Markets slump on global growth concerns

Dow sank 200, decliners over advancers better than 2-1 & NAZ declined 84.  The MLP index gained 3+ to the 249s & the REIT index gave back 1+ to the 365s.  Junk bond funds continued weak & Treasuries were purchased all day.  Oil went up in the 56s & gold slid lower, down 2 to 1285.

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While many experts & investors are eagerly awaiting data on status of the labor market to be released by the gov tomorrow, a new report shows US employers cut more jobs last month than they have in the past 3½ years.  Even though it is the shortest month of the year, employers announced plans to cut 76K jobs last month, according to a report from Challenger, Gray & Christmas.  That's a 117% year-over-year increase & a 45% increase over Jan's numbers.  It is the highest since Jul 2015, when 106K cuts were recorded, largely driven by the Army's decision to eliminate 50K jobs as oil prices dropped.  “Job cuts have been trending upward since the last half of 2018. We continue to see companies respond to shifting consumer behavior, new technology, as well as trade and market uncertainty through workforce restructuring,” Andrew Challenger, VP of the consultancy, said.  The retail sector had the most planned job cuts, with 41K so far this year, the highest Jan-Feb total since 2009.  The industrial goods sector, including some manufacturers, followed with nearly 32K cuts announced during the same time period.  The primary reasons employers cited for eliminating positions were restructuring & bankruptcy.  Meanwhile, on a positive note for the labor market, the number of Americans filing for unemployment benefits unexpectedly fell 3K last week to 223K, as reported by the Labor Dept.  The Dept of Labor will release the Feb jobs report tomorrow, where expectations are that the economy added 180K last month.  Last month's report showed Jan added a much larger-than-expected 304K nonfarm payroll positions.  Federal Reserve chair Jerome Powell continues to maintain that the US economy is strong, though the central bank has said it will take a “patient” approach with respect to its interest rate normalization policies as it warns against emerging headwinds.

Report shows US employers cut more jobs last month than in past 3.5 years

Federal Reserve Governor Lael Brainard called  for caution toward monetary policy as downside risks grow for the US economy.  The central bank official said she's downgraded her outlook as dangers have grown both domestically & from abroad.  "I see the appropriate posture as watchful waiting," Brainard said during a speech.  "I don't want to prejudge what kind of moves may be appropriate later in the year, but for now I think it's very important to gather more information on those cross-currents while we engage in watchful waiting."  Citing softness in spending & investment, Brainard said ongoing trade tensions, Brexit & economic weakness in China also pose challenges.  "While strong foreign growth provided tailwinds early last year, foreign growth projections have been revised down repeatedly more recently," she said.  "The slowdown of foreign growth now appears to be more persistent than initially assumed, with growth likely running below potential for most of last year."  After hiking interest rates 4 times in 2018, Fed policymakers have assumed a "patient" stance toward future moves.  Current projections indicate 2 more increases this year, though that could change when individual FOMC members update their projections later this month.  Markets also have been watching the Fed's intentions with the bonds it is holding on its $4T balance sheet.  The central bank has been steadily reducing the size of its portfolio, but recent indications are that the roll-off is near an end.  Brainard echoed comments from other officials that she expects the balance sheet reduction to come to a close by the end of 2019.  The size of the balance sheet is tied to bank reserves, which likely will run considerably higher than had been the norm before the financial crisis.  "We have gathered information from market contacts and have surveyed banks to assess their demand for reserves," Brainard said.  "I would want to see a healthy cushion on top of that to avoid unnecessary volatility and ensure that the federal funds rate will be largely insulated from daily swings in factors affecting reserves."  The balance sheet reached a peak of $4.5T, the result of 3 rounds of bond buying during & after the financial crisis.

Fed’s Brainard calls for ‘watchful waiting’ on rate moves

Americans' net worth fell at the highest level since the financial crisis in Q4-2018 as sliding stock market prices ate into the household balance sheet.  Net worth dropped to $104T as the year came to an end, a slide of $3.7T, according to figures released by the Federal Reserve.  The decline amounted to a drop of 3.4%.  Much of the slide came due to investors' woes, as the stock market suffered a precipitous decline that started in Oct & briefly reached bear market status.  Equities skidded as investors began to fear that the Fed would keep raising interest rates even as economic conditions began to deteriorate.  By the time the market drop ended in late Dec, households saw $4.6T worth of equity value deteriorate.  The decline was offset somewhat by a $300B increase in real estate value.  The overall move was the 2nd-highest quarterly $ drop since the Federal Reserve began tracking the statistic.  Overall, financial assets totaled just over $85T at the end of the year, while real estate value was $29T.  Household net worth has been rising strongly since the crisis, up 73% since 2009.  After suffering their worst Christmas Eve in history, stocks staged a turnaround & ultimately saw their best 2-month start to a year since at least 1991.  The Dow is off about 1.6% in Mar though still up more than 9% YTD.  The fall in net worth came during a qtr when GDP rose 2.6%, according to a first estimate.  That was part of a year that saw growth near 3% despite a lackluster period for financial markets.  Economists largely expect 2019 to start with little growth in the economy, as the Atlanta Fed sees GDP up just 0.5%.

US households see biggest decline in net worth since the financial crisis

Consumer borrowing picked up in Jan, according to the Federal Reserve.  Total consumer credit increased $17B in Jan to a seasonally adjusted $4.03T.  That’s an annual growth rate of 5.1%.  The forecast called for a $16.6B gain.  Credit rose a revised $15.4B in Dec, down from the prior estimate of $17B.  Revolving credit, like credit cards, rebounded in Jan, rising by 2.9% after a 1.1% gain in Dec.  Nonrevolving credit, typically auto & student loans, rose 5.9% in Jan for the 2nd straight month.  Credit growth has been steady, reflecting income growth & consumer optimism.  But there have been recent reports calling into question this tranquil picture.  The Fed's latest Beige Book report found that consumer spending was “mixed” in late Jan & Feb, in part due to higher credit costs.  And the Fed's latest senior loan officer survey said that demand for consumer loans was falling while banks were tightening standards on loans.  There was also a lot of attention paid to a report that a record 7M Americans are 90 days or more behind on their auto loan payments.

Consumer credit picks up a bit in January

The productivity of the American workforce rose solidly again in Q4, reflecting a recent upturn that could bode well for the US economy if it’s sustained.  US productivity advanced at an annual pace of 1.9% in Q4, up slightly from a revised 1.8% in Q3, the government said.  The rate of productivity, the key to a higher standard of living for American families, rose 1.8% year-over-year.  That’s the fastest 12-month gain since 2015.  Companies increased the amount of goods & services they produced, known as output, by 3.1% & the hours workers spent on the job edged up 1.2%.  Productivity is determined by the difference between output & hours worked.  Unit-labor costs rose at a 2% clip in Q4, but just 1% in the past 12 months, suggesting little likelihood of an outbreak in inflation.  The originally reported 2.2% advance in Q3 productivity was lowered to 1.8% owing to a bigger increase in hours worked.  The US averaged 2.1% annual growth in productivity from 1947-2018, with periods of strong economic growth marked by even bigger gains.  Rising productivity is critical to an economy's success.  When workers produce more in the same amount of time, companies can increase pay without cutting into profits.  Higher productivity also keeps inflation at bay.  Productivity has been weak for years, but lately it’s shown signs of life, perhaps because of a ramp-up in business investment in 2016 thru early 2018 triggered in part by the Trump tax cuts.  A sustained burst of higher business investment is needed to lift productivity, & while spending did increase in the past few years, businesses now appear to be cutting back.  Ongoing trade tensions with China & a slowing global economy have made CEOs skittish.  A tight labor market & rising wages, however, might induce companies to keep investing at relatively high levels to tamp down labor costs & improve profits by making their businesses more efficient.

U.S. productivity climbs in fourth quarter as acceleration continues

Stocks were sold in the opening hour today & were under selling pressure for the rest of the session.  Nothing seems to be going right for stocks in Mar.  That is considered an ordinary reaction after a 10 week rally without any pauses.  The VIX (volatility index) finished at 16.58, up from the 13s just 4 trading sessions ago.  Risk is not in vogue & as long as that dominates investor thinking, the bull market will be taking a rest.  Investors will be looking for signs of a growing US economy
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Dow Jones Industrials.