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US: NFIB Business Optimism Index improves to 104.3 in January vs. 103.4 expected

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The Small Business Optimism Index improved to 104.3 in January from 102.7 in December and came in better than the market expectation of 103.4, the National Federation of Independent Business’ (NFIB) monthly publication showed on Tuesday.

Commenting on the data, “2020 is off to an explosive start for the small business economy, with owners expecting increased sales, earnings, and higher wages for employees,” said NFIB Chief Economist William Dunkelberg. “Smallbusinesses continue to build on the solid foundation of supportive federal tax policies and a deregulatory environment that allows owners to put an increased focus on operating and growing their businesses.”

USD reaction

The US Dollar Index largelyignored this data and was last seen at 98.80, where it was down 0.05% on a daily basis. Investors are waiting for FOMC Chairman Powell to testify before the Committee on Financial Services of the Congress at 15:00 GMT.

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US Manufacturing Activity Rebounds In January

U.S. factory activity unexpectedly rebounded in January after contracting for five straight months amid a surge in new orders, offering hope that a prolonged slump in business investment has probably bottomed out.

The Institute for Supply Management (ISM) said on Monday its index of national factory activity increased to a reading of 50.9 last month, the highest level since July, from an upwardly revised 47.8 in December.

 

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 A reading above 50 indicates expansion in the manufacturing sector, which accounts for 11% of the U.S. economy. The ISM index had held below the 50 threshold for five straight months. Economists polled by Reuters had forecast the index rising to 48.5 in January from the previously reported 47.2 in December.

The improvement in the ISM data likely reflects ebbing trade tensions between the United States and China. Washington and Beijing signed a Phase 1 trade deal last month. The deal, however, left in place U.S. tariffs on $360 billion of Chinese imports, about two-thirds of the total, which economists say will remain a constraint on manufacturing.

The ISM’s forward-looking new orders sub-index jumped to a reading of 52.0 last month, the highest since May, from a revised 47.6 in December. Manufacturers also reported paying more for raw materials and other inputs. The survey’s measure of prices paid hit its highest level in 10 months, suggesting some building up of inflation pressures at the factory level.

The ISM’s factory employment index rose to 46.6 last month from a revised reading of 45.2 in December, suggesting manufacturing payrolls could remain weak. Factory employment increased by 46,000 jobs in 2019 after rising 264,000 in 2018.

The improvement in ISMs closely watched national survey follows a series of mixed readings on the manufacturing sector at the regional level.

A purchasing manager survey tracking the Chicago region slumped to a four-year low in January, and manufacturing indexes from the Federal Reserve banks of Richmond and Dallas continued to show contraction in those districts. But factory activity in areas tracked by the Philadelphia and Richmond Feds both showed significant improvement in January, tracking more closely with ISMs findings.

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Economic and Finacial Markets Review October 2019

Economic and Financial Markets Monthly Review
What’s Happening and Why – October 2019
A dichotomous economy
Kitchen table economics (Page 3)
A tale of two economies: still solid job gains fueling strong consumer spending, especially for big ticket items, versus the trade war hitting primarily the manufacturing sector (with early hints of spillovers into other parts of the economy). Overall economic growth is slowing but only to around the long-term trend rate of the economy…at least for now.

Risk on in September (Page 4)
Financial markets have been significantly impacted by geopolitics this year. Despite the uncertainty surrounding the burgeoning trade war, Brexit, and other conflicts, the S&P 500 stock index moved back to within 1.0 percent of its all-time high in September.

Oil price shocks less likely to derail the U.S. economy (Page 5)
With crude oil prices still below their level at the outset of the expansion in 2009, it would take a substantial price increase to help fuel a downturn. There are legitimate risks to the economy to be sure, but oil is still a long way from tipping the scales.

Charts & Commentaries (Pages 6-9)
Business activity slows further
Forecast Table (Page 10)
Nationwide Economics’ Key Forecasts:
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Global trade to see weakest growth since Great Recession

Global trade is forecast to weaken this year to its slowest pace since the depths of the Great Recession due to the U.S.-China trade war, the World Trade Organization said Tuesday.

WTO said it expects volumes of traded goods to rise 1.2% in 2019, well below the 2.6% estimate it issued in April and the weakest growth rate for world trade since 2009.

The organization said estimates for 2020 show growth dropping to 2.7% from 3.0%, but it warned that still depends on resolving trade disputes.

The United States and China are in a wide-ranging dispute that has led to new tariffs on hundreds of billions of dollars’ worth of traded goods. There is little expectation of an imminent resolution to the disagreement, which continues to sap economic growth.

“The darkening outlook for trade is discouraging but not unexpected,” said WTO chief Roberto Azevêdo.

The WTO sees continued risks from the trade wars, saying that “further rounds of tariffs and retaliation could produce a destructive cycle of recrimination.”

The organization noted that some economies are slowing anyway while other outstanding trade issues, such as Britain’s exit from the European Union, are adding to the uncertainty for businesses trading goods.

German Chancellor Angela Merkel, whose country is heading toward recession, said the friction around Brexit showed why Europe had no reason to be haughty about the U.S-China trade dispute.

“We’ve been negotiating for three years over Britain’s orderly exit, and this is causing us great uncertainty, too,” Merkel she said after a meeting Tuesday in Berlin with WTO’s Azevêdo and the heads of four other international economic organizations.

“This exit is meant to happen on Oct. 31, and many businesspeople still don’t know today what their supply chain is going to look like in the future,” said Merkel.

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Strong surveys at odds with slowing growth

•The incoming monthly activity data suggest that GDP growth has slowed from 2.6% annualised in the fourth quarter to only around 1.5% in the first. At the same time, however, the business surveys have remained relatively upbeat, with a weighted average of the ISM activity surveys consistent with GDP growth accelerating above 4% annualised. (See Chart.) It’s clearly possible that growth picks up again in the second quarter. The rebound in consumer confidence suggests that consumption will continue to recover from the plunge in December, while a potential trade deal with China could give a temporary liftto exports. But with the fiscal boost having faded, and the continued slowdown in durables consumption and housing activity suggesting that higher interest rates are taking a heavier toll, a sustained recovery looks unlikely. We expect GDP growth to remain below its 2% potential pace this year, ruling out any further rate hikes from the Fed and ensuring that market expectations of rate cuts will continue to grow.
•Output and activity indicatorsshow that manufacturing output is set to fall in the first quarter. (Page 2.)
•Consumption indicatorsillustrate that spending growth has also slowed sharply.(Page 3.)
•Investment indicators suggest that business equipment investment growth is set to drop back. (Page 4.)
•External indicators reveal that the weakness of exports can’t solely be explained by China. (Page 5.)
•Labour market indicators remain consistent with a gradual acceleration in wage growth. (Page 6.)
•Inflation indicators point to a continued easing in underlying price pressures. (Pages 7 & 8.)
•Financial market indicators show that a 25bp Fed rate cut next year is now fully priced in. (Page 9.)
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Small Business Hiring Breaks Record

The great American jobs machine is still roaring. Slowing global growth and trade friction may cloud the economic horizon, but U.S. small businesses in February went on an historic hiring binge. That’s according to the latest employment report from the National Federation of Independent Business, due out later today.

NFIB has been conducting this monthly survey for decades. The organization’s chief economist William Dunkelberg reports that they’ve never seen results like these:

Job creation broke the 45-year record in February with a net addition of 0.52 workers per firm (including those making no change in employment), up from 0.25 in December and 0.33 in January. The previous record was 0.51 reached in May 1998.

 

NFIB also found a historic low in the percentage of business owners reducing employment—just 3% of survey respondents. “Owners are trying to hold on to the employees they have,” says Mr. Dunkelberg.

Readers can be forgiven for thinking that the economy is headed back down to the slow-growth new normal of the past decade. That’s certainly the consensus in the media industry. But across all industries, the owners of small firms don’t seem to share that view. After the February hiring spree, the survey finds plans for future job creation remain robust and the main obstacle is not lack of business opportunities, but a lack of workers to take advantage of them.

Mr. Dunkelberg shares more results from the survey of firm owners:

Fifty-seven percent reported hiring or trying to hire (up 1 point), but 49 percent (86 percent of those hiring or trying to hire) reported few or no qualified applicants for the positions they were trying to fill… Twenty-two percent of owners cited the difficulty of finding qualified workers as their Single Most Important Business Problem, only 3 points below the record high. Ten percent of owners find labor costs as their biggest problem, a record high for the 45-year survey.

 

It may be a problem for owners but of course rising wages represent welcome news for workers. A net 31% of firms reported raising compensation in February—below January’s 36% surge but still historically strong.

Small firms in the U.S. are reporting record job creation, higher wages and robust expansion plans.

All of this may have U.S. workers raising a toast to the new abnormal.

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December 2018 Report: Small Business Optimism Index

Small Business Optimism Virtually Unchanged as Demand for Workers Remains a Constraint


The NFIB Small Business Optimism Index remained basically unchanged in December, drifting down 0.4 points to 104.4, according to the report released today. Unfilled jobs and the lack of qualified applicants continue to be a primary driver, with job openings setting a record high and job creation plans strengthening. Reports of higher worker compensation remained near record levels and inventory investment plans surged. Expected real sales growth and expected business conditions in the next six months, however, accounted for the modest decline in the Index.

“Optimism among small business owners continues to push record highs, but they need workers to generate more sales, provide services, and complete projects, said NFIB President and CEO Juanita D. Duggan. “Two of every three of these new jobs are historically created by the small business half of the economy, so it will be Main Street that will continue to drive economic growth.”

A recent historical perspective:

  • Actual hiring strengthened to the highest reading in six months, job openings are at a record high levels, and plans to create new jobs are down only three points from August’s record high.
  • The net percent of owners expecting better business conditions in six months and the percent viewing the current period as a good time to expand have both tapered off since the record high Index reading in August but still remain well above their historical averages.
  • Actual capital outlays are five percentage points higher than in August, although plans for outlays are eight points below the high for this expansion.
  • Plans to invest in inventories are only two points below August, the record high. Satisfaction with inventories is two points better.

Last week’s NFIB Jobs Report noted that job creation remained solid with a net addition of 0.25 workers per firm, up from 0.19 in November and the best reading since July. A seasonally-adjusted net 23 percent plan to create new jobs, up one point from November’s reading.  Not seasonally adjusted, 23 percent plan to increase total employment at their firm (up one point), and five percent plan reductions (down two points).

A record 39 percent of small business owners reported job openings they could not fill in the current period. Sixty percent of owners reported hiring or trying to hire, but 90 percent of those reported few or no qualified applicants for the position. Twenty-three percent of owners cited the difficulty in finding qualified workers as their Single Most Important Business Problem.

“Recently, we’ve seen two themes promoted in the public discourse: first, the economy is going to overheat and cause inflation and second, the economy is slowing and the Federal Reserve should not raise interest rates,” said NFIB Chief Economist Bill Dunkelberg. “However, the NFIB surveys of the small business half of the economy have shown no signs of an inflation threat, and in real terms Main Street remains very strong, setting record levels of hiring along the way.”

The percent of business owners reporting that they increased employee compensation continued at 45-year record high levels. In December, a net 35 percent reported increasing compensation and a net 24 percent reported planned increases in the next few months.

The net percent of owners reporting inventory increases fell three points to a net three percent (seasonally adjusted), following November’s strong showing, the second-best since 2005.

A net four percent of all owners (seasonally adjusted) reported higher nominal sales in the past three months, down five points from very strong readings. The net percent reporting higher sales averaged two percent in 2017 but nine percent in 2018, with a peak value of 15 percent. The net percent of owners expecting higher real sales volumes fell one point to a net 23 percent of owners. Consumer spending has remained steady and small manufacturing and construction firms cannot find enough employees to fill their open positions, selling all they can produce without more workers.

Unchanged from last month, 61 percent of owners reported capital outlays. Of those making expenditures, 42 percent reported buying new equipment, 25 percent acquired vehicles, and 15 percent improved or expanded facilities. Six percent acquired new buildings or land for expansion and 15 percent spend money for new fixtures and furniture.

Thirty-two percent of owners reported all credit needs met (unchanged), and 50 percent said they were not interested in a loan, up three points. By comparison, only three percent reported financing was their top business problem (up one point), while 13 percent cited taxes (down six points), 14 percent citing regulations and red tape, and 23 percent the availability of qualified labor.

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US Manufacturing Building Boom Roars Along

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While big numbers of retirees or soon-to-be retirees are helping drive the call for a new influx of manufacturing workers, they aren’t the only reason for the urgency. U.S. manufacturers continue to announce expansions or new builds across the country and that growth means more workforce needs. Here is a look at where some of that manufacturing building growth is occurring.

The widely trumpeted growth surge in U.S. manufacturing is showing up in both new and expanded manufacturing facilities across the nation. Some factories have opened, others have been announced and even more are still raising the roof or extending their walls.

 

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