First-Quarter US Labor Costs Marked Down on Weaker Output, Hours Annual unit labor costs rose at slowest pace in three years
US labor costs increased in the first quarter by less than previously reported, reflecting downward revisions to economic output and hours worked and consistent with other signs of moderating activity.
Unit labor costs, or what a business pays employees to produce one unit of output after taking into account changes in productivity, rose at a revised 4% annual rate, down from an initially reported 4.7%, according to Bureau of Labor Statistics figures published Thursday.
From a year earlier, unit labor costs were up just 0.9%, the slowest pace in three years. (…)
Productivity, or the output per hour of nonfarm employees, barely rose in the first three months of the year, revised down slightly to a 0.2% pace. On the whole, quarterly productivity figures are volatile. That said, a sustained slowdown would represent another hurdle for the Fed’s quest to tame inflation. (…)
The productivity report showed output rose at a 0.9% pace in the first quarter, the smallest advance since 2022. Real hourly compensation climbed just 0.4%, compared to an initially reported 1.1%. Hours worked rose at about half the originally reported pace. (…)
A report from Challenger, Gray & Christmas, Inc. indicated hiring intentions this year through May were down 50% from the same period last year. So far in 2024, companies announced plans to hire 50,833 workers, the fewest for that period in a decade.
“Job cuts remained flat in May as companies assess performance and make plans for Q3 and Q4,” said Andrew Challenger, the firm’s senior vice president. “Meanwhile, hiring announcements are at their lowest levels in a decade. The typical churn in a healthy labor market appears to be stalling.”
- Since 2019Q4, labor productivity has grown at an annualized rate of 1.5%. Our wage tracker now stands at 4.4% annualized in Q1 and 4.1% year-over-year. (Goldman Sachs)
Compensation Plans at US Small Firms Decline to Three-Year Low
The share of US small-business owners planning to raise worker compensation fell in May to a more than three-year low, indicative of a cooling jobs market and moderating wage pressures.
Some 18% of firms said they intend to boost pay in the next three months, down 3 percentage points from April and the smallest share since March 2021, according to data out Thursday from the National Federation of Independent Business. A net 37% said they raised compensation, down slightly from the prior month but still historically elevated.
A net 15% indicated they expect to hire in the next three months. While that’s the highest print so far this year, the share of firms planning to hire is below pre-pandemic levels. The government’s May employment report on Friday is expected to show a broad moderation in job growth. (…)
Rising labour costs and weak productivity could spoil the next leg of Canada’s rate-cut journey
On the same day the Bank of Canada trimmed its benchmark interest rate to 4.75 per cent, Statistics Canada revealed Wednesday that labour productivity in Canada declined 0.3 per cent in this year’s first quarter from the quarter before. Productivity, or the amount of economic output per hour worked, has now fallen for 10 of the last 12 quarters.
But unit labour costs, or how much businesses pay workers in wages and benefits to produce one unit of output, jumped 1.3 per cent over the same period.
(…) On Wednesday, Bank of Canada governor Tiff Macklem cited several risks that could push inflation higher and delay interest-rate cuts, including global tensions, a surge in house prices, “or if wage growth remains high relative to productivity.”
The good news for the bank, albeit not for workers, is that wage pressures are easing. The growth in unit labour costs was 4.3 per cent on an annual basis, which was slower than the annual rate of 5.7 per cent a year earlier, though still more than double the 30-year prepandemic average. (…)
ECB’s Preferred Pay Gauge Accelerates in New Inflation Warning Pay per employee rose 5.1% in first quarter from year earlier
Compensation per employee rose by 5.1% from a year ago in the first quarter, up from a revised 4.9% in the previous three months, ECB data showed Friday. That exceeded a Bloomberg Economics forecast of 4.6%. (…)
Officials have still sounded confident that the risk of excessive pay pressures is diminishing. President Christine Lagarde said Thursday that the trove of labor-market data that officials are monitoring point to relief ahead, even if the analysis “is not an easy matter.”
“While still elevated — no question about that — we’re seeing those wages on a declining path,” she said. “And that will particularly be the case in 2025.”
In contrast to the indicator of negotiated wages, compensation per employee includes additional factors like overtime pay and bonuses. Until recently, the ECB had been expecting that measure to slow to 4.4% in the first quarter, though Lagarde warned Thursday that recently released national data rather pointed to 4.7%.
As the official data only arrive with a considerable lag, the ECB has developed more timely indicators. Those trackers pointed to moderation ahead based on new pay deals, it said.
From the May PMI survey:
(…) the increase in input costs remained sharp and well above its pre-pandemic average. It was a similar picture for output prices – the rate of inflation in selling charges eased to a six-month low, but remained considerably steeper than that seen on average prior to 2020. Manufacturers continued to register reductions in both of the survey’s pricing measures, whereas services companies registered historically sharp rises. (…)
Pricing pressures across the eurozone services economy remained elevated, despite cooling. (…)
Reduced inflation pressures are evident in both costs and selling prices. This development is expected to be explicitly mentioned in the press conference by ECB President Christine Lagarde, countering the unexpectedly sharp wage increases reported for the first quarter. However, the PMI price indices do not yet give the all-clear, as they are unusually high in the context of the rather weak economic situation.
China’s Exports Surge More Than Expected in Economic Boost Exports climbed 7.6% last month, beating economist forecasts
Exports rose 7.6% in dollar terms from a year earlier, while imports increased 1.8%, the customs administration said Friday. That left a trade surplus of almost $83 billion for the month. Economists had forecast that exports would expand by 5.7% and imports by 4.3%.
The value of [auto] sales abroad in May was the second-highest on record, down only slightly from April’s $10.7 billion, Friday’s data showed. But the large European market is about to get harder to access, with new tariffs on Chinese EVs expected next month.
Exports to the US rose 4.8% from a year earlier, the most in three months, while shipments to countries in the Asean bloc of Asian nations jumped 25% and those to the EU fell 0.7%.
- China’s imports grew 1.8% YoY in May, down from +8.4% in April. The slowdown was partly due to softer global energy prices and comparison with a higher base.
Trump Tax Cut Renewal Is Winning Wall Street, But Could Cost $4.6 Trillion Many Republicans reject CBO estimate of $4.6 trillion cost
The estimated $4.6 trillion cost of extending expiring portions of Trump’s 2017 tax cuts isn’t dampening Republican enthusiasm for renewal next year. Many simply reject cost projections, asserting that tax cuts pay for themselves through economic gains.
Independent analyses show that wasn’t true of Trump’s 2017 tax cuts and won’t be the case if they’re renewed in 2025. That sets up a big political fight over how — and even whether — to pay for them.
This time the nation’s debt load and interest costs are much heavier burdens after the deficit-financed Trump tax cuts, multiple rounds of pandemic stimulus and Biden administration spending on its signature clean energy, infrastructure and chip manufacturing initiatives.
US government debt held by the public soared from 76% of GDP in 2017 to 97% of GDP in December. Yields investors demand on 10-year US Treasury bonds nearly doubled, from 2.4% in 2017 to 4.3% on Thursday. The federal government’s annual net interest payments surged from $263 billion to a projected $890 billion this year — more than the Defense Department budget.
The fiscal impact of the Baby Boom generation’s retirement is also weighing on the budget, with Social Security projected to run out of money to pay full benefits in 2033 and Medicare in 2036. (…)
The Congressional Budget Office in May projected it would cost $4.6 trillion cost over the next decade to extend the 2017 law’s expiring cuts in taxes on personal income, large inheritances and pass-through businesses, which include many small- and medium-sized firms. The law permanently lowered the corporate income tax rate.
That, according to analysis from the left-leaning Center for American Progress, would cause projected debt, as a share of GDP, to rise by 36 percentage points, to above 200%, by 2054.
In theory, the revenue lost by maintaining the tax cuts would be partly offset if that spurs higher rates of investment, job creation and growth. The nonprofit Committee for a Responsible Federal Budget has estimated, however, this so-called dynamic effect would recover just 1% to 14% of what’s lost in revenue. (…)
President Joe Biden has a simple approach for handling the tax-cut expiration, though it is inimical to most Republicans: extend the lower rates for individual taxpayers making less than $400,000 a year, and make up the cost by raising taxes on corporations and the wealthy. (…)
Corporate income tax revenue took a big hit after the rate cut, coming in lower in both 2018 and 2019, before the pandemic rocked the US economy.
It bounced back strongly, however, in 2021 as the country recovered from the pandemic. Republicans point out that revenue from corporate tax in 2022 and 2023 exceeded projections the CBO made in 2017 before the tax cut. (…)
For a start, inflation after the pandemic was much higher than the CBO previously projected. Corporate profits as a share of GDP also rose during the pandemic as companies raised prices more than their costs, and the Federal Reserve dramatically cut interest rates during the pandemic.
In reviewing a raft of research through 2021, William Gale, co-director of the nonpartisan Tax Policy Center, concluded that “every credible analysis of the fiscal effects” of the law found it “reduced revenues significantly.”
Harvard Professor Gabriel Chodorow-Reich found the changes to the corporate tax rate and expensing rules had a meaningful, positive impact on how much firms invested. But that didn’t come close to offsetting the enormous cost to the budget.
I almost placed the above under the below section…
WANNA BET?
Meet the ‘Degen’ Traders Fueling the Latest Meme-Stock Mania Short for ‘degenerates,’ their risky style of trading has come roaring back in recent weeks. ‘It’s still better than a lottery ticket.’
A risky style of trading is roaring back in popularity, driven by amateur traders who call themselves “degens” and pile into long-shot trades that proudly have nothing to do with conventional ways of assessing investments. Some are flinging cash at specific stocks or cryptocurrencies just to be part of a movement. Others are sticking around for the jokes and memes.
“Degen” can be a noun, adjective or verb in their language, shared mostly among young men. It’s a self-deprecating identity that some have traced back to the term “degenerate gambler.” Behind it is an ethos that values audacious bets on the market and is skeptical of investment norms: You only live once, so why bother with traditional financial advice?
Through online aliases and in chat rooms, these self-proclaimed degens brag about buying little-known digital tokens, meme stocks and speculative options contracts. They are generally drawn to assets more for the excitement around trading them than their underlying fundamentals. There’s a potential for near-instantaneous profits, or huge losses if the bets go south.
Degens are part of the fuel for meme-stock mania, like the logic-defying action in GameStop shares in recent weeks. When these internet-fueled traders stick together, they have the potential to spark wild swings in assets. All it takes is for a meme to catch fire. (…)
“It’s quick money,” said 39-year-old Daniel Moravec, a former professional poker player who identifies as a degen trader. “Buying some options or going for a high-risk stock—it’s still better than a lottery ticket.” (…)
A boom in long-shot bets tied to GameStop and other degen favorites has helped send average daily volumes in options to almost 47 million this year, the highest level on record in Options Clearing Corp. data going back to 1973. Much of this activity is concentrated in short-term trades that allow investors to score big, or lose everything. (…)
Young people especially see record-high home prices and mountains of student debt, and some of them worry they will never make enough money to reach the milestones prior generations did. Long-running surveys of young Americans show Generation Z has emerged from the pandemic feeling more disillusioned than any living generation before it. (…)
“This magic internet money is changing lives.” (…)
The National Collegiate Athletic Association surveyed 3,527 individuals between the ages of 18 and 22 last year and found that 67% of students living on college campuses bet on sports. (…)
There’s valor in sticking together, coordinating trades on platforms like Reddit or Discord. Those who take these big risks are lionized by their peers. (…)
A 2023 academic study found that many individuals overpay for trades in the options market and end up with losses, particularly around events like earnings. Many investors haven’t timed crypto particularly well, either. New users flocked to crypto around the time prices peaked in 2021, for example, and some were left with giant losses in the subsequent tumble.
After the 2021 GameStop saga, the Securities and Exchange Commission has sought to curb what regulators see as the gamification of trading by proposing guardrails on trading apps. The initiatives so far have met heavy opposition from the brokerage industry and Capitol Hill. (…)
Like Bob Farrell said: “Bull markets are more fun than bear markets.”
He also said:
- Markets tend to return to the mean over time.
- Excesses in one direction will lead to an opposite excess in the other direction.
- There are no new eras – excesses are never permanent.
- The public buys the most at the top and the least at the bottom.
- Fear and greed are stronger than long-term resolve.