Aurelia Butler

WASHINGTON (Reuters) – Americans are worried about the prospect of the U.S. government defaulting if Congress fails to raise the debt ceiling, but are divided over the action to be taken, according to a Reuters/Ipsos poll completed on Monday.The polls show neither Democratic President Joe Biden nor congressional Republicans hold a clear advantage in public opinion as they head into discussions on Tuesday to resolve a months-long standoff over the nation’s $31.4 trillion debt limit.The Treasury says it could run out of money to pay the country’s bills as soon as June 1 unless Congress increases the borrowing cap. Economists say the resulting default would roil global financial markets and plunge the U.S. into recession. The poll found that 76% of Americans said the two sides must reach a deal because a default would put added financial stress on families like theirs. That included 84% of self-described Democrats and 77% of self-described Republicans.Only 29% said they thought the issue was being overblown.The survey found that Americans are split over the best way to resolve a showdown.Some 49% said Congress needs to quickly raise the debt ceiling without conditions to avert default, echoing Biden’s position. Some 68% of Democrats and 39% of Republicans took that view.But 51% of Americans said the debt ceiling should not be raised without substantial spending cuts – the position held by Republicans who hold a majority in the House of Representatives. That view was held by 69% of Republicans and 42% of Democrats, the poll found.The online poll of 4,415 U.S. adults was conducted between May 9 and May 15. It has a credibility interval, a measure of accuracy, of plus or minus 2 percentage points. More

UK wage growth showed little sign of easing in the three months to March, according to official figures that will reinforce policymakers’ concerns over the pressures fuelling inflation.The Office for National Statistics said average private sector earnings, excluding bonuses, were 7 per cent higher than a year earlier, unchanged from an upwardly revised reading for the three months to February, while growth in public sector earnings reached a 20-year high of 5.6 per cent.Growth in total pay was slightly lower, because of a less generous bonus season than in 2022, but earnings across the economy were still 5.8 per cent higher than a year ago.This leaves earnings trailing far behind living costs, but still growing faster than the Bank of England thinks consistent with its 2 per cent inflation target. Thomas Pugh, economist at the audit firm RSM UK, said the figures left the door “open wide to another rate hike in June” as the labour market was not easing fast enough for the monetary policy committee’s comfort.However, Philip Shaw, economist at Investec, said signs of the jobs market cooling were becoming clearer and, referring to the BoE’s rate-setting committee, could “ease some of the MPC’s angst over persistent inflation”.Tuesday’s figures suggested that high inflation and rising interest rates were starting to weigh on hiring. The unemployment rate increased by 0.1 percentage points to 3.9 per cent as people who had previously chosen not to look for work returned to job-seeking.The rate of economic inactivity fell 0.4 percentage points from the previous three-month period, to 21 per cent, largely because of students starting to work. The ONS said this reflected the biggest flow from inactivity into employment on record, although the UK workforce remains smaller than it was before the pandemic, partly because of record levels of long-term sickness.Hannah Slaughter, economist at the Resolution Foundation, said the figures would allay fears “that the pandemic had permanently shrunk the workforce”. James Smith, economist at ING, noted that there had also been a “healthy increase” in the number of non-UK nationals in employment, including a 5 per cent increase in EU nationals over the last quarter — pointing to “an improvement in worker supply”.A gradual slowdown in hiring could also be starting to take the edge off labour shortages that have been fuelling wage growth since the UK economy reopened in the aftermath of Covid-related lockdowns.The ONS said the number of payrolled employees fell by 136,000 in April, to 29.8mn, although it underlined that these figures — based on HM Revenue & Customs administrative data — were provisional and likely to be revised. The number of vacancies reported by employers has been falling for much of the last year but stabilised in April and remains well above pre-pandemic levels.

“It’s too early to say whether the labour market is weakening, but our assessment is that there is still very strong demand and that it’s more likely a lack of supply than a lack of demand that is holding back growth,” said Tony Wilson, director of the Institute for Employment Studies.Jane Gratton, head of people policy at the British Chambers of Commerce, said the figures showed that skills shortages and unfilled vacancies were still the “stark reality for many businesses across all sectors”.Guy Opperman, employment minister, said the figures represented “progress” adding that he was “focused on matching jobseekers with roles and businesses with a skilled and resilient workforce”. More

Ford plans to scale back future investments in China, as the US carmaker’s chief executive warned there was “no guarantee” western carmakers could win against local electric vehicle rivals. The company will “put less capital at risk” by focusing on commercial vehicles such as delivery vans, and will instead use the market as a “listening post” to help it better understand battery technology, Jim Farley told the Financial Times. “If you just reinvest in a new cycle of EVs in China, there is no guarantee, or no data, that would suggest the western companies win,” Farley said.Ford’s decision echoes warnings from Nissan last week that the rapid pace of production of Chinese carmakers was piling pressure on international manufacturers as they struggle to compete for market share.Competition is also heating up between China’s domestic manufacturers, which have been aggressively cutting prices since late last year as demand softened and the government cut back on subsidies. Some project their number will shrink from about 200 to between five and 10 in the coming years. More than a quarter of all cars sold in China last year were electric vehicles, but experts have said only EV makers with economies of scale and enough financial firepower will remain standing in the years ahead. Here’s what else I’m keeping tabs on today:Debt ceiling: President Joe Biden plans to meet Congressional leaders today in a further effort to advance a possible agreement on the government’s borrowing limit and avoid an unprecedented national default.Bank failures: The House Financial Services Committee holds its semi-annual hearing on supervision and regulation and today’s session will probably have a strong focus on the recent failures of several regional US banks. Retail sales: Economy watchers will be looking for clues on the mood of the consumer in this morning’s data. Retail sales are expected to have risen 0.8 per cent in April following a 0.6 per cent drop in March.Fedspeak: The Atlanta Fed’s Financial Markets Conference continues, with Dallas Fed president Lorie Logan taking part in a policy session on ‘Mitigating risks and preserving financial stability in an appropriately restrictive policy environment’. Tonight’s keynote address will include discussion from the presidents of the Atlanta and Chicago Feds. Home Depot: Investors will keep a close eye on the hardware retailer’s results for any clues on the health of the property market and the US consumer more broadly. Home Depot’s revenues are expected to dip fractionally from a year ago to almost $38.3bn.Five more top stories

Pedestrians pass a gold display window at a jewellery store during Golden Week in Macau, China last month © Bloomberg

1. China’s industrial output and consumer spending have fallen short of expectations, fuelling doubts over the strength of the country’s rebound after it dismantled its zero-Covid policy. Youth unemployment hit a record while a key measure of investment also lagged estimates, casting a shadow over the outlook for the world’s second-largest economy.2. Janet Yellen warned the stand-off over the debt ceiling had resulted in a jump in government borrowing costs, as the Treasury secretary doubled down on predictions the US risks running out of cash as early as June 1.3. The EU should crack down on India reselling Russian oil as refined fuels, including diesel, into Europe, the bloc’s high representative for foreign policy said. Josep Borrell told the FT that Brussels was aware that Indian refiners were buying large volumes of Russian crude oil before processing it into fuels for sale in Europe.4. Norway’s $1.4tn oil fund will step up its use of shareholder proposals to send messages on environmental, social and governance topics to US companies. The world’s largest sovereign wealth fund filed shareholder proposals on climate for the first time this year at four US companies and said it considered the trial a success.5. Record levels of share buybacks are attracting complaints from prominent investors concerned that the practice is boosting executive bonuses but providing only limited benefits to shareholders. The world’s 1,200 biggest public companies collectively bought back a record $1.3tn of their own shares last year, triple the level of a decade ago.News in-depthSupporters of the digital euro say it will give people an electronic alternative to cash that is free of risk © FT montage/Getty/BloombergAs Europe’s central bank pushes ahead with the development of an electronic currency, conspiracy theories are swirling, with some fearing the state will use it to track and control citizens’ spending. While many politicians hope a digital euro can be launched in as little as three years’ time, they are struggling to communicate convincing arguments for the project, with opponents arguing it is a solution seeking a problem.We’re also reading . . . AI and mobile devices: The race is on to bring the technology behind ChatGPT to the smartphone in your pocket. The latest moves in AI could transform mobile communications and computing far faster than seemed likely just months ago.Turkish election: Author Dimitar Bechev says a tougher line on opponents and more economic challenges may follow if president Recep Tayyip Erdoğan wins the May 28 run-off race.Fiscal rules: How do countries break free from the “doom loop” of stalling economic growth and expanding safety nets? Andy Haldane suggests rethinking the fiscal rules shaping government investment decisions. Don’t miss this episode of the FT Talent podcast to hear chief economist Martin Wolf discuss how he built his career.Chart of the dayThis year the platinum market is expected to chalk up its largest deficit since records began in the 1970s as supply falters in South Africa and China’s industrial expansion powers ahead. The deficit marks a stark reversal from bumper oversupply in the previous two years when car production was hit by semiconductor shortages.Take a break from the newsFreddie Mercury’s crown and cloak in the dressing room at Garden Lodge © Photographed for the FT by Max MiechowskiThis fascinating FT essay delves into the art-filled London home of former Queen frontman Freddie Mercury as its contents come up for auction. Additional contributions by Emily Goldberg More

Greece’s transformation from economic basket case to European growth tiger has been quite something to behold for anyone whose nightmares still feature Yanis Varoufakis playing the piano. Earlier this week MainFT wrote about Greece’s turnaround, which has taken it from the world’s biggest debt default in 2012 to the cusp of an investment grade credit rating. Even The Economist is now calling it a European success story. Not to be outdone by the media, Barclays analysts today published a big report on Greece arguing that it is on the verge of a “third economic megacycle”, irrespective of who wins next week’s general election:Greece is not a typical economy that goes through 7-8 year cycles, at least not in a way that is impactful for observers outside Greece and investors. Instead, its post-WW2 economic history has been marked by two megacycles, deeply linked to structural forces and political choices. Here’s Barclays’ telling of the broad brushes of Greek economic history since WWII, and its reasoning behind predicting another golden era:The first megacycle . ..The first megacycle took place between the 1950s and the mid-1970s. In 1950, Greece was coming out of its bloodiest decade in history. What with World War 2, an interwar famine and a protracted deadly post-war civil conflict, Greece lost one of the largest shares of its population during the 1940s globally.In the aftermath, the Greek economy was devastated. In the months before the civil war had even started, former US Emissary to Greece Paul Porter wrote: “Today an almost forgotten American mission has got to perform a miracle . . . The miracle is to save Greece from economic disintegration . . . The whole country, from top to bottom is in the grip of a grey, unrelieved, profound lack of faith in the future . . .”. Even after the end of the civil war, Figure 1 shows that life expectancy in Greece was low — a result of economic strain and poor healthcare and sanitation conditions.The arrival of foreign aid — mainly as a result of the Marshall Plan — coupled with protectionist industrial and foreign exchange policies, as well as foreign economic supervision, produced an economic miracle: Greece, albeit from a low base, posted years of growth rates seen mainly in rapid growth emerging economies of the time such as South Korea. It is estimated that Greece received a sum of $700mn, the sixth largest beneficiary of the ‘European Recovery Program’.Greek living conditions had started to resemble those in modern western societies as early as the mid-1970s.. . . then a protracted slump preceding the second megacycleThis first megacycle was followed by a protracted slump in activity, which lasted until the early 90s. Despite improved living conditions, politics were exceptionally unstable and democratic institutions frail. After the collapse of the Greek military dictatorship in the aftermath of the Cyprus crisis, Greek politicians decided to accelerate Greece’s EU entry, despite clear economic fragilities. The thinking was deeply political, as the EU was seen as a long-term anchor for democratic institutions (which indeed it became).The lifting of industrial policies and protectionism (coupled with global oil and inflation shocks) led to a process widely known as ‘premature de-industrialisation’. The tradeable sector had grown mostly to attend the needs of the rapidly growing domestic economy and by no means was ready to compete in international markets. The combination of shocks led the traded sector into crisis — parts of it shrinking and other parts nationalised as part of a broader rescue plan.Equally, however, this period laid the ground for Greece’s second megacycle. The arrival of structural funds from the EU, depreciation of the drachma, deep infrastructure investment and convergence policies soon led to the resumption of growth. Starting intermittently from the mid-80s but accelerating in earnest after the signing of the Maastricht Treaty in 1992, the Greek economy had grown more than five-fold as a share of the German economy by 2008.At the end of this second megacycle, Greece had built substantial imbalances. Reliant on increasing amounts of government borrowing and external funding, operating at an uncompetitive cost level and consuming an unreasonable share of potential income, the economy was setting itself up for the 2010-2019 collapse, which is a relatively fresh market memory.Again, as a share of the German economy, the Greek economy almost halved over a decade, including in nominal terms.A potential third megacycleToday, we think Greece has the opportunity for a third megacycle given three key dynamics:1. Global services are becoming more tradeable, giving Greece a good chance to build an internationally competitive sector for the first time in its post-war history. Specifically, global trade in services are increasingly tradeable and are outperforming goods in terms of global trade growth (particularly if we exclude the one-off COVID-19 boom in goods trading).2. This trend accelerated during the years of the Greek crisis and Greece is now catching up to it. Services constitute a good 75-80% of GDP for Greece. Greece is hence much more likely to be competitive in its areas of comparative advantage (tourism, real estate, transportation, IT, clean energy, healthcare) than to build a new auto manufacturing industry.3. The issues facing Europe as a whole (energy security, energy transition, protectionism from China and the US) are reducing the focus on intra-European budget frictions and introducing a new focus on cross-EU policies set to address the challenges ahead.4. Greece is starting from a low level of activity (a large output gap), with much fewer imbalances than in the past, benefiting from structural reforms and infrastructure investment and in receipt of NGEU funds, which in their current form will be levered to reach up to €60bn — which is extremely large in the context of the size of the Greek economy (c.€200bn).Can Greece capitalize on these dynamics, given its many institutional and cost disadvantages? . . . FDI in both manufacturing and services [have spiked] in the last two years. There is clearly a sense that Greece is directly investable to a greater extent than in its recent past, and certain big deals in the technology and payments sector are pointing that way. In consequence, there seems to be more than just COVID-related growth base effects in Greece’s rapid post-pandemic recovery. Sustaining this momentum will be key to entering yet another multi-year high-growth megacycle.The incumbent government should also be credited for this surge in investment — market confidence is a sign of investor-friendly policies. It is thus no accident that many rating agencies are waiting for the election result and its implications for political stability and reform momentum before a critical potential upgrade to investment grade.As we discuss below, the election is not risk free, but we believe the risks are not too likely nor unmanageable. Overall, we still see Greek convergence to other highly rated peripheral bond markets (eg, Portugal) as a key investment thesis for 2023.At this point a lot of people often point out (not unreasonably) that a bounce for Greece’s economy after getting annihilated for the better part of a decade is nothing to celebrate. Incomes remain far below where they were in 2010, and life expectancy has fallen.

But tbqh 2010 is arguably a fake starting point. Not to relitigate old debates, but is there is no plausible, real-world scenario where the consequences of Greece’s economic, political and financial decisions leading up to that point (and many afterwards) wouldn’t have been painful anyway. For now, let’s just be happy that Greece appears to be on the mend?Further listening:— FTAV meets Varoufakis (Alphachat, 2019) More

Good morning. We are going to learn some things about the American consumer in the next three days. Home Depot reports first-quarter earnings this morning, followed by Target tomorrow and then Walmart on Thursday. With that in mind, some further thoughts below on who is buying what and why. Anecdotally, I can report that my Brooklyn florist was doing standing-room-only business on Mother’s Day. Send your own observations to: [email protected] and [email protected]. The US consumer reduxWe have been waiting around for the inflation-besieged consumer to start spending less and the consumer has so far refused to act besieged. But maybe things are starting to change.Bank of America customers spent $872bn on their credit and debit cards in the past 12 months, which gives the bank a pretty good window into what consumers are up to. Late last week, it released its report on card activity for April. The top line was that total spending per household was down 1.2 per cent in April, compared with a year ago, the first decline since February of 2021. Is this the first sign that the final, stubborn economic shoe is dropping?As is the pattern in recent months, looking past the headline number revealed a mixed picture rather than an outright ugly one. Seasonally adjusted, spending was actually up a bit compared with March. Here are the month-to-month trends by category:

The weakness in airlines is interesting and makes me wonder if the great post-pandemic services spending splurge is ending. But BofA’s Aditya Bhave and his team sum it up well:[I]t is important to distinguish between a relatively benign slowdown and a period of stress. So far, the BAC card data point to the former, not the latter. We are monitoring the spending patterns of lower-income households, who would likely be most impacted by an economic shock. [But] lower-income households continue to outperform higher-income households in terms of y/y spending growth.This theme was echoed in our conversation with Rahul Sharma of Neev Capital. He follows retail earnings closely, and sees very few signs of consumer pushback against higher prices. In grocery,the gains in private label are pretty low relative to what they should be, given what we’re seeing [in the economy more broadly]. And on the margin, supermarkets are losing share, but again not much given how much they usually lose [to big discounters] in downturns. When even Kraft Heinz is oozing confidence, it’s a pretty good signal [that consumers are not pushing back] . . . Pretty shocking to me is what I’m seeing on airfares/lodging. Virtually no resistance. Likewise on eating out. Both areas folks are prioritising, with very strong volume . . . Sharma is watching margins on discretionary goods (electronics and so forth) particularly closely, as there is excess inventory in the supply chain and, if consumers do push back, they will get discounts. But it’s not happening yet.Scot Ciccarelli, who covers retail for Truist, sees some signs of consumer pushback from the most important of sources: Walmart. He writes that last month, Walmart management told him that . . . [Supplier price] inflation seems to be broadly running higher than initially expected for 1Q (especially in dry goods grocery), BUT the company has seen a reduction in price increase requests from suppliers in just the last 6-8 weeks. The view is that many branded suppliers are increasingly seeing unit degradation after multiple years of price increases and growing consumer pressures and are becoming more sensitive to volume trends.Walmart also said that the shift in its sales mix from discretionary goods to groceries had continued in the first quarter. Walmart might be the leading edge of a consumer slowdown. We’ll find out more when they report on Thursday.Uber vs Airbnb revisited Last week I compared the structurally similar business models of Uber and Airbnb, and considered why Airbnb is profitable while Uber is not. One crucial difference, I argued, might be that insurance costs are much heavier at Uber — people crash cars but not houses. I have since talked this through with Uber, and it seems to be true. The company confirmed that insurance costs are, in most markets, the largest component of cost of revenues (and cost of revenue is currently running at almost 70 per cent of revenues, versus less than 20 per cent at Airbnb).So insurance is a bigger deal for Uber than for Airbnb. But the deeper question is not about the costs themselves, but the supply and demand dynamics that determine the returns, after costs, that these two companies can earn. Unhedged readers, as it turns out, have a lot to say about this. One reader from London laid out the contrast like this: Uber: local markets in which competitors can easily replicate a taxi and a (localised) app. The telephone can still be used to order a local taxi . . . Uber carries a very complicated IT and communications superstructure which simply adds cost in markets where prices . . . are ultimately locally determined. Airbnb: much simpler IT and communication (no need to track the location of a room). The market is not local — so there are some advantages from a widespread network, with less likelihood of the advantages being offset by rocketing IT and communications costs.The point about higher tech costs at Uber is borne out by its higher capital expenditures, but again the primary issue is on competitive position — why does Uber struggle to earn back those higher tech costs?The point about Uber and Airbnb’s different relationships with local competition is right on point. Most of the time I use Uber, I use it in the city where I live and where I know the local options, and what they cost. I almost always use Airbnb in faraway places, where I know nothing of whatever cheap local options may be. It’s Airbnb or Expedia, basically. An American reader, Micah, writes:Price elasticity for rides was always high (one reason why the taxi industry itself was so fragmented); implication: raising prices across the board will cost Uber lots of demand, and they must be careful to raise prices only in geographies or ride occasions where that elasticity is low. These geos/occasions are a small part of the overall demand structure that Uber serves.This brings up another relative advantage of Airbnb: a car ride is for the most part a commodity whose main feature in the eyes of customers is price. Houses and apartments have lots of variable features. This is why Uber sets prices and Airbnb does not. Airbnb customers might pay up for something special, or go for the cheapest option. The company takes its fee (about 13 per cent, incidentally, less than half of what Uber clips from each ride) either way.Darren, from South Africa, wondered if . . . Another material difference . . . could come from the cost of acquiring and servicing the merchants (ie drivers/vehicles and properties). I imagine that the lifetime economic value of a driver/vehicle in the Uber network is much less than a property (and probably more inconsistent for Uber than Airbnb — cars need to be functioning, drivers decide driving activity levels etc).This is another crucial point. One reason that Uber made large losses immediately following the pandemic is that a lot of drivers had left to do other things, and Uber had to offer incentives to get them to come back. Now they are doing less of that and the losses are getting smaller quite quickly. That, plus general discipline around costs, helps explain the Wall Street consensus expectation that the free cash flow after subtracting stock compensation at Uber will be $2.3bn in 2024, up from a $900mn cash loss last year.Consensus may be right that Uber is on the cusp of breaking though to profitability. But it is not a profitable company now, and Airbnb is. This makes it all the more interesting that of these two notably similar companies, Uber is valued much more highly — its enterprise value is $85bn to Airbnb’s $59bn, a gap that has opened up only in the past month or two. Tech investors still prefer profit growth to proven profitability, even as the economic cycle turns down and rates peak.One bad readGreg Becker, former chief executive of Silicon Valley Bank, testifies before the Senate Banking Committee today. Here is his prepared testimony. In it, he tries to spread the blame for the bank’s collapse on the Federal Reserve, for saying that rates would stay low and then raising them, and on social media, for “fuelling” a run on the bank. He takes a shot at the Financial Times, as well. But the ultimate cause of the failure of SVB, beyond any doubt, was that under Becker’s leadership the bank foolishly matched uninsured deposits to long-term, low-yielding assets in a way no other bank would dare attempt. This fact has been pointed out in dozens of articles, reports, charts, tables and infographics. Here is my favourite recent one, from The Economist:

Becker points out that he was not a member of SVB’s asset liability management committee. But in banking the fish rots from the head. More