Posts filed under “Think Tank”

morning note/Payroll time

June Payrolls are expected to fall by 365k after a drop of 345k in May (which was well above estimates of a drop of 520k). With ADP reporting job losses of more than 450k in the past two months, I believe the odds are against another big upside surprise and the only question will be whether it surprises to the downside. The unemployment rate is expected to rise by .2% to 9.6% which would be the highest since June ’83. In the recession in the early 80′s, the rate peaked at 10.8%. Average hourly earnings are expected to rise .1% for a 3rd month and would be the slowest 3 month pace since ’03. A top Chinese official said he didn’t know about any plan to discuss an alternative to the US$ at next week’s G8 meeting and the $ is rising in response. Also helping the $ was a surprise rate cut in Sweden, Ireland losing its Aaa rating from Moody’s and the May Euro zone unemployment rate ticking to the highest level since May ‘99. The ECB left rates unchanged as expected.

Category: MacroNotes

Q3 Starts With Both a Bang and a Whimper

Good Evening: Better than expected manufacturing data points both here an in China catapulted U.S. stocks higher this morning, but the gains faded as the day wore on. Some other economic releases that weren’t quite as friendly may have caused the first day of the third quarter to end with a whimper after starting with…Read More

Category: Markets, Think Tank

Fed Pres Evans chiming in on exit strategies

Following the speech by Fed Pres Bullard Tuesday on the Fed’s ‘exit strategies’ where the discussion was more on how they will unwind their different programs rather than when, Fed Pres Evans is adding his thoughts to the debate. I want to first say that setting a time period is of course difficult due to…Read More

Category: MacroNotes

Wage Deflation in Our Midst

I am especially pleased to introduce today’s Think Tank guest, Economist David Rosenberg of Canada’s Gluskin Sheff.  For most of you, however, David needs no introduction: A 20 year veteran of the Street, David most recently was Merrill Lynch’s chief North American Economist, where he correctly warned about the Housing and Credit Collapse and Recession in advance.

With Non-Farm Payroll scheduled to be released tomorrow, the timing is perfect to hear some thoughts from David about Employment . . .




A survey conducted by YouGov for the Economist magazine found that 5% of respondents had taken a furlough this year and 15% had accepted a pay cut (see The Recession and Pay: The Quiet Americans on page 33 of this week’s edition).

As wages deflate, workers are looking for ways to supplement their shrinking income base, for example, by moonlighting. Indeed, a poll undertaken by and cited in the USA Today found that one in every ten Americans took on an extra job over the last year; another one in five said they intend to do so in the coming year. These numbers are double for the 45 to 54 year olds who now see early retirement, once around the corner, as an elusive concept.

Most pundits who crow about green shoots and about an inventory restocking in the third quarter giving way towards some sustainable economic expansion live in the old paradigm. They don’t realize, for whatever reason, that the deflationary aftershocks that follow a post-bubble credit collapse typically last for 5 to 10 years. Businesses understand better than the typical Wall Street or Bay Street economist and strategist that everything from order books, to output, to staffing have to now be restructured to adequately reflect a permanently lower level of leverage in the economy.

Indeed, by our estimates, there is up to another $5 trillion of household debt that has to be eliminated in coming years and that process is going to require that consumers go on a semi-permanent spending diet. Companies see this, which is why they are not just downsizing their payroll, but have also cut the workweek to a record low of 33.1 hours. Fewer people are working and those that are still working have seen their hours dramatically cut this cycle.

Companies are finding other ways to save on the aggregate labour cost bill as well, which may be a factor reinforcing the uptrend in the personal savings rate (see more below). For example, a rapidly growing number of employers are now suspending contributions to worker 401(k) plans. According to a joint survey by CFO Research Services and Charles Schwab, nearly 25% of U.S. companies have either suspended their plans or are planning to do so (this is up from 2% at the turn of the year). Again, how we end up squeezing inflation out of the system when the labour market is clearly deflating wages and benefits for the 70% of the economy called the consumer is going to be interesting to watch.

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Category: Employment, Think Tank, Wages & Income


May Pending Home Sales rose .1% m/o/m, about in line with expectations of flat and April was revised higher to a gain of 7.1% from 6.7%. The y/o/y gain was 4.6%. The Northeast and West saw gains while the Midwest and South fell. The $10,000 California tax credit would not be reflected in this data…Read More

Category: MacroNotes

ADP jobs #

ADP reports that the private sector shed 473k jobs in June, below expectations of a drop of 394k but is in line with the revised decline of 485k in May (from 532k). Small and medium sized businesses continue to lose the most amount of workers relative to large companies in both goods producing and service…Read More

Category: MacroNotes

China, China, China AGAIN

Both state owned and private sector weighted manufacturing indexes in China showed another month of expansion as both rose a touch from May and it helped to send the Shanghai index to another one year high. Japan’s Tankan report rose 10 points from the previous quarter (which was a record low dating back to 1974)…Read More

Category: MacroNotes

Confidence, Housing, and Unemployment are All Intertwined

Good Evening: An unexpected drop in consumer confidence today spoiled what investors had hoped would be a rousing finish to an otherwise strong second quarter for U.S. capital markets. Other data points, including those in the all important housing sector, were mixed. How confidence, home prices, mortgage delinquencies, unemployment, and the financial markets interact in…Read More

Category: Markets, Think Tank

Consider the components of equity returns

Consider the components of equity returns The raison d’être of investment or wealth management is to maintain, or hopefully improve, one’s standard of living, i.e. to earn a real return on the investment amount. This sounds easy enough if one considers that the S&P 500 Index (and its predecessors prior to 1957) delivered a nominal…Read More

Category: Think Tank

Fed President Bullard on exit strategies

Fed President Bullard is giving a speech on exit strategies for the Fed and begins by saying “monetary policy is very accommodative now…It will remain very accommodative for an extended period…This is appropriate, given low inflation and weak economic conditions.” He believes the liquidity facilities that are in place should “wind down naturally” as they…Read More

Category: MacroNotes