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Yearender: US economy slows in 2019, thorny road ahead – Xinhua | English.news.cn – Xinhua

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Colorful child’s riding toys are displayed at the 116th Annual North American International Toy Fair at the Jacob K. Javits Convention Center in New York, the United States, Feb. 16, 2019. (Xinhua/Wang Ying)

The U.S. economy has maintained a moderate pace of growth, but it faces a thorny path ahead.

WASHINGTON, Dec. 24 (Xinhua) — The U.S. economy, supported by robust consumer spending and a strong job market, has maintained a moderate pace of growth as 2019 draws to a close. While worries about an immediate recession have abated, its economy still shows signs of slowing down.

With business investment falling and manufacturing sector contracting, the U.S. economic recovery has hit a lot of bumps over the past few months. It faces a thorny path ahead amid lingering trade uncertainty and a synchronized global slowdown.

MIXED PICTURE

U.S. economic growth in the third quarter expanded at an annual rate of 2.1 percent, which is slightly up from the 2 percent in the second quarter and marks a sharp deceleration from the 3.1 percent in the first quarter, according to data from the U.S. Commerce Department.

A panel of professional forecasters recently surveyed by the National Association for Business Economics (NABE) anticipated the U.S. Gross Domestic Product growth would slow from 2.9 percent in 2018 to 2.3 percent this year.

After the central bank’s latest policy meeting earlier this month, U.S. Federal Reserve Chairman Jerome Powell described the mixed picture in his words: “Household spending has been strong, supported by a healthy job market, rising incomes, and solid consumer confidence. In contrast, business investment and exports remain weak, and manufacturing output has declined over the past year.”

Personal consumption expenditures, which account for roughly 70 percent of U.S. economic output, have seen robust growth during the first three quarters — rising by 1.1 percent, 4.6 percent, and 3.2 percent respectively — partly soothing fears over the health of the world’s largest economy.

The unemployment rate, which has remained below 4 percent since the beginning of the year, dropped slightly to 3.5 percent in November, again hitting the lowest in nearly five decades. Job gains have averaged 205,000 from September to November.

Despite resilient consumer spending and a strong labor market, business investment has declined for two straight quarters — dropping by 1 percent in the second quarter and 2.3 percent in the third — acting as a drag on the overall economy.

Economic activity in the manufacturing sector, meanwhile, contracted for a fourth consecutive month in November, according to the Institute for Supply Management. The Purchasing Managers’ Index registered 47.8 percent in September, the lowest in a decade.

TRADE UNCERTAINTY

The Fed chairman, along with many economists, has repeatedly cited trade tensions as one of the factors that have been weighing on the U.S. economy.

Noting that the economy faced some “important challenges” from weaker global growth and trade uncertainty over the past year, Powell said the central bank adjusted the stance of monetary policy to “cushion” the economy from these developments and “provide some insurance against the associated risks.”

The Fed has lowered interest rates three times since July, amid growing uncertainty stemming from trade tensions, weakness in global growth and muted inflation pressures. These policy adjustments put the current federal funds rate target range at 1.5 percent to 1.75 percent.

U.S. Federal Reserve Chairman Jerome Powell speaks during a press conference in Washington D.C., the United States, on Dec. 11, 2019. (Xinhua/Sarah Silbiger)

The Business Roundtable, an association of CEOs for some of the largest companies in the United States, recently said its index of the CEOs’ economic outlook in the fourth quarter dropped to 76.7, which remains below the historical average and marks the seventh consecutive quarterly decline.

“CEOs are justified in their caution about the state of the U.S. economy. While we have achieved a competitive tax environment, uncertainty surrounding trade policy and slowing global growth are creating headwinds for business,” said Joshua Bolten, president and CEO of the Business Roundtable.

According to the NABE survey released earlier this month, trade policy continues to be the “most widely cited” dominant downside risk to the U.S. economy through 2020, with half of respondents citing it as the “greatest” downside risk.

U.S.-initiated trade tensions have taken a toll on the global economy. The World Trade Organization recently said that world merchandise trade volumes are expected to rise by only 1.2 percent in 2019, substantially slower than the 2.6 percent growth forecast in April.

In its latest World Economic Outlook report released in October, the International Monetary Fund lowered its global growth forecast for 2019 to 3 percent, warning that growth continues to be weakened by rising trade barriers and growing geopolitical tensions.

THORNY ROAD AHEAD

The U.S. economy is expected to further slow down next year against the backdrop of persistent trade policy uncertainty and a labor market that could be losing momentum, as well as a precarious global outlook.

Official data showed that job gains have averaged 180,000 per month so far in 2019, compared with an average monthly gain of 223,000 in 2018, indicating that the overall level of hiring has been slowing down over the past few months. Meanwhile, the pace of payroll growth has remained weak.

According to the CNBC Global CFO Council survey for the fourth quarter, 60 percent of chief financial officers expect their company’s head count to decrease over the next 12 months.

The NABE survey panelists believed the U.S. economy would slow to 1.8 percent in 2020. “The consensus forecast calls for a pickup in housing, but slower growth in business investment and consumer spending, along with larger deficits in trade and the federal budget,” said NABE President Constance Hunter, chief economist at KPMG.

The federal budget deficit, which ballooned rapidly during the Trump administration, has drawn concern from many. Powell, the Fed chairman, recently stressed the urgency for the U.S. Congress to address the issue, noting that there would otherwise be less fiscal space to support the economy in a downturn.

On the trade front, uncertainty has been the only certainty. Despite progress with Canada, Mexico and China, the United States has proposed tariffs on French products in retaliation for digital service tax, and its Boeing-Airbus aircraft subsidy dispute with the European Union has been escalating.

A worker milks a cow at a dairy farm run by Kelly D. Cunningham in rural Cass County of the U.S. state of Iowa, Oct. 16, 2019. (Xinhua/Wang Ying)

“The administration’s trade policies have left little room to maneuver,” Diane Swonk, chief economist at Grant Thornton, a major accounting firm, wrote in an analysis.

“Either the president backs off his campaign promises, holds the line on tariffs and the economy slows. Or, he risks a recession by doubling down on trade wars and heightening uncertainty,” Swonk wrote.

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U.S. labour market recovery fading; housing, factories underpin economy – The Globe and Mail

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The number of Americans filing new applications for unemployment benefits decreased modestly last week as the COVID-19 pandemic tore through the U.S. Reuters

The number of Americans filing new applications for unemployment benefits decreased modestly last week as the COVID-19 pandemic tears through the country, raising the risk that the economy will shed jobs for a second straight month in January.

Despite the labour-market woes, the economy remains anchored by strong manufacturing and housing sectors. Other data on Thursday showed homebuilding and permits for future residential construction surged in December to levels last seen in 2006. Factory activity in the mid-Atlantic region accelerated this month, with manufacturers reporting a boom in new orders.

The services sector has borne the brunt of the coronavirus crisis, disproportionately affecting lower-wage earners, who tend to be women and minorities. Addressing the so-called K-shaped recovery, where better-paid workers are doing well while lower-paid workers are losing out, is one of the key challenges confronting U.S. President Joe Biden and his new administration.

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White House economic adviser Brian Deese said the fragile labour market underscored the urgency for U.S. Congress to act quickly on Mr. Biden’s US$1.9-trillion relief plan to “get this virus under control, stabilize the economy and reduce the long-term scarring that will only worsen if bold action isn’t taken.”

Initial claims for state unemployment benefits fell 26,000 to a seasonally adjusted 900,000 for the week ended Jan. 16, the Labour Department said. Economists polled by Reuters had forecast 910,000 applications in the latest week.

Including a government-funded program for the self-employed, gig workers and others who do not qualify for the regular state unemployment programs, 1.4 million people filed claims last week.

Out-of-control coronavirus infections are disrupting operations at businesses such as restaurants, gyms and other establishments where crowds tend to gather, reducing hours for many workers and pushing others out of employment.

Consumers are also hunkering down at home, dampening demand. COVID-19 has infected more than 24 million Americans, with the death toll exceeding 400,000 since the pandemic started.

Stocks hovered near record highs on Thursday, while the U.S. dollar fell against a basket of currencies. U.S. Treasury prices were lower.

Some of the elevation in claims reflects people re-applying for benefits following the government’s recent renewal of a US$300 unemployment supplement until March 14 as part of the nearly US$900-billion in additional fiscal stimulus. Programs for the self-employed, gig workers as well as those who have exhausted their benefits were also extended.

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The claims data covered the week during which the government surveyed establishments for the non-farm payrolls component of January’s employment report. Claims were slightly higher between the December and January survey period.

“Another negative print for payrolls in January remains within the realm of possibility,” said Sarah House, a senior economist at Wells Fargo Securities in Charlotte, N.C.

The economy shed 140,000 jobs in December, the first job losses since April when authorities throughout the country enforced stay-at-home measures to slow the spread of the virus. Retail sales fell for a third straight month in December.

Though jobless claims have dropped from a record 6.867 million in March, they remain above their 665,000 peak during the 2007-09 Great Recession.

The claims report showed the number of people receiving benefits after an initial week of aid decreased 127,000 to 5.054 million during the week ending Jan. 9.

About 16 million people were on unemployment benefits under all programs at the start of the year. The decrease from 18.4 million at the end of 2020 reflected the temporary expiration of government-funded benefits. The economy has recovered 12.4 million of the 22.2 million jobs lost in March and April.

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But housing and manufacturing are bucking the labour-market distress. In a separate report on Thursday, the Commerce Department said housing starts jumped 5.8 per cent to a seasonally adjusted annual rate of 1.669 million units in December, the highest level since September, 2006.

Building permits for future homebuilding, which typically lead starts by one to two months, accelerated 4.5 per cent to a rate of 1.709 million units in December, the highest since August 2006. Surging lumber prices and labour and land shortages could, however, slow the housing market momentum.

“Rising material prices, including lumber, are beginning to weigh on builder confidence and reduce housing affordability,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pa.

A third report from the Philadelphia Federal Reserve showed its business conditions index soared to a reading of 26.5 this month from 9.1 in December. A measure of new orders at factories in the region that covers eastern Pennsylvania, southern New Jersey and Delaware, vaulted to a reading of 30.0 from 1.9 in December. Manufacturing is being boosted by businesses rebuilding inventories.

Factory employment measures also improved. While manufacturers reported paying more for raw materials, they were also able to increase prices for their goods. This mirrored other manufacturing surveys, suggesting inflation could pick up and remain elevated for a while this year. Manufacturers were upbeat about capital investment plans in the six months ahead.

“Inflation is likely moving up and should continue to do so, albeit slowly,” said Joel Naroff, chief economist at Naroff Economics in Holland, Pa.

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European Central Bank stimulus on track as economy struggles – North Shore News

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FRANKFURT — With more than a trillion euros in stimulus still in the pipeline to the economy, the European Central Bank left its key bond-purchase program unchanged Thursday as the 19-country eurozone endures a winter economic slowdown due to the pandemic.

ECB President Christine Lagarde told a news conference that the economy likely contracted in the last three months of 2020 and the outlook going forward faces risks.

Coronavirus infections and deaths have risen during the winter, leading to new restrictions on businesses. Germany has extended its partial lockdown until Feb. 14, France has imposed a 6 p.m. curfew, and Portugal has hit multiple records in case numbers.

Lagarde said that while the start of vaccinations against the coronavirus was “an important milestone,” the outbreak continued to pose “serious risk to the eurozone and global economies.”

She said that the bank’s outlook for growth of 3.9% in 2021 was “still holding as we speak.”

“We had anticipated the continuation and the lockdown measures that are currently in place… and that leads us to conclude that our own forecast for 2021 is still broadly valid at this time,” she said, while cautioning that short-term risk was “tilted to the downside, no question about it.”

She said that “an ample monetary stimulus remains essential” and that if things turn out worse than expected “all instruments can be adjusted and nothing is off the table” in terms of stimulus.

The economy is being propped up by massive support from the ECB, national governments, and the EU. The ECB’s decision not to adjust its key programs was largely expected because it added a major dose of stimulus only last month, at its Dec. 10 meeting. The governing council added 500 billion euros to its pandemic emergency stimulus bond purchases, bringing the total to 1.85 trillion euros ($2.2 trillion), and extended the regular purchases through at least March 2022. More than half of that total is still waiting to be deployed.

The bond purchases are a way of pumping newly created money into the economy, which aims to raise inflation from levels that are currently considered too low. The purchases also keep market interest rates down so that companies can access the credit they need to get through the pandemic recession.

One result of the purchases is that governments can use the bond market to borrow cheaply as their deficits rise through spending on pandemic support, such as paying salaries for furloughed workers to avoid layoffs.

Additional stimulus is on the way from the EU’s 750 billion-euro fund established to support the recovery through shared borrowing by member countries — a step toward further solidarity and integration among the 27-member EU. The fund is to support projects that reduce emissions of carbon dioxide, the main greenhouse gas blamed for climate change, and that promote the spread of digital technology and infrastructure.

The European Union’s executive commission forecasts that the eurozone economy shrank 7.8% last year. Official numbers for last year are to be released Feb. 2.

The bank left interest benchmarks untouched. Those are zero for short term loans from the ECB to banks, and minus 0.5% on deposits left overnight at the ECB by banks. The negative rate is a penalty aimed at pushing banks to lend the money rather than leave it at the ECB.

The ECB is the chief monetary authority for the countries that use the euro, playing a role analogous to that of the Federal Reserve in the U.S. It sets key interest rate benchmarks and supervises banks. So far, 19 of the 27 EU countries have joined the euro.

David McHugh, The Associated Press

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European Central Bank stimulus on track as economy struggles – The Tri-City News

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FRANKFURT — With more than a trillion euros in stimulus still in the pipeline to the economy, the European Central Bank left its key bond-purchase program unchanged Thursday as the 19-country eurozone endures a winter economic slowdown due to the pandemic.

ECB President Christine Lagarde told a news conference that the economy likely contracted in the last three months of 2020 and the outlook going forward faces risks.

Coronavirus infections and deaths have risen during the winter, leading to new restrictions on businesses. Germany has extended its partial lockdown until Feb. 14, France has imposed a 6 p.m. curfew, and Portugal has hit multiple records in case numbers.

Lagarde said that while the start of vaccinations against the coronavirus was “an important milestone,” the outbreak continued to pose “serious risk to the eurozone and global economies.”

She said that the bank’s outlook for growth of 3.9% in 2021 was “still holding as we speak.”

“We had anticipated the continuation and the lockdown measures that are currently in place… and that leads us to conclude that our own forecast for 2021 is still broadly valid at this time,” she said, while cautioning that short-term risk was “tilted to the downside, no question about it.”

She said that “an ample monetary stimulus remains essential” and that if things turn out worse than expected “all instruments can be adjusted and nothing is off the table” in terms of stimulus.

The economy is being propped up by massive support from the ECB, national governments, and the EU. The ECB’s decision not to adjust its key programs was largely expected because it added a major dose of stimulus only last month, at its Dec. 10 meeting. The governing council added 500 billion euros to its pandemic emergency stimulus bond purchases, bringing the total to 1.85 trillion euros ($2.2 trillion), and extended the regular purchases through at least March 2022. More than half of that total is still waiting to be deployed.

The bond purchases are a way of pumping newly created money into the economy, which aims to raise inflation from levels that are currently considered too low. The purchases also keep market interest rates down so that companies can access the credit they need to get through the pandemic recession.

One result of the purchases is that governments can use the bond market to borrow cheaply as their deficits rise through spending on pandemic support, such as paying salaries for furloughed workers to avoid layoffs.

Additional stimulus is on the way from the EU’s 750 billion-euro fund established to support the recovery through shared borrowing by member countries — a step toward further solidarity and integration among the 27-member EU. The fund is to support projects that reduce emissions of carbon dioxide, the main greenhouse gas blamed for climate change, and that promote the spread of digital technology and infrastructure.

The European Union’s executive commission forecasts that the eurozone economy shrank 7.8% last year. Official numbers for last year are to be released Feb. 2.

The bank left interest benchmarks untouched. Those are zero for short term loans from the ECB to banks, and minus 0.5% on deposits left overnight at the ECB by banks. The negative rate is a penalty aimed at pushing banks to lend the money rather than leave it at the ECB.

The ECB is the chief monetary authority for the countries that use the euro, playing a role analogous to that of the Federal Reserve in the U.S. It sets key interest rate benchmarks and supervises banks. So far, 19 of the 27 EU countries have joined the euro.

David McHugh, The Associated Press

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