It’s jobs week in America. At this point, economists are wondering how badly the labour market was affected by the unusually harsh winter.
Overseas, tensions are flaring up in Ukraine.
And on top of all of this, every major economy will be publishing their manufacturing purchasing managers’ index reports, which will give us an up-to-date read on the health of the global economy.
Here’s your Monday Scouting Report:
Ukraine: Russia has invaded and taken over the Ukrainian peninsula of Crimea. With risk of war rising, many are wondering what all this means for the global markets and economy. “Should Russia move further down the path of military intervention, markets will likely be in for sustained turmoil,” reported Business Insider’s Matthew Boesler. “However, many see this as a limited possibility, as Russia cannot really afford a war at the moment given the state of its economy, and blowback in the form of international economic sanctions could be extremely painful for the country.”
“Direct costs of war to Russia could reach at least 3% of GDP, which consists of nearly half (or about $US30 billion) of gas exports from Russia to Europe, which is carried out through Ukraine and which would most likely be disrupted in case of a war,” said Vladimir Osakovskiy, an economist at BofA Merrill Lynch.
All of this comes at a tricky time for Russia, where the tumbling ruble is making it difficult for the Central Bank of Russia to contain inflation.
The Labour Force Participation Rate: Much of the decline in the unemployment rate has been due to the drop in the labour force participation rate. Many like to argue that it is largely due to discouraged workers ending their searches for work because prospects are so bleak.
But according to survey data from the Census, it’s abundantly clear that most of the people exiting the labour force are retiring baby boomers. Of the 12.6 million people who left the workforce since 2007, 5.5 million retired, 2.9 million went on disability, 2.5 million went to school, and just 1.4 million left because they were discouraged.
The Impending Public Pension Crisis: “Local and state financial problems are accelerating, in large part because public entities promised pensions they couldn’t afford,” said Warren Buffett in his annual shareholder letter. “Citizens and public officials typically under-appreciated the gigantic financial tapeworm that was born when promises were made that conflicted with a willingness to fund them. Unfortunately, pension mathematics today remain a mystery to most Americans…
“During the next decade, you will read a lot of news — bad news — about public pension plans. I hope my memo is helpful to you in understanding the necessity for prompt remedial action where problems exist.”
- Auto Sales (Mon): Analysts estimate the annualized pace of sales climbed to 15.4 million in February. “Mid-month industry reports in January saw sales rising to near a 15.8 million unit annual pace from 15.3 million in December, but instead bad late month weather resulted in a slight decline to 15.2 million,” said Morgan Stanley’s Ted Wieseman. “Weather disruptions continued into the first part of February, but improvement moving into Presidents Day weekend helped stabilise retail sales, and a rebound in fleet sales that were disrupted by weather in January is expected to provide a boost to the overall selling rate.”
- Personal Income And Outlays (Mon): Economists estimate income climbed 0.2% and spending increased by 0.1% in January. “Personal income growth should rebound in January,” said Wells Fargo’s John Silvia. “The average workweek remained unchanged, but average hourly earnings rose 0.2 per cent over the month, along with the addition of 113,000 new jobs to the economy. Spending growth likely was more modest. After outpacing income gains the past three months, spending likely ticked up 0.1 per cent in January as cold weather kept many shoppers at home.”
- PMI Manufacturing (Mon): Economists estimate PMI registered at 56.7 in February. Any reading above 50 signals expansion.
- ISM Manufacturing Index (Mon): Economists estimate the ISM index increased to 52.0 in February from 51.3 in January. “Regional manufacturing surveys point to a slower pace of manufacturing activity in February,” warned Nomura economists. “For example, the headline indexes in the Empire State and Philly Fed manufacturing surveys both declined in February, with the latter turning negative.”
- Construction Spending (Mon): Economists estimate construction spending declined by 0.5% in January. “Severe weather likely substantially disrupted construction in January,” said Morgan Stanley’s Wieseman.”The 16% plunge in housing starts points to a large drop in homebuilding, and we’re assuming sizable declines in private nonresidential and government spending as well.”
- ADP Employment Report (Wed): Economists estimate private payrolls increased by 158,000 in February. “Though ADP employment rarely forecasts the BLS jobs number with precision, it is nevertheless statistically superior to any of the other high frequency payroll predictors such as jobless claims or ISM data,” noted Credit Suisse economists. “Aside from what it means for payrolls, we also consider it an important labour market gauge in its own right given its large sample size. Interestingly, ADP has held up well in recent months even as the BLS payroll data have slowed (three month averages:230K ADP vs 168K BLSprivate).”
- ISM Non-Manufacturing Index (Wed): Economists estimate the ISM services index fell to 53.5 in February from 54.0 in January. “The evidence from February’s regional services sector surveys was mixed, however, with the Richmond Fed index edging higher and the Dallas Fed dipping,” noted Capital Economics’ Paul Ashworth and Paul Dales. “Nonetheless, they both remain at a fairly low level. Otherwise, we suspect that the harsh weather played some role in dampening overall conditions.”
- Beige Book (Wed): The Federal Reserve will publish its latest book of economic anecdotes at 2:00 p.m. ET. From Credit Suisse: “The March 5 Beige Book may feature the return of the “modest-to-moderate” growth language that was absent in January but used in every previous report back to last spring. After painting a more upbeat picture of the US economy in its January Beige Book, the Fed in next week’s report may describe more sluggish activity. Of interest to the market will be the extent to which disruptive weather is cited by the Fed’s business contacts.”
- Initial Jobless Claims (Thurs): Economists estimate initial claims fell to 338,000 from 348,000 a week ago. “Initial jobless claims likely fell after an unexpected rise,” said Citi’s Peter D’Antonio. “The four-week moving average probably stayed in the prevailing 330K to 340K range.”
- Factory Orders (Thurs): Economists estimate fell by 0.5% in January. “Durable goods orders fell 1.0%, with all the weakness accounted for by a pullback in the volatile aircraft category, and we look for a small gain in nondurable goods prices, with a pullback in petroleum product prices a drag on nominal shipments,” said Morgan Stanley’s Wieseman. “The inventory/sales ratio has been quite steady in the manufacturing sector in the past few years and should show a bit of upside in January but stay within recent ranges.”
- The Jobs Report (Fri): Economists estimate U.S. companies added 150,000 payrolls in February, driven by a 155,000 increase in private payrolls. The unemployment rate is expected to be unchanged at 6.6%. “Hiring in February looks unlikely to have snapped the recent slowdown,” said Wells Fargo’s Silvia. “Another winter storm hit the Southeast and Northeast during the survey week, which is likely to have curtailed hiring over the period. We suspect the adverse weather will also weigh on average hours worked, as some workers were forced to stay home. Even as recent hiring has slumped, a number of indicators point toward continued improvement in the labour market. The NFIB small business hiring index rose to its highest levels in six years in January, while the ISM non-manufacturing employment component continued to indicate a decent pace of hiring.”
- Trade Balance (Fri): Economists estimate the trade deficit widened to $US39.0 billion in January. “We anticipate a widening of the trade deficit in January due to a pickup in imports,” said Citi’s D’Antonio. “January is a month when imports typically decline, yet customs duties increased in the month, suggesting a sizable rise in the seasonally adjusted figure. Our forecast actually includes a pullback in oil imports reflecting a decline in price.”
- Consumer Credit (Fri): Economists estimate consumer credit balances expanded by $US14 billion in January. “After rising by $US18.8bn in December, we forecast that total US consumer credit outstanding rose by $US13.0bn in January,” forecasted Barclays’ economists. “As has been the case in the past few years, this would largely reflect steady growth in the nonrevolving component, specifically in federal student loans; over the course of 2013, nonrevolving credit rose by over $US165bn, while revolving credit increased only $US16bn.”
Warren Buffett’s 2013 annual letter to Berkshire Hathaway shareholders was published this Saturday. With the stock market at all-time highs, some wisdom from the oracle of Omaha seems timely.
From Buffett: “The main danger is that the timid or beginning investor will enter the market at a time of extreme exuberance and then become disillusioned when paper losses occur. (Remember the late Barton Biggs’ observation: “A bull market is like sex. It feels best just before it ends.”) The antidote to that kind of mistiming is for an investor to accumulate shares over a long period and never to sell when the news is bad and stocks are well off their highs. Following those rules, the “know-nothing” investor who both diversifies and keeps his costs minimal is virtually certain to get satisfactory results. Indeed, the unsophisticated investor who is realistic about his shortcomings is likely to obtain better long- term results than the knowledgeable professional who is blind to even a single weakness.”
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