Morning Report: Productivity falls again 5/4/16

Markets are down this morning after some disappointing economic data. Bonds and MBS are flat.

We got some lousy employment / labor data this morning, starting with the ADP jobs report, which shows the economy added 156k jobs last month. The Street was looking for 195k, so this is a big miss. Friday’s jobs number is expected to come in around 200k.

Nonfarm productivity fell 1% last quarter, while unit labor costs increased 4.4%. On an annualized basis, productivity has been negative 3 out of the last 4 years. The back-to-back drop is the lowest since 1993. Firms are hiring workers, but uncertainty over the economy is holding back capital expenditures. Unit labor costs increased 4.1% last quarter. This in part might explain why profits this quarter have been weak so far.

Mortgage Applications fell 3.4% last week as purchases fell 0.1% and refis fell 5.5%.

In other economic news, the service economy continued to expand, with the ISM Non-Manufacturing index improving to 55.7. Durable Goods orders rose 0.8%, but fell 0.2% if you strip out transportation. Factory orders rose 1.1%, while capital goods orders ex defense and aircraft (a proxy for business capital expenditures) rose 0.5%. So a mixed bag overall.

Ted Cruz dropped out of the presidential race last night, paving the way for Donald Trump to be the nominee, unless the party decides to rally around John Kasich at a contested convention. If Gary Johnson were a stock, he would be a screaming buy at the moment.

We have seen an uptick in the labor force participation rate over the past few months from lows not seen since the 1970s. What is going on? While the hope is that a hot labor market will draw the long-term unemployed back into the labor force, what is really going on is that fewer people are leaving. You can see this borne out in the initial jobless claims data, which is the lowest going back to 1973. People who have jobs are keeping them. For the Fed, this creates a bit of a conundrum. They want more people to re-enter the workforce, but if business has to compete for the current labor pool by increasing wages, the Fed will have to put the brakes on the economy sooner than they would like.

19 Responses

  1. Liked by 1 person

  2. How Trump increases turnout:

    “Trump excited inactive Republicans. Their excitement excites party stalwarts.

    Despite Bob Finneran’s claim, the Sixth District isn’t exactly hostile territory for Republicans. Massachusetts Republican Gov. Charlie Baker, comes from the area — though Baker, a moderate who has said he will not support Trump in the general, made the perhaps wise decision to skip the delegate caucus. State Rep. Jones chaired the caucus.

    The town of Wakefield went strongly for Scott Brown in the 2010 special election — more than 60 percent of voters chose him over Martha Coakley — and surrounding towns in the Sixth District preferred Brown as well.

    But the fact of the matter is that the Sixth District is in Massachusetts — or, as attendees almost always referred to it, “Taxachusetts” — and attendees at Saturday’s caucus weren’t used to thinking of Massachusetts as anything but a deep blue state. So the palpable excitement that Donald Trump has generated became, itself, exciting; it became a sign that Trump could win a general election for the Republican Party.”


    • jnc:

      How Trump increases turnout:

      I wonder if it makes sense to use MA as a bellwether for the rest of the nation. Should it really be surprising that what is probably the most non-conservative R candidate since Nixon has generated enthusiasm in one of the most non-conservative states in the Union? Maybe, but still I wonder.

      Liked by 1 person

      • I think the populism can appeal to a lot of traditionally non-voting segments of the populace. That’s ultimately his only hope, as Hillary would likely win with likely voters, but Hillary is not going to attract disaffected populists and independents and nativists and nationalists and others who typically cannot be bothered to vote.


      • Scott, You somehow think that his policies are relevant. They aren’t.

        The point remains that he empowers previously marginalized people who had dropped out. That’s the relevant reason why he’s won and is winning across the board on multiple demographics in the Republican primaries.

        Liked by 1 person

        • jnc:

          You somehow think that his policies are relevant. They aren’t.

          I doubt he would be where he is if he was promising to open up the borders. But I get your point.

          The point remains that he empowers previously marginalized people who had dropped out.

          I get it. But anyone who thinks they will actually be empowered by a Trump presidency is delusional. It is more likely than not that a Trump presidency will end up dis-empowering ordinary people even more than they are already (albeit not as much as they will be under a D president).

          I also wonder whether Trump himself marginalizes more people than he un-marginalizes. I’ve proclaimed that I will vote for Trump over HRC despite my complete and utter contempt for him, but the reality is that there is every chance I will actually forget to vote at all, so dis-empowered do I feel by this insane choice facing us. Maybe I am an outlier. Wouldn’t be the first time.


    • Ezra Klein obviously did not approve that story. All of his Vox posts on FB have been: “Well, now it’s happened. The Republicans are running Satan for president. Not only does he club baby seals for fun, he is the reincarnation of Hitler, and has made death camps part of the Republican platform.”

      There have been comparisons made to Reagan that I think are absurd, but there is one I think has more resonance: Reagan had some Teflon on him (and I think Trump has more), and Reagan was seen as a disaster, the madman who would start WWIII and lead to nuclear winter, so he had to be stopped at all costs. In service of that, the left and the media as it was at the time went full bore in painting Reagan as the devil incarnate, as too old and incompetent and senile and a washed-up actor who was also insane and desperate to launch the nukes and destroy the world. I don’t think this campaign hurt Reagan. In some ways, I think it helped him, because going full bore ends up smothering legitimate objections with hyperbolic nonsense that people are ultimately going to ignore, and becomes “much too much”. The criticisms are so constant and so over-the-top that even if many of them are justified, it just becomes white noise.

      I think it’s like the money spent by the Super PACs. At some point, it becomes counter productive. It’s like saying “salt brings out the flavor”, so making a soup that’s 99% salt and 1% everything else. And there’s not a lot of evidence that becoming psychotic in your criticism of the candidate you hate is a great GoTV strategy.


  3. One of the reasons I think Trump might not be a complete disaster:

    “Donald J. Trump refurbished the Central Park -skating rink two and a half months ahead of his own speedy six-month schedule and $750,000 below his own projected $3 million budget, having taken over the project after the city spent six years and $12 million unsuccessfully trying to get the job done.”


  4. Jacobin gets it better than Vox does:

    “From Nixon to Clinton

    Pundits have been drawing the wrong comparisons for months: Hillary Clinton is a modern-day Richard Nixon.
    by Corey Robin

    I’ve been saying for months that Donald Trump is the George McGovern of the GOP, the fractious leader who so alienated the elders of his party that they deserted him in droves, handing the election to his opponent.

    But if Trump is the McGovern of the Republicans, what does that make Hillary Clinton? As the Associated Press notes:

    There is some irony in Clinton playing the role of a unifier: She’s long been one of the most divisive figures in American politics. But while 55 percent of Americans said they had a negative opinion of Clinton in an Associated Press-GfK poll released last month, 69 percent said the same of Trump.

    The same was true of Richard Nixon. Long before Watergate, Cambodia, and the Plumbers, Nixon was widely viewed, and loathed, as one of the most divisive figures in American politics. People forget, but Nixon had been on the front lines — and in the headlines — of partisan warfare since his days on the House Un-American Activities Committee. Indeed, if there is any precedent for today’s conservative hatred of Hillary, it is yesterday’s liberal hatred of Tricky Dick.”

    Liked by 1 person

  5. David Frum makes a similar analogy with Nixon in 1972 and offers a choice:

    “Can Clinton Make Good on Her Opportunity?

    Given her general election opponent, she has a historic opportunity to unite a grand, cross-party coalition.
    David Frum

    The Republicans have made their choice. Now the Democrats’ likely nominee faces a dilemma of her own: Run as a centrist and try to pile up a huge majority—at risk of enraging Sanders voters? Or continue the left turn she’s executed through these primaries, preserve Democratic party unity—at the risk of pushing Trump-averse Republicans back to The Donald as the lesser evil?”

    If Bill Clinton were running again, it would be a crazy landslide for the Democrats.


    • He doesn’t mention the possibility that Trump wins . . . and then nominates a much more liberal justice than Garland, because he considers his choice to be fabulous, and the best ever.


    • Mark

      On Garland I disagree with Wolf and agree with Whelan:

      In particular, I hadn’t thought of this but it actually seems like a pretty good point:

      I think that the above reasons suffice to refute Wolf. But I’d also add (as Erick Erickson suggests) that Senate Republicans would take a huge pounding from conservatives if they were to fold on the Garland nomination now. Indeed, I think that course of action would virtually guarantee that Republicans would lose the Senate.


    • Shouldn’t Rebublicans hold off on confirming the dude much like we shouldn’t rush to cause change because we don’t know that the bad economic consequences are inevitable? We don’t know what’ll happen in Novemeber either. Explain your thinking here where one situation, economic crisis due to MASSIVE debt is possibly but not inevitable but a Republican victory in Novemeber is an absurd outcome unworthy of consideration.

      I canno think of a modern economy returning from a debt greater than 100% GDP that did so without massive disruption.


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