Aurelia Butler

Successive interest rate rises by the Bank of England are starting to take effect, cooling the labour market and easing inflationary pressures, the central bank’s chief economist said on Friday.Speaking a day after the BoE raised interest rates to a fresh 15-year high of 5.25 per cent, Huw Pill said headline inflation had started to fall, thanks to lower food and energy prices, and that tighter monetary policy was starting to curb the risks of more persistent inflation becoming embedded in the economy. “That effort, that monetary tightening . . . is working,” said Pill in an online briefing on the BoE’s latest forecasts. Higher unemployment and lower vacancies would eventually lead to lower wage growth, he said, even though the Monetary Policy Committee still thinks pay is rising too fast to be compatible with inflation returning to its 2 per cent target.“We have become . . . more data dependent. We’re emphasising that there’s no pre-determined path for interest rates, but rather we are responding as the economy and the data evolve,” Pill added.Thursday’s 0.25 percentage point increase, which was backed by Pill and five other MPC members, marked the 14th consecutive rise in interest rates since December 2021.Before the nine-member panel meets on September 21 to vote on a further rise, there will be two more monthly data releases on inflation, and the state of the labour market, which will be key to its decision.Yet Pill’s comments are likely to reinforce investors’ views that interest rates could be nearing their peak even in the UK, where inflation at 7.9 per cent is still much higher than in the US and eurozone.He told the briefing that because interest rates were now weighing on the economy, “if the MPC maintains rates in restrictive territory . . . it will continue to weigh on inflation”.Elizabeth Martins, senior economist at HSBC, said the global “winds of monetary policy” were “blowing in a decidedly less hawkish direction, and despite dealing with some of the highest core inflation and wage growth in the developed world, it seems that the BoE is no exception”. Martins added that she expected the MPC to raise interest rates only once more, in September, but to keep them high throughout 2024.

The tightening in monetary policy that has already taken place will feed through to UK households more slowly than in the past, because more homeowners have fixed-rate mortgages and will face higher costs only when they come to refinance. However, the BoE thinks that other ways in which higher interest rates affect the economy — including by strengthening the exchange rate and hitting housing investment — are already visible and taking effect without any unusual time lag.Asked whether the central bank was worried it might have put the economy at risk unnecessarily by tightening policy too far, Pill said the MPC was trying to balance the risks.He added that the UK’s struggles with weak productivity, long-term sickness in the workforce and the overhaul of its trading arrangements were among reasons why its economy “cannot grow very fast without risking creating those inflationary pressures”. More

A.P. Moller-Maersk lowered its estimate for global container trade this year as companies reduce inventories and higher interest rates and recession risks in Europe and the United States drag on global economic growth.The company, one of the world’s biggest container shippers, said it expects container volumes to fall by as much as 4%. It had previously forecast a decline of no more than 2.5%.Maersk controls about one-sixth of global container trade, transporting goods for retailers and consumer companies such as Walmart (NYSE:WMT), Nike (NYSE:NKE) and Unilever (NYSE:UL).WPP, the world’s largest advertising group, warned that U.S. tech clients had pulled back spending in the second quarter, which Chief Executive Mark Read said took the company by surprise.”Spend will pick up after a period of time, but I think we are nervous for the rest of the year because we can’t get total clarity on when that’s going to happen,” he told Reuters.The retreat in spending led WPP to follow rival Interpublic – which last month also blamed tech clients cutting marketing budgets – in lowering its growth forecast for this year, to 1.5-3.0% from 3-5%.That was a stark contrast from February, when WPP, which owns the Ogilvy, Grey and GroupM agencies, reckoned clients would spend on marketing through any downturn to prop up sales and justify price rises.Analysts said the news reflected caution among companies wrestling with higher borrowing costs and consumers tightening their own budgets amid a cost of living crisis. Marketing spending is often the first to get cut when companies are worried about a strain on cash.WAIT AND SEE”Corporations are in wait-and-see mode when it comes to splashing the cash and handing margin over, at a time when demand is very tough to profile,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.Apple (NASDAQ:AAPL) on Thursday warned that its sales would decline for the fourth quarter in a row, although Amazon.com Inc (NASDAQ:AMZN) was more upbeat, reporting sales growth and profit that beat Wall Street’s expectations.The signs of economic turbulence will underscore concerns that a bounce in China’s economic activity after Beijing lifted its long COVID lockdowns will prove short-lived. Companies had bet that a Chinese rebound would help offset the impact from slowdowns in the U.S. and European economies.The scope of stimulus Beijing has offered to revive the economy so far has underwhelmed the market. Global firms from consumer goods giant Unilever to automaker Nissan (OTC:NSANY) and machinery maker Caterpillar (NYSE:CAT) have warned of slowing earnings there as the world’s second-largest economy loses its post-pandemic spring. Expectations for second-quarter earnings are already low due in part to China’s weakness. Refinitiv I/B/E/S data show U.S. and European companies are expected to report their worst quarterly results in years.The International Monetary Fund last week said that it expects global economic growth to slow this year, led by advanced economies even as food prices have come down and the March banking turmoil has been contained. It expects the global growth to slow to 3% this year and next, from 3.5% last year.Echoing Maersk, DHL Group, among the world’s biggest shippers, said on Tuesday it saw drops of 16% and 7.1% respectively in air and ocean freight volumes in the first half, particularly on routes between China and its two biggest trading partners, the United States and Europe. More

(Reuters) – When storms hammered California’s farms last winter, Kevin Kelly knew his small factory outside San Francisco would soon see demand wilt for the plastic bags it churns out for pre-cut salads and other produce.In the past, he would have swiftly chopped 10% of the workers that run his bag-making machines, or about 15 people.But after struggling to fill jobs during the boom triggered by the COVID-19 pandemic, he didn’t this time. “I knew it would be hard to find people when business came back, let alone train them,” said Kelly, the CEO of Emerald Packaging (NYSE:PKG). So he held on to his employees and found ways to curb their hours, including cutting overtime. Employers across the U.S. are making a similar calculation. Faced with the tightest job market in decades, many have become less trigger-happy with layoffs, even in the face of a cooling economy. Indeed, a monthly report from outplacement firm Challenger, Gray & Christmas on Thursday showed that announced layoffs hit their lowest level in nearly a year last month as companies were “weary of letting go of needed workers.”It’s unclear whether this strategy – dubbed labor hoarding by economists – would endure if the economy slipped into a deep recession, as some have predicted it would after the Federal Reserve embarked last year on an aggressive campaign to raise interest rates to curb high inflation.But, so far, the economy has continued to grow, albeit more slowly, and the job market has powered onward. The U.S. jobless rate edged down to 3.5% last month, the Labor Department reported on Friday, up only slightly from more than a half-century low of 3.4% earlier in the year.’HOLD ONTO YOUR LABOR FORCE’At least one major company has adopted a formal strategy of hoarding workers.Speaking to investors last December, Alan H. Shaw, the CEO of Norfolk Southern (NYSE:NSC), said part of a larger strategy aimed at making the railroad company more competitive with trucking would be to avoid the cycle in which workers are furloughed during downturns and then rehired when the economy improves. Shaw said difficulties bringing back workers hurt the Atlanta-based firm’s ability to serve customers during the pandemic boom.The strategy is being put to the test now, as rail volumes have fallen back to earth after that boom ended. “But we’re continuing to hire,” Shaw told Reuters this week, “because we have confidence in the U.S. economy and the U.S. consumer.”While many companies aren’t hiring at the heated pace they were a year ago, they’re also not yet rushing to thin the ranks.U.S. job openings fell to the lowest level in more than two years in June, according to the monthly Job Openings and Labor Turnover Survey, or JOLTS report, released by the Labor Department this week, but they remained at levels consistent with a tight labor market. Layoffs and involuntary separations hit a six-month low.”There’s a lot of hoarding going on – and still lots of hiring in industries that are experiencing strong demand,” said Dana Peterson, the chief economist at the Conference Board in New York.The group’s latest survey of CEO confidence, done in conjunction with the Business Council and released on Thursday, found that while business leaders continue to prepare for a downturn, the fight for workers remains fierce. Forty percent of the CEOs said they plan to increase hiring in the next 12 months, while another 40% intend to maintain the size of their workforces.The survey showed most CEOs expect the next downturn to be short and shallow. “If that’s the case,” said Peterson, “it makes sense to hold onto your labor force.”LAYOFF REGRETSArnold Kamler, the CEO of Kent International, learned that the hard way. Demand for the bicycles that the company imports and manufactures at a small factory in South Carolina was insatiable during the pandemic. But as lockdowns eased, bike sales evaporated, and inventories piled up in the company’s warehouses and even in corners of its factory.He laid off 60% of the workers at the company’s South Carolina plant at the end of last year, but now regrets it.”I thought that when we went to rehire in March, we would have no problem ramping up,” he said. But only about a third of the workers returned and the company is now scrambling to find and train new employees. The factory currently has 85 workers, but Kamler would like 110.Julia Pollak, chief economist at ZipRecruiter in Los Angeles, said employers tell her they are retaining workers they wouldn’t normally keep because of concerns they will have problems ramping up. But she sees a limit to this. “I don’t think it’s the case that many businesses are holding onto workers who are idle,” she said.Thomas Simons, senior U.S. economist at Jefferies, has argued for months that at some stage the need for businesses to recapture margin will outweigh the argument for retaining under-used staff as a hedge against the difficulty of later rehiring. But that “view is becomingly increasingly difficult to defend,” he said last week after data showed weekly new claims for unemployment benefits hit their lowest level since February. Data released on Thursday showed weekly jobless claims rose slightly in the latest week.Meanwhile, at Emerald Packaging, business has recovered from the slowdown caused by the winter storms.”We’re actually making more money now than when demand was skyrocketing,” Kelly said, because surging prices for raw materials such as plastic resins cut into profits during the boom. And for now, the company is continuing to hire. “We’re still 15 to 18 (people) short,” he said. More

WASHINGTON (Reuters) – The U.S. economy maintained a moderate pace of job growth in July, but solid wage gains and a decline in the unemployment rate pointed to continued tightness in labor market conditions. Nonfarm payrolls increased by 187,000 jobs last month, the Labor Department said in its closely watched employment report on Friday. Data for June was revised lower to show 185,000 jobs added instead of the previously reported 209,000.Economists polled by Reuters had forecast a gain of 200,000 jobs. The economy needs to create roughly 100,000 jobs per month to keep up with growth in the working-age population. Companies are hoarding workers after struggling to find labor during the COVID-19 pandemic. Employment in some areas like leisure and hospitality remains below pre-pandemic levels.Despite the moderation in job growth, the labor market remains tight. The unemployment rate fell to 3.5% from 3.6% in June, dropping back to levels last seen more than 50 years ago. That is well below the Fed’s latest median estimate of 4.1% by the fourth quarter of this year. The government reported this week that there were 1.6 job openings for every unemployed person in June, little changed from May. Wages continued to rise at a solid clip. Average hourly earnings gained 0.4% after climbing by the same margin in June. That kept the year-on-year increase in wages at 4.4%.The annual wage growth remains too high to be consistent with the Fed’s 2% inflation target. Data last month showed the increase in annual inflation slowed sharply in June. Economists who have long been forecasting a downturn by the fourth quarter of this year are increasingly becoming convinced that the “soft-landing” scenario for the economy envisaged by the Fed is now possible. The raft of inflation-friendly data has led many economists to believe that the Fed’s fastest rate hiking cycle in more than 40 years was probably over. The U.S. central bank has raised its policy rate by 525 basis points since March 2022. More

Argentina is grappling with a severe economic crisis with sky-high inflation and falling central bank reserves and is facing IMF repayments. The country’s Economy Minister Sergio Massa said on Monday Argentina would not use “a single dollar of its own reserves” to make the IMF repayment.The Qatar loan will have the IMF’s variable interest rate applicable to SDRs (IMF currency), which is currently 4.033% per annum, a presidential decree said.The funds will “fund the payment of Argentina’s maturity with the IMF (for charges and surcharges) on August 4, 2023,” it said.Massa also confirmed on Monday the repayment will be made with a $1 billion bridge loan from regional development bank CAF and $1.7 billion from the second tranche of a swap with China, a move recently made to complete part of a June payment to the IMF. More