Economy

After drooping in 2022, the output of U.S. businesses per worker has surged. Economists wonder if the trend can continue, and who will benefit most.Kevin Rezvani came of age in kitchens: spending summers at his grandfather’s bakery in Japan, doing work-study in his college cafeteria and working for years as a line cook at mid-tier restaurants, along with some stints in fast food.By his late 20s, the biggest takeaway Mr. Rezvani had from his experience “working in every kind of thing in food” was the industry’s widespread inability to reconcile the art of a kitchen, and the science of a restaurant, with the math of a business.Too many ventures, he says, are not profitable enough to justify all the work hours needed from managers and employees to stay afloat, much less grow. In other words, they fall short on productivity.“There’s a very fine line between doing OK, and doing well in this business,” said Mr. Rezvani, now 36. “And if you’re doing OK, it’s not worth your time.”He and two partners opened a casual sit-down restaurant near Rutgers University a few years after his graduation. But in early 2020, they split from him over personal and business disagreements, and he was on his own.To pay bills, he worked for a moving company and made deliveries for Amazon, which was booming during the lockdowns, as people idled at home spent their disposable income on buying goods.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

Interest rates have been at a record high since September and policymakers have been pushing back on rate cut talk, insisting that even if the next move is policy easing, it is further into the future than investors think. Investors are now expecting 113 basis points of cuts this year, down from 150 basis points earlier, with the first move now seen either in April or June. “While we are heading in the right direction, we must not get ahead of ourselves,” de Guindos told a conference in Split, Croatia. “It will take some more time before we have the necessary information to confirm that inflation is sustainably returning to our 2% target.”De Guindos argued that wage pressures remain high and the ECB did not yet have sufficient data to suggest that they are easing, a potential upside risk for prices. Profit margins could also prove more resilient than anticipated while tensions in the Middle East risked pushing up energy costs and disrupting global trade. Still, de Guindos argued that disinflation was continuing, possibly helped by slugging growth, which was unlikely to improve in the near term. The ECB’s past rate hikes are also still working their way through the economy and they will continue to dampen demand for some time. But projections have been prone to errors and uncertainty remained large, so the ECB needed to look at forecasts alongside incoming data over the coming months, de Guindos added. More

TOKYO (Reuters) – In a world first, Japan auctioned sovereign climate transition bonds on Wednesday although the bonds met with slightly weaker-than-expected demand.Climate transition bonds are a relatively new class of bonds which aim to fund shifts by companies, or in this case a government, to having a lesser impact on the environment. They are distinct from green bonds where the proceeds are earmarked for a specific project or are focused on the profile of the issuer.The sale of 800 billion yen ($5.3 billion) in 10-year transition bonds was the first in Prime Minister Fumio Kishida’s plan to sell 20 trillion yen of climate bonds over the next decade to help the nation with its goal of cutting greenhouse gases to zero by 2050. The proceeds are expected to go towards projects such as low-cost wind power generators and airplanes that use alternative fuels.The bonds were priced to yield 0.74% on Wednesday, with pricing somewhat lower than expected. Yields on the bonds were 0.655% a day earlier in the so-called “when-issued” market, which is a market for securities yet to be issued. Yields on bonds move inversely to prices. “I would say expectations prior to the auction were too high. Still the yield on climate bonds was little lower than the yield for 10-year JGBs, which means the bonds enjoyed a premium,” said Keisuke Tsuruta, a fixed income strategist at Mitsubishi UFJ (NYSE:MUFG) Morgan Stanley Securities.Regular 10-year Japanese government bonds were yielding 0.755% on Wednesday. Japan’s finance ministry plans to sell 800 billion yen of five-year transition bonds on Feb. 27, which will be followed by 1.4 trillion yen of transition bonds in the fiscal year starting in April.($1 = 150.52 yen) More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.This article is an on-site version of our Unhedged newsletter. Sign up here to get the newsletter sent straight to your inbox every weekdayGood morning. A day after we questioned whether Arm was properly an AI stock, the shares fell 20 per cent. Apologies! More generally, markets were shaken by yesterday’s consumer price index data. Unhedged, on the other hand, is taking it in stride, as you will see below. Email us: [email protected] and [email protected]. Reserving judgment on inflationMarkets took yesterday’s hotter-than-expected CPI inflation report hard. The two-year Treasury yield rose 17 basis points. That sent the S&P 500 down 1 per cent, and the small-cap Russell 2000 down 4 per cent. Futures markets now price in fewer than four 25bp interest rate cuts in 2024, down from five a week ago.This looks like an overreaction to us, but look at it from the bond market’s point of view. The Federal Reserve can wait for more data before making a call; traders can’t. Yesterday’s CPI numbers showed core inflation jutting higher, rising 0.4 per cent on strong increases in services prices. “Supercore” inflation (core services ex-shelter) was up a blistering 0.9 per cent. This fits with a recent uptrend in the three-month moving average of core CPI, putting it close to 4 per cent annualised (see chart below). It makes sense that traders would give more weight to the possibility of rising inflation than they were on Monday.But it’s just one month. In context, the numbers look less scary. Consider:January inflation reports tend to be volatile. Many employment and supplier contracts update at the beginning of the year. Spencer Hill of Goldman Sachs (who forecasted yesterday’s core CPI reading almost exactly) spots this “January effect” in labour-intensive price categories such as medical services, personal care and daycare, all of which rose 0.7 per cent. This should fall away in February, he thinks.Recent news is much better for personal consumption expenditure inflation, which is what the Fed targets. Even if core PCE prices, published at the end of the month, come in hot, the three-month and six-month trends appear benign. In the chart below, we use Goldman’s (relatively pessimistic) forecast for a 4.2 per cent annualised rise in core PCE inflation in January. That would lift the recent trend above 2 per cent, but not by too much:Shelter inflation should still cool further, though the timing is anyone’s guess. It’s well known that official rent inflation data lags rents on newly signed leases, which have plummeted. When this inflation surge began, we were told the lag was on the order of nine to 12 months. That proved wrong. But it would be odd indeed if rental inflation did not converge to current market rents eventually. A soothing chart from Pantheon Macroeconomics (the green line refers to an abrupt 0.6 per cent jump in homeowners’ imputed rents):Put simply: we are more relaxed than the bond market. We’ve long argued that inflation would grind down slowly but that it would be bumpy. That still looks right. The Fed, which has all but sworn off a March cut, has months to collect data, and won’t change its view based on one noisy report. If February is similarly hot, that will be a different story. For now, reserve judgment. (Ethan Wu)Uber: still a taxi company? (Revisited)Uber will hold an investor update call this morning. Management will discuss strategy and capital allocation plans, and we’ll be listening closely. Unhedged has been mostly sceptical about Uber. Specifically, we’ve taken the view that at maturity, Uber will have the returns of a very large but capital-intensive taxi company, not a big tech company:[Uber] can’t charge a big premium over what it costs to pay the drivers and cover the wear and tear on the cars. Even where it has a monopoly or duopoly position in ride-hailing, it is not clear that its service has clear cost/speed/comfort/convenience advantages over alternatives such as bicycles, buses, subways and local car services. Profits much above Uber’s cost of capital, on this argument, seem unlikely to ever materialise.Yes, there has been a lot of talk about how Uber is profitable now, and even generates free cash flow. We’ve been sceptical about this, too. Uber engages in the widespread and legal, but essentially dishonest, practice of not including stock-based compensation expense in adjusted earnings. And heavy stock-based compensation inflates free cash flow, too:Imagine a company that issues new shares to the public, then uses the cash raised to pay employees. One would not be tempted to exclude that cash expenditure from free cash flow. But in the case where the company cuts out the public, and just gives the shares to employees directly, the same economic value is being given away.But wait! In 2023, Uber reported positive true free cash flow, operating cash flow after both capital expenses and stock-based comp, of $1.4bn last year:Meanwhile, Uber’s smaller competitor, Lyft, reported earnings last night, and said they, too, expected positive free cash flow next year (not true free cash flow, of course). The industry looks to be firming up.    That Uber is profitable in cash terms is a big deal. That does not, however, resolve the question of whether it is just a big taxi company. Yes, it generates cash. But its returns are still below that of traditional transport companies. Uber’s return on capital last year was 3.1 per cent, according to S&P Capital IQ (ROC is basically after-tax profit divided by shareholders’ equity plus debt). JB Hunt, which is a big old capital-intensive diesel-burning trucking company that owns its own trucks, earned 11 per cent (and that was its worst year in more than two decades; trucking is in a slump). That’s a wildly imperfect comparison, but it’s close enough to show that 15 years into its existence, Uber’s profits still look nothing like a technology company’s (Alphabet and Meta’s returns are close to 20 per cent).The hard question is: now that Uber has cut expenses and raised prices in its core ride-sharing (“Mobility”) business, what is its growth rate? Uber booked almost $70bn in rides last year and returns were low. Presumably, the way to high returns is by getting bigger still. How quickly can that happen? Analysts feel the uncertainty. Here is Morgan Stanley’s Brian Nowak, being diplomatic but using lots of capital letters:The Market Needs Improved Rides Disclosure to Better Understand What is Informing UBER’s Investment Decisions: We have broken down Uber’s Mobility Gross Bookings multiple ways, including high frequency vs low frequency users, Core UberX vs Non-UberX, rideshare use cases, new geographies . . . all in an attempt to gain increasing confidence in the scale and durability of forward Mobility growth . . . the multiyear path of forward Mobility growth remains the point of greatest uncertainty in our conversations with investors.Our scepticism about Uber has been thawed a bit by the appearance of nice, warm free cash flow. But we still don’t understand why the business would produce the increasing returns to scale that many tech companies enjoy. What will make the unit cost of incremental sales fall from here? Where is Uber’s exclusive intellectual property? Is urban transport really winner-take-most? Until we see more evidence, we’ll continue to see Uber as a fast growing, moderately profitable transport company. There is nothing wrong with investing in a transport company, of course — so long as you know that is what you are investing in. One good readWhy not own only stocks?FT Unhedged podcastCan’t get enough of Unhedged? Listen to our new podcast, hosted by Ethan Wu and Katie Martin, for a 15-minute dive into the latest markets news and financial headlines, twice a week. Catch up on past editions of the newsletter here.Recommended newsletters for youSwamp Notes — Expert insight on the intersection of money and power in US politics. Sign up hereDue Diligence — Top stories from the world of corporate finance. Sign up here More

WASHINGTON (Reuters) – Shares of British banks are undervalued partly by lingering perceptions that they are still hampered by Brexit and a negative political climate toward the institutions, Britain’s financial services minister said on Tuesday.Economic Secretary to the Treasury Bim Afolami told Reuters in an interview that those perceptions are unfounded and Prime Minister Rishi Sunak’s government is working to change them by being responsive to the sector’s needs.UK bank shares have struggled for much of the past year despite stability, lower risk and solid earnings, prompting Bank of England Governor Andrew Bailey to call their valuations a “puzzle” on Monday.Afolami, who was in Washington as part of his first U.S. visit since taking on his role in November, said banks were still suffering a “hangover” from uncertainty caused by Britain’s departure from the European Union.”There are just some international investors that automatically took a discount to British banks because of Brexit, which I could understand when there was a real period of uncertainty in 2016, but I think it’s way unnecessary and overdue now,” Afolami said. “I think they’re making a mistake in that.”Market players also may not have properly digested changes in the UK banking sector since the 2008 financial crisis, Afolami said, noting that NatWest Group today is a far stronger company than predecessor Royal Bank of Scotland (NYSE:RBS_old_old), which required a government bailout in 2008.NatWest shares closed down 1.6% on Tuesday at 204.4 pounds, nearly 100 pounds lower than a year ago.”So what I say to the market is, work out before other people do that these banks are undervalued because, you know, Britain is a great place to be in banking,” Afolami said. “We’re making the right reforms, You’ve got a government that is really keen on listening to the views of the financial sector.”The UK banking sector avoided last year’s interest-rate turmoil that caused U.S. regional banks Silicon Valley Bank and Signature Bank (OTC:SBNY) to fail and prompted Swiss regulators to push Credit Suisse into a merger with larger rival UBSAs countries finalize implementation of Basel III capital accords, U.S. regulators are seeking to impose tougher capital requirements for the largest banks, which are pushing back hard on the proposal. The move would partly reverse some relaxation of capital requirements for regional banks under the Trump administration in 2017. Afolami said negotiations among Basel III signatories countries on the minimum levels needed were continuing. He declined to comment directly on the levels that U.S. regulators were proposing, but said that Britain had previously taken a “very risk-averse approach” to regulating its banking sector. He said it is now relaxing some rules to ensure that there is adequate lending to small- and medium-sized businesses.”I think the U.S., in times past, had a less risk-averse approach than we had, and America will make its own decisions as to how it chooses to regulate,” Afolami said. “From where we are, we start from a different place where the U.S. system starts from.”Afolami said Britain was determined to have “a collaborative approach” to the Basel rules would discuss the issues fully with U.S. counterparts. More

TOKYO (Reuters) -Japan’s top currency officials warned on Wednesday against what they described as rapid and speculative yen moves overnight when the Japanese currency broke past 150 yen, undermining the trade-reliant economy.The dollar rose to three-month peaks on late Tuesday after data showed U.S. inflation rose more than expected in January, reinforcing expectations the Federal Reserve will hold interest rates steady in March.”We are watching the market even more closely,” Finance Minister Shunichi Suzuki told reporters. “Rapid moves are undesirable for the economy.”Asked whether authorities could intervene in the currency market, Suzuki left his office at the Ministry Finance without a word.Earlier, Japan’s top currency diplomat Masato Kanda said the nation would take appropriate actions on forex if needed.”Recent currency moves are rapid. The yen has weakened by nearly 10 yen over the period of one month or so, such a rapid move is not good for the economy,” Kanda, the vice finance minister for international affairs, told reporters at his office.When asked whether the appropriate steps could include intervening in the market to stem the yen weakness, Kanda said authorities would take the most appropriate action.”We are always watching the market 24 hours a day, 365 days a year to prepare for anything that may happen, just like natural disasters.”Market players have been pondering the future pace of the Fed rate cuts while speculating about the timing about the Bank of Japan’s exit from negative interest rates policy.Japan intervened in the currency market three times in 2022 when the yen plunged to 32-year lows near 152 yen to the dollar, conducting rare dollar-selling, yen-buying intervention.Authorities have not intervened in the market since then. Kanda shrugged off speculation that Japan has put a line in the sand around 150 yen.”We are not targeting specific currency levels, but we are comprehensively taking various factors into account, such as that how rapid the moves are and how far away they deviate from fundamentals.” More

In Mo i Rana, a small Norwegian industrial town on the cusp of the Arctic Circle, a cavernous gray factory sits empty and unfinished in the snowy twilight — a monument to unfulfilled economic hope.The electric battery company Freyr was partway through constructing this hulking facility when the Biden administration’s sweeping climate bill passed in 2022. Perhaps the most significant climate legislation in history, the Inflation Reduction Act promised an estimated $369 billion in tax breaks and grants for clean energy technology over the next decade. Its incentives for battery production within the United States were so generous that they eventually helped prod Freyr to pause its Norway facility and focus on setting up shop in Georgia.The start-up is still raising funds to build the factory as it tries to prove the viability of its key technology, but it has already changed its business registration to the United States.Its pivot was symbolic of a larger global tug of war as countries vie for the firms and technologies that will shape the future of energy. The world has shifted away from decades of emphasizing private competition and has plunged into a new era of competitive industrial policy — one in which nations are offering a mosaic of favorable regulations and public subsidies to try to attract green industries like electric vehicles and storage, solar and hydrogen.Mo i Rana offers a stark example of the competition underway. The industrial town is trying to establish itself as the green energy capital of Norway, so Freyr’s decision to invest elsewhere came as a blow. Local authorities had originally hoped that the factory could attract thousands of employees and new residents to their town of about 20,000 — an enticing promise for a region struggling with an aging population. Instead, Freyr is employing only about 110 people locally at its testing plant focused on technological development.“The Inflation Reduction Act changed everything,” said Ingvild Skogvold, the managing director of Ranaregionen Naeringsforening, a chamber of commerce group in Mo i Rana. She faulted the national government’s response.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

(Reuters) -Commonwealth Bank of Australia warned on Wednesday that the lagged effect of high interest rates will continue to exert financial strain on households and businesses, as its first-half profit dropped due to tighter margins.The bank, whose profit still beat expectations, warned that risks to the Australian economy were building as slowing demand and persistent inflation impacted businesses, with geopolitical tensions adding to the uncertainty.”As cash rate increases have a lagged impact on households and business customers, we expect financial strain to continue in 2024, with an uptick in our arrears and impairments,” CEO Matt Comyn said in a statement.For the six months ending Dec. 31, Australia’s top lender’s cash profit fell to A$5.02 billion ($3.24 billion) from A$5.18 billion a year ago as intense mortgage competition, and higher expenses due to inflation, squeezed margins.Despite that, the cash profit came in above a Visible Alpha consensus of A$4.95 billion.”Our lower cash profit reflects cost inflation and a competitive operating environment,” Comyn added. “Australian households continue to feel pressure in the current environment, with many cutting back to adjust.”Comyn said in a market briefing after the results that increases in the cost of living were felt by more and more households and businesses, and as a consequence customers had reduced their spending.Overall household disposable income in Australia fell by about 3.5% last financial year, he said.Shares of CBA were down 2.4%, with the broader Australian index down 1.2% at open on Wednesday.”At face value, the print has the markings of a good result – core earnings are a 1% beat, asset quality is benign, capital is strong and the dividend is up YoY despite falling cash earnings. However, we think this glosses over a deteriorating outlook,” Citi analyst Brendan Sproules said in note.SHARES RALLYCBA’s shares have jumped more than 20% since November, outshining a 12% rise in the wider market, on the back of investors fleeing China’s battered markets and those switching to equities on expectations of interest rate cuts.CBA needed to deliver a strong set of first-half results against the backdrop of their share price rally, UBS analyst John Storey said in a note. “Despite not living up to expectations, CBA delivered $5B in cash NPAT, at a point in time when the bank has endured extreme levels of pricing pressure in mortgages &  deposits. If the mortgage market rationalizes, CBA is well placed,” Storey added.CBA’s net interest income from continuing operations on cash basis slipped 2% to A$11.40 billion as its net interest margin (NIM) – a measure of profitability – declined 11 basis points to 1.99%.The bank’s common equity tier 1 capital ratio stood at 12.3% as at December-end, slightly above 12.2% as at June-end. It declared an interim dividend of A$2.15 per share, up from A$2.10 last year.Home loan repayments late for more than 90 days crept up from the prior six months owing to higher interest rates and inflation, although they remained low relative to historical averages, the bank said.($1 = 1.5504 Australian dollars) More