Aurelia Butler

Evidence is mounting that many Americans have reached their limit for tolerating higher prices, raising questions about how much consumer expenditures will continue to power US economic growth this year.After spending freely with savings built up during the coronavirus pandemic and income fuelled by a healthy job market, consumers are becoming more cautious, according to comments from retail and consumer goods executives and official data.Retail sales increased 0.6 per cent in February from the previous month, missing expectations by economists for a 0.8 per cent gain, according to Census Bureau data released this week. The increase reversed a 1.1 per cent decline from December to January.“We did not begin the year with healthy robust consumer spending that we had at the end of last year,” said Steve Ricchiuto, chief economist at Mizuho Securities. “The economy is losing some momentum.”January’s figure was revised lower from a previous estimate, the fourth downward revision in a row.Jeffrey Roach, chief economist at LPL, said the first half of the year was “certainly” going to be “quite sluggish” but that he expected growth to rebound in the second half, as inflation continues to decelerate and the Federal Reserve loosens monetary policy.Although inflation is down about two-thirds from its peak in the summer of 2022, consumer price growth unexpectedly rose to 3.2 per cent in February, which was largely driven by price pressures for services.The University of Michigan’s US consumer sentiment reading edged down in March to a level well above the worst of inflation in the summer of 2022, but below readings that were common before the pandemic.“Inflation is back down . . . but the compounding of those prices for a year and a half means that prices are higher, so consumers are feeling that much more than they did a year and a half ago,” said Stephanie Cegielski, vice-president of research at ICSC, a shopping centre industry group.After Kraft Heinz enacted a series of price rises in 2023, the maker of Heinz ketchup and Grey Poupon mustard last month reported declining organic net sales for the first time since 2021, with volumes also sliding, with a crucial driver being weak demand in North America.Similarly, PepsiCo chief executive Ramon Laguarta said in a statement in February that consumer behaviour had reverted back to pre-pandemic norms.“We’re seeing a bit of a slowdown in the US, both the food category and the beverage category in [the fourth quarter],” he said on a call with investors. “Part of that is a slowdown due to pricing and disposable income.”Many retailers had raised prices to pass on higher commodity and operating expenses, causing some companies to report bumper sales growth, but as inflation decelerates and consumers reject higher prices, many of those groups expect sales growth to slow this year.McDonald’s in February reported softer sales in the US in its most recent quarter as lower-income customers purchased cheaper menu items, and forecast same-store sales growth to return to a historical average between 3-4 per cent, down from 9 per cent last year.“The days of sales growth being driven by these big price increases, those are probably over,” said Brian Yarbrough, an analyst at Edward Jones.Big-box retailer Target said last week that it expected consumers to continue to face price pressures this year.“Consumers say they still feel stretched,” said Christina Hennington, Target’s chief growth officer. “They are balancing a lot and having to make trade-offs to meet the needs of their families . . . We expect consumers will remain highly value conscious.”Although traffic at Target’s stores improved in the holiday quarter it still declined 1.7 per cent from a year ago, while the average transaction amount slid 2.8 per cent as shoppers sought out deals.Some consumers have also started to pull back spending on services such as travel. Marriott warned in February of slower revenue growth this year and Expedia last month forecast softer growth in sales and bookings as the post-pandemic travel boom fades.After gains in real wages and savings boosted consumer spending that helped the economy re-emerge from the depths of the pandemic, Americans have become more cautious, as savings melt away and wage gains moderate.“Real wages by all measures are below where they were in January 2021 when President [Joe] Biden took office,” said Steve Englander, a strategist at Standard Chartered. “They have been catching up a bit, but there is something to the argument that people are dissatisfied because they have jobs but unsatisfactory purchasing power.”January’s personal consumption and expenditures report showed that consumer spending, adjusted for inflation, declined 0.1 per cent from December. Although the personal savings rate ticked up to 3.8 per cent, it is still far below pre-pandemic levels. The personal savings rate in January 2020 was 7.9 per cent.“In the holiday season we saw people start to go through the last amount of savings that they had,” said Katie Thomas, who leads the Kearney Consumer Institute, a management consulting firm. Although inflation has hit low-income consumers the hardest, some retailers have noticed higher-income consumers feeling the squeeze.The chief executive of cut-price retailer Dollar Tree, Rick Dreiling, said on a call with investors this week that its fastest-growing customer demographic earns more than $125,000 a year.Similarly, Walmart’s chief executive John Rainey said in February that one of the biggest contributors to market share gained from other retailers in its fourth quarter was from consumers who make more than $100,000.“A lot of people want to feel like they’re getting the best bang for their buck,” said Thomas at Kearney Consumer Institute. “People on both sides of the income spectrum are feeling a little bit more stretched than they were a year ago.” More

LONDON/ZURICH (Reuters) -A year after the banking crisis that felled Credit Suisse, authorities are still considering how to fix lenders’ vulnerabilities – including in Switzerland, where the bank’s takeover by rival UBS created a behemoth. The Swiss government-sponsored rescue of Credit Suisse and U.S. bank salvages in March 2023 doused the immediate fires kindled by a run at little-known U.S. regional lender Silicon Valley Bank. But regulators and lawmakers are only starting to address how banks could better withstand deposit runs, and whether they need easier access to emergency cash.  A top global financial watchdog recently warned Switzerland must strengthen its banking controls, highlighting the risk that a failure of UBS – now one of the world’s biggest banks – would pose to the financial system. “The banking system is no safer,” said Anat Admati, professor at the Stanford Graduate School of Business and co-author of the book “The Bankers’ New Clothes: What’s wrong with banking and what to do about it.””Global banks can cause a lot of harm,” she added.Rules introduced after the 2008 financial crisis did little to avert last year’s crash, as clients pulled cash from banks at unprecedented speed. One of the key weaknesses that emerged last year was that banks’ liquidity requirements proved insufficient. Credit Suisse saw billions of deposits exiting in a matter of days, burning through what had appeared to be comfortable buffers of cash.Introduced after the 2008 financial crisis, the so-called liquidity coverage ratio (LCR) has become a key indicator of banks’ ability to meet cash demands. LCRs require banks to hold sufficient assets that can be exchanged for cash to survive significant liquidity stress over 30 days.European regulators are debating whether to shorten the period of acute stress to measure buffers banks need over shorter timeframes, of say one or two weeks, according to one person with knowledge of the discussions.The move would echo calls by the acting Comptroller of the Currency in the United States, Michael Hsu, who also made the case for a new ratio to cover stress over five days.If such measures are put in place, “banks would need to hold higher levels of liquid assets and park more assets at the central banks,” said Andrés Portilla, managing director of regulatory affairs at the Institute of International Finance, a Washington-based bank lobby group. “Ultimately funding could become costlier.” Industry-wide changes are only likely to take place next year in Europe as banks are still working through the final implementation of post-financial crisis rules, so-called Basel III, which will require banks to set aside more capital, the person told Reuters. Amid worries that a repeat of a rapid run could threaten another bank, the European Central Bank is intensifying scrutiny of liquidity buffers of individual banks, another person familiar with the discussions told Reuters. The ECB declined to comment for this article. It has identified liquidity supervision as a priority after the Credit Suisse rescue. BANKING BEHEMOTHIn Switzerland, the regulatory debate has homed in on how to make emergency loans more widely available.When borrowing from central banks, lenders need to provide certain assets in exchange, also known as collateral, which must be easy to price and sell in financial markets. That protects taxpayers in case the lender cannot repay. As Credit Suisse suffered unprecedented outflows, the lender ran out of securities to pledge to the Swiss National Bank (SNB), forcing the central bank to offer cash to the struggling lender without security.A group of experts has called on the SNB to accept a wider pool of assets, including corporate loans and loans backed by securities. The SNB said the universe of eligible collateral is reviewed on an ongoing basis and developed in dialogue with the banks.A spokesperson for UBS declined to comment. UBS’s imposing balance sheet of more than $1.6 trillion, nearly twice the size of the Swiss economy, is prompting the country to also review its too-big-to-fail rules, a package of regulation that disciplines systemically important banks. “All domestic and globally systemic important banks have become public-private partnerships. No government can risk their instability,” said Peter Hahn, emeritus professor of banking and finance at The London Institute of Banking & Finance.The Swiss government is expected to publish a report next month. It might announce stricter capital requirements for UBS, some analysts have warned.UBS Chief Executive Sergio Ermotti said this week that he can’t rule out that could happen.”We fixed the problem only in the short term. What we did sets the stage for a much bigger problem later,” said Cédric Tille, professor of economics at the Geneva Graduate Institute of International and Development Studies, who sat on the Swiss National Bank’s supervisory council until last year.”UBS has become too big to save.” Amid concerns about a repeat of 2023, the ECB has asked some lenders to monitor social networks to detect early bank runs. Global financial regulators are due later this year to unveil a “deep dive” into how social media can speed up deposit outflows.”A run on deposits doesn’t happen in a month, it happens in a few hours,” said Xavier Vives, professor of economics and finance at IESE Business School in Barcelona. “Regulation must be amended.” More

By Mariko Katsumura and Rocky SwiftTOKYO (Reuters) – Patience Capital Group, the Singapore-based investor behind a $1.42 billion luxury ski project in northern Japan, is in talks to reopen its fund to new investors eager to get in before tightening by the Bank of Japan.PCG’s initial 35 billion yen ($237 million) fund, announced last year to transform Myoko Kogen in Japan’s Niigata prefecture into a winter sports destination at par with Aspen and Whistler, may grow to 60 billion yen as new money from domestic and foreign investors piles in, said PCG founder Ken Chan.Japan is riding twin booms in investment and inbound visitors, boosted by a weak yen that makes the country a bargain for foreigners. Chan set up PCG in 2019 to benefit from both, investing in accommodation and resort properties.The BOJ is expected to move as early as next week, beginning a lengthy normalisation from about two decades of easy money policy. That shift, along with possible interest rate cuts by the Federal Reserve, is likely to drive the yen up from the near three-decade lows it trades at now, Chan said.”It’s clear from a macro perspective, this year is a very important year to put funds into yen assets, because the yen is too cheap right now,” said Chan, who founded PCG after 19 years with Singapore’s GIC sovereign wealth fund, where he acted as its Japan head.”I think in the next few months, you will continue to see investors coming in to take an investment position in this market,” he added.Chan, who was born in Japan and spent his early childhood there, last year sketched out a plan to turn the Myoko Kogen area into a high-end winter paradise that can attract wealthy, globe-trotting snow fans.His fund, which caters to institutional and high-net worth investors, has bought about 350 hectares of land which includes two existing ski slopes.Chan is also working with the Tokyu group, which owns the nearby Madarao Tangram resort, to manage the mountain there as one operation. He added that if any resorts in the vicinity were willing to sell, PCG would be happy to consider taking them over.Although the full build-out will take about a decade, Chan aims to have the first two luxury hotels ready by 2028. That is a year later than originally planned due to a major earthquake on Noto peninsula on Jan. 1 that has pulled away construction resources.PCG expects to raise money for the project in two additional funds around the 35 billion yen size, with the spending power of all funds doubled through borrowing leverage. Total spending is still benchmarked at the 210 billion yen level, but it could “absolutely go beyond (that figure) because there’s so much land waiting to be developed,” Chan said.LABOUR CRUNCHAlthough Japan enjoys annual dumps of some of the best powder snow in the world, much of the nation’s ski industry is suffering from aging infrastructure and a shrinking base of domestic customers. The number of Japanese skiers and snowboarders fell by about 75% from its peak in 1998 as of 2022, according to the Japan Productivity Centre. Global warming has also led to less snow in all but the most northern parts of the country, leading to seven ski resort bankruptcies in 2023.Myoko is about 200 km (125 miles) northwest of Tokyo, and cold winds coming off the Sea of Japan produce some of the deepest snow in the world. But the area has so far missed out on the attention and investment seen in nearby Hakuba or Niseko on Japan’s northernmost island of Hokkaido.Another hurdle for PCG or any other would-be developer is Japan’s tight labour market. The retail and hospitality sectors have not recovered from an exodus of workers during the pandemic. Skilled, multi-lingual staff needed by high-end resorts is in short supply.Chan hopes to solve that problem by building dormitories and housing in the Myoko area and making it an attractive township that will draw in foreign and domestic workers through multiple seasons.”The local, liveable area is something that we need to actually address right from the beginning,” he said.($1 = 147.8200 yen) More

NEW YORK (Reuters) -A gauge of global stocks fell on Friday and was set for a weekly decline that would snap seven straight weekly gains, while the dollar rose and was on track for its strongest week since mid-January, as U.S. inflation data has led to new hopes for interest rate cuts. Data on Friday showed U.S. import prices increased marginally in February as a surge in the cost of petroleum products was partially offset by modest gains elsewhere, suggesting an improving inflation picture. Equities struggled this week after readings on U.S. consumer prices and producer prices indicated inflation remains sticky, dampening expectations the U.S. Federal Reserve will cut rates by its June meeting. Markets are pricing in a 59.2% chance for a rate cut of at least 25 basis points (bps) by the Fed in June, down from 59.5% in the prior session and 73.3% a week ago, according to CME’s FedWatch Tool. The central bank is widely expected to hold rates steady at its policy meeting next week but investors will be watching the central bank’s economic projections, including its interest rate forecast. “We seem in a period here where everyone knows rates eventually will be lowered. The expectation of when it happens keeps getting slightly pushed back, but investors still believe it will happen,” said Rick Meckler, partner at Cherry Lane Investments in New Vernon, New Jersey.”It’s been a back-and-forth market as people reposition and consider whether some of the real winners have just gone a little bit too far, so you’re seeing them trade off.”On Wall Street, the Dow Jones Industrial Average fell 190.89 points, or 0.49%, to 38,714.77, the S&P 500 lost 33.53 points, or 0.65%, to 5,116.95 and the Nasdaq Composite lost 155.35 points, or 0.96%, to 15,973.17. For the week, the S&P 500 lost 0.13%, the Dow shed 0.02% and the Nasdaq declined 0.73%. In addition, a survey from the University of Michigan showed its preliminary reading on consumer sentiment and inflation expectations were little changed in March while a separate report said production at U.S. factories increased more than expected in February. The dollar index gained 0.05% at 103.43, recouping some of the prior week’s decline with a gain of 0.71%, with the euro up 0.06% at $1.0889 on the session. Sterling weakened 0.13% at $1.273.Against the Japanese yen, the dollar strengthened 0.49% to 149.05, despite expectations the Bank of Japan is expected to end its negative interest rate policy at its meeting next week. MSCI’s gauge of stocks across the globe fell 5.07 points, or 0.66%, to 767.58, poised for its third straight daily decline, the longest streak since the start of the year, and down 0.48% on the week. The STOXX 600 index closed down 0.32%, while Europe’s broad FTSEurofirst 300 index fell 7.42 points, or 0.37%.The yield on benchmark U.S. 10-year notes was up 1 basis point at 4.308% after reaching 4.322%, its highest since Feb. 23. The 10-year yield has jumped 22 bps this week, the most since mid-October. The 2-year note yield, which typically moves in step with interest rate expectations, rose 3.9 basis points to 4.7297% and has risen 24.6 bps for the week, its largest jump in two months.Oil prices dipped, a day after topping $85 a barrel for the first time since November. The oil benchmarks were on track to close out the week with a gain of more than 3%. U.S. crude settled down 0.27% lower on the day at $81.04 a barrel and Brent settled off 0.09% to $85.34 per barrel. More

WASHINGTON (Reuters) -Boeing on Friday told airlines operating 787 Dreamliners to check flight deck switches after a sudden mid-air dive by a LATAM Airlines (OTC:LTMAY) 787 plane left more than 50 people injured.The Air Current, an aviation industry publication, reported on Wednesday that the movement of a flight deck seat is a key focus of the probe into Monday’s flight.Boeing (NYSE:BA) said earlier on Friday that it had taken the precautionary measure of reminding operators of a 2017 service bulletin detailing instructions for inspecting and maintaining flight deck seat switches.”We are recommending operators perform an inspection at the next maintenance opportunity,” Boeing said.The Federal Aviation Administration said that in response to the LATAM Flight 800 incident it has convened an expert board to review a message that Boeing sent to airlines about the need to check the switches after the incident.The FAA said it does not require Boeing to get the agency’s approval before sending the message.The FAA said the process will include reviewing the 2017 service bulletin related to the switches in the pilot seats and will provide feedback to Boeing. “The agency will continue to monitor the situation closely,” the FAA said.Boeing shares closed up nearly 1%.The plane, which was heading from Sydney to Auckland on Monday, dropped abruptly before stabilizing, causing those on board to be thrown about the cabin.LATAM is based in Chile and the flight, which had 263 passengers and nine crew members, was due to continue on to Santiago after stopping in Auckland.New Zealand’s Transport Accident Investigation Commission said on Tuesday it was seizing the cockpit voice recorder and flight data recorder of the flight, which would provide information about the conversations between the pilots and the plane’s movement. More

The BOJ began coordinating both within and outside the bank Friday on ending its negative interest rate policy, the economic daily said.Japan’s biggest companies agreed to raise wages by 5.28% for 2024, the heftiest pay hikes in 33 years, the country’s largest union group said on Friday.This year’s wage hikes “are of a level that even reflationists who are cautious about modifying monetary policy would accept a change in policy,” the Nikkei cited one BOJ source as saying.BOJ officials, including Governor Kazuo Ueda, have recently stressed the timing of a shift away from negative rates would depend on the outcome of this year’s annual wage negotiations between workers and employers.Sources have told Reuters the BOJ will debate ending its negative rates next week if Friday’s preliminary survey on big firms’ wage talks outcome yield strong results.Friday’s bigger-than-expected pay hikes have significantly heightened the chance the BOJ will end eight years of negative interest rate policy next week, marking a landmark shift away from its huge stimulus programme.”With markets pricing in a March action, there’s no reason for the BOJ to delay the decision until April,” a government source with knowledge of the BOJ’s deliberations told Reuters.”It’s probably better for the BOJ to act sooner rather than later,” said another senior government official who has regular interaction with incumbent BOJ officials.The BOJ was not available to comment as it is in a black-out period, when its officials are prohibited to speak to media.A Reuters poll taken in March showed 35% of economists expected the BOJ to end negative rates at the two-day meeting ending on Tuesday, up from the previous month’s 7% but still below 62% projecting such action at its subsequent meeting on April 25-26. More

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