When trends collide, wreckage is measured in weak labor productivity. Longer term trends include 30 year old PIPE Factors and a 15 year old sideways move in hours worked. Post-credit crash trends include a hiring rebound, weak output growth and less investment in business buildings. Differences by industry and company create opportunities for business model investors. Several paths help explain the productivity puzzle. One path is about how companies shift between people and physical assets. Most striking is that companies are investing less in business buildings per hour worked. This increases the relative use of labor and decreases labor…
Author: Brian Barnier
8 July 2015 Real pay per person – “Pocketbook” – and net savings – “Piggybank” – measures help clarify the confusion of “mixed” jobs reports. These paint a picture of gradually improving real pay per person, net savings historically weak, and business and government change needed to adapt to the reality of the PIPE Factors. Reading the Employment Situation release in isolation is often a mistake. This misses more helpful data from the Bureau of Labor Statistics (BLS) and other agencies. Pocketbook measure is personal The “Pocketbook” measure is Real Wages and Salaries per person. It’s about wages in…
June 6, 2015 Is business dragged down with GDP? Are business fundamentals matching the Fed-fired stock prices? No and no. Business has been the healthiest part of GDP for the past 5 years. Yet, while chugging along with historically good stability, growth in equity prices outstripped growth in business value added. Businesses are about 75% of our economy as described in “From earnings to economic releases – you can profit from knowing how numbers add up.” Other sectors include households and nonprofits serving households, and government. What’s measured in this sector view? Value added looks at what is created…
April 30, 2015 Foreign exchange fluctuations can be diagnosed to reveal shifting fundamentals. Tangible goods and services traders can benefit from the patterns because fundamentals change more slowly than the nosier world of currency traders. Patterns missed by others can profit you most. Advantage comes from knowing the “why” of the chart line better than others. Foreign exchange rates balance supply and demand of a currency in a trading pair (such as U.S. Dollar and Euro). Thus, the “why?” should be found in classic FX fundamentals: Current Account balance, mostly trade in goods and services Real interest rates, reflecting…
23 April 2015 Businesses create about 75% of the value in our economy. Knowing how company earnings map to economic data helps investors gauge strain and find opportunity. “Consumers are 70% of the economy” is often heard. If so, how does business matter? How do company earnings releases matter to economic data? In “3 Ways to measure consumers in our economy,” we looked at the 3 ways the economy is measured in National Income and Product Accounting (NIPA) by the U.S. Bureau of Economic Analysis (BEA). The 3 are: final expenditure, income and value added – all in the…
10 April 2015 Decreases in labor productivity have been puzzling. Investment in Private Structures is the fixed asset type that has dropped most relative to hours worked. This matters because at any output level, if assets are lower compared to hours worked, productivity drops. For investors, understanding the implications helps spot opportunities. Labor Productivity is output divided by hours worked. At Q42014, output was down and hours worked up. Thus, productivity – the space between the lines – fell. On average, the space between the lines – productivity — is smaller after the credit bubble burst than between the bursts…
8 March 2015 S&P500 company average sales submerged in 4Q2014. This was an unusual quarter with Apple pulling average sales up and oil companies pulling it down. Companies with sales decreases – beyond oil – were the sales submarines. Like any average, the sales average hides details. For investors, it is especially bad to miss detail when company performance varies widely. Sales submarines can’t be avoided unless they are tracked individually. The Zacks Investment Service S&P 500 ETF composite makes this data available and Zacks Research System makes it easier to see the pattern. Measuring quarter over year prior quarter,…
3 March 2015 Business models of companies have shifted over the past few decades. Yet, fundamental analysis hasn’t really matched the shift. 4Rs can help. Data pictures show the shift how companies are increasing sales while using fewer physical assets. Through the eyes of Zacks Research System we can easily see the changing relationship in S&P 500 companies between Property, Plant and Equipment (PPE) investment relative to Net Sales and then growth in Net Sales over the following two years. The 2012 view reflects sales change from 2012 through the just reported 2014 results. Today, striking is how little PPE…
1 March 2015 What was the first question Senate Banking Committee Chair Shelby asked Fed Chair Yellen at the Semiannual Monetary Policy Hearing? Interest rates? Imports? Audits? Guess again – it was about measuring inflation. Yet, all the averages mentioned hide the same secret lurking in the data. What strikes shoppers as silly is the economic assumption that inflation averages parallel most individual products. People paying bills already know that the average inflation rate is as misleading the unemployment rate. Price for electricity is up, garden tools are flat and gas is down. Taking the perspective of products that people…
17 February 2015 The ECB’s purchases of large amounts of bonds is like trying to pile up more wood than anyone else in the Minecraft video game (acquired by Microsoft for USD2.5B) – it has little affect on other gamers with a “world” of resources and endless creativity. In the real world, the ECB can’t inflate low prices when those prices are the result of global supply and local digital age shopping. Central bank actions to fight low prices are intended to bubble stock and bond prices to create a “wealth effect” to increase demand to inflate prices to create…
6 February 2015 Housing is not a headwind to economic growth; rather it is an updraft with potential to destabilize. How hot is housing? Before digging into dirt, dig into data (July 2014) pictured how housing investment and prices are still at historical highs, other than the big bubble. Housing is a story about micro-markets; housing type differences were highlighted in Two Tales of Housing (August 2014). Too often pundits complain that “housing is a headwind” to economic growth and it is ready to rebound. What’s in the data? Money Housing appears in GDP in Residential Private Fixed Investment. Today,…
4 February 2015 Decoding Eurozone “deflation” from a mysterious demon to products people touch each day finds deflation not so widespread, not always unique to the Eurozone, and difficult to fix for the European Central Bank’s (ECB) latest asset purchase program. It might be easy to pump air into a leaky tire, but trying to drive fast on an inflated, yet bald tire might just make a skid mark. Causes matter in responding to price changes. Is a lower price on a smart phone or clothes washer bad? “Inflation” – strictly speaking – is about general price increases across goods…
21 January 2015 Will lower interest rates spur economic growth or distort saving and investing? In 3 Insights from the Real Rates–Real People Curve (June, 2014), the curve suggested it is easier for the Federal Open Market Committee (FOMC) to stabilize the economy than to grow it. This suggests it would be net beneficial for the FOMC to raise rates. Until that day arrives, equity investors will be especially sensitive to taking too much risk relative to return. To help meet risk-return preferences, business model-based investing will continue to be valuable. Real Rates-Real People Curve Looking at the twists and…
15 January 2015 To understand the big oil big story, have you seen the big data? Prices and inventories typically make headlines, but deeper data trends on consumption and production give investors foresight. Consumption In consumption, oil and gas prices reflect global demand from consumers, business and government. Typical charts look at quantity or dollar purchases. However, this hides inflation, population and economic activity. To reveal hidden trends, we can focus on one segment such as US personal consumption. To look back over 85 years, we normalize for population and economic activity. Thus, this picture compares purchases of Gasoline and…
31 December 2014 Quick, what’s the world’s second largest economy after the U.S. at USD 16.8T? Euro at USD 13.1T, by region. China at USD 9.2T, by nation. Or, the S&P 500® members at about USD 10T. S&P 500 members are U.S.-based and have just over 46% of revenue produced and sold outside the U.S. according to the S&P Dow Jones 2013 Global Sales report. For comparison, Japan is the third largest country, just under USD 5T. Analyzing these companies as an economy provides powerful insight. The Zacks Investment Service S&P 500 ETF composite makes this data available and Zacks…
30 December 2014 Big 5% jump in U.S. Real Gross Domestic Product (GDP) is reason to cheer. In any quarter, the cause of change matters. In a mystery, a crime detective wants to know a suspect’s means, motive and opportunity—three questions that bring a bounty of useful data. Applying such Sherlockian skills of analysis, you too can be a GDP detective by asking 3 questions. Question 1: “What is really growing?” To answer, start with the U.S. Bureau of Economic Analysis’ (BEA) Table 1.5.2. Contributions to Percent Change in Real Gross Domestic Product, Expanded Detail. These numbers detail how the…