Evelyn Reynolds

More stories

  • 113 Shares159 Views

    in Economy

    Job Turnover Eased in June as Labor Market Cooled

    The NewsJob turnover decreased in June, the Labor Department reported on Tuesday, suggesting that the American labor market continues to slow down from its meteoric ascent after the pandemic lockdowns.A flier advertising open positions at a job fair in Minneapolis.Tim Gruber for The New York TimesThe NumbersThere were 9.6 million job openings in June, roughly the same as a month earlier, according to the Job Openings and Labor Turnover Survey (JOLTS).Employers have tightened the screws on hiring in recent months, with job openings falling to their lowest level since April 2021 as the economy responds to tightening monetary policy.The most notable changes in June were not in job openings but in hiring and quitting. There were 5.9 million hires in June, down from 6.2 million in May. And the quits rate, a measure of workers’ confidence in the job market and bargaining power, decreased to 2.4 percent, from 2.6 percent in May and down from a record of 3 percent in April 2022. The number of workers laid off was 1.5 million, about the same as in May.Quotable: ‘The labor market is unbalanced.’“We’re still in an economy where the labor market is unbalanced,” said Michael Strain, an economist at the American Enterprise Institute, “with the demand for workers substantially outpacing the supply of workers.” There are roughly 1.6 job openings for each unemployed worker.Why It Matters: The economy moves closer to a ‘soft landing.’Over the past 16 months, as they have sought to curb inflation and make sure the economy does not overheat, Federal Reserve policymakers have pursued the coveted “soft landing.” That means bringing down inflation to the Fed’s target of 2 percent by raising interest rates without causing a significant jump in unemployment, avoiding a recession.The June JOLTS report provides more optimism that the Fed is approaching that soft landing, as demand for workers remains robust while tapering gradually. Inflation remains high by historical standards — at 3 percent, according to the latest data — but has eased substantially.“This is a really strong labor market that is staying strong but slowing down,” said Preston Mui, a senior economist at Employ America, a research and advocacy group focused on the job market.At the end of their meeting last Wednesday, policymakers raised rates a quarter-point, and the Fed’s chair, Jerome H. Powell, said its staff economists were no longer projecting a recession for 2023. But Mr. Powell left the door open to further rate increases and said the economy still had “a long way to go” to 2 percent inflation.Background: It’s been a good time to be a worker.As the U.S. economy rapidly rose out of the Covid-19 recession in 2020, a powerful narrative built: “Nobody wants to work.” There was some truth to that hyperbole. Employers had a hard time finding workers, and workers reaped the rewards, quitting their jobs to find better-paying ones (and succeeding).With quit rates falling in recent months, the so-called great resignation appears to be over, if not receding, and the continued downward trajectory of job openings implies that employers are less eager to fill staffing shortages.Employers are not hiring with the fervor they were a few months ago, but they are not yet casting aside workers, who might not lose the gains they have achieved during the pandemic recovery.What’s Next: The July jobs report lands on Friday.The Labor Department will release the July employment report on Friday. The unemployment rate for June sat at 3.6 percent, a dip from 3.7 percent in May but higher than the 3.4 percent recorded in January and April, the lowest jobless rate since 1969.June was the 30th consecutive month of gains in U.S. payrolls, as the economy added 209,000 jobs, and economists surveyed by Bloomberg expected the economy to have added another 200,000 jobs in July. Fed policymakers will be watching the report closely, but one more month’s data will arrive before they next convene Sept. 19-20. More

  • 125 Shares199 Views

    in Economy

    Solar Supply Chain Grows More Opaque Amid Human Rights Concerns

    The global industry is cutting some ties to China, but its exposure to forced labor remains high and companies are less transparent, a new report found.Global supply chains for solar panels have begun shifting away from a heavy reliance on China, in part because of a recent ban on products from Xinjiang, a region where the U.S. government and United Nations accuse the Chinese government of committing human rights violations.But a new report by experts in human rights and the solar industry found that the vast majority of solar panels made globally continue to have significant exposure to China and Xinjiang.The report, released Tuesday, also faulted the solar industry for becoming less transparent about the origin of its products. That has made it more difficult for buyers to determine whether solar panels purchased to power homes and electricity grids were made without forced labor.The analysis was done by Alan Crawford, a solar industry analyst, and Laura T. Murphy, a professor of human rights and contemporary slavery at Sheffield Hallam University in England, along with researchers who chose to remain anonymous for fear of retribution from the Chinese government. The London-based Modern Slavery and Human Rights Policy and Evidence Center provided funding.The solar industry has come under stiff criticism in recent years for its ties to Xinjiang, which is a key provider of polysilicon, the material from which solar panels are made. The region produces roughly a third of both the world’s polysilicon and its metallurgical-grade silicon, the material from which polysilicon is made.As a result, many firms have promised to scrutinize their supply chains, and several have set up factories in the United States or Southeast Asia to supply Western markets.The Solar Energy Industries Association, the industry’s biggest trade association, has been calling on companies to shift their supply chains and cut ties with Xinjiang. More than 340 companies have signed a pledge to keep their supply chains free of forced labor.But the report found that major global companies remain likely to have extensive exposure to Xinjiang, and potentially to forced labor, calling into question the progress. The report rated the world’s five biggest solar manufacturers — all with headquarters in China — as having “high” or “very high” potential exposure to Xinjiang.Some Chinese companies, like LONGi Solar and JA Solar, have clear ties to suppliers operating in Xinjiang, the report said. But even within “clean” supply chains set up to serve the United States or Europe, many companies still appear to be getting raw materials from suppliers that have exposure to Xinjiang, Ms. Murphy said.In many cases, according to the information they issue publicly, companies aren’t buying enough materials from outside Xinjiang to meet their production goals, indicating that they may be using undisclosed suppliers. In other cases, companies sent Ms. Murphy information about their supply chains that was directly contradictory.“At every stage, there’s missing information,” she said.China’s dominance over the solar industry has presented a challenge for the United States and other countries, which are rushing to deploy solar panels to mitigate the impact of climate change. China controls at least 80 percent of global manufacturing for each stage of the supply chain.The Chinese government denies the presence of forced labor in the work programs it runs in Xinjiang, which transfer groups of locals to mines and factories. But human rights experts say those who refuse such programs can face detention or other punishments. A U.S. law that went into effect in June last year, the Uyghur Force Labor Prevention Act, assumes that any product with materials from Xinjiang is made with forced labor until proved otherwise.Since then, U.S. customs officials have detained $1.64 billion of imported products, including an unspecified volume of solar panels, to check them for compliance. Solar companies say the detentions have caused widespread delays in solar installations in the United States, putting the country’s energy transition at risk.As solar projects continue to ramp up for the energy transition, the concern is that materials and equipment with ties to forced labor could grow.Over the next decade or so, the solar industry projects it will regularly install double the amount it has in past years, with annual growth expected to average 11 percent. In the near term, the manufacturing capacity in the United States is sufficient to meet less than a third of national demand, according to Wood McKenzie, an energy research and consulting firm.In June, Walk Free, an international human rights group, released a report estimating that 50 million people globally lived under forced labor conditions in 2021, an increase of 10 million from 2016.The organization attributed part of that growth to the much-needed but rapid increase in renewable energy to address climate change. The organization said it supported the energy transition but wanted to stop forced labor as a source of products.“Find it, fix it and prevent it,” said Grace Forrest, founding director of Walk Free.One example in the new report is JinkoSolar, a Chinese-owned company that has done some of the most extensive work to establish a supply chain outside China, including factories in Vietnam, Malaysia and the United States. But the report found that the company’s apparent use of unidentified raw materials from China kept its potential exposure to Xinjiang high.In May, Homeland Security Investigations, an arm of the Department of Homeland Security, raided JinkoSolar’s factory in Jacksonville, Fla., and an office in San Francisco. The inquiry appears to be linked to multiple concerns, among them that JinkoSolar misrepresented the source of some imports containing materials from Xinjiang and incorrectly classified products, resulting in an incorrect duty rate, a person with knowledge of the investigation said.The solar industry has begun publishing less information about the origins of its supplies, making it more difficult for buyers to determine whether solar panels are made without forced labor.Tony Cenicola/The New York TimesA spokesperson for Homeland Security Investigations declined to comment, citing a continuing investigation.JinkoSolar said in a statement that, based on the information available to the company, any speculation that the investigation was tied to forced labor was “unfounded,” and that it had a longstanding commitment to transparency and compliance with U.S. law.The company has also called claims that it had high exposure to Xinjiang “baseless.” It said that it was confident in its supply chain traceability, that products for the U.S. market were made only with U.S. and German polysilicon and that U.S. customs officials have reviewed and released JinkoSolar products.The new report also raised questions about the supply chain for Hanwha Qcells, a South Korean company that has become one of the largest producers of solar panels made in the United States. In January, Qcells announced a $2.5 billion expansion of its Georgia operations that would make it the sole company producing all of its components — ingots, wafers, cells and finished panels — in the United States.Despite Qcells’ growing U.S. presence, the report concluded that the company’s potential exposure to Xinjiang was very high, since the company uses undisclosed suppliers in China for the vast majority of its products.The report also said a Chinese company, Meike Solar Technology, which gets raw material from Xinjiang, reported Qcells as one of its largest customers in the first half of 2022, though Qcells said it had cut off the supplier relationship in 2021.“Qcells has adopted a code of conduct that prohibits forced labor made products in our supply chain, and we terminate agreements if suppliers fail to comply,” the company said in a statement. As part of its strategy to guard against products from forced labor, Qcells said, it uses maps to trace product origins and verification audits to ensure its suppliers follow its code of conduct. The company said none of its North America products had been detained by customs officials.In a statement to the researchers, LONGi said that it always complied with the applicable laws and ethics in jurisdictions where it operated, and that polysilicon from Xinjiang was used in modules that were sold in China.JA Solar did not respond to a request for comment from the researchers or from The New York Times. Both LONGi and JA Solar have been planning to set up factories in the United States.Tax credits and other incentives for clean energy offered under the Inflation Reduction Act of 2022 have been unleashing new investments in the United States. On Friday, First Solar, a U.S.-based manufacturer, announced plans to invest up to $1.1 billion for a new U.S. factory at a location yet to be determined.But Michael Carr, executive director of Solar Energy Manufacturers for America, which represents U.S.-based solar manufacturers, said the United States had fallen so far behind China in solar manufacturing that an enormous amount of work, capital and technical knowledge would be needed to catch up.“It’s hard to have certainty — and some might say impossible to know — the sourcing of the polysilicon until you have a domestic supply of wafers and an alternative to China,” Mr. Carr said.Zolan Kanno-Youngs More

  • 125 Shares189 Views

    in Economy

    Heat Is Costing the U.S. Economy Billions in Lost Productivity

    From meatpackers to home health aides, workers are struggling in sweltering temperatures and productivity is taking a hit.As much of the United States swelters under record heat, Amazon drivers and warehouse workers have gone on strike in part to protest working conditions that can exceed 100 degrees Fahrenheit.On triple-digit days in Orlando, utility crews are postponing checks for gas leaks, since digging outdoors dressed in heavy safety gear could endanger their lives. Even in Michigan, on the nation’s northern border, construction crews are working shortened days because of heat.Now that climate change has raised the Earth’s temperatures to the highest levels in recorded history, with projections showing that they will only climb further, new research shows the impact of heat on workers is spreading across the economy and lowering productivity.Extreme heat is regularly affecting workers beyond expected industries like agriculture and construction. Sizzling temperatures are causing problems for those who work in factories, warehouses and restaurants and also for employees of airlines and telecommunications firms, delivery services and energy companies. Even home health aides are running into trouble.“We’ve known for a very long time that human beings are very sensitive to temperature, and that their performance declines dramatically when exposed to heat, but what we haven’t known until very recently is whether and how those lab responses meaningfully extrapolate to the real-world economy,” said R. Jisung Park, an environmental and labor economist at the University of Pennsylvania. “And what we are learning is that hotter temperatures appear to muck up the gears of the economy in many more ways than we would have expected.”A study published in June on the effects of temperature on productivity concludes that while extreme heat harms agriculture, its impact is greater on industrial and other sectors of the economy, in part because they are more labor-intensive. It finds that heat increases absenteeism and reduces work hours, and concludes that as the planet continues to warm, those losses will increase.The cost is high. In 2021, more than 2.5 billion hours of labor in the U.S. agriculture, construction, manufacturing, and service sectors were lost to heat exposure, according to data compiled by The Lancet. Another report found that in 2020, the loss of labor as a result of heat exposure cost the economy about $100 billion, a figure projected to grow to $500 billion annually by 2050.A U.P.S. delivery in Manhattan on Monday.Spencer Platt/Getty ImagesOther research found that as the mercury reaches 90 degrees Fahrenheit, productivity slumps by about 25 percent and when it goes past 100 degrees, productivity drops off by 70 percent.And the effects are unequally distributed: in poor counties, workers lose up to 5 percent of their pay with each hot day, researchers have found. In wealthy counties, the loss is less than 1 percent.Of the many economic costs of climate change —- dying crops, spiking insurance rates, flooded properties — the loss of productivity caused by heat is emerging as one of the biggest, experts say.“We know that the impacts of climate change are costing the economy,” said Kathy Baughman McLeod, director of the Adrienne Arsht-Rockefeller Foundation Resilience Center, and a former global executive for environmental and social risk at Bank of America. “The losses associated with people being hot at work, and the slowdowns and mistakes people make as a result are a huge part.”Still, there are no national regulations to protect workers from extreme heat. In 2021, the Biden administration announced that the Occupational Safety and Health Administration would propose the first rule designed to protect workers from heat exposure. But two years later, the agency still has not released a draft of the proposed regulation.Seven states have some form of labor protections dealing with heat, but there has been a push to roll them back in some places. In June, Governor Greg Abbott of Texas signed a law that eliminated rules set by municipalities that mandated water breaks for construction workers, even though Texas leads all states in terms of lost productivity linked to heat, according to an analysis of federal data conducted by Vivid Economics.Business groups are opposed to a national standard, saying it would be too expensive because it would likely require rest, water and shade breaks and possibly the installation of air-conditioning.Martin Rosas, the vice president for the United Food and Commercial Workers Union International. “When it’s extremely hot, and their safety glasses fog up, their vision is impaired and they are exhausted, they can’t even see what they’re doing,” he said of the workers he represents.Brett Deering for The New York Times“OSHA should take care not to impose further regulatory burdens that make it more difficult for small businesses to grow their businesses and create jobs,” wrote David S. Addington, vice president of the National Federation of Independent Business, in response to OSHA’s plan to write a regulation.Marc Freedman, vice president of employment policy at the United States Chamber of Commerce, said, “I don’t think anyone is dismissing the hazard of overexposure to heat.” But, he said, “Is an OSHA standard the right way to do it? A lot of employers are already taking measures, and the question will be, what more do they have to do?”The National Beef slaughterhouse in Dodge City, Kan., where temperatures are expected to hover above 100 degrees Fahrenheit for the next week, is cooled by fans, not air-conditioning.Workers wear heavy protective aprons and helmets and use water vats and hoses heated to 180 degrees to sanitize their equipment. It’s always been hot work.But this year is different, said one worker, who asked not to be identified for fear of retribution. The heat inside the slaughterhouse is intense, drenching employees in sweat and making it hard to get through a shift, the worker said.National Beef did not respond to emails or telephone calls requesting comment.Martin Rosas, a union representative for meatpacking and food processing workers in Kansas, Missouri and Oklahoma, said sweltering conditions present a risk for food contamination. After workers skin a hide, they need to ensure that debris doesn’t get on the meat or carcass. “But when it’s extremely hot, and their safety glasses fog up, their vision is impaired and they are exhausted, they can’t even see what they’re doing,” Mr. Rosas said.Almost 200 employees out of roughly 2,500, have quit at the Dodge City National Beef plant since May, Mr. Rosas said. That’s about 10 percent higher than usual for that time period, he said.Maria Rodriguez, who has worked at the same McDonald’s in Los Angeles for 20 years, walked out on July 21.Jessica Pons for The New York TimesBut even some workers in air-conditioned settings are getting too hot. McDonald’s workers in Los Angeles walked off the job this summer as the air-conditioned kitchens were overwhelmed by the sweltering heat outside.“There is an air-conditioner in every part of the store, but the thermostat in the kitchen still showed it was over 100 degrees,” said Maria Rodriguez, who has worked at the same McDonald’s on Crenshaw Boulevard in Los Angeles for 20 years, but walked out on July 21, sacrificing a day of pay. “It’s been hot before, but never like this summer. I felt terrible — like I could pass out or faint at any moment.”Nicole Enearu, the owner of the store, said in a statement, “We understand that there’s an uncomfortable heat wave in LA, which is why we’re even more focused on ensuring the safety of our employees inside our restaurants. Our air-conditioning is functioning properly at this location.”Tony Hedgepeth, a home health aide in Richmond, Va., cares for a client whose home thermostat is typically set at about 82 degrees. Last week, the temperature inside was near 94 degrees.Any heat is a challenge in Mr. Hedgepeth’s job. “Bathing, cooking, lifting and moving him, cleaning him,” he said. “It’s all physical. It’s a lot of sweat.”Warehouse workers across the country are also feeling the heat. Sersie Cobb, a forklift driver who stocks boxes of pasta in a warehouse in Columbia, S.C., said the stifling heat can make it difficult to breathe. “Sometimes I get dizzy and start seeing dots,” Mr. Cobb said. “My vision starts to go black. I stop work immediately when that happens. Two times this summer I’ve had heart palpitations from the heat, and left work early to go to the E.R.”In Southern California, a group of 84 striking Amazon delivery workers say that one of their priorities is getting the company to make it safe to work in extreme heat. Last month, unionized UPS workers won a victory when the company agreed to install air-conditioning in delivery trucks.Amazon delivery drivers striking at the company’s Palmdale, Calif., warehouse and delivery center on Tuesday.Robyn Beck/Agence France-Presse — Getty Images“Heat has played a tremendous role — it was one of the major issues in the negotiations,” said Carthy Boston, a member of the International Brotherhood of Teamsters representing UPS drivers in Washington, D.C. “Those trucks are hotboxes.”Many factories were built decades ago for a different climate and are not air-conditioned. A study on the effects of extreme temperatures on the productivity of auto plants in the United States found that a week with six or more days of heat exceeding 90 degrees Fahrenheit cuts production by an average of 8 percent.In Tulsa, Okla., Navistar is installing a $19 million air-conditioning system at its IC Bus factory, which produces many of America’s school buses. Temperatures on the floor can reach 99 degrees F. Currently, the plant is only cooled by overhead fans that swirl high above the assembly line.Shane Anderson, the company’s interim manager, said air-conditioning is expected to cost about $183 per hour, or between $275,000 and $500,000 per year — but the company believes it will boost worker productivity.Other employers are also adapting.Brad Maurer, who leads a construction contracting business in Michigan, where heat has caused his employees to stop working hours before quitting time at some sites.Emily Elconin for The New York TimesBrad Maurer, vice president of Leidal and Hart, which builds stadiums, hospitals and factories in Michigan, Ohio, Indiana, Kentucky and Tennessee, said managers now bring in pallets of bottled water, which they didn’t used to do, at a cost to the company of a few thousand dollars a month.Rising heat around Detroit recently caused his employees to stop working three hours early on a Ford Motors facility for several days in a row — a pattern emerging throughout his company’s work sites.“It means costs go up, production goes down, we may not meet schedules, and guys and women don’t get paychecks,” Mr. Maurer said. Labor experts say that as employers adapt to the new reality of the changing climate, they will have to pay one way or the other.“The truth is that the changes required probably will be very costly, and they will get passed on to employers and consumers,” said David Michaels, who served as assistant secretary of labor at OSHA during the Obama administration and is now a professor at the George Washington School of Public Health.“But if we don’t want these workers to get killed we will have to pay that cost.”David Gelles More

  • 163 Shares159 Views

    in Economy

    Saudi Arabia’s economic growth slows as oil cuts, price drops bite into revenues

    Saudi Arabia’s economy slowed in the second quarter, as crude output cuts and a drop in oil prices reined in one of the fastest growing nations of the G20.
    Riyadh’s GDP expanded by an annual 1.1% in the second quarter, the Saudi General Authority for Statistics said Monday, down from 3.8% in the previous quarter and 11.2% in the same period of 2022. 
    The International Monetary Fund had dubbed Riyadh the fastest growing economy in the Group of 20 in 2022.

    Cityscape of Saudi capital Riyadh.
    Harri Jarvelainen Photography | Moment | Getty Images

    Saudi Arabia’s economy slowed in the second quarter, as crude output cuts and a drop in oil prices reined in one of the fastest growing nations of the G20.
    Riyadh’s GDP expanded by an annual 1.1% in the second quarter, the Saudi General Authority for Statistics said Monday, down from 3.8% in the previous quarter and 11.2% in the same period of 2022. 

    The non-oil sector — where Saudi Arabia is directing its socioeconomic reforms under Crown Prince Mohammed bin Salman’s Vision 2030 economic diversification program — grew by 5.5% in the second quarter.
    But hydrocarbon-reliant Riyadh logged a 4.2% loss in non-oil GDP in the second quarter, bearing the brunt of lower global crude prices and voluntary oil production cuts. Oil prices spiked last year, as Moscow’s full-scale invasion of Ukraine and ensuing international sanctions decoupled many Western consumers from Russian crude supplies. The world’s top oil exporter benefitted doubly at the time, from both the boost in flat prices and from bolstered demand for Saudi Arabia’s own crude, which is qualitatively comparative to Russia’s mainstay supply.
    Commodities offered less support to the Saudi economy in the first half of this year, with oil prices lingering below $80 per barrel amid macroeconomic concerns, a recessionary dip in demand and China’s protracted exit from spartan Covid-19 restrictions. The expiring Brent futures contract with September delivery were trading at $84.89 per barrel at 9:10 a.m. London time, down by 10 cents per barrel from the Friday settlement.
    Saudi Arabia is also shouldering the lion’s share of additional voluntary crude production cuts agreed by some members of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+. Some OPEC+ nations are carrying out 1.66 million barrels per day of declines until the end of 2024, with Saudi Arabia lowering output by a further 1 million barrels per day in July and August. Fellow heavyweight and petropolitics ally Russia is likewise curtailing its crude exports by 500,000 barrels per day next month.
    The International Monetary Fund had dubbed Riyadh the fastest growing G20 economy of 2022, with an overall expansion of 8.7% last year. The fund foreshadowed the Saudi slowdown last week, when it cut GDP growth projections for Riyadh from 8.7% in 2022 to 1.9% in 2023 in its July 25 issue of its World Economic Outlook.

    “The downgrade for Saudi Arabia for 2023 reflects production cuts announced in April and June in line with an agreement through OPEC+,” it said, stressing that “private investment, including from ‘giga-project’ implementation, continues to support strong non-oil GDP growth.”
    The Saudi slowdown is set to ripple into overall performance in the Middle East and Central Asian region, where the IMF now expects growth of just 2.5% this year, from 5.4% in 2022. More

  • 163 Shares199 Views

    in Economy

    Key Fed inflation rate falls to lowest annual rate in nearly 2 years

    An inflation gauge that the Fed follows closely rose 4.1% from a year ago, the lowest annual increase since September 2021.
    So-called core PCE increased 0.2% on the month, as goods prices fell while services costs rose.
    Consumers continued to spend, with expenditures up 0.5% on the month, while income increased a bit slower than expected.
    The employment cost index, another key Fed gauge, rose 1% during the second quarter, slightly less than expected.

    Inflation showed further signs of cooling in June, according to a gauge released Friday that the Federal Reserve follows closely.
    The personal consumption expenditures price index excluding food and energy increased just 0.2% from the previous month, in line with the Dow Jones estimate, the Commerce Department said.

    related investing news

    2 days ago

    So-called core PCE rose 4.1% from a year ago, compared with the estimate for 4.2%. The annual rate was the lowest since September 2021 and marked a decrease from the 4.6% pace in May.
    Headline PCE inflation including food and energy costs also increased 0.2% on the month and rose 3% on an annual basis. The yearly rate was the lowest since March 2021 and moved down from 3.8% in May.
    Goods prices actually decreased 0.1% for the month while services rose 0.3%. Food prices also fell 0.1%, while energy increased 0.6%.
    Markets reacted positively to the report, with stock market futures pointing higher and Treasury yields headed lower.
    “Today’s economic releases reaffirm the current market narrative that inflation is cooling and economic growth is continuing, which is a favorable environment for risk assets,” said George Mateyo, chief investment officer at Key Private Bank. “The Fed and investors will take comfort in these numbers as they suggest that the inflation threat is dissipating and thus the Fed may now be able to go on vacation and assume an extended pause with respect to future interest rate increases.”

    The data reinforces other recent releases showing that, at least compared with the soaring inflation from a year ago, prices have begun to ease. Readings such as the consumer price index are showing a slower rise in inflation, while consumer expectations also are also coming back in line with longer-term trends.
    Fed officials follow the PCE index closely as it adjusts for changing behavior from consumers and provides a different look at price trends than the more widely cited CPI.
    Along with the inflation data, the Commerce Department said personal income rose 0.3% while spending increased 0.5%. Income came in slightly below expectations, while spending was in line.
    The report comes just two days after the Fed announced a quarter percentage point interest rate increase, its 11th hike since March 2022 and the first since skipping the June meeting. That took the central bank’s key borrowing rate to a target range of 5.25%-5.5%, its highest level in more than 22 years.
    Following the hike, Fed Chairman Jerome Powell stressed that future decisions on rate moves would be based on incoming data rather than a preset course on policy. Central bank officials generally believe that inflation is still too high despite the recent positive trends and want to see multiple months of solid data before changing direction.
    A separate indicator that the Fed follows closely showed that compensation costs increased a seasonally adjusted 1% on an annual basis during the second quarter. That reading for the employment cost index was slightly below the 1.1% estimate. More

  • 200 Shares169 Views

    in Economy

    The Bank of Japan just shocked markets with a policy tweak — here’s why it matters

    “We didn’t expect this kind of tweak this time,” Shigeto Nagai, head of Japan economics at Oxford Economics, told CNBC’s Capital Connection.
    The Bank of Japan has been dovish for years, but its latest move has left markets wondering whether a change is on the horizon.
    Speaking at a press conference following the announcement, BoJ Governor Kazuo Ueda played down the change in policy stance — but that didn’t stop markets from reacting.

    Kazuo Ueda, governor of the Bank of Japan (BOJ).
    Bloomberg | Bloomberg | Getty Images

    The Bank of Japan announced Friday “greater flexibility” in its monetary policy — surprising global financial markets.
    The central bank loosened its yield curve control — or YCC — in an unexpected move with wide-ranging ramifications. It sent the yen whipsawing against the dollar, while Japanese stocks and government bond prices slid.

    Elsewhere, the Stoxx 600 in Europe opened lower and government bond yields in the region jumped. On Thursday, ahead of the Bank of Japan statement, reports that the central bank was going to discuss its yield curve control policy also contributed to a lower close on the S&P 500 and the Nasdaq, according to some strategists.
    “We didn’t expect this kind of tweak this time,” Shigeto Nagai, head of Japan economics at Oxford Economics, told CNBC’s “Capital Connection.”

    Why it matters

    The Bank of Japan has been dovish for years, but its move to introduce flexibility into its until-now strict yield curve control has left economists wondering whether a more substantial change is on the horizon.
    The yield curve control is a long-term policy that sees the central bank target an interest rate, and then buy and sell bonds as necessary to achieve that target. It currently targets a 0% yield on the 10-year government bond with the aim of stimulating the Japanese economy, which has struggled for many years with disinflation.
    In its policy statement, the BOJ said it will continue to allow 10-year Japanese government bond yields to fluctuate within the range of 0.5 percentage point either side of its 0% target — but it will offer to purchase 10-year JGBs at 1% through fixed-rate operations. This effectively expands its tolerance by a further 50 basis points.

    “While maintaining the tolerance band for the 10-year JGB yield target at +/-0.50ppt, the BoJ will allow more fluctuation in yields beyond the band,” economists from Capital Economics said.
    “Their aim is to enhance the sustainability of the current easing framework in a forward-looking manner. Highlighting ‘extremely high uncertainties’ in the inflation outlook, the BoJ argues that strictly capping yields will hamper bond market functioning and increase market volatility when upside risks materialize.”

    Next step tightening?

    From a market perspective, investors — many of whom were not expecting this move — were left wondering whether this is a mere technical adjustment, or the start of a more significant tightening cycle. Central banks tighten monetary policy when inflation is high, as demonstrated by the U.S. Federal Reserve’s and European Central Bank’s rate hikes over the past year.
    “Fighting inflation was not the official reason for the policy tweak, as that would surely imply stronger tightening moves, but the Bank recognised obstinately elevated inflationary pressure by revising up its forecast,” Duncan Wrigley, chief China+ economist at Pantheon Macroeconomics, said in a note.
    The BOJ said core consumer inflation, excluding fresh food, will reach 2.5% in the fiscal year to March, up from a previous estimate of 1.8%. It added that there are upside risks to the forecast, meaning inflation could increase more than expected.
    Speaking at a news conference after the announcement, BOJ Governor Kazuo Ueda played down the move to loosen its yield curve control. When asked if the central bank had shifted from dovish to neutral, he said: “That’s not the case. By making YCC more flexible, we enhanced the sustainability of our policy. So, this was a step to heighten the chance of sustainably achieving our price target,” according to a Reuters translation.
    MUFG said that Friday’s “flexibility” tweak shows the central bank is not yet ready to end this policy measure.
    “Governor Ueda described today’s move as enhancing the sustainability of monetary easing rather than tightening. It sends a signal that the BoJ is not yet ready to tighten monetary policy through raising interest rates,” the bank’s analysts said in a note.
    Capital Economics’ economists highlighted the importance of inflation figures looking ahead. “The longer inflation stays above target, the larger the chances that the Bank of Japan will have to follow up today’s tweak to Yield Curve Control with a genuine tightening of monetary policy,” they wrote.
    But the timing here is crucial, according to Michael Metcalfe of State Street Global Markets.
    “If inflation has indeed returned to Japan, which we believe it has, the BoJ will find itself needing to raise rates just as hopes for interest rate cuts rise elsewhere. This should be a medium-term positive for the JPY [Japanese yen], which remains deeply undervalued,” Metcalfe said in a note.

    The end of YCC?

    The effectiveness of the BOJ’s yield curve control has been questioned, with some experts arguing that it distorts the natural functioning of the markets.
    “Yield curve control is a dangerous policy which needs to be retired as soon as possible,” Kit Juckes, strategist at Societe Generale, said Friday in a note to clients.
    “And by anchoring JGB (Japanese government bond) yields at a time when other major central banks have been raising rates, it has been a major factor in the yen reaching its lowest level, in real terms, since the 1970s. So, the BoJ wants to very carefully dismantle YCC, and the yen will rally as slowly as they do so.”
    Pantheon Macroeconomics’ Wrigley agreed that the central bank is looking to move away from YCC, describing Friday’s move as “opportunistic.”
    “Markets have been relatively calm and the Bank seized the opportunity to catch most investors by surprise, given the consensus for no policy change at today’s meeting,” he wrote.
    “The markets are likely to test the BoJ’s resolve, as it probably will seek to engineer a gradual shift away from its [yield curve control] policy over the next year or so, while leaving the short-term rate target unchanged, as it still believes that Japan needs supportive monetary policy.”  
    — CNBC’s Clement Tan contributed to this report. More

  • 100 Shares189 Views

    in Economy

    Soft Landing Optimism Is Everywhere. That’s Happened Before.

    People are often sure that the economy is going to settle down gently right before it plunges into recession, a reason for caution and humility.In late 1989, an economic commentary newsletter from the Federal Reserve Bank of Cleveland asked the question that was on everyone’s mind after a series of Federal Reserve rate increases: “How Soft a Landing?” Analysts were pretty sure growth was going to cool gently and without a painful downturn — the question was how gently.In late 2000, a column in The New York Times was titled “Making a Soft Landing Even Softer.” And in late 2007, forecasters at the Federal Reserve Bank of Dallas concluded that the United States should manage to make it through the subprime mortgage crisis without a downturn.Within weeks or months of all three declarations, the economy had plunged into recession. Unemployment shot up. Businesses closed. Growth contracted.It is a point of historical caution that is relevant today, when soft-landing optimism is, again, surging.Inflation has begun to cool meaningfully, but unemployment remains historically low at 3.6 percent and hiring has been robust. Consumers continue to spend at a solid pace and are helping to boost overall growth, based on strong gross domestic product data released on Thursday.Given all that momentum, Fed staff economists in Washington, who had been predicting a mild recession late this year, no longer expect one, said Jerome H. Powell, the central bank’s chair, during a news conference on Wednesday. Mr. Powell said that while he was not yet ready to use the term “optimism,” he saw a possible pathway to a relatively painless slowdown.But it can be difficult to tell in real time whether the economy is smoothly decelerating or whether it is creeping toward the edge of a cliff — one reason that officials like Mr. Powell are being careful not to declare victory. On Wednesday, policymakers lifted rates to a range of 5.25 to 5.5 percent, the highest level in 22 years and up sharply from near zero as recently as early 2022. Those rate moves are trickling through the economy, making it more expensive to buy cars and houses on borrowed money and making it pricier for businesses to take out loans.Such lags and uncertainties mean that while data today are unquestionably looking sunnier, risks still cloud the outlook.“The prevailing consensus right before things went downhill in 2007, 2000 and 1990 was for a soft landing,” said Gennadiy Goldberg, a rates strategist at TD Securities. “Markets have trouble seeing exactly where the cracks are.”The term “soft landing” first made its way into the economic lexicon in the early 1970s, when America was fresh from a successful moon landing in 1969. Setting a spaceship gently on the lunar surface had been difficult, and yet it had touched down.By the late 1980s, the term was in widespread use as an expression of hope for the economy. Fed policymakers had raised rates to towering heights to crush double-digit inflation in the early 1980s, costing millions of workers their jobs. America was hoping that a policy tightening from 1988 to 1989 would not have the same effect.The recession that stretched from mid-1990 to early 1991 was much shorter and less painful than the one that had plagued the nation less than a decade earlier — but it was still a downturn. Unemployment began to creep up in July 1990 and peaked at 7.8 percent.The 2000s recession was also relatively mild, but the 2008 downturn was not: It plunged America into the deepest and most painful downturn since the Great Depression. In that instance, higher interest rates had helped to prick a housing bubble — the deflation of which set off a chain reaction of financial explosions that blew through global financial markets. Unemployment jumped to 10 percent and did not fall back to its pre-crisis low for roughly a decade.Higher Rates Often Precede RecessionsUnemployment often jumps after big moves in the Fed’s policy interest rate

    Note: Data is as of June 2023.Sources: Bureau of Labor Statistics; Business Cycle Dating Committee; Federal ReserveBy The New York TimesThe episodes all illustrate a central point. It is hard to predict what might happen with the economy when rates have risen substantially.Interest rates are like a slow-release medicine given to a patient who may or may not have an allergy. They take time to have their full effect, and they can have some really nasty and unpredictable side effects if they end up prompting a wave of bankruptcies or defaults that sets off a financial crisis.In fact, that is why the Fed is keeping its options open when it comes to future policy. Mr. Powell was clear on Wednesday that central bankers did not want to commit to how much, when or even whether they would raise rates again. They want to watch the data and see if they need to do more to cool the economy and ensure that inflation is coming under control, or whether they can afford to hold off on further interest rate increases.“We don’t know what the next shoe to drop is,” said Subadra Rajappa, head of U.S. rates strategy at the French bank Société Générale, explaining that she thought Mr. Powell took a cautious tone while talking about the future of the economy on Wednesday in light of looming risks — credit has been getting harder to come by, and that could still hit the brakes on the economy.“It looks like we’re headed toward a soft landing, but we don’t know the unknowns,” Ms. Rajappa said.That is not to say there isn’t good reason for hope, of course. Growth does look resilient, and there is some historical precedent for comfortable cool-downs.In 1994 and 1995, the Fed managed to slow the economy gently without plunging it into a downturn in what is perhaps its most famous successful soft landing. Ironically, commentators quoted then in The Times weren’t convinced that policymakers were going to pull it off.And the historical record may not be particularly instructive in 2023, said Michael Feroli, the chief U.S. economist at J.P. Morgan. This has not been a typical business cycle, in which the economy grew headily, fell into recession and then clawed its way back.Instead, growth was abruptly halted by coronavirus shutdowns and then rocketed back with the help of widespread government stimulus, leading to shortages, bottlenecks and unusually strong demand in unexpected parts of the economy. All of the weirdness contributed to inflation, and the slow return to normal is now helping it fade.That could make the Fed’s task — slowing inflation without causing a contraction — different this time.“There’s so much that has been unusual about this inflation episode,” Mr. Feroli said. “Just as we don’t want to overlearn the lessons of this episode, I don’t think we should over-apply the lessons of the past.” More

  • 213 Shares129 Views

    in Economy

    Turkey’s central bank says inflation is set to hit 58% — more than double its previous estimate

    Turkey’s central bank expects inflation to hit 58% by the end of 2023, its new governor Hafize Gaye Erkan said in her debut news conference Thursday.
    Erkan said exchange rate developments, changes to economic policy, stronger-than-expected domestic demand, and a new forecasting approach had all contributed to the higher forecast.
    Appointed to the central bank on June 9, analysts suggested Erkan’s arrival — along with a new Turkish finance minister — could signal a pivot in monetary policy

    Turkish Central Bank Governor Hafize Gaye Erkan answers questions during a news conference for the Inflation Report 2023-III in Ankara, Turkey on July 27, 2023.
    Anadolu Agency | Anadolu Agency | Getty Images

    Turkey’s central bank expects inflation to hit 58% by the end of 2023, its new governor Hafize Gaye Erkan said in her debut news conference Thursday, as she committed to “restore anchoring of expectations as well as predictability.”
    The new forecast is more than double the 22.3% outlined in the central bank’s last inflation report three months ago.

    related investing news

    2 days ago

    Erkan said exchange rate developments, changes to economic policy, stronger-than-expected domestic demand, and a new forecasting approach had all contributed to the higher forecast.
    Appointed to the central bank on June 9, analysts suggested Erkan’s arrival — along with a new Turkish finance minister — could signal a pivot in monetary policy following years of low borrowing costs and soaring inflation.
    This expectation was met later in the month, when the central bank almost doubled its key interest rate from 8.5% to 15%, its first hike since March 2021. This was followed by a 250 basis point hike in July, although this was lower than expectated.
    While rising prices have plagued many economies around the world, inflation has hit eye-watering levels in Turkey of up to 85%. Inflation in June came in at 38.2% on an annual basis, and 3.9% month-on-month.
    In her press conference Thursday, Erkan said food inflation is expected to top 60% at the end of the year.

    Loading chart…

    The central bank also revised its forecast for the end of 2024 to 33%, and its forecast for the end of the following year to 15%.
    “Through decisions on quantitative tightening, we will ensure a stable development in the Turkish lira liquidity without generating excessiveness in exchange rates and domestic demand,” Erkan said.
    “We will dynamically optimize the monetary tightening process by continuously measuring the effects of our decisions on inflation, markets, monetary and financial conditions.”
    The Turkish lira has marked numerous new record lows over the past 18 months, as traders digested lower rates in the country despite most other major central banks embarking on monetary tightening programs. More