SYDNEY Sept 4 (IFR) 12:04amCDT
Good morning.
The main themes impacting asset markets on Wednesday were position paring ahead of major events – especially
Thursday’s ECB decision and Friday’s US non-farm payrolls; and confusion over whether or not Russia and
Ukraine are close to agreeing to a ceasefire. The S&P 500 index closed -0.08% at 2000 while the yield on Treasury
10s closed unchanged at 2.41%. Asian stock indices are showing mixed results today. The MSCI Asia ex-Japan
index is -0.1% while the Nikkei 225 index is -0.3%. The BOJ left monetary policy unchanged as expected.
Australia saw the release of July Retail Sales figures which met expectations at +0.4% m/m. The trade balance for
goods and services also came in at -1.359 bln vs poll -1.51 bln AUD. The ASX 200 index is currently -0.5%. S&P
500 futures are flat while the yield on Treasury 10s is 1 bp below the NY close at 2.40% in Tokyo trading. LATE
TREASURY SESSION *Treasury prices recouped the overnight losses and held a steady grind higher, ending
Wednesday’s session mixed. Prices opened lower with the selloff led by reports of a Ukraine/Russia ceasefire.
Bunds led as traders feared that the conflict, if truly resolved, could hasten the ECB’s QE decision. *But there was
more substance to the reports after Russian President Putin said, according to Reuters news, that his views were
“very close” with Poroshenko on how to resolve the Ukraine conflict and an agreement could be reached by
September 5 – no ceasefire announced. *Thus, by the New York open and ahead of key events this week – ECB on
Thursday followed the the US Employment data on Friday, buyers were already waiting. Dealers, CTAs and real
money accounts – both overseas and domestic, were buyers at the CME open with dealers relaying that the back-up
in yields lured in cash buyers out the curve. That said a short covering bid from retail and leverage funds was also
present all session with the widely followed weekly JPM Investor Survey verifying the short base. According to the
survey investor shorts (“all clients”) were at the highest levels since late July; and “active client” shorts were at the
highest since early June. *Chunky blocked TYZ sales in the first hour of New York trading got soaked up, offset by
short covering and swap-related buying, as Wednesday’s huge swapped issuance was still getting absorbed. The
blocked sales were replaced by a trio of blocked TYZ buys late-morning and into noon. *But another large new
corporate issuance calendar also lent some of the bid to treasuries as anticipatory rate lock related buying surfaced
as the afternoon session wore on and the deals began to get priced. On top of Tuesday’s $21.3 bln in fresh issuance,
approximately $24 bln hit the Street on Wednesday – combining investment grade corporates and SSAs, today saw
pretty much the largest issuance day of the year. *The bid from the corporate flow spooked out more shorts with
treasuries reversing most of the session’s losses by the close. The wings ended slightly higher, but the 3-year and 5year lagged, mostly a function of the Fed’s Beige Book. There were few changes in the Fed’s Beige book which
should keep the Fed on it’s current pace. *According to Tradeweb, the 2-year yield fell 0.4 bps to 0.524%; the 10year yield fell 0.9 bps to 2.412%; the bond yield finished 1.6 bps lower at 3.57%. OVERNIGHT EVENTS * BoJ
Policy Board leaves policy as is, maintains upbeat view on economy as eyed vote unanimous, some “weak
movements” in output, housing view cut on ongoing effects of sales tax hike, effect on consumption abating (?). *
MoF flow data week-ended Aug 30 – Japanese sell net Y4.7 bln foreign stocks, buy Y503.7 bln bonds, sell Y20.5
bln bills; foreign investors sell net Y110.7 bln Japanese stocks, buy Y1.1086 trln bonds, sell Y237.7 bln bills. *
Japan PM Abe’s wife chimes in against another sales tax hike – Reuters. * Strong factory orders, auto sales
brighten US economic picture – Reuters. * European repo activity recovers modestly as banks cut ECB reliance –
Reuters. * Australia July retail sales +0.4% m/m, as eyed. * Australia July trade deficit A$1.359 bln, A$1.510 bln
eyed, exports +1% m/m, imports unch. * NZ Aug QV residential property index +6.9% y/y, July +7.6%. Looking
Ahead - Economic Data (GMT) 05:30 FR Q2 ILO unemployment; last 10.1%. 06:00 DE Jul industrial orders,
+1.5% m/m eyed; last -3.2%. 11:30 US Aug Challenger layoffs; last 46.89k. 12:15 US Aug ADP national
employment, +220k eyed; last +218k. 12:30 US Jul int’l trade balance, $42.2bln deficit eyed; last $41.5bln deficit.
12:30 US Q2 productivity/labor costs, +2.5%/+0.5% eyed; prelim +2.5%/+0.6%. 12:30 US w/e initial jobless
claims, 300k eyed; last 298k. 13:45 US Aug Markit services PMI – final; flash 58.5. 13:45 US Aug Markit
composite PMI – final; flash 60.6. 14:00 US Aug ISM non-mfg PMI, 57.5 eyed; last 58.7. Looking Ahead - Events,
Auctions (GMT) 06:30 BoJ Gov Kuroda press conference. 07:30 Riksbank policy announcement, no change in
0.25% repo rate eyed. 08:30 Spain E2-3 bln 2.75% and 5.15% 2024 and 2044 Bono auctions. 08:50 France E8-9
bln 1.75%, 2.5% and 3.25% 2024, 2030 and 2045 OAT auctions. 11:00 BoE MPC announcement, no change in
0.5% repo rate, GBP375 bln QE eyed. 11:45 ECB announcement, no change in 0.15% refi/-0.1% depo rates eyed,
QE? 12:15 ECB Pres Draghi press conference. 15:45 Cleveland Fed Mester speech in Pittsburgh. 22:15 Fed Gov
Powell speech in New York. richard.sexton@thomsonreuters.com Copyright (c) 2014 Thomson Reuters –
IFRMarkets
0518 GMT [Dow Jones] 12:18amCDT
GBP & PMI vs. Scottish Vote
The pound failed to rally on Wednesday despite data showing U.K. services PMI rising to a one-year high of 60.5
in August. Credit Agricole says that's because rising political uncertainty related to the Scottish referendum on
Sept. 18 is keeping GBP-buying interest low. But the bank does not expect this uncertainty to become a sustainable
market driver for sterling as the PMI data suggests that U.K. domestic growth momentum remains intact, while
inflation expectations--as measured by 5-year forward break-even rates--have been rising consistently during the
past few weeks. "All of the above should keep central bank rate expectations supported to the benefit of the
currency," Credit Agricole says, "which should keep it a buy on dips against, for instance, the yen."
(jerry.tan@wsj.com) Contact us in Singapore. 65 64154 140; MarketTalk@dowjones.com (END) Dow Jones
Newswires
By William Horobin 12:30amCDT
French Unemployment Up Again
PARIS--France's unemployment rate edged up to 10.2% in the second quarter of this year from 10.1% in the first
quarter, statistics agency Insee said Thursday. The rise in unemployment came as the French economy failed to
record any growth throughout the entire first half of the year. President Francois Hollande had pledged to bring
down unemployment last year, but that goal has drifted out of sight. In June, Insee forecast that unemployment will
be stuck around the 10.2% level. A separate publication of monthly figures last week showed the number of job
seekers reached an all-time record high of 3,424,400 in July. The unemployment rate for mainland France-excluding the overseas territories--was stable at 9.7% in the second quarter, Insee said. Write to William Horobin
at william.horobin@wsj.com
By Todd Buell 1:00amCDT
German Factory Orders Better Than Expected
FRANKFURT--German factory orders rose far more than expected in July, data from the country's economy
ministry showed Thursday. In adjusted terms, orders grew by 4.6% on the month, beating expectations of a 1.2%
increase in a Dow Jones Newswires survey of analysts. June figures were revised up to show a drop of 2.7%, after a
3.2% drop had been originally reported. The ministry said that the share of bulk orders for July was well above
average. Still, it said that excluding those, orders grew by 2.1%. The data are a bit of positive news for Germany's
economy, which has weathered a number of recent troubling indicators of both hard and soft data, which have
brought down growth expectations for the country.
Order growth from abroad outpaced domestic orders, the data showed. Foreign orders were up 6.9% on the month
while domestic orders rose by 1.7%. Among foreign orders, orders from outside the eurozone were up 9.8%, while
eurozone orders increased 1.7%. Capital goods orders were up 8.5% on the month, the ministry said, with the
strongest gains coming from orders from outside the eurozone, which were up 14.6%. Write to Todd Buell at
todd.buell@wsj.com (END) Dow Jones Newswires
0635 GMT [Dow Jones] 1:35amCDT
Hollande’s Plan Not Getting It
Unemployment in France ticked up to 10.2% in the second quarter, showing French President Francois Hollande's
CICE--a tax credit scheme hatched in 2013 to incentivize employment--still isn't working. "There is still no
evidence, just hopes, that the first CICE pay-offs may begin to stabilize unemployment at the end of this year," says
ING economist Julien Manceaux. The economist says the slow impact of the CICE on jobs may prove more
embarrassing for Mr. Hollande than the publication Thursday of a book by his former partner Vallerie Trierweiler.
(william.horobin@dowjones.com) Contact us in London. +44-20-7842-9464 markettalk@wsj.com (END) Dow
Jones Newswires
0651 GMT [Dow Jones] 1:51amCDT
Look Again At Those German Orders
German factory orders data suggest the German economy is holding its own, but one shouldn't get too excited about
one month's data, since the figures still reflect some underlying trouble spots, argues Berenberg economist Christian
Schulz. He said that volatile bulk orders data "overstated the July increase." Less volatile sectors, such as consumer
and intermediate goods saw a decline in their domestic orders (-0.8% and -0.4% on the month respectively) and
foreign orders of consumer goods were also down 4.5%. "That suggests underlying weakness," he said. "July data
thus provides some reassurance that the economy is not falling off a cliff, but the next releases may well confirm an
overall weak short-term outlook." todd.buell@wsj.com Contact us in London. +44-20-7842-9464
markettalk@wsj.com (END) Dow Jones Newswires
By James Glynn 2:05amCDT
AUD Firm on News, But Capped by Iron Ore
SYDNEY--The Australian dollar was higher Thursday on news of solid retail-sales activity and a better-thanexpected trade deficit in July. Globally, all eyes are on the European Central Bank amid speculation it will unveil
further stimulus measures to support eurozone growth at a policy meeting later Thursday. A fall in the price of iron
ore, Australia's biggest export, to its lowest level in five years limited gains by the Australian dollar, traders said.
Iron ore traded at a low of US$85.70 overnight.
At 0630 GMT Thursday, the Australian dollar was changing hands at US$0.9339, compared with US$0.9306 late
Wednesday. "Most expect the ECB to make a change; failure to ease policy would lead to a rally in the euro and
potential Australian dollar underperformance," said Emma Lawson, currency strategist at National Australia Bank.
The Royal Bank Of Canada said in a note to clients that there is scope for disappointment from the ECB, although
ECB President Mario Draghi will point to likely measures in the future. "We expect plenty of promises of 'jam
tomorrow' but no 'jam today'. In other words we think that market expectations of an asset purchase programme
being initiated today are much overdone," RBC said.
Earlier Thursday, Australian government data showed a better-than-expected trade deficit in July. Australia's
seasonally adjusted trade deficit was A$1.36 billion, down from a revised A$1.56 billion deficit in June, the
Australian Bureau of Statistics said. The value of exports rose by 1%, while imports stayed level, the data showed.
Meanwhile, Australian retail sales rose 0.4% in July from a month earlier, the statistics bureau said.
The gains of July and June combined were the strongest since the start of the year, indicating that record-low
interest rates are helping to spur consumer confidence. Write to James Glynn at james.glynn@wsj.com (END)
Dow Jones Newswires
By Charles Duxbury And Dominic Chopping 2:30amCDT
Riksbank On Hold, As Expected
STOCKHOLM--Sweden's central bank left its main interest rate unchanged at a record low level, as expected, on
Thursday and retained its previous forecast that rates wouldn't be raised for about a year. The executive board of
the central bank, the Riksbank, said its benchmark repurchase rate would remain at 0.25% until late 2015 after
which it would be gradually raised. All analysts contacted by The Wall Street Journal ahead of Thursday's
monetary policy decision said they expected an unchanged rate. "The overall picture of the economic outlook and
inflation prospects for Sweden remains largely unchanged," the bank said. "The repo rate needs to remain low for a
long period of time for inflation to rise towards the target." The only change the bank made to its July policy
statement was to lower its forecasts for the main repurchase in 2016 slightly, citing weaker than expected economic
developments abroad, specifically in the eurozone. The Riksbank cut its main rate from 0.75% in July seeking to
boost an inflation rate which has been below zero for more than half of this year. The Riksbank has a 2% inflation
target. The Swedish krona strengthened slightly against the euro, which fell to 9.19 Swedish kronor from SEK9.22
before the rate decision was announced. Write to Charles Duxbury at charles.duxbury@wsj.com and Dominic
Chopping at dominic.chopping@wsj.com (END) Dow Jones Newswires
3:20amCDT
What’s It Mean??
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UK general election now scheduled for 7 May 2015
Guardian-PM Cameron faces 12 mth election delay call
Link: http://bit.ly/1uB2eUj
Vote for Scottish independence pre-requisite for postponing election call
Scotland intends to become independent in March 2016 if "yes" vote on Sept 18
1 x independent Scotland = 2 UK elections? (Aug 4) [ID:nIFR3B1WdR]
Robert.Howard@thomsonreuters.com Copyright (c) 2014 Thomson Reuters – IFRMarkets
SINGAPORE, Sep 4 (IFR) 3:37amCDT
First Chinese Investment Broker Bond Issue
Haitong International Securities Group raised USD600m overnight in a 5-year offering, becoming the first Chinese
brokerage to issue US dollar bonds with a credit rating. The bonds priced to yield 255bp over US Treasuries,
following initial talk of a spread in the high 200bp range. Compared to a debut USD900m unrated 5-year offering
sold last October, which was backed by a standby letter of credit from Bank of China Singapore, the latest deal is
guaranteed by the Hong Kong-listed entity, which has a BBB rating from Standard & Poor’s. Both offerings
include a keepwell agreement from Haitong International’s state-backed onshore parent, Haitong Securities.
Chinese brokerages have been selling bonds in the offshore market since the second half of last year. Most are
backed by SBLCs from Chinese banks and none have been rated by an international rating agency.
“Offshore investors used to have limited understanding about Chinese brokerages, that’s why they have been
issuing bonds under the shadows of Chinese banks via SBLCs,” said Dr. Lin Yong, Deputy Chairman and CEO of
Haitong International Securities Group, during a phone interview.
“But as the brokerage industry grows, the companies will eventually need to raise bonds with their own credit
ratings," Lin said.
Investors also consider ratings as necessary for financial bonds sold in international markets.
“[For a financial company to issue bonds on its own,] a rating is a necessity, not a sweetener,” said a Singaporebased portfolio manager.
Haitong International’s offering will indeed set an example for a few more similar deals expected to follow, said a
DCM banker at a Chinese brokerage. The banker did not elaborate on the pending offerings.
The future funding requirement is warranted as Chinese brokerages are expanding at a very fast pace as Chinese
clients increase investment banking activities both at home and abroad.
“Through the latest bond offering, we have set a pricing for Haitong International and in a sense, a pricing for the
industry,” Lin said. “Plus clients like to bank with a rated brokerage that can access the debt capital market on its
own merits.”
The spread on the bonds was 75bp wider than Haitong’s existing SBLC-backed issue, which was quoted at a Gspread of 180bp. BOC Singapore, the SBLC provider, has a rating of A1, four notches higher than Haitong
International’s BBB. Over all, Haitong paid less this time as it saved on the hefty fee it pays to Chinese banks for a
SBLC, Lin said.
The leads also referenced China Orient Asset Management’s 2019s issued last month, which were quoted to yield
228bp over Treasuries. By that measure, Haitong paid a new issue concession of more than 20bps, although China
Orient is rated one notch higher and has central government support.
The attractive primary pricing was reflected in the strong secondary performance of the bonds. The spreads
tightened 5bp-10bp in the first day of trading.
Hong Kong investors bought 45% of the paper, while investors in Singapore bought 32%, Europe bought 11% and
others bought 12%. Banks bought 31%, funds bought 22%, private banks bought 27%, hedge funds bought 8% and
others 11%. Over the years, Haitong International has transformed from a traditional brokerage to a financial
institution with businesses in brokerage and margin financing, investment management, corporate finance,
structured finance, FICC and equity derivatives. Haitong International's own DCM team and Deutsche Bank led
the deal alongside KGI Asia. Lianting.tu@thomsonreuters.com Copyright (c) 2014 Thomson Reuters –
IFRMarkets
Vs Parity Previous
USD/CNY Central Parity
USD/CNY OTC 0830 GMT
High
Low
6.1666
6.1386
6.1398
6.1339
-0.45%
-0.43%
-0.53%
6.1697
6.1410
SHANGHAI 4:45amCDT
The yuan touched its highest level against the U.S. dollar in nearly six months Thursday after the central bank
guided the Chinese currency stronger via a daily reference rate. The yuan hit 6.1339 to the dollar in the afternoon,
its strongest level since March 11. The currency closed at 6.1386 to the dollar, compared with 6.1410 at
Wednesday's close. The People's Bank of China set the dollar/yuan central parity rate at 6.1666, lower than
Wednesday's 6.1697, following U.S. dollar weakness overseas. "Many investors are very yuan bullish now and the
6.1300 level won't be a real resistance to them," says a Shanghai-based foreign bank trader. The rally in Chinese
stocks also boosted investor confidence in the currency. China's benchmark Shanghai Composite Index ended at its
highest closing level since May 30, 2013, on hopes that Beijing might soon further ease curbs on financing for
property companies. The yuan has fallen 1.5% since the start of 2014, with most of the declines recorded in the
first half this year. Offshore, one-year dollar/yuan nondeliverable forward contracts fell to 6.2190/6.2220 from
6.2240/6.2260 late Wednesday, implying a 1.3% decline by the yuan over the next year. In the offshore yuan
market in Hong Kong, where the Chinese currency floats freely, the dollar was at 6.1405 yuan, lower than 6.1452
yuan late Wednesday. Wynne Wang (END) Dow Jones Newswires
5:50amCDT Scottish Vote Polls
"The polls say no, but never say never," warns Peter Kinsella, currency strategist at Commerzbank, commenting on
the possibility of Scotland voting for independence. He predicts that a vote in favour of independence would have a
"deleterious impact upon sterling exchange rates in the short term." He says that the clearest trade to implement in
order to benefit from such a scenario would be to short sterling against the U.S. dollar, given that the dollar is
starting to trade more robustly. Euro, he says, will likely lose ground as the ECB moves closer to further
expansionary measures.(josie.cox@wsj.com) (END) Dow Jones Newswires
LONDON, Sept 4 (IFR) 5:54amCDT
Here’s The Leak
There is nothing like an ECB source story to help spice things up a little, especially with less than one hour to
go before the rate announcement and less than 2-hours before the press conference begins. Reuters suggest
an ABS and covered bond purchase programme worth up to EUR500bn over 3-years is on the table today.
An announcement is likely at the press conference unless it comes up against "strong opposition". Thus far the
market reaction has been minimal to the source story. Divyang.Shah@thomsonreuters.com/mc Copyright (c) 2014
Thomson Reuters – IFRMarkets
LONDON, Sept 4 (IFR) 6:00amCDT
BOE Oh Hold, No Surprise
The MPC has left rates on hold at 0.5% and Q£ unchanged at GBP375bn as was widely expected. The market will
have to wait for the minutes to be published on Wednesday Sept 17 to see if the hawks of McCafferty and Weale
managed to recruit any other members into the fold. Dec Gilts are slightly higher/ than just prior to the
announcement at 112.71. stephen.bough@thomsonreuters.com Copyright (c) 2014 Thomson Reuters - IFRMarkets
BOSTON, Sept 4 (IFR) 7:00amCDT
Challenger Layoffs Down
Layoff announcements tracked by outplacement firm Challenger, Gray and Christmas totaled 40,010 in August, a
drop of 14.7% compared to a month earlier and a fall of 20.7% compared to the same month a year ago. While a
tertiary indicator, it is one more anecdote supporting evidence of a strong U.S. labor market. July layoffs of 46,887
were a little more than 5k above the Q2 average (41,564) and about 7k above the Q1 average (40,447). August
layoffs were below both of those quarterly averages. The average monthly tally so far in 2014 is still below the
averages in 2013 (42,421) and 2012 (43,614). Likewise, total layoffs in 2014 are on track to fall below 500k, the
lowest since 1997. The electronics sector reported 7,350 job cuts in August, 6,000 (81.6%) of which came from
Cisco Systems. That's ten times more than the average monthly cuts in 2013. Challenger cited streamlining as a
common theme among tech firms this year. Taken with the 3,700 in job cuts in July, the electronics sector is now
having its worst year in five. Similarly, the computer sector accounted for more than a quarter of all layoffs
between May and July with more in August. Most sectors, however, continue to show declines in job cuts in 2014
relative to 2013. Those that have experienced increased cuts are said to be undergoing structural industry shifts as
opposed to suffering from weak demand. -- jeoff.hall@thomsonreuters.com Copyright (c) 2014 Thomson Reuters
– IFRMarkets
1204 GMT 7:04amCDT
Yields Move Lower in Eurozone
Short-dated core eurozone government bond yields moved further into negative territory Thursday after the ECB
announced a surprise round of interest rate cuts after its monthly policy meeting. Two-year core bonds shed
between 3bps and 5bps as the rate cuts leaves them looking marginally more attractive. Germany -0.072%, France 0.038%, Netherlands -0.047%, Austria -0.035%, Finland -0.05% and Belgium -0.045%. (nick.cawley@wsj.com)
Contact us in London. +44-20-7842-9464 markettalk@wsj.com (END) Dow Jones Newswires
1212 GMT 7:12amCDT
DAX Up
Germany's DAX is up 0.4% following the ECB's surprising cut of all three interest rates, compared with flat before.
"Everybody discussed bond buying, but no one expected a simple rate cut," says one Frankfurt trader, adding ECB
President Mario Draghi once again managed to surprise markets with the decision. "This is likely more important
than concrete measures. It shows that the ECB still has options for action." Banks and insurers led the gainers in
Europe, with the Stoxx 600 Banks up 1.3%, the Stoxx 600 Insurance up 1.0%. Deutsche Bank +0.5%,
Commerzbank +2.9%. (Ulrike.dauer@wsj.com; Michael.denzin@wsj.com) (END) Dow Jones Newswires
7:15amCDT
ADP Disappoints
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ADP shows U.S. private employment +204k in Aug vs fcast 220k
July revised down to 212k from 218k
August payroll change lowest since March
However, claims from survey week were 299k, very solid number [ID:nLLASJEA25]
Chart: http://link.reuters.com/fex44t
Burton.Frierson@ThomsonReuters.com Copyright (c) 2014 Thomson Reuters – IFRMarkets
7:16amCDT Clockwise: AUD/USD, GBP/USD, USD/CHF, EUR/USD, USD/CAD, USD/JPY, EUR/CHF
7:30amCDT Clockwise: AUD/USD, GBP/USD, USD/CHF, EUR/USD, USD/CAD, USD/JPY, EUR/CHF
By Josh Mitchell and Jonathan House 7:30amCDT
U.S. Exports Up 9/10%, Imports Up 7/10%
WASHINGTON--The U.S. trade gap narrowed in July, reflecting stronger demand for U.S. goods overseas that
could boost the factory sector in the second half of the year. The U.S. trade deficit shrank 0.6% to $40.55 billion in
July from June as both exports and imports rose, the Commerce Department said Thursday. Exports increased 0.9%
to $198.02 billion while imports climbed 0.7% to $238.57 billion. Economists surveyed by The Wall Street Journal
had forecast a July trade deficit of $42.5 billion. A smaller trade deficit generally helps the economy over the long
term. It can signal Americans are spending a growing share of their dollars in the U.S., while demand abroad is
rising for American made products and services. Both trends boost business at U.S. firms. Thursday's report
showed the U.S. economy continuing to benefit from energy production, with the July petroleum deficit reaching
the lowest level since May 2009. Exports of overall goods reached a record, without adjusting for inflation. That
reflected higher shipments of automobiles and car parts, along with industrial supplies and capital goods. Exports of
foods and consumer goods fell. The overall export rise could help ease U.S. factories' concerns of deteriorating
growth in Europe and slower activity in China weighing on their businesses. The rise in imports suggests
businesses and consumers stepped up spending, though only on certain items, heading into the second half of the
year. Imports of cars, industrial supplies and foods climbed. However, imports of consumer goods and capital
goods declined. Consumer and business spending rebounded in the second quarter from a first quarter marred by
snowstorms and severely cold weather. Consumer spending has also been bolstered by stronger job growth this
year. Economists expect higher household outlays to lead to steady economic growth in the second half of the year.
The economy grew at a 4.2% annual pace in the second quarter after contracting at a 2.1% rate in the first three
months of the year. Many economists project growth to clock in at roughly a 3% rate in the current quarter.
Other signs point to a strengthening manufacturing sector. The Institute for Supply Management said earlier this
week its purchasing managers' index climbed to 59 last month, the best reading since March 2011. A reading above
50 indicates expanding activity in the factory sector. A sub-index of exports also climbed, to 55 in August from 53
in July. Thursday's report showed the trade gap with China expanded 2.7% to $30.9 billion, the highest on record.
Exports to China declined while imports from the country to the U.S. rose. The Commerce Department report on
trade can be found at http://www.census.gov/ft900 Write to Josh Mitchell at joshua.mitchell@wsj.com and
Jonathan House at jonathan.house@wsj.com (END) Dow Jones Newswires
By Jonathan House and Josh Mitchell 7:30amCDT
Productivity a Bit Light
WASHINGTON-The productivity of U.S. workers improved by less than previously estimated in the second
quarter, a new indication the economy's spring rebound could lose momentum in the months ahead.
Nonfarm labor productivity, or output per hour worked, rose at a 2.3% annual rate from April through June, the
Labor Department said Thursday. The agency last month, in an initial estimate, had said productivity rose at a 2.5%
annual rate in the second quarter. Unit labor costs, a gauge of inflationary pressures, fell 0.1% in the second
quarter. Labor's initial estimate had shown costs rising by 0.6%. Economists surveyed by The Wall Street
Journal predicted the revised estimates would show productivity rose at a 2.3% rate and labor costs rose at a
0.5% rate.
From the same period last year, second-quarter productivity rose 1.1%, in line with the meager growth of around
1% recorded in 2012 and 2013 and well below the 3% gain posted during the first year of the recovery.
Lackluster productivity means economic output is probably not getting much of a lift from gains in efficiency.
Though U.S. gross domestic product jumped 4.2% in the second quarter, much of the strength reflected payback
from a weak first quarter. Economic output fell 2.1% in the first three months of the year, partly the result of
unusually cold winter weather. The strong second-quarter GDP growth also reflected steady hiring by corporate
America. July marked the first time since 1997 that payrolls have grown by 200,000 or more for six consecutive
months. A 0.1% decline in consumer spending in July from June, according to recent data from the Commerce
Department, has stoked fears of a sharp slowdown in overall economic growth in the months ahead.
Macroeconomic Advisers is forecasting GDP will expand at a 2.7% annual rate in the third quarter. Write to
Jonathan House at jonathan.house@wsj.com and Josh Mitchell at joshua.mitchell@wsj.com (END) Dow Jones
Newswires
By Paul Vieira 7:30amCDT
CAD Trade Surplus a Record
OTTAWA--Canada recorded a trade surplus in July that was more than double expectations and the biggest in
nearly six years on a surge in exports of cars and light trucks mostly destined for the U.S., Statistics Canada said
Thursday. The trade surplus in July widened to 2.58 billion Canadian dollars ($2.37 billion), whereas market
expectations were for a C$1.15 billion surplus, according to economists at Royal Bank of Canada. The previous
month's trade surplus was revised downward to C$1.83 billion from C$1.86 billion, as data now indicate exports
rose only 0.3% in June versus the previous estimate of a 1.1% gain as energy sales weren't as robust as initially
anticipated. Imports fell in June by a bigger 2.8% versus the previous 1.8% estimated decline. July's trade report
said Canadian exports advanced 1.4% month-over-month to C$45.54 billion, or a record level. Export volumes rose
1.1% and prices increased 0.3%. Meanwhile, imports fell 0.3% to C$42.96 billion, as volumes rose 0.4% but prices
dropped 0.6%. Write to Paul Vieira at paul.vieira@wsj.com (END) Dow Jones Newswires
By Jonathan House and Josh Mitchell 7:30amCDT
Weekly Claims Rise
WASHINGTON-The number of new applications for jobless benefits rose last week but stayed near 2014 lows, a
new indication of an improving labor market. Initial claims for unemployment benefits increased by 4,000 to a
seasonally adjusted 302,000 in the week ended Aug. 30, the Labor Department said Thursday. That was slightly
above the 300,000 forecast by economists surveyed by The Wall Street Journal. The four-week moving average of
claims, which smooths out weekly volatility, rose 3,000 to 302,750. Initial jobless claims fell to a 2014 low of
279,000 in mid-July and have been hovering around 300,000 since then. The last time that regularly happened was
in early 2006, at the height of the last economic expansion. The lower level of new claims indicates fewer layoffs
as well as a declining rate at which laid-off workers file for benefits in a generally improving economy. As the
newly laid off become more optimistic about their chances of quickly finding a new job, many don't bother to file
benefit claims. The pace of hiring has stepped up a gear this year, with employers adding 200,000 or more jobs for
the past six months. At 6.2%, the nation's unemployment rate remains at a historically high level for this point in
the recovery, though anecdotal evidence is mounting that labor shortages are developing for certain occupations.
The Federal Reserve's latest "beige book" survey of regional economic conditions found that "contacts in nearly all
districts reported difficulties finding certain types of skilled labor." The report, released Wednesday, said
companies in the Boston area reported shortages of information technology workers, while New York employers
were having trouble finding truck drivers. Thursday's claims report showed the number of people continuing to
draw unemployment benefits fell by 64,000 to 2,464,000 for the week ended Aug. 23. Those figures are reported
with a one-week lag. Continuing claims are now at their lowest level since mid-2007 The Labor Department report
on jobless claims can be accessed at www.dol.gov/ui/data.pdf Write to Jonathan House at
jonathan.house@wsj.com and Josh Mitchell at joshua.mitchell@wsj.com
Corrections & Amplifications:
This item was corrected 8:46 a.m. ET because it incorrectly stated the number of people continuing to draw
unemployment benefits. The number fell to 2,464,000 for the week ended Aug. 23.
(END) Dow Jones Newswires
7:37amCDT Clockwise: AUD/USD, GBP/USD, USD/CHF, EUR/USD, USD/CAD, USD/JPY, EUR/CHF
1240 GMT [Dow Jones] 7:40amCDT
EUR/USD: Fed Fodder?
The Federal Reserve faces a serious headwind for the U.S. economy if the ECB has, like Japan, decided to target a
weaker domestic currency as a primary, if undeclared, monetary policy tool. Something to mull over as the euro
sinks below $1.30. alen.mattich@wsj.com Contact us in London. +44-20-7842-9464 markettalk@wsj.com
(END) Dow Jones Newswires
1249 GMT [Dow Jones] 7:49amCDT
Draghi Speak
Respinding to questions, Mario Draghi reveals that the package of cuts to the ECB's interest rates and asset
purchases unveiled today did not have the unanimous support of the ECB's governing council. Anyone care to
guess which country (or countries) might have had reservations? Contact us in London. +44-20-7842-9464
markettalk@wsj.com (END) Dow Jones Newswires
FRANKFURT--The following is the full text of Draghi's introductory statement to the press, as provided on
the ECB website: Mario Draghi, President of the ECB Frankfurt am Main, Sept. 4, 2014 7:51amCDT
Based on our regular economic and monetary analyses, the Governing Council decided today to lower the interest
rate on the main refinancing operations of the Eurosystem by 10 basis points to 0.05% and the rate on the marginal
lending facility by 10 basis points to 0.30%. The rate on the deposit facility was lowered by 10 basis points to 0.20%. In addition, the Governing Council decided to start purchasing non-financial private sector assets. The
Eurosystem will purchase a broad portfolio of simple and transparent asset-backed securities (ABSs) with
underlying assets consisting of claims against the euro area non-financial private sector under an ABS purchase
programme (ABSPP). This reflects the role of the ABS market in facilitating new credit flows to the economy and
follows the intensification of preparatory work on this matter, as decided by the Governing Council in June. In
parallel, the Eurosystem will also purchase a broad portfolio of euro-denominated covered bonds issued by MFIs
domiciled in the euro area under a new covered bond purchase programme (CBPP3). Interventions under these
programmes will start in October 2014. The detailed modalities of these programmes will be announced after the
Governing Council meeting of 2 October 2014. The newly decided measures, together with the targeted longerterm refinancing operations which will be conducted in two weeks, will have a sizeable impact on our balance
sheet.
These decisions will add to the range of monetary policy measures taken over recent months. In particular, they will
support our forward guidance on the key ECB interest rates and reflect the fact that there are significant and
increasing differences in the monetary policy cycle between major advanced economies. They will further enhance
the functioning of the monetary policy transmission mechanism and support the provision of credit to the broad
economy. In our analysis, we took into account the overall subdued outlook for inflation, the weakening in the euro
area's growth momentum over the recent past and the continued subdued monetary and credit dynamics. Today's
decisions, together with the other measures in place, have been taken with a view to underpinning the firm
anchoring of medium to long-term inflation expectations, in line with our aim of maintaining inflation rates below,
but close to, 2%. As our measures work their way through to the economy they will contribute to a return of
inflation rates to levels closer to 2%. Should it become necessary to further address risks of too prolonged a period
of low inflation, the Governing Council is unanimous in its commitment to using additional unconventional
instruments within its mandate.
Let me now explain our assessment in greater detail, starting with the economic analysis. Following four quarters of
moderate expansion, euro area real GDP remained unchanged in the second quarter of this year compared with the
previous quarter. While it partly reflected one-off factors, this outcome was weaker than expected. With regard to
the third quarter, survey data available up to August indicate a loss in cyclical growth momentum, while remaining
consistent with a modest expansion.
Domestic demand should be supported by the range of our monetary policy measures, the ongoing improvements in
financial conditions, the progress made in fiscal consolidation and structural reforms, and lower energy prices
supporting real disposable income. Furthermore, demand for exports should benefit from the global recovery. At
the same time, the recovery is likely to continue to be dampened by high unemployment, sizeable unutilised
capacity, continued negative MFI loan growth to the private sector, and the necessary balance sheet adjustments in
the public and private sectors. Looking ahead, the key factors and assumptions shaping the outlook for growth need
to be monitored closely.
These elements are reflected in the September 2014 ECB staff macroeconomic projections for the euro area, which
foresee annual real GDP increasing by 0.9% in 2014, 1.6% in 2015 and 1.9% in 2016. Compared with the June
2014 Eurosystem staff macroeconomic projections, the projections for real GDP growth for 2014 and 2015 have
been revised downwards and the projection for 2016 has been revised upwards.
The Governing Council sees the risks surrounding the economic outlook for the euro area on the downside. In
particular, the loss in economic momentum may dampen private investment, and heightened geopolitical risks
could have a further negative impact on business and consumer confidence. Another downside risk relates to
insufficient structural reforms in euro area countries.
According to Eurostat's flash estimate, euro area annual HICP inflation was 0.3% in August 2014, after 0.4% in
July. This decline reflects primarily lower energy price inflation, while the other main components remained
broadly unchanged in aggregate. Inflation rates have now remained low for a considerable period of time. As said,
today's decisions, together with the other measures in place, have been taken to underpin the firm anchoring of
medium to long-term inflation expectations, in line with our aim of maintaining inflation rates below, but close to,
2%. On the basis of current information, annual HICP inflation is expected to remain at low levels over the coming
months, before increasing gradually during 2015 and 2016.
The September 2014 ECB staff macroeconomic projections for the euro area foresee annual HICP inflation at 0.6%
in 2014, 1.1% in 2015 and 1.4% in 2016. In comparison with the June 2014 Eurosystem staff macroeconomic
projections, the projection for inflation for 2014 has been revised downwards. The projections for 2015 and 2016
have remained unchanged.
The Governing Council, taking into account the measures decided today, will continue to closely monitor the risks
to the outlook for price developments over the medium term. In this context, we will focus in particular on the
possible repercussions of dampened growth dynamics, geopolitical developments, exchange rate developments and
the pass-through of our monetary policy measures.
Turning to the monetary analysis, data for July 2014 continue to point to subdued underlying growth in broad
money (M3), with annual growth standing at 1.8% in July, compared with 1.6% in June. The growth of the narrow
monetary aggregate M1 stood at 5.6% in July, up from 5.4% in June. The increase in the MFI net external asset
position, reflecting in part the continued interest of international investors in euro area assets, remained an
important factor supporting annual M3 growth.
The annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation)
remained negative at -2.2% in July, unchanged compared with the previous month. However, net redemptions were
again sizeable in July. Lending to non-financial corporations continues to reflect the lagged relationship with the
business cycle, credit risk, credit supply factors and the ongoing adjustment of financial and non-financial sector
balance sheets. The annual growth rate of loans to households (adjusted for loan sales and securitisation) was 0.5%
in July, broadly unchanged since the beginning of 2013.
Against the background of weak credit growth, the ECB is finalising the comprehensive assessment of banks'
balance sheets, which is of key importance to overcome credit supply constraints.
To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary
analysis led the Governing Council to decide on measures to provide further monetary policy accommodation and
to support lending to the real economy.
With regard to structural reforms, important steps have been taken in several Member States, while in others such
measures still need to be legislated for and implemented. These efforts now clearly need to gain momentum to
achieve higher sustainable growth and employment in the euro area. Determined structural reforms in product and
labour markets as well as action to improve the business environment are warranted. As regards fiscal policies,
comprehensive fiscal consolidation in recent years has contributed to reducing budgetary imbalances. Euro area
countries should not unravel the progress made with fiscal consolidation and should proceed in line with the
Stability and Growth Pact. The Pact acts as an anchor for confidence, and the existing flexibility within the rules
allows the budgetary costs of major structural reforms to be addressed and demand to be supported. There is also
leeway to achieve a more growth-friendly composition of fiscal policies. A full and consistent implementation of
the euro area's existing fiscal and macroeconomic surveillance framework is key to bringing down high public debt
ratios, to raising potential growth and to increasing the euro area's resilience to shocks. (END) Dow Jones
Newswires
BOSTON, Sept 4 (IFR) 8:00amCDT
Reviewing Draghi
* Draghi delievered a promise to engage Asset Backed Security purchases in October, after the start of TLTROs
which is in line with our view and market pricing.
* Draghi said that the decision to intervene in the ABS and covered bond markets to facilitate credit flows was
unanimous on the ECB board (though interestingly the rate cuts were not unanimous), that they will start by buying
simple ABS of non-financial assets, and that the purchases will have a sizable impact on the ECB's balance sheet
but he did say the ECB balance sheet would return to 2012 dimensions (market estimates are Euro 500 bln).
* As always Draghi dangled more sugar in front of the markets saying that other measures would come if needed,
which in our view is the disingenous if not false idea that Germany and the EU courts/constitution would allow
sovereign QE (see UK Telegraph "Mario Draghi cannot launch QE without German political assent").
* Global market reaction has been interesting - EUR/USD plumbed new lows to 1.2996 but has rebounded in profit
taking from shorts to over 1.303, bund 10s dropped to 0.905% but were hit to near 0.925%, and UST 10s followed
right to our sell level from this morning's Outlook at 2.38% (8 day moving average trading pivot) now trading to
2.414%.
* Next up is ISM Services at 10am ET, the Fed buys ~$4.5 bln 5s, and at about 12:30pm ET watch for Fed
Cleveland (voter) Mester's speech on monetary policy, it will be her first and should generate interest.
Duncan.Balsbaugh@Thomsonreuters.com Copyright (c) 2014 Thomson Reuters – IFRMarkets
By Paul Hannon And Todd Buell 8:04amCDT
ECB Actions Review
FRANKFURT--The European Central Bank unexpectedly lowered all its interest rates Thursday and announced
two new programs under which it will buy asset-backed securities and covered bonds issued by eurozone banks.
Speaking in a news conference, ECB President Mario Draghi said the new programs will be launched next month,
and operational details will be provided after the governing council's Oct. 2 meeting.
While the ECB had in recent months indicated it was considering a ABS purchase program, the addition of a
covered bond program and rate cuts was a surprise, and an indication that officials have grown increasingly
concerned that the recent period of very low inflation could persist longer than first thought and may threaten the
currency area's economic recovery.
"We took into account the overall subdued outlook for inflation, the weakening in growth momentum and
continued subdued monetary and credit dynamics," Mr. Draghi said.
Mr. Draghi also said that the central bank is ready to provide more stimulus if needed through "unconventional
instruments within its mandate," including large-scale purchases of bonds known as quantitative easing.
Responding to questions from reporters, Mr. Dragi said that launch of such a program had been discussed by the
governing council, and some members had wanted to proceed immediately with QE.
"Some were in favor of doing more, some were in favor of doing less," Mr. Draghi said.
The ECB's main lending rate was lowered to 0.05% from 0.15%. The ECB also lowered the rate on overnight bank
funds parked at the central bank to -0.2% from -0.1%. The ECB in June became the largest central bank to
experiment with a negative rate on bank deposits, a measure aimed at encouraging banks to lend surplus funds to
other financial institutions rather than parking them at the ECB. It also cut the rate it charges on overnight loans to
0.30% from 0.40%.
The vast majority of economists--43 out of 47 in a Wall Street Journal survey--had expected no change in light of
ECB President Mario Draghi's comments after the June rate cuts that the ECB had "from all practical
purpos...reached the lower bound" on rates.
Mr. Draghi fanned hopes for additional easing last month when he warned that market-based measures of inflation
expectations had weakened, an indication that officials have grown increasingly concerned that the recent period of
very low inflation could persist longer than first thought.
Recent economic data highlight that risk. Gross domestic product in the eurozone stalled in the second quarter, with
Germany and Italy posting contractions and France failing to expand. Business surveys for July and August point to
a meager start to the third quarter, too.
A separate report showed inflation weakening to a five-year low in August, just 0.3% in annual terms. That is far
below the ECB's target of a little under 2% over the medium term, and raised fears that the region could face a
debilitating stretch of weak or falling prices that would hamper debt financing, profits and investment.
The ECB has already signaled that it plans to buy ABS and that its preparations are proceeding quickly, but it has
yet to formally approve the plan.
The euro area's central bank is also due to offer banks four-year loans at very low rates later this month on the
condition that banks, in turn, boost lending to the private sector under a program announced in June.
The eurozone is lagging far behind other big economies such as the U.S. and U.K, whose central banks took more
aggressive action in the aftermath of the global financial crisis to support their economies and prevent deflation.
This was achieved through large-scale purchases of government bonds and--in the case of the U.S.-- private debt
too. Mr. Draghi stressed the widening divergence between the ECB's monetary policy and that of the U.S. Federal
Reserve, "significant and increasing differences in the monetary policy cycles of major economies."
The U.S. and U.K. have seen more vigorous, jobs-rich expansions than the eurozone, where the jobless rate was
11.5% in July. Also, their inflation rates are closer to the 2% pace that major central banks consider optimal for
their economies. Write to Paul Hannon at paul.hannon@wsj.com and Todd Buell at todd.buell@wsj.com (END)
Dow Jones Newswires
9:07 EDT 8:07amCDT
CAD vs. Exports
While strong Canadian economic reports, such as today's good exports data, is good news, by boosting the loonie
the news puts the Bank of Canada in a bit of a bind. It's pinning hopes on exports and business investments to do
the heavy lifting for the economy, but a week loonie is a key ingredient in supporting exports. As Gov. Poloz has
described it, currency softness is the icing on the cake that's represented by demand from the US, which absorbs 3/4
of Canadian exports. It's one reason why the BoC is likely to hang on to its neutral policy bias as long as it can.
(nirmala.menon@wsj.com; @NirmalaMenon) (END) Dow Jones Newswires
8:10amCDT Clockwise: AUD/USD, GBP/USD, USD/CHF, EUR/USD, USD/CAD, USD/JPY, EUR/CHF
9:50 EDT 8:50amCDT
Will The Banks?
The ECB acts boldly by cutting rates and committing to buying a broad range of ABS to get money in the eurozone
flowing. Now it faces similar questions as the Fed did with its QE program: Will banks help get money flow going.
GMP's Adrian Miller notes there's only about EUR1 trillion of ABS in the euro banking system. "We are unsure
whether this is enough to move the needle," he says. "Liquidity has not been the problem throughout the European
banking system. Instead it is the unwillingness of banks to lower their underwriting standards."
(cynthia.lin@wsj.com; @cynthialin_dj) (END) Dow Jones Newswires
NMI(R) at 59.6%; August Non-Manufacturing ISM(R) Report On Business(R); Business Activity Index at
65%; New Orders Index at 63.8%; Employment Index at 57.1%
PR Newswire TEMPE, Ariz., Sept. 4, 2014 9:00amCDT
DO NOT CONFUSE THIS NATIONAL REPORT with the various regional purchasing reports released across the
country. The national report's information reflects the entire United States, while the regional reports contain
primarily regional data from their local vicinities. Also, the information in the regional reports is not used in
calculating the results of the national report. The information compiled in this report is for the month of August
2014.
TEMPE, Ariz., Sept. 4, 2014 /PRNewswire/ -- Economic activity in the non-manufacturing sector grew in August
for the 55th consecutive month, say the nation's purchasing and supply executives in the latest Non-Manufacturing
ISM(R) Report On Business(R) .
The report was issued today by Anthony Nieves, CPSM, C.P.M., CFPM, chair of the Institute for Supply
Management(R) (ISM(R) ) Non-Manufacturing Business Survey Committee. "The NMI(R) registered 59.6 percent
in August, 0.9 percentage point higher than the July reading of 58.7 percent. This represents continued growth in
the Non-Manufacturing sector. The August reading of 59.6 percent is the highest for the composite index since its
inception in January 2008. The Non-Manufacturing Business Activity Index increased to 65 percent, which is 2.6
percentage points higher than the July reading of 62.4 percent, reflecting growth for the 61st consecutive month at a
faster rate. This is the highest reading for the index since December of 2004 when the index also registered 65
percent. The New Orders Index registered 63.8 percent, 1.1 percentage points lower than the reading of 64.9
percent registered in July. The Employment Index increased 1.1 percentage points to 57.1 percent from the July
reading of 56 percent and indicates growth for the sixth consecutive month. The Prices Index decreased 3.2
percentage points from the July reading of 60.9 percent to 57.7 percent, indicating prices increased at a slower rate
in August when compared to July. According to the NMI(R) , 15 non-manufacturing industries reported growth in
August. Respondents' comments vary by business and industry. The majority of the comments reflect continued
optimism in regards to business conditions. Some respondents indicate that there may be some tapering off in the
recent strong rate of growth in the non-manufacturing sector."
INDUSTRY PERFORMANCE
The 15 non-manufacturing industries reporting growth in August -- listed in order -- are: Construction; Retail
Trade; Management of Companies & Support Services; Educational Services; Transportation & Warehousing;
Wholesale Trade; Information; Public Administration; Other Services; Professional, Scientific & Technical
Services; Health Care & Social Assistance; Agriculture, Forestry, Fishing & Hunting; Finance & Insurance;
Accommodation & Food Services; and Real Estate, Rental & Leasing. The two industries reporting contraction in
August are: Arts, Entertainment & Recreation; and Mining.
WHAT RESPONDENTS ARE SAYING ...
-- "General business conditions have improved." (Information)
-- "Local business, and thus lending activity, is picking up." (Finance &
Insurance)
-- "Still incurring significant global challenges on pharmaceutical solution
supply shortages." (Health Care & Social Assistance)
-- "Pricing on most food related items continue to go up monthly."
(Accommodation & Food Services)
-- "Business is holding steady with orders increasing slightly. The rest of
2014 should show some slight growth. International orders have been slow
to match U.S. growth but appear to be increasing slightly as well."
(Professional, Scientific & Technical Services)
-- "The local economy continues to get stronger." (Public Administration)
-- "Year-over-year same store sales up approximately 4 percent resulting in
continued store remodeling, new construction and upgrades." (Retail
Trade)
-- "New orders, project business and backlog remain robust. Internal
investment in capital remains positive." (Wholesale Trade)
ISM(R) NON-MANUFACTURING SURVEY RESULTS AT A GLANCE
COMPARISON OF ISM(R) NON-MANUFACTURING AND ISM(R) MANUFACTURING SURVEYS*
AUGUST 2014
--------------------------------------------------------------------------------------------------
Percent Point
Index
Change
-----------NMI(R)
/PMI(R)
+1.9
-----------Business
Activity/
Production
+3.3
New Orders
+3.3
Employment
0.1
Supplier
Deliveries
0.2
Inventories
+3.5
Prices
1.5
Backlog of
Orders
+3.0
New Export
Orders
+2.0
Imports
+4.0
Inventory
Sentiment
N/A
Customers'
Inventories
+5.5
Series
Index
Series
Index
Aug
Jul
59.6
Non-Manufacturing
Percent
Point
Manufacturing
Series
Index
Rate
of
Trend**
Series
Index
(Months)
Aug
Jul
Change
Direction
Change
58.7
+0.9
Growing
Faster
55
59.0
57.1
65.0
62.4
+2.6
Growing
Faster
61
64.5
61.2
63.8
64.9
-1.1
Growing
Slower
61
66.7
63.4
57.1
56.0
+1.1
Growing
Faster
6
58.1
58.2
-
52.5
51.5
+1.0
Slowing
Faster
3
53.9
54.1
-
51.0
51.0
0.0
Growing
Same
5
52.0
48.5
57.7
60.9
-3.2
Slower
59
58.0
59.5
54.5
53.0
+1.5
Growing
Faster
4
52.5
49.5
52.5
53.0
-0.5
Growing
Slower
5
55.0
53.0
51.0
54.5
-3.5
Growing
Slower
6
56.0
52.0
55.0
58.0
-3.0
Too High
Slower
207
N/A
N/A
N/A
N/A
N/A
49.0
43.5
N/A
Increasing
N/A
N/A
* Non-Manufacturing ISM(R) Report On Business(R) data is seasonally adjusted
for Business Activity, New Orders, Prices and Employment Indexes.
Manufacturing ISM(R) Report On Business(R) data is seasonally adjusted for New
Orders, Production, Employment and Supplier Deliveries. ** Number of months
moving in current direction
-
COMMODITIES REPORTED UP/DOWN IN PRICE, and IN SHORT SUPPLY
Commodities Up in Price
Bacon (3); Beef (3); Beef Items (9); Chicken (3); Contract Labor; Dairy Products (9); Medical IV Solutions;
Packaging; Paper (4); Paper Products (2); Pork; Pork Items; Produce (2); and Services Labor*.
Commodities Down in Price
#2 Diesel Fuel; Computer and Peripherals (2); Fuel; Gasoline (2); Medical Supplies; Natural Gas (2); Office
Supplies; and Services Labor*.
Commodities in Short Supply
Medical IV Solutions (8); and Nuts.
Note: The number of consecutive months the commodity is listed is indicated after each item.
*Reported as both up and down in price.
AUGUST 2014 NON-MANUFACTURING INDEX SUMMARIES
NMI(R) In August, the NMI(R) registered 59.6 percent, an increase of 0.9 percentage point when compared to
July's reading of 58.7 percent, indicating continued growth in the non-manufacturing sector for the 55th consecutive
month. This month's NMI(R) is the highest reading for the index since its inception in January 2008. A reading
above 50 percent indicates the non-manufacturing sector economy is generally expanding; below 50 percent
indicates the non-manufacturing sector is generally contracting.
NMI(R) HISTORY
Month
NMI(R)
Month
NMI(R)
---------- ------ -------- -----Aug 2014
59.6
Feb 2014
51.6
---------- ------ -------- -----Jul 2014
58.7
Jan 2014
54.0
---------- ------ -------- -----Jun 2014
56.0
Dec 2013
53.0
---------- ------ -------- -----May 2014
56.3
Nov 2013
54.1
---------- ------ -------- -----Apr 2014
55.2
Oct 2013
55.1
---------- ------ -------- -----Mar 2014
53.1
Sep 2013
54.5
---------- ------ -------- -----Average for 12 months -- 55.1
High -- 59.6
Low -- 51.6
------------------------------------
Business Activity
ISM(R) 's Business Activity Index in August registered 65 percent, an increase of 2.6 percentage points above
July's reading of 62.4 percent. This represents growth in business activity for the 61st consecutive month and the
highest reading for the index since December 2004 when it also registered 65 percent. Fourteen industries reported
increased business activity, and two industries reported decreased activity for the month of August. Comments from
respondents include: "Improving business environment" and "New contracts and short-term prospects."
The industries reporting growth of business activity in August -- listed in order -- are: Construction; Retail Trade;
Management of Companies & Support Services; Wholesale Trade; Educational Services; Information; Real Estate,
Rental & Leasing; Finance & Insurance; Professional, Scientific & Technical Services; Public Administration;
Utilities; Transportation & Warehousing; Health Care & Social Assistance; and Accommodation & Food Services.
The two industries reporting a decrease in business activity in August are: Mining; and Arts, Entertainment &
Recreation.
Business Activity
-----------------Aug 2014
-----------------Jul 2014
-----------------Jun 2014
-----------------May 2014
------------------
%Higher
------35
------34
------29
------36
-------
%Same
----55
----55
----58
----56
-----
%Lower
-----10
-----11
-----13
-----8
------
Index
----65.0
----62.4
----57.5
----62.1
-----
New Orders
(MORE TO FOLLOW) Dow Jones Newswires
SM(R) 's Non-Manufacturing New Orders Index grew in August for the 61st consecutive month at a slower rate
compared to July. The index registered 63.8 percent, a decrease of 1.1 percentage points from the July reading of
64.9 percent. Comments from respondents include: "Increased transactions and loans" and "Slight increase in new
orders for Q3/Q4."
The 13 industries reporting growth of new orders in August -- listed in order -- are: Management of Companies &
Support Services; Professional, Scientific & Technical Services; Wholesale Trade; Educational Services;
Information; Construction; Real Estate, Rental & Leasing; Health Care & Social Assistance; Utilities; Public
Administration; Retail Trade; Finance & Insurance; and Transportation & Warehousing. The two industries
reporting contraction of new orders in August are: Arts, Entertainment & Recreation; and Mining.
New Orders
----------Aug 2014
----------Jul 2014
----------Jun 2014
----------May 2014
-----------
%Higher
------29
------32
------31
------36
-------
%Same
----63
----59
----59
----54
-----
%Lower
-----8
-----9
-----10
-----10
------
Index
----63.8
----64.9
----61.2
----60.5
-----
Employment
Employment activity in the non-manufacturing sector grew in August for the sixth consecutive month. ISM(R) 's
Non-Manufacturing Employment Index registered 57.1 percent, which reflects an increase of 1.1 percentage points
when compared to July's reading of 56 percent. Twelve industries reported increased employment, and four
industries reported decreased employment. Comments from respondents include: "New hires in new office" and
"Open positions are finally being filled."
The 12 industries reporting an increase in employment in August -- listed in order -- are: Other Services;
Transportation & Warehousing; Educational Services; Construction; Retail Trade; Wholesale Trade; Public
Administration; Information; Management of Companies & Support Services; Health Care & Social Assistance;
Finance & Insurance; and Professional, Scientific & Technical Services. The four industries reporting a reduction in
employment in August are: Arts, Entertainment & Recreation; Utilities; Mining; and Accommodation & Food
Services.
Employment
----------Aug 2014
----------Jul 2014
----------Jun 2014
----------May 2014
-----------
%Higher
------22
------26
------29
------26
-------
%Same
----68
----64
----60
----61
-----
%Lower
-----10
-----10
-----11
-----13
------
Index
----57.1
----56.0
----54.4
----52.4
-----
Supplier Deliveries
The Supplier Deliveries Index registered 52.5 percent in August, 1 percentage point higher than the 51.5 percent
registered in July. A reading above 50 percent indicates slower deliveries, while a reading below 50 percent
indicates faster deliveries.
The eight industries reporting slower deliveries in August -- listed in order -- are: Agriculture, Forestry, Fishing &
Hunting; Accommodation & Food Services; Construction; Retail Trade; Transportation & Warehousing; Health
Care & Social Assistance; Information; and Public Administration. The three industries reporting faster deliveries
in August are: Real Estate, Rental & Leasing; Mining; and Finance & Insurance. Seven industries reported no
change in supplier deliveries in August compared to July.
Supplier Deliveries
-------------------Aug 2014
-------------------Jul 2014
-------------------Jun 2014
-------------------May 2014
--------------------
%Slower
------8
------7
------6
------5
-------
%Same
----89
----89
----90
----90
-----
%Faster
------3
------4
------4
------5
-------
Index
----52.5
----51.5
----51.0
----50.0
-----
Inventories
ISM(R) 's Non-Manufacturing Inventories registered 51 percent in August, which is the same percentage that was
reported in July. Of the total respondents in August, 28 percent indicated they do not have inventories or do not
measure them. Comments from respondents include: "Increased volume requires us to adjust PAR levels" and
"Beginning to see some slack on our inventories."
The six industries reporting an increase in inventories in August -- listed in order -- are: Mining; Retail Trade;
Utilities; Public Administration; Finance & Insurance; and Transportation & Warehousing. The six industries
reporting decreases in inventories in August -- listed in order -- are: Arts, Entertainment & Recreation; Health Care
& Social Assistance; Information; Accommodation & Food Services; Wholesale Trade; and Professional, Scientific
& Technical Services. Six industries reported no change in inventories in August compared to July.
Inventories
-----------Aug 2014
-----------Jul 2014
-----------Jun 2014
-----------May 2014
------------
%Higher
------17
------18
------19
------22
-------
%Same
----68
----66
----69
----67
-----
%Lower
-----15
-----16
-----12
-----11
------
Index
----51.0
----51.0
----53.5
----55.5
-----
Prices
Prices paid by non-manufacturing organizations for purchased materials and services increased in August for the
59th consecutive month. ISM(R) 's Non-Manufacturing Prices Index for August registered 57.7 percent, 3.2
percentage points lower than the 60.9 percent reported in July. The percentage of respondents reporting higher
prices is 23 percent, the percentage indicating no change in prices paid is 66 percent, and 11 percent of the
respondents reported lower prices.
Eight non-manufacturing industries reported an increase in prices paid during the month of August, in the following
order: Accommodation & Food Services; Arts, Entertainment & Recreation; Utilities; Wholesale Trade; Retail
Trade; Real Estate, Rental & Leasing; Finance & Insurance; and Management of Companies & Support Services.
The six industries reporting a decrease in prices paid for the month of August are: Agriculture, Forestry, Fishing &
Hunting; Construction; Professional, Scientific & Technical Services; Educational Services; Information; and
Mining.
Prices
--------Aug 2014
--------Jul 2014
--------Jun 2014
--------May 2014
---------
%Higher
------23
------25
------25
------27
-------
%Same
----66
----70
----72
----68
-----
%Lower
-----11
-----5
-----3
-----5
------
Index
----57.7
----60.9
----61.2
----61.4
-----
NOTE: Commodities reported as up in price and down in price are listed in the commodities section of this report.
Backlog of Orders
ISM(R) 's Non-Manufacturing Backlog of Orders Index grew in August for the fourth consecutive month. The
index registered 54.5 percent, which is 1.5 percentage points higher than the 53 percent that was reported in July.
Of the total respondents in August, 35 percent indicated they do not measure backlog of orders.
The six industries reporting an increase in order backlogs in August -- listed in order -- are: Construction;
Management of Companies & Support Services; Professional, Scientific & Technical Services; Public
Administration; Wholesale Trade; and Retail Trade. The five industries reporting a decrease in order backlogs in
August are: Mining; Information; Transportation & Warehousing; Accommodation & Food Services; and Finance
& Insurance. Six industries reported no change in backlog of orders in August compared to July.
Backlog of Orders
-----------------Aug 2014
%Higher
------19
%Same
----71
%Lower
-----10
Index
----54.5
-----------------Jul 2014
-----------------Jun 2014
-----------------May 2014
------------------
------13
------17
------17
-------
----80
----72
----74
-----
-----7
-----11
-----9
------
----53.0
----53.0
----54.0
-----
New Export Orders
Orders and requests for services and other non-manufacturing activities to be provided outside of the United States
by domestically based personnel grew in August for the fifth consecutive month. The New Export Orders Index for
August registered 52.5 percent, which is 0.5 percentage point lower than the 53 percent reported in July. Of the
total respondents in August, 68 percent indicated they either do not perform, or do not separately measure, orders
for work outside of the United States.
The four industries reporting an increase in new export orders in August are: Professional, Scientific & Technical
Services; Transportation & Warehousing; Retail Trade; and Accommodation & Food Services. The two industries
reporting a decrease in export orders in August are: Arts, Entertainment & Recreation; and Wholesale Trade. Ten
industries reported no change in export orders in August compared to July.
New Export Orders
-----------------Aug 2014
-----------------Jul 2014
-----------------Jun 2014
-----------------May 2014
------------------
%Higher
------13
------11
------17
------12
-------
%Same
----79
----84
----76
----82
-----
%Lower
-----8
-----5
-----7
-----6
------
Index
----52.5
----53.0
----55.0
----53.0
-----
Imports
(MORE TO FOLLOW) Dow Jones Newswires
The ISM(R) Non-Manufacturing Imports Index grew in August for the sixth consecutive month. This month's
reading at 51 percent is 3.5 percentage points lower than the 54.5 percent that was reported in July. Fifty-seven
percent of respondents reported that they do not use, or do not track the use of, imported materials.
The three industries reporting an increase in imports for the month of August are: Retail Trade; Professional,
Scientific & Technical Services; and Wholesale Trade. The three industries reporting a decrease in imports for the
month of August are: Arts, Entertainment & Recreation; Public Administration; and Information. Eleven industries
reported no change in imports in August compared to July.
Imports
--------Aug 2014
--------Jul 2014
--------Jun 2014
--------May 2014
---------
%Higher
------8
------14
------10
------14
-------
%Same
----86
----81
----86
----83
-----
%Lower
-----6
-----5
-----4
-----3
------
Index
----51.0
----54.5
----53.0
----55.5
-----
Inventory Sentiment
The ISM(R) Non-Manufacturing Inventory Sentiment Index in August registered 55 percent, which is 3 percentage
points lower than the 58 percent reported in July. This indicates that respondents believe their inventories are still
too high at this time. In August, 20 percent of respondents said their inventories were too high, 10 percent said their
inventories were too low, and 70 percent said their inventories were about right.
The seven industries reporting a feeling that their inventories are too high in August -- listed in order -- are: Real
Estate, Rental & Leasing; Mining; Management of Companies & Support Services; Wholesale Trade; Utilities;
Finance & Insurance; and Health Care & Social Assistance. The four industries reporting a feeling that their
inventories are too low in August are: Transportation & Warehousing; Construction; Professional, Scientific &
Technical Services; and Retail Trade.
Inventory Sentiment
-------------------Aug 2014
-------------------Jul 2014
-------------------Jun 2014
-------------------May 2014
--------------------
%Too High
--------20
--------19
--------25
--------27
---------
%About Right
-----------70
-----------78
-----------71
-----------72
------------
%Too Low
-------10
-------3
-------4
-------1
--------
Index
----55.0
----58.0
----60.5
----63.0
-----
About This Report
The data presented herein is obtained from a survey of non-manufacturing supply managers based on information
they have collected within their respective organizations. ISM(R) makes no representation, other than that stated
within this release, regarding the individual company data collection procedures. Use of the data is in the public
domain and should be compared to all other economic data sources when used in decision-making.
Data and Method of Presentation
The Non-Manufacturing ISM(R) Report On Business(R) is based on data compiled from purchasing and supply
executives nationwide. Membership of the Non-Manufacturing Business Survey Committee is diversified by
NAICS, based on each industry's contribution to gross domestic product (GDP). The Non-Manufacturing Business
Survey Committee responses are divided into the following NAICS code categories: Agriculture, Forestry, Fishing
& Hunting; Mining; Utilities; Construction; Wholesale Trade; Retail Trade; Transportation & Warehousing;
Information; Finance & Insurance; Real Estate, Rental & Leasing; Professional, Scientific & Technical Services;
Management of Companies & Support Services; Educational Services; Health Care & Social Assistance; Arts,
Entertainment & Recreation; Accommodation & Food Services; Public Administration; and Other Services
(services such as Equipment & Machinery Repairing; Promoting or Administering Religious Activities;
Grantmaking; Advocacy; and Providing Dry-Cleaning & Laundry Services, Personal Care Services, Death Care
Services, Pet Care Services, Photofinishing Services, Temporary Parking Services, and Dating Services).
Survey responses reflect the change, if any, in the current month compared to the previous month. For each of the
indicators measured (Business Activity, New Orders, Backlog of Orders, New Export Orders, Inventory Change,
Inventory Sentiment, Imports, Prices, Employment and Supplier Deliveries), this report shows the percentage
reporting each response, and the diffusion index. Responses represent raw data and are never changed. Data is
seasonally adjusted for Business Activity, New Orders, Prices and Employment. All seasonal adjustment factors are
subject annually to relatively minor changes when conditions warrant them. The remaining indexes have not
indicated significant seasonality.
The NMI(R) (Non-Manufacturing Index) is a composite index based on the diffusion indexes for four of the
indicators with equal weights: Business Activity (seasonally adjusted), New Orders (seasonally adjusted),
Employment (seasonally adjusted) and Supplier Deliveries. Diffusion indexes have the properties of leading
indicators and are convenient summary measures showing the prevailing direction of change and the scope of
change. An index reading above 50 percent indicates that the non-manufacturing economy in that index is generally
expanding; below 50 percent indicates that it is generally declining. Supplier Deliveries is an exception. A Supplier
Deliveries Index above 50 percent indicates slower deliveries and below 50 percent indicates faster deliveries.
The Non-Manufacturing ISM(R) Report On Business(R) survey is sent out to Non-Manufacturing Business Survey
Committee respondents the first part of each month. Respondents are asked to ONLY report on information for the
current month. ISM(R) receives survey responses throughout most of any given month, with the majority of
respondents generally waiting until late in the month to submit responses in order to give the most accurate picture
of current business activity. ISM(R) then compiles the report for release on the third business day of the following
month.
The industries reporting growth, as indicated in the Non-Manufacturing ISM(R) Report On Business(R) monthly
report, are listed in the order of most growth to least growth. For the industries reporting contraction or decreases,
those are listed in the order of the highest level of contraction/decrease to the least level of contraction/decrease.
The Non-Manufacturing ISM(R) Report On Business(R) is published monthly by Institute for Supply
Management(R) , the first supply institute in the world. Founded in 1915, ISM(R) 's mission is to enhance the value
and performance of procurement and supply chain management practitioners and their organizations worldwide. By
executing and extending its mission through education, research, standards of excellence and information
dissemination -- including the renowned monthly ISM(R) Report On Business(R) -- ISM(R) maintains a strong
global influence among individuals and organizations. ISM(R) is a not-for-profit educational association that serves
professionals with an interest in supply management who live and work in more than 80 countries.
The full text version of the Non-Manufacturing ISM(R) Report On Business(R) is posted on ISM(R) 's website at
www.ism.ws on the third business day of every month after 10:10 a.m. (ET).
The next Non-Manufacturing ISM(R) Report On Business(R) featuring the September 2014 data will be released at
10:00 a.m. (ET) on Friday, October 3, 2014.
Contact:
Kristina Cahill
Report On Business(R) Analyst
ISM(R), ROB Media Relations
Tempe, Arizona
800/888-6276, Ext. 3015
E-mail: kcahill@ism.ws
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SOURCE Institute for Supply Management
/Web site: http://www.ism.ws (END) Dow Jones Newswires
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