US Economic News

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Benchmark bond yields hit fresh lows
AUGUST 09, 2014 5:45AM

Benchmark government bond yields in the world's most advanced nations on Friday fell to fresh lows of 2014 as geopolitical worries boosted the allure of haven bonds.

The yield on the 10-year US Treasury note dropped below 2.4 per cent for the first time this year and traded at the lowest level since June 2013. The yield on the 10-year German government bond fell to a record low near 1 per cent.

The 10-year bond yield in the UK slid to the weakest level since August 2013 while the 10-year yield in Japan dropped to the lowest in more than a year. Bond prices rise as their yields fall.

"Geopolitical tensions have the market participants back into a massive safe-haven trade globally," said Tom di Galoma, head of fixed-income rates in New York at ED & F Man Capital Markets.

Mr Galoma said buyers have been broadly based, including money managers, banks and insurance firms.

Thomas Roth, executive director in the US government bond trading group at Mitsubishi UFJ Securities (USA) Inc. in New York, said he has seen "a good deal of Asian buyers of all types."

In recent trading, the 10-year Treasury note was 8/32 higher, yielding 2.393 per cent, according to Tradeweb.

The yield on the German 10-year government bond fell to 1.056 per cebt. The yield on the 10-year UK government bond declined to 2.457 per cent and the yield on the 10-year Japanese sovereign bond dropped to 0.505 per cent.

Geopolitical risks in Ukraine, Iraq and Gaza have been front and center in the global markets this week, adding to concerns over the uneven and slow pace of growth in the global economy.

While the US economy has showed signs of gaining traction lately, investors are worried that the economic prospects in Europe could be undercut by Russia's spat with the European Union and the US over Ukraine. Germany, the euro zone's largest economy, is a main trading partner with Russia.

"Geopolitics and in particular growing global trade frictions resulting from the situation in Ukraine are another straw on the global economy's back," said Tony Crescenzi, senior market strategist at Pacific Investment Management, which has $1.97 trillion in assets. The development "would worry a bond investor," he said.

Meanwhile, concerns have risen that valuations in riskier assets such as stocks and corporate bonds sold by low-rated companies, or junk bonds, are stretched.

Investors are concerned about the health of the markets as the Federal Reserve is expected to end its monthly bond buying later this year and start to raise interest rates in 2015.

Investors pulled a record $7.1 billion from junk-bond funds in the week ended Wednesday, fund tracker Lipper said, the latest sign of investor anxiety following a long rally.

After hitting record highs in July, benchmark US stocks on Thursday fell to the lowest level since April.

Volatility has risen in financial markets. The Chicago Board Options Exchange's Volatility Index, commonly referred to as the stock market's "fear gauge," has climbed, though the level remains near historical lows.

Until recently, major central banks' ultralow interest-rate policies have kept volatility low across stock, bond and currency markets.

Some traders said Treasury bond yields could rise again if geopolitical tensions pull back, but they said the 10-year note's yield has room to fall if situations in Ukraine and the Middle East deteriorate further.

Christopher Sullivan, who oversees $2.4 billion as chief investment officer at the United Nations Federal Credit Union in New York, said the 10-year note's yield could fall to as low as 2.25 per cent.

Lower bond yields this year have confounded bond investors and analysts who have predicted that the yield should have continued to climb from 3 per cent at the start of the year.

But the overseas developments have pushed down bond yields, overshadowing upbeat US reports that have pointed to the economy gaining traction from the winter doldrums.

Interest-rate strategists at US big banks including Goldman Sachs Group Inc. still expect the 10-year yield to rise to 3 per cent at the end of the year.

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PUBLISHED AUGUST 12, 2014

US job market enters virtuous cycle
Balance of power shifting slowly towards employees from employers

Better prospects: A job seeker checking his mobile phone outside the Recruit Military veteran job fair in San Diego. Americans who have been hunting for employment for more than six months are finding they are having better luck landing a job. - PHOTO: BLOOMBERG
[WASHINGTON] The balance of power in the job market is shifting slowly towards employees from employers.
Bob Funk sees it firsthand from his position as chief executive officer of staffing agency Express Employment Professionals.
"We're short of people in a number of cities," he said. So he's changing the focus of his US$2.5 billion, Oklahoma City-based business. Instead of concentrating on finding jobs for those who want them, Express Employment is putting more effort into finding workers for companies that need them. "We're back in the recruiting market again," Mr Funk said.
The 74-year-old industry veteran isn't the only one to notice the change. Americans who have been hunting for employment for more than six months are finding they're having better luck landing a job, while people who had given up looking are returning to the labour force to resume their search.
Companies, meanwhile, are beefing up their in-house recruiting teams and increasingly using complicated computer algorithms to scour the Web for prospective job candidates.
This is all good news for the economy, according to Nariman Behravesh, the Lexington, Massachusetts-based chief economist for IHS Inc. He said the US has entered a "virtuous cycle" where job gains are leading to increased household expenditures, encouraging employers to hire more workers. Consumer spending rose in June by the most in three months, according to Commerce Department data published on Aug 1.
The expansion "is self-reinforcing and is very solid," Mr Behravesh said. "Growth of around 3 per cent, plus or minus, is well within the cards for the remainder of this year and much of next year." The economy has advanced at an average annual rate of 2.2 per cent since the 18-month recession ended in June 2009.
The shift in the labour landscape also has implications for Federal Reserve chairwoman Janet Yellen and her colleagues at the US central bank. If a tightening job market starts to spawn broad-based wage gains, the Fed probably will bring forward the timing for its first interest-rate increase since 2006, according to Mr Behravesh, who currently sees it coming in the middle of next year.
So far, compensation increases are the missing ingredient in what has otherwise been a strengthening jobs recovery. Payrolls rose by more than 200,000 for a sixth straight month in July, the longest such period since 1997, according to the Labor Department. Openings in May climbed to an almost seven-year high, reaching 4.64 million. The vacancies data for June are scheduled for release today.
Average hourly earnings, in contrast, increased just 2 per cent in July from a year earlier, barely keeping up with the rise in inflation.
Employers in general have been "pretty stubborn" about increasing wages, said Jeffrey Joerres, executive chairman of ManpowerGroup, a Milwaukee-based staffing company with US$20.3 billion in revenue last year. That may be about to change as the pool of available candidates shrinks.
"You can see a little anxiety among employers," he said. "I can feel the inflection point is coming."
Michael Durney, chief executive officer of Dice Holdings Inc, agrees. "I think you're going to start to see wage inflation," said Mr Durney, whose company provides specialised websites that match employers with potential employees in industries such as technology and financial services.
In a sign of the changing dynamics, some 450 businesses have signed up for Dice's Open Web product since it was introduced in December. The computer algorithm allows them to search 130 public sites for people with specific skills, such as Java software development. The sites include Stack Overflow, a question-and-answer forum for programmers, and Twitter Inc's online social-networking service.
Companies have used Open Web so far mainly to look for tech talent, though Dice is working on versions that could be married with its healthcare, finance and energy job sites, Mr Durney said.
He defended the New York-based company against the idea that it is snooping, saying that the information it gathers is already public and noting that job recruiters have long used Web searches to screen potential employees. "We're aggregating the information and putting it in one place," he said. "The stuff is there, so you might as well know it's accessible."
Critics also charge that such search processes can be too discriminating, weeding out viable job candidates because they don't exactly meet the required criteria.
Like some of its customers, Dice feels the pinch from the tighter market: It added two recruiters in the last two months to help it fill 60 open positions, Mr Durney said.
ManpowerGroup also is taking on recruiters and increasing "recruiting dollars" to find the workers its customers need, Mr Joerres said. It is encouraging its staff to go beyond social media and get out of the office to meet prospective job candidates at forums, trade-association meetings and other public gatherings.
Companies recognise it's getting harder to find employees, so they're making their hiring decisions more quickly, Mr Joerres added. Employers now take about three months on average to hire a worker from the time they put in a request with Manpower. That's down 30 per cent from about 18 months ago.
Businesses also are more inclined to hold onto staff. Conversions - giving full-time jobs to the temporary employees Manpower provides - are at a three-year high, according to Mr Joerres.
The improving job market is helping the long-term unemployed, too. The number of Americans without a job for 27 weeks or more fell to 3.16 million in July from 4.25 million a year earlier. That's still more than double the 1.32 million in December 2007 when the recession began. - Bloomberg

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US jobless claims lift to 311,000
DOW JONES NEWSWIRES AUGUST 15, 2014 12:00AM

New applications for unemployment benefits rose last week but remained near eight-year lows.

Initial claims for unemployment benefits increased by 21,000 to a seasonally adjusted 311,000 in the week ended August 9, the Labor Department said on Thursday. That was more than the 295,000 new claims forecast by economists surveyed by The Wall Street Journal and the highest level since June.

Claims for the previous week were revised up slightly to 290,000.

Applications for unemployment benefits, a proxy for layoffs, have been trending lower this year. The four-week moving average of claims, which smooths out weekly volatility, increased by 2,000 to 295,750, but that was still well below the average level of claims last year.

Jobless claims are now hovering around levels last seen in 2006, at the height of the previous expansion.

Thursday's report showed that the number of people continuing to draw unemployment benefits rose by 25,000 to a seasonally adjusted 2,544,000 for the week ended August 2. Those figures are reported with a one-week lag.

Other labour-market gauges have also been improving. July marked the first time since 1997 that employers have added 200,000 or more jobs for six consecutive months.

The nation's unemployment rate has fallen rapidly over the last year, though at 6.2 per cent it remains at a historically high level for this point in the recovery.

Still, diminishing unemployment has fueled hope that anemic wage growth could finally start gaining some momentum. More people working and earning more money could provide a boost to consumer spending, which accounts for over two thirds of US economic output.

"My own expectation is that as the labor market begins to tighten, we will see wage growth pick up," Federal Reserve Chairwoman Janet Yellen said in June.

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US producer prices lift 0.1% in July
DOW JONES NEWSWIRES AUGUST 15, 2014 11:15PM

A gauge of US prices rose slightly in July, a sign that inflationary pressures remain modest across the US economy.

The producer-price index for final demand, which measures changes in the prices firms receive when they sell goods and services, increased a seasonally adjusted 0.1 per cent last month from June, the Labor Department said Friday.

Excluding the often-volatile categories of food and energy, producer prices rose 0.2 per cent.

Economists surveyed by The Wall Street Journal expected the index to rise 0.2 per cent last month and predicted a similar 0.2 per cent increase excluding food and energy.

Producer prices rose 1.7 per cent in July from a year earlier, slipping from annual gains of 1.9 per cent in June, 2 per cent in May and 2.1 per cent in April.

Prices for goods were flat last month after rising 0.5 per cent in June. Food prices rose 0.4 per cent in July and energy prices fell 0.6 per cent, including a 2.1 per cent decline in gasoline prices. Prices for services rose 0.1 per cent last month after climbing 0.3 per cent in June.

Inflation in the US and other developed economies has been sluggish in recent years. The Federal Reserve sets a 2 per cent goal for inflation, but US prices have undershot that target for more than two years according to the central bank's preferred gauge of inflation, the Commerce Department's personal consumptions expenditures price index.

Price gains picked up somewhat this spring. The Commerce Department index showed prices rose 1.6 per cent in June from a year earlier, up from a 1 per cent annual gain in February. The Labor Department's consumer-price index found prices rose 2.1 per cent in June from a year earlier, up from a 1.1 per cent year-over-year increase in February.

Inflation "has moved somewhat closer" to the Fed's target, the central bank said in its July 30 policy statement, and the chance of inflation running persistently below the 2 per cent target "has diminished somewhat."

Still, the Fed reiterated last month that it doesn't plan to begin raising interest rates, which have been near zero since December 2008, in the near future. Despite firming inflation and improvement in the labor market, "a highly accommodative stance of monetary policy remains appropriate," the Fed said.

Most Fed policy makers expect to begin raising rates next year.

The PPI report, which the Labor Department overhauled this year, can be a signal of future inflation as companies pass their costs along to consumers.

The former headline PPI number, now called "finished goods," ticked up 0.1 per cent in July from the prior month and was up 2.9 per cent from a year earlier.

The personal consumption category, which is the report's closest equivalent to the closely watched CPI, rose 0.2 per cent from June and 2.1 per cent from July 2013.

The Labor Department will release its CPI report for July on Tuesday.

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PUBLISHED AUGUST 18, 2014
Fed in rate dilemma on mixed jobs data
Claims for jobless benefits down but long-term unemployed high
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BT 20140818 FED18 1226806
Eye on jobs: Even with employment rebounding, Ms Yellen has cautioned that it still may be too soon to start withdrawing accommodation, and that the recovery is incomplete and slow wage growth signals 'significant slack' in labour markets. - PHOTO: AFP
[WASHINGTON] The US labour market is looking a little surreal these days.
Take the number of workers filing claims for unemployment benefits. As a share of the population, it's the lowest since at least 1967 - the year that Grace Slick and her Jefferson Airplane bandmates dropped drug references in the San Francisco-spawned album Surrealistic Pillow, and 37 years before Janet Yellen became president of the region's Federal Reserve bank. Yet the ranks of the long-term unemployed remain larger than at any time before the 2007-2009 recession.
That leads to two starkly different views of the US economy. In one, job growth is increasing along with inflation, leaving Ms Yellen, now at the helm of the US central bank, behind the curve with recession-era monetary policy still in place. The other view portrays a fragile recovery that owes its modest gains to the Fed's near-zero interest rates. The job-market contrasts are dividing economy watchers on when the Fed should start raising rates, which it hasn't done since 2006.
"The difference of opinion is whether we're in a state that's about as good as it's going to get or whether we're in a very poor state, but with good policies and a bit of luck, we'll be able to do a lot better," said Edmund Phelps, a professor at Columbia University in New York and winner of the 2006 Nobel prize in economics. "Whether you can or not, of course, depends on circumstances and changes in the structure of the economy."

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PUBLISHED AUGUST 19, 2014
LATEST US DATA
Homebuilder confidence rises to 7-month high in August
Industry is making headway after earlier weakness

[WASHINGTON] Confidence among US homebuilders rose in August to the highest level in seven months, showing the industry is making more headway after weakness earlier this year.
The National Association of Home Builders (NAHB)/Wells Fargo sentiment measure climbed to 55 from 53 in July, the Washington-based group reported yesterday. Readings above 50 mean more respondents said conditions were good. The median forecast in a Bloomberg survey of economists projected it would hold at 53.
Historically low mortgage rates and increased employment are bringing home purchases within reach of more Americans. Faster wage gains would help provide an additional push for the industry, which is struggling to lure first-time buyers beset by tougher credit conditions.
"As the employment picture brightens, builders are seeing a noticeable increase in the number of serious buyers entering the market," NAHB chairman Kevin Kelly, a homebuilder from Wilmington, Delaware, said in a statement. "However, builders still face a number of challenges, including tight credit conditions for borrowers and shortages of finished lots and labour."

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PUBLISHED AUGUST 19, 2014
Millions of part-time workers in US make it hard for Yellen

This group of 7.5m people is inflating broad measure of underemployment

Crowded pool: About 28 per cent of all part-time workers in July reported that slack business conditions or a dearth of full-time jobs kept them from finding full-time work. - PHOTO: BLOOMBERG
[WASHINGTON] Federal Reserve chair Janet Yellen has a stubborn warning light blinking on her labour market dashboard: a group of Americans larger than Washington state's population can find only part-time work.
As Ms Yellen heads to this week's Fed symposium in Jackson Hole, Wyoming, where the focus will be on the labour market, those 7.5 million part-time workers who want full-time jobs are inflating the broad measure of underemployment she watches to gauge job market health. Involuntary part-time workers have gained by 325,000 from February's five-year low.
With employment and inflation nearing Fed goals, Ms Yellen has consistently cautioned some labour market measures still show enough slack to warrant keeping interest rates low. In the shadow of the Teton Range of the Rocky Mountains, she'll have a chance to highlight soft spots such as the crowded pool of part-timers as investors try to decipher the timing of the Fed's first rate increase-rate increase since 2006.
"We still have quite a long way to go," said Aneta Markowska, chief US economist at Societe Generale SA in New York. In the discussion of monetary policy, "I'd be surprised if the message is anything other than dovish."

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US housing starts lift sharply in July
DOW JONES NEWSWIRES AUGUST 19, 2014 10:45PM

Home construction surged in July, a sign renewed strength in the housing market could boost the economy in coming months.

Housing starts climbed 15.7 per cent in July from a month earlier to a seasonally adjusted annual rate of 1.093 million units, the Commerce Department said Tuesday. That marked the highest level of construction since November, with both single-family homes and apartments up strongly.

Revised figures showed sales in June were stronger than previously estimated, hitting a pace of 945,000 units instead of the initially reported 893,000.

In July, applications for building permits, a bellwether of future construction, climbed 8.1 per cent to a 1.052 million rate. That suggests construction could pick up further in coming months.

Economists surveyed by The Wall Street Journal had forecast housing starts to rise to an annual rate of 961,000 units and building permits to reach a pace of 1.005 million units in July.

Sales of previously owned homes have picked up in recent months, buoyed by historically low interest rates, mild weather, and stronger job growth in the US But sales of new homes have moved sideways. The latest pickup in home construction could signal builders are gaining confidence that overall sales will rise as the broader economy gains momentum.

From a year ago, home construction was up 21.7 per cent. The home-construction market has steadily recovered from the depths of the recession but has yet to regain its strength from the levels that preceded the boom years in the 2000s.

At the height of the housing boom, in 2005, just over 2 million homes were built. After the crash, housing starts fell to 554,000 in 2009, during the recession.

Tuesday's report showed that starts on single-family homes, which reflects the bulk of the market, climbed 8.3 per cent in July from June.

Construction of multifamily units -- mostly condominiums and apartments -- rose 33 per cent to a pace of 423,000 units, the highest level since January 2006. That category is more volatile.

Other recent signs point to a strengthening housing sector. A measure of homebuilder optimism rose two points to a reading of 55 this month, the National Association of Home Builders said Monday.

Existing-home sales rose in June to the highest level since October, the National Association of Realtors said last month. The trade group is expect to release July's data Thursday.

But the outlook remains cloudy, given the prospect of higher prices and weak income growth. Fannie Mae's economics group downgraded its forecast for home sales and construction on Monday. It now expects construction of 1.43 million single-family units this year and next combined, down from an earlier forecast of 1.61 million units.

A measure of affordability, which takes into account interest rates, home prices and median household income, hit its lowest level in six years in June. That reflects a run-up in home prices.

Interest rates have fallen back to year-ago levels in recent weeks after rising late last year. The average rate on a conventional 30-year mortgage stood at 4.12 per cent last week, down from 4.53 per cent in the first week of the year, according to Freddie Mac. But interest rates are expected to rise as the Federal Reserve winds down its monthly bond-buying program and plots when and how to raise short-term interest rates.

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US consumer prices rise 0.1% in July
DOW JONES NEWSWIRES AUGUST 19, 2014 10:45PM

Consumer prices advanced in July at their slowest pace since February, which could give the Federal Reserve more flexibility to maintain policies designed to stimulate stronger economic growth.

The consumer-price index, which measures how much Americans pay for everything from rent to doctor's visits, rose a seasonally adjusted 0.1 per cent in July from a month earlier, the Labor Department said Tuesday. The index was also up 0.1 per cent after excluding the more volatile food and energy categories.

Economists surveyed by The Wall Street Journal had forecast a 0.1 per cent rise for the index in July, and a 0.2 per cent increase in "core" prices that exclude food and energy costs.

The index was up 2.0 per cent from a year earlier, down from June's annual rise of 2.1 per cent. Excluding food and energy, the index rose 1.9 per cent in July from a year earlier, matching the year-over-year gain for June.

Tuesday's report shows that inflation has picked up this year, but it offered few signs of runaway prices that would immediately reshape the debate over when the Fed might need to raise interest rates in order to contain inflation.

The Fed sets a 2 per cent annual inflation target but prefers to use a different reading, the Commerce Department's price index for personal consumption. In June, that index was up 1.6 per cent from a year earlier.

The Fed's preferred gauge of inflation has undershot the central bank's target for more than two years, but both have risen in recent months amid steady job-market gains. Officials have been looking for inflation and wages to pick up for signs that the economic recovery is on firmer footing. But if prices rise too quickly, that could signal an overheated economy and put pressure on the Fed to tighten policy sooner than expected.

The Fed has held short-term rates near zero since December 2008 to support the US economy through a financial crisis, a recession and a sluggish five-year recovery. The central bank's bond-buying program is on track to end in October.

At their July meeting, most Fed policy makers didn't expect to start raising rates until later next year. While job growth has picked up so far this year, "a range of labor-market indicators suggests that there remains significant underutilization of labor resources," the Fed said in a statement after that meeting.

Still, Fed Chairwoman Janet Yellen is facing more internal pressure from easy-money skeptics. "The idea that the Fed might get behind the curve is a powerful one, and that's certainly been the history of the institution. People are right to worry about that," James Bullard, president of the Federal Reserve Bank of St. Louis, said in an interview with the Journal last week.

In a statement last month, Philadelphia Federal Reserve Bank President Charles Plosser said inflation and employment levels suggest that the Fed's schedule for potential rate increases "remains well behind what I consider to be appropriate" given the central bank's price-stability goals.

Tuesday's report showed energy prices fell 0.3 per cent in July, following increases of 0.9 per cent and 1.6 per cent in May and June, respectively.

Prices increased for an array of items. Food prices advanced 0.4 per cent and new car prices rose 0.3 per cent, offsetting June's decline of the same amount. Housing costs, which advanced 0.3 per cent for the month, are up 2.9 per cent over the past year.

Separately, the Labor Department reported that Americans' inflation-adjusted weekly earnings were unchanged in July from June. The average workweek rose 0.3 per cent.

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http://www.businesstimes.com.sg/breaking...s-20140821

PUBLISHED AUGUST 21, 2014
Fed debates merits of earlier rate hike given US jobs gains

The US Federal Reserve hinted on Wednesday that a surprisingly strong jobs market recovery could lead it to raise interest rates earlier than it had been anticipating - PHOTO: AFP
[WASHINGTON] The US Federal Reserve hinted on Wednesday that a surprisingly strong jobs market recovery could lead it to raise interest rates earlier than it had been anticipating.
At the same time, most Fed officials wanted further evidence before changing their view on when rates should rise, according to the minutes from the central bank's July 29-30 meeting. "Labour market conditions had moved noticeably closer to those viewed as normal in the longer run," the minutes said, adding that policymakers "generally agreed" the job market was healing faster than they had expected.
The Fed had said in its policy statement following the July meeting that there was "significant" labor market slack, but the minutes showed many members of its policy-setting panel thought this characterization "might have to change before long." "The committee as a whole has started to shift its stance,"said Paul Dales, an economist at Capital Economics in London."The Fed has moved closer towards raising interest rates." The central bank has held benchmark rates near zero since December 2008, but has signaled it would likely begin to move them up some time next year.
Yields for 10-year Treasury notes moved higher, while the dollar firmed against the euro and the yen after release of the minutes. Interest rate futures continued to point to a first rate hike in July of next year, although the chances of an earlier move ticked slightly higher.