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Economy ended 2019 on a strong note

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The fourth-quarter growth scare is a thing of the past, as the U.S. economy looks set to close the books on 2019 with a solid rise.

Manufacturing and trade reports Tuesday confirmed that GDP is on pace to rise more than 2% for the period.  An Atlanta Fed gauge estimates the gain at 2.3%, better than the 2.1% in the third quarter and enough to close out the year with average quarterly gain of about 2.4%.

While that would mark a slowdown from the 2.9% increase in 2018, it would still be indicative that the decade-old expansion is alive and well and prepped to continue into 2020.

“The economy is better than you think. Bet on it,” Chris Rupkey, chief financial economist at MUFG Union Bank, said in a note.

The latest news saw the U.S. trade gap narrow in November to its lowest level in three years, thanks largely to a continued slowdown in imports and an expansion in exports. Along with that came an ISM reading showing that a manufacturing contraction had not spread to the much larger services component of the U.S. economy.

Though the headlines pointed to better growth, the Atlanta Fed kept its GDP Now tracker at 2.3%. However, that’s well above earlier readings, including the low point in mid-November when Q4 was tracking at just a 0.3% gain.

That came during a year when Wall Street braced for a looming recession, based on worries over the U.S.-China trade war, weak global growth and a historically reliable sign from the bond market that investors were pricing in a declining economy ahead.

However, the services reading showed that “the vast majority of American industries are not being held back by the swirling winds of geopolitical uncertainty and makes us more confident that the recession forecasts of some … will not be realized,” Rupkey said.

Good and bad news on trade

One big positive for sentiment is the likely resolution, at least on a first-phase basis, of the trade dispute. The two nations had slapped billions of dollars in tariffs on each other’s goods, putting a damper on business confidence and capital investment.

An agreement to forestall further tariffs and address other issues is expected to be signed later this month.

“It appears that firms have responded immediately, and positively, to the news that the Phase One trade deal would prevent the imposition of further tariffs on consumer goods,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics.

To be sure, there was one big caveat from the latest back of economic data: the trade gap declined — to its lowest point since President Donald Trump took office — due largely to a rise in exports, which add to GDP in the near term but may not last over the longer run.

On the other hand, that, too, could be a cosmetic change as a rise in imports could come from stronger consumer demand.

“While a tighter trade balance will mechanically boost GDP, we would not see the tightening as a sign of stronger growth in the long term,” Citigroup economist Veronica Clark said. “As our base case remains for a still-healthy household sector driving strong consumption, we would not expect imports of these goods to weaken much further.”

Hopes for jobs

One of the brightest spots that come out of the data was a strong employment reading out of the ISM non-manufacturing survey.

The jobs index was little changed from the previous month but still clearly positive at a reading of 55 in December, which Shepherdson said was an indication that job growth will again be solid. Economists surveyed by Dow Jones expect Friday’s nonfarm payrolls reading to show an increase of 160,000, a decline from November’s robust 266,000 but still well ahead of the pace needed to keep the unemployment rate at its current 50-year low of 3.5%.

“This is a seriously important development, because September’s level signaled payroll growth of only about 50K, but the December reading points to 180K,” Shepherdson wrote. “Other employment numbers are weaker, but the improvement in the ISM non-manufacturing survey is a very positive sign, though not for investors hoping the Fed will ease again soon.”

Indeed, the central bank appears likely to stay on hold throughout 2020 absent a significant change in economic conditions.

Jeffrey Kleintop, chief global investment strategist at Charles Schwab, said the employment picture likely will be the key to determine how growth progresses in 2020.

“If the labor market did start to weaken, we could see a very high level of consumer confidence being to recede,” Kleintop said. “That would undermine this strength we see in the economy.”

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Oil prices climb to highest in years as COVID recovery, power generators stoke demand

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 Oil prices hit their highest in years on Monday as demand continues its recovery from the COVID-19 pandemic, boosted by more custom from power generators turning away from expensive gas and coal to fuel oil and diesel.

Brent crude oil futures rose 87 cents, or 1%, to $85.73 a barrel by 0111 GMT, the highest price since October 2018.

US West Texas Intermediate (WTI) crude futures climbed $1.12, or 1.4%, to $83.40 a barrel, highest since October 2014.

Both contracts rose by at least 3% last week.

“Easing restrictions around the world are likely to help the recovery in fuel consumption,” analysts from ANZ bank said in a note on Monday.

“The jet fuel market was buoyed by news that the U.S. will open its borders to vaccinated foreign travellers next month. Similar moves in Australia and across Asia followed.”

They added that gas-to-oil switching for power generation alone could boost demand by as much as 450,000 barrels per day in the fourth quarter.

Still, supply could also increase from the United States, where energy firms last week added oil and natural gas rigs for a sixth week in a row as soaring crude prices prompted drillers to return to the wellpad.

The U.S. oil and gas rig count, an early indicator of future output, rose 10 to 543 in the week to Oct. 15, its highest since April 2020, energy services firm Baker Hughes Co said last week.

China’s economy, meanwhile, likely grew at the slowest pace in a year in the third quarter, hurt by power shortages, supply bottlenecks and sporadic COVID-19 outbreaks.

The world’s second-largest oil consumer issued a new batch of oil import quotas for independent refiners for 2021 that show total annual allowances were lower than last year, a first reduction of import permits since these firms were allowed into the market in 2015.

 

(Reporting by Jessica Jaganathan; Editing by Kenneth Maxwell)

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Stop handing out free money (and other ideas for getting the economy back on track) | TheHill – The Hill

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Supply chain shortages and inflation are hurting consumers and Democratic election prospects in 2022 and 2024. The Biden administration, no doubt aware of this possibility, is taking action to address the ill-effects of scarcity and higher prices. Recently, the administration mandated that the Port of Los Angeles remain open 24 hours a day so merchandise idling in shipping containers can be delivered faster to fill empty supermarket shelves and consumer shopping carts.

But this response may be coming too late, because shortages and inflation have created uncertainty in the minds of consumers that cannot be easily reduced.

While the administration has handled the COVID-19 pandemic well, it has been much less successful in dealing with the negative effects of the ensuing adjustments, including shortages, inflation, supply chain disruptions, high demand and uncertainty.  

The widespread shortages were caused by sudden and rapid increases in consumer demand and by manufacturers and suppliers that were too slow or unable to respond swiftly.

Once supply chain disruptions are straightened out as manufacturers increase their production and distributers move their products faster, shortages are bound to ease, though some could linger.  

The U.S. economy is also experiencing a modest annual inflation rate of 5.4 percent, caused by the trillions of dollars that the Treasury gave Americans in 2020 to spend to avert a pandemic-induced depression. Flush with this cash and what they had saved while sheltering in their homes during the pandemic, consumers quickly increased demand for most products and services. They became less price sensitive and pushed inflation higher. Still, though worrisome, an annual inflation rate of 5.4 percent is hardly runaway or stagflationary.  

But the excess cash is tapering off. Without it, consumers will be forced to reduce their demand and thereby push most prices downward. As a result, future inflation won’t be as drastic or widespread, especially since the Federal Reserve Board is planning to reduce the money supply, which will dampen inflation.

But the uncertainty produced by the pandemic is likely to prevent people from getting back to normal and might foster some continued shortages and inflation.  

Americans have been feeling confused and unsure about their future. Before the pandemic, they took stable prices and product availability for granted, knew the content and location of their jobs, woke up in the mornings to feed their kids and send them to school and were fairly content with their lives. Not anymore. Their world had changed, and the new one seems unfamiliar and scary to many. As a result, 4.3 millions have left the labor force since the onset of the pandemic.

What can the White House and Congress do to alleviate shortages, inflation and uncertainty? Here are four ideas.  

1. Take measures to ease shortages. Mandating that the Port of Los Angeles work nonstop will increase some supplies, but it’s not enough. It should be followed by similar action in other ports. Likewise, factories should be instructed to increase production. Such measures are easy to take in the case of consumer staples but more difficult in the case of computer chips, as chips are part of a global industry, and increasing their production requires building large factories and investing billions of dollars.

2. Stop handing out free money to consumers. With less money to spend, demand and inflation will ease. Though Americans are no longer receiving government manna, many still have cash to spend, which will continue to exert some upward inflationary pressures. 

3. Think again about the size, timing and spending schedule of infrastructure and Build Back Better initiatives. Pumping trillions of dollars into the economy could create a new round of inflation inflammation.

4. Reduce uncertainty. Unfortunately, policymakers lack the knowledge, skills and tools to address this effectively. What is desperately needed is trusted and steady leadership to assure Americans that their lives as consumers, employees, parents and human beings will be more certain again. Unless they can be made to feel more content with their lives, the economy may continue to sputter and keep a fuller economic recovery at bay. 

Can these challenges be successfully addressed in the coming year or two? Maybe. The U.S. discovered and produced a life-saving vaccine against COVID-19 in record time and enacted policies that averted depression. Likewise, I expect shortages and inflation to subside and a sense of normalcy to rise. This, plus efforts to make consumers feel more confident, would put the country on a more prosperous path. 

Avraham Shama is the former dean of the College of Business at the University of Texas – Pan American. He is a professor emeritus at the Anderson School of Management at the University of New Mexico. His book, “The Impact of Stagflation on Consumer Psychology,” was published by Praeger publishing. 

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Shekel surplus weighs down Palestinian economy – FRANCE 24

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Issued on: 17/10/2021 – 05:06Modified: 17/10/2021 – 05:04

Ramallah (Palestinian Territories) (AFP)

Palestinian businesses flush with too much Israeli cash: it may not be the most talked about aspect of the occupation, but experts warn it is a growing concern for the Palestinian economy.

Palestinians in the West Bank use the Israeli shekel but, beyond that commonality, the two financial systems are dramatically different.

In Israel, as in many advanced economies, digital payments are rapidly growing, taking the place of transactions once done with bills and coins.

But in the West Bank, a territory under Israeli military occupation since 1967, cash is still king.

Tasir Freij, who owns a hardware store in Ramallah, told AFP he now has to pay a two percent commission to deposit paper money because his bank is reluctant to receive it.

“This is a crisis… and we are feeling its effects,” Freij told AFP.

Much of the paper money is brought in by the tens of thousands of Palestinians who work inside Israel or Jewish settlements in the West Bank, and who get their wages in cash.

Experts and business people say the buildup of hard currency risks stifling the Palestinian financial system.

Palestinian men exchange currencies in the West Bank city of Ramallah; the local  shekel surplus has seen its value fall against major global currencies
Palestinian men exchange currencies in the West Bank city of Ramallah; the local  shekel surplus has seen its value fall against major global currencies
Palestinian men exchange currencies in the West Bank city of Ramallah; the local shekel surplus has seen its value fall against major global currencies ABBAS MOMANI AFP

Freij fretted that buying goods from abroad typically requires converting shekels into foreign currencies, especially dollars or euros, but the abundance of shekels in the market has forced him to accept painfully unfavourable rates.

– ‘Dumping ground’ –

The Palestinian Monetary Authority, which functions as the central bank in the West Bank, has warned that paper shekels are building up because it has no way to return the hard currency to Israel.

PMA governor Firas Melhem told AFP that the cash buildup was “a very worrying problem,” causing headaches for banks and businesses.

“If the problem is not resolved quickly, the Palestinian market will turn into a dumping ground for the shekel,” he added.

The shekel was established as the official currency in the Palestinian territories as a result of economic protocols known as the Paris agreements that followed the Oslo Accords between Israel and the Palestinian Territories.

Much has changed since those 1994 agreements.

As they lean more on digital transactions, Israel’s banks no longer want to reabsorb paper cash that accumulates in the West Bank but does not circulate rapidly through the Israeli economy.

The Bank of Israel cited security as another reason.

“We stress that uncontrolled cash transfers could be misused, especially for money laundering and terror funding, and would not be in compliance with international standards on the prohibition of money laundering and terror funding,” the bank told AFP in a statement.

– Solutions? –

Palestinian banks have tried to encourage customers to moderate their cash deposits, but that risks limiting the capital available to banks, which would lower their ability to offer loans.

The cash surplus predicament has fuelled renewed calls from some Palestinian experts in favour of ditching the shekel, either in favour of a unique Palestinian currency or that of another nation, including the Jordanian dinar, which also circulates in the West Bank.

The Palestinian Monetary Authority is also pushing the Bank of Israel to take back more hard currency.

But Melhem stressed that Palestinians also needed to “keep up with developments in financial technologies,” and move towards more cashless payments.

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