The U.S. Economy Created 224,000 Jobs in June… The jobs number was well ahead of the consensus estimate of 165,000. Unemployment ticked up from 3.6% to 3.7%.
What it means – Everyone who claimed last month’s 75,000 jobs total was a travesty for the country is now claiming that this month’s tally is so big that the Fed might not cut rates. Don’t believe either of them. Averaging the two results is 150,000 per month, which is a yawner of a number. The jobs number reflects a questionnaire sent to 1,000 large employers, and the results are then extrapolated to cover the entire economy, which includes more than 155 million working Americans. The margin of error is right at 100,000, and then there’s seasonality. Watch the trend.
Yes, there are fewer jobs created each month over the past six months, but with unemployment at less than 4%, there aren’t a lot of unemployed people to scoop up. Don’t expect the Fed to deviate from its course because we get closer to the trend line in job creation.
On the wage front, earnings increased 0.2%, and are up 3.1% over last year, which is well ahead of inflation at 2%.
OPEC Signs Long-Term Agreement with Russian Coalition to Manipulate Oil Market… Saudi Arabia led the push to create a long-term alliance between the oil cartel and an outside group of oil producers headed by Russia.
What it means – Russia and its cohorts joined OPEC in a supply cut deal several years ago. The group succeeded in holding back oil from the market, driving up prices. But Americans are spoiling the party by producing a record amount of oil which, at just over 12 million barrels per day, makes the U.S. the largest oil producing country on the planet. Amid weakening demand, OPEC needed to strike a deal with the Russian group to keep supplies limited, else the increasing U.S. supply threatened to tank prices.
Ironically, it’s the American producers who will benefit the most as OPEC and Russia cut their production. Oil prices will remain higher than they otherwise would have been. American companies will sell more oil. Lower prices could cause smaller producers to shut down production.
IMF Chief Christine Lagarde Tapped to Run ECB… French President Emmanuel Macron nominated Lagarde to run the European Central Bank, and Germany supports her nomination.
What it means – She has no experience as a central banker, but she’s spent years doling out money from the IMF to support failing countries, so it kind of counts, right? Now she gets the chance to keep Italy and Greece on life support while professing in public that she’s making them toe the line, much as outgoing ECB President Mario Draghi has done for eight years. In practice, nothing will change. The Bank will keep interest rates in the cellar at negative 0.40%. Eventually it will restart the printing presses to buy the bonds of weak countries. The moves will surprise no one, because they keep the euro cheaper than it otherwise would be, which greatly benefits the exports of Germany and France. How convenient!
Factory Orders Fall 0.7% in May… On top of a weak month in May, the report for April was revised lower, from -0.8% to -1.2%.
What it means – Non-durable goods orders dropped 0.2%, while durable goods orders fell 1.3%. On the positive side, orders for core capital goods rose 0.5%, a little higher than the advance reading. In general, factory orders show sluggishness across the manufacturing sector, which has been the story all year, and doesn’t look likely to change anytime soon. Slow orders will work their way through corporate books to become weak earnings which will eventually weigh on stocks.
Earnings season began Friday with a few large banks. Analysts have been reducing forecasts for earnings and revenue. With lowered benchmarks, companies may “beat” the forecasts while business is contracting.
Stock investors are pricing stocks for economic expansion believing the Fed will wave a magic wand. Bond investors are pricing bonds for a recession with key indicators showing weakening conditions at home and abroad. This quarter or next should determine which crystal ball is correct.
Tesla Posts Record Deliveries in Second Quarter… The electric car company delivered a record 95,200 vehicles.
What it means – What a difference a week makes! Last week we noted that the company was highly unlikely to miss production goals because it had only produced 60,000 vehicles domestically. It looks like that report by Electrek wasn’t accurate because Tesla reported that it produced more than 72,000 Model 3’s. But that’s where things get dicey. Tesla delivered more than 77,000 Model 3’s, including some from inventory. That’s great for deliveries, but it weighs on profits because those cars don’t bring in as much cash as Model S and X vehicles. The stock is down 38% since last October reflecting investor concerns.
And there’s still the question of quality. By producing so many vehicles at the end of the quarter, it’s fair to ask if quality control suffered for the sake of quantity. We’ll find out in the months ahead as we get reports on initial quality from owners.
Austin City Council Votes to Allow Camping in Public Spaces… The capital of Texas now allows “campers” to pitch their tents under overpasses, under bridges, and on sidewalks around the city. The ordinance isn’t aimed at people who shop at REI, it’s meant to allow the homeless to camp legally in these areas. But the rule has interesting provisions.
The city council exempted public parks and City Hall, so the homeless can’t take over parks or create a problem where the council works. But the homeless are free to camp on the sidewalk in front of businesses and homes, where business owners and homeowners are required to keep the area clean. Recall election anyone?
Data supplied by Dent Research/Delray Beach Publishing
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