Tags: labor | costs | consumers | inflation

US Companies Have to Bear Rising Labor Costs

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By    |   Wednesday, 13 March 2019 09:26 AM

U.S. Trade Representative Robert Lighthizer will meet the House caucus because several lawmakers question parts of the so-called new NAFTA deal.

That deal, called the United States–Mexico–Canada Agreement (USMCA), will replace the 25-year-old North American Free Trade Agreement. USMCA has only very slim chances to make it through both chambers, especially in the Democrat-controlled House.

That is not dollar positive.

In the U.S., new orders for manufactured durable goods in January increased 0.4 percent. This increase followed a 1.3 percent December increase. Excluding transportation, new orders decreased 0.1 percent. Excluding defense, new orders increased 0.7 percent. Transportation equipment, up five of the last six months, drove the increase up to 1.2 percent.

The reduced tensions in the U.S.-China trade position should help in the future, but it’s probably too soon for that to come through in today’s numbers.

However, the oil industry in the United States is unlikely to be investing heavily given the oil price with WTI at around $57 per barrel. Six months ago WTI was at $75 per barrel.

The producer price index edged up 0.1 percent in February, seasonally adjusted. Final demand prices fell 0.1 percent in both January and December. On an unadjusted basis, the final demand index moved up 1.9 percent for the 12 months ended in February.

This matters because U.S. labor costs have been rising faster than expected. If companies try to pass those cost increases on to consumers, then producer price inflation is the first place where that inflation will show up. The reality is that profit margins of companies are more likely to bear the brunt of this pressure, at least for now.

In the interminably tedious EU-UK divorce process, the British media is struggling to find adjectives that outdo one another.

The UK government is apparently plunged into crisis. Reality is that nothing has really changed and the search for ever more hysterical headlines is just sensationalism.

The government’s deal was never expected to pass and yesterday it did not pass. This doesn’t represent the collapse of civilization. Most of the people who voted in the referendum 2 years ago, in March 2017 remain profoundly disinterested in the whole process.

The UK Parliamentary vote on a “No-deal” exit from the European Union will doubtless reject that option today. The European Union can threaten that it wouldn’t extend article 50. Extension seems to be the inevitable conclusion making the interminable tedious process that bit more interminable.

The problem with the EU’s threat is that it’s not especially credible. No sensible person wants a No-deal exit and if the UK Parliament has legally determined that a No-deal exit should be avoided, then the UK government must avoid it.

Either article 50 is extended or article 50 is cancelled and immediately re-imposed unilaterally by the UK. That is also not especially desirable.

(Article 50 of the Treaty on European Union (TEU) states that “Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.”)

In the meantime, the EU has warned that the risk for a disorderly exit “has never been higher,” the BBC reported.

The British pound remains relatively stable for now at around $1.3150.

For investors it’s important to keep in mind that a “No-deal” scenario or a hard Brexit would likely pressure the British pound, given the greater economic uncertainty that this would imply.

Sterling could fall to $1.15 against the dollar and to parity against the euro.

At the moment around Sterling is around 1.16 euro per Sterling.

From the Euro area we got industrial production data that compared with December 2018 was up 1.4 percent in January but still showed a decline of 1.1 percent from a year earlier, easing from a 4.2 percent decline in December 2018, which was the steepest decline in nine years, and beating market expectations of a 2.1 percent fall.

Output continued to contract for capital, intermediate and durable consumer goods while a rebound was seen in production of both energy and non-durable consumer goods.

At the moment the euro is slightly higher against the dollar at around $1.13

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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U.S. labor costs have been rising faster than expected. If companies try to pass those cost increases on to consumers, then producer price inflation is the first place where that inflation will show up.
labor, costs, consumers, inflation
Wednesday, 13 March 2019 09:26 AM
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