Jobs Friday: NFP Increased By 228K In November, Wage Growth Cools To 2.5% YoY, Unemployment Near 17 Year Lows

Total nonfarm payroll employment increased by 228,000 in November, and the unemployment  rate was unchanged at 4.1 percent, the U.S. Bureau of Labor Statistics reported today.

Employment continued to trend up in professional and business services, manufacturing,  and health care.

Household Survey Data

The unemployment rate held at 4.1 percent in November, and the number of unemployed persons was essentially unchanged at 6.6 million. Over the year, the unemployment rate and the number of unemployed persons were down by 0.5 percentage point and 799,000, respectively. (See table A-1.)

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Among the major worker groups, the unemployment rate for teenagers increased to 15.9 percent in November. The jobless rates for adult men (3.7 percent), adult women (3.7 percent), Whites (3.6 percent), Blacks (7.3 percent), Asians (3.0 percent), and Hispanics (4.7 percent) showed little change. (See tables A-1, A-2, and A-3.)

The number of long-term unemployed (those jobless for 27 weeks or more) was essentially unchanged at 1.6 million in November and accounted for 23.8 percent of the unemployed.  Over the year, the number of long-term unemployed was down by 275,000. (See table A-12.)

The labor force participation rate remained at 62.7 percent in November and has shown no  clear trend over the past 12 months. The employment-population ratio, at 60.1 percent,  changed little in November and has shown little movement, on net, since early this year. (See table A-1.)

The number of persons employed part time for economic reasons (sometimes referred to as  involuntary part-time workers), at 4.8 million, was essentially unchanged in November but was down by 858,000 over the year. These individuals, who would have preferred full-time employment, were working part time because their hours had been cut back or because they were unable to find full-time jobs. (See table A-8.)

In November, 1.5 million persons were marginally attached to the labor force, down by
451,000 from a year earlier. (The data are not seasonally adjusted.) These individuals
were not in the labor force, wanted and were available for work, and had looked for a job  sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. (See table A-16.)

Among the marginally attached, there were 469,000 discouraged workers in November, down by 122,000 from a year earlier. (The data are not seasonally adjusted.) Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The remaining 1.0 million persons marginally attached to the labor force in November  had not searched for work for reasons such as school attendance or family responsibilities. (See table A-16.)

Establishment Survey Data

Total nonfarm payroll employment increased by 228,000 in November. Employment continued to trend up in professional and business services, manufacturing, and health care. Employment growth has averaged 174,000 per month thus far this year, compared with an average monthly gain of 187,000 in 2016. (See table B-1.)

Employment in professional and business services continued on an upward trend in November (+46,000). Over the past 12 months, the industry has added 548,000 jobs.

In November, manufacturing added 31,000 jobs. Within the industry, employment rose in machinery (+8,000), fabricated metal products (+7,000), computer and electronic products  (+4,000), and plastics and rubber products (+4,000). Since a recent low in November 2016,  manufacturing employment has increased by 189,000.

Health care added 30,000 jobs in November. Most of the gain occurred in ambulatory health care services (+25,000), which includes offices of physicians and outpatient care centers.  Monthly employment growth in health care has averaged 24,000 thus far in 2017, compared with an average increase of 32,000 per month in 2016.

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Within construction, employment among specialty trade contractors increased by 23,000 in  November and by 132,000 over the year.

Employment in other major industries, including mining, wholesale trade, retail trade,
transportation and warehousing, information, financial activities, leisure and hospitality,
and government, changed little over the month.

The average workweek for all employees on private nonfarm payrolls increased by 0.1 hour to 34.5 hours in November. In manufacturing, the workweek was unchanged at 40.9 hours, and overtime remained at 3.5 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls was unchanged at 33.7 hours. (See tables B-2 and B-7.)

In November, average hourly earnings for all employees on private nonfarm payrolls rose  by 5 cents to $26.55. Over the year, average hourly earnings have risen by 64 cents, or 2.5 percent. Average hourly earnings of private-sector production and nonsupervisory
employees rose by 5 cents to $22.24 in November. (See tables B-3 and B-8.)

The change in total nonfarm payroll employment for September was revised up from +18,000 to +38,000, and the change for October was revised down from +261,000 to +244,000. With these revisions, employment gains in September and October combined were 3,000 more than previously reported. (Monthly revisions result from additional reports received from businesses and government agencies since the last published estimates and from the recalculation of seasonal factors.)  After revisions, job gains have averaged 170,000 over the last 3 months.

Wage growth cooled to 2.5% YoY in November. Despite all the monetary stimulus, wage growth never exceeded 3% since The Great Recession ended in June 2009.

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Nothing in this jobs report will change the likely out come of the next FOMC meeting on December 13th. There is a 98.3% implied probability of a rate hike.

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The Bitcoin Whales: 1,000 People Who Own 40 Percent of the Market (Bitcoin Bubble?)

ILLUSTRATION: PATRIK MOLLWING FOR BLOOMBERG BUSINESSWEEK

On Nov. 12, someone moved almost 25,000 bitcoins, worth about $159 million at the time, to an online exchange. The news soon rippled through online forums, with bitcoin traders arguing about whether it meant the owner was about to sell the digital currency.

Holders of large amounts of bitcoin are often known as whales. And they’re becoming a worry for investors. They can send prices plummeting by selling even a portion of their holdings. And those sales are more probable now that the cryptocurrency is up nearly twelvefold from the beginning of the year.
 
About 40 percent of bitcoin is held by perhaps 1,000 users; at current prices, each may want to sell about half of his or her holdings, says Aaron Brown, former managing director and head of financial markets research at AQR Capital Management. (Brown is a contributor to the Bloomberg Prophets online column.) What’s more, the whales can coordinate their moves or preview them to a select few. Many of the large owners have known one another for years and stuck by bitcoin through the early days when it was derided, and they can potentially band together to tank or prop up the market.
 

“I think there are a few hundred guys,” says Kyle Samani, managing partner at Multicoin Capital. “They all probably can call each other, and they probably have.” One reason to think so: At least some kinds of information sharing are legal, says Gary Ross, a securities lawyer at Ross & Shulga. Because bitcoin is a digital currency and not a security, he says, there’s no prohibition against a trade in which a group agrees to buy enough to push the price up and then cashes out in minutes.

Regulators have been slow to catch up with cryptocurrency trading, so many of the rules are still murky. If traders not only pushed the price up but also went online to spread rumors, that might count as fraud. Bittrex, a digital currency exchange, recently wrote to its users warning that their accounts could be suspended if they banded together into “pump groups” aimed at manipulating prices. The law might also be different for other digital coins. Depending on the details of how they are structured and how investors expect to make money from them, some may count as currencies, according to the U.S. Securities and Exchange Commission.

Asked about whether large holders could move in concert, Roger Ver, a well-known early bitcoin investor, said in an email: “I suspect that is likely true, and people should be able to do whatever they want with their own money. I’ve personally never had time for things like that though.”

“As in any asset class, large individual holders and large institutional holders can and do collude to manipulate price,” Ari Paul, co-founder of BlockTower Capital and a former portfolio manager of the University of Chicago endowment, wrote in an electronic message. “In cryptocurrency, such manipulation is extreme because of the youth of these markets and the speculative nature of the assets.”

The recent rise in its price is difficult to explain because bitcoin has no intrinsic value. Launched in 2009 with a white paper written under a pseudonym, it’s a form of digital payment maintained by an independent network of computers on the internet‚ using cryptography to verify transactions. Its most fervent believers say it could displace banks and even traditional money, but it’s only worth what someone will trade for it, making it prey to big shifts in sentiment.

Like most hedge fund managers specializing in cryptocurrencies, Samani constantly tracks trading activity of addresses known to belong to the biggest investors in the coins he holds. (Although bitcoin transactions are designed to be anonymous, each one is associated with a coded address that can be seen by anyone.) When he sees activity, Samani immediately calls the likely sellers and can often get information on motivations behind their sales and their trading plans, he says. Some funds end up buying one another’s holdings directly, without going into the open market, to avoid affecting the currency’s price. “Investors are generally more forthcoming with other investors,” Samani says. “We all kind of know who one another are, and we all help each other out and share notes. We all just want to make money.” Ross says gathering intelligence is legal.

Ordinary investors, of course, don’t have the cachet required to get a multimillionaire to take their call. While they can track addresses with large holdings online and start heated discussions of market moves on Reddit forums, they’re ultimately in the dark on the whales’ plans and motives. “There’s no transparency to speak of in this market,” says Martin Mushkin, a lawyer who focuses on bitcoin. “In the securities business, everything that’s material has to be disclosed. In the virtual currency world, it’s very difficult to figure out what’s going on.”

Ordinary investors are at an even greater disadvantage in smaller digital currencies and tokens. Among the coins people invest in, bitcoin has the least concentrated ownership, says Spencer Bogart, managing director and head of research at Blockchain Capital. The top 100 bitcoin addresses control 17.3 percent of all the issued currency, according to Alex Sunnarborg, co-founder of crypto hedge fund Tetras Capital. With ether, a rival to bitcoin, the top 100 addresses control 40 percent of the supply, and with coins such as Gnosis, Qtum, and Storj, top holders control more than 90 percent. Many large owners are part of the teams running these projects.

Some argue this is no different than what happens in more established markets. “A good comparison is to early stage equity,” BlockTower’s Paul wrote. “Similar to those equity deals, often the founders and a handful of investors will own the majority of the asset.” Other investors say the whales won’t dump their holdings, because they have faith in the long-term potential of the coins. “I believe that it’s common sense that these whales that own so much bitcoin and bitcoin cash, they don’t want to destroy either one,” says Sebastian Kinsman, who lives in Prague and trades coins. But as prices go through the roof, that calculation might change. 

BOTTOM LINE – It’s not necessarily illegal for big holders of some cryptocurrencies to discuss trading with one another. That puts small buyers at a disadvantage.

Bitcoin actually broke through the 17,000 barrier yesterday before retreating and is now back to 14,500 area.
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Bitcoin has no intrinsic value? And that makes it different than the US Dollar, how?
Here is the Elizabeth Warren commemorative $5 Dollar bill.
indian-five-dollar-bill

Fed Balance Sheet Shrinks By $2.5 Billion (Starts Resembling a 30-year Mortgage)

The New York Federal Reserve has released their weekly SOMA (System Open Market Account) report. And as of December 6, 2017, SOMA has declined by $2.5 billion. To $4.2 TRILLION.

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How big is $2.5 billion unwind? It is so big that you can barely see it!

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At this rate, it will take around 30 years to fully unwind the balance sheet. About the same length as a 30 year mortgage. As in 1,685 weeks at this rate.

All this as the Treasury curve keeps flattening towards zero.

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“I’ll be long gone before this suckers unwinds!”

oryellin

Trumpcoin? Bitcoin Reaches $15,600 Mark (Up From $710 On 2016 Election Day of Trump)

Crypto-currency  Bitcoin has experienced a tremendous run-up since the 2016 election (November 8th) of Donald Trump. In fact, it has risen from $710 on election day 2016 to $15,600 as of today.

trumpcoin

The US Treasury 10 year yield rose dramatically on election day 2016, but today’s 10-year yield is about the same as it was in late November 2016.

The US Treasury 10Y-2Y curve continues to flatten as Trump enthusiasm waines as Democrats ferociously attempt to block almost any change proposed by Trump or Republicans.

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Oddly, Bitcoin was left off the list off the Financial Systems Vulnerabilities Monitor.

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America’s Disappearing Mortgage Tax Break Finds Few Defenders (Beware of Tax Carveouts And Shrinking Middle Class Incentives!)

Federal income taxation should be simple. Here is my FIT (Federal Income Tax) pecking order:

  • No Federal Income taxation. A consumption tax (or national sales tax) could be used to raise revenues.
  • Flat tax or fair tax. A simple tax rate for everyone (say, 12%) would greatly simplify matters. Or if you feel that households making less than, say, $20,000 should be exempted, so be it. Under either tax, we wouldn’t need to itemize tax deductions; hence, the mortgage interest deduction would be eradicated.
  • OR we can have our current system where special interest groups lobby for and get tax carveouts (essentially exempting them from or reducing their tax bill). For the carveout approach, see the Senate’s 479 page tax revision.
  • After all the special interest and corporate carveouts got their piece of the tax pie, the one group that is losing their carveout is American households with the dimishing mortgage interest rate deduction.

Which brings me to this nice piece by  Bloomberg reporters Joe Light and Prashant Gopal.

(Bloomberg) -By Joe Light and Prashant Gopal- One of America’s most popular tax breaks is about to be rendered nearly useless. And there are few economists rushing to defend it.

The $64 billion mortgage-interest deduction has long been touted as fuel for U.S. homeownership. Yet as the real estate industry fights the Republican tax plan that’s set to diminish its use, finding economic supporters of the perk is tough, even among affordable-housing advocates. John Weicher, a 79-year-old former official with the Department of Housing and Urban Development, says he’s one of the few who believes in the break.

“We’re about as common in the economics profession as Republicans are in the District of Columbia,” said Weicher, now director of the right-leaning Hudson Institute’s housing center in Washington, a city where only about 4 percent of voters chose President Donald Trump in last year’s election.

While Republican lawmakers aren’t directly killing the mortgage benefit, their tax plan would make it worthless for most homeowners by doubling the federal standard deduction, making it less likely that a typical person would itemize write-offs of any kind. Almost 38 million American households who would otherwise itemize would opt for the standard deduction under the new tax plan, according to Moody’s Analytics Inc.

The bill’s passage would be one of the greatest defeats for the National Association of Realtors, Washington’s second-most powerful lobbying group, which had for decades successfully fended off criticism of the benefit. Detractors argue that the tax perk inflates home prices for first-time buyers and favors families with bigger incomes and bigger mortgages (including for discretionary vacation-home purchases).

It’s “not an effective way to support homeownership,” Mark Zandi, chief economist for Moody’s Analytics, said of the mortgage-interest deduction, or MID. “I think my views on the MID are in the consensus.”

Opposition to the deduction has created strange bedfellows.

In February, Diane Yentel, chief executive officer of the National Low Income Housing Coalition, and Mark Calabria, then working at the libertarian Cato Institute, co-wrote a column in The Hill calling for Congress to kill or reform the deduction.

“No longer a political ‘third rail,’ experts from across the ideological spectrum are increasingly calling it what it really is: a wasteful use of federal resources,” they wrote.

“People were shocked,” Mickelson said. [Side note: people were shocked when they discovered that Regulatory Capture (pitting one group against another when the public is not best served) is alive and well?]

When the column ran, Sarah Mickelson, director of public policy for the NLIHC, said she got surprised emails from colleagues that her organization could find something to agree on with Calabria, who’s now the chief economist for Vice President Mike Pence.

The agreement only goes so far. While Mickelson’s group wants to reinvest the savings from limiting the mortgage-interest deduction into help for low-income renters, neither bill in Congress does that.

Standard Deduction
Both the Senate and House bills increase the standard deduction to $24,000 from $12,700 for a married couple filing jointly. The House plan also caps the home-loan write-off to mortgages up to $500,000 instead of the current $1 million limit. The plans have other elements that stand to disrupt the housing market, from shifts in capital-gains levies on home sales to limiting deductions on state, local and property taxes.

Taxed in Scarsdale: GOP Plan Daunts Metro New York Real Estate
While housing lobbyists’ furious opposition to the tax overhaul didn’t emerge until the last few months, the industry’s tax breaks have been vulnerable for much longer, said Isaac Boltansky, a policy analyst with Compass Point Research & Trading.

“The die was largely cast the minute the GOP swept the 2016 election,” said Boltansky, who said getting rid of or lessening the value of itemized deductions was always going to be a target of a tax bill in order to save money for broader cuts.

Denmark Study
Jon Gruber, an economics professor at the Massachusetts Institute of Technology, said he opposes the GOP tax plan because it adds to the deficit at the benefit of the wealthy, but that the mortgage-interest deduction isn’t something that should be saved. The perk would cost the government almost $80 billion by 2019, according to Congress’s nonpartisan Joint Committee on Taxation. The government could spend much less, for example, on a permanent tax credit for first-time buyers, Gruber said.

“If the goal is middle-class homeownership, you could just as well be throwing $100 billion in the ocean,” Gruber said. “At least then you’d have a landfill and you could build a house there.”

Gruber co-wrote a July working paper, “Do People Respond to the Mortgage Interest Deduction?,” using Denmark’s sharp cut in its mortgage deduction for top-rate earners in the late 1980s to make the case.

“The mortgage deduction has a precisely estimated zero effect on homeownership,” the paper concludes. “The largest effect of the mortgage deduction is on household financial decisions, inducing them to increase indebtedness.”

‘Simple Logic’
Lawrence Yun, chief economist of the National Association of Realtors, said he’s skeptical of studies that use very different mortgage systems in other countries to make conclusions about the U.S. Without the deduction, the homeownership rate would drop by one or two percentage points, he said.

It’s “simple logic” that the deduction is one of many factors that encourages purchases, Yun said. A study that his group commissioned said home prices in the short run could decline 10 percent with the elimination of the deduction, as potential buyers stop factoring it in to how much they can pay.

Weicher, the benefit’s backer, said economists who oppose the mortgage-interest deduction tend not to have studied it themselves and merely take that view because it’s what other economists they know believe.

The last time the deduction was under assault, a few years ago, he was popular with newspaper opinion pages. He said he wrote op-eds that appeared in a handful of publications as they got interested in having columns, both pro and con, running side by side.

“Nobody else has an MID op-ed that takes the pro side,” Weicher said.

This article points to a mostly negative view on the mortgage-interest deduction for homeownership.  I agree with Lawrence Yun simply comparing the US with other housing finance (and tax) systems can be misleading. But more than that, the 479 page tax bill coming from the US Senate points to the actual problem: the tax code is all about special interest/corporate carveouts and not about middle-class Americans.

To let middle-class Americans compete with special interest groups on the tax front, the mortgage interest deduction should be preserved, not erradicated or deleted.

So why are American home prices so high and affordability so low? You can thank 1) land use restrictions (either natural or man-made) that reduce the available construction of housing units, 2) The Federal Reserve and their zero interest rate policies.

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The hysteria from Pelosi and even Larry Summers ring hollow considering that the Federal Tax Code has been filled with carveouts for decades they never complained until now. The 479 page tax bill is just a reshuffling of the deck chairs on the Titanic (or Tax-anic).

On a side note, House Minority Leader Nancy Pelosi and Senator Elizabeth Warren are whining the Republicans did not give them time to read the 479 pages. They seem to conveniently forget that the Democrats did the exact same thing with the disastrous Obamacare legislation. Remember Pelosi’s infamous “We Have to Pass the Bill So That You Can Find Out What Is In It.”?

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So, unless Congress wants to move to a more simple tax code, they should leave the MID in place (except for vacation homes). Since The Fed mostly benefitted wealthier Americans, the middle class does demand some tax relief.

Particularly given that income inequality keeps getting worse and worse.

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Q3 Unit Labor Costs Decline To -0.70% YoY As Retail Landscape Changes (With Robots)

The title from Quartz says it all: “There are 170,000 fewer retail jobs in 2017—and 75,000 more Amazon robots.”

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As more and move firms move to robots in effort to reduce costs and increase efficiency, we are likely to see further declines in unit labor costs in business.

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The decline in big-box retail stores (and their closings) demostrates the paradigm shift in American employment.

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I often wonder how long it will be before universities go mostly to on-line teaching to avoid the problems of some faculty teaching 20 year-old material from graduate school and using stale Harvard/UVA business cases? It is just a matter of time.

A scene inside Jeff Bezos’ Amazon warehouse.

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