Aurelia Butler

LONDON (Reuters) -Rapidly rising prices and falling real incomes are encouraging households to postpone purchases of durable goods such as home appliances and cars, a signal that often accompanies a slowdown in the business cycle.Expensive durables such as cars, furniture, refrigerators, stoves, televisions and computers are the most cyclically sensitive part of consumer spending and usually herald the onset of a downturn.In his presidential address to the American Economic Association in 2017, exploring the role of narratives in propagating the business cycle, economist Robert Shiller characterised a recession as “a time when many people have decided to spend less, to make do for now with that old furniture instead of buying new, or to postpone starting a new business, (or) to postpone hiring new help in an existing business.”In the United States, there are already signs that consumer spending will decelerate in response to higher inflation, declining real incomes, and supply disruptions stemming from the pandemic and Russia’s invasion of Ukraine.Every month, the University of Michigan’s Survey Research Centre conducts a telephone poll of at least 500 households selected to be broadly representative of the Lower 48 states.Roughly 50 questions are asked covering households’ own financial prospects as well as their views on the state of the economy in the near term and over the longer term (https://tmsnrt.rs/3vN0r5N).In the latest survey, conducted in March, 57% of respondents said it was a “bad time” to purchase a major durable item, compared with only 37% who said it was a “good time”.For six months, the percentage saying it is a bad time to buy has been at the highest since 1980, and the balance between good time and bad time responses has also been at the most negative for four decades.Some 42% of respondents said it was a bad time because of high prices, while 7% cited uncertainty about the future, 4% said they couldn’t afford it, and only 1% cited interest rates.In a separate set of questions, the latest survey found 72% of respondents thought it would be a bad time to buy an automobile in the next 12 months, compared with only 24% who thought it would be a good time.Both the percentage of respondents saying it was a bad time to buy and the negative balance were the worst in records going back to 1978 (“Survey of consumers”, University of Michigan, 2022).Some 57% blamed high prices, compared with 5% who cited interest rates, 5% who cited future uncertainty and 4% who said they couldn’t afford to buy.In recent decades, spikes in the bad-time-to-buy measures have corresponded with end-of-cycle recessions or at least mid-cycle slowdowns (“Consumer expectations: micro foundations and macro impact”, Curtin, 2019).INEVITABLE ADJUSTMENTRapidly escalating prices are a major explanation for increasingly negative sentiment among U.S. households about their own finances and the economy.The University of Michigan’s composite index of consumer sentiment has tumbled to its lowest level for more than a decade and is in only the 2nd percentile for all months since 1980.So far, consumers have been more likely to cite prices rather than affordability, interest rates or future uncertainty as the reason why it is a bad time to buy durables and vehicles.But as real incomes diminish and interest rates continue to rise, all these other barriers to durables purchasing are likely to become more important.To some extent, rising prices and reduced spending is an inevitable response to the supply chain problems and capacity constraints that have emerged in manufacturing and freight transportation in the wake of the pandemic.High prices will encourage the rotation of consumer spending from durables to services such as travel, tourism and entertainment, which are only now starting to re-open after lockdowns and quarantines.Some households will postpone major purchases to pay for higher spending on food, fuel and services, as incomes fail to keep pace with inflation.The expected slowdown in durables spending could ease some of the pressure on commodity prices, manufacturing capacity and the freight system, but it could also have recessionary effects if the deceleration is severe.The difference between a recessionary hard landing and an inflation-moderating soft landing is hard for forecasters to predict and policymakers to navigate with precision.In the United States, there is a strong probability of a mid-cycle slowdown or end-of-cycle recession starting in the next few months.In Europe, the region’s proximity to the Russia/Ukraine conflict and higher energy prices mean the probability of a significant slowdown or recession is higher.China’s government has already admitted the increasing frequency of coronavirus outbreaks and strict lockdowns has hit consumer spending, in a long statement on “unleashing consumption potential” published on April 25.The National Development and Reform Commission, the top-level economic planning agency, has promised to stabilise consumption, including in-person services, and encourage more purchasing of durables.In lower-income countries across Asia, Africa and Latin America, rising food and fuel costs are likely to squeeze expenditure on durables even more sharply.With consumers under pressure in all major economies, the likelihood of a recession or at least a significant slowdown in one or more regions is very high and has started to weigh on industrial commodity and energy prices.Related columns:- Economic war pushes business cycle to tipping point (Reuters, March 23)- Global recession risks rise after Russia invades Ukraine (Reuters, March 4)- Fed searches for elusive soft landing (Reuters, Feb. 2)- Global economy faces biggest headwind from inflation (Reuters, Oct. 14)John Kemp is a Reuters market analyst. The views expressed are his own More

Chinese regulators led by vice-premier Liu He are concerned that the government is underestimating the economic impact of its crackdown on the property sector and Covid-19 lockdowns in Shanghai and other cities, according to officials and policy advisers.But other senior officials have opposed efforts by Liu, President Xi Jinping’s longtime financial and economic adviser, to ease the pressure on the real estate sector, six Beijing-based government officials and policy advisers told the Financial Times.The policy disagreements within the Chinese government highlight the difficult choices it faces as it tries to shore up growth in the world’s second-largest economy while also pursuing a tough zero-Covid strategy and taming heavily indebted property developers.China’s gross domestic product was up 4.8 per cent year on year in the first quarter, but a 3.5 per cent fall in retail sales in March suggested anti-Covid controls were slowing an economy already suffering from real estate market woes. On Tuesday, state media reported that Xi called for accelerated investment in a wide range of critical infrastructure sectors but did not specify an amount or timeframe for the effort.Liu, who heads a powerful committee that co-ordinates policy between the central bank and China’s banking, securities and other regulators, has supported recent moves by many regional governments to ease restrictions on property purchases.But according to the officials and policy advisers, two other vice-premiers — Han Zheng and Hu Chunhua — have sided with the housing ministry in wanting to maintain the pressure on developers by tightly regulating how they can use project revenues.

Chinese vice premier Liu is concerned that the government is underestimating the economic impact of its crackdown on the property sector © Saul Loeb/AFP/Getty Images

Liu’s Financial Stability and Development Committee wants to give debt-laden developers more freedom to deploy revenues from buyers who pre-pay for their homes. Over the past year, local governments have ringfenced sales revenues so they are only used to complete the relevant project.“It is already common for lenders, be they banks or bond investors, to give repayment extensions to developers,” said a government adviser who shared Liu’s concerns. “Continued weakening of the industry may cause bad debts to spike and the entire financial sector to go under.”An executive at Sunac, a large developer based in the port city of Tianjin, said real estate firms should be allowed to use sale proceeds from new projects to pay off debts owed on older projects to help avoid defaults.“If we have collected Rmb1bn ($153mn) in revenue that would be spent over three years on one project, why can’t we earmark Rmb100mn of that for use elsewhere and [repay it] later on,” said the executive, who asked not to be named.Han and Hu’s supporters argued that fears about the impact on China’s largely state-owned banking sector were overblown. “Not every bank will go under,” one of the people said. “We can always have healthy banks bail out troubled ones.”While Liu has long been regarded as China’s most powerful economic and financial official, Han is the highest-ranking of the three vice premiers. Han sits on the Chinese Communist party’s most powerful body, the politburo standing committee, and is considered a leading candidate to replace Li Keqiang as premier next year.Liu has also urged local governments in areas affected by Covid lockdowns to protect supply chains and help companies resume operations.

The port city of Tianjin. A property executive said companies should be allowed to use sale proceeds from new projects to pay off debts owed by older projects © Zhang Peng/LightRocket/Getty Images

But confronted with China’s worst economic conditions and outlook since at least the beginning of the pandemic, financial policymakers have responded over recent weeks with only modest easing measures.Their reticence stems in part from fears that stronger stimulus measures would have only limited effectiveness, especially in regions brought to a standstill by Covid containment lockdowns.Liu and Yi Gang, governor of the People’s Bank of China and a highly respected technocrat who was appointed central bank chief at Liu’s insistence, are also wary of broad-based rate cuts. They fear these could undermine progress over the past five years at stabilising China’s overall debt-to-GDP ratio. Liu and Yi also share growing concerns that with US interest rates now higher than China’s for the first time in years, rate cuts could weaken the renminbi and spark destabilising capital flight.“Current economic policy may not be [aggressive] enough,” said an influential Beijing academic, who asked not to be named because he didn’t have university approval to speak with the media. “But since the US began raising rates, the renminbi has begun to depreciate. If we [cut rates] renminbi depreciation could get out of control.” Almost every expression of policy support from the PBoC and central government’s state council over recent weeks has been qualified by caveats that they would not resort to “flood-like stimulus” and remained determined to “keep macro debt levels generally stable”.On Tuesday, such central bank comments halted a sharp sell-off sparked by fears that harsh lockdown measures in Shanghai might be extended to Beijing.

The comments by the PBoC reiterated pledges to use “prudent” monetary policy to support small and medium-sized enterprises, which have borne the brunt of the lockdowns, while also promising to boost banks’ lending capacity.But similar assurances by Liu in mid-March, as the benchmark CSI 300 index was poised to fall to a two-year low, had only a temporary effect. The rally quickly faded when the PBoC announced only a 25 basis-point cut in banks’ reserve requirement ratios, potentially releasing just about Rmb500bn in new lending into China’s Rmb114tn-a-year economy. “Liu and Yi are afraid of reinflating bubbles,” said one person who has worked closely with Yi. “They want to provide liquidity to those who need it, but think they can do that [through bank reserve requirement cuts and targeted lending guidelines] rather than using broad measures.”“Opening up the flood gates is great for other parts of the country that are not affected by lockdowns but for those that are, it’s not going to make much difference.”Additional reporting by Emma Zhou in Beijing

Video: Evergrande: the end of China’s property boom More

SEOUL (Reuters) -South Koreans expect inflation to average around 3.1% over the next 12 months, led by rising global energy prices, the highest they have anticipated in nine years, according to a Bank of Korea survey of consumers released on Wednesday.The same survey found consumers braced for higher borrowing costs ahead, cementing market views that the central bank would further raise interest rates over coming months, having already hiked four times since August.”The survey index partly reflects a lagging effect from recent price rises but this finding will surely influence policy makers at the central bank,” said Moon Hong-cheol, economist at DB Financial Investment.The central bank’s survey in March found median inflation expectation for the coming year at 2.9%. The April 2022 reading was the highest since April 2013, when inflation expectations hit 3.1%.The International Monetary Fund (IMF) last week raised its forecast for South Korea’s 2022 annual inflation to 4.0% from 3.1% previously.The consumer sentiment index from the survey of 2,500 households, conducted between April 12 and 19, rose to a 3-month high of 103.8 from 103.2 in March. The index stood above the 100-point threshold for a 14th consecutive month. More

The RBNZ had requested for feedback on the merits and design features of DSRs on residential mortgage lending from banks, the industry and the public in November, as it deals with a red-hot housing market.The central bank said first-home buyers are likely to be least impacted by a debt-to-income (DTI) restriction, a type of DSR which imposes a cap on how much debt a borrower owes as a multiple of income. It added that test interest rates of banks have begun to rise in-line with market rates, and a slowdown in high-DTI lending is expected in the next few months.The RBNZ also said it does not see an urgent need to impose an interim test rate floor, used by banks to test the ability of borrowers to continue repaying their loans if interest rates rise to a certain level, at this stage. It, however, added it was monitoring the situation closely and does not rule out the option if there was a resurgence of risky lending in the housing market. More

(Reuters) -Federal Reserve Governor Lael Brainard won confirmation in the U.S. Senate on Tuesday to be the U.S. central bank’s next vice chair, a week ahead of a key Fed meeting where policymakers are expected to ramp up their battle against inflation with a big interest-rate hike and the start of a balance sheet reduction.The vote was 52-43 as several Republicans joined Democrats to meet the 51-vote minimum for confirmation, the first of U.S. President Joe Biden’s four Fed nominees to clear that hurdle. But Republicans blocked progress for a second Fed nominee, Michigan State University’s Lisa Cook, who would be the first Black woman to serve on the Fed’s Board since the central bank’s founding in 1913. Two Democrats and Senate tie-breaker Vice President Kamala Harris reported testing positive for COVID-19 on Tuesday.That left Biden’s party without the requisite numbers on Tuesday to overcome unified Republican opposition to Cook in the evenly divided Senate. OTHER FED NOMINEESBiden’s two other Fed nominees do have bipartisan support: Fed Chair Jerome Powell, renominated to his current position, and Davidson College dean of faculty Philip Jefferson, nominated to a vacant seat on the Board. But on Tuesday lawmakers failed to agree on a date to hold those confirmation votes. Banking Committee Chair Sherrod Brown said they would circle back to a vote on Cook once the quarantining Democrats return. After Tuesday’s 47-51 vote on Cook, Senate Leader Chuck Schumer entered a motion to reconsider Cook’s nomination that will make a future confirmation attempt possible. For now, the partisan deadlock will not impact Fed action. Powell remains in charge of Fed monetary policy and the central bank, and with Brainard as his deputy, is expected to lead the U.S. central bank in lifting interest rates to at least 2.5% by the end of this year, up from a range of 0.25% to 0.5% now. But even after the newcomers join, the Fed is unlikely to change course. At their confirmation hearings earlier this year, both Jefferson and Cook noted the economic harms of too-high inflation.Since then, inflation has soared further and the Fed has taken a more aggressive posture. Biden plans to fill the last of the Fed Board’s seven seats by nominating former Treasury official Michael Barr to be the Fed’s vice chair of supervision.Barr’s paperwork is expected to be submitted this week and the White House hopes to have him confirmed by the end of May, a source familiar said earlier this week.Sarah Bloom Raskin, Biden’s initial choice for that job, withdrew her name from consideration last month after Republicans on the Senate banking committee blocked a vote on her appointment and a key Senate Democrat signaled he would not support her. More

WASHINGTON (Reuters) -U.S. and British trade officials will meet again in Boston in June to continue their dialogue on strengthening trade ties, the two countries said in a joint statement on Tuesday, after two days of talks in Aberdeen, Scotland.U.S. Trade Representative Katherine Tai and British Trade Secretary Anne-Marie Trevelyan agreed to work in coming weeks on an “ambitious roadmap” on digitizing U.S.-UK trade, supporting small- and medium-sized businesses, building resilience in critical supply chains, and addressing the global trade impacts of Russia’s invasion of Ukraine, the statement said.The roadmap will also look at promoting environmental protection and the transition to net zero, supporting high labor and environmental standards, and promoting innovation, it said.Tai and Trevelyan met with stakeholders from the U.S. and UK business communities, trade unions and civil society, during the talks in Aberdeen. Those came after similar talks in Baltimore last month.They pledged to stand with Ukraine in the face of Russian President Vladimir Putin’s “unprovoked, premeditated attack” and said they were ready to increase the economic pressure on Russia, the statement said.Russia describes its action as a “special military operation.””Ministers agreed that their officials would remain closely coordinated, and they will encourage other international partners, including the (Group of Seven advanced economies) and other (World Trade Organization) members, to take action in support of Ukraine’s economic recovery,” the statement said.The date of the June meeting in Boston was not disclosed.Given the lack of progress on a broad U.S.-UK trade agreement, Britain is working with about 20 U.S. states to secure individual trade deals as soon as next month, trade policy minister Penny Mordaunt told parliament last week.Britain and the United States entered into formal negotiations about a bilateral trade deal under the former Trump administration, but the government of President Joe Biden shelved those talks to focus more on specific challenges such as labor rights, supply chains and the low-carbon transition. More

CAPE CANAVERAL, Fla. (Reuters) – Elon Musk’s rocket company SpaceX was due to launch the next long-duration astronaut crew to the International Space Station (ISS) for NASA early on Wednesday, including a medical doctor turned spacewalker and a geologist specializing in Martian landslides.The SpaceX launch vehicle, consisting of a two-stage Falcon 9 rocket topped with a Crew Dragon capsule dubbed Freedom, was set for liftoff with its four-member crew at 3:52 a.m. EDT (0752 GMT) from NASA’s Kennedy Space Center in Cape Canaveral, Florida.If all goes according to plan, the three U.S. astronauts and their European Space Agency (ESA) crewmate from Italy will reach the space station about 17 hours later to begin a six-month science mission orbiting some 250 miles (420 km) above Earth.During a pre-launch briefing on Tuesday, NASA officials said forecasts called for a 90% chance of favorable weather conditions for an on-time lift-off.”Flying safely with crew means that you’ve got to do it one step at a time,” Kathryn Lueders, associate NASA administrator for space operations, told reporters. “We’re hoping that you’ll get to see a really, really beautiful step, and we’ll get our crew safely to orbit.”The latest mission, designated Crew 4, would mark the fourth full-fledged ISS crew NASA has sent to orbit aboard a SpaceX vehicle since the private rocket venture founded by Musk, also owner of electric carmaker Tesla (NASDAQ:TSLA) Inc, began flying U.S. space agency astronauts in 2020. In all, SpaceX has launched six previous human spaceflights over the past two years.Assigned as Crew 4 commander is Dr. Kjell Lindgren, 49, a board-certified emergency medicine physician and one-time flight surgeon making his second trip to the ISS, where he logged 141 days in orbit in 2015. During that expedition, he performed two spacewalks and participated in more than 100 science projects, including the “Veggie” lettuce experiment that marked the first time a U.S. crew member ate a crop grown in orbit.The designated pilot for mission is rookie astronaut Bob Hines, 47, a U.S Air Force fighter pilot, test pilot and aviation instructor who has accumulated more than 3,500 hours of flight time in 50 types of aircraft and has flown 76 combat missions.Another crew member making her debut spaceflight as mission specialist is Jessica Watkins, 33, a geologist who earned her doctorate studying the processes behind large landslides on Mars and Earth and went on to join the science team for the Mars rover Curiosity at NASA’s Jet Propulsion Laboratory (NYSE:LH).The Crew 4 flight will make Watkins the first African American woman to join a long-duration mission aboard the International Space Station. She follows in the footsteps of only seven other Black astronauts to have boarded ISS since its inception more than two decades ago.Rounding out Crew 4 is Samantha Cristoforetti, 45, an ESA astronaut and Italian Air Force jet pilot making her second flight to the space station and slated to assume command of ISS operations during the team’s six-month stint, becoming Europe’s first woman placed in that role.Cristoforetti and Watkins previously served together as aquanauts in the Aquarius underwater habitat of the NASA Extreme Environment Mission Operations (NEEMO) mission in 2019. The Crew 4 team will be welcomed aboard by seven existing ISS occupants, the four Crew 3 members they will be replacing – three American astronauts and a German ESA crewmate due to end their mission in early May – and three Russian cosmonauts.The launch comes less than two days after a separate four-man team organized by Houston-based company Axiom Space returned from a two-week mission as the ISS’s first all-private astronaut crew, splashing down on Monday in a different SpaceX capsule.It also follows a flurry of recent astro-tourism flights. Last July, two commercial space operators, Blue Origin and Virgin Galactic Holding Inc, launched back-to-back suborbital flights with their respective billionaire founders, Jeff Bezos and Richard Branson, riding along. More