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Biden's competition order seen fueling long-run gains for economy – BNN

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President Joe Biden’s new plan to promote competition across industries and in the labor market can deliver long-run gains for the U.S. economy by boosting productivity and wages, economists say.

The president announced an executive order on Friday that directs federal agencies to ban or limit non-compete agreements — which make it harder for workers to switch jobs in search of higher pay — along with a raft of proposals aimed at barring unfair competition between large and small businesses.

While there’s a focus on the technology, agriculture, transportation and drug industries, some of the measures will apply across the economy. The aim is to counter a trend that’s seen market share in many industries become concentrated in a small number of businesses, widening gaps in income and wealth, the administration says.

“If it’s successful, that’s going to create more competition, improve mobility in the labor market, and in the longer run we could see maybe some upside risk to our forecasts for wage growth and productivity,” said Ryan Sweet, head of monetary policy research at Moody’s Analytics.

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Waning competition and the dominance of large firms has been a hot topic for economists in recent years. A series of studies have found that in most U.S. industries there is more concentration now than there was a few decades ago.

Many researchers have argued that this is one reason why wage increases have been slow: with markets for goods or services divided up among a smaller number of competitors, workers in those industries end up with less bargaining power.

‘Flawed Belief’

Reducing the trend toward corporate consolidation will promote competition and provide benefits for workers, consumers, farmers and small businesses, the White House said in a statement outlining the executive order. The measure also aims to step up enforcement of antitrust laws.

The U.S. Chamber of Commerce, the biggest business group, called the idea that the economy has become too concentrated a “flawed belief,” and warned the administration against neglecting the importance of large firms for economic growth.

“In many industries, size and scale are important not only to compete, but also to justify massive levels of investment,” the group said in a statement Friday. “Larger businesses are also strong partners that rely on and facilitate the growth of smaller businesses.”

The move to ban non-compete agreements — contractual clauses in which workers agree that if they quit or are fired, they can’t leave to work for a competitor, at least for a time — could remove a barrier to better pay in many industries.

The clauses are meant to prevent trade secrets from being exchanged. Instead, they often end up locking workers into bad jobs and reducing their bargaining power, said Karla Walter, director of employment policy at the Center for American Progress.

What’s a ‘Competitor’?

In 2014, for example, it was revealed that sandwich chain Jimmy John’s was requiring workers to sign non-compete agreements that banned them from working at one of the sandwich chain’s competitors for a period of two years following employment there. The company’s definition of a “competitor” was wide-ranging, encompassing any business that was near a Jimmy John’s location or derived 10% of its revenue from sandwiches.

Walter said that by barring non-compete agreements — which an estimated one-third of Americans have signed — worker mobility would increase and entrepreneurs would find it easier to attract talent.

It’s “an important change that will give workers more leverage for higher wages,” said David Jaeger, a labor economist at the University of St. Andrews. “Stockholders in large corporations may feel a pinch in the short run, but the increased competition will likely spur overall growth over the longer term.”

The executive order also calls on regulators to take steps to lower drug prices, toughen merger enforcement in technology and banking, and ensure transparency in airline and shipping fees.

The breadth of the order makes its economic impact hard to gauge, said Douglas Holtz-Eakin, president of the right-leaning American Action Forum. He said the enforcement of non-compete agreements is something that often happens at the state level.

Sweet at Moody’s said that growth benefits from an increase in competition could take years to emerge, but he sees a possible boost to entrepreneurship in the shorter term that could help job creation.

“The net benefit to GDP is down the road,” Sweet said. “But if it boosts productivity even a little bit it’s going to raise the speed limit of the economy.”

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The global economy is falling below expectations – The Economist

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IT IS WELL known that markets hate uncertainty. Bad news, then, that by one measure the world economy is throwing up more nasty surprises for investors. Citigroup’s global economic-surprise index (CESI), which measures the degree to which macroeconomic data announcements beat or miss forecasts compiled by Bloomberg, has fallen into negative territory for the first time since November (the indices for America and China have been negative since mid-May). Since the summer of 2020 economic indicators had tended until recently to surprise on the upside. But as inflation has surged and consumer confidence has flagged, they are now failing to meet forecasters’ expectations. (See chart.)

Measures of economic surprises appear to be a useful way to gauge market sentiment. When the economy is booming data releases will typically be better than analysts expected, boosting the CESI. During an economic downturn, economic statistics will fall below the consensus estimate, leading to negative surprises. From June 2020 to July 2021, when the CESI for America was positive thanks to upbeat employment, inflation and housing figures, the S&P 500 index of big American firms rose by 38%. Since then the CESI has bounced above and below zero, and shares have fallen by roughly 9%.

In a paper published in 2016 Chiara Scotti, an economist at the Federal Reserve, constructed her own surprise index based on five indicators: GDP, industrial production, employment, retail sales and manufacturing output. America’s index also measured personal income. Ms Scotti found that positive economic surprises in America were associated with appreciation of the dollar relative to the euro, pound sterling and yen. (In fact, Citi’s index was designed by the bank’s foreign-exchange unit for trading currencies, not stocks.)

But the surprise index can be hard to interpret. The CESI includes both backward- and forward-looking macroeconomic indicators, and is weighted in favour of newer releases and those that tend to have the biggest impact on markets. Because the index reflects economic performance relative to expectations, it can be negative during expansions if forecasters are too optimistic, and positive during contractions if they are too gloomy. But as Citi analysts wrote in a research note, “coincident rather than causal relationships are relied on even if they have no consistency whatsoever.”

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Sri Lanka Economy Shrinks 1.6% Amid Political Chaos, Inflation – BNN

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(Bloomberg) — Sri Lanka’s economy fell back into contraction last quarter as the country battled its worst economic problems since independence, with emergency aid to stabilize the island nation proving elusive.

Gross domestic product declined 1.6% in the quarter ended March from a year earlier, the Department of Census and Statistics said in a statement on Tuesday. That’s shallower than a 3.6% contraction seen by economists in a Bloomberg survey and compares with a revised 2% expansion in the previous quarter.

The contraction likely marks the beginning of a painful and long recession for the country, whose Prime Minister Ranil Wickremesinghe last week said the economy had “completely collapsed.” The crisis follows years of debt-fueled growth and populist fiscal policies, with the Covid-19 pandemic’s hit to the dollar-earning tourism industry serving as the last straw.

Absence of foreign exchange to pay for import of food to fuel led to red-hot inflation, the fastest in Asia, triggering protests against the government led by the Rajapaksa clan that eventually led to the resignation of Mahinda Rajapaksa as premier. While the months-long protests hurt business activity in parts of the country, the government on Monday imposed new curbs, which includes a call to residents to stay home until July 10 to conserve fuel. 

That will depress activity further, while raising the risk of more unrest given lingering shortages of essential goods.

Sri Lanka is in talks with the International Monetary Fund for aid to tide over the crisis, with at least $6 billion needed in the coming months to prop up reserves, pay for ballooning import bills and stabilize the local currency. The central bank has raised interest rates by 800 basis points since the beginning of the year to combat price gains that touched 39%.

Other details from the GDP report include:

  • For the first quarter, the services sector grew 0.7% from a year earlier
  • Industrial production slipped 4.7% and agriculture output contracted 6.8%

©2022 Bloomberg L.P.

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China's economy recovering but foundation not solid, premier says – Financial Post

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BEIJING — China’s economy has recovered to some extent, but its foundation is not solid, state media on Tuesday quoted Premier Li Keqiang as saying.

China will strive to drive the economy back onto a normal track and bring down the jobless rate as soon as possible, Li was quoted as saying.

“Currently, the implementation of the policy package to stabilize the economy is accelerating and taking effect. The economy has recovered on the whole, but the foundation is not yet solid,” Li was quoted as saying.

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“The task of stabilizing employment remains arduous.”

China’s economy showed signs of recovery in May after slumping the previous month as industrial production revived, but consumption remained weak and underlined the challenge for policymakers amid the persistent drag from strict COVID-19 curbs.

China’s nationwide survey-based jobless rate fell to 5.9% in May from 6.1% in April, still above the government’s 2022 target of below 5.5%.

In particular, the surveyed jobless rate in 31 major cities picked up to 6.9%, the highest on record. Some economists expect employment to worsen before it gets better, with a record number of graduates entering the workforce in summer.

Li vowed to achieve reasonable economic growth in the second quarter, although some private-sector economists expect the economy to shrink in the April-June quarter from a year earlier, compared with the first quarter’s 4.8% growth.

(Reporting by Kevin Yao and Beijing newsroom; Editing by Andrew Heavens, William Maclean)

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