The econometric evidence continues to mount that May wasn’t the start of a new recession in the US. The latest clue is yesterday’s monthly update of the Federal Reserve’s Labor Market Conditions Index (LMCI), which is designed as a “dynamic factor model that extracts the primary common variation from 19 labor market indicators.” Last month’s reading ticked up to a modestly positive value—1.3—for the first time since February. Running the numbers through a probit model quantifies what casual observation suggests: recession risk was low as of last month.
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● Fed Labor Conditions Index Grows to 1.3 in May | Bond Buyer
● The Conference Board’s US Employment Trends Index Increased in May | CB
● Eurozone GDP confirmed at 0.4% in first quarter | MarketWatch
● China May inflation cools to 1.2% year on year, weaker than forecast | ST
● Greek PM Tsipras says accord possible if pensions are not cut | Reuters
● Should A Robot Be Managing CalPERS Portfolio? | Meb Faber Research

We’ve seen a number of false dawns with anticipating rate hikes in recent years, but is the jig finally up this time? Friday’s surprisingly strong jobs report for May has reignited expectations that the Federal Reserve will soon start raising interest rates for the first time in nearly a decade. The day before the Labor Department released the bullish data the IMF asked the central bank to hold off on monetary tightening until next year. But the trends in key interest rates through last week’s close suggest that sooner rather than later is the new new mantra, again, when it comes to estimating the timing for a US rate hike.
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● US Employers Add 280K Jobs In May, Yet Jobless Rate Rises To 5.5% | ActionForex
● US Consumer Debt Grows in April as Credit-Card Use Surges | WSJ
● Eurozone Investor Confidence Falls To 4-Month Low | RTT
● Germany’s industrial output in April beats forecasts | MarketWatch
● Japan GDP unexpectedly accelerates in Q1 as firms boost investment | Reuters
● China’s economic weakness continues as both imports and exports fall | Guardian

● Cracking the Emerging Markets Enigma
By G. Andrew Karolyi
Summary via publisher (Oxford University Press)
Forward-thinking investors are constantly looking for the next BRIC–what foreign market is on the brink of expansive growth? Will these investments payoff, or are the potential risks too great? Investing in these emerging markets requires a careful analysis of potential risks and benefits which vary greatly from country to country and even from day to day. Emerging markets expert Andrew Karolyi outlines a practical strategy for evaluating the opportunities and-more importantly-the risks of investing in emerging markets. Karolyi’s proposed system evaluates multiple dimensions of the potential risks faced by prospective investors. These categories of risk reflect the uneven quality or fragility of the various institutions designed to assure integrity in capital markets-political stability, corporate opacity, limits placed on foreign investors, and more. By distilling these analyses into a numerical scoring system, Karolyi has devised a way to assess with ease emerging markets by different dimensions of risk and across all dimensions together.
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US private payrolls increased by a healthy 262,000 in May, the Labor Department reports—substantially more than the consensus forecast of a 215,000 gain, based on Econoday.com’s data. The news is another clue that boosts the odds for a second-quarter rebound. But when we look past the noise of the monthly fluctuations, today’s update reminds that not much has changed, which is to say that a solid, steady year-over-year growth rate for private payrolls endures.
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The prospects for stronger economic growth in the second-quarter remain in flux, but the latest numbers move the dial a bit deeper into positive territory. The change is far from decisive, but it’s enough to suggest that momentum may be building for a stronger run of economic reports in the weeks ahead.
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● US jobless claims stay low, drop 8,000 to 276,000 | MarketWatch
● Weak US productivity, rising labor costs stir inflation concern | Reuters
● US Consumer Comfort Index falls to 6-month low | Bloomberg
● German Factory Orders Rise for Second Straight Month | NY Times
● Bundesbank Substantially Raises Germany Growth Forecasts | MNI
● Eurozone retail PMI in May signals strongest rise in sales since 2011 | Markit
● Greece Defers IMF Payment as Merkel Says Resolution Far Away | Bloomberg

Private nonfarm payrolls in the US are projected to increase by 178,000 (seasonally adjusted) in tomorrow’s update for May from the Labor Department, based on The Capital Spectator’s median point forecast for several econometric estimates. The prediction reflects a moderately lower gain vs. the 213,000 increase in April.
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Recession talk is fast and loose these days, but a fair amount of the chattering on this topic is anecdotal. Fortunately, there are a number of superior (i.e, relatively objective) metrics to consider based on hard data and robust modeling, including one technique that shows up regularly on The Capital Spectator (see last month’s update). But even if you’re adhering to best practices, there’s still the problem of a time lag. In some cases, we have to wait a month or two before we see fresh figures for a given indicator, which is usually reflecting some period in recent history. There’s also the matter of revisions to consider. Signals can change as updates for previously released numbers are published. One way to bridge the gap is with market data, which are available in real-time and immune to revisions.
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