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What's Happening in the World Economy: The US Recession Risk – Bloomberg

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Hello. Today we look at the risk of a U.S. recession, what’s coming up in the world economy this week and the rise of the super rich. 

The U.S. Recession Risk

Given America’s pandemic recession is only judged to have ended in April 2020, discussion of a double dip so soon seems premature.

Yet, David Blanchflower of Dartmouth College and Alex Bryson of University College London have kicked off such a debate.

In a new research paper released last week, they used history to wonder if a recent decline in consumer expectations suggests the world’s biggest economy is already in recession again.

Every slump since the 1980s has been foreshadowed 18 months ahead of time by drops of at least 10 points in gauges of consumer expectations from the Conference Board and University of Michigan, according to the authors.

The Conference Board’s index dropped in September to the lowest since November last year, although the University of Michigan’s gained.
 

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“Downward movements in consumer expectations in the last six months suggest the economy in the United States is entering recession now,” wrote Blanchflower and Bryson.

The good news is that other indicators are more upbeat. Even in Friday’s disappointing jobs report, the unemployment rate dropped top 4.8%. A single monthly rise of at least 0.3 percentage points in that measure is also a handy projector of recessions, the economists found. 

And even while Wall Street banks are cutting their forecasts for economic growth they still see robust expansion. Goldman Sachs, for example, told clients on Sunday that they now project the U.S. economy growing 5.6% this year and 4% next, even though both rates are slower than previously anticipated.

But there’s no denying risks are mounting. The delta variant has shown the pandemic will be here for a while, supply chains are squeezed and ports congested, food and fuel prices are surging, the labor market still has problems and fiscal and monetary policy makers may be pulling back stimulus soon. The debt limit fight has only been delayed. 

For those quick to scoff at the risk of a slump, let’s also remember economists are pretty terrible at forecasting such turns. A 2018 study discovered that of 153 recessions in 63 countries from 1992 to 2014, only five were predicted by a consensus of private-sector economists in April of the preceding year.

Time to cross fingers and hope history doesn’t repeat. 

Simon Kennedy

The Week Ahead

U.S. consumer inflation and prices paid to producers probably advanced at healthy paces in September, suggesting cost pressures continue to percolate. 

The widely followed consumer price index is projected to match August’s 0.3% monthly increase and the 5.3% year-over-year gain, according to the median of economists surveyed by Bloomberg.

The government’s gauge of producer prices is seen accelerating to 8.7% on an annual basis. 

Also this week, the International Monetary Fund meetings begin, the Federal Reserve releases minutes of its last meeting and Chile’s central bank may raise interest rates. 

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The inflation theme is certainly occupying the minds of investors.

Read our quarterly guide to central banks here and our deep dive into whether inflation is transitory or not here
 

The Bloomberg Central Bank Outlook

What’s set to happen with interest rates by the end of 2022

Source: Bloomberg Economics forecasts; surveys of economists for Czech Republic, Norway, Poland, Sweden and Switzerland

Note: Mapped data show rate decision forecasts for distinct central banks

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For a full rundown of the week ahead, click here.

Today’s Must Reads

  • Just in | The Nobel prize for economics was awarded to David Card, Joshua D. Angrist and Guido W. Imbens for their work using natural experiments.  
  • IMF chief | The fund’s executive board plans to deliberate further Monday over the fate of the lender’s chief, Kristalina Georgieva, after discussions Sunday with her and the law firm that alleged improper actions in her previous job at the World Bank.
  • BOE signals | Two Bank of England officials reinforced signals of an imminent rise in U.K. interest rates to curb inflation, with one telling households to brace for a “significantly earlier” increase than thought. 
  • Supply snarls | Factory workers are leaving Vietnam’s industrial heartland to avoid virus lockdowns, threatening the supply of  clothes and shoes shipped to the American market. 
  • India trade | India is racing to wrap up a clutch of quick-fire bilateral trade pacts by the end of March, officials said, as economic necessity spurs a shift from New Delhi’s usual go-slow approach on such deals.
  • Tax deal | Attention now turns to the upcoming Group of 20 summit and domestic legislatures, especially the U.S. Congress, after 136 nations backed a vast overhaul of corporate taxation. Treasury Secretary Janet Yellen said she’s confident U.S. lawmakers will sign up. 

Need-to-Know Research

Rise of the Super Rich

Middle-class Americans now hold less wealth than the top 1% by income

Source: Federal Reserve

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After years of declines, America’s middle class now holds a smaller share of U.S. wealth than the top 1%. The middle 60% of U.S. households by income — a measure economists often use as a definition of the middle class — saw their combined assets drop to 26.6% of national wealth as of June, the lowest in Federal Reserve data going back three decades. For the first time, the super rich had a bigger share, at 27%.

The data offer a window into the slow-motion erosion in the financial security of mid-tier earners that has fueled voters’ discontent in recent years. That continued through the Covid-19 pandemic, despite trillions of dollars in government relief.

On #EconTwitter

History fans…

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Save the Date

Join the Bloomberg Women’s Community on World Menopause Day on Oct. 18, as we host a virtual panel discussion on perimenopause and menopause in the workplace. The event aims to raise awareness of these life stages, including what to look out for, and the support available at work and elsewhere. ‌Register here.

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    Dollar set for another week of losses even as Fed tapering looms

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    The dollar was heading for a second week of declines on Friday as sentiment stayed tilted towards riskier assets, while an intervention by the Australian central bank put a halt to the Aussie dollar’s recent surge.

    The dollar index was last at 93.733, little changed in Asian hours but off 0.24% on the week, as it continues its fall from a 12-month high of 94.565 hit in earlier this month.

    It had managed to stem losses on Thursday, bouncing on better U.S. jobs and housing data, but the rally petered out on Friday morning in Asia, where risk sentiment was boosted news that beleaguered developer China Evergrande Group has supplied funds to pay interest on a U.S. dollar bond, averting a default.

    But traders are still trying to assess whether the dollar has scope to fall further, or if this is a temporary blip on a march higher.

    “People are wondering whether we are at an inflection point, as the dollar has been weakening and that doesn’t really fit with the broader narrative that global growth is cooling and the Fed is on the path to tapering, which should be supportive for the dollar,” said Paul Mackel, global head of FX research at HSBC.

    On Friday, benchmark 10-year U.S. Treasury yields were at 1.6872%, slightly off from Thursday’s multi-month high of 1.7%, as markets continue to prepare themselves for an announcement by the Federal Reserve that it will start to wind down its massive bond buying programme, which is widely expected for November.

    Mackel said part of the reason for the dollar’s weakness had been strong performances by currencies from most commodity exporting countries.

    These were quieter on Friday, however, as traders took profits, analysts said, and energy prices softened.

    Brent crude, which had risen above $86 dollars a barrel on Thursday, continued its tumble and was last at $84.10.

    The Australian dollar was at $0.7475, off Thursday’s three-month top, as the boost to the China-exposed currency from Evergrande’s news was outweighed by action from the Reserve Bank of Australia to stem a bond sell off, as well as the pause in energy price rises.

    The RBA said on Friday it had stepped in to defend its yield target for the first time in eight months, spending A$1 billion ($750 million) to dampen an aggressive bonds sell-off as traders have bet on inflation pulling forward rate hikes.

    Also affected by energy prices, the Canadian dollar slipped to C$1.2352 per U.S. dollar, off Thursday’s C$1.2287, a level last seen in June.

    The British pound paused for breath at $1.3798, off a month peak hit earlier in the week, to which it had been carried by growing expectations of an interest rate hike to combat rising inflationary pressures.

    The euro was little changed at $1.1627, while the yen wobbled within sight of its multi-year lows, with one dollar worth 114.01 yen, compared with 114.69 earlier in the week, a four-year low.

    China’s yuan eased against the dollar on Friday after the FX regulator warned of possible action if the currency market is hit by greater volatility following its recent rally. But the yuan still looked set for the biggest weekly gain since May.

    Bitcoin was at $63,928, a little off Wednesday’s all-time high of $67,016

     

    (Reporting by Alun John; Editing by Sam Holmes and Kim Coghill)

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    UN sets up trust fund for 'people's economy' in Afghanistan – The Globe and Mail

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    A general view ahead of an aid conference for Afghanistan at the United Nations in Geneva on Sept. 13.DENIS BALIBOUSE/Reuters

    The United Nations said on Thursday it had set up a special trust fund to provide urgently needed cash directly to Afghans through a system tapping into donor funds frozen since the Taliban takeover in August.

    With the local economy “imploding”, the aim is to inject liquidity into Afghan households to permit them to survive this winter and remain in their homeland, it said.

    Achim Steiner, the U.N. Development Programme’s (UNDP) administrator said Germany, a first contributor, had pledged 50 million euros ($58 million) to the fund, and that it was in touch with other donors to mobilize resources.

    Some 97% of Afghan households could be living below the poverty line by mid-2022, according to UNDP.

    “We have to step in, we have to stabilize a ‘people’s economy’ and in addition to saving lives we also have to save livelihoods,” Steiner told a news briefing.

    “Because otherwise we will confront indeed a scenario through this winter and into next year where millions and millions of Afghans are simply unable to stay on their land, in their homes, in their villages and survive,” he said.

    The International Monetary Fund said on Tuesday that Afghanistan’s economy was set to contract https://www.reuters.com/world/asia-pacific/afghanistans-economic-collapse-could-prompt-refugee-crisis-imf-2021-10-19 up to 30% this year and this was likely to further fuel a refugee crisis that would affect neighbouring countries, Turkey and Europe.

    The Taliban takeover saw billions in central bank assets frozen https://www.reuters.com/world/asia-pacific/un-chief-liquidity-needed-stem-afghanistan-economic-humanitarian-crises-2021-10-11 and international financial institutions suspend access to funds, although humanitarian aid has continued. Banks are running out of money, civil servants have not been paid and food prices have soared.

    Steiner said the challenge was to repurpose donor funds already earmarked for Afghanistan, where the Taliban, the de facto authorities, are not recognized internationally. The fund allows the international community to be “confident enough that these funds are not meant as government-to-government funding”, he said.

    VIRTUALLY NO LOCAL CASH

    The U.N. has discussed the programmes with the Taliban, he said, noting that 80% of the micro-businesses being helped were led by women.

    “Our greatest challenge right now is that there is a economy in which there is virtually no domestic currency in circulation,” Steiner said, adding that the U.N. wanted to avoid foreign currencies dominating, which would undermine the economy.

    “Our intent is to find ways very quickly in which we can convert international support into local currency in order to be able to stimulate local markets, local livelihoods. This is how you keep an economy alive,” he said.

    Kanni Wignaraja, director of UNDP’s regional bureau for the Asia Pacific, said that cash would be provided to Afghan workers in public works programmes, such as drought and flood control programmes, and grants given to micro-enterprises. Temporary basic income would be paid to the vulnerable elderly and disabled, she said.

    The UNDP had costed activities to be covered over the first 12 months at approximately $667 million, she said.

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    This content appears as provided to The Globe by the originating wire service. It has not been edited by Globe staff.

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    Province Invests in Midland Automotive Parts Manufacturer to Boost Local Economy – Government of Ontario News

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    Province Invests in Midland Automotive Parts Manufacturer to Boost Local Economy  Government of Ontario News



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