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Thursday

June 9, 2016

www.bloombergbriefs.com

Jobless Claims; Wholesale Inventories; Flow of FundsBEN BARIS AND JAMES BATTY, BLOOMBERG BRIEF EDITORS

WHAT TO WATCH: Filings for unemployment benefits are expected to rise slightly last week. The consensus forecast of economists surveyed by Bloomberg calls for

to advance to 270,000 in the week ended June 4 from 267,000 initial jobless claimsthe week before, 8:30 a.m. are expected to rise 0.1 percent in Wholesale inventoriesApril from a month earlier, matching the gain from March, 10 a.m. The Federal Reserve will release its latest report on , including flow of funds and U.S. financial accountshousehold balance sheet data, at 12 p.m.

ECONOMICS: Bank of Canada Governor will hold a news conference Stephen Polozat 10:30 a.m. in Ottawa to discuss the semi-annual Financial System Review.

GOVERNMENT: Finance ministers gather for in Ulaanbaatar, Asia-Europe MeetingMongolia, which runs through tomorrow. ECB President cMario Draghi alled on politicians to help his bid to restore economic health to the region by accelerating

at the Brussels Economic Forum.structural reforms

MARKETS: The dropped from a six-month high, and MSCI All-Country World Indexfutures on the indicated the gauge will slip after edging closer to a record. Oil S&P 500 fell and the slipped after earlier advancing as much as Bloomberg Commodity Index 0.4 percent. Bonds rose, with declining to a record low. U.K. gilt yields

(All times local for New York.)    

Click to view a live version of this chart on the Bloomberg terminal.here

QUOTE OF THE DAY

"If you don’t reinvest into something less crowded, you’re left too hedged and not long enough. It’ll be interesting to see how those money flows work out in the next few weeks because there’s time for an underperforming fund to put money to work."  

— Nicholas Colas, market strategist at chief

Convergex Group LLC, talking about hedge funds

unloading stocks

9.3%The advance in the MBA's mortgage applications index in the week ended June 3. That follows a 4.1 percent decline in the prior week. Purchases and refinancings were up 11.7 percent and 7.4 percent, respectively, on the heels of 4.7 percent and 3.9 percent declines.

COMMENTARY IN THIS ISSUE

The April report revealed that the JOLTSsignificant slowing in the pace of U.S. jobs growth recently resulted from slower hiring, not a rise in layoffs: Yelena

and Shulyatyeva Carl Riccadonna.

There's a long-established cyclical patternin which people leave self-employment and contracting for full-time work as gigsthe job market improves, and this economic expansion is proving to be no exception: Justin Fox.

What we learned yesterday about the European Central Bank’s to buy plancorporate bonds: Lisa Abramowicz.

Point72 Asset Management chief economist Dean Maki discusses the recent slowdown in the and labor marketits impact on the Federal Reserve's policypath: and Michael McKee Tom Keene.

LABOR MARKET   YELENA SHULYATYEVA AND CARL RICCADONNA, BLOOMBERG INTELLIGENCE ECONOMISTS

Home Prices, Stocks Point to Household Net Worth Bump

Household balance sheets have recovered from the housing bust and financial crisis. Household assets increased at the end of 2015, driven by home-price appreciation and stock-market gains. Household net worth rose by $1.6 trillion in the fourth quarter of 2015. Housing prices increased significantly in the beginning of this year and stocks ended the first quarter on a positive note after falling sharply in January-February. This suggests another gain in household net worth in the first quarter of around $1 trillion.

— Carl Riccadonna and Yelena Shulyatyeva, Bloomberg Intelligence Economists

June 9, 2016 Bloomberg Brief Economics 2

LABOR MARKET   YELENA SHULYATYEVA AND CARL RICCADONNA, BLOOMBERG INTELLIGENCE ECONOMISTS

Job Vacancies Point to Hiring ReboundThe April Job Openings and Labor

Turnover Survey (JOLTS) revealed that the significant slowing in the pace of U.S. jobs growth, as reflected in the recent deceleration in payrolls, resulted from slower hiring, not a rise in layoffs. However, job openings, an indicator of future growth in jobs, sent a compelling signal that the pace of hiring is likely to rebound and the recent swoon in payrolls growth was probably temporary. A pickup in job vacancies and a deceleration in the rate of workers quitting do not support the notion of the U.S. economy approaching the end of the economic cycle.

The number of job openings increased sharply in April to 5.788 million, matching the record high reached in July, as the previous month reading was revised down, thereby resulting in a 2.1 percent increase for the month. The job opening rate rose to 3.9 percent from 3.8 percent prior, matching the peak level it reached back in July and presenting an important signal that the pace of hiring will not decelerate materially in 2016, as many analysts anticipate.

The level of hiring dropped to 5.092 million from 5.290 million, the lowest since August, while the hiring rate declined to 3.5 percent from 3.7 percent the prior month. This confirms that the significant deceleration in the net pace of jobs creation, as reflected in the payrolls data, resulted from companies hiring fewer workers as of late. However, if the strength in job openings persists, a pickup in the hiring rate will follow.

The quits rate declined in April to 2.0

 Click to view a live version of this chart on the Bloomberg terminal.here

percent from 2.1 percent the prior month and a peak of 2.2 percent in December. The quits rate provides a barometer for workers’ confidence in their own economic outlook and therefore their ability to find alternative employment. Thelevel of quits (2.912 million) was slightly lower than in March (2.948 million).

Fed Chair Janet Yellen has previously cited the low quits rate as one piece of evidence pointing to continued slack in the labor market. The fact that the level of job openings is reaching new highs but quits are not undermines the view among some forecasters that the recent hiring lull merely reflects a more mature economic cycle that is creating jobs at a slower

pace. If labor shortages were leading to elevated wage pressures, the quits rate should be achieving new highs — which is not the case, at least not yet.

The JOLTS data are often overlooked by market participants because they lag behind the official jobs report by a month. However, there are important economic signals to be gathered from the underlying components in the April report. The absence of a significant acceleration in the quits rate signals the economy is nowhere near the end of economic cycle, while a solid increase in job opening suggests that the recent slowdown in payrolls will be short-lived.

Openings Match Record High From July 2015

June 9, 2016 Bloomberg Brief Economics 3

COMMENTARY  JUSTIN FOX, BLOOMBERG VIEW COLUMNIST

June 9, 2016 Bloomberg Brief Economics 4

COMMENTARY  JUSTIN FOX, BLOOMBERG VIEW COLUMNIST

Most People Just Want to Find a Regular JobThere's been a shift in the U.S.

economy over the past decade toward more work being done by independent contractors, on-call workers and others in what the government calls "alternative work arrangements." Economists Lawrence Katz and Alan Krueger documented that this year, earliershowing that these "gig economy" workers went from 10.1 percent of the workforce in 2005 to an estimated 15.8 percent in 2015.1

But there is also a long-established cyclical in which people leave self-patternemployment and contracting gigs for full-time work as the job market improves, and this economic expansion is proving to be no exception (see chart).

The source of this data, MBO Partners, provides back-office services for independent workers, which for the purposes of its are defined as surveythose "who turn to consulting, freelancing,contract work, temporary assignments or on-call work regularly each week." That's pretty similar to the definition of alternative work arrangements in the Katz-Krueger survey. It's less expansive than other estimates of the independent or freelance workforce you may have heard about, which get to bigger numbers by including

workers or those with part-timeconventional jobs who on the freelanceside, among others.

Full-time independents, those who put in more than 15 hours a week, now number an estimated 16.9 million (about 11 percent of employed U.S. civilians), according to MBO Partners. Another 12.4 million do independent work less than 15 hours a week.

Last year's MBO survey showed a slight decline in the number of independent workers, to 17.8 million from 17.9 million, but the difference wasn't statistically significant. The decline to 16.9 million definitely is. From this year's MBO State of Independence , reportwhich was released Tuesday:

1

"With a robust payroll jobs market, it is clear that some of those who were not satisfied with independent work returned to traditional employment."

At 16.9 million, the number is back to where it was in 2012. That year, on the strength of a 900,000-person increase from the year before, MBO predicted that full-time independent workers would number 23 million by 2016. Didn't happen. "I'm still confident that the long term trend towards independent work is still in place," wrote Steve King of Emergent Research, which designs the MBO surveys, in an email. "But it's clear now we underestimated the extent of business cycle impacts on this sector."

The survey has shown a significant gain in the number of independent workers making $100,000 or more a year to 3 million from 2 million in 2011. But that could be as much a result of paychecks boosted by the improving economic picture as it is of more people moving into high-end independent work.

The shift toward independent or freelance work has alternatively been painted over the years as an empowering

development in which workers take advantage of new technologies and changing industry structures to strike out on their own, and an exploitative one in which corporations shift work from full-time jobs with benefits to low-pay, low-security gigs. It's surely a bit of both. But this latest survey is evidence that good old-fashioned jobs retain their allure. Not everybody wants to be independent, and the U.S. labor market is not being transformed wholesale overnight.

Then again, with the job market now sputtering, independence could be back in fashion soon enough.

1 The 2005 figure is from a supplement to the

Current Population Survey, the monthly

government survey of 60,000 households from

which the unemployment rate is derived. The

Katz-Krueger number is from a smaller survey

conducted by Rand last fall; in May 2017 the

government will finally conduct the full contingent

and alternative work arrangements again.survey

1

    This column does not necessarily reflect the

opinion of the editorial board or Bloomberg LP

and its owners.    

COMMENTARY   LISA ABRAMOWICZ, BLOOMBERG GADFLY COLUMNIST

Losing Our Independence

June 9, 2016 Bloomberg Brief Economics 5

COMMENTARY   LISA ABRAMOWICZ, BLOOMBERG GADFLY COLUMNIST

ECB Distorts Credit Market With Little to Show for ItWe learned a few things on

Wednesday about the European Central Bank’s plan to buy corporate bonds:

There’s no way it will be able to keep secret the identities of the companies whose bonds are bought.

Every purchase will push around prices for specific bonds.

This program is vastly different — and much less stimulative in a broad sense —from buying sovereign debt or other highly liquid assets.

The ECB embarked on its campaign to purchase investment-grade corporate debt to turbocharge its efforts to spur growth. It didn’t take long until Bloomberg reporters uncovered some specific, market-moving details: The bank was buying bonds of Anheuser-Busch InBev, Telefonica and Siemens, among others.

Not surprisingly, prices on those specific bonds rose. If a trader realizes what the European Whale wants to buy, why not ride the wave? The ECB is willing to pay high prices, so anyone who owns the bonds they want almost has an excellent chance of turning a profit.

This dynamic has influenced the European market so much already that it's pushed down some corporate-debt borrowing costs to record lows. Perversely, some company bond yields have turned negative, particularly for those companies whose debt is seen as a likely ECB target. It has been unheard of to pay a corporation to borrow money, and yet here we are.

The ECB's move has also contributed to a decline in U.S. corporate-debt yields, albeit not as much as in Europe.

So it's clear that the ECB's program is profoundly affecting credit-market values. But that's all worth it (perhaps) if it ignites growth and rescues the region from a deflationary spiral. So is it?

The initial signs indicate that it's probably not. This latest effort of corporate-bond buying, which has the ECB adding investment-grade corporate notes to its 80 billion euro monthly purchase program, hasn't lifted the agency's own longer-term inflation expectations at all. Earlier this month, the central bank released new euro-zone

 growth predictions that were lower in 2018 than its previous forecast.

It's also not fully achieving an ancillary goal of encouraging investors to lend to riskier companies. The gap between yields on euro-denominated investment-grade and high-yield bonds has narrowed but is still well above the lows of 2014.

While the ECB appears to be struggling to buy enough government debt of certain nations, that challenge is magnified

significantly in the corporate-debt market. It has already caused significant distortions and will most likely continue to do so.

What remains to be seen is whether the European central bankers will achieve the stimulus they want. Early indications are not promising.

This column does not necessarily reflect the

opinion of Bloomberg LP and its owners.

DATA & EVENTS

Cheap Money

The ECB's expanded stimulus caused a further drop in investment-grade borrowing costs.

Lower Expectations

The ECB lowered its expectations for future economic expansion at its latest meeting.

June 9, 2016 Bloomberg Brief Economics 6

DATA & EVENTS

TIME COUNTRY EVENT SURVEY PRIOR

7:00 Brazil IGP-M Inflation 1st Preview 0.67% 0.59%

8:30 U.S. Initial Jobless Claims 270k 267k

8:30 Canada Capacity Utilization Rate 81.30% 81.10%

8:30 Canada New Housing Price Index MoM 0.20% 0.20%

8:30 U.S. Continuing Claims 2171k 2172k

8:30 Canada New Housing Price Index YoY 2.10% 2.00%

8:45 U.S. Bloomberg June United States Economic Survey — —

9:00 Mexico CPI MoM -0.46% -0.32%

9:00 Mexico CPI Core MoM 0.22% 0.22%

9:00 Mexico CPI YoY 2.60% 2.54%

9:45 U.S. Bloomberg Consumer Comfort — 43.2

10:00 U.S. Wholesale Inventories MoM 0.10% 0.10%

10:00 U.S. Wholesale Trade Sales MoM 1.10% 0.70%

12:00 U.S. Household Change in Net Worth — $1637bSource: Bloomberg. Surveys updated at 5:25 a.m. New York time.

CALENDAR

Click on the to see the full range of economists' forecasts on the terminal.   highlighted releases

OVERNIGHT

U.K. exports surged in April to their highest level in almost three years as Britain shipped more to countries both inside and outside the . European Union

— the biggest The 9.1 percent increase monthly rise since 2003 — left thetrade deficit little changed at 10.5 billion pounds ($15.2 billion), figures from the

published Office for National Statistics today show. Imports jumped 5.9 percent. The total deficit, which includes a 7.2 billion-pound surplus on trade in services, narrowed marginally to 3.3 billion pounds.

South Korea’s central bank unexpectedly cut the benchmark

to a new record low today, interest rate citing growing risks to the economy including slowing global trade and the government’s push to restructure indebted companies.  

Europe

Asia

MARKET INDICATORS

June 9, 2016 Bloomberg Brief Economics 7

MARKET INDICATORS

SURVEILLANCE WITH KEENE & MCKEE

Source: Bloomberg. Updated 5:30 a.m. New York time.

June 9, 2016 Bloomberg Brief Economics 8

Bloomberg Brief: Economics

SURVEILLANCE WITH KEENE & MCKEE

Dean Maki, chief economist for Point72 Asset

Management, speaks with Bloomberg's Michael

McKee and Tom Keene about the recent

slowdown in the labor market and its impact on

the Federal Reserve's policy path.

Q: What is your view of what is happening in labor? Has momentum really slowed?A: When one looks at things like job growth, momentum did slow over the last couple of months. And I think that's really what the labor market conditions indicator is telling us. I don't think there is really a new message in that. We already knew that on Friday that things had weakened. So I think that's partly why markets don't pay a lot of attention to that indicator.

Q: Do we see the dismal performance in jobs growth continue?A: I don't think that's a signal that we're now going into an extremely weak job growth period. I think the telltale signs of that would be that jobless claims would be spiking. If we were going into an extremely weak payroll period, we'd see things like the non-manufacturing ISM survey dipping below 50, which it's not. And we wouldn't be seeing consumer spending picking up in the way that it has so far in the second quarter. So I think we

have these ups and downs in job growth. This is one of those down periods. But I'm quite confident that in the third quarter things will pick back up again.

Q: As we migrate down, why are we so miserable at 4.7 percent unemployment?A: I think that one reason is that we aren't see tremendous wage gains at this point. Hourly earnings have picked up to 2.5 percent, but in past cycles, that is not all that impressive. That's one of the reasons why people are saying, yes, unemployment is low, but it's not an extremely robust labor market. I think that we will continue to see those wage gains pick up as the unemployment rate keeps falling. And I continue to believe that unemployment rate is going to fall a lot faster than others believe. I think we are going to drop close to four percent by the end of the year. We'll have a three handle on the unemployment rate in 2017.

Q: Are those good jobs that drive us to that nirvana?A: As usual, it's a mix of good and high-paying and low-paying jobs. It's not possible for the economy to create all high-paying jobs.

Q: Is the Fed falling behind the curve if they don't get going here?

A: I think it's too early to say they're behind the curve now. Inflation is still below their objective, so in a sense, the Fed wants to see a bit of a wage price spiral upwards at this point. And I do think they will get that. I think the real key is going to be are they able to move in a gradual enough manner that once inflation is up to two percent or somewhat above it are they able to keep it from continuing to accelerate beyond that.

Q: Can the Fed go "one and done" or do they have to establish a measured path if they decide to raise rates?A: I think the problem with how they've conducted policy so far and the strategy they've laid out is that everything needs to be looking up for them to raise rates. So the job numbers have to be looking up, the GDP numbers have to be looking up, the foreign growth numbers have to, the financial markets have to be looking good. And these things all go in cycles. So the probability of all of them moving in the right direction at the same time is actually quite low. So I do think that while there is not a big risk of delaying a meeting a two here or there, if they are delayed and don't do anything, for example, for the rest of the year, you do start to get into some risky territory where they may have to go faster down the line.

This interview has been edited and condensed.

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