KITCO NEWS/Anna Golubova
Gold prices at daily lows despite disappointing U.S. service sector data
December 4, 2019
“Gold prices saw more losses Wednesday morning even though momentum in the service sector slowed in November, according to the latest data from the Institute of Supply Management (ISM). The Non-Manufacturing Purchasing Managers Index retreated to a reading of 53.9% in November, down from October’s 54.7%. The 0.8 percentage-point decline surprised the markets. Readings above 50 are seen as a sign of economic growth – the farther an indicator is above or below 50, the greater or smaller the rate of change.
The details of the ISM Non-Manufacturing report revealed that the new orders sub-index rose to 57.1% from October’s 55.6%. Looking at other components, business activity sub-index decreased to 51.6% from 57% registered in October. The employment index rose to 55.5% from October’s reading of 53.7%. Economists keep a close eye on the latter number as a gauge into the employment situation in the country. Inflation pressures rose for the 30th consecutive month, with the price index coming in at 58.5% in November.”
U.S. private sector job growth at six-month low in November: ADP
December 4, 2019
“U.S. private-sector job growth unexpectedly slowed to its weakest pace in six months in November, and goods producers and construction firms cut jobs, a private survey said on Wednesday. U.S. companies’ payrolls rose by 67,000 last month, the ADP National Employment Report said. The median forecast among economists polled by Reuters called for a gain of 140,000 jobs, with estimates ranging from 120,000 to 188,000. It was the lowest monthly gain since May when just 46,000 jobs were created, the fewest since 2010, and continues a trend of decelerating job growth that has taken hold this year. By ADP’s measure, American firms have added an average of about 159,000 jobs a month in the last 12 months, the lowest since 2011 and down sharply from an average of more than 200,000 a month at the start of 2019.
Private payroll gains in the month earlier were revised down to 121,000 from an originally reported 125,000 increase. The report is jointly developed with Moody’s Analytics. ‘The job market is losing its shine,’ Mark Zandi, chief economist of Moody’s Analytics, said in a statement. ‘Manufacturers, commodity producers, and retailers are shedding jobs. Job openings are declining and if job growth slows any further unemployment will increase.’”
Next year will be hard on the housing market, especially in these big cities
December 4, 2019
“Home sales will drop, the housing shortage could become the worst in U.S. history, and home values will shrink in some cities. That’s the 2020 forecast from realtor.com, which holds one of the largest databases of housing statistics available. Sales of existing homes will fall 1.8% from 2019, according to the forecast. Home prices will flatten nationally, increasing just 0.8% annually, but prices will fall in a quarter of the 100 largest metropolitan markets, including Chicago, Dallas, Las Vegas, Miami, St. Louis, Detroit and San Francisco.
It is a seemingly contrary assessment, given the current strength of the economy and of homebuyer demand, but the dynamics of this housing market are unlike any other — the result of a housing crash unlike any other. ‘Real estate fundamentals remain entangled in a lattice of continuing demand, tight supply and disciplined financial underwriting,’ said George Ratiu, senior economist at realtor.com. ‘Accordingly, 2020 will prove to be the most challenging year for buyers, not because of what they can afford but rather what they can’t find.’ It’s all about supply. The inventory of homes for sale has been falling steadily for several years and is at its lowest on the lowest end of the market. That caused prices to overheat, weakening affordability. The 2020 forecast offers no relief, in fact just the opposite. As demand heats up in the spring, driven by the growing number of millennials entering the market, the supply of homes for sale could hit its lowest in history.”
BLOOMBERG/Karl W. Smith
Shoppers Won’t Save the U.S. Economy
December 4, 2019
“Reports of strong sales on Black Friday and Cyber Monday have strengthened the case that consumers will continue to be the engine of growth for the U.S. economy. The resilience of the American consumer, goes the theory, will stave off a recession. That confidence may be misplaced. There are two problems with putting too much faith in consumer-driven growth. First, as my colleague John Authers has observed, the underlying strength is slowing. Second, consumers are traditionally lagging indicators of economic weakness. Business cycles are driven by investment in housing and business. By the time consumer spending begins to weaken, it is too late.
And consumer spending, like overall GDP, peaked in mid-2018 and has been declining ever since. The decline has been shallower than that of business investment, so consumer spending has exerted a moderating force on overall growth. But the trajectory is still downward and nearing levels that prevailed in 2016 and 2017. Without any contribution from the rest of the economy, consumer spending at current levels could support GDP growth of only about 1.5% a year and average monthly job growth of about 60,000, which would be the weakest job growth since late 2010. By comparison, the economy has created an average of 147,000 jobs per month over the past 12 months.”
The Fed Has Been Quietly Increasing the Size of Its Money-Market Interventions
December 4, 2019
“The Federal Reserve has been intervening more aggressively in money markets as it attempts to keep interest rates from rising around the end of the year. On Monday, the central bank again increased the amount of short-term cash loans it plans to offer banks to ensure U.S. interest rates remain stable later this month. It now plans to offer $25 billion in cash loans for the 28-day period ended Jan. 6, up from $15 billion previously. Last week, it increased the size of a 42-day facility for the period ended Jan. 13 by $10 billion as well. That extra $20 billion doesn’t substantially change the total amount of cash loans made by the New York Fed, which is tasked with keeping interest rates within the policy band targeted by the Fed. It does, however, illuminate the challenge the central bank faces in the corner of money markets where trading desks lend cash to one another, known as the repo market.
In repo transactions, traders sell government securities for cash on a short-term basis, agreeing to buy back the securities at a premium on a predetermined future date, usually one to 90 days later. (‘Repo’ is short for repurchase agreement.) The central bank has been active in that market since mid-September. Around Sept. 17, a series of events tied up cash on banks’ balance sheets in government securities, and drove short-term interest rates sharply higher. The Fed intervened with repo transactions, to ease the pressure. It isn’t unusual for the Fed to participate in repo markets. Before the financial crisis, the central bank implemented its monetary policy by lending out cash in repo markets, albeit in smaller amounts. But the end of the year could bring more upward pressure on interest rates, and once again challenge the Fed’s ability to maintain rates within its targeted band.”
South China Morning Post/Anthony Rowley
Huge public, corporate and household debt looks like the ‘new normal’ for the global economy – until the next crisis
December 2, 2019
“In the ‘new normal’ economic world, many beliefs have been turned on their head. Trade wars supposedly do not cause lasting harm, declining corporate output, earnings and investment are no cause for alarm, stock prices can go on rising regardless, and record global debt is nothing to lose sleep over. Debt has now hit what the Institute of International Finance (IIF) calls ‘mind-boggling’ proportions and Unctad – the UN body dealing with trade, investment and development issues – has warned of a new debt crisis … It seems that ‘all is for the best in the best of possible worlds’, to quote Professor Pangloss in Voltaire’s Candide. The debt mountain has grown hugely, not only in Asia but also in the United States and Europe, and governments have become as heavily addicted to borrowing as have corporate and household sectors (in China especially).
Global debt surged by US$7.5 trillion in the first half of this year alone, reaching a record of US$251 trillion, according to the IIF. ‘With no sign of a slowdown, we expect the global debt load to exceed [US]$255 trillion in 2019 – largely driven by the US and China,’ it says. The world’s principal central banks are also increasingly arguing that monetary policy cannot go on indefinitely being the only game in town, and that fiscal policy needs to do more to assist growth (or stave off recession).”