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Canada Catches America’s Cold – PMI Plunges To 4 Year Lows

Canada Catches America’s Cold – PMI Plunges To 4 Year Lows

As goes America, so goes Canada it seems. Following the collapse in both Manufacturing and Services survey data in the US, Canada’s PMI just collapsed most since Feb 2016, back into contraction for the first time since March 2015.

From a 12-month high of 60.6in August, Ivey PMI collapsed to a 4-year lows of 48.7…

Source: Bloomberg

Under the hood things are mixed (but hurting in the most important areas)

  • Ivey employment index decreased to 49.6 in September from 52.7 in prior month
  • Ivey inventory index decreased to 50.5 in September from 54.8 in prior month
  • Ivey supplier index increased to 50.2 in September from 49.9 in prior month
  • Ivey prices index increased to 56.9 in September from 51.3 in prior month

Time to restart rate-cuts.

Icebergs and bankers

Icebergs and bankers 

On Saturday March 16, tens of thousands of people marched through the streets of Paris demanding action on climate change.  At the same time and not far away, a group of gilets jaunes protestors were demonstrating, sometimes violently, against the economic policies of President Macron—one of which increased the tax on gasoline and diesel fuel. This was intended to reduce emissions of greenhouse gases from the transport sector and help France meet its commitments under the Paris Agreement.  

Something is wrong here.  Both groups of protesters agree that climate change is a problem that needs to be urgently tackled, but they disagree vehemently about how this should be done. 

Pricing carbon is a delicate instrument that needs to be wielded with care. Either Macron doesn’t understand this or doesn’t care. Either way his policies to reduce carbon emissions are incredibly cack-handed.

Increasing taxes that push up the price of gasoline and diesel fuel is likely to be unpopular almost everywhere that people drive vehicles, and where agricultural produce and goods are delivered by road.  Which is to say just about everywhere in North America and Europe.

There is only one way to sweeten this bitter pill and that is to make carbon pricing revenue neutral. Households are compensated for the additional costs they will incur paying for fuel, and receive a modest annual payment–ideally in advance. 

End of the month, end of world. Same people responsable, same fight

In some places, communities will swallow this pill and grin and bear it.  But this requires a widespread understanding of the urgency of climate action and a willingness to pay the price of being a polluter–which in fact is what all of us who operate a gasoline or diesel vehicle actually are.  But in many jurisdictions, and obviously in France, an increase in the price of fuel is going to be met with strong resistance.

 …click on the above link to read the rest of the article…

Weekly Commentary: Global Markets’ Plumbing Problem

Weekly Commentary: Global Markets’ Plumbing Problem

“Goldilocks with a capital ‘J’,” exclaimed an enthusiastic Bloomberg Television analyst. The Dow was up 747 points in Friday trading (more than erasing Thursday’s 660-point drubbing) on the back of a stellar jobs report and market-soothing comments from Fed Chairman “Jay” Powell.
December non-farm payrolls surged 312,000. The strongest job gains since February blew away both estimates (184k) and November job creation (revised up 21k to 176k). Manufacturing jobs jumped 32,000 (3-month gain 88k), the biggest increase since December 2017’s 39,000. Average Hourly Earnings rose a stronger-than-expected 0.4% for the month (high since August), pushing y-o-y gains to 3.2%, near the high going back to April 2009.

Just 90 minutes following the jobs report, Chairman Powell joined Janet Yellen and Ben Bernanke for a panel discussion at an American Economic Association meeting in Atlanta. Powell’s comments were not expected to be policy focused (his post-FOMC press conference only two weeks ago). But the Fed Chairman immediately pulled out some prepared comments, perhaps crafted over the previous 24 hours (of rapidly deteriorating global market conditions).

Chairman Powell: “Financial markets have been sending different signals – signals of concern about downside risks, about slowing global growth particularly related to China, about ongoing trade negotiations, about – let’s call – general policy uncertainty coming out of Washington, among other factors. You do have this difference between, on the one hand, strong data, and some tension between financial markets that are signaling concern and downside risks. And the question is, within those contrasting set of factors, how should we think about the outlook and how should we think about monetary policy going forward. When we get conflicting signals, as is not infrequently the case, policy is very much about risk management.

 …click on the above link to read the rest of the article…

Dear Canada, WTF?

Dear Canada, WTF?

Just hours ago, The Bank of Canada held rates steady and complained about various internal and external factors that were negatively impacting the Canadian economy…

Holding rates unchanged at 1.75%, the BOC cited almost everything that has gone wrong:

moderating global growth,
a “materially weaker” outlook for the oil sector,
a faster-than-expected deceleration of inflation,
a drop in business investment and downward historical revisions to output

And today we get this…

Canada added 94,100 jobs in November – the most ever! Sending the Canadian unemployment rate to a record low 5.6%…

So WTF!?

Climate Jobs for All

Climate Jobs for All

Building Block for the Green New Deal

It was an iconic moment: Young people occupy Rep. Nancy Pelosi’s office demanding a Green New Deal to put millions of people to work making a climate-safe economy — when suddenly newly-elected Congressional representative and overnight media star Alexandria Ocasio-Cortez joins them with a resolutionin hand to establish a Select Committee for a Green New Deal. But those who actually read her resolution closely may have been puzzled – or stunned – by its call for “a jobs guarantee program to assure a living wage job to every person who wants one.” What is a “jobs guarantee program” and what does it have to do with protecting the climate?

The federal jobs guarantee (JG) is a concept also known as “jobs for all” and the federal government as “employer of last resort.” It envisions a federal program somewhat like the New Deal’s Works Progress Administration (WPA) that would provide funds for non-profit organizations, local governments, and other agencies serving the public to employ anyone who wants a job at a wage roughly comparable to the demands of the Fight for $15 campaign. According to columnist Jonathan Chait, the jobs guarantee plan “has materialized almost out of nowhere and ascended nearly to the status of Democratic Party doctrine.”

The advocates of JG generally include climate protection as one of many types of work beneficial to the public that might be included in a jobs guarantee program. However, they generally have not said how such a program might specifically address the climate emergency.

This May Varshini Prakash and Sarah Meyerhoff, two leaders of the youth climate movement Sunrise, wrote an article titled “It’s Time for the Climate Movement to Embrace a Federal Jobs Guarantee.” They called for a policy through which “the government directly employs anyone who wants a job but doesn’t have one.

…click on the above link to read the rest of the article…

How do you degrow?

We live nextdoor to my partner’s grandmother, Maria, who was born during the Second World War in Northern Italy. This means that she knows what hard times look like. Maria could not believe we would be using washable diapers for our baby boy. With genuine surprise she asked me, “why?”, and then she was curious in which pot we were planning to boil the diapers. In her eyes, we could not possibly be choosing to use washable diapers – to her, an extinct garment reminiscent of poverty and manual labour – when there exists the comfort of the disposable. Therefore, it must be that we cannot afford disposable diapers. Needless to say, for the first six months of our son’s life, every time Maria went to the supermarket, she bought us a packet of disposable diapers.

Everything about the lifestyle we are accustomed to, as rich westerners, has to change. If we let that sink in for a little bit that is when the real disruption comes in, giving way to a radical shift in perspective. So, where do we go from here?

As practitioners of the degrowth creed, the first challenge we face is precisely this, where do we start? This is a very real question that needs to be answered when degrowthers decide to settle down. Since it’s possible to start anywhere, why not start with the closest and most immediate: ourselves. Our life. Our lifestyle, our diet, our jobs. I want to bring forward how this radical decision – to choose the self as the first point of action towards a degrowth future – brings large obstacles, huge consequences, many humbling lessons and above all, so many mixed feelings.

How do we go about practicing degrowth?

…click on the above link to read the rest of the article…

3 Things That Happened Just Before The Crisis Of 2008 That Are Happening Again Right Now

3 Things That Happened Just Before The Crisis Of 2008 That Are Happening Again Right Now

Real estate, oil and the employment numbers are all telling us the same thing, and that is really bad news for the U.S. economy.  It really does appear that economic activity is starting to slow down significantly, but just like in 2008 those that are running things don’t want to admit the reality of what we are facing.  Back then, Fed Chair Ben Bernanke insisted that the U.S. economy was not heading into a recession, and we later learned that a recession had already begun when he made that statement.  And as you will see at the end of this article, current Fed Chair Jerome Powell says that he is “very happy” with how the U.S. economy is performing, but he shouldn’t be so thrilled.  Signs of trouble are everywhere, and we just got several more pieces of troubling news.

Thanks to aggressive rate hikes by the Federal Reserve, the average rate on a 30 year mortgage is now up to about 4.8 percent.  Just like in 2008, that is killing the housing market and it has us on the precipice of another real estate meltdown.

And some of the markets that were once the hottest in the entire country are leading the way down.  For example, just check out what is happening in Manhattan

In the third quarter, the median price for a one-bedroom Manhattan home was $815,000, down 4% from the same period in 2017. The volume of sales fell 12.7%.

Of course things are even worse at the high end of the market.  Some Manhattan townhouses are selling for millions of dollars less than what they were originally listed for.

…click on the above link to read the rest of the article…

Employment, Ecology, Extinction: French Students Take on the System to Save the Species

Employment, Ecology, Extinction: French Students Take on the System to Save the Species

Photo Source Manifeste étudiant pour un réveil écologique | CC BY 2.0

It is difficult to get a man to understand something, when his salary depends upon his not understanding it.

– Upton Sinclair

On my last day of teaching Environmental Studies, I posed a question to my students. I explained that for some time in my childhood, my father worked in the airline industry. “What does this have to do with the environment?” I asked. Sadly, even after an entire semester, few if any of my students could make the connection. Air transportation is one of the most polluting industries. Depending on the type of car you use and the amount you use it, one to two flights can generate the same amount of carbon emissions as a whole year of driving. From the consumption of fossil fuels, to the toxic substances utilized or emitted such as jet fuel and de-icing fluid, to all of the disposable products and packages within the plane and the airport, to so much more, there is nothing sustainable at all about air travel. Thus, for a part of my childhood, the majority of our family income was derived from a highly polluting industry that has contributed greatly to the dire environmental predicament we are currently facing.

Of course, mine is not the only family whose income is linked to environmental destruction. In fact, one could make the case that nearly all American households, especially the most affluent, have made their money through directly or indirectly exploiting and polluting the environment (and often exploiting people as well). For example, a conference on “Peace Engineering” just concluded, which implored engineers to consider “ethics, social good, the biases and unintended consequences of the technology they build.”

…click on the above link to read the rest of the article…

Hiding the Real Number of Unemployed

Hiding the Real Number of Unemployed

Photo by James Lee | CC BY 2.0

Your government believes that exhausting your unemployment benefits is a cause for celebration — because you are no longer unemployed!

Huh? Well, there is a slight of hand here. Only working people who are receiving unemployment benefits are counted as “unemployed” in official statistics issued by countries around the world. Thus the actual unemployment rates are much higher than the “official” rates, generally about twice as high. Most governments make it difficult to find the actual rate, and the corporate media does its part by reporting the official rate as if that includes everybody.

Then there is the matter of how much of a given national population is actually engaged in paid employment, another useful number difficult to discover. Finally, we can consider wages, both how fast they might be rising as compared to inflation and whether they are increasing in concert with increases in productivity.

To cut to the chase, things ain’t so hot. But you already knew that, didn’t you?

Let’s start our global survey with the United States, where, contrary to expectations, the real unemployment figure is easier to discover that most other places. Perhaps the Trump régime hasn’t gotten around to suppressing it, busy as it is hiding scientific evidence about global warming, pollution and other inconvenient facts. The official U.S. unemployment rate for May was reported as 3.8 percent, the lowest it has been in several years, and less than half of what it was during the post-2008 economic collapse. Predictably, the Trump administration was quick to take credit, although the trend of falling employment has carried on for eight years now.

…click on the above link to read the rest of the article…

Inflation or Employment

  • Inflationary fears are growing and US rates continue to rise
  • Employment has become more flexible since the crisis of 2008/2009
  • Commodity prices have risen but from multi-year lows
  • During the next recession job losses will rapidly temper inflationary pressures

Given the official policy response to the Great Financial Recession – a mixture of central bank balance sheet expansion, lower for longer interest rates and a general lack of fiscal rectitude on the part of developed nation governments – I believe there are two factors which are key for stock markets over the next few years, inflation and employment. The fact that these also happen to be the two mandated targets of the Federal Reserve – full employment and price stability – is more than coincidental. My struggle is in attempting to decide whether demand-pull inflation can survive the impact of a rapid rise in unemployment come the next recession.

Inflation and the Central Bankers response is clearly the new narrative of the financial markets. In his latest essay, Ben Hunt of Salient Partners makes some fascinating observations – Epsilon Theory: The Narrative Giveth and The Narrative Taketh Away:-

This market, like all markets, cares about two things and two things only — the price of money and the real return on invested capital. Or, as they are typically represented in cartoon form, interest rates and growth.

…This market, like all markets, needs a positive narrative on risk (the price of money) or reward (the real return on capital) to go up. Any narrative will do! But when neither risk nor reward is represented with a positive narrative, this market, like all markets, will go down. And that’s where we are today. 

…click on the above link to read the rest of the article…

Are We Nearly There Yet? Employment, Interest Rates and Inflation

  • Rising interest rates and inflation are spooking financial markets
  • Unemployment data suggests that labour markets are tight
  • Central Banks will have to respond to a collapse in the three asset bubbles

There are two factors, above all others, which are spooking asset markets at present, inflation and interest rates. The former is impossible to measure with any degree of certainty – for inflation is in the eye of the beholder – and the latter is divergent depending on whether you look at the US or Japan – with Europe caught somewhere between the two extremes. In this Macro Letter I want to investigate the long term, demand-pull, inflation risk and consider what might happen if stocks, bonds and real estate all collapse in tandem.

It is reasonable to assume that US rates will rise this year, that UK rates might follow and that the ECB (probably) and BoJ (almost certainly) will remain on the side-lines. An additional worry for export oriented countries, such as Japan and Germany, is the protectionist agenda of the current US administration. If their exports collapse, GDP growth is likely to slow in its wake. The rhetoric of retaliation will be in the air.

For international asset markets, the prospect of higher US interest rates and protectionism, spells lower growth, weakness in employment and a lowering of demand-pull inflationary pressure. Although protectionism will cause prices of certain goods to rise – use that aluminium foil sparingly, baste instead – the overall effect on employment is likely to be swift.

Near-term impact

Whilst US bond yields rise, European bond yields may fail to follow, or even decline, if export growth collapses. Stocks in the US, by contrast, may be buoyed by tax cuts and the short-term windfall effect of tariff barriers. The high correlation between equity markets and the international nature of multinational corporations, means global stocks may remain levitated a while longer. The momentum of recent economic growth may lead to increased employment and higher wages in the near-term – and this might even spur demand for a while – but the spectre of inflation at the feast, will loom like a hawk.

…click on the above link to read the rest of the article…

Imaginary Wage-Inflation Conundrum

Economists are puzzled over the wage growth conundrum. Wages were supposed to rise significantly. They didn’t. Why?

Let’s start with a look at the conundrum expressed in a Tweet.


This is a confusing jobs report. US employers added the most workers since mid-2016, but hourly wages didn’t increase as much as analysts had expected. Bond traders are generally taking this to be positive for growth, with yields ticking up, but the inflation conundrum remains.


Confused? Most economists were, especially at Econoday. I wasn’t.

There’s still no wage inflation underway but the flashpoint may be sooner than later based on unusual strength in the February employment report. Nonfarm payrolls rose an outsized 313,000 which is more than 80,000 above Econoday’s high estimate. Revisions add to the strength, at a net 54,000 for January which is now 239,000 and December which is 175,000.

Despite all this strength average hourly earnings actually came in below expectations, at only plus 0.1 percent with the year-on-year 3 tenths under the consensus at 2.6 percent. But given how strong demand is for labor, policy makers at the Federal Reserve may not want to risk runaway wage gains as employers try increasingly to attract candidates.

The workweek further points to strength, up 1 tenth to an average 34.5 hours for all employees with the prior month revised 1 tenth higher to 34.4 hours (the private sector workweek rose 2 tenths to 38.8 hours with manufacturing also up 2 tenths to 41.0 hours in a gain that points to strength for next week’s industrial production report).

The unemployment rate held at a very low 4.1 percent as discouraged workers flocked into the jobs market. The labor participation rate is another major headline, up 3 tenths to 63.0 percent and again well beyond high-end expectations.

The sheer strength of the hiring in this report would appear certain to raise expectations for four rate hikes this year as Fed policy makers may begin to grow impatient with their efforts to cool demand.

…click on the above link to read the rest of the article…

Oh Canada! Part-Time Jobs Crash Most In History

The Canadian job market has never lost more part-time jobs – ever – than in January…

Canada’s unemployment rate rose to 5.9% as total job losses for January dropped the most since 2009, but it was the 137,000 collapse in part-time jobs that stands out.

So what is driving this collapse?

Simple – Minimum Wage Hikes In Ontario.

Ontario raised the minimum wage 21 percent to C$14 ($11.26), making it the highest in Canada.

And as Reuters reports, the steep minimum wage increase that went into effect on Jan. 1 in Ontario, Canada’s most populous province,has had a rocky start as some employers cut workers’ hours and benefits to reduce its impact on the bottom line.

The provincial government, controlled by the Ontario Liberal Party, positioned it as a measure to improve the livelihood of workers in Ontario, home to the nation’s largest city, Toronto, and its capital, Ottawa.

Yet some employers responded by implementing hiring freezes, cutting hours of existing workers, eliminating paid breaks and boosting benefits costs.

Shocker – sending minimum wage costs soaring leads to less demand for low-skill employees?

Will they never learn?

Of course, some see a silver lining as average hourly earnings jumped 3.3% (vs 2.9% previous month) thanks to the min wage hike, the fastest pace since 2015.

But, it appears the minimum wage hike has sent more people ‘out’ of the work force as the participation rate plunges to its lowest since 1999…

As a reminder, The Bank of Canada hiked ‘dovishly’ in January…

The BOC also noted that “while the economic outlook is expected to warrant higher interest rates over time, some continued monetary policy accommodation will likely be needed to keep the economy operating close to potential and inflation on target.”

We suspect that hike-trajectory may slow.

The reaction in the Loonie is quite chaotic…

The Rowboat (Wages) and the Yacht (Assets)

The Rowboat (Wages) and the Yacht (Assets)

As I keep saying: the status quo has divested the working and middle classes.

The reason why the status quo has failed and is fragmenting is displayed in these three charts of wages, employment and assets: wage earners (labor) are in a rowboat trying to catch the yacht of those who own assets (capital).

Here is a chart of weekly wages of those employed fulltime: up a gargantuan $4/week in the 18 years since 2000. Let’s see, $4 times 52 week a year–by golly, that’s a whole $208 a year. Brand new Ford F-150, here we come!

If we go back 38 years to 1980–an entire lifetime of work–we find real (adjusted for official inflation, which seriously understates big-ticket expenses such as rent, healthcare and college tuition/fees) wages have notched higher by $10/week–a gain of $500 annually.

If we adjusted wages by real-world income, we’d find wages have declined since 1980 and 2000.

Here’s employment by age group since the year 2000. THose who can’t afford to retire are still dragging their tired old bones to work while employment for the under-55 cohort hasn’t even returned to the levels of 2000.

Meanwhile, asset valuations have soared. Those who own capital (assets) have done very, very well, those who trade their labor for dollars–they’ve gone nowhere.

Households with two regular jobs could afford to buy a house in Seattle, Brooklyn, or the San Francisco Bay Area in 1995. By 2005, they were priced out. Can a household with median income ($59,000 annually) afford a crumbling shack in any of the white-hot housing markets? You’re joking, right?

The cold reality is wage-earners are tugging on the oars of a water-logged rowboat, trying to catch up with the sleek yacht of asset owners. The system has been rigged to reward those who own assets (capital) or who can borrow immense sums of nearly-free money (credit) to buy assets.

…click on the above link to read the rest of the article…

Economists Think Inflation Will Rise Sharply in 2018: They’re Wrong 

Let’s investigate six reasons economists think inflation is about to pick in 2018, and why I think they are dreaming.

Reason Number One – Wage Hikes

Minimum wages rise in 18 states starting in 2018.

Former Fed Vice-Chairman Stanley Fischer told Bloomberg TV on October 4, “I still believe we will have higher inflation. The basic mechanism here is unemployment is declining all the time, wages will start going up at some stage.”

Wage Hike Rebuttal

The National Bureau of Economic Research paper: Minimum Wage Increases, Wages, and Low-Wage Employment: Evidence from Seattle, 2017 concludes there was a negative benefit to low wage workers as a result of wage hike.

  1. A 9% reduction in hours worked at wages below $19/hour.
  2. A reduction of over $100 million per year in total payroll for low-wage jobs, measured as total sum of increased wages received less wages lost due to employment reductions. Total payroll losses average about $125 per job per month.
  3. The findings that total payroll for low-wage jobs declined rather than rose as a consequence of the 2016 minimum wage increase is at odds with most prior studies of minimum wage laws. These differences likely reflect methodological improvements made possible by Washington State’s exceptional individual-level data. When we replicate methods used in previous studies, we produce the same results as previously found.

This is an issue that’s debated over and over again, mostly with poor methodologies to come to the desired conclusion.

In contrast, the NBER had “exceptional individual-level data”.

Adding support the NBER’s conclusion, the Bank of Canada estimates Minimum Wage Hikes Could Cost Canada’s Economy 60,000 jobs by 2019.

By the way, and as discussed in Staggering Rent Increases in 2017, the median U.S. rental now requires 29% of median monthly income, according to Zillow. Between 1985 and 2000, renters spent about 25.8% of their income on housing.

Next, factor in student debt.

…click on the above link to read the rest of the article…

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
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