Economy

Investing.com — The U.S. will release inflation data for September, which are expected to show another chunky rise in core prices. Jobless claims, which snapped a two-month trend of declines last week, are also due. Earnings season starts to crank up, with updates from Delta and Blackrock joining strong numbers (and a cautious outlook) from Taiwan Semiconductor overnight. Stocks are set to open with a modest bounce after five straight days of declines. The U.K.’s markets are steadier, amid signs that PM Liz Truss will be pressured by her own party into abandoning her controversial tax cuts, while Saudi Arabia pushes back against U.S. criticism of its support for OPEC’s oil output cut, adding for good measure that the Biden administration asked it to delay until after the midterms. Here’s what you need to know in financial markets on Thursday,13th October.1. Core CPI set for another big rise despite headline slowdownThe annual rate of U.S. consumer inflation is expected to have slowed slightly to 8.1% in September, but the devil will be in the details when the numbers are published at 08:30 ET (12:30 GMT).Analysts expect prices to have risen 0.2% on the month, a little more than in August, while core prices – which strip out volatile elements such as fuel and food – are expected to have risen a chunky 0.5%, pushing the annual rate back up to its 4-decade high of 6.5% – still far above the Federal Reserve’s comfort zone.The U.S. will release weekly jobless claims numbers at the same time, after last week’s numbers snapped a two-month trend of falling claims. Continuing claims numbers will also be in the spotlight for what they say about how easy it is for the newly laid-off to find alternative work. The September labor market report last week suggested that the market is still tight by any historic measure.2. Delta and Blackrock report earningsThe third quarter earnings season starts to crank up, with results due from Delta Air Lines (NYSE:DAL), BlackRock (NYSE:BLK), Fastenal (NASDAQ:FAST), Progressive (NYSE:PGR), Domino’s Pizza (NYSE:DPZ), and Walgreens Boots (NASDAQ:WBA).Markets are set to gobble up anything the companies say about the impact of the strong dollar on their outlook, as well as their ability to push through price increases. PepsiCo (NASDAQ:PEP) stock had risen on Wednesday after pushing through double-digit price hikes for many of its products.BlackRock’s numbers will also be of interest for what they say about how investors are reacting to the highest volatility across financial markets since the start of the pandemic two and a half years ago.3. Stocks set for bounce but in holding pattern ahead of CPI; TSMC shinesU.S. stock markets are set to open with a bounce after five straight days of losses amid concern about rising interest rates and a slowing world economy. The mood has improved marginally after the minutes of the latest Fed meeting showed the first signs of concern that the central bank may overshoot with its rate hikes as the economy slows down.By 06:15 ET, Dow Jones futures were up 123 points or 0.4%, while S&P 500 futures were up by a similar amount, and Nasdaq 100 futures were up 0.2%, extending a recent pattern of underperformance by technology and growth stocks.Stocks likely to be in focus later include Taiwan Semiconductor (NYSE:TSM) and Samsung (KS:005930), both of whom have secured exemptions from the latest U.S. restrictions on the sale of silicon chips to their operations in China. TSMC also reported earnings that topped estimates but said it would cut its capital spending by 10% over the coming year. Also in focus is GlaxoSmithKline (NYSE:GSK), after it announced encouraging trial results for its experimental vaccine against respiratory syncytial virus (RSV), a leading cause of pneumonia in small children and the elderly.4. U.K. markets steady on bets of Truss U-turnU.K. bond and stock markets steadied and the pound rose amid signs that resistance from her own party’s lawmakers will force Prime Minister Liz Truss to abandon most, if not all, of her planned tax cuts.Truss had again said on Wednesday she would not cut public spending to balance the massive tax cuts and energy subsidies that were her first moves after taking office. That would leave her the choice of either abandoning the tax cuts or pressing ahead with a sharp rise in borrowing. The latter course would hurt the Conservative Party’s core constituency of middle-class homeowners with mortgages.By 06:30 ET, the pound was up 0.5% against the dollar at $1.1159, while the yield on the benchmark 10-Year Gilt was down 8 basis points at 4.35%. The 30-Year yield, which hit 5% on Wednesday, was back at 4.68%.5. Saudi Arabia pushes back at U.S. criticism; EIA inventories dueSaudi Arabia pushed back strongly against U.S. warnings of ‘consequences’ for its decision to cut oil output from next month, saying that the OPEC+ decision had been taken purely with regard to balancing the global market.The Biden administration has characterized the move as a betrayal of U.S.-Saudi relations, in as much as it will shore up Russia’s finances and help it to keep pursuing its war in Ukraine. In a published statement, the Saudi foreign minister also pointed out that the U.S. had asked it to delay the output cut until after mid-term elections in November.By 06:35 ET, U.S. crude futures were bumping along near one-week lows, down 0.1% on the day at $87.20 a barrel, while Brent crude was flat at $92.00 a barrel. The U.S. government releases weekly inventory data at 11:00 ET. More

Leading chip equipment suppliers have suspended sales and services to semiconductor manufacturers in China, as new US export controls disrupt the Chinese tech industry and global companies’ operations.Lam Research, Applied Materials and KLA Corporation, US companies which hold dominant shares in certain segments of the semiconductor manufacturing process, have all taken immediate measures to comply with the new rules, according to several people with direct knowledge of the matter.ASML, the Netherlands-based global leader in chipmaking equipment, has told its US staff to stop serving all Chinese customers while it assesses the sanctions.The new restrictions, announced on Friday last week, ban the export to China of US semiconductor equipment that cannot be provided by any foreign competitor. They also impose a licence requirement for exports of US tools or components to China-based fabrication plants, or fabs, that make advanced chips, and for exports of items used to develop Chinese homegrown chip production equipment.They also require any US citizen or entity to seek permission from the Department of Commerce for providing support to Chinese fabs.On Tuesday, LAM Research started pulling out support staff from China-based chipmakers, including memory chip producer Yangtze Memory Technologies Corp. It asked employees to “stay away from fabs in China for now”, said a LAM employee who asked for anonymity because of the matter’s sensitivity.LAM also suspended presale negotiations with Chinese customers and withdrew staff participating in building new fabs in China, according to two employees with direct knowledge. Applied Materials and KLA also stopped offering services for China-based manufacturing lines producing advanced chips from Wednesday, said three sources familiar with the situation. “We were told that the company needed time to evaluate what they can sell in China,” said one Applied Materials sales manager. “It is unsustainable if we could only provide services but not sell equipment.”Three YMTC employees said US toolmakers suspended supplies and services to both its existing fabs and those under construction.ASML, the world’s leading provider of lithography equipment for cutting-edge chip production, said in a message to staff that all US employees — including US citizens, green card holders and foreign nationals who live in the US — are now prohibited from providing services to fabs in China.

“ASML US employees must refrain — either directly or indirectly — from servicing, shipping or providing support to any customers in China until further notice,” the letter said. “We are of course taking precautionary measures in order to ensure full compliance with the new regulations,” added an ASML spokesperson.The China Semiconductor Industry Association said in a statement on Thursday that it hoped “the US government can adjust its wrong course of action”. The short-term impact of the new restrictions on foreign chipmakers with fabs in China is expected to be limited as they can apply for US government permission to continue receiving US equipment. Taiwan Semiconductor Manufacturing Company, the world’s largest contract chipmaker, said it had received a one-year authorisation for its Nanjing fab.South Korean memory chipmaker SK Hynix said it would not be subject to the suspension of US toolmaker supplies as it had been given a one-year grace period as well. Its larger rival Samsung declined to comment.The new controls are hitting the industry in a downturn. TSMC, which had previously been unaffected by a sharp contraction in smartphone and PC demand, cut its capital investment target for this year by 10 per cent, saying it now expected to spend $36bn instead of the previously budgeted $40bn this year.The Taiwanese company said a sharp inventory correction because of slumping smartphone and PC demand was likely to drive the chip industry into decline next year, although TSMC still expected to grow in 2023.CC Wei, TSMC’s chief executive, said the company’s initial assessment was that the impact of the new export controls on the company would be “limited and manageable” because they were focused on very high-end chips. Additional reporting by Song Jung-a in Seoul and Richard Waters in San Francisco More

(Reuters) -Euro zone government bond yields rose on Thursday, after U.S. data showed a bigger-than-expected rise in consumer prices last month, dashing hopes that the Federal Reserve will slow the pace of its planned rate rises.The Labor Department’s consumer prices index (CPI) report showed headline CPI gained at an annual pace of 8.2% in September, compared to an estimated 8.1%. The reading was lower than an 8.3% increase in August.”Following the sharp rise of U.S. and global bond yields in recent weeks and months, markets had hoped for some relief from today’s all-important CPI numbers, but they will be disappointed,” said Willem Sels, global chief investment officer at HSBC’s private bank.Germany’s 10-year government bond yield, the benchmark of the bloc, rose 6 basis points (bps) to 2.40% after falling as much as 12 bps right before the data. It hit its highest since August 2011 at 2.423% on Wednesday.”This week’s and today’s patterns clearly underscore that the problems we are facing go beyond UK gilts,” said Christoph Rieger, head of credit research at Commerzbank (ETR:CBKG). “Until inflation pressure starts showing signs of abating, the duration aversion looks set to continue,” he added.WINTER RECESSIONA key market gauge of long-term inflation expectations dropped to 2.29% after hitting its highest since May at 2.3%, while forwards on euro short-term rates (ESTR) are peaking in November 2023 above 3%.”We think (policy) rates (in the euro area) are unlikely to go close to 3% next year,” Dean Turner, an economist at UBS Wealth, said before the release of the U.S. data.He added that UBS was forecasting 125 basis points (bps) of rate hikes by December.”The euro area may be in recession through the winter months, and that’s going to be one of the factors softening the ECB policy stance,” UBS’ Turner argued.Concerns about stability in the UK gilt market weighed on bond prices after the Bank of England (BoE) governor told pension funds they had until Friday to fix liquidity problems before the bank withdraws support.However, most analysts expect the BoE’s emergency bond buybacks to be extended.”If we get another episode where liquidity dries up, the BoE may have to return to the market,” UBS’ Turner said. “It’s not a matter of yield levels, but they need the UK market to function orderly.”Italy’s 10-year government bond yield rose 6 bps to 4.86%. It hit its highest since February 2013 at 4.927% on Sept. 28. The spread between Italian and German 10-year yields was at 238 bps. More

World markets are unlikely to catch a break until central banks see some convincing progress on reining in inflation – and Thursday is a huge moment in that fight despite myriad tensions elsewhere.Headline U.S. consumer price inflation is expected to have slipped back two tenths of a percentage point to a still-bruising 8.1% in September as the Labor Department gets set to publish its latest report. But it was creeping annual growth in August of underlying “core” prices that exclude energy and food that sent markets into tailspin last month – fearing, correctly, that it would push Federal Reserve hawkishness into overdrive. And that core inflation rate is forecast to have higher again in September to 6.5% from 6.3%.The impact of the last CPI report on Sept. 13 has been pretty clear – as futures markets have pushed the implied peak or “terminal” rate for the Fed’s interest rate cycle up almost 75 basis points to about 4.7% since then. Ten-year Treasury yields have risen about 60bp to just under 4%, the S&P500 has lost more than 10% and the dollar has boomed almost 5%.The readout of last month’s Fed policy meeting showed officials pushing for interest rates at more restrictive levels and maintaining them there for some time to defuse “broad-based and unacceptably high” inflation.There was an eerie market calm of sorts before Thursday’s release, although a VIX index of implied U.S. equity volatility that’s in excess of 33 points reveals the level of simmering tension. However, even battered British gilts facing a blizzard of domestic problems managed to steady up on Thursday too – nervously awaiting the end of direct Bank of England intervention on Friday.With Germany confirming its annual September inflation rate at a whopping 10.9% on Thursday, European central bankers in Washington for the International Monetary Fund meeting were just as hawkish as the FedAnd that’s left Japan’s ongoing monetary easing as an outlier and the yen back on the slide to levels that prompted solo Bank of Japan intervention to support it over the past month. Worryingly for Tokyo, the latest G7 finance ministers statement mentioned nothing about currency market ructions. Finance Minister Shunichi Suzuki said he told his G7 and G20 counterparts that Japan was “deeply worried about sharply rising volatility” in FX and that Japan stands ready to take “decisive” action against rapid moves.Meantime, the International Energy Agency said on Thursday that OPEC+’s decision to cut in output has driven up prices and could push the global economy into recession – while Saudi Arabia claimed the decision was not political. With the start of the U.S. earnings season underway later with releases from BlackRock (NYSE:BLK) and others, Taiwanese chipmaker TSMC said cut its annual investment budget by at least 10% for 2022 and struck a more cautious note than usual on upcoming demand.Key developments that should provide more direction to U.S. markets later on Thursday:* U.S. Sept Consumer Price Index, weekly jobless claims* G20 finance ministers and central bankers meet at annual IMF/World Bank meeting in Washington* Federal Reserve Bank of Atlanta President Raphael Bostic speaks in Atlanta* European Central Bank Vice President Luis de Guindos speaks in Frankfurt * Bank of England Financial Policy Committee director Sarah Breedon speaks in London. BoE monetary policymaker Catherine Mann speak in Washington* U.S. Treasury auctions 30-year bonds* U.S. corporate earnings: BlackRock, Domino’s Pizza (NYSE:DPZ), Delta Air Lines (NYSE:DAL), Walgreen’s Boots Alliance, Fastenal (NASDAQ:FAST) (By Mike Dolan, editing by David Evans [email protected]. Twitter: @reutersMikeD) More

I wrote last week that the IMF has often been at the forefront of the economic paradigm shifts of the past 10 to 15 years. But this week’s IMF/World Bank annual meetings show that the fund can also be right in the middle of the unreconstructed mainstream. One message that has been coming through very clearly from the IMF this week is that while the economic outlook is very uncertain, central banks must act aggressively against inflation. The fact that the aggressive monetary tightening under way is about to end one of the strongest labour markets in living memory, as I wrote in my column this week, does not carry much weight in Washington. And the fund goes beyond just calling for central banks to “stay the course” — it also wants fiscal policy to support them in restricting aggregate demand.Reasonable people can disagree on the right macroeconomic stance, but I want to address some lazy arguments for tightening that I have heard over the past week. Here are four:First, it is claimed that monetary policy is still at stimulative levels rather than neutral, let alone restrictive. This claim is lazy because it simply presupposes that because absolute levels of central bank interest rates remain low by historical standards, that means monetary policy is loose. This ignores that the rates targeted by central banks affect the economy by influencing the overall financial conditions facing businesses and households. Ultimately it is these conditions that have to be appropriate for meeting the central banks’ policy goals, which is why good central banks should adjust their own instruments to what financial markets are doing on their own. For example, if a moderate tightening is seen as necessary, and financial market conditions get tougher for other reasons, there is no need to raise central bank interest rates (unless the market tightening happened merely in expectation of such a move).More generally, a low central bank interest rate should not be seen as stimulative, if it permits overall financial conditions that are contractionary. And that is the case today. The IMF’s Global Financial Stability Report, out this week, documents that financial conditions in all the advanced economies are a little tighter than their 25-year average, and quite a lot tighter than they have been at any point in the past decade except at the start of the pandemic.Another lazy argument is that because inflation has gone up, real central bank policy rates have gone down. So central banks must run just to stand still, and raising rates may not even amount to tightening. But again, central banks have an impact through their influence on the behaviour of people throughout the economy. Nobody chooses an investment on the basis of the “instantaneous” real interest rate (the shortest-term central bank rate minus this month’s inflation). They assess the real rate over the lifetime of their assessment. And on any time horizon that matters in the real economy, real rates have gone up by a lot. The fund’s own GFSR finds that real rates have gone up by about 1 percentage point since April for five- and 10-year government borrowing in the US, and nearer to 1.5 points for the eurozone. That also implies that the “five-year, five-year” real rate — the cost of borrowing over five years starting five years from now — has risen by about the same. Someone planning to buy, say, energy efficiency equipment — a heat pump? an electric vehicle? — in the coming years now faces significantly higher financing costs after inflation. And as it happens, the fund reports that even one-year real interest rates have risen significantly (see the chart below).The third lazy argument is that central banks cannot target long-term interest rates, a policy known as “yield curve control” (YCC). It would destroy their credibility as inflation fighters by making them look like they are taking orders from profligate finance ministers to lower public borrowing costs. Therefore, YCC would complicate the monetary tightening most central banks now think (wrongly, in my view) they need to undertake. Set aside the obvious problem that the one central bank that practises YCC is the one with the least inflationary pressure (the Bank of Japan). The bigger issue is that this objection to YCC is based on two confusions. The simpler one is the intellectual error of conflating the idea of targeting long-term rates with the risk of targeting it at the wrong (too low) level. But there is nothing that stops a yield curve-controlling bank in the mood to tighten from jacking up the long rates to whatever level tightens financial conditions enough.That, however, points to the second and much more substantive confusion. The Bank of England’s emergency interventions in the past two weeks show that while it is very keen to say it does not want to steer the UK government’s long-term borrowing cost, in practice it has very strong opinions about gilt yields. It clearly found that gilt yields rose too fast and too high after the government’s “mini” Budget (otherwise why intervene?). So there is a contradiction between what it wants and what it says it wants. But there is also a contradiction between the different things it wants — contained gilt yields for financial stability reasons, higher ones for monetary policy reasons. But because it does not formally target longer-term gilt yields, it has not been forced to make up its mind. No wonder markets are seesawing.The Old Lady of Threadneedle Street is just the most extreme example. Other central banks risk the same confusion. The original sin here may have been to opt for quantitative easing (QE) — buying government bonds — instead of yield curve control in the global financial crisis: central banks chose a policy whose objective was clearly to bring yields down but refused to say where they think the yields should be brought down to. It is telling that the BoJ, which started QE long before anybody else, is the one central bank that has opted for YCC and stuck with it. Others will find that this confusion from treating long-term yields as values that Must Not Be Named will only get worse as QE turns to quantitative tightening — as the BoE’s forced postponement of bond sales this month shows. I argued last year that the European Central Bank should adopt yield curve control; the argument holds for other central banks too.What, finally, to make of the IMF’s insistence that fiscal policy should not work at “cross-purposes” with monetary policy? This view — not at all unique to the fund — breaks with tradition in two important ways. One is intellectual. Part of how central bank independence was supposed to work was a division of labour with finance ministries. Elected politicians would take the political decisions of fiscal policy, about who pays and who gets what — which surely includes how to distribute spending and taxes between current and future generations of taxpayers, also known as the deficit. Monetary technocrats would then use interest rates to stabilise the economic cycle. Now, it seems, fiscal decisions should be subordinated to monetary ones. The more recent tradition is hardly two years old: it is not so long ago that governments around the world were launching recovery plans to rebuild their economies from the pandemic (even “building them back better”). But now it seems the priority is to restrain growth. Telling fiscal policy to support monetary policy in containing aggregate demand only makes sense if the economy is above its sustainable potential, in other words, that there is no more growth damage from the pandemic left for macroeconomic policy to heal. So goodbye post-pandemic recovery, it was nice knowing you, however briefly. Other readablesThe Nobel Prize in economics was awarded for work that remains depressingly relevant: why there are runs on banks and how badly they damage the economy.Gábor Mészáros and Kim Lane Scheppele convincingly demolish any illusions about Hungary’s rush to set up an “integrity authority” to avoid being cut off from EU funds on the grounds of defective rule of law. My explanation two weeks ago of the turmoil following Britain’s “mini” Budget was the realisation that the government genuinely believes in a neo-Thatcherite theory of what creates economic growth which market participants have long since rejected as false. My colleague Helen Thomas has an excellent column on how the same alienation is taking place in the business community.The FT’s special report on Women in Business is out.Numbers newsThere is a 10 per cent risk of the global economy contracting, according to the IMF’s Global Financial Stability Report. Behind the numbers, FT readers share how the cost of living crisis affects them. More

Here is a timeline of key events in the recent history of MPS, whose origins can be traced back to the 15th century.NOVEMBER 2007 – MPS buys Antonveneta from Santander (BME:SAN) for 9 billion euros in cash, months after the Spanish bank paid 6.6 billion euros for it.JANUARY 2008 – MPS announces a 5 billion euros rights issue, a 950 million euro capital increase reserved to JPMorgan (NYSE:JPM), a 2.16 billion euro Tier2 bond and a 1.56 billion euro bridge loan to fund the Antonveneta deal.MARCH 2009 – MPS sells 1.9 billion euros in special bonds to Italy’s Treasury to shore up its finances.JULY 2011 – MPS raises 2.15 billion euros in a rights issue ahead of European stress test results.SEPTEMBER 2011 – The Bank of Italy provides 6 billion euros in emergency liquidity to MPS as the euro zone sovereign crisis escalates.MARCH 2012 – MPS posts a 4.7 billion euro 2011 loss after billions of goodwill writedowns on deals including Antonveneta.JUNE 2012 – MPS asks Italy’s Treasury to underwrite up to another 2 billion euros in special bonds.OCTOBER 2012 – Shareholders approve a 1 billion euro share issue targeting new investors.MARCH 2013 – MPS loses 3.17 billion euros in 2012, hit by plunging Italian government bond prices.JUNE 2014 – MPS raises 5 billion euros in a rights issue and repays the state 3.1 billion euros.OCTOBER 2014 – MPS emerges as the worst performer in Europe-wide stress tests.JUNE 2015 – MPS raises 3 billion euros in cash after a 5.3 billion euro net loss for 2014 on record bad loan writedowns. It repays the remaining 1.1 billion euro state underwritten special bond.JULY 2016 – MPS announces a new 5 billion euro rights issue and plans to offload 28 billion euros in bad loans after European bank stress tests.DECEMBER 2016 – MPS turns to the state for help under a precautionary recapitalisation scheme after its cash call fails.JULY 2017 – After the ECB declares MPS solvent, the EU Commission clears an 8.2 billion euro bailout which hands the state a 68% stake at a cost of 5.4 billion.OCTOBER 2019 – MPS completes Europe’s biggest bad loan securitisation deal.AUGUST 2020 – Italy sets aside 1.5 billion euros to help MPS as it works to meet an end-2021 re-privatisation deadline.FEBRUARY 2021 – MPS posts 1.69 billion euro loss for 2020 as it opens its books to potential buyers.JULY 2021 – UniCredit enters exclusive talks to buy “selected parts” of MPS, a day before European banking stress test results show the latter’s capital would be wiped out in a slump.OCTOBER 2021 – Talks with UniCredit collapse.JUNE 2022 – MPS announces a 2.5 billion euro capital increase for end-October and secures a pre-underwriting accord with banks.OCTOBER 2022 – MPS secures at the very last minute an underwriting accord with a group of eight lenders after getting investor commitments for its new shares.($1 = 1.0306 euros) More

HONG KONG (Reuters) -Hong Kong dealmakers expect China’s 20th Party Congress next week to herald a shift in focus in Beijing back towards business and economic issues that could help revive the city’s IPO issuance from nine-year lows.Rolling COVID-19 lockdowns have been blamed for dramatically slowing China’s economic growth, shutting it off from the rest of the world and denting investors’ appetite to buy into Chinese assets.Any shift towards opening China’s borders and stimulating demand there would prop up confidence and business transactions, lawyers and analysts said. Hong Kong only recently began its own reopening, relaxing its tough virus policies which have tarnished its credentials as a global financial centre. “Hopefully, the global economic situation will improve next year and I expect to see a greater focus on business and economic issues in China after the 20th party congress,” said Richard Wang, Freshfields partner in Hong Kong, adding that should lead to more companies looking to raise capital. Initial public offering (IPO) activity in Hong Kong, which is traditionally dominated by mainland companies, has fallen to a nine-year low amid tumbling Chinese markets, escalating Sino-U.S. tensions and a tightening regulatory environment in China. International listing ambitions have been put on ice since China flagged new rules, which are yet to be finalised, for companies wanting to sell shares outside of the mainland markets. There has been just $9.28 billion worth of IPOs in Hong Kong this year, down from $37.1 billion in the same period in 2021, according to Refinitiv figures. The value of new share sales is the lowest since 2013.Moreover, more than 80% of the IPOs in Hong Kong this year are trading under water since their debut, according to Dealogic data.Mainland Chinese IPOs have raised $54.12 billion, down 33% from $80.89 billion in the first three quarters of 2022, according to Refinitiv data. However, Shanghai’s STAR and the Shenzhen exchange are the two most active IPO markets in the world, the data showed.”People are expecting that things will open up after the meeting but in terms of timing when you will see that, it will not be an overnight change,” said Stephanie Tang, a partner at law firm Hogan Lovells.”How that will evolve, there’s no one determining factor but the reasonable expectation is that we will see deal activity progress from late 2022 towards the springtime in 2023.” Most economists, however, doubt Chinese policymakers will offer any concrete signals soon of a relaxation of the zero COVID policy or a roadmap for border reopening.COVID infections are at the highest level since August and there’s an estimated 36 cities under lockdown or some form of control ahead of the meeting beginning on Sunday.Greater policy certainty in areas such as technology and education could only become clear following the annual two sessions of China’s parliament in March, lawyers said. More

A system counting tips toward the minimum wage is being fought in many places. Critics say it’s often abused. Defenders say workers benefit overall.With Americans resuming prepandemic habits of going out, eating out and traveling, leisure and hospitality businesses have scrambled to hire, sometimes offering pay increases that outpace inflation.But for many whose pay is linked to tips, like restaurant servers and bartenders, base wages remain low, and collecting what is owed under the law can be a struggle.In all but eight states, employers can legally choose to pay workers who receive tips a “subminimum” wage — in some places as low as $2.13 an hour — as long as tips bring their earnings to the equivalent of the minimum wage in a pay period. Economists estimate that at least 5.5 million workers are paid on that basis.The provision, known as the tip credit, is a unique industry subsidy that lets employers meet pay requirements more cheaply. And even in a tight labor market, it is often abused at the employees’ expense, according to workers, labor lawyers, many regulators and economists.“It’s baked into the model,” said David Weil, the administrator of the Wage and Hour Division of the Labor Department under President Barack Obama, referring to the frequency of violations. “And it’s very problematic.”Terrence Rice, a bartender from Cleveland who has worked in the bar and restaurant industry since 1999, chuckled at the notion that the law is consistently followed.“As long as I’ve been doing this, I have never, ever — not one time — met anyone that’s been compensated” for a below-minimum pay period, he said, adding that slow weeks with inadequate pay are viewed as the “feast or famine” norm in the industry. Busier seasons, weekends or shifts can bring a rush of a cash followed by slow weekdays, bad-weather weeks or economic turbulence.Now the yearslong arrangement is coming under increasing challenge.In the District of Columbia, a measure on the November ballot would ban the subminimum wage by 2027. A ballot proposal in Portland, Maine, would ban subminimum base pay and bring the regular minimum wage to $18 an hour over three years.Employers in Michigan are bracing for increased expenses in February, when the state tipped minimum of $3.75 an hour is set to be discontinued and the regular state minimum wage will rise to $12 from $9.87.Xander Gudejko, a district manager for Mainstreet Ventures Restaurant Group, which owns spots throughout Michigan, offered a common view in the local business community: “When I think of the potential positives for us, I can’t really think of anything.”Though tipped employees can include hotel housekeepers, bellhops, car washers and airport wheelchair escorts, most are in food and beverage service jobs. Perfect compliance may involve a complex dance of having workers clock in at the minimum-wage rate for setup work until opening, clock out, then clock back in at a tipped wage.Businesses using the two-tier system are prohibited from having tipped employees spend more than 20 percent of their shifts on side work like rolling silverware or cleaning. They also cannot include back-of-house employees, like kitchen workers, in tip pooling — the collection and redistribution of all gratuities at a certain rate, usually set by the employer.The last robust compliance investigation of full-service restaurants by the Labor Department is somewhat dated, having ended in 2012, but it found that 83.8 percent of the examined firms were in violation of labor law, with a large share of the infractions related to tips.The National Restaurant Association, which represents over 500,000 small and larger restaurants, argues that instances of illegal underpayment of tipped workers are overstated and that workers, customers and employers, in general, find the system workable.“There’s a reason people choose tipped restaurant jobs — they know the economics are in their favor,” said Sean Kennedy, the group’s executive vice president of public affairs. “For many servers, they’ve chosen restaurants as a career because their industry skills and knowledge mean high earning potential in a job that’s flexible to their needs.”Ryan Stygar, a labor lawyer and a managing partner at Centurion Trial Attorneys, whose practice mostly represents workers in wage-theft cases but also defends businesses accused of violations, called the network of laws surrounding tipped workers “so bizarre and obscure” that employers acting in good faith can still make legal mistakes.Even when the law is followed to the letter, Mr. Stygar said, the system is unfair to workers. “You are sacrificing your tips to meet the employers’ minimum-wage obligations,” he said.Employers are required to keep records of tips and usually do so through a mix of their own accounting, credit card receipts and self-reporting from staff members. Most involved in the system say the tracking works in murky ways.“In reality, who’s monitoring this complex two-tier system?” said Sylvia Allegretto, a former chair of the Center on Wage and Employment Dynamics at the University of California, Berkeley.“The onus is on you, the worker, to possibly enrage, or at least annoy, your boss, who also, coincidentally, controls your schedule,” she said.Talia Cella, a training manager at Illegal Pete’s, a fast-casual burrito spot in Boulder, Colo. The restaurant offers starting pay of $15 plus tips as well as health care coverage.Andrew Miller for The New York TimesIn many civil disputes, employment attorneys have successfully argued before courts that managers implicitly wield opportunities to work more lucrative shifts as a carrot for not rocking the boat on workplace abuse and as a stick to prevent retaliation.Sylvia Gaston, a waitress at a restaurant in Astoria, Queens, said her base wage is $7.50 an hour — even though New York City’s legal subminimum is $10, which must come to at least $15 after tips. Ms. Gaston, 40, who is from Mexico, feels that undocumented workers like her have a harder time fighting back when they are shortchanged.“It doesn’t really matter if you have documents or not — I think folks are still getting underpaid in general,” she said. “However, when it comes to uplifting your voices and speaking about it, the folks who can get a little bit more harsh repercussions are people who are undocumented.”Subminimum base pay for some tipped workers in the state, such as car washers, hairdressers and nail salon employees, was abolished in 2019 under an executive order by Gov. Andrew M. Cuomo, but workers in the food and drinks industry were left out.Gov. Kathy Hochul, Mr. Cuomo’s successor, said while lieutenant governor in 2020 that she supported “a solid, full wage for restaurant workers.” And progressive legislators plan a bill in January that would eliminate the two-tier wage system by the end of 2025.When The New York Times asked if she would support such changes, Ms. Hochul’s office did not answer directly. “We are always exploring the best ways to provide support” to service workers, it said.Proponents of abandoning subminimum wages say there could be advantages for employers, including less turnover, better service and higher morale.David Cooper, the director of the economic analysis and research network at the Economic Policy Institute, a progressive think tank, contends that when wage laws are changed to a single-tier system, business owners can have the assurance that “every single person they compete with is making the same exact adjustment,” reducing the specter of a competitive disadvantage.Still, he acknowledged, there would downsides. Restaurants and bars with less popularity and lower productivity could lose out in a substantially higher-wage environment, leading to higher prices and potentially closings.“This is not costless,” Mr. Cooper said. “But for a long time, we haven’t been internalizing the costs of paying workers less than they can live on.”Some employers who could use the two-tier wage system are taking a different approach.Talia Cella, 33, is a training manager at Illegal Pete’s, a burrito spot founded in Boulder, Colo., with locations throughout Arizona and Colorado. Those states have a subminimum wage under $10 an hour for tipped workers, and a regular minimum under $13. Illegal Pete’s offers starting pay of $15 plus tips as well as health care coverage.Before rising to her current position, Ms. Cella was hired as a server and trained as a bartender in 2016. She was previously making base pay of $5 an hour elsewhere as a waitress and hostess, unable to afford a car and biking to the bus stop in snow to make winter shifts.Even at what her company is paying, Ms. Cella said, recruiting and hiring are “more challenging than ever” because of labor shortages. But she said the business, with the help of a recent 10 percent price increase, remained profitable and was able to expand despite soaring food costs.She attributes this, in part, to “out-vibing” the competition.“Having work be a stable part of your life — where it’s like you go there, you’re getting paid a living wage, you have health insurance, you know this place cares about you — then you’re more likely to show up to work and give your best,” Ms. Cella said. “If you want people to give you more of themselves, more of their time, more of their effort, then you have to be willing to invest more of your company into the individual people as well.” More