RETAILING

Private-Sector Jobs Data Underwhelm U.S. businesses added jobs at a very modest pace last month as factories added few new employees, according to a survey of private-sector hiring.

Wednesday’s report said private-sector payrolls in the U.S. increased by 139,000 jobs in February, according to payroll processor Automatic Data Processing Inc. ADP -0.93%(ADP) and forecasting firm Moody’s Analytics. That was below the consensus estimate of 160,000 new jobs predicted by economists surveyed by The Wall Street Journal. ADP also cut January’s increase to 127,000 jobs from 175,000. Factories added only 1,000 positions last month, while the service industry chimed in with 120,000.

Winter’s Impact Blunts Modest Growth

(…) The Fed’s latest “beige book” report, which assesses the U.S. economy using anecdotes gathered by the central bank’s 12 districts in January and February, focused on how weather has hit overall economic growth. Eight regions reported improved economic growth. But in most cases those increases were “modest to moderate.”

Still, “the outlook among most districts remained optimistic,” the report said. (…)

Most Fed banks reported gradually improving employment in their regions. Still, some banks noted shortages of specialized workers, particularly in the health-care and information-technology industries. More temporary employees were hired for permanent positions across Boston and Richmond regions.

Wage pressures remained stable in most districts.

The housing market continued to improve in several areas, with low inventories of housing and continued price increases helping many regions. Still, the severe weather was to blame for a slow pickup in housing, the report said. The Fed banks in Boston and New York gave mixed reports on sales. Philadelphia, Cleveland, Minneapolis and Kansas City banks noted a pullback of home sales.

HOUSING WATCH

From housing economist Tom Lawler via CalculatedRisk)

Hovnanian Enterprises, the nation’s sixth largest home builder in 2012, reported that net home orders (including unconsolidated joint ventures) in the quarter ended January 31, 2014 totaled 1,202, down 10.6% from the comparable quarter of 2013. The company’s sales cancellation rate, expressed as a % of gross orders, was 18% last quarter, up from 17% a year ago. Home deliveries last quarter totaled 1,138, down 4.2% from the comparable quarter of 2013, at an average sales price of $351,279, up 6.1% from a year ago. The company’s order backlog at the end of January was 2,438, up 6.0% from last January, at an average order price of $368,243, up 4.3% from a year ago.

Hovnanian’s net orders in California plunged by 43.4% compared to a year ago. (…) Net orders in the Southwest were down 10.0% YOY.
Here is an excerpt from the company’s press release.

In addition to the lull in sales momentum, both sales and deliveries were impacted by poor weather conditions and deliveries were further impacted by shortages in labor and certain materials in some markets that have extended cycle times,” stated Ara K. Hovnanian, Chairman of the Board, President and Chief Executive Officer.

Winter woes impacting California and southwest? Really uncool!

Here’s another problem (from Michael Milken: How Housing Policy Hurts the Middle Class):

Fed chair vows to ‘do all that I can’ to boost weak U.S. economy

Federal Reserve Chair Janet Yellen vowed on Wednesday to “do all that I can” to boost a U.S. economy where unemployment is too high and inflation is too low.

That’s a far cry from Draghi’s “Whatever it takes”.

Futures Prices Go Hog-Wild Hog prices are soaring to new highs as a deadly swine virus batters the U.S. pork industry and threatens to curtail supplies.

Hog futures hit a record intraday high Wednesday and are up 30% this year, making hogs one of the fastest-rising U.S. commodities. The price surge is pressuring profit margins for some meatpackers and is expected to lead to higher costs for shoppers at the grocer’s meat case in coming months. (…)

Porcine epidemic diarrhea virus has spread to farms in 25 states and killed millions of young pigs since it was identified in the U.S. for the first time last April, and the number of confirmed new cases each month has accelerated since late last year, according to industry estimates. The virus, which causes severe diarrhea and vomiting, is fatal only to young pigs and poses no threat to human health or food safety, according to veterinarians.(…)

Weekly federal data on U.S. hog slaughtering indicates the virus has yet to have an impact on production so far this year. The number of animals slaughtered has been on par with—or slightly higher—than year-earlier figures each week. (…)

But many traders are betting output soon will drop because the virus began to accelerate last autumn and piglets take about six months to reach slaughter weight. Some analysts also think that meatpackers’ willingness recently to pay higher prices to secure hogs suggests they are trying to ramp up production before they face a supply squeeze. (…)

Analysts predict U.S. consumers will start feeling the effects of rising hog and pork prices in the next few months, perhaps as early as Easter, when many Americans load up on hams. (…)

Wholesale U.S. pork prices, representing how much money meatpackers are fetching from retailers for processed pork, have risen nearly 29% so far this year, according to federal data.

EUROZONE RETAIL PMI POINTS TO WEAK FEBRUARY

Yesterday’s official January retail data for Europe provided a little bit of relief but Markit’s Retail PMI for February suggests that January’s strength was ephemeral and possibly the result of consumers taking advantage of heavy discounts following very poor Christmas sales.

February saw a decrease in the level of retail sales across the euro area as a whole, according to the latest retail PMI® data from Markit, reversing the marginal gain observed during the opening month of the year. Both Italy and France recorded faster contractions in sales, while growth in Germany eased from January’s recent peak.

At 48.5, down from January’s reading of 50.5, the Markit Eurozone Retail PMI – which tracks month-on-month changes in the value of retail sales – signalled a decrease in overall eurozone retail sales for the fifth time in the past six months in February. Trade was also down on the year, although the annual rate of decline was the weakest since last August.

February survey data showed weaker trends in each of the big-three eurozone economies. Germany saw growth in sales for the tenth straight month, but the rate of increase eased from January’s five-month high. Retailers operating in France meanwhile noted a faster decrease in sales, though the latest contraction – the sixth in successive months – was still only modest overall and comparatively slower than that registered in Italy. There, trade fell markedly and to the greatest
extent for three months. The current downturn in retail sales in the euro area’s third-largest economy reached the three-year mark as a result.

Employment at retailers fell in line with the renewed decline in sales, stretching the ongoing sequence of net job losses to six months. That said, the rate of contraction was little-changed from the marginal pace recorded in January. A faster rise in employment in Germany – the most marked in nine months – cushioned further falls across both France and Italy.

Buying levels among eurozone retailers also decreased on the month, and at the fastest pace since November. Nevertheless, stocks of resale goods were accumulated for a third straight month as businesses recorded lower-than-planned sales. The degree to which inventories rose was slower than in January, however, and only modest overall.

The rate of purchase price inflation in the eurozone retail sector eased slightly in February, to the weakest in three months. This reflected slowdowns in both France and Italy. Of the sectors monitored by the survey, Autos & Fuel saw the slowest overall increase in cost burdens, and Pharmaceuticals the fastest. A combination of
increased costs and lower sales imparted pressure on retailers’ gross margins which fell sharply.

China 7.2% Growth Would Meet 2014 Target, Minister Says

China’s Finance Minister Lou Jiwei said growth as low as 7.2 percent would meet this year’s target of “about” 7.5 percent as he tried to moderate expectations for an economy at risk from swelling debt.

The key is employment, not the exact level of growth, Lou said at a press briefing in Beijing today as part of the annual meeting of the National People’s Congress, the legislature. Expansion of 7.2 percent or 7.3 percent would be consistent with the goal announced yesterday, he said.

EARNINGS WATCH

A Chilling Forecast for Bank Profits Big drops in mortgage trading volume will pressure Wall Street’s first-quarter earnings.

Hopes that February’s bond trading would break out of the polar vortex that engulfed the market in January went largely unfulfilled, according to the latest data from the Securities Industry and Financial Markets Association. Last month saw a 32% decline in the average daily volume of trading in mortgage securities backed by Fannie Mae FNMA +3.40% and Freddie Mac, FMCC +3.70% the biggest market for mortgage trading.

The February chill comes after a 41% year-over-year drop in January. With the slump now stretching through two-thirds of the quarter, it seems increasingly unlikely that trading will make up the lost ground by the end of this month.

This has the potential to be a real drag on first-quarter results for the big banks, which have made between 10% and 30% of their revenue from fixed-income trading in recent years.

While mortgage bond trading is just one part—albeit an important part—of the fixed-income trading business at banks, the rest of the market isn’t showing any signs of picking up the slack. And bank executives have been prepping investors for possible disappointment.

At his bank’s investor day confab last week, J.P. Morgan Chase JPM +1.57% Chief Executive James Dimon warned that trading revenue was running about 15% lower than last year. Citigroup C +1.21% finance head John Gerspach said Monday that his firm expects trading revenue to drop by a “high mid-teens” percentage.

First-quarter trading in fixed income, currencies and commodities plays an important role in bank results for the full year. At Goldman Sachs Group, GS +1.88% trading in this area generated about a quarter of last year’s net revenue. In the past, anywhere from one-third to nearly half of this was made during the first quarter.

Morgan Stanley‘s MS +2.80% fixed-income traders generated 12.7% of last year’s revenue at the bank—and over a third of that was made in the first three months of 2013. At Bank of America, BAC +3.17% fixed income was responsible for 10.3% of its full year revenues, with 32% of that made in the first quarter. At J.P. Morgan, fixed income contributed 16% to annual revenues, with 31.7% in the first quarter.

In the era of Volcker-rule limits on proprietary trading, banks are increasingly dependent on customer order flow to produce trading revenue. Unfortunately, one of the drivers of that flow in mortgage bonds—new issuance—is also feeling the chill. Fannie- and Freddie-backed issuance this year is down 57% from a year ago, and private-label issuance has once again vanished from sight.

Absent an unexpected revival in mortgage issuance or a sudden shift in credit markets, trading might not warm up any time soon.

Staples to Shut as Many as 225 Stores, Cut Costs by $500 Million

ExxonMobil targets $5.5bn spending cuts Rivals have been reducing budgets and seeking higher returns

(…) It also said it now expected to produce the equivalent of 4.3m barrels of oil and gas per day in 2017 – higher than the 4.2m it reported for 2013, but 10 per cent lower than the projection of 4.8m for 2017 that it set out a year ago.

In pledging to cut its capital spending, Exxon joins its peers including Chevron of the US, Royal Dutch Shell and Total of France, which have been cutting their budgets and attempting to deliver higher returns on their investments.

Exxon has the highest return on capital in that group, but like its peers it has suffered from a fall in profitability in recent years as costs have risen while commodity prices have been broadly level. (…)

SENTIMENT WATCH

Ed Yardeni is trying to scare us all with this chart showing the Bull/Bear ratio from II:

I get more chills from this one from Zerohedge showing the disappearance of bears:

Outsourcing Loses Its Luster for U.S.Tech Companies

U.S. technology companies are putting the brakes on plans to move manufacturing or back office operations to cheaper foreign markets, according to a survey of chief financial officers released Thursday.

Only 5, out of 100 technology CFOs said they were planning to offshore services or manufacturing in the near future, according to a survey this month by accounting firm BDO USA LLP. That’s a dramatic drop from the 16% who said yes last year and 20% who agreed in 2012. (…)

Of the companies that currently have offshore services or manufacturing, 29% said they were considering bringing at least part of that work back to the U.S. this year. (…)

“I’ve seen quite a bit of change in the last two or three years in terms of attitude and focus around offshoring,” Mr. Jamil said. “A few years ago, almost every company you talked with was looking to offshore their operations.”

Mexico cracks down on iron ore smuggling to China Officials seize 119,000 tonnes worth more than $15m

Iron ore smuggling by the Knights Templar drug cartel in Mexico added up to nearly 272,000 tonnes last year – 44 per cent of the ore produced in the entire country.

Mexican security officials this week launched a major crackdown on the cartel’s business smuggling iron ore to China, which another senior government figure confirmed had become more profitable for the Knights Templar than drug running.