Saturday, September 3, 2016

Today's links

Today's quote:  "Under our current conditions, creating shareholder value and creating good jobs are largely incompatible. Corporations are ‘job creators’ only as a last resort.”  Gerald Davis, professor at the University of Michigan’s Ross School of Business






1--Credit-Crimped Companies Rise to Most Since 2009, S&P Says


You’d have to go back to the months following the financial crisis to find so many companies facing potentially ruinous debt problems.
That’s according to the latest tally by S&P Global Ratings of “weakest link” issuers. S&P counted 251 with ratings at the low end of junk status and a negative outlook, the most since October 2009, when the total was 264. The issuers collectively have about $359 billion of debt outstanding, led by energy companies, according to S&P’s Sept. 1 report.

“Weakest links maintain an important role as potential default indicators,” Diane Vazza, S&P’s head of global fixed income research, said in the report. They’re almost 10 times more likely to miss payments than ordinary speculative-grade issuers, Vazza wrote, adding that 71 of 100 companies that defaulted this year had been previously tagged as weakest links....

The U.S. speculative-grade corporate default rate grew to 4.8 percent in August after seven defaults, and is expected to reach 5.6 percent by June 2017, S&P said in a separate report. The U.S. speculative-grade default rate for energy issuers is 21.7 percent as of July 31, Vazza said.
High-yield issuers still have the ability refinance debt, and economic growth remains strong enough to support their free cash flow, Moody’s Investors Service analyst John Puchalla said in a report Friday

2--Why America's job-creation machine is broken


It’s Labor Day weekend, and despite unemployment under 5% and nearly 15 million private-sector jobs created since February 2010, nobody’s celebrating.
Workforce participation is stuck near historic lows, six million people are part-timers but want to work full time, and wage growth remains subdued.

Both presidential candidates have talked a good game about jobs and the economy, but neither addresses the real problem. The U.S. job-creation machine—once the envy of the world—is broken, because American corporations cannot create steady, well-paying jobs here in the USA while also providing maximal returns to their investors, who are really in charge....

Cutting labor costs boosts earnings, which tends to push stock prices (and executive compensation) higher, and frees up cash for more “important” things like dividends or share buybacks. As of March, S&P 500 companies had bought back more than $2 trillion in stock over the last five years, making buybacks the biggest source of demand for stocks since 2009, HSBC estimated....

“Under our current conditions, creating shareholder value and creating good jobs are largely incompatible,” Davis wrote in his Brookings piece. “Corporations are ‘job creators’ only as a last resort.”
“Companies do not exist to create jobs. You don’t get rewarded for creating jobs,” he told me in a phone interview last month....

A short piece he wrote late last year for Brookings and a new book, “The Vanishing American Corporation,” trace the big changes in American corporations from the job-rich giants of the post-World War II era to job killers now, because the mission of the corporation has changed radically....

“Hiring full-time employees is increasingly a costly indulgence,” wrote Davis. “The corporate career...was replaced by the job, and now the job is being replaced by the task.”....

....shareholder capitalism has left top executives dancing to investors’ tunes. For the rest of us, the music is off-key—and nothing being proposed by either presidential candidate or political party will change the corporate mindset in which job creation is a low priority at best and may even be antithetical to investors, who now completely run the show.

3--Despite All Obstacles Europe Needs Nord Stream-2 Gas Pipeline


At the same time, demand for Russian gas in the European market is increasing. Recently, Gazprom’s exports to Europe have grown by 30 percent. Europe receives nearly 30 percent of natural gas from Russia.

Nord Stream-2 is a very important project both for European consumers and Gazprom, the article read. Despite the stoplight decision by the Polish regulator, companies will not quit the project. By the end of the year, the companies are expected to find a new form of their participation in Nord Stream-2, according to the newspaper...
An agreement on Nord Stream 2, involving the expansion of the Nord Stream gas pipeline, was signed in early-September 2014, during the Eastern Economic Forum in Russia’s Vladivostok. The new consortium was established by Gazprom, E.ON, Shell, BASF/Wintershall, OMV and Engie.


4---Cracks Appear in the US-Turkish Coalition in Northern Syria


5--US lost 14,000 manufacturing jobs in August


the US economy lost 14,000 jobs in the key manufacturing sector, which typically pays higher wages. The goods-producing sector as a whole, which includes manufacturing, lost 24,000 jobs, including 4,000 in mining and 6,000 in construction.


The entirety of the jobs created in August was in the service sector, which is dominated by low-wage, contingent, and part-time employment. The healthcare sector, which, in addition to some highly paid skilled workers, overwhelmingly employs lower-paid workers such as home health aides, added 36,000 jobs.

Eight years after the 2008 financial crisis, wage growth remains suppressed. Hourly wages for private sector workers rose by three cents in August. Average hourly wages have risen by 2.4 percent over the past year, or only 1.6 percent after accounting for inflation.


The labor participation rate fell from 62.8 percent in June to 62.7 percent for August—among the lowest rates the United States has seen since the late 70s. These figures point to the fact that many Americans remain “outside the circle of work,” according to reports by the Center for Economic and Policy Research (CEPR). In particular, the labor force participation rate amongst men between the ages of 25 and 60 has plummeted from 98 percent in 1958 to a mere 88 percent today. The CEPR notes, “the evidence is consistent with reduced labor market opportunities for lower-skilled workers, a factor that is also consistent with the decline in relative wages of lower-skilled workers.”...


Other statistics point to the impoverishment of US workers. The National Employment Law Project reported that while US businesses added 1.85 million low-wage jobs between 2008 and 2014, they eliminated 1.83 million medium-wage and high-wage jobs during the same time.


5--What a mess! U.S. vs. U.S. in Syria


Turkey is now again battling a rising wave of Kurdish attacks that caused the Turks to probe into northern Syria to prevent a link-up of advancing Kurdish rebel forces.


So, Turkey, a key American ally, is now battling CIA-backed Kurdish groups in Syria. Eighty percent of Turks believe the recent failed coup in Turkey was mounted by the US – not the White House, but by the Pentagon which has always been joined at the hip to Turkey’s military.


This major Turkish-Kurdish crisis was perfectly predictable, but the obtuse junior warriors of the Obama administration failed to grasp this point.


Now the Russians have entered the fray in an effort to prevent their ally, Bashar Assad, from being overthrow by western powers. Also perfectly predictable.

Russia claimed to be bombing ISIS but in fact, is targeting US-backed groups. Washington is outraged that the wicked Russians are doing in the Mideast what the US has done for decades


6--The new normal: The increased employment of low paid workers is driving down productivity and growth


US government real tax receipts have been trending downwards while employment has kept up remarkably well. If we draw a chart of US withholding taxes (smoothed from all the short-term noise) and overlay that with employment growth, we find a worrisome divergence that has historically not been there.


What can explain this dichotomy? The most obvious explanation is the increased employment of low paid workers with lower productivity relative to what we have seen in previous recoveries. Substituting $50 – 100k  full time breadwinner jobs with barmaids and waiters is certain to drive down wages (and hence taxes) and GDP as the marginal productivity of each additional new hire is lower than the previous. Both productivity statistics and the monthly labour market report substantiates our view


7---Soft Jobs Data Cools Market Expectations on Fed Rate Increase-- U.S. payrolls rose by 151,000 last month, while jobless rate held steady at 4.9


The monthly gain of 151,000 jobs was neither strong enough nor weak enough to settle the central bank’s long-running dilemma about whether the labor market can easily withstand another interest-rate increase. The unemployment rate, calculated from a separate survey of American households, was unchanged from the prior month at 4.9%, the Labor Department said Friday...


By several measures, the labor market is already near the Fed’s stated goals. The most closely watched measure of unemployment is within the range officials consider the long-term average. Federal Reserve Bank of Cleveland President Loretta Mester said Thursday the economy needed to add only between 75,000 and 150,000 jobs “to keep the unemployment rate constant.” Employers have added jobs at a monthly pace of 182,000 so far this year.


Many economists noted Friday that the August jobs figure in recent years has often come in below forecasts before being revised up in subsequent months. Beyond that, the stock market is already at record levels and economists forecast economic growth to accelerate in the second half of the year, offsetting the dismal 1% rate over the past three quarters....


Last month’s pace of wage gains won’t put much upward pressure on inflation, which has undershot the Fed’s 2% annual target for more than four years. And the unemployment rate, labor-force participation rate and broader measures of underemployment have all held nearly steady this year.
“You want to see the unemployment rate falling because that means inflation is around the corner,” said HSBC economist Kevin Logan. “We haven’t even got to the corner yet.” He doesn’t expect the Fed to lift rates until next year...

The services sector accounted for nearly all employment gains last month. Employment at restaurants grew by a seasonally adjusted 34,000; professional and business services jobs grew by 22,000; and social-assistance jobs grew by 21,700. In contrast, the manufacturing sector shed 14,000 jobs and 6,000 construction jobs were cut.




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