Where’s the wage growth?
The United States economy added 228,000 jobs in November, above the 200,000 expected by Wall Street economists, according to Bloomberg. The unemployment rate was unchanged from October at 4.1 percent. Average earnings grew 2.5 percent over the past year.
The report comes as congressional Republicans are close to passing their $1.5 trillion tax cut plan. Here’s a roundup of economists’ reactions:
Joseph Song and Michelle Meyer, Bank of America Merrill Lynch: “The lack of wage growth at the aggregate level despite the declines in the unemployment rate and strong job gains remains a mystery. One possible explanation is that structural factors such as unfavorable demographics and industry-specific dynamics are playing a bigger role than the cyclical factors. However, we continue to believe that a falling unemployment rate will ultimately underpin wages.”
Ian Shepherdson, Pantheon Economics: He said the average hourly wage data was disappointing. “But if unemployment continues to fall, wage growth will rise. In the metro areas where unemployment already is 3.5% or less – these areas cover about a quarter of the employed workforce – y/y wage growth already is 4.0%. By the time the Fed meets in March, we expect to see sub-4% unemployment, accompanied by a clear uptick in wages and no softening in the payroll trend; we think Mr. Powell’s first meeting will bring a rate hike.”
Joseph Brusuelas, RSM US: “The bottom line from the November jobs report is that the economy has shifted into third gear and investors and forward looking firm managers should anticipate a shift in policy in the new year that will bring rising policy rates, improved fixed business investment and strong household spending. Oh, and this is all happening prior to a potential tax cut that one rarely observes late in the business cycle, whose size is appropriate for an economy in recession, not one in the late stages of the business cycle. Stay tuned because this is going to get interesting quite quickly.”
Robert Frick, Navy Federal Credit Union: “We soon may be adding a mystery of low wages to the mystery of low inflation, as the average hourly earnings registered just 2.5%. Even though the unemployment rate is 4.1%—and is expected to go below 4.0% next year—employers still don’t feel compelled to raise wages despite a tightening labor market.”
Paul Ashworth, Capital Economics: “The annual growth rate of average hourly earnings was a very pedestrian 2.5% in November, but that won’t stop the Fed from tightening policy at next week’s FOMC meeting.”
Mark Hamrick, Bankrate.com: “Given the potential impacts of the tax bill and the already established momentum of the economy, accelerating in recent months, there may well be a price to be paid in the form of rising interest rates at the hand of the Federal Reserve. The central bank has been eager to continue along the path of normalization and the case is made all the more pressing with the rise in stock and home prices. Even so, consumers and businesses have almost been lulled into virtual complacency by prolonged low interest rates.”
Being a mogul friend of Trump may not get you what you want.
Steve Schwarzman and Richard LeFrak privately made the case to President Trump that removing the deduction for state and local taxes from federal tax bills would hurt New York’s economy. Paul Singer and Ken Griffin want to change a provision that prevents hedge fund executives like themselves from taking advantage of a lower rate for pass-through partnerships.
The president told some of his billionaire friends over the weekend that as the Senate and House reconcile the tax bill, he’d like to see congressional negotiators lower the top rate so that taxpayers in states like New York and California don’t see an overall tax increase, given that state and local deductions won’t be allowed. Whether he was serious or just trying to placate his friends remains unclear.
So far, it isn’t clear whether being Trump supporters will help their causes.
From Shane Goldmacher, Maggie Haberman and Kate Kelly of the NYT:
“Everybody in New York is groaning,” said John Catsimatidis, a billionaire Republican who went to another of Mr. Trump’s fund-raisers this month at The Pierre hotel in Manhattan, “and all of us have zero influence.”
The hit to New York City: Ken Moelis told Bloomberg that the elimination of so-called SALT deductions could meaningfully shift business out of New York and to low-tax states like Florida and Texas.
The tax flyaround
• The Senate’s requirement that investors with taxable brokerage accounts to sell their oldest stock holdings first, known as first-in-first-out, is creating headaches for brokers and tax lawyers. (Bloomberg)
• The renewable energy industry had been on a tear. But the Republican tax overhaul could take a whack at its ascendancy. (NYT)
• Family-owned businesses — including conservative darlings like Hobby Lobby — are worried that the tax bills put them at a meaningful disadvantage because of the way the businesses are structured. (WSJ)
Spotify finds a new partner ahead of a public listing.
And it’s a division of one of China’s biggest internet giants.
Spotify and Tencent’s music unit, known as TME, agreed to buy stakes in each other, forging a potentially crucial bond for the streaming giant ahead of its potential new life as a publicly traded company. Spotify is still weighing whether to list its shares in a direct listing, avoiding the complex process of an I.P.O.
But being a public company means that investors will want to see impressive growth. Forming a partnership with Tencent helps give Spotify an important step up in that regard, by giving it a toehold in China.
TME has also been the subject of speculation that it too could go public.
Here’s the statement from Daniel Ek, Spotify’s founder and C.E.O.:
“Spotify and Tencent Music Entertainment see significant opportunities in the global music streaming market for all our users, artists, music and business partners. This transaction will allow both companies to benefit from the global growth of music streaming.”
Alexion’s stock jumped at the market open.
Shares in the biotech are up 6% this morning, after Michael broke the news yesterday that Elliott Management is pushing for changes at the company. Alexion’s main drug, Soliris, is used to treat two rare blood disorders.
The move again shows the power of activist investors. But the drugmaker will prove to be an interesting test for Elliott. The hedge fund is taking an iron-fist-in-a-velvet-glove approach. Over the past several months, Elliott executives have met with Alexion to make a variety of suggestions, from setting higher financial performance targets to considering exploring strategic alternatives.
But the activist firm is prepared to take a number of steps if it feels that the company isn’t complying, including running a proxy fight for board seats.
A big question: How much more can Alexion do? Analysts have praised the company and its management team. “I absolutely think they’re doing everything that investors could ask of them,” the research analyst Geoffrey Porges of Leerink told Michael.
Another big question: If Alexion were for sale, who would buy it? Many biotech companies would be interested, especially since Soliris treatments cost patients hundreds of thousands of dollars a year. And if Alexion’s next drug, ALXN 1210, works out in clinical trials, it would be patent-protected for another 20 years.
Extra credit: Fortune took a look at Elliott and some of the tactics it uses in its activism, from private investigators to hard-nosed negotiating.
Brexit talks have advanced.
After several weeks of drama, Britain and the European Union have reached an important accord that will allow them to advance to the next stage of discussions.
Here’s what Friday’s deal includes:
• An agreement that Britain will contribute to the E.U.’s budget for the next two years and commit to paying its share of any future liabilities that arise before 2020, even if they come due in subsequent decades.
• A path for E.U. nationals living in Britain to become permanent residents.
• A compromise on the jurisdiction of the European Court of Justice over both enforcement of any Brexit deal and the rights of E.U. citizens living in Britain.
• A compromise on the border controls between Northern Ireland and Ireland.
The pound rose a little, but trading was volatile.
What’s next: The European Commission will recommend that E.U. leaders proceed to the next stage of Brexit talks, which are expected to begin early next year. Then, Britain will finally begin negotiations over a new trade deal with the bloc.
The latest in sexual misconduct news.
• Morgan Stanley fired Harold Ford Jr., the former lawmaker who became a Wall Street rainmaker, “for conduct inconsistent with our values and in violation of our policies.” (NYT, HuffPo)
• Sam Isaly, one of the most prominent investors in biotech companies, has been accused by former employees of verbally abusing and harassing female workers and playing pornography at the office. (STAT)
• Laura Fitton, an early Twitter employee turned entrepreneur, became the first woman to go on the record with accusations of misconduct against the investor Shervin Pishevar. (Axios)
• David Boies, who took criticism as his role in Harvey Weinstein’s network of protectors emerged, said he wasn’t worried about his business. (Bloomberg Businessweek)
• Ellen Pao says that companies must have greater accountability for the actions of their executives, and that C.E.O.s and boards need to recognize that harassment and discrimination are crimes. (FT)
• Disney has lost John Lasseter, the Pixar executive who has taken a six-month sabbatical amid allegations of misconduct, at a crucial time for the media giant. (NYT)
The political misconduct roundup
• Senator Al Franken will resign. (NYT)
• The House Ethics Committee will investigate Representative Blake Farenthold of Texas, who is accused of harassing a former employee, retaliating against her, and then using money from a Congressional office to settle the claim. (Axios)
• Representative Trent Franks of Arizona will resign after harassing two former female staffers by asking them to bear his child as surrogates. (NYT)
The antitrust court battle of the decade begins March 19.
That’s when the trial for the Justice Department’s lawsuit to block AT&T’s bid for Time Warner will begin.
The judge presiding over the trial, Richard Leon, said that the trial would likely last three weeks. But while AT&T has said that its merger agreement with Time Warner would expire on April 22, Judge Leon suggested pushing that back, since he wouldn’t reach a verdict in time.
Extra credit: Read more about Judge Leon, whom the WaPo says “is considered a maverick in the legal world, having strong opinions and no clear political allegiance.”
Bitcoin is up! No, it’s down!
It passed $16,000 yesterday — and, on some exchanges, reached $20,000. As of this morning, it hovered around $15,000.
Bad stuff has happened to Bitcoin this week: There have been security breaches, a note of skepticism from a major online retailer and warnings by Wall Street analysts. Digital currency enthusiasts haven’t cared.
What do real estate tech and food delivery have in common?
Companies in each industry are poised to take money from Masa Son’s SoftBank, and specifically from its $98 billion Vision Fund.
Compass, a real estate listings service, said yesterday that it had raised $450 million from the Vision Fund at a $2.2 billion valuation — just a month after raising $100 million from Fidelity. SoftBank hailed the investment as the biggest ever in a real estate technology company.
Also yesterday, Recode reported that SoftBank was in talks to invest about $300 million in DoorDash, one of the big food delivery services.
Worth pondering: Both companies already compete in highly crowded industries, so it will be interesting to watch whether SoftBank showering them with riches helps them vault over more established rivals.
Huh: Bloomberg reported that the Vision Fund was in talks to invest in two companies owned by the Chinese insurer Ping An. And Dan Primack of Axios reported that SoftBank was weighing an investment in Wag, an on-demand dog-walking service with a history of controversy.
The tech flyaround
• That attractive person at that tech company’s holiday party? It could be a hired model. (Bloomberg)
• Didi Chuxing, Uber’s biggest frenemy, is expanding into Mexico — and becoming more of a threat to the American ride-hailing giant. (Reuters)
Saudi Arabia’s crown prince went shopping.
Prince Bader bin Abdullah bin Mohammed bin Farhan al-Saud executed the purchase of Leonardo da Vinci’s “Salvator Mundi.” But the true buyer was Crown Prince Mohammed bin Salman, who used his relative as a proxy.
Here’s what Bruce Riedel of the Brookings Institution told the WSJ:
“The image of the crown prince spending that much money to buy a painting when he’s supposed to be leading an anticorruption drive is staggering.”
A busy shopper: A little over a year ago, Prince Mohammed spent about $550 million on a yacht.
The Speed Read
• Is the heir to Warren Buffett becoming more apparent? Two Berkshire Hathaway executives, Ajit Jain and Greg Abel, were praised in a letter from Charles Munger as examples of the company’s “world-leading” managers who are in some ways better than the boss. (Bloomberg)
• Credit Suisse’s return to its Alpine roots, with a focus on building its Swiss unit and management of wealthy clients’ money, has paid off. (WSJ)
• G.E.’s decision to cut 12,000 jobs in its power unit takes it closer to its lowest overall head count since 2000, but it may not be the last cut over the coming months as Chief Executive John Flannery reviews every dollar the company spends. (Gadfly)
• Central bankers and regulators in Frankfurt signed off on the final chapter of a ranking rule book that they began writing after the financial crisis in 2008, and took a step toward averting future financial meltdowns. (NYT)
• Ford Motor Company said that it intended to assemble new battery-powered cars in Mexico, rather than in Michigan, a year after criticism from Mr. Trump prompted it to cancel plans for a Mexican plant and to announce that it would equip a Michigan factory to make electric and hybrid models. (NYT)
• A unit of Caterpillar conceded that it had cheated customers by performing unnecessary repairs and had pleaded guilty to dumping brake shoes and other parts into the ocean to hide evidence, according to court documents. (WSJ)
• Steinhoff International, a retailer based in South Africa, is enmeshed in an accounting scandal and the related losses have hit global banks, asset managers, the European Central Bank and the retailer’s main shareholder. (FT)
• Mick Mulvaney is reviewing whether Wells Fargo should pay tens of millions of dollars over purported mortgage-lending abuse, according to three people familiar with the matter. (Reuters)
• The credit trading desk at Goldman Sachs is caught in the middle of a battle among hedge funds over the debt of the homebuilder Hovnanian Enterprises. (Bloomberg)
• Mr. Trump plans to publish his long-promised infrastructure proposal next month, according to a senior administration official. (Bloomberg)
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