June 26 Silver Flash Crash: A Forensic Analysis
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Analysts had lowered their forecasts after an anemic ADP private payrolls report but they did not lower them enough as growth was very soft. Nonfarm payroll employment in May grew a modest 54,000, following a revised 232,000 jump in April and a 194,000 increase in March. The May figure came in lower than analysts' revised forecast for a 170,000 expansion. Also, the March and April revisions were down net 39,000. Private nonfarm payrolls advanced 83,000 in May, following a 251,000 increase in April. The median forecast was for a 180,000 increase in May.
Sluggishness in payroll jobs was broad based. Goods-producing jobs were basically flat while private service-providing rose moderately and government jobs declined moderately.
Goods-producing jobs edged up 3,000, following a 38,000 rise in April. Manufacturing jobs dipped 5,000 after a 24,000 advance the month before. However, construction nudged up 2,000 after a 5,000 increase in April. Mining gained 7,000, following an 11,000 boost in April.
Private service-providing jobs slowed to an increase of 80,000 after a 213,000 jump the prior month. There was not much to write home about as the biggest component gain was for professional & business services with a 44,000 increase in May. Health care rose 17,400 for the latest month. On the down side, retail trade fell 8,500 while leisure & hospitality dipped 6,000.
Government jobs contracted 29,000, following a 19,000 dip in April. This latest decrease was largely local government, led down by local government education.
On a positive note, wage growth improved in May as average hourly earnings rose 0.3 percent, following a 0.1 percent uptick in April. May's number topped the median forecast for a 0.2 percent increase. The average workweek for all workers in May held steady at 34.4 hours.
On a year-ago basis, overall payroll jobs in May eased to 0.7 percent, down from a 1.0 percent pace the month before.
Turning to the household survey, the unemployment rate nudged up to 9.1 percent from 9.0 percent in April. Household employment actually rose 105,000 for the month but was outpaced by a 272,000 gain in the labor force.
The big question is whether the May numbers are a temporary soft spot or a new trend. The Labor Department indicated that severe weather did not play a notable role in the data. While the recovery/expansion has gained traction, the trajectory is somewhat lower than earlier believed.
On the news, equity futures dropped sharply.
In badly needed good news on the jobs market, initial jobless claims are easing a bit from elevated levels. Claims fell 6,000 in the May 28 week to 422,000 (prior week revised to 428,000). The four-week average of 425,500 is down a sizable 14,000 and compares well with the month-ago level of 432,250. There are no special factors skewing the data with tornado-hit Missouri reporting some trouble but not enough to affect the total. Continuing claims are little changed, down 1,000 in data for the May 21 week to 3.711 million with the unemployment rate for insured workers unchanged at 3.0 percent. This report probably won't improve expectations for tomorrow's monthly jobs report but at least it won't be deepening pessimism.
Fed May Signal Balance Sheet Will Stay at Record Amid Slowdown
June 2 (Bloomberg) -- A wave of surprisingly weak data on the U.S. economy may spur Federal Reserve policy makers to support growth by making it clear they’re in no hurry to shrink the central bank’s record balance sheet.
There’s a “strong possibility” that the Federal Open Market Committee will say following the June 21-22 meeting that it will keep reinvesting proceeds from maturing debt for a while, said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. Previously, the FOMC has said it will keep the benchmark interest rate near zero for an “extended period” without a similar pledge about its balance sheet.
Yesterday’s reports showing manufacturing grew at the slowest pace in more than a year in May and employers added fewer jobs than forecast prompted Feroli to cut his estimate for second-quarter economic growth. The slowdown may push policy makers to consider what options are left after their second $600 billion round of asset purchases sparked a Republican backlash. Saying the balance sheet won’t shrink immediately could dispel any notion that the Fed is about to push up borrowing costs.
“The idea of extending the period in which they maintain this level of accommodation is an easy call, a natural call and the right call,” said Neal Soss, chief economist for Credit Suisse Holdings USA Inc. in New York. A third round of asset purchases “is so contentious within the committee and the broader political environment, that they aren’t going to go there. That makes it very unlikely.”
Judd Gregg joins Goldman Sachs
Judd Gregg, the former Republican senator from New Hampshire, is joining the investment bank Goldman Sachs as an international adviser, the company announced Friday.
“Judd Gregg’s experience and insight will contribute significantly to our firm and our continuing focus on supporting economic growth,” Goldman Sachs chairman and CEO Lloyd C. Blankfein said in a statement announcing the move.
Gregg will "provide strategic advice" and "assist in business development initiatives," according to Goldman Sachs.
“A strong financial sector is critical to our nation and one of the key engines of job creation in our country,” Gregg said in the statement. “I hope that I can bring to Goldman Sachs some ideas and perspectives that will help the firm continue to be a leader in supporting its clients in their pursuit of the capital, credit and advice they need to be successful.”
Gregg served three terms in the Senate and is a former two-term governor of New Hampshire. He served as chairman and ranking member of the Senate Budget Committee and also as ranking member of the Senate Appropriations Foreign Operations Subcommittee.
No relief in sight for falling home prices is the unfortunate conclusion drawn by the S&P Case-Shiller report which says its latest data confirm a double dip for the housing sector. The Case-Shiller adjusted composite 10 index is down 0.1 percent for March and down 0.2 percent for the composite 20. Despite the report's commentary, these readings aren't that bad as the rates of decline are less than prior months and given that the readings are three-month averages suggesting that the March data may actually show a small gain. But the year-on-year rates are showing deterioration, at minus 2.8 percent for the 10 index and minus 3.5 percent for the 20.
The unadjusted readings, which are given preferred attention by the report, also show easing rates of decline, at minus 0.6 percent for the 10 index and minus 0.8 percent for the 20. These readings were minus one percent and worse in prior months. The unadjusted year-on-year rates are very close to the adjusted data.
The breadth of decline is a big negative in the report with 18 of 20 cities showing unadjusted month-to-month declines, which however again are three-month averages. The report's national quarterly reading is at minus 4.2 percent in the first quarter vs minus 3.6 percent in the fourth quarter. This reading is at a new low for the cycle and is back to the mid-2002 level.