Today’s only economic release is a big one, and it’s disappointing.
The Employment Situation report shows only 142,000 net new jobs were created in July, well below expectations. The Unemployment rate fell -0.1% to 6.1%, though sadly, this is mainly because the civilian labor force fell by 64,000 this month, while the number of persons not in the labor force rose by 268,000. This brought the labor force participation rate down to 62.8%, matching the lowest participation rate since 1978. Essentially, the number of people leaving the labor force was twice the number of new jobs created. In addition, the Household Survey indicates an additional 80,000 workers became unemployed in the last month. Average hourly earnings rose 0.2%, while average weekly hours were unchanged at 34.5 hours.
The US trade deficit in July shrank $0.3 billion to $-40.5 billion. Exports rose 0.9%, while imports rose 0.7%.
Nonfarm productivity growth for the 2nd Quarter of 2014 rose at a 2.3% annualized rate, as unit labor costs fell -0.1%.
The ISM’s Non-Manufacturing Index rose 0.9 points in August, to 59.6.
The JP Morgan Global Composite PMI fell -0.4 points to 55.1 in August, while the Global Services PMI fell -0.5 points to 55.5.
Chain stores are reporting mostly rising rates of year-on-year sales growth in August compared to July, due to solid back-to-school sales.
Challenger’s Job Cut Report layoff count for August totals 40,010, vice 46,887 in July and 50,462 a year ago.
ADP estimates that private payroll growth in August was 204,000 jobs.
Gallup’s U.S. Payroll to Population employment rate fell -0.2% to 44.9%.
Weekly initial jobless claims rose 4,000 to 302,000. The 4-week average rose 3,000 to 302,750. Continuing claims fell 64,000 to a new recovery low of 2.464 million.
The Bloomberg Consumer Comfort Index rose 0.4 points to 37.7 in the latest week.
The Fed’s balance sheet rose $1.9 billion last week, with total assets of $4.416 trillion. Total reserve bank credit fell by $-2.5 billion.
The Fed reports that M2 money supply rose $14.5 billion in the latest week.
August motor vehicle sales rose a solid 6.4% to a 17.5 million annual rate.
Factory orders jumped 10.5% in July—all on aircraft sales. Ex-transportation orders actually fell -0.8%.
The Fed’s newest Beige Book, released today, still rates US economic growth as modest to moderate.
ICSC-Goldman says weekly retail sales were unchanged in the latest week, but up 4.8% over last year. Redbook’s retail sales reading shows 4.9% year-over-year sales growth.
The MBA reports mortgage applications rose 0.2% last week, with purchases down -2.0% but refis up 1.0%.
Gallup’s U.S. Job Creation Index was unchanged in August at 28, holding at a 6-year high.
Construction spending rose 1.8% in July, and is up 8.2% on a year-over-year basis.
The ISM Manufacturing Index rose 1.9 points in August to 59.0.
Markit’s August PMI manufacturing Index rose 2.1 points to 57.9.
The J.P. Morgan Global Manufacturing PMI rose a slight 0.1 points to 52.6 in August.
Gallup’s self-reported Consumer Spending measure was unchanged at $94 average daily spending.
The Gallup Economic Confidence Index rose 1 point to -16 for August.
Personal Income rose 0.2% in July, while consumer spending fell -0.1%. The PCE price index rose 0.1% at both the headline and core levels. On a year-over-year basis, personal income is up 4.3%, while personal spending is up 3.6%. The PCE Price index is up 1.6% at the headline level, and 1.5% at the core.
The Chicago Purchasing Manager’s Index jumped from 52.6 to 64.3 in July.
The Reuter’s/University of Michigan’s consumer sentiment index for August rose 3.3 points to 82.5.
The Commerce Department’s second estimate of First Quarter 2014 GDP came in at 4.2%, annualized. This is stronger than expected and stronger than the initial 4.0% estimate. The GDP Price Index rose at a 2.1% annualized rate.
Corporate profits in the Second Quarter of 2014 came in at $1.840 trillion, following $1.735 trillion for the First Quarter.
The pending home sales index for existing home sales rose a strong 3.3% in July to 105.9, up from 102.7 in June.
The Kansas City Fed manufacturing index slipped from 9 in July to 3 August.
Weekly initial jobless claims fell 1,000 to 298,000. The 4-week average fell 1,250 to 299,750. Continuing claims rose 25,000 to 2.53 million.
The Bloomberg Consumer Comfort Index rose 0.7 points to 37.3 in the latest week.
The Fed’s balance sheet rose $0.8 billion last week, with total assets of $4.414 trillion. Total reserve bank credit rose by $2.5 billion.
The Fed reports that M2 money supply rose $32.0 billion in the latest week.
I’ve never really been much of a Burger King fan, but guess what I’m having for lunch today?
Why? Because Burger King has given us an opportunity to point out one reason why our economy is lagging. And, as usual, it has to do with government policy. Politicians would like to play the blame game and point at corporations like Burger King moving to Canada (after a merger with Canadian based Tim Hortons) as the reason. Instead, it is the federal government’s oppressive and unprecedented corporate tax rate that is helping to keep our economy floundering by providing incentive for corporations to leave.
Megan McArdle writes a great column today. To begin with she cites a paragraph from Matt Levine that makes the point that most in the media and almost all politicians opposing the merger fail to make:
The purpose of an inversion has never been, and never could be, and never will be, “ooh, Canada has a 15 percent tax rate, and the U.S. has a 35 percent tax rate, so we can save 20 points of taxes on all our income by moving.” Instead the main purpose is always: “If we’re incorporated in the U.S., we’ll pay 35 percent taxes on our income in the U.S. and Canada and Mexico and Ireland and Bermuda and the Cayman Islands, but if we’re incorporated in Canada, we’ll pay 35 percent on our income in the U.S. but 15 percent in Canada and 30 percent in Mexico and 12.5 percent in Ireland and zero percent in Bermuda and zero percent in the Cayman Islands.”
Got it? The US government does something no other first world government does. McArdle explains:
The U.S., unlike most developed-world governments, insists on taxing the global income of its citizens and corporations that have U.S. headquarters. And because the U.S. has some of the highest tax rates in the world, especially on corporate income, this amounts to demanding that everyone who got their start here owes us taxes, forever, on anything they earn abroad.
This is a great deal for the U.S. government, which gets to collect income tax even though it’s not providing the companies sewers or roads or courts or no-knock raids on their abodes. On the other hand, it’s not a very good deal for said citizens and corporations, especially because our government has made increasingly obnoxious demands on foreign institutions to help them collect that tax. Both private citizens and corporations who have a lot of income abroad are deciding that they’d rather renounce their ties to the U.S. than deal with the expense and hassle of letting it tap into income that they have earned using some other country’s roads and sewers and police protection.
Practically speaking, global taxation is hard to enforce and loaded with bad incentives, which is why our fellow members of the Organization for Economic Cooperation and Development have moved away from global taxation of corporate income, and abandoned global taxation of personal income. If anything, the U.S. has gone in the other direction — by insisting, for instance, that foreign companies report various financial transactions with U.S. citizens to the Internal Revenue Service, and taxing foreign cost of living allowances, which makes it more expensive for companies to employ expats. On the corporate side, the Barack Obama administration has repeatedly suggested tightening up on tax deferral of foreign income and other credits, which would make it even more expensive to be a corporation based in the U.S.
So why base in the US with this being the case? Why wouldn’t any sane US based corporation be trying to find a remedy to this pernicious and oppressive tax code? In reality, this describes it rather well:
[I]t boils down to “the police kept people from sacking your first headquarters, so therefore you owe us 35 percent of everything you make, forever.” Loan sharks and protection rackets offer more reasonable terms than this.
Yes, they likely do. You know you have a problem when more and more of government begins to resemble criminal gangs. And that’s where we are headed. Instead of looking at a solution that will benefit a corporation and give them an incentive to remain and pay taxes, our government and the politicians seem bound and determined to make the corporation the bad guy with absurdly Orwellian insults like “economic patriotism” and “corporate deserters”. This, instead, should be the bottom line:
If we’re worried about inversion, then the U.S. government should follow the lead of other developed countries, and move to territorial taxation. Otherwise, we should stop complaining when people and corporations decide that they’d rather be a citizen of some more sane system somewhere else.
Durable Goods orders for July soared by 22.6%, Sadly, it was all due to aircraft orders. Ex-transportation, orders fell -0.8%. On a year-over-year basis, orders were up 33.8% overall, but only 6.6% excluding transportation orders.
The FHFA purchase only house price index rose a respectable 0.4% in June, but the year-on-year rate slowed by -0.4% to 5.1%.
The S&P/Case-Shiller home price index fell -0.2% in June, though it was up 8.1% on a year-over-year basis.
The Conference Board’s consumer confidence index for August once again rose above expectations, up 1.5 points to 92.4.
The Richmond Fed manufacturing index rose 5 points to 12 in August, as manufacturing strengthened in the mid-Atlantic district.
The State Street Investor Confidence Index rose a very sharp 7.0 points in August to a very strong 122.8.
ICSC-Goldman reports weekly retail sales rose 0.6%, and were up 4.2% on a year-over-year basis. Redbook reports a 4.0% rise in retail sales over last year.