The U.S. Created 145,000 Jobs in December, Missing Expectations of 165,000… The unemployment rate remained at 3.5%.
What it means – A miss of 20,000 jobs in an economy of more than 150 million is less than meaningless, investors will ignore the deviation. The Bureau of Labor Statistics also lowered the job creation totals in October and November by 14,000, another negligible squiggle. The jobs number essentially came in on the target, which allows everyone to move on to other economic news. For those who watch the birth/death adjustment, that number reduced non-seasonally adjusted jobs by 60,000. The big revision comes with the January numbers reported in February.
The Fed Added Another $83 Billion to the Repo Market… To satisfy the demand for overnight and two-week liquidity, the central bank created another $83 billion on Thursday.
What it means – The additional cash brings the total since mid-September up to $400 billion. It’s not quantitative easing in the sense that the Fed isn’t trying to manipulate the interest rate market to move the economy, but it’s not as far off as they make it out to be. The people who use the repo cash are mostly investment funds that carry leveraged positions, meaning they borrow money to invest. When money is scarce, they have to pay higher interest rates to borrow, which the Fed doesn’t like. By providing more cash, the Fed gives these institutional investors new money they can use to buy stocks and other securities. The Fed is fueling the stock and bond markets.
The New Decade Starts with a Bang… The equity markets were quick out of the gate in 2020 as some of the fears for year end, including disruptions in the repo market, failed to materialize
What it means – At year-end, financial firms of many stripes clean up their balance sheets so they can hold the highest-quality securities available to them as well as cash. The window dressing as it’s called puts them in line for lower regulatory requirements in the weeks and months ahead.
Investors feared that a clamor for cash and U.S. Treasury bonds in the last days of December would put the repo markets out of whack, but it didn’t happen.
Investment firms and banks still wanted the cash and securities. The Fed made sure there was plenty of supply available. The central bank had $150 billion earmarked for repos but only used $25 billion or so. This followed three months of the Fed putting more than $350 billion into the markets. Without this intervention, the fourth quarter may have been a repeat of big drop at the end of 2018.
Factory Orders Fell 0.7% in December… The drop marked the third decline in four months but was slightly better than the 0.8% expected drop.
What it means – Falling factory orders and durable goods orders have been the order of the day since the summer. On a positive note, orders for non-durable goods grew 0.6%, but that’s not a good way to expand the economy. We need orders that reflect business investment and long-term capital spending, it’s not happening. The Atlanta Fed’s GDPNow model shows fourth-quarter GDP growth of 2.3%. If we get that level of growth, it will be tied mostly to consumer spending. The overall picture remains the same, we’re still muddling through around 2%, and there’s not much change on the horizon.
Trade Deficit Falls to Three-Year Low… The trade deficit fell to $43.1 billion at the end of 2019, the lowest level since October 2016.
What it means – The trade deficit, exports minus imports, fell 8.2%, the largest decline since January. The improvement reflects falling imports because of the trade war. Even our exports rebounded. The reduced trade deficit should bolster GDP a bit, even if waning exports reflect a bit slower consumer spending.
Reducing the trade deficit was a campaign promise of then-presidential candidate Trump. He can take credit for making it happen. It will be interesting to see what happens to the trade deficit as the U.S. and China reach deals on reducing tariffs and eventually ending the trade war.
One-Third of Healthcare Dollars Spent on Bureaucracy… A new study shows that more than $800 billion of healthcare spending in 2017 was on administration or roughly $2,500 per person.
What it means – We all know the system is wasteful. Now we know by how much. The study found per-capita insurance overhead payments were $844, hospitals were $933, home care and hospice administration were $255, and physician’s insurance-related costs were $465. Overhead on Medicare Advantage plans ran 12.3%, versus regular Medicare at 2.%.
A chunk of the higher costs come from “upcoding,” where healthcare providers scour charts and the medical procedure code manual (CMS) to look for more things to tack on, which increases reimbursements. The movement in the medical industry has created pushback from insurers, who then require more tests to verify conditions. All of it raises costs, which consumers pay.
Tesla Worth More Than GM and Ford Combined… Tesla has been on a roll lately. The company reported that it sold just over 360,000 vehicles last year, which is just inside its forecast range of 360,000 to 400,000, and it also delivered the first batch of vehicles it produced in China. Investors cheered the news, pushing the stock near $500, which increased the market cap to $88 billion. At that level, Tesla is worth more than General Motors and Ford combined, which is interesting because those two companies produced nine million vehicles in 2019, more than 24 times the number of vehicles produced by Tesla.
The electric car company has had a good run, but it shouldn’t get too comfortable. Competitors such as Audi, Mercedes, BMW, Jaguar, Volvo, Porsche, Volkswagen, and others are catching up.
Data supplied by Dent Research/Delray Beach Publishing
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