CHART OF THE DAY: What's Behind U.S. Productivity's Worst Streak In 40 Years

CHART OF THE DAY: What's Behind U.S. Productivity's Worst Streak In 40 Years  - 10.11.16 EL Chart

Productivity's Worst streak in four decades ... WHY?


Most mainstream economists don't have a good explanation. In recent testimony before Congress, Fed head Janet Yellen lamented that productivity growth has been "very, very low." She called it a "depressing finding." We don't disagree.


Here's our explanation: Jobs growth slows => Number of Hours Worked falling => Productivity slips => GPD dips


1. Jobs Growth 


Year-over-year nonfarm payroll growth has declined from its February 2015 peak of 2.3% down to 1.7% today

2. Aggregate Weekly Hours 


Private sector year-over-year has declined from its 2015 peak around 3.5% to 1.05% today


3. Productivity


See chart above. 40-year low. Not good.


4. GDP


U.S. economic growth has slowed from 3.3% (March 2015) to 1.2% reported in June 2016 



Hedgeye CEO Keith McCullough lays out this cascading domino effect in greater detail in the 3-minute video below.



 Want more? For an in-depth discussion of the productivity slowdown, see Hedgeye Demography Sector Head Neil Howe's piece "The Great Productivity Slowdown.")

President Trump Catalyst? Bad Jobs Report

In this brief excerpt from The Macro Show, Hedgeye CEO Keith McCullough explains why the upcoming non-farm payroll reports could tip the presidential election in Donald Trump's Favor.





Cartoon of the Day: Economic Ills

Cartoon of the Day: Economic Ills - cyclicals cartoon 10.11.2016


We are entering the slowest part of the U.S. economic cycle and there's no cure for these economic ills.

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Double Dip Industrial Recession? Yup. Just Ask Honeywell & Dover

Takeaway: It's shaping up to be an ugly earnings season for Industrials as companies like Honeywell and Dover Corp cut guidance.

Double Dip Industrial Recession? Yup. Just Ask Honeywell & Dover - recession cartoon 04.14.2016


The U.S. #GrowthSlowing carnage continues.


That's the latest from a few big, publically-traded companies this week. It's shaping up to be an ugly earnings season for the Industrials sector as multi-billion dollar conglomerates like Honeywell and Dover Corp are pre-announcing downgraded earnings and sales guidance to investors. 


Double Dip Industrial Recession? Yup. Just Ask Honeywell & Dover - honeywell


First came Honeywell (HON). Shares of the aerospace manufacturer are down almost -8% since Thursday, when the company cut its full-year guidance for earnings per share (from $6.60 - $6.70 to $6.60 - $6.64) and sales (projected to be down 1% to 2%).


Equally distressing was the commentary from Honeywell management. Sales of aftermarket business-jet services and shipping and logistics products "failed to materialize," CEO David Cote told investors on a conference call. Furthermore, "customer inventory levels were unusually high," CFO Thomas Szlosek added, "causing a temporary slowdown in revenue growth."


Here's a key excerpt from the call via CEO Cote:


"I would say the economy is clearly slow. It's still growing, but it's even slower growth than what we'd expected before. And we've planned for that everywhere. And that's pretty much what we've been seeing. Up to this point, biz jets had actually been okay, especially in that mid – super mid-size category. That's the thing that has changed with the, let's say the additional slowing in the growth rate for the economy. And we're going to plan for that continuing." 



The Hedgeye Macro team released their Q4 2016 Macro Themes last week. One of the themes called for a #DoubleDipRecession in Industrials. Here's the brief summary:


"The cyclical-industrial complex peaks ahead of the peak in the economic cycle and the current cycle has not proved different. Globally, growth and inflation expectations continue to be marked lower while PMI’s and Industrial activity remain in Trend retreat. Domestically, manufacturing ISM’s remain peri-contractionary while industrial production and corporate capex remain mired in their worst non-recession streaks of negative growth ever." 


Add Dover Corp (DOV) to the list of companies caught up in this double dip industrial production downturn. Dover pre-announced results and it now expects:


  • Full-year organic revenue declines of -7% to -8%, versus the prior forecast of -3% to -5%.
  • Third quarter earnings per share guided down to $0.81 to $0.83, versus $1.02 expected


Dover shares reflect this weakness. DOV is down almost 9% since Thursday. Here's Dover CEO Robert Livingston explaining the downgraded guidance:


"While our upstream drilling and production businesses showed solid improvement in the third quarter, and our Printing & Identification businesses continued to perform well, our overall results were well below our expectations. These results were principally impacted by a weak global economy and ongoing production inefficiencies in our retail refrigeration business... We also expect the macro global economy to remain soft, later cycle oil & gas exposed businesses to remain weak, and continued margin pressures in Refrigeration & Food Equipment through the end of the year, as we work to streamline and improve our production systems."


So not good. And just think, this is only the beginning of Q3 earnings season.

More to be revealed.

A Cautionary Note On The Putin Pop In Oil Prices

Takeaway: Putin's production freeze comments sent oil markets into hyper-drive. But Russia is essentially telling OPEC: you go first.

A Cautionary Note On The Putin Pop In Oil Prices - oil russia


The World Energy Congress got underway in Istanbul today creating another opportunity for OPEC ministers and Russia to talk up oil prices on the heels of last month’s Algiers “deal” to limit production.


President Putin attended the opening day and used his appearance to promote the OPEC Algiers deal. Putin said “Russia is ready to join in joint measures to limit output” but added that “we think that a freeze or even a cut in oil production is probably the only proper decision to preserve stability in the global energy market.”


The Russian President’s comments sent oil markets and headline writers into hyper-drive on Monday. But a closer examination of the situation should provide some caution.


Earlier on Monday Russia’s energy minister Alexander Novak said Russia would prefer to freeze its output at current levels rather than make reductions. The production freeze theme was echoed by Gazprom’s deputy CEO Alexander Medvedev who also said on Monday “Freeze not contraction.”


The freeze play is not insignificant since Russia’s current October production is at a post-Soviet record of 11.2 million barrels a day.


Still Russia is not taking any unilateral action to stabilize prices as President Putin said it defers a decision if an OPEC deal in November “will materialize.”  It does not seem that Russia is too confident in the prospects for an OPEC deal. Russia is essentially telling OPEC: you go first. 


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More From Hedgeye:



Buy Textron ... 4 Key Discussion Points

Takeaway: Textron shares are pricing-in ongoing weakness. investors don't appreciate its sales pipeline, new products and restructuring opportunities.

Buy Textron ... 4 Key Discussion Points - txt


Hedgeye will host a call October 11th (at 11:00 a.m. ET) to review our LONG thesis on Textron Inc. (TXT).


We will be collaborating with Hedgeye Potomac Defense Policy head LtGen Emerson "Emo" Gardner USMC ret. to provide a multifaceted view of Textron's longer-term prospects. LtGen Gardner brings unique insight into key TXT programs, like the V-22 and V-280.


  • Favorable Asymmetric Set-up: With key segment results already depressed, TXT shares appear to price in ongoing weakness, missing what can go "right".
  • Significant Aftermarket Sales, Existing Orders, FMS Potential: TXT should benefit from a well-developed installed base and sales pipeline.
  • Restructuring Underway: Management is already focused on opportunities within Industrial & Systems segments, with modest charges expected in 2H16.
  • Strong Platforms For Growth: New product introductions and potential product development, like tiltrotor drones, should add to TXT's already strong franchises. 


Lieutenant General Emerson N. Gardner, USMC, (ret.) is a recognized expert on the Department of Defense programming and budgeting process. He is the Senior Defense Analyst at Potomac Research Group in Washington, DC and has an independent consulting practice.


From 2007 to 2010 LtGen Gardner was the Principal Deputy Director and acting Director of Cost Assessment and Program Evaluation for the Office of the Secretary of Defense. In this billet he led independent evaluations of all major defense programs and managed the development of the Department of Defense's $3 Trillion, six year Future Year Defense Plan. In his book "Call to Duty", Secretary of Defense Robert Gates cited General Gardner as his "go to guy on the budget." Gardner had previously been the Deputy Commandant of the Marine Corps for Programs and Resources where he was directly responsible for the development and execution of all aspects of the Corps' $33 Billion annual budget.


For more information please go to


Attendance on this call is limited. Please note if you are not a current subscriber to our Industrials research there will be a fee associated with this research call and related material. Ping for more information.

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