Aurelia Butler

True, the “blowout” gain of 272,000 jobs in May exceeded every single estimate among 77 economists polled by Reuters ahead of the release of the report on Friday, and the breadth of hiring was the widest in 16 months.But also true is that the increase in the unemployment rate to 4% snapped a run of more than two full years below that benchmark. Moreover, that rise happened for the “wrong” reasons: People left the workforce on balance, while more reported as unemployed and far fewer as having a job.Here are some of the numbers that have economists jawboning.BREADTHThe employment gain last month was almost exactly in line with the 12-month trailing average of nearly 276,000 jobs and exceeded the average of 188,000 over the 10 years prior to the COVID-19 pandemic by 84,000. On top of that, hiring was broad. In fact, it was the most widespread among all 250 industries tracked by the Bureau of Labor Statistics since January 2023. For the 72 manufacturing industries tracked by the BLS diffusion index, hiring was the broadest since October 2022, signaling perhaps a turnaround for a sector where employment growth has lagged for roughly a year and a half.ALL BACKAll the major industry groups are now back above their pre-pandemic employment levels, with a revision to the numbers in April lifting the lone laggard – leisure and hospitality – back above its high-water mark from before the onset of the health crisis in early 2020. That group also suffered the largest losses during the pandemic.THE 4% CLUB PARTIES ONThe unemployment rate rose to the highest level since January 2022, snapping a streak of 27 straight months below 4%, the longest sub-4% run since the 1960s and a bragging point for Democratic President Joe Biden’s administration.But 4% is still a historically low level of joblessness and just six of the 14 presidents in the post-World War Two era have governed during such a stretch, including the two most recent, Biden and his predecessor, Republican Donald Trump. It’s a figure to watch as the two rivals face off again in the Nov. 5 presidential election.PRIME TIMEWhile the overall number of people in the workforce shrank by 250,000 in May and the labor force participation rate fell, a key demographic held its ground: prime-aged workers between 25 and 54 years old. The participation rate for this group – the largest slice of the U.S. workforce – rose to a record 83.6%.Women have led the charge. Not only is the prime-aged female participation rate of 78.1% a record high, it’s just 11.1 percentage points below the rate for prime-aged males – the smallest gap ever. The rate for men edged up but, at 89.2%, is below where it was before the pandemic and is well below the over-90% range that prevailed prior to the 2007-2009 financial crisis. NEWCOMERSThe immigration wave is still leaving its imprint on the U.S. job market, as foreign-born workers continue to account for the largest share of job gains and workforce growth. That could change in the months ahead, however, with the Biden administration clamping down on crossings at the southern border.FALTERING FLOWSBeneath the data on changes in the overall level of the workforce are figures on the flows driving those changes. Every month the workforce status of millions of people changes among the three broad categories: Employed (with a job); unemployed (no job but actively seeking one); and not-in-labor-force (no job and not looking for one). For example, did a person graduate from high school or college and land a job (not-in-labor-force to employed), get fired from a job and start looking for a new one (employed to unemployed), start a job search after months or years on the sidelines (not-in-labor-force to unemployed), land a job after a period of actively seeking a job (unemployed to employed), or retire from a job or quit to take care of a child or relative (employed to not-in-labor-force)?Through much of the last two years, more people on balance have flowed into the workforce, either as job recipients or job seekers, than have flowed out of it. That has begun to change, and over the last six months more people on average have flowed out of the workforce altogether than have flowed in. And the share of those quickly landing a job as new members of the labor force is declining.TALE OF TWO SURVEYSWhile the establishment survey of the latest employment report showed payroll job gains of 272,000, the household survey side showed employment dropped precipitously, by more than 400,000. The two frequently do not agree on size or even direction of monthly changes, but over time do track each other. The household measure of employment has been flat for roughly a year – with declines seen in five of the last eight months – while the establishment survey has shown more than a quarter of a million new jobs a month on average. Economists say that at some point one or the other must give. Which will it be? More

ISLAMABAD (Reuters) -Pakistan’s coalition government is expected to lay out ambitious fiscal targets in the 2024/2025 (July-June) budget on Wednesday that will help strengthen its case for a new bailout deal with the International Monetary Fund, officials and analysts said. Pakistan is in talks with the IMF for a loan estimated to be anything between $6 billion to $8 billion to avert a default for an economy that is growing at the slowest pace in the region.”The budget holds critical significance for Pakistan’s IMF programme and must close the gap between our revenue collection and total expenditure; it is thus likely be contractionary,” said Ali Hasanain, associate professor of economics at the Lahore University of Management Sciences. Pakistan narrowly averted a default last summer thanks to a short-term IMF bailout of $3 billion over nine months.While its fiscal and external deficits have been brought under control, it came at the expense of a sharp drop in growth and industrial activity as well as high inflation, which averaged close to 30% in the last financial year and 24.52% over the last 11 months.The growth target for the upcoming year is expected to be higher at 3.6% compared to 2% this year and economic contraction last year. Prime Minister Shehbaz Sharif has expressed public commitment to tough reforms since being elected in February elections, but high prices, unemployment and a lack of new job opportunities have piled political pressure on his coalition government.Standard Chartered said in a note on the budget last month that fully implementing all the measures that the IMF is likely prescribing, such as increasing revenue through widening the tax base and power tariff hikes, will be tough for Sharif’s government.”A weak coalition government, a vocal and popular opposition, and the difficulty of implementing deep-rooted structural reforms were seen as reasons for caution,” Standard Chartered said in the note.”A key concern among local stakeholders was the risk that front-loading tough fiscal measures could face a backlash from the public,” it added. It will also be the first test for new Finance Minister Muhammad Aurangzeb, formerly the chief of HBL, Pakistan’s largest bank, who was brought in by Sharif to formulate fresh policy solutions to address persistent problems in the $350 billion economy.Previous finance ministers have shied away from thorny steps like cutting subsidies, reducing government spending and increasing tax revenues from politically sensitive sectors such as real estate, agriculture and retail. Mustafa Pasha, chief investment officer at Lakson Investments, said he believes taking such steps would be difficult. “Any attempt to tax agriculture, retail and real estate will likely be poorly structured and face legal challenges which will prevent any collection,” he said, although he added that failure to address IMF demands would likely lead to a delay in a new programme which Pakistan cannot afford for long.Another key point to look out for in the budget will be targets set for proceeds from privatisation. Pakistan is looking to make its first major sale in nearly two decades as it sells a stake in its national airline. It is expected to be the first in a series of sales of loss-making entities, particularly in the troubled power sector. More

WASHINGTON (Reuters) – Updated economic projections from Federal Reserve officials this week are expected to show fewer interest rate cuts than policymakers anticipated three months ago, faster expected inflation, and slower growth, a pinpoint economic outlook that will carry the weight of the U.S. central bank’s authority.It may also come with what amounts to a consumer warning from Fed Chair Jerome Powell: Actual results may vary. With their forecasts stymied last year by faster economic growth and lower inflation than expected, and now by higher inflation and slowing growth, Fed officials of late have supplemented discussion of their outlook with the top alternate paths they think the economy may follow.Both a nod to what they don’t know and a way to keep public expectations more fluid, it’s a strategy Powell may well follow in his press conference after the end of a two-day policy meeting on Wednesday as a way to shift the center of attention from the new Summary of Economic Projections and its market-shaping plot of where officials think the policy interest rate is heading, with a focus on the median.”I always emphasize the importance of a story … that ties together in a coherent way the macro outlook and policy strategy,” Larry Meyer, a former Fed governor who now heads consulting firm Monetary Policy Analytics, wrote last week. “The strength of the story … depends on the degree of uncertainty, which has spiked of late. In that case, we should pay more attention to alternative scenarios.”Since the end of last year, precision has not been the Fed’s ally as officials appeared to lock in three rate cuts for the year, only to be side-swiped by inflation that didn’t decline as expected. As a result, they’ll likely revise their outlook to just two quarter-percentage-point rate reductions for the year or perhaps just one, with doubts even around that.STIFF INFLATIONThe U.S. Labor Department on Wednesday will publish new inflation data just hours before the 2 p.m. EDT (1800 GMT) release of the Fed’s updated projections and new policy statement. Powell’s press conference will follow at 2:30 p.m. EDT. The central bank, which aggressively raised rates in 2022 and 2023 to combat a surge in inflation, is widely expected to keep its benchmark interest rate in the 5.25%-5.50% range that was set last July. Key measures of inflation have barely budged since the last set of projections in March and the April 30-May 1 policy meeting, leaving officials still wary about making an initial rate cut until inflation moves lower. In particular, inflation in the new policy statement is still likely to be described as “elevated,” pushing the rate-hike debate further down the road.As of April, the personal consumption expenditures price index, which is used to set the Fed’s 2% inflation target, was increasing at a 2.7% annual rate.Yet unlike the rest of the time since the outbreak of the COVID-19 pandemic in early 2020, the risks now are more nuanced and the data often contradictory. Initially, central bankers were only focused on lowering the unemployment rate after a massive jump in joblessness during the months when many in-person services were shuttered; later the sole focus was on curbing inflation that by mid-2022 had erupted to a 40-year high.Today, policymakers are neither fully convinced inflation will return to the 2% target without a longer period of tight monetary policy, nor fully assured that the job market won’t come under stress and slide fast toward higher unemployment.Data released last week in fact showed one labor market indicator returning to where it was before the pandemic, an encouraging sign of normalization that also put it near what one Fed governor described as a sort of trigger point for rising unemployment.’MORE NUANCED PICTURE’Fed Governor Christopher Waller has looked closely at the relationship between labor demand and unemployment dynamics, and in a speech in January said his research suggests that if the job openings rate fell below 4.5% “there would be a significant increase in the unemployment rate.”The rate as of April was 4.8, down from a pandemic peak of 7.4 in March of 2022 and from 5.3 this past February.”If Waller is correct, then the economy may sooner than expected approach a point where the Fed needs to take the employment mandate into account,” Tim Duy, chief U.S. economist with SGH Macro Advisors, wrote last week, referring to the Fed’s dual congressionally-mandated goals of maintaining stable prices and low unemployment.Yet hiring and wage growth remain robust. Data released on Friday showed U.S. firms added 272,000 jobs in May, well above the average monthly pace of 183,000 in the decade before the pandemic, with wages rising at a 4.1% annual rate. After seeing inflation fall quickly last year at little apparent cost to the job market or economic growth, officials have been “trying to wrap their head around” whether further progress in lowering price pressures will require a cooled economy and rising joblessness, Chicago Fed President Austan Goolsbee said in late May.That would mark a return to one of the more traditional economic tradeoffs policymakers contend with, and also be a sign that some of the excesses of the pandemic – the historic jump in job openings, the trillions in excess cash held by businesses and households, and the tangled global supply chains – had largely disappeared. But it would also put a broader band of doubt around the Fed’s own projections, and around the timing and pace of any move on interest rates. The 4% unemployment rate recorded in May, for example, is already where policymakers at the median expect the U.S. to end the year; yet the ongoing job and wage growth offered clear signs of strength. Like other recent data, it’s a set of conflicting signals that the Fed will somehow have to either reconcile or deflect. “The combination of robust payroll job creation, firmer wage growth and weaker labor supply pointed to a labor market that remains tight,” said Lydia Boussour, a senior economist at EY-Parthenon. Yet the rise in the unemployment rate to more than a two-year high “painted a more nuanced picture and corroborated other data pointing to softer labor market conditions.” More

With both major parties committed to getting debt falling as a share of output five years ahead, the next government will need to pencil in a sizeable consolidation to meet its fiscal target.Will this consolidation be delivered? The U.K. has a strong long-run track record of fiscal consolidation in response to higher debt levels, and historical relationships suggest that the required improvement in the primary balance is within the range of plausible outcomes. However, the risks are skewed towards a slightly slower pace of consolidation than is currently planned, analysts at the influential investment bank said, in a note dated June 10.With the tax burden at its highest level for over seventy years and significant pressure on the health budget, there is a meaningful chance that the next government will ultimately adjust the primary balance somewhat more gradually.Even if the next government does deliver the planned consolidation, that alone will not necessarily put the debt-to-GDP ratio on a sustainable path if large external shocks, like the Global Financial Crisis, the pandemic and the energy crisis, continue to occur with the same frequency that they have in the recent past.That said, the bank sees reasons to be optimistic about the state of the country’s public finances over the medium term, as the headwind from losses from the Asset Purchase Facility is likely to moderate at some point in the coming years, making it easier to get the debt-to-GDP ratio falling. “How the government chooses to use any resulting fiscal space will be a key test of the fiscal reaction function,” Goldman Sachs added. More

“We now expect 75bp of total cuts this year in September, November and December,” the bank’s economists said in a Friday note.“But the jobs report does not change our view that hiring demand, and the broader economy, is slowing and that this will ultimately provoke the Fed to react with a series of cuts beginning in the next few months,” they added.This means that Fed Chair Jerome Powell and the committee are likely to hold off on any decisions in June and July, awaiting more data on slower activity and inflation.The establishment survey payrolls exceeded expectations, adding 272,000 jobs in May, compared to the consensus of 175,000 and Citi’s forecast of 140,000. Government hiring, which had slowed to just 7,000 last month, increased by a solid 43,000 last month. Healthcare hiring also surged, adding 89,000 jobs.In contrast, the more volatile household survey showed a much weaker performance, with employment down by 483,000 for the month. Despite a 0.2 percentage point drop in the participation rate, the unemployment rate increased by 0.1 percentage point from 3.86% to 3.96%, rounding to an above-consensus 4.0%.“Fed officials have been very reactive to monthly data – which means today’s payrolls report is enough for them to stay in wait-and-see mode a bit longer,” Citi economists wrote.However, the constant rise in the unemployment rate and broader deterioration in the labor market will remain an area of concern for the central bank, they added.“By September we expect officials will have pivoted to the employment mandate and engage in a series of 25bp rate cuts at every consecutive meeting, down to a terminal rate of 3.25-3.5%.” More

1. Futures lowerU.S. stock futures pointed lower on Monday, as investors looked ahead to a major Federal Reserve interest rate decision and key monthly inflation data later in the week.By 03:46 ET (07:46 GMT), the Dow futures contract had shed 87 points or 0.2%, S&P 500 futures had slipped by 6 points or 0.1%, and Nasdaq 100 futures had edged down by 43 points or 0.3%.The main averages on Wall Street fell following choppy trading in the prior session, dragged down by a stronger-than-projected jobs report which exacerbated concerns that the Fed could delay the timing of potential rate cuts for a longer period of time than some investors had been expecting.However, the benchmark S&P 500, tech-heavy Nasdaq Composite, and 30-stock Dow Jones Industrial Average posted weekly gains.2. Fed decision this weekMarkets widely expect the Fed to keep borrowing costs on hold at more than two-decade highs at the conclusion of its next policy gathering on Wednesday, meaning the spotlight will likely shine on any indications the central bank gives about its outlook for rates.The first update in three months to the Fed’s dot plot — a closely-watched gauge of policymakers’ rate expectations — is tipped to show that officials are anticipating two 25-basis point cuts this year, down from three in March.Several Fed officials have recently signaled that they would like to see more evidence inflation is cooling sustainably toward their 2% target pace before beginning to roll out cuts. Price gains have eased in the wake of a campaign of aggressive Fed rate hikes that started in 2022, but remain above 2%.3. May inflation data due out this weekFresh U.S. inflation figures are due to be released just hours before the Fed’s decision is announced on Wednesday.Economists forecast that annualized headline price growth in May matched the previous month’s pace, but slowed on a monthly basis. The so-called “core” reading, which strips out more volatile items like food and fuel, is seen decelerating slightly year-on-year and staying in line with April’s rate month-on-month.The numbers will be watched keenly by Wall Street, as they could provide some insight into the path ahead for Fed policy later this year. According to CME Group’s (NASDAQ:CME) closely-monitored FedWatch Tool, there is now a roughly 53% chance the Fed will bring rates down from their current level of 5.25% to 5.5% as soon as September.4. Elliott takes almost $2 billion stake in Southwest Airlines – WSJElliott Investment Management has built up a nearly $2 billion stake in Southwest Airlines and intends to push for changes to reverse the carrier’s underperformance, the Wall Street Journal reported on Sunday.The activist investor is now one of Southwest’s largest shareholders, the WSJ added, citing people familiar with the matter.The report comes as Southwest’s shares are trading down nearly 4% so far in 2024 and are hovering below their level in March 2020, when the COVID-19 pandemic sparked travel restrictions that weighed heavily on the wider airline industry.Along with the impact of COVID, Southwest, which once posted 47 consecutive years of profits, has been hit by higher costs stemming from new labor contracts and delays to deliveries from embattled planemaker Boeing (NYSE:BA).5. Crude inches higherCrude prices rose Monday, steadying after three straight weeks of losses ahead of monthly reports from OPEC and the IEA, as well as the latest meeting from the Federal Reserve.By 03:36 ET, the U.S. crude futures (WTI) traded 0.3% higher at $75.77 per barrel, while the Brent contract climbed 0.4% to $79.91 a barrel.The Organization of the Petroleum Exporting Countries is set to release its monthly report on Tuesday, where the oil group’s outlook on annual crude demand will likely be in focus.A monthly report from the International Energy Agency is also due later this week.The crude market sank to its third straight weekly loss last week on worries that a plan to unwind production cuts by OPEC and its allies, a group known as OPEC+, from October will add to rising global supply. More

Markets are digesting results from the June 6-9 European Parliament election and a shock decision from France to hold a snap election, while Britain’s Labour Party is expected to unveil its policy plans before a July 4 election it is tipped to win.Here’s the lowdown on the week ahead in world markets from Lewis Krauskopf and Ira Iosebashvili in New York, Kevin Buckland in Tokyo, and Karin Strohecker, Dhara Ranasinghe and David Milliken in London:1/ DOUBLE TROUBLE The Fed looks certain to hold rates steady when it ends a two-day meeting on June 12. Inflation has cooled after aggressive rate hikes starting in 2022 but has not yet fallen to its 2% target.May inflation figures are released just hours before the Fed statement. Further signs of inflation easing could cement expectations for rate cuts, especially given signs of economic weakness. Wall Street, boosted by cooling inflation, will be watching closely. Traders continue to price in some monetary easing this year, although bets for a September move were slashed after Friday’s robust jobs numbers.A bad inflation miss could spook investors and bring back recession fears that have laid dormant for months. No doubt, the data could fire markets up ahead of Fed Chair Jerome Powell’s post-meeting press conference.2/ TALE OF THE TAPER Bank of Japan Governor Kazuo Ueda has already dropped a strong hint of what to expect at June’s meeting.He said on Thursday that it would be appropriate to reduce still-massive bond purchases as the BOJ exits decades of stimulus, stressing policymakers will move “cautiously” on rate hikes after delivering its first rise since 2007 in March.    A consensus is building for some kind of taper of long-running quantitative easing when the BOJ concludes its two-day gathering on June 14.    Mizuho Securities sees a good chance of a 1 trillion yen ($6.4 billion) cut in monthly purchases to roughly 5 trillion yen per month, which could be weathered by bond markets.    Whether that supports the battered yen is a separate matter, with the BOJ and government concerned a weak currency could derail a hoped-for cycle of mild inflation and steady wage gains.3/ PUSHING FOR UKRAINE Leaders of the Group of Seven are pushing for progress on how to funnel urgently needed funds to Ukraine at a June 13-15 meeting in Bari, Italy, before they head to Switzerland for the peace summit on June 15-16. The push follows a recent EU decision to use the annual flow of windfall profits earned on immobilized Russian assets. A loan backed by the income from frozen assets could provide Kyiv with as much as $50 billion in near-term funding and has emerged as one top option. Concerns by G7 policymakers over China’s growing export strength, dubbed “industrial overcapacity”, particularly regarding new energy vehicles, is also in focus.The G7 meets just after EU elections and key EU figures get the chance to discuss the outcome as well as the fallout from French President Emmanuel Macron’s decision to call a snap election after being trounced in the EU vote by the far right. 4/ PAY DAYLabour market data on Tuesday is in focus for UK investors assessing whether wage pressures are easing fast enough to make a Bank of England rate cut a near-term prospect.Average weekly earnings, excluding bonuses, rose by an annual 6% in the three months to March, and April’s 9.8% increase to Britain’s minimum wage may push that growth rate higher.Until recently, economists expected a June rate cut but persistent inflation pressures mean markets do not fully price in a move until November.Wednesday’s April GDP data is likely to show growth softened after a robust 0.6% expansion in Q1. S&P says PMI data points to 0.3% growth for Q2 overall. And the opposition Labour Party launches its manifesto ahead of the July 4 election. While polls suggest Labour will hammer Prime Minister Rishi Sunak’s Conservatives, some business leaders doubt Labour can turn around Britain’s recent weak growth performance.5/ THE TAYLOR RULEIt’s Europe’s turn to benefit from music superstar Taylor Swift’s Eras Tour, hitting Britain, then the Netherlands and Switzerland.Barclays reckons the tour could provide an almost one billion pound boost to Britain’s economy, with spending by ticket holders more than 12 times the average cost of a UK night out.The Bank of America Institute says the tour’s opening leg in Paris sparked a 22% year-on-year jump in international BofA card spending in the French capital May 9-13.The spending boost, even if temporary, suggests service-sector inflation could remain sticky for longer. Some reckon the real winner is Swift: the Eras tour made her a billionaire in October, Time magazine reported. And this won’t be the last time economists debate “Swiftflation” and “Swiftonomics”. More