Aurelia Butler

The reduction, the first of two annual “benchmark” revisions conducted by the department as it takes on board more data to give as accurate as possible a reading of the U.S. employment situation, suggests government and private employers had about 155.17 million workers on their books in March, down from about 155.47 million as previously reported. The revision represented a total downward change of about 0.2%.Private employment growth was revised down by 358,000, or 0.3% below what had been previously estimated by the department. Government employment was revised up by 52,000, or 0.2%.Nancy Vanden Houten, lead U.S. lead at Oxford Economics, said “the downward revision suggests only slightly cooler labor market conditions.”By her estimate, it reduces average monthly job growth from April 2022 through the latest report for July 2023 to 313,000 from a pre-revision average of 332,000. That is still almost double the prevailing monthly growth rate in the decade prior to the coronavirus pandemic.The transportation and warehousing sector, which has boomed since the pandemic, saw the largest downward revision, totaling 146,400 jobs, or about 2.2%. That was followed by professional services, with a cut of 116,000, or 0.5%, and private education and health services, which was lowered by 85,000, or 0.3%.In addition to government employment, sectors that saw upward revisions included wholesale trade, up 47,700, or 0.8%; financial services, up 47,000, or 0.5%; retail trade, up 38,200, or 0.2%; and construction, up 30,000, or 0.4%.FED MEETINGFederal Reserve officials could welcome the indication that the job market is a bit softer than previously thought as they consider whether to raise interest rates at their Sept. 19-20 policy meeting. The U.S. central bank has raised rates by 5.25 percentage points since March 2022 to beat back inflation, and many officials, including Fed Chair Jerome Powell, have said some weakening of the job market is likely to be needed in order to return inflation to the central bank’s 2% target.Vanden Houten said the revision is unlikely to alter the debate too much.”At the margin, Fed officials may see the downwardly revised data, alongside moderating wage growth, as a sign that their policy decisions are having the intended effect,” she wrote in a note. “While we stress that risks are tilted toward additional interest rate increases, recent comments from Fed officials and the minutes of the July FOMC (Federal Open Market Committee) meeting signal to us that Fed officials will keep rates steady at the upcoming September policy meeting.”The Labor Department will issue its final benchmark revision for March 2023 employment levels in February 2024, when it releases the employment report for January of 2024. Final revisions are typically not far off the preliminary one.In last year’s benchmark revision, released this past February, the department revised up its estimate for total employment in March 2022 by 568,000. More

A year after the US Inflation Reduction Act was passed, the British government is developing an “advanced manufacturing plan”. The details are sketchy, but it is just the latest in a new wave of industrial policies following America’s multibillion-dollar package of incentives affecting sectors from electric vehicles to green hydrogen production.New factories are already sprouting across the US. But the scale of government intervention combined with provisions that favour domestic production leaves most economists sceptical about its long-term impact. Trying to replicate global green, tech and battery supply-chains at home is a tall order. Pulling production away from where it can be done most efficiently is wasteful and raises costs. It also invites retaliation.Developing an industrial policy, particularly in a time of geopolitical fragmentation, is fraught with complexity. But as more governments seek to emulate and respond to the IRA, there are some principles worth heeding.First, any economic strategy should place emphasis on creating a welcoming business environment that fosters competition. This enables existing strengths to flourish. Investing in modern infrastructure, developing an effective training system and designing an immigration policy that attracts global talent is important. Meanwhile, an openness to trade, a stable long-term policy environment and minimal red tape will support investment decisions and help industries achieve scale. As it is, the IRA is facing shortages of skilled workers and lengthy planning delays.Beyond this, targeted support should be considered in a few cases. First, to build capabilities that are integral to national security, such as defence, and for securing supplies of critical materials. And second, to tackle market failures. For instance, renewable infrastructure may need a jump-start when the private sector is unclear about future demand but long lead times mean preparation needs to happen in the present.Targeted interventions should not aim to recreate entire global supply chains at home, but rather develop a foothold in these clearly and narrowly defined strategic sectors. This helps to limit wasteful spending and accusations of unfair trading practices. Time-limited support is important too. Indeed, the latest forecasts show the IRA’s open-ended tax credits could exceed $1tn.The type of policy tool used should match the issue it is trying to tackle. For instance, green energy projects obtain certainty from a guaranteed market price and public-private partnerships help de-risk otherwise unviable projects for battery or semiconductor plants where no foothold exists. Financial incentives, such as tax credits, can play an important role meanwhile in encouraging the shift of resources from low to higher productivity industries. Indeed, they are most cost effective and less distortionary when applied across sectors to encourage investment in training, R&D, and machinery, as well as the adoption of existing technologies. Above all, industrial policy should not exclude competition. For decades, globalisation based on international supply chains connected by national specialisms has driven productivity growth. But protectionist measures, including local content rules in the IRA, undermine this by coddling domestic manufacturing and sparking tit-for-tat measures. Friendshoring, or free trade between allies, offers an alternative to trading with malign states.Rising to the challenges of the climate transition, technological change and unstable geopolitics requires targeted and well-designed interventions from national governments. But if leaders decide increasingly to override free markets and open trade, they will find it even harder to reach their goals. More

Today’s top storiesRussia has offered to swap western investors’ stranded assets for some Russian assets frozen by the west following President Vladimir Putin’s invasion of Ukraine, according to its central bank.Some of private equity’s biggest names such as KKR and Bain are handing over companies they own to the lending arms of rivals, as they struggle against higher interest rates, inflation and supply chain issues. An India spacecraft made a historic landing near the Moon’s unexplored South Pole, a milestone in the country’s efforts to become an international power in space exploration. For up-to-the-minute news updates, visit our live blogGood evening.Disappointing results from a closely watched set of surveys have added a new layer of gloom to the outlook for business and raised doubts about the next steps for central banks on interest rates.In the UK, economic activity unexpectedly fell for the first time since the start of the year, according to initial “flash” data from the purchasing managers survey. The PMI score fell from 50.8 to 47.9 in August, where 50 marks the dividing line between business activity expanding and shrinking. It contrasts sharply with a run of more positive data, including yesterday’s better than expected public finances figures, which had prompted calls from Tory MPs for tax cuts.Chris Williamson, chief business economist at publishers S&P Global Market Intelligence, said: “A renewed contraction of the economy already looks inevitable, as an increasingly severe manufacturing downturn is accompanied by a further faltering of the service sector’s spring revival.” He added: “Barring pandemic lockdown months, this is one of the steepest contractions since the global financial crisis.”The PMI survey will be closely scrutinised by the Bank of England as it contemplates its next policy tightening move. The pound fell against the dollar on the news, with investors scaling back their forecasts of peak interest rates. However, some argue that the data could encourage the BoE “that higher rates are working” and that GDP would soon contract, triggering “a mild recession”. Yesterday, the BoE itself acknowledged the impact of elevated interest rates — currently at a 15-year high of 5.25 per cent — on British companies, raising the risk of corporate defaults and threatening investment and employment.The eurozone PMI result was also worse than expected, falling to a 33-month low of 47.0 from last month’s 48.6, with sharp falls in output and new orders and inflation measures nudging higher. Services activity shrank suddenly, while manufacturing continued its decline. German companies suffered the steepest decline in activity for more than three years.German bond yields and the euro fell on the data as traders bet that a slowing economy would force the European Central Bank to halt its programme of rate rises. Business activity also looks to be teetering near stagnation in the US, where the flash PMI reading dropped from 52.0 to 50.4 in August, a six-month low. Manufacturing fell back into contraction, while services had their slowest growth since February. The near-stalling of activity “raises doubts over the strength of US economic growth in the third quarter,” said S&P Global’s Williamson.All of which is food for thought for Fed officials and other central bankers gathered at Jackson Hole in Wyoming for their annual get-together. After pushing up interest rates to multi-decade highs they now face another arduous task: how to fine-tune policy to get inflation under control, without causing undue hardship and job losses — all while still dealing with the effects of the pandemic and war in Ukraine.Need to know: UK and Europe economyA lack of power grid capacity is holding back UK economic growth and jeopardising plans for decarbonisation, a process that is expected to double electricity consumption by 2050. The UK and India are making slow progress on a trade deal. Britain hopes to open up trade in whisky and cars to India as well as services and investment opportunities, while New Delhi wants better access for manufactured goods, services and work visas.Spain’s king gave the conservative opposition first shot at forming a government after an inconclusive general election, even though Alberto Núñez Feijóo’s People’s party does not currently have enough support to succeed. If not successful, acting Socialist prime minister Pedro Sánchez will get a chance in late November.A new FT series examines Europe’s rental crisis. As buying a home becomes increasingly unfeasible, many people are joining an already overheated rental market with prices in several cities at their highest rates ever.

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Need to know: Global economyChinese president Xi Jinping called for faster expansion of the Brics emerging-market group at its summit in Johannesburg. The development bank set up by member states plans to begin lending in South African and Brazilian currencies to cut reliance on the dollar and promote a more multipolar international financial system. Vladimir Putin said Russia would host next year’s summit.The FT series on the rise of the “middle powers” continues with a look at China’s blueprint for an alternative world order and how oil-rich Gulf states are forging new alliances in Asia.Cryptocurrency assets have amplified rather than reduced financial risks in less developed economies, some of the world’s most powerful central banks warned, adding that the appeal of crypto was “illusionary”.A S$1bn (US$737mn) money laundering investigation in Singapore is being widened as prosecutors seek documents from at least 10 banks. The operation has spanned the city-state and led to the seizure of luxury homes, cars, designer handbags and wads of cash and gold bars. Economics editor Chris Giles says it’s far too early to declare the end of inflation, although some of the world’s largest consumer goods companies have signalled they might be ready to ease up on price increases. Need to know: businessGlobal stock markets are heading for their worst month in almost a year thanks to a “witches’ brew” of gloomy Chinese economic data and surging US borrowing costs.The UK energy market regulator fined Morgan Stanley £5.4mn for failing to keep records of WhatsApp communications among its traders, the latest sanction in the global crackdown on bankers’ use of personal phones.Arm, the UK-based chip designer, owned by Japan’s SoftBank, unveiled plans for the biggest initial public offering in the US for nearly two years. The Lex column (for Premium subscribers) casts doubt on its valuation.Microsoft dramatically changed the terms of its $75bn acquisition of Activision Blizzard after the UK regulator quashed the original deal over competition concerns in the cloud gaming market.The World of WorkColumnist Sarah O’Connor praises the effectiveness of the minimum wage in the UK and elsewhere as a policy instrument. It may not have boosted productivity but has been successful in reducing pay inequality without damaging employment, she says.Leadership skills have been neglected for too long, according to the UK’s Chartered Management Institute. The need for more highly skilled managers to improve public services and boost economic growth has been “dangerously overlooked” by ministers for two decades, it said.British workers, it appears, are angrier on average than their counterparts in the EU and US. The Working It podcast discusses the best way for managers to deal with workplaces running high on emotion. Some good newsCargill, one of the world’s largest marine freight operators, has launched a carrier using wind power via 37.5 metre-high sails in a test voyage that will be closely watched by the shipping industry after a fractious debate over how to decarbonise the sector.The Pyxis Ocean bulk carrier, which can carry up to 81,000 tonnes of cargo, is carrying its first shipment using wind power More

JACKSON HOLE, Wyoming (Reuters) – Inflation has tumbled spectacularly across much of the world this year but the job is only half done, even if top central banks are now getting ready to wrap up their most aggressive interest rate hike cycle in history.The “last mile” in rooting out pervasive price growth is still set to take years, so easing up now appears contradictory to policymakers’ message a year ago that public trust required bringing inflation back to target quickly, even if that meant inducing a recession. Yet, as global central bankers gather in a mountain lodge in Jackson Hole, Wyoming, for their annual economic brainstorm, talk is shifting to keeping rates around where they are now – but for longer than perhaps previously estimated – rather than raising them further.The aim would be to ensure a soft landing of the economy even if price growth remains high, possibly throughout 2024.On the face of it, the shift seems justified, given the striking progress on inflation. Price growth was around 10% in much of the developed world late last year and now stands at roughly half that rate, with further drops already baked in.But this is happening while the job market remains exceptionally tight on both sides of the Atlantic, an economic paradox that is leading some to question if inflation is falling regardless of monetary policy – not because of it.The labour market was expected to soften, taking pressure off wages but businesses are just not shedding workers as expected, partly because they enjoy still-high margins and for now can afford to retain skilled labour.”When inflation is falling but unemployment is stable or falling, the Fed can’t be sure that its policies are effective,” said Steve Englander, head of G10 currency research at Standard Chartered (OTC:SCBFF). “It may just be lucky that a global demand slump or non-policy related domestic forces are driving inflation lower.”NO JOB LOSSES, YETU.S. unemployment has been flatlining at around 3.5% most of this year, and the euro zone rate is at an all-time-low of 6.4%. Meanwhile, in places like Britain, Australia or New Zealand, the rate is slightly up from recent lows but still well below historic averages.The problem is that serious disinflation without a labour market shakeout is inconsistent with standard economics and past experience. U.S. inflation, for instance, has fallen 6 percentage points in the last year from above 9% to around 3%; the last time inflation fell by anywhere near as much – in the early 1980s – unemployment soared to above 10%.This disconnect led the German central bank to issue a warning to peers this week that a tough task may still lie ahead for policymakers.”The impression took hold that inflation rates will nonetheless persist for longer above the rates targeted by central banks,” the Bundesbank said. “In particular, the ongoing high wage pressures could make it harder to press ahead with curbing inflation.”Yet there is little appetite left to hike rates much further, a feeling that will only grow if measures of economic health deteriorate, as they have in Europe. The Bank of England still has some way to go, but the Fed and the ECB appear to be debating whether just a single more hike is still needed. The Reserve Bank of Australia and the Reserve Bank of New Zealand, for their parts, may already be done.This is raising some doubts about the resolve of policymakers as inflation is set to remain above target through 2024 and possibly into 2025, the end of the current forecast horizon for many. “Markets do not trust the ECB to deliver to the 2% inflation target … markets are pricing the ECB to accept an inflation overshoot,” Piet Haines Christiansen at Danske Bank said.Indeed, longer-term inflation expectations for the U.S. and the euro zone remain above the banks’ 2% targets..But if there is no appetite to raise rates much further, possibly inducing a recession and a labour market shakeout, then rates have to stay high for longer.Philip Lane, the ECB’s chief economist, may have previewed this approach recently when he argued the goal is not to curb demand but to limit its growth. “The trick for us is basically to make sure demand does not add on supply,” Lane said in a podcast. “So it’s not a question of driving demand deeply negative. It just has to grow more slowly than supply.”     CONCERNS ABOUT CHINAThe biggest source of uncertainty that is likely keeping central bankers awake at night is China’s quickly fading outlook, a development nearly as surprising as the pain-free drop in inflation in the developed world and a probable subject of discussion this week in Jackson Hole. Once expected to buttress global growth in a post-pandemic rebound, China’s economy is now suffering on all fronts and the People’s Bank of China has already cut rates to stimulate growth.”Externally, China is suffering from declining foreign trade. At home, its property sector remains imperilled, the yuan is suffering from bouts of deflation, and it increasingly cannot generate enough jobs for its graduates,” Niels Graham at the Atlantic Council said.The government unveiled a batch of stimulus measures this summer, from boosting auto and home appliances consumption, relaxing some property restrictions to pledging support for the private sector, but economists reckon that much more will be needed.Much of China’s pain stems from a property sector that has been exhibiting signs of stress for the past two years. The key worry is that any prominent failure in the sector could raise the risk of contagion to the financial market and could then spread more broadly. But even in the best case, weaker growth will reduce demand for imports and complicate the global outlook.”The lack of a stronger stimulus response partly reflects a greater tolerance for economic weakness,” Julian Evans-Pritchard at Capital Economic said. “But it also points to a worrying degree of policy paralysis, which suggests that the downturn could persist for a while longer.” More

The IMF’s executive board, in an assessment following “Article IV” consultations with the Kuwaiti government, said real gross domestic product (GDP) is seen slowing to just 0.1% this year after 8.2% growth in 2022, mainly due to oil production cuts.Kuwait is part of OPEC+, a producer group comprising the Saudi-led Organization of the Petroleum Exporting Countries and Russia-led allies, which has been cutting crude output since November to prop up prices.The IMF in May had forecast real GDP to slow to 0.9%. Despite the expected stagnation, the IMF on Wednesday forecast real non-oil GDP growth at 3.8% this year from 4% in 2022.”Given Kuwait’s large fiscal and external buffers, it can undertake needed reforms from a position of strength. However, political gridlock between the government and Parliament could continue to delay reforms,” the IMF said.Feuding between successive appointed cabinets and elected parliaments has hampered fiscal reform for years, including passing a debt law that would allow Kuwait to borrow international debt. It resorted to palliative measures to temporarily boost finances after the pandemic slammed oil prices in 2020.”Resolving the impasse is critical to accelerate reform momentum, and to thereby boost growth and diversify the economy,” the IMF said.The IMF said higher spending in Kuwait’s draft budget for the fiscal year that began on April 1 “is appropriate given the negative non-oil output gap” but said that starting from April 2024, fiscal consolidation should target higher non-oil revenue “and tackle current spending rigidities while increasing capital outlays to raise potential growth.”Kuwait has a lavish cradle-to-grave welfare system and salaries make up more than half of total expenditure in the 2023-2024 draft budget. Oil accounts for 88.2% of projected revenues.Measures to boost revenues could include introducing excise and value-added tax under a common framework of the six-country Gulf Cooperation Council, the IMF said.Kuwait is the only GCC country that has no excise taxes, and is joined by Qatar as an outlier in having no VAT.Kuwait in June elected its third parliament in two and a half years. Sheikh Ahmad Nawaf Al-Ahmad Al-Sabah, the son of Kuwait’s ruling emir, was then reappointed as prime minister. More

NEW YORK (Reuters) – U.S. stocks will eke out only marginal gains between now and year end, according to strategists in a Reuters poll on Wednesday, who said inflation and higher interest rates were among the biggest risks for the market.The benchmark S&P 500 index was forecast to end the year at 4,496, about 2.2% above Monday’s close of 4,399.77 and up about 17% from end 2022, according to the median forecast of 41 strategists in an Aug. 9-22 Reuters poll.The latest prediction was higher than the 4,150 year-end target in a May poll.Some expect optimism over artificial intelligence that has driven a sharp rally in technology stocks this year to support further market gains, while they said a cooldown in the U.S. economy may not be as bad as feared.The S&P 500 is up over 14% so far in 2023 after falling 19% in 2022, and the Nasdaq is up 29% year-to-date. Eight of 13 strategists who answered an additional question said a correction in the U.S. stock market was likely by the end of this year, and two said it was highly likely.Confidence that the Federal Reserve has reined in inflation enough to end its rate hikes has fueled stock market gains this year. However, concerns that the U.S. central bank will keep interest rates higher for longer have recently pushed up U.S. Treasury yields, and fanned worries about the impact of higher borrowing costs on businesses and consumers.The benchmark 10-year Treasury yield hit near 16-year highs this week.”The S&P 500 may currently be in correction mode,” said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management. His year-end target on the S&P 500 is 4,600. “Persistent inflation is kryptonite to valuation as it implies a higher-for-longer Fed hawkish stance. Elevated interest rates, due to continued inflationary pressures, results in lower present values and lower stock prices,” he said.Earnings growth for S&P 500 companies for 2023 is estimated at just 1.8%, and the index’s forward 12-month price-to-earnings ratio is close to 19, up from 17 at the end of 2022 and above its long-term average of about 16, according to Refinitiv data.”When a lot of the AI euphoria was in full swing a couple of months ago, the multiples that people were willing to pay for broader indices, for individual stocks, were kind of silly,” said Sameer Samana, senior global market strategist at Wells Fargo (NYSE:WFC) Investment Institute in Charlotte, North Carolina.”The environment we’re headed into is going to be marked by volatile and high sticky inflation, higher rates … and you’re probably going to see some shift in market leadership.”Wells Fargo, which expects the S&P 500 to end this year between 4,000 and 4,200, says a U.S. recession as still likely.The poll’s median forecast for end-2024 for the S&P 500 was 4,800.The survey also showed the Dow Jones industrial average is expected to finish the year at 36,000, up over 4% from Monday’s close. That forecast is also higher than the previous poll’s median target.(Other stories from the Reuters global stock markets poll package:) More

(Reuters) – Traders on Wednesday firmed up bets that the European Central Bank would pause hiking interest rates in September, as sharp contractions in business activity pointed to deepening economic pain in Europe. Traders now price in a roughly 40% chance of a 25 basis point move in September compared with a more than 50% chance they saw only on Tuesday. That suggests they are leaning towards a pause in the ECB’s record-paced tightening cycle that has lifted rates from deep in negative territory to 3.75% in just a year.German business activity contracted at the fastest pace in over three years in August and much more than analysts expected, data showed on Wednesday, deepening the downturn in business activity far more than thought across the euro zone. Britain’s business activity meanwhile contracted unexpectedly, raising recession risks.Bond yields in the euro zone and Britain, recently propped up by a resilient U.S. economy, tumbled. The euro fell to more than a two-month low against the dollar and sterling dropped sharply as investors also scaled back their expectations for where ECB and Bank of England rates will peak. “The PMI suggests that it’s back to the pre-summer narrative of lower rates,” said Danske Bank chief analyst Piet Christiansen.Germany’s 10-year Bund yield, the benchmark for the euro area, dropped as much as 13 basis points to 2.52%, the lowest since Aug. 10. Two-year German yields, sensitive to interest rate expectations, dropped similarly below 3%. Hit by the receding rate hike expectations, the euro fell to as low as $1.0804, extending its losses against the dollar this month to 1.7%. It is set for its biggest monthly drop since May. DIVERGING FORTUNES In Britain, gilt yields were over 10 bps lower on the day across the yield curve and sterling dropped as much as 0.9% against the dollar. Just last week, 10-year gilt yields had hit their highest levels since 2008 just above 4.7%. Wednesday’s sharp falls in borrowing costs highlight how Europe’s weaker economy and outlook for borrowing costs diverges from resilience in the U.S. Strong U.S. data this month has prompted expectations that interest rates will remain higher for longer.That sent U.S. Treasury yields to their highest in over a decade and lifted borrowing costs higher globally.Highlighting the contrast in outlooks, U.S. Treasury yields dropped by much less than in Europe on Wednesday and traded with the highest yield relative to Germany’s since December at 173 bps, a headwind to the euro. “The dovish case that high inflation is not the result of excess demand, but rather the result of exogenous shocks and therefore a contributor to weak growth, is strengthened by the PMI data,” Citi economists said in a note to clients. “The risk that the ECB has already overtightened is significant. Today’s PMI release reduces the chances of a September rate hike (our base case) and increases the chance that rate cuts will come earlier than most Governing Council members thought,” they added.JPMorgan (NYSE:JPM) now expects the ECB to pause in September and has postponed its expectation of a final 25 bps hike to October, joining a narrow majority of economists polled by Reuters earlier in August who also expect a September pause. While expectations were scaled back, traders still expect two more 25 bps rate hikes from the BoE, which is tackling higher inflation than the euro zone. They also still see just under a 60% chance of a 25 bps ECB rate hike by December.Key to investor expectations from the ECB will be next week’s euro zone inflation data. “There’s many indicators that suggest that we could have had the last hike but if you just look at inflation, which is the (ECB’s) key mandate… that is not a done deal,” Christiansen at Danske Bank said. (This story has been refiled to add a missing sentence in paragraph 16 to clarify the quote refers to ECB) More