90 seconds at 9 am: 'Lousy' US jobs report

US jobs report disappoints; iron ore price slumps; Australia risks 'inevitable' recession; Scottish independence more likely; UST 10yr 2.46%; oil price falls; NZ$1 = US$0.833, TWI = 79.0

8th Sep 14, 7:19am by David Chaston

Here's my summary of the key news over the weekend in 90 seconds at 9 am, including news the US labour market created fewer jobs in August.

The closely-watched monthly survey of non-farm payrolls had an employment gain of just 142,000 in August, far below the 200,000 plus that was expected. And there was a prior-month revision lower. However, the US unemployment rate dipped to 6.1% as the participation rate stayed at a low 62.8%.

Some called the report 'lousy' but others noted the result is partially due to a supermarket strike.

Markets seemed to shrug off the news with the S&P500 closing up at over the 2000 index level.

Over the weekend, the price of iron ore dropped below US$85 a metric ton for the first time in five years as China’s economy, the world’s biggest buyer, showed signs of losing momentum amid an expanding global glut. And, according to a former Australian government minister, that means an “inevitable” Australian recession which will result in painful changes being forced on the country.

In the UK, a poll out over the weekend showed that Scottish independence is the likely result of the vote that is due on September 19 (NZ time). There are plenty of people concerned about the consequences if that is the result. Their currency seems to be at risk.

The UST 10yr benchmark bond yield rose again and is now at 2.46%.

The price of oil and gold both fell at the end of last week. The US oil price is now just below US$94/barrel and the Brent benchmark is now just below $101/barrel. Gold is basically unchanged, now at US$1,268/oz.

We start the week with our currency a little higher after the US jobs report. We are now just on 83.3 USc, 88.8 AUc, and the TWI is at 79.0.

If you want to catch up with all the changes on Friday we have an update here.

The easiest place to stay up with today's event risk is by following our Economic Calendar here »

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18 Comments

by Gummy Bear Hero | 8th Sep 14, 8:21am 1410121265

.. the " inevitable " recession in Australia , as predicted by Peter Reith , need not be so onerous for business owners and wage earners alike if there's some degree of flexibility on setting wage rates ...

But Australia has locked in a comparatively high minimum wage .... so when the pressure is on business owners , staff will be retrenched , rather than kept on with shorter hours and lower hourly rates of pay ....

... NZ risks the same fate if politicians in Wellington pump up the minimum wage , simply because it feels good and fair to do so , rather than consulting with actual employers on what they can reasonably afford to pay ...

by steven | 8th Sep 14, 8:45am 1410122706

That is of course your opinion without showing any facts to back it up.

a) Wages are actually "sticky" rarely dropping in the real world.

b) Drop wages across the board and the bets people will look around and be likely to leave, Ive seen this happen quite a few times.

c) You make the assuption that the sectors with the minimum wages will be the ones struggling.

d) A "bad" employer will cut his/her employees wages while a "good" one wouldnt, hence the good one could be put out of business, or we see a race to the bottom.

e) The min wages only effects a small % of workers in terms of the National economics.

In terms of "consulting" there would always be far right wing employees who simply will think in limited terms such as yourself so they will always say " we cant afford to"

In reality the min wage sets a floor for everyone, if the job is going to be done it will be done at the min wage, or not at all.

f) No evidence that allowing the min wage to drop would actually acghieve much.

regards

by PeakEverything | 8th Sep 14, 9:59am 1410127166

I always wonder at this. I have a small business (employ 3 others). If my business can't afford to pay people enough to live without support from the government then I think it must be a case of two things. Either my business isn't really making a decent profit and I should be looking at doing something else anyway (after all business owners are "wealth creators" and if not creating wealth what is the point) or I am taking too much of the profit out and not sharing the sucess of my business with those who make it possible.

by DFTBA | 8th Sep 14, 10:52am 1410130325

I agree PE, if a business does not make enough in order to pay its staff a wage they can live on without government subsidy, it is in fact the business which is subsidised, not the workers.

Wage push inflation is largely being talked aout, but we never see wage drop delfation, do we?

For at least 5 years now wages have stagnated, which in real terms they've dropped. I can't see my cost of living going down, however.

Shouldn't "The Market" - that elusvive, mythical entity, correct itself?

by DFTBA | 8th Sep 14, 10:52am 1410130369

heh - that's deflation, not delfation

by cowboy | 9th Sep 14, 7:21am 1410204114

theft of time (often by government or third party) deflates worker output.

its encouraged by government and third parties as it increase number of employed...but that means prices are high in relation to productive work, which raises true cost of living. noticable in lower income peoples

by notaneconomist | 9th Sep 14, 9:32am 1410211968

PE and DFTBA......have you actually considered where the Government subsidies come from in the first place? Any Government subsidy provided comes from Business in the first instance.....if there is no business then how do you think the Government can exist or pay subsidies? Quite simply it can't!!!

If there is no business.......there are no workers.....no workers......no taxes!

Or are you both advocating a Communist system where all is owned by the State.....and the State then pays everyone??

Using compulsion to force up wages is not "The Market" setting the wage cost!

How can any market correct itself when there is Political interference at every turn?

by PeakEverything | 9th Sep 14, 11:31am 1410219096

I think you missed my point. Sure the government subsidies come from business in the first place but not the sort of business that can't afford to pay a living wage. Technically my business is subsidising their poor business or worse proping up companies that already make a good profit but are to mean to pay workers what it costs to live.

As far as the market setting the wage. That is simply to simplistic. The market sets the lowest price you can get away with paying someone. It does not set the value they add to your company. If people were not greedy we wouldn't need a minimum wage but they are, so we do.

by cowboy | 9th Sep 14, 2:07pm 1410228431

your assumption is not accurate. Often that "poor business" is being stripped by parasitic charges. Sure many of them overcommit funds or find they can't charge enough to cover their costs and then some, or have bad debt/payment collection.

As for good profitting business that are too mean to pay workers what it costs to live...I think you might have to list a few. Business like that, that have poor conditions, poor wages, and great profits, need competition as I can't imagine how they are retaining their staff - after all could their competition not just offer better wages and draw the good staff away??

Could I ask what market segment your business is in? (consider yourself asked)

From your comments it seems to have plenty of margin in it's revenue, where many areas I've been in farming (dairy, beef), video processing, power utilities, residential building, electrician, electronics repair, programming, security, form making, photocopier service and sales, computer programming, computer technical support, computer retail, software training, corner store/cafe, hospitality, petrol station, truck driving - it is definately the revenue from the prices on the market that sets the available funds to pay staff wages. Many would love to charge more, but would see a reduction in sales before enough margin is available to pay staff more.

Many are prisoners of the banks charge rate and government costs, and the pricesmovements are often dictated by environmental pressure across their market segment, and thus affect all parties at once. eg minimum wage increase, means everyone has higher wage bill, so everyone can move prices up a little.

by cowboy | 8th Sep 14, 12:47pm 1410137241

if your business isn't strategically important then I would agree. However, who controls what your sales price is? In some businesses they are willing to sell at under cost and are protected from what the shareholders say.

One of the worst offenders of this tactic are the government, who find social and political reasons to spend, and then tax and borrow at taxpayers expense to get their way.

Likewise we have people out of contact with the real world in places of power like MPI, who get to make demands that aren't backed by economic facts (eg "our customers demand extra cooling...but we expect it to be supplied mandatory. without any ability or responsibility to pass on the cost") - this distorts the cost production side of the business, so efficient and small producers are disadvantaged, while larger more expensive influencers get reduction in market price competition.

by notaneconomist | 9th Sep 14, 10:15am 1410214540

The whole system is stacked against the efficient and small producers.....and so many people just don't get it. Quite frankly the populace was probably better off believing in christian religeous endeavours at least their fear was focused in a way that was less harmful to the economy and all the people.

We all know or should know that obesity is NO good for human health......and this follows through to production everywhere.....the world needs economic stomach stapling.....but the fearful won't undergo the surgery......Parties like the Greens and Labour are the problem as their whole existence relies on economic and emotional blackmail of the masses!!!

The fruit-loops in our State run eductional system have much to answer for......

http://en.wikipedia.org/wiki/Definitions_of_fascism

by cowboy | 9th Sep 14, 2:28pm 1410229690

Sadly it is hard for people who have been lucky with their business to understand the threats and difficulties found by others.

now I do agree with a few things PE has said... why should doctors and medical personal receive non-customer monies? Is their industry pared down as much as possible?

likewise for dairying - we see many legitimate concerns about wages, hours worked and environmental concerns. But is the industry price setter been checked to make sure it pays fair price for what it's buying?

Customers can't realy expect to get 3 skilled staff, land fenced off, top quality paperwork where before they had 2 semi-skilled staff, full land use with little restriction and minimum bureaucratic overhead, for the same cost price. Physically and mathematically it's not going to be possible, when we factor in inflation and passed on costs from suppliers in similar situations those prices will rise.

And they have to.

It might be that some production methods are not viable any more - but we have to look at the added costs to find out why. Is it because of poor management? or is it because of unethical capitalistic behaviour (eg dropping prices to push out competitors, cross subsidisation, politicla maneuvering)?

But perhaps if Fonterra really can't lift it's gDT price over the $5 equivalent, then we might have to start finding better land use opportunities in NZ. It would, in the short term, destroy the economy, but that's the problem with market correction - if fonterra really have messed up (and I think they just might have) and shipped production and processing and ip to the worlds' biggest processing and manufacturing giant, then we better start looking for new areas to look at....

by steven | 8th Sep 14, 8:46am 1410122803

The oil price dropping suggests a drop in demand which suggests we are looking at another recession/GFC.

Do we know where the demand is weak? EU? china?

regards

by David Chaston | 8th Sep 14, 8:58am 1410123516

Actually, I think it is a rise in supply, especially in the US. The huge increase in fracking supply is not supported by pipelines yet so much of it must go by rail. Not only are there dangers in that, those oil shipments are crowding out grain shipments. US grain is also expected to be at record levels and that can only be shipped in volume by rail. The US has a big short-term infrastructure problem with these two big gluts.

One winner however will be Warren Buffett who spent big in the recession buying US rail networks. Canny.

by PeakEverything | 8th Sep 14, 10:02am 1410127362

David do you have any stats on that? I wouldn't be surprised if the US has increased supply (in the short term) but I don't see a large increase in supply from the rest of the world.

by cowboy | 8th Sep 14, 4:56pm 1410152208

I haven't heard much in the way of horror storms over in the US recently, their heating fuel oil demand plays a big factor in market demand

by Snodgrass Thro… | 8th Sep 14, 10:03am 1410127385

Actually demand is still increasing but at a much lower rate than predicted. We are about 12 months away from decreasing demand meeting static or increasing production. The last spike in price was China increasing its strategic reserve.

There are dozens of major factors contributing to decreasing demand, and thousands of minor factors. Medium term crude prices are just as likely to hit multi-year lows as spike to new highs. Prices for 5 year crude future contracts are well below current prices.

http://oilprice.com/commodity-price-charts?&page=quote&sym=CLV14&name=C…

by cowboy | 9th Sep 14, 7:24am 1410204279

that demand pattern is typical of confidence of supply