Where to Look for Signs Financial Turmoil Is Impacting the US Economy
(Bloomberg) — The key to if — or when — the US economy falls into recession will depend on how the latest turmoil in the banking sector spills over to Main Street.
Less lending and tighter loan standards would make it tougher for people to buy cars and homes, and harder for businesses to expand and invest. Elevated concerns about the banking system and heightened odds of a recession also risk turning households more cautious about spending and businesses wary of beefing up payrolls or pursuing capital investments.
The economy was already showing some cracks from the Federal Reserve’s steep interest-rate hikes to stave off inflation. The failure of three US banks followed by a crisis of confidence in Credit Suisse Group AG spooked investors on concerns about the stability of the financial sector.
With conditions changing by the hour, traditional economic data points — typically released monthly or quarterly with a lag — prove less helpful.
Following are some places to look to gauge the economic fallout from the tumult in the banking sector. It should be noted, though, that some of these indicators have already retreated in recent months which will make deciphering the impact even more challenging:
Each Friday around 4:15 p.m. in Washington the Fed releases a slew of information on assets and liabilities at the nation’s commercial banks. Statistics on consumer, real estate and commercial loans are all included, as well as broken out into broader categories based on bank size.
The report, known as the H.8, will be closely watched by economists and investors for insight into lending patterns and deposits at both regional banks and the nation’s biggest banks.
The Senior Loan Officer Opinion Survey on Bank Lending Practices is a quarterly survey of up to 80 large domestic banks and 24 US branches of foreign banks that also offers insight into lending standards as well as demand for and loans to businesses and households.
While not a high-frequency measure, the next report will be released in April — an opportune insight in the wake of the turbulence seen in March. Indications of a tightening of bank lending standards may raise concerns about the economy’s prospects.
Consumer confidence is fickle and fragile, and while certainly not perfect, it can at times help signal changes in personal spending.
Early indications are that the upheaval in the banking sector is having an impact. A measure by Penta and CivicScience showed confidence in the US economy fell by the most since June in the two weeks ended March 14.
Results of the University of Michigan’s March survey of consumers, set for release later on Friday, was conducted Feb. 22-March 15 and will likely reflect some impact from the latest market turmoil. The final index, out March 31, will offer a clearer picture of consumers’ initial reaction to the bank failures. The data are released twice a month.
The Conference Board has a similar measure, which is due on March 28.
Credit Card Spending
A key way to assess whether Americans are pulling back on spending is through credit card data.
The Bureau of Economic Analysis estimates spending on a variety of services and merchandise using daily payment card data. Unlike personal spending data that’s released monthly and with a significant lag, BEA generally updates this data weekly.
Several private sources also regularly provide insights into consumer spending patterns, including Bank of America Corp. and Visa Inc.
The Census Bureau’s Business Trends and Outlook Survey offers one way to get timely insight into firms across the economy. The survey is sent out to roughly 200,000 businesses every two weeks and includes figures on performance, revenue, employees and hours worked. The next release will include the two weeks ending March 26.
The National Federation of Independent Business, a small-business association, regularly polls its members on questions like hiring plans, capital expenditures, and ease of getting a loan. The NFIB released their latest results earlier this week, so the next reading won’t come for about another month. Reports come out on the second Tuesday of each month.
The Household Pulse Survey, an experimental Census Bureau survey started in the depths of the pandemic, has become a key source of timely information on topics ranging from employment status to food sufficiency and methods used to meet spending needs. The data are collected in two-week intervals of two-weeks on, two-weeks off.
OpenTable, a booking platform for reservations at restaurants, has daily data on reservations at the national level as well as across a variety of US cities. While it can be volatile, a sustained downturn in reservations could point to Americans pulling back on discretionary spending.
Businesses tend to slow and ultimately freeze hiring when demand wanes in order to limit job cuts. While government data on vacancies is published with a significant lag, many job-search websites offer much more up-to-date figures on the status of labor demand.
Indeed offers a near real-time look at job postings on their site by country, state, city and sector. Vacancies in many sectors were already on the decline before the events of the last week.
Reductions in temporary staffing can also be an indicator of business concerns about the future. The final step is larger layoffs, something that can often be seen in WARN notices — or an advance notice of plant closings and mass layoffs — before government metrics.
–With assistance from Alex Tanzi, Augusta Saraiva and Ben Holland.
Federal budget to focus on clean economy, support for low-income Canadians, Freeland says – The Globe and Mail
The federal government will “invest aggressively” in clean technology, Finance Minister Chrystia Freeland said Monday during a prebudget event in which she outlined the main themes of the economic plan she will deliver next week.
At a time when the U.S. government is spending billions through programs and tax breaks to spur the use of electric vehicles and clean energy, Ms. Freeland said it would “reckless” if Canada failed to also take action.
“Canada right now is really at a crucial crossroads. This is a moment when the great economies of the world have decided to embrace the clean economy,” Ms. Freeland told reporters after delivering a budget-themed speech to the International Brotherhood of Electrical Workers in Oshawa, Ont.
Ms. Freeland, who is also Deputy Prime Minister, said Canada must choose between two options.
“We also can invest aggressively in the clean economy of the 21st century in a smart, focused Canadian way – or we can be left behind,” she said. “Not making those investments is also a choice. And a choice, I believe, would be really irresponsible, really reckless.”
Monday’s speech is the latest in a series of public remarks in which the Finance Minister has provided broad outlines of the March 28 budget. She has previously said that accounting for the recently announced increase in health transfers to the provinces will be a key element. Her comments Monday add to earlier signals that the budget will include measures in response to green technology incentives contained in the Inflation Reduction Act approved last year in Washington.
In addition to those two areas of spending, Ms. Freeland said next week’s federal budget will include a “narrowly focused” boost to social safety net supports for low-income Canadians in response to the higher costs of living.
NDP Leader Jagmeet Singh, who is part of a supply and confidence agreement with the minority Liberal government, has said this should come in the form of an extension of the current six month doubling of the GST credit, a direct payment that is aimed at lower income Canadians.
Ms. Freeland did not provide specifics as to the form this support will take. She also repeated past assurances that the new spending can occur as part of a fiscally responsible budget.
Economists and business groups have cautioned that Canada can’t compete dollar-for-dollar with the billions in subsidies now on offer south of the border. A Congressional Budget Office report estimated that the measures in the Inflation Reduction Act add up to about US$400-billion over 10 years. A Credit Suisse report said the total could be twice as high.
Business Council of Canada CEO Goldy Hyder has said that Canada’s response should be about one-10th of the size of the U.S. package, given that Canada’s population is about one-10th that of the U.S. He also said that Canada’s response could include repurposing previously announced programs for business rather than funding it entirely through new spending.
In her speech, the finance minister also addressed the turmoil in financial markets following the failure of Silicon Valley Bank and this weekend’s merger of UBS and Credit Suisse.
“We have strong institutions, and we have a financial system that has proven its strength time and again,” she said. “Our financial institutions have the capital they need to weather periods of turbulence. A hallmark of our Canadian banks is prudent risk management—and this is also a core principle for those of us who regulate the financial system.”
The minister said the federal government is being vigilant and monitoring the situation closely.
Mr. Singh, the NDP leader, told The Globe last week that his party will be expecting to see cost-of-living support in the budget, including a previously promised expansion of a dental care program for lower-income Canadians.
The Conservative Party is urging the government to deliver a budget that reins in spending and avoids tax increases.
IMF approves Sri Lanka’s $2.9bn bailout – Al Jazeera English
Sri Lanka’s president has said that the International Monetary Fund (IMF) has approved its request for a $2.9bn bailout and the country’s presidency said the programme will enable it to access up to $7bn in overall funding.
The IMF’s board confirmed it has signed off on the loan, which clears the way for the release of funds and kicks off a four-year programme designed to shore up the country’s economy.
The decision will allow an immediate disbursement of about $333m, the IMF said, and will spur financial support from other partners, potentially helping Sri Lanka emerge from its worst financial crisis in decades.
But IMF Managing Director Kristalina Georgieva warned that Colombo must continue pursuing tax reform and greater social safety nets for the poor – and rein in the corruption that has been partly blamed for the crisis.
“I express my gratitude to the IMF and our international partners for their support as we look to get the economy back on track for the long term through prudent fiscal management and our ambitious reform agenda,” Sri Lanka’s President Ranil Wickremesinghe said in a statement on Monday.
The country defaulted on its foreign debt in April 2022 as it plunged into its worst economic downturn since independence because of a major shortage of foreign currency reserves.
The Indian Ocean nation of around 22 million people ran out of cash to finance even the most essential imports, leading to widespread social unrest.
Mass protests over economic mismanagement, acute shortages of food, fuel and medicines, and runaway inflation forced President Gotabaya Rajapaksa to flee the country and resign in July.
Rajapaksa was replaced by President Wickremesinghe, who has implemented tough spending cuts and tax hikes in an attempt to secure IMF assistance.
IMF staff had provisionally approved the bailout in September, but the final green light was held up until China, the island’s biggest bilateral lender, agreed to restructure its loans to Colombo.
Beijing had said this year that it was offering a two-year moratorium on its loans to Sri Lanka, but the concession fell short of IMF expectations for the sustainability of the island’s debt.
Wickremesinghe had said after China agreed to restructure its loans that he expected the first tranche of the IMF package would be made available within the month.
Earlier on Monday, Wickremesinghe’s office said he was seeking a 10-year moratorium on Sri Lanka’s foreign debt as the country was out of foreign reserves to service its loans.
Officials involved in the negotiations said the terms of debt restructuring must be finalised and agreed upon by all parties before June, when the IMF is expected to review the bailout programme.
Wickremesinghe’s office said in a statement that the IMF programme will help improve the country’s standing in international capital markets, making it attractive for investors and tourists.
Wickremesinghe told the country’s parliament earlier that there were signs the economy was improving, but there was still insufficient foreign currency for all imports, making the IMF deal crucial so other creditors could also start releasing funds.
Call to tackle corruption
Colombo is also banking on the IMF deal to unfreeze billions of dollars in foreign aid for projects suspended since Sri Lanka defaulted on its loans last year.
The government has already doubled taxes, increased energy tariffs threefold and slashed subsidies in an effort to meet the preconditions of the IMF bailout.
The austerity measures have also led to strikes that halted the health and logistics sectors last week. Wickremesinghe has said he had no alternative but to go with an IMF programme.
Georgieva said Sri Lanka must stick with its controversial tax reforms, manage government expenditure and do away with energy subsidies.
In a statement, she said that “the momentum of ongoing progressive tax reforms should be maintained, and social safety nets should be strengthened and better targeted to the poor”.
She also urged Colombo to tackle endemic corruption.
“A more comprehensive anti-corruption reform agenda should be guided by the ongoing IMF governance diagnostic mission that conducts an assessment of Sri Lanka’s anti-corruption and governance framework,” she said.
Sri Lanka’s economy shrank by a record 7.8 percent last year as it grappled with its worst foreign exchange shortage since independence from Britain in 1948.
Sri Lanka secures $3B IMF bailout to help salvage bankrupt economy – CBC.ca
The International Monetary Fund (IMF) said Monday that its executive board has approved a nearly $3 billion US ($4.1 billion Cdn) bailout program for Sri Lanka over four years to help salvage the country’s bankrupt economy.
An IMF statement said about $333 million US ($455 million Cdn) of the funding will be disbursed immediately and the approval will also open up financial support from other institutions.
“Sri Lanka has been facing tremendous economic and social challenges with a severe recession amid high inflation, depleted reserves, an unsustainable public debt, and heightened financial sector vulnerabilities,” the IMF statement quoted managing director Kristalina Georgieva as saying.
“Institutions and governance frameworks require deep reforms. For Sri Lanka to overcome the crisis, swift and timely implementation of the EFF-supported program with strong ownership for the reforms is critical.”
The office of Sri Lanka’s president said the IMF approval will unlock financing of up to $7 billion ($9.6 billion Cdn) from the fund and other international multilateral financial institutions.
Earlier this month, the last hurdle for the approval was cleared when China joined Sri Lanka’s other creditors in providing debt restructuring assurances.
“From the very start, we committed to full transparency in all our discussions with financial institutions and with our creditors,” president Ranil Wickremesinghe said in a statement from his office. “I express my gratitude to the IMF and our international partners for their support as we look to get the economy back on track for the long term through prudent fiscal management and our ambitious reform agenda.”
Wickremesinghe said he has made some tough decisions to ensure stability, debt sustainability and to grow an inclusive and internationally attractive economy.
Sri Lanka increased income taxes sharply and removed electricity and fuel subsidies, fulfilling prerequisites of the IMF program. Authorities must now discuss with Sri Lanka’s creditors on how to restructure its debt.
“Having obtained specific and credible financing assurances from major official bilateral creditors, it is now important for the authorities and creditors to make swift progress towards restoring debt sustainability consistent with the IMF-supported program,” Georgieva said.
“The authorities’ commitments to transparently achieve a debt resolution, consistent with the program parameters and equitable burden sharing among creditors in a timely fashion, are welcome,” she said.
Sri Lanka announced last year that it is suspending repayment of its foreign debt amid a severe foreign currency crisis, because of a fall in tourism and export revenue due to the COVID-19 pandemic, mega projects funded by Chinese loans that did not generate income and releasing foreign currency reserves to hold the exchange rates for a longer period.
The currency crisis created severe shortages of some foods, fuel, medicine and cooking gas leading to angry street protests that forced then-president Gotabaya Rajapaksa to flee the country and resign.
Since Wickremesinghe took over, he has managed to reduce shortages and ended hours-long daily power cuts. The Central Bank says its reserves have improved and the black market no longer controls the foreign currency trade.
However, Wickremesinghe’ s government is likely to face hostility from trade unions over his plans to privatize state ventures as part of his reform agenda and public resentment may increase if he fails to take action against the Rajapaksa family, who people believe were responsible for the economic crisis.
Wickremesinghe’s critics accuse him of shielding the Rajapaksa family, who still control a majority of lawmakers in Parliament, in return for their support for his presidency.
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