Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Investors will be picking through US inflation data next week for signs that the Federal Reserve is on track to bring inflation back to its long-term target.This week chair Jay Powell warned the central bank still had “a long way to go” in its battle to curb rising prices and bring inflation to a rate of two per cent.The latest Bureau of Labor Statistics data on consumer prices, due on Tuesday, is expected to show headline inflation cooled to a rate of 3.3 per cent in the year to October, according to economists polled by Bloomberg. That would mark a significant easing from a headline rate of 3.7 per cent in September.Analysts at Bank of America expect the easing of the headline rate to be driven primarily by a drop in petrol prices. Core inflation, which strips out volatile food and energy prices, is expected to have eased to 0.1 per cent month on month, compared with 0.4 per cent in September.Any signs that inflation is more persistent than expected could derail a widely held view that the Fed has finished its rate-rising campaign. After the Fed’s latest policy meeting Powell said it would proceed “carefully” with future interest rate decisions, which the market took as a sign that it may have finished lifting rates.But he later warned against the risk of being “misled” by good data on prices. Swaps markets are pricing a 90 per cent probability that the Fed will keep rates on hold at its next meeting, with the first cut almost fully priced in for next June. Mary McDougallWill UK inflation fall below 5 per cent?The UK inflation rate is expected to drop sharply on Wednesday but investors will be looking closely for firmer signals that price pressures are still easing.The data offers insight into the outlook for the UK economy after mixed messages from Bank of England officials on the outlook for interest rates.Economists polled by Reuters expect the headline annual rate will fall to 4.9 per cent after it held steady at a rate of 6.7 per cent last month. The drop will largely reflect a reduction in the energy price cap set by regulators.But investors will be looking beyond the headline rate to core inflation, which strips out volatile food and energy prices. Economists expect core inflation to ease to a rate of 5.8 per cent from 6.1 per cent last month. Investors will be particularly looking for a slowdown in services inflation, which is closely monitored by the central bank.“We expect to see evidence that underlying services CPI is slowing, and more rapidly than the [Monetary Policy Committee] anticipates,” said Samuel Tombs at Pantheon Economics. “We expect next week’s CPI report to endorse the recent decline in markets’ interest rate expectations.”Swaps markets are now betting the central bank has finished raising interest rates and are pricing in close to three interest rate cuts next year, up from one cut as recently as September.This week BoE chief economist Huw Pill said market expectations for rate cuts next summer were “not unreasonable” but governor Andrew Bailey followed up saying it was “far too early” to start talking about when rates could be cut.A day earlier, traders will pour through labour market data on Tuesday for signs of higher interest rates affecting jobs. Economists polled by Reuters expect the unemployment rate to nudge up from 4.2 per cent to 4.3 per cent and average earnings excluding bonuses to remain at an annual rate of 7.8 per cent. Mary McDougallWill Chinese consumer demand rebound?Chinese consumer demand has remained consistently weak this year even though Beijing has loosened the strict curbs on its citizens to combat Covid-19. Retail sales figures, released on Wednesday, will be closely watched for insights into the country’s tepid rebound.October economic data was inconclusive. Imports expanded for the first time since February, indicating strengthening domestic demand, but exports declined for a sixth consecutive month.Weaker than expected manufacturing data may also dim confidence, while plunging pork prices and a slip back into deflation suggest there is more work to be done to revitalise consumers’ spirits and stimulate spending.Analysts polled by Bloomberg expect retail sales to have grown 7 per cent in October compared with a year earlier, the fastest expansion since May. However, the figures six months ago were also skewed by comparisons with spring 2022 when China was under another intense coronavirus lockdown.BofA analysts said October’s deflation figures, when consumer prices declined 0.2 per cent year on year, “underscore fragile consumption and investment demand”.Underscoring the fragility of China’s economy has been weakening exports and manufacturing data. Analysts at Nomura argued the indicators mean it is “too early to call the bottom”. William Langley More

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At Lake Champlain Chocolates, the owners take shifts stacking boxes in the warehouse. At Burlington Bagel Bakery, a sign in the window advertises wages starting at $25 an hour. Central Vermont Medical Center is training administrative employees to become nurses. Cabot Creamery is bringing workers from out of state to package its signature blocks of Cheddar cheese.The root of the staffing challenge is simple: Vermont’s population is rapidly aging. More than a fifth of Vermonters are 65 or older, and more than 35 percent are over 54, the age at which Americans typically begin to exit the work force. No state has a smaller share of its residents in their prime working years.Vermont offers an early look at where the rest of the country could be headed. The baby boom population is aging out of the work force, and subsequent generations aren’t large enough to fully replace it. Immigration slumped during the pandemic, and though it has since rebounded, it is unclear how long that will last, given a lack of broad political support for higher immigration. Birthrates are falling.“All of these things point in the direction of prolonged labor scarcity,” said David Autor, an economist at the Massachusetts Institute of Technology who has studied long-term work force trends.Eric Lampman, right, the president and co-owner of Lake Champlain Chocolates, has revamped its production schedule to reduce its reliance on seasonal help.Lockers at Lake Champlain Chocolates. While other states have helped buttress their work forces through immigration, Vermont’s foreign-born population has remained small.Vermont’s unemployment rate was 1.9 percent in September, among the lowest in the country, and the labor force is still thousands of people smaller than before the pandemic. Employers are fighting over scarce workers, offering wage increases, signing bonuses and child care subsidies, alongside enticements such as free ski passes. When those tactics fail, many are limiting operating hours and scaling back product offerings.A rural state — Burlington, with a population under 45,000, is the smallest “biggest city” in the country — Vermont has for decades seen young people leave for better opportunities. And while other states have helped buttress their work forces through immigration, Vermont’s foreign-born population has remained small.But demographics are at the root of the problem.“We knew where we were headed — we just maybe got there a little bit quicker than we were expecting,” said Michael Harrington, the state’s labor commissioner. “There just aren’t enough Vermonters to meet the needs of our state and our employers in the future.”Gray Mountain StateA disproportionate share of Vermonters are in or near their retirement years. But the overall U.S. population is also aging.

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Percentage of 2022 population by age group
Source: Census BureauBy The New York TimesThere were similar shortages across the country in 2021 and 2022, as demand — for both goods and workers — surged after pandemic lockdowns. The overall labor market has become more balanced as demand has cooled and Americans have returned to the work force. But economists and demographers say shortages will re-emerge as the population ages.“It seems to be happening slowly enough that we’re not seeing it as a crisis,” said Diana Elliott, vice president for U.S. programs at the Population Reference Bureau, a nonprofit research organization. “It’s happening in slow motion.”Long-run labor scarcity will look different from the acute shortages of the pandemic era. Businesses will find ways to adapt, either by paying workers more or by adapting their operations to require fewer of them. Those that can’t adapt will lose ground to those that can.“It’s just going to be a new equilibrium,” said Jacob Vigdor, an economist at the University of Washington, adding that businesses that built their operations on the availability of relatively cheap labor may struggle.“You may discover that that business model doesn’t work for you anymore,” he said. “There are going to be disruptions. There are going to be winners and losers.”Higher Wages, More OpportunityCentral Vermont Medical Center built a classroom and simulation lab for its training programs. A trainee practiced a procedure using a dummy.The winners are the workers. When workers are scarce, employers have an incentive to broaden their searches — considering people with less formal education, or those with disabilities — and to give existing employees opportunities for advancement.At Central Vermont Medical Center, as at rural hospitals across the country, the pandemic compounded an existing nursing shortage. An aging population means that demand for health care will only grow.So the medical center has teamed up with two local colleges on a program enabling hospital employees to train as nurses while working full time. The hospital built a classroom and simulation lab on site, and lent out its nurses to serve as faculty. Students spend 12 of their paid working hours each week studying — and if they stay on as nurses for three years after completing the program, their student debt is forgiven.The program has graduated 27 licensed practical nurses and eight registered nurses since 2021; some previously had administrative jobs. The hospital is expanding the training to roles like respiratory technicians and phlebotomists.Other businesses are finding their own ways to accommodate workers. Lake Champlain Chocolates, a high-end chocolate maker outside Burlington, has revamped its production schedule to reduce its reliance on seasonal help. It has also begun bringing former employees out of retirement, hiring them part time during the holiday season.The medical center has teamed up with two local colleges on a program enabling hospital employees to train as nurses while working full time.“We’ve adapted,” said Allyson Myers, the company’s marketing director. “Prepandemic we never would have said, oh, come and work in the fulfillment department one day a week or two days a week. We wouldn’t have offered that as an option.”Then there is the most straightforward way to attract workers: paying them more. Lake Champlain has raised starting wages for its factory and retail workers 20 to 35 percent over the past two years.Charles Goodhart, a British economist, said the aging of the population would tend to lead to lower inequality — albeit at the cost of higher prices.“Since the available supply of workers will go down, relative to demand, workers will demand and get higher wages,” Mr. Goodhart, who in 2020 published a book on the economic consequences of aging societies, wrote in an email.Robots and HousingCabot Creamery is in a rural area where cellphone coverage is spotty and many roads are unpaved. The county has only about 700 unemployed people, according to Vermont’s Labor Department.When Walmart reached out to Cabot Creamery about increasing distribution of its Greek yogurt, Jason Martin hesitated — he wasn’t sure he could find enough workers to meet the extra demand.Mr. Martin is senior vice president of operations for Agri-Mark, the agricultural cooperative that owns Cabot Creamery, the nationally distributed brand that employs close to 700 people in Vermont. When the company’s leadership talks about adding a product or expanding production, he said, labor is nearly always the first topic.“As I present products to our board of directors, in the back of my mind I always think, ‘I’m going to need to find the people,’” Mr. Martin said.The labor challenge is evident at Cabot Creamery’s packaging plant in the company’s namesake town. Blocks of cheese weighing close to 700 pounds are fed into machines that cut them, for one product, into cracker-size slices. Employees in gloves and hairnets then drop the slices into plastic pouches, which are sealed and packaged together. Many of the workers are in their 50s and 60s, and have been with Cabot for decades.Cabot is over an hour from Burlington, in a rural area where cellphone coverage is spotty and many roads are unpaved. The county has only about 700 unemployed people, according to the state’s Labor Department, and while the company has raised pay and offers generous benefits — a recent marketing campaign cites perks including a defined-benefit pension plan, tuition reimbursement and, of course, free cheese — hiring remains difficult.Cabot has raised pay and offers generous benefits such as pension plan, tuition reimbursement and, of course, free cheese, but hiring remains difficult.Adding to the challenge is Vermont’s housing shortage. Cabot has contracted with a local college to use unoccupied dormitories to house temporary workers brought in from other states and — on guest-worker visas — from other countries.It is also investing in automation — not just to require fewer workers but also to make jobs less taxing for its aging employee base. New equipment will package cheese slices automatically.To economists, investments like Cabot’s are good news — a sign that companies are finding ways to make the people they have more productive.But ultimately, many economists say, Vermont — and the country as a whole — will simply need more workers. Some could come from the existing population, through companies’ efforts to tap into new labor pools and through government efforts to address larger issues like the opioid crisis, which has sidelined hundreds of thousands of working-age Americans.Not all economists think aging demographics are likely to drive a national labor shortage.The ranks of people in their prime working years was stagnant for years before the pandemic, but labor was often plentiful, said Adam Ozimek, the chief economist at Economic Innovation Group, a bipartisan public policy organization. Increased immigration, he added, would add to demand as well as supply.Still, many economists argue that immigrants will be an important part of the solution, especially in fields, like elder care, that are rapidly growing and hard to automate.“We need to start looking at immigrants as a strategic resource, incredibly valuable parts of the economy,” said Ron Hetrick, senior labor economist at Lightcast, a labor market data firm.Workers WantedKevin Chu, the executive director of the Vermont Futures Project, sees the worker shortage as an imminent, long-term threat to the state’s economy.Kevin Chu has spent the past several months traveling around Vermont speaking to local business groups, elected officials, nonprofit organizations and pretty much anyone else who would listen. His message: Vermont needs more people.Mr. Chu is the executive director of the Vermont Futures Project, a nonprofit organization, backed by the Vermont Chamber of Commerce, that sees the worker shortage as an imminent, long-term threat to the state’s economy.Mr. Chu grew up in Vermont after his parents immigrated from China in the mid-1980s, part of a wave of immigrants — many of them refugees — who came to the state during that period. He recalls attending Burlington High School at a time when it flew the flag of its students’ home countries, dozens in all.“I feel like I got a glimpse of what Vermont could be,” he said.Mr. Chu’s message has resonated with business leaders and state officials, but it has been a tougher sell with the population as a whole. A recent poll found that a plurality — but not a majority — of Vermonters supported increasing the population.The Futures Project has set a goal of increasing the population to 802,000 by 2035, from fewer than 650,000 today. That would also help bring down Vermont’s median age to 40, from 42.7.The state has a long way to go: Vermont added just 92 people from 2021 to 2022.The root of Vermont’s staffing challenge is simple: More than a quarter of its adults are 65 or older, and more than 40 percent are over 54. More

South Korea’s consumer price index stood 3.8% higher in October from a year ago, the fastest inflation rate since March 2023 and above the 3.6% forecast by a Reuters poll.”Oil prices have been falling a little bit recently. If this is the trend, the inflation rate will be around 3.5% to 3.6%, and this kind of price stabilisation will happen gradually, albeit slowly,” Finance Minister Choo Kyung-ho told public broadcaster KBS TV.Consumer inflation accelerated for a third month in October amid higher food costs, keeping policymakers on edge as they are monitoring whether current interest rates are tight enough to bring inflation to heel. More

The US is directly targeting Russia’s ability to export liquefied natural gas for the first time, in a move that could cause disruptions in global energy markets that Washington has so far been keen to avoid.European countries continued importing Russian LNG even after Moscow’s full-scale invasion of Ukraine last year, which triggered an energy crisis after Moscow slashed pipeline supplies to the continent. Until recently, the US has sought to avoid disrupting flows so as not to increase the pressure on allies battling a shortage.But in early November, the US State Department announced sanctions on a new Russian development known as Arctic LNG 2 — in effect blocking countries in Europe and Asia from buying the project’s gas when it starts producing next year, according to officials, lawyers and analysts.Francis Bond, sanctions specialist at law firm Macfarlanes, said that by targeting the project operator, the US was seeking to “toxify the project in its entirety” and would put “pressure on any non-US companies planning to purchase the flows from Arctic LNG 2”.While the US and its allies have imposed sanctions on Russian energy projects in the past in response to the war in Ukraine, seeking to starve them of financing and equipment, this is the first time LNG supplies are directly affected. US officials sought to differentiate between existing supplies and those set to come to the market in the relatively near future, but acknowledged that the aim was to hurt Russia’s ability to profit from selling more fossil fuels.“We do not have a strategic interest in reducing the global supply of energy, which would raise energy prices around the world and pad (Vladimir) Putin’s profits,” said the State Department. “We, and our allies and partners, however, share a strong interest in degrading Russia’s status as a leading energy supplier over time.”Arctic LNG 2, located on the Gydan Peninsula in the Arctic allowing it to export to both the European and the Asian market, would be Russia’s third large-scale LNG project, bolstering the Kremlin’s ambition of becoming a leading exporter in the field. At full production, it would account for a fifth of Russia’s target of producing 100mn tonnes of LNG annually by 2030, more than three times the volume the country exports now.The project was expected to start shipping LNG to the international market in the first quarter of 2024. Market analysts have said those volumes would alleviate some of the tightness in the global LNG market brought about by Europe’s increased demand.But Energy Aspects, a consultancy, said it was removing the expected Arctic LNG 2 output from its modelling of supply and demand for next year, saying the sanctions would tighten the market.Arctic LNG 2 is led by Russian private company Novatek, which holds a 60 per cent stake. Other shareholders are France’s TotalEnergies, two Chinese state-owned companies and a Japanese joint venture between trading house Mitsui & Co and government-backed Jogmec, each holding 10 per cent stakes.Shaistah Akhtar, a partner and sanctions specialist at law firm Mishcon de Reya, said the US restrictions would in effect block the project for western buyers. “If you are going to comply with US sanctions, as most people will if they have any kind of dealings with the US, they will not buy the gas coming from the project,” she said. “Unless you have some sort of licence or exemption in place.”The investors in Arctic LNG 2 are able to take gas from the project according to their shareholding. For Total and its partners in the joint venture, that would mean about 2mn tons when the project is at full production. But under the sanctions, shareholders have until the end of January next year to wind down their investments.Western-aligned investors “could possibly apply for exemptions with phase down dates”, said Kaushal Ramesh, head of LNG analytics at Rystad Energy. This could allow some LNG to flow from the project to western-allied markets, in a similar way to how Japan has been authorised to import Russian crude oil from the Sakhalin 2 project above the price cap.Mitsui said the company would “comply with the sanctions law regarding its LNG offtakes” and that it was “currently considering specific details”. Jogmec said it was “gathering information from stakeholders and conducting a thorough investigation of the progress of the situation”. Total said: “The consequences of the designation . . . by the US authorities on TotalEnergies’ contractual commitments to Arctic LNG 2 are currently being assessed.”France’s finance minister Bruno Le Maire, speaking at an event on Thursday, said the sanctions “do not pose any major risk for European gas supplies” as of now. However, Japan’s industry minister Yasunori Nishimura said last week that “a certain degree” of impact to Japan was “inevitable”.The US has not directly targeted Russia’s other major LNG projects, Yamal LNG and Sakhalin 2, which are shipping the fuel to Europe and Asia.Anne-Sophie Corbeau, gas specialist at Columbia University’s School of International and Public Affairs, said that if Arctic LNG 2 does not start exporting as planned in 2024, it “will keep the markets a bit tighter for longer”.The sanctions will hit Russia’s longer-term ambition to increase LNG supplies and rival leaders in the market such as the US and Qatar. “It’s not possible,” said Laurent Ruseckas, a gas expert and executive director at S&P Global. “It’s too hard to get it done when [Russia] is excluded from so many parts of the financial system and global economy.” Additional reporting by Sarah White in Paris More

The measure employs an unorthodox structure that would provide funding for some segments of the federal government until Jan. 19 and for other agencies until Feb. 2, according to media reports. It was unlikely to win support from Democrats or the White House. The Republican-controlled House and Democratic-led Senate have until Friday to enact temporary funding legislation, commonly known as a continuing resolution, to keep federal agencies open after current funding expires.Stopgap measures, known as continuing resolutions or “CRs,” have been used up to now to fund the entire government over a single period of time. The unorthodox two-step structure adopted by Johnson reflected demands from Republican hardliners who have opposed more straightforward measures in the past.Before Saturday’s announcement, some Republican lawmakers had expressed concern that a complex CR could make it harder to reach agreement with Democrats and increase the risk of a shutdown. More

El-Erian attributed the expected persistence of higher inflation rates to supply-side challenges and shifts in business practices brought on by the pandemic. He suggested that these factors could lead to sustained high prices, even as headline inflation had seen a year-on-year increase of 3.7% by September, slightly surpassing the projected 3.6%. Core inflation, which excludes volatile food and energy prices, was reported at 4.1%.The Federal Reserve has been actively trying to curb inflation with a series of interest rate hikes since March 2022. However, according to Minneapolis Fed President Neel Kashkari, these efforts have not been sufficient, indicating that further actions may be necessary to bring inflation down to desired levels. El-Erian’s comments add to the ongoing debate among economists and policymakers regarding the trajectory of inflation and the effectiveness of monetary policy measures in addressing it.In the context of the inflation outlook and its potential effects on the financial market, it’s worthwhile to take a closer look at Allianz (ALVG), the company for which Mohamed El-Erian serves as the chief economic advisor.InvestingPro’s real-time data reveals a strong financial position for Allianz, with a market cap of $93.04 billion and a P/E ratio of 10.45 as of Q2 2023. Notably, the company has seen a revenue growth of 2.44% over the last twelve months, further solidifying its robust financial health.Two InvestingPro Tips particularly stand out. First, Allianz has a perfect Piotroski Score of 9, indicating a healthy financial situation. Secondly, the company has consistently maintained dividend payments for 32 consecutive years, showcasing its reliability and commitment to its shareholders.These insights, combined with more than 11 other tips available on InvestingPro, provide a comprehensive overview of Allianz’s performance and potential in the current economic climate.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

The difficulty in managing these pressures is not necessarily indicative of inflation being as severe as it was two years ago, Instead, it underscores the complexities corporations are encountering in their financial planning and forecasting. The resurgence of consumer inflation since mid-year has added to this strain, amplifying concerns for both policymakers and corporate executives.This inflationary environment is also taking its toll on the stock market. Data from Goldman Sachs reveals that last quarter, stocks with high labor costs underperformed those with lower labor expenses by 3.9 percentage points. This gap in performance is a clear reflection of how wage increases are affecting company valuations and investor sentiment.As businesses navigate this challenging economic landscape, the focus remains on how to adapt to these cost pressures while maintaining profitability and growth prospects. The ongoing struggle with inflation and labor costs is a critical factor for investors to consider as they assess the health of corporate America and the broader economy.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More