Quick housekeeping note here: As some of you know, I’m always scanning the European press to add to my understanding of the economic and political situation there. A lot of this stuff is not in English though. So I have avoided utilizing these sources in the daily newsletter.
But I think that’s the wrong to look at it now. So I am adding more foreign-language European news links to my dailies with a brief idea of what the articles are saying for those who don’t want to use Google Translate after they click through. I hope this is helpful
1 Big Thing: immigration driving populism higher in Europe
I know it’s jobs report day in the US. But I want to lead with something European. And this is actually the reason I’ve decided to add the European links. I was reading a bunch of articles from the Austrian newspaper Der Standard and they struck me as decidedly anti-immigration. And I had just read an opinion piece from Gillian Tett that framed the Zeitgeist very nicely. Here’s what she wrote in her article “Why we still haven’t reached peak populism” that’s relevant:
In a Lunch with the FT interview last year, Ray Dalio, Bridgewater’s founder, told me that the proportion of the western world voting for populist candidates had risen to 35 per cent. The figure, from a report by his firm, was starkly higher than at the start of the decade (when it was 7 per cent), after running at about 10 per cent in previous decades.
What Tett is saying is that, regardless of how you define it, populism is still ascendant in the West. I agree with that. And a lot of that has to do with change, both in terms of globalization of goods and services and in terms of population flows. It’s not just goods and services that are ‘globalized’. We are too.
Now the migrants – Britons working on the continent, Africans in Europe, central Americans and Mexicans in the United States – see this globalization of labor as labor mobility, a good thing. Many non-migrants see globalization of labor, like its clone in goods and services, as a competitive threat, driving down wages and standards of living.
Why it matters: peak populism is in front of us, not behind us. When Le Pen and Wilders lost elections last year in France and the Netherlands, people acted like the wave of populism that hit Western Europe with its nativist strain was over. It’s not over by a long shot. In fact, it may become as strong in Western Europe as it is in Eastern Europe.
Deeper dive: I will write this whole topic up as a separate post or series. But let me highlight the Austrian articles:
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Italiens Innenminister will “historisches Tief” bei Flüchtlingsankünften – Italy’s interior minister wants “historic low” in refugee arrivals. This is an Austrian newspaper highlighting, even touting the fact that Italy’s interior minister is sick and tired of the flow of migrants into Italy from Africa
- Einwanderung braucht gute Gesetze – Immigration demands good laws. This is an opinion piece that basically says that the fact that the economy needs certain refugees cannot be grounds for asylum. The impetus: 950 well-integrated immigrants whose asylum claims were rejected but who are doing apprenticeships in occupations where there is a shortage of labor.
- Flüchtlinge auf der Suche nach Arbeit: Gekommen, um zu bleiben – Refugees in search of work have come to stay. The title says everything here. The point is the belief that many (or most) migrants to Austria are coming mainly for economic reasons, not asylum. But the deeper issue in this article goes to integrating them into the fabric of daily life now that they are there, because they are not leaving. This one is long and well worth a read via Google Translate
That all of these articles were posted on the same day in this mainline Austrian newspaper tells you immigration is a really big issue.
2. Job gain weaker than expected as US unemployment rate falls
This is going to be covered everywhere. So there’s no sense in breaking the numbers down too much. Let me present some highlights though.
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Total nonfarm payroll employment rose by 157,000 in July, the 94th straight month of job growth. But this was below expectations for an increase of 190,000 in non-farm payrolls and below the 202,000 jobs added in June.
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The unemployment rate edged down to 3.9% in July after edging up to 4.0% in June. Markets expected the rate to remain at 4.0%. The rate had been 3.8% in May.
- Average Hourly Earnings were up +2.7% year-on-year. That was bang on expectations and on the previous reading for June.
- The broader U6 level of unemployment took a huge dip down to 7.5% vs 7.8% in June. That’s the lowest in this business cycle and has to be seen as a big positive.
- The Labor Force Participation Rate was steady at 62.9% as expected vs the same 62.9% in the month previously.
Why it matters: The end of a business cycle is marked by a decline in the number of jobs that have been added in the previous year. But in this cycle, we saw an intermediate trough in job formation in September. Since that time, the lookback to the preceding 12 months shows the US economy adding more jobs, not less.
The conclusion has to be that this cycle has legs, that we are not in the final throes of expansion.
3. American men much more confident than women
A measure of confidence among American men climbed last week to an almost 18-year high, exceeding that of women by the most in records back to 1990 and keeping the Bloomberg Consumer Comfort Index elevated, according to data released Thursday.
Why it matters: confidence in the 45-54 age cohort is the highest since the end of the Internet bubble. And the ‘comfort’ gauge among people with incomes below $50,000 was the best since December 2010.
To me, this speaks to continued expansion. I question the financial health of lower income American workers despite this survey. But the results are broadly positive. I am not yet sure what to make of the gender gap, however, since in secular terms labor force participation by men has been waning.
4. Tesla will tap Asian markets, not the US market, for its expansion
During Tesla’s earnings call, Tesla CEO Elon Musk was asked about the company’s need for additional fundraising given their burn rate. He said something to the effect that the company wouldn’t need to tap additional funding for existing operations. Yet we do know that Tesla has huge expansion plans that will definitely require fundraising. And according to the South China Morning News, Tesla will tap Asian markets to get that money because that’s where the expansion is happening.
The company also outlined expansion plans, saying it would likely announce the location of a European factory this year and planned a Shanghai, China plant to produce both vehicles and batteries. Tesla’s China investment would not start “in any significant way” until 2019, with much of the roughly US$2 billion cost to be funded via Asian debt markets.
In the electric vehicle maker’s second-quarter earnings statement, published after the market close, Chief Executive Elon Musk said that he expected much of the car assembly plant to be “funded through local debt.”
On the conference call following the earnings release he said: “For China I think our default plan will be to use essentially a loan from local banks in China and fund the (Gigafactory) in Shanghai with local debt.”
The carmaker said in July that it had agreed with the Chinese government to manufacture vehicles in Shanghai, the first of its so-called Gigafactories to be built outside of the US.
Why it matters: As I’ve been saying, debt covenants are loose enough these days that the funds Tesla raises will be fungible. So it is in Tesla’s interest to tap Asian markets for expansion because they will want a Tesla expansion and the appetite for Tesla bonds is likely to be high, even if the company fails to meet its production targets.
5. WhatsApp is now charging business users
The move will allow its owner, Facebook, to make money from WhatsApp, which has lacked a revenue stream since dropping subscription fees.
Companies will be able to provide information and services, such as delivery dates or boarding passes, to customers via the platform.
In return, the businesses will pay a fee for a confirmed delivery.
The messages are set to cost between 0.5 cents to 9 cents (0.3p to 7p) a message depending on the country the user is based in. They can be automated or provided by human customer assistants.
The price means they will often be more expensive to use than more basic SMS-based texts.
Why it matters: I think this is an interesting development for two reasons. First, it provides a way forward for a lot of other social media companies like Twitter looking for revenue models that will work on their platforms. Advertising is not always the right model. Second, it signals how Facebook can reduce dependence on its namesake vertical and drive revenue growth as the Facebook site’s top line growth stalls.