Friday’s blowout jobs report may have quieted claims that the U.S. is in a recession, but it did not end the mystery about the state of the economy or resolve questions about where it is headed.
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.
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.
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. ■
Charting the Global Economy: Job Growth in US Powers Ahead – BNN
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The strongest US job growth in five months and firmer-than-expected worker pay assuaged recession concerns, while also helping clear the path for the Federal Reserve to continue large interest-rate hikes.
In Europe and Asia, factory production weakened on lingering supply-chain constraints that are contributing to persistent price pressures. The Bank of England stepped up its inflation fight with the biggest rate increase in more than a quarter century, while also cautioning that the UK is headed for more than a year of recession.
Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:
Central banks around the world continued raising interest rates this week. Australia, Brazil, India and the UK were among those hiking by 50 basis points, while Romania went for 75 basis points and Madagascar for 90 basis points.
The standoff between the US and China over Taiwan has thrown a spotlight on growing risks to one of the world’s busiest shipping lanes — even a minor disruption could ripple through supply chains. Almost half of the global container fleet and a whopping 88% of the world’s largest ships by tonnage passed through the Taiwan Strait this year, according to data compiled by Bloomberg.
European factory activity plunged and Asian manufacturing output continued to weaken in July amid lingering supply-chain complications and a slowing global economy. Purchasing managers’ indexes for the euro area’s four largest members all indicated contraction, while China, South Korea and Taiwan took the biggest hit in Asia.
Employers added more than double the number of jobs forecast, illustrating rock-solid labor demand that tempers recession worries and suggests the Federal Reserve will press on with steep interest-rate hikes to thwart inflation.
Household debt increased by 2% to $16.2 trillion in the second quarter, with mortgages, auto loans and credit-card balances all seeing sizable jumps, according to a report by the Federal Reserve Bank of New York.
With almost two openings for every person looking for work, US companies are increasingly tapping high school students for skilled jobs. As a result, apprenticeships are seeing a renaissance after failing to gain a foothold over the past few decades.
The Bank of England unleashed its biggest interest-rate hike in 27 years as it warned the UK is heading for more than a year of recession under the weight of soaring inflation. The half-point increase to 1.75% was backed by eight of the bank’s nine policy makers, who also kept up a pledge to act forcefully again in the future if needed.
German factory orders sank for a fifth month in June as rampant inflation and global supply disruptions continued to weigh on the outlook in Europe’s largest economy.
Germany’s presidential palace in Berlin is no longer lit at night, the city of Hanover is turning off warm water in the showers of its pools and gyms, and municipalities across the country are preparing heating havens to keep people safe from the cold. And that’s just the beginning of a crisis that will ripple across Europe.
It’s 2025 in Beijing, five years since the start of the pandemic, and Chinese President Xi Jinping’s Covid Zero policy is still an inescapable part of daily life. As omicron sub-variants become ever-more infectious, Xi’s resolve to avert virus fatalities is growing stronger – leading many experts to warn that Covid Zero could continue well beyond 2022.
Major South Korean firms are agreeing to the biggest pay rises in 19 years, according to a government survey, fueling concerns that a wage-price spiral is taking hold in the economy. Salary agreements at companies with 100 workers or more climbed 5.3% in the first half of the year, exceeding every increase since 2003, a labor ministry poll showed.
Turkish inflation accelerated again and may be months away from peaking, soaring to levels unseen since 1998 as the central bank sticks with its ultra-loose monetary course.
Brazil’s central bank raised its key interest rate by half a percentage point and left the door open for a smaller boost in September as it shifts its focus to the outlook for inflation more than a year ahead.
©2022 Bloomberg L.P.
The economy is growing by one measure, shrinking by another – The Washington Post
Government data showing the economy had contracted for the second consecutive quarter — meeting one informal definition of recession — was still fresh, as the Labor Department on Friday said employers had added 528,000 jobs in July. That was more than twice as many as economists expected.
Only eight days separated the two government reports, yet they seemed to describe entirely different realities.
The first showed a weak economy that — coupled with the highest inflation in 40 years — offered consumers nothing but grief. The second reflected a juggernaut that was minting jobs faster than workers could be found to fill them, with an unemployment rate that matched the pre-pandemic low of 3.5 percent.
“It’s normal for different economic indicators to point in different directions. It’s the magnitude of the discrepancies right now that’s unprecedented,” said Jason Furman, formerly President Barack Obama’s top economic adviser. “It isn’t just that the economy is growing in one measure and shrinking in another. It’s growing incredibly strongly in one measure while shrinking at a pretty decent clip in another.”
In Washington on Friday, President Biden took a victory lap for the job growth while claiming credit for gas prices having declined for more than 50 consecutive days. Yet he also acknowledged the disconnect between the sunny employment report and the inflation headaches that afflict many households.
“I know people will hear today’s extraordinary jobs report and say they don’t see it, they don’t feel it in their own lives,” the president said, speaking from a White House balcony. “I know how hard it is. I know it’s hard to feel good about job creation when you already have a job and you’re dealing with rising prices, food and gas, and so much more. I get it.”
The surprisingly robust jobs number seemed to call into question the president’s argument that the economy is undergoing a “transition” from its faster growth rates last year to a slower, more sustainable pace.
No one expects the economy to continue producing half a million new jobs each month. No one thinks it could without inflation remaining at uncomfortable heights.
Almost five months after the Federal Reserve began raising interest rates to cool off the economy and to bring down the highest inflation since the early 1980s, the labor market report showed that the nation’s central bank has more work to do. Average hourly earnings for private sector workers rose by 5.2 percent over the past year, which hints at the sort of wage-price spiral that the Fed is determined to prevent.
Last month, the Fed lifted its benchmark interest rate to a range of 2.25 percent to 2.5 percent, its highest level in almost four years. Yet in “real” or inflation-adjusted terms, borrowing costs remain deeply negative, which acts as a spur to economic growth.
Fed Chair Jerome H. Powell said last month that additional rate increases are likely when policymakers next meet on Sept. 21. The size of the next increase – either half a percentage point or three-quarters of a point – will “depend on the data we get between now and then,” he told reporters.
Investors see a 70 percent chance of the larger move, according to CME Group, which tracks purchases of derivatives linked to the central bank’s key rate.
On Wednesday, the government is scheduled to release inflation readings for July, which are expected to show a modest improvement compared to June’s 9.1 percent figure, thanks to falling energy prices.
Powell’s decision to stop telegraphing Fed moves by providing “forward guidance” of its plans is itself a sign that the current environment is murkier than usual.
“A lot of what’s happening in this economy is being driven by the pandemic, and then the pandemic response. And so, we are in a very unusual time, in many ways [it’s] challenging to sort of read through those data,” Loretta Mester, president of the Federal Reserve Bank of Cleveland, and a voting member of the Fed’s rate-setting committee, told The Washington Post this week.
Almost 22 million Americans lost their jobs between February and April of 2020 in covid’s first months. The unemployment rate hit 14.7 percent, the highest figure recorded by the Labor Department in a series that began in 1948.
With July’s gains, the economy now has recovered all of the lost jobs.
But the workforce has been reshaped. There are more warehouse and logistics workers today and fewer employees working for hotels and airlines.
Employers are reacting differently than they did before the pandemic to indications that the economy may be slowing, according to Gregory Daco, chief economist for EY-Parthenon. Rather than immediately resorting to significant layoffs, they are instead scaling back hiring or engaging in targeted job cuts.
Weekly first-time unemployment claims are up, but only to 260,000 from their 54-year low of 166,000 in March.
Consumers have also acted differently, buying more goods than normal while trapped at home during the pandemic’s initial wave. Retailers that ordered unusual volumes of furniture, electronics and apparel from overseas suppliers later misjudged the pace of consumers’ return to traditional buying patterns, leaving stores stuffed with unwanted goods.
On top of the pandemic’s lingering ills, the war in Ukraine has disrupted global commodity markets, contributing to higher inflation.
All of these forces combined to produce economic data that is unusual and sometimes contradictory. Friday’s jobs report showed 32,000 new construction jobs and 30,000 new factory jobs created in the month. Yet housing starts have fallen for the past two months and the latest ISM manufacturing reading was the weakest in two years.
“We are in somewhat of a dizzying business cycle. We’re getting economic data that is fluctuating quite rapidly and it’s very hard to get a precise read on where the economy is at any point in time,” Daco said.
Individual data points also provide snapshots of the economy that are out of sync, said Kathryn Edwards, an economist at the Rand Corp.
Friday’s Labor Department report tallied up jobs gained in July. The last consumer price index reading covered June. And the gross domestic product reading that started the recession furor described activity that occurred between April and June – and will be revised twice.
“It’s a challenge for an economist, but also for a reader who wants to understand how at risk they are for an economic downturn,” she said.
Labor market and output data have been telling different stories about the economy all year. After six straight months of shrinkage, the economy is roughly $125 billion smaller than it was at the end of 2021, according to inflation-adjusted Commerce Department data.
Yet employers have hired 3.3 million new workers over that same period.
How could more workers be producing fewer goods and services?
One explanation is that workers are less productive today than during the emergency phase of the pandemic, when companies struggled to keep producing their required orders with fewer workers, Furman said.
Indeed, non-farm business productivity in the first quarter fell 7.3 percent, the largest decline since 1947, according to the Bureau of Labor Statistics. Preliminary results for the second quarter will be made public on Tuesday and are likely to show the largest two-quarter drop in history, he said.
Those figures may overstate the change. During the pandemic, companies may have been able to maintain output with a covid-thinned workforce by exhorting or incentivizing the remaining workers to work harder or longer. But there is a limit to how long bosses can motivate people by citing emergency conditions.
“They worked extra hard, but they wouldn’t work extra hard forever,” Furman said.
Likewise, the labor force participation rate usually rises when employers are adding jobs and the unemployment rate is falling. But since March, it has fallen, according to the Bureau of Labor Statistics.
Some Americans retired instead of risking working during the pandemic. Others — mostly women — who lacked adequate child care, stayed home with young children or other vulnerable relatives.
An April paper by economists at the Federal Reserve Bank of Richmond found that “the pandemic has permanently reduced participation in the economy.”
Participation by Americans in their prime working years, ages 25 to 54, has almost entirely recovered. But for those 55 and older, there has been almost no improvement since the initial plunge at the outset of the pandemic. And for younger workers, age 20 to 24, participation is lower now than at the end of last year.
“I don’t think we have a great handle on why other workers are not coming back,” said Kathy Bostjancic, chief U.S. economist for Oxford Economics. “It’s just such an unusual period.”
Canadian economy sheds jobs for second straight month – BNN
Canada’s economy lost 30,600 jobs in July, according to data from Statistics Canada on Friday. This marks the second consecutive month of employment losses for the country.
The data came in weaker than expected. The median estimate among economists tracked by Bloomberg was for a gain of 15,000 jobs last month and an unemployment rate of 5.0 per cent.
The country’s unemployment rate remained steady at a historic low of 4.9 per cent.
The wholesale and retail trade, health care and social assistance, and educational services sectors collectively saw a loss of 53,000 jobs. The losses were partially offset by the goods-producing sector which gained 23,000 jobs, the labour force survey revealed.
The decline in jobs was roughly the same in both part-time and full-time work, though employment fell the most among women aged 55 and over.
The overall participation rate fell 0.2 per cent to 64.7 per cent in July, compared to the 0.4 percentage point drop in June.
The average hourly wages of employees rose 5.2 per cent on a year-over-year basis, matching the pace set in June.
“This is a notoriously noisy survey, especially in the summer months, July and August. The numbers bounce around a lot. I think what’s important here is that the North American economies are slowing,” Philip Cross, a senior fellow at the Macdonald-Laurier Institute and a former chief economic analyst of Statistics Canada, said in an interview Friday morning.
He also cautioned that Canada’s housing sector is vulnerable to the rising interest rate environment and could lag behind the U.S.
“There are some pockets of resilience in the economy. The resource sector is one,” Cross said.
The Bank of Canada has attempted to rein in runway inflation with aggressive interest rate hikes. Friday’s jobs data will likely help inform the central bank’s next scheduled interest rate decision in September.
“While today’s figures muddied the waters further for policymakers, the Bank of Canada will likely focus on the historic low unemployment rate and still strong wage growth to justify another non-standard rate hike at its next meeting,” Andrew Grantham, a senior economist at CIBC Capital Markets, wrote in a note to clients on Friday.
The Bank of Canada remains committed to reaching its target rate of two per cent inflation.
“Evidence that the economy is slowing due to weakening demand, rather than supply constraints, will bring a pause in this rate hike cycle following the next hike,” Grantham said.
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