of 15 times.

One potential obstacle to upbeat outlooks is the strengthening U.S. dollar, which this week climbed to its highest since March against a basket of currencies .DXY.

Multinational companies that generate business outside the United States stand to see those sales reduced when translated back into dollars.

Alan Gayle, director of asset allocation at RidgeWorth Investments in Atlanta, said he will be watching “whether or not businesses feel like they have their operating models working well and under control, and if the dollar turns into the excuse du jour for weak guidance or missing the quarter.”

“At these valuation levels, the market gets to be vulnerable,” Gayle said.

(Reporting by Lewis Krauskopf; Editing by Nick Zieminski)

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Published at Fri, 14 Oct 2016 20:37:14 +0000

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How Did Walmart Get Cleaner Stores and Higher Sales? It Paid Its People More

walGarrett Watts runs customer services for a Walmart in Fayettville, Ark. He was hired at $9 an hour and now makes $13. He is setting his sights on an assistant store manager job. CreditMelissa Lukenbaugh for The New York Times

How Did Walmart Get Cleaner Stores and Higher Sales? It Paid Its People More

Can the answer to what ails the global economy be found in the people in blue vests at your neighborhood Walmart?

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Schedule for Week of Oct 16, 2016

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Schedule for Week of Oct 16, 2016

by Bill McBride on 10/15/2016 08:08:00 AM

The key economic reports this week are September housing starts, Existing Home Sales and Consumer Price Index (CPI).

For manufacturing, September industrial production, and the October New York and Philly Fed manufacturing surveys, will be released this week.

A key focus will be on the third Presidential debate on Wednesday, Oct 19th.

—– Monday, Oct 17th —–

8:30 AM ET: The New York Fed Empire State manufacturing survey for October. The consensus is for a reading of 1.0, up from -2.0.
Industrial Production
9:15 AM: The Fed will release Industrial Production and Capacity Utilization for September.

This graph shows industrial production since 1967.

The consensus is for a 0.2% increase in Industrial Production, and for Capacity Utilization to increase to 75.6%.

—– Tuesday, Oct 18th —–

8:30 AM: The Consumer Price Index for September from the BLS. The consensus is for 0.3% increase in CPI, and a 0.2% increase in core CPI.

10:00 AM: The October NAHB homebuilder survey. The consensus is for a reading of  63, down from 65 in September.  Any number above 50 indicates that more builders view sales conditions as good than poor.

—– Wednesday, Oct 19th —–

7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.
 

Total Housing Starts and Single Family Housing Starts

8:30 AM: Housing Starts for September.

Total housing starts decreased to 1.142 million (SAAR) in August. Single family starts decreased to 722 thousand SAAR in August.

The consensus for 1.180 million, up from the August rate.

During the day: The AIA’s Architecture Billings Index for September (a leading indicator for commercial real estate).

2:00 PM: the Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.

At 9:00 PM ET, the Third Presidential Debate, at University of Nevada, Las Vegas, Las Vegas, NV

—– Thursday, Oct 20th —–

8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 250 thousand initial claims, up from 246 thousand the previous week.  Note: I expect a larger increase in claims than the consensus due to Hurricane Matthew.

8:30 AM: the Philly Fed manufacturing survey for October. The consensus is for a reading of 7.0, up from 12.8.
 

Existing Home Sales

10:00 AM: Existing Home Sales for September from the National Association of Realtors (NAR).

The consensus is for 5.35 million SAAR, up from 5.33 million in August.

—– Friday, Oct 21st —–

10:00 AM: Regional and State Employment and Unemployment (Monthly) for September 2016

Read more at http://www.calculatedriskblog.com/2016/10/schedule-for-week-of-oct-16-2016.html#QrpES34A2uEuI5kV.99

by Bill McBride on 10/15/2016 08:08:00 AM

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Published at Sat, 15 Oct 2016 12:08:00 +0000

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TREASURIES-Shorter-dated yields hit more than 1-week lows after Yellen remarks

Photobuilding-839787_1280By Unsplash from Pixabay

TREASURIES-Shorter-dated yields hit more than 1-week lows after Yellen remarks

 

Oct 14 U.S. Treasury yields on shorter-dated
maturities fell on Friday after remarks from Federal Reserve
Chair Janet Yellen at a conference of policymakers and top
academics.

 

Yellen said the Fed may need to run a “high-pressure”
economy in order to reverse damage from the crisis that
depressed output and sidelined workers. She also said reversing
long-term damage might need a more accommodative policy than
otherwise, which may suggest the U.S. central bank could provide
further monetary policy easing.

 

 

Prices turned higher across the board after the release of
Yellen’s remarks, paring earlier losses, and yields on 2-
, 3- and 5-year notes hit their
lowest in at least a week.

(Reporting by Dion Rabouin; Editing by Chizu Nomiyama)

 

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Published at Fri, 14 Oct 2016 18:09:39 +0000

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Retail Sales increased 0.6% in September

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Retail Sales increased 0.6% in September

by Bill McBride on 10/14/2016 08:38:00 AM

On a monthly basis, retail sales increased 0.6 percent from August to September (seasonally adjusted), and sales were up 2.7% from September 2015.

From the Census Bureau report:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for September, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $459.8 billion, an increase of 0.6 percent from the previous month, and 2.7 percent above September 2015. … The July 2016 to August 2016 percent change was revised from down 0.3 percent to down 0.2 percent.

Retail SalesClick on graph for larger image.

This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline).

Retail sales ex-gasoline were up 0.5% in September.

The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993.
 

Year-over-year change in Retail SalesRetail and Food service sales ex-gasoline increased by 3.3% on a YoY basis.

The increase in September was at expectations and the previous two months were revised up; a solid report.

Read more at http://www.calculatedriskblog.com/2016/10/retail-sales-increased-06-in-september.html#1LBT9H6vSfv43tLw.99

by Bill McBride on 10/14/2016 08:38:00 AM

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Published at Fri, 14 Oct 2016 12:38:00 +0000

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SEC approves fund liquidity rules, goes easy on ETFs

 

The U.S. Securities and Exchange Commission logo adorns an office door at the SEC headquarters in Washington, June 24, 2011.REUTERS/Jonathan Ernst
By Lisa Lambert and Trevor Hunnicutt | WASHINGTON/NEW YORK

The top U.S. securities regulator on Thursday approved major new rules designed to protect mutual fund investors from the effects of a sudden sell-off, but it left for another day some of the dicier issues involved.

The U.S. Securities and Exchange Commission’s new rules take aim at liquidity issues of the $18 trillion traditional mutual fund market. But the agency deferred action on a separate plan to regulate the use of derivatives in funds and carved out significant exemptions for exchange-traded funds. It also put off a vote on electronically delivering funds’ written materials to investors.

The rules are part of a sweeping set of reforms that SEC Chair Mary Jo White has sought in the asset management industry, which includes the open-end fund market. On Thursday, the commission also approved increased information reporting from the funds and allowing them to use swing pricing during unstable market conditions.

White said the SEC will finish rules on how the funds use derivatives “in the near term” and is working on annual stress testing for large investment advisers, as well.

The new rules have been strengthened since they were first proposed more than a year ago, White said. They are “better tailored to the liquidity risks faced by different kinds of funds, with an improved classification scheme for the liquidity of fund investments and a more targeted approach to ETFs,” she said.

But the mutual fund and ETF industry did win some major concessions.

Under the final rules approved unanimously by the SEC’s three commissioners, funds will have to classify investments into the categories of highly liquid, moderately liquid, less liquid and illiquid.

The first draft had proposed a stricter system of categorizing investments, with six levels, or “buckets,” defining their liquidity.

“There was a lot of positive – the classification system seems much more practical and realistic,” said David Blass, general counsel for the Investment Company Institute, the funds’ trade group.

The final rules also exempt “in kind” exchange-traded funds, those that honor redemptions in securities instead of cash, from requirements on how many highly liquid and illiquid assets they can hold.

The final version still requires funds to keep on hand a certain level of assets that can be converted into cash in three days, those considered “highly liquid.” But it left the funds’ boards to decide how to rectify dips below that threshold. The original proposal had blocked funds from buying any more assets until they got back up to the minimum. ETFs had said that could run counter to their investment strategy.

In the same vein, the rules kept a requirement that no more than 15 percent of assets could be classified as illiquid, but did not prescribe a fix for passing that bar.

Several ETF issuers had asked to keep their products exempt from the rules because they often meet redemption requests from large sellers by handing over stocks or other securities, rather than cash. The issuers had said the proposal better fits mutual funds that face pressure to raise cash when investors head to the exits.

ETFs have faced fears that they cannot manage rampant selling. On Aug. 24, 2015, heavy demand to sell U.S. ETFs pushed many of their market prices far below the value they could have fetched if they had been redeemed by the issuer.

But ETFs operate differently from mutual funds because most individuals sell them in the public market and cannot redeem them directly with the issuers.

The rules go into effect on Dec. 1, 2018 for larger funds, and June 1, 2019 for smaller ones.

(Reporting by Lisa Lambert; Editing by Bill Trott and Lisa Shumaker)

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Published at Thu, 13 Oct 2016 19:26:49 +0000

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Merrill on September CPI

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Merrill on September CPI

Here is an excerpt from Merrill Lynch research piece today on September CPI to be released next week:

Consumer prices likely rose by 0.3% mom in September, lifting the year-on-year rate to 1.5%. We see a healthy gain in energy prices (up 2.6% mom), although food prices were likely once again weak. Excluding food and energy, we see a mere 0.1% mom increase: the previous months’ gain looks outsized, particularly for medical care commodities prices and we could get some payback. In this scenario, the year-on-year rate for core CPI could slow slightly to 2.2%

This probably means that CPI-W will be positive year-over-year, and the Cost-of-Living-Adjustment (COLA) will be positive for next year (although small). But even with a small increase in COLA, the contribution base will increase significantly.
Read more at http://www.calculatedriskblog.com/2016/10/merrill-on-september-cpi.html#s4zjl8eymikxuYP4.99

by Bill McBride on 10/13/2016 03:34:00 PM

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Published at Thu, 13 Oct 2016 19:34:00 +0000

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A Recession in the Next Four Years?

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A Recession in the Next Four Years?

by Bill McBride on 10/13/2016 11:33:00 AM

The WSJ surveyed 59 “academic, business and financial economists” about the possibility of a recession in the next four years: Economists Believe a Recession Is Likely Within Next Four Years

The U.S. must face one of two scenarios: Either the next president will face a recession in office, or the U.S. will have the longest economic expansion in its history.

… Economists in The Wall Street Journal’s latest monthly survey of economists put the odds of the next downturn happening within the next four years at nearly 60%.

That is … a recognition that throughout its history the American economy has never grown for more than a decade without a recession. Over the course of the next four years, something—whether exhaustion of the economy’s cyclical momentum, a policy mistake from the Federal Reserve or some outside shock—could knock the economy off course.

“We do not think expansions die of ‘old age’ but there’s more probability that a shock will hit the U.S. economy further out in the horizon,” said Lewis Alexander, chief U.S. economist at investment bank Nomura.

Four years seems like forever and  I usually only forecast out a year or a little more.

Looking back to 2005, I argued the housing bubble – and coming bust – would probably take the economy into recession. However it wasn’t until January 2007 that I predicted a recession (and the recession started in December 2007).

That was a pretty obvious reason for a recession, and it took almost two years after the housing bust started for the recession to materialize.  I don’t currently see anything that will cause a recession.

I don’t know about the odds in the next four years, but I doubt there will be a recession in 2017 (and 2018 seems unlikely too – but that is still a long time from now).

Read more at http://www.calculatedriskblog.com/2016/10/a-recession-in-next-four-years.html#gZBtyrgOEZSOUMs4.99

by Bill McBride on 10/13/2016 11:33:00 AM

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Published at Thu, 13 Oct 2016 15:33:00 +0000

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BLS: Job Openings decreased in August

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BLS: Job Openings decreased in August

by Bill McBride on 10/12/2016 10:00:00 AM

From the BLS: Job Openings and Labor Turnover Summary

The number of job openings decreased to 5.4 million on the last business day of August, the U.S. Bureau of Labor Statistics reported today. Hires and separations were little changed at 5.2 million and 5.0 million, respectively. …

The number of quits was essentially unchanged in August at 3.0 million. The quits rate was 2.1 percent. Over the month, the number of quits was little changed for total private and for government.
emphasis added

The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

This series started in December 2000.

Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for August, the most recent employment report was for September.

Job Openings and Labor Turnover SurveyClick on graph for larger image.

Note that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of labor market turnover.  When the blue line is above the two stacked columns, the economy is adding net jobs – when it is below the columns, the economy is losing jobs.

Jobs openings decreased in August to 5.443 million from 5.831 million in July.

The number of job openings (yellow) are up 3% year-over-year.

Quits are up 4% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for “quits”).

Even with the decline in Job Openings, this is another solid report.

Read more at http://www.calculatedriskblog.com/2016/10/bls-job-openings-decreased-in-august.html#fTYxc9aXuAzKCqC3.99

by Bill McBride on 10/12/2016 10:00:00 AM

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Published at Wed, 12 Oct 2016 14:00:00 +0000

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FOMC Minutes: “Could be greater scope for economic growth without putting undue pressure on labor markets”

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FOMC Minutes: “Could be greater scope for economic growth without putting undue pressure on labor markets”

by Bill McBride on 10/12/2016 02:08:00 PM

Different views: Some FOMC members think that waiting might lead to later larger rate increases – and a recession. Other think “there could be greater scope for economic growth without putting undue pressure on labor markets”. Most of the key FOMC members are in the second group.

From the Fed: Minutes of the Federal Open Market Committee, September 20-21, 2016 . Excerpts:

In their discussion of the outlook, participants considered the likelihood of, and the potential benefits and costs associated with, a more pronounced undershooting of the longer-run normal rate of unemployment than envisioned in their modal forecasts. A number of participants noted that they expected the unemployment rate to run somewhat below its longer-run normal rate and saw a firming of monetary policy over the next few years as likely to be appropriate. A few participants referred to historical episodes when the unemployment rate appeared to have fallen well below its estimated longer-run normal level. They observed that monetary tightening in those episodes typically had been followed by recession and a large increase in the unemployment rate. Several participants viewed this historical experience as relevant for the Committee’s current decisionmaking and saw it as providing evidence that waiting too long to resume the process of policy firming could pose risks to the economic expansion, or noted that a significant increase in unemployment would have disproportionate effects on low-skilled workers and minority groups. Some others judged this historical experience to be of limited applicability in the present environment because the economy was growing only modestly above trend, inflation was below the Committee’s 2 percent objective, and inflation expectations were low–circumstances that differed markedly from those earlier episodes. Moreover, the increase in labor force participation over the past year suggested that there could be greater scope for economic growth without putting undue pressure on labor markets; it was also noted that the longer-run normal rate of unemployment could be lower than previously thought, with a similar implication. Participants agreed that it would be useful to continue to analyze and discuss the dynamics of the adjustment of the economy and labor markets in circumstances when unemployment falls well below its estimated longer-run normal rate.
emphasis added

Read more at http://www.calculatedriskblog.com/2016/10/fomc-minutes-could-be-greater-scope-for.html#XZgWcz2oq4AX0c0V.99

by Bill McBride on 10/12/2016 02:08:00 PM

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Published at Wed, 12 Oct 2016 18:08:00 +0000

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Wall Street lower as tech, energy stocks drag

Wall Street lower as tech, energy stocks drag

Traders work on the floor of the New York Stock Exchange (NYSE) as the market closes in New York, U.S., October 3, 2016.REUTERS/Lucas Jackson
By Sinead Carew

The S&P 500 and the Dow Jones industrial average indexes ended Wednesday’s session with small gains as expectations for timing on a rate hike were largely unchanged after U.S. Federal Reserve minutes and investors waited on earnings reports.

Several voting policymakers judged a rate hike would be warranted “relatively soon” if the U.S. economy continued to strengthen, according to minutes from the September policy meeting released Wednesday afternoon.

While keeping rates low has risks, the Fed decided it was more risky to raise rates when they are concerned we might be seeing a slowdown in economic growth, said Kate Warne, investment strategist at Edward Jones in St. Louis.

“Unfortunately, they also didn’t provide a lot of clarity,” Warne said.

Traders have priced in small odds of a rate increase next month as the meeting falls days ahead of the Nov. 8 U.S. presidential election. The odds were still in favor of a December move, but down to 66 percent from 71 percent the day before, according to CME Group’s FedWatch tool.

With little news from the Fed, investors will see what earnings look like before they buy more stocks, said Steve Massocca, Chief Investment Officer, Wedbush Equity Management LLC in San Francisco.

Overall, S&P 500 third-quarter earnings are currently expected to fall 0.7 percent, marking the fifth quarter of negative earnings in a row, according to Thomson Reuters data.

The Dow Jones industrial average .DJI rose 15.54 points, or 0.09 percent, to 18,144.2, the S&P 500.SPX gained 2.45 points, or 0.11 percent, to 2,139.18 and the Nasdaq Composite .IXIC dipped 7.77 points, or 0.15 percent, to 5,239.02.

The biggest weight on Nasdaq was Cisco Systems (CSCO.O), which fell after rival Ericsson (ERIC.O) (ERICb.ST) reported a huge profit decline

Eight of the 11 major S&P 500 indexes closed higher, led by real estate’s .SPLRCR 1.3-percent rise and a 1 percent increase in utilities .SPLRCU.

Investors in both yield-sensitive sectors may have feared a more hawkish Fed, according to Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois.

Healthcare and energy were the weakest sectors with an 0.55 percent decline in the S&P 500 healthcare index .SPXHC and an 0.41 percent decline for energy .SPNY percent. Oil prices fell after OPEC reported its September output at eight-year highs.

Humana Inc (HUM.N) was the biggest loser on the S&P. The insurer said a U.S. government health department cut its quality rating on Humana Medicare plans, a move that could affect how much the government pays it in 2018. Advancing issues outnumbered declining ones on the NYSE by a 1.10-to-1 ratio.

About 5.6 billion shares changed hands on U.S. exchanges, below the 6.77 billion daily average over the last 20 sessions.

(additional reporting by Yashaswini Swamynathan in Bengaluru; Editing by Anil D’Silva and Nick Zieminski)

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Published at Wed, 12 Oct 2016 14:10:33 +0000

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U.S. job openings fall to eight-month low in August

U.S. job openings fall to eight-month low in August

 

 

People wait in line to enter the Nassau County Mega Job Fair at Nassau Veterans Memorial Coliseum in Uniondale, New York, U.S. October 7, 2014. REUTERS/Shannon Stapleton/File Photo
By Lucia Mutikani | WASHINGTON

U.S. job openings fell to an eight-month low in August and hiring was little changed, suggesting some easing in labor market conditions amid an aging economic recovery.

Still, details of the Labor Department’s monthly Job Openings and Labor Turnover Survey (JOLTS) report published on Wednesday continued to point to a solid jobs market, with a steady rise in the number of people voluntarily quitting their jobs and declining layoffs.

Job openings, a measure of labor demand, declined 388,000 to a seasonally adjusted 5.4 million, the lowest level since December, after surging to a record high in July. That pushed down the jobs openings rate three-tenths of a percentage point to 3.6 percent, also the lowest reading since December.

“These data can be volatile and the openings rate is still fairly high, so it is too early to tell whether this is a signal or just the noise of volatile monthly data,” said John Ryding, chief economist at RDQ Economics in New York.

“However, if this drop is sustained, it could be a sign of increased caution on the part of businesses.”

The JOLTS report is one of the job market metrics on Federal Reserve Chair Janet Yellen’s so-called dashboard. Fed officials view the labor market as being at or near full employment.

The U.S. central bank is widely expected to increase interest rates in December, having kept borrowing costs steady over course of the year because of persistently low inflation.

The decline in job openings in August was led by professional and business services, where vacancies fell 223,000. Job openings in the durable goods manufacturing industries decreased 29,000, and dropped 28,000 in the arts, entertainment and recreation sector.

“The bigger concern in the data is that openings declined year-over-year in some high-wage industries, like finance, professional services, and information,” said Jed Kolko, chief economist for job site Indeed in San Francisco.

“Plus, last Friday’s jobs report showed slower job growth in higher-wage industries. These factors are worth watching.”The number of hires was little changed at 5.2 million in August, keeping the hiring rate steady at 3.6 percent.

Job growth is slowing, with nonfarm payrolls increasing 156,000 in September. Employment growth has so far this year averaged 178,000 jobs per month, down from an average gain of 229,000 positions per month in 2015.

With the bulk of the labor market slack largely absorbed and the economy’s recovery from the 2007-09 recession aging, the slowdown in payrolls growth is normal. Fed Chair Janet Yellen has said the economy needs to create about 100,000 jobs a month to keep up with population growth.

Layoffs slipped to 1.62 million in August from 1.64 million in July, the JOLTS report showed. About 3.0 million Americans quit their jobs in August, maintaining a recent trend. The quits rate, which the Fed looks at as a measure of confidence in the jobs market, was at 2.1 percent for a third straight month.

“Nearly two-thirds of job separations are people voluntarily quitting rather than getting laid off or fired. That’s a good indicator that workers are confident they will find new jobs,” said Kolko.

(Reporting By Lucia Mutikani; Editing by Meredith Mazzilli)

 

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Published at Wed, 12 Oct 2016 14:57:32 +0000

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Wednesday: Job Openings, FOMC Minutes

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Wednesday: Job Openings, FOMC Minutes

Wednesday: Job Openings, FOMC Minutes

by Bill McBride on 10/11/2016 07:51:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rate Trend is Not Your Friend

Mortgage Rates were higher again today, marking the 9th straight day without any improvement. 3.625% is quickly becoming the most prevalent conventional 30yr fixed quotes on top tier scenarios, though quite a few lenders remain at 3.5%.
emphasis added

Wednesday:
• At 7:00 AM ET, The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 10:00 AM, Job Openings and Labor Turnover Survey for August from the BLS. Jobs openings increased in July to 5.871 million from 5.643 million in June.

• At 2:00 PM, The Fed will release the FOMC minutes for the Meeting of September 20-21.

Read more at http://www.calculatedriskblog.com/2016/10/wednesday-job-openings-fomc-minutes.html#rGdjoZ2whbCYldL8.99

by Bill McBride on 10/11/2016 07:51:00 PM

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Published at Tue, 11 Oct 2016 23:51:00 +0000

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