Economy

The US is preparing to introduce sweeping export controls in an effort to slow Chinese efforts to obtain semiconductors and chipmaking equipment for supercomputers and other military-related applications.According to several people familiar with the situation, the commerce department is poised to announce restrictions that would essentially bar US companies from selling cutting-edge technology to Chinese groups and would severely limit the ability of non-US companies to sell products that use US technology to customers in China.The controls are the latest effort to prevent China from using American technology to develop military programmes from quantum computing to hypersonic weapons. The US is trying to prevent Chinese companies from providing American technology to the People’s Liberation Army through Beijing’s “civil-military fusion” plan.The restrictions are being tailored to make it harder for Chinese chip manufacturers — including Semiconductor Manufacturing International Corporation, Yangtze Memory Technologies Co, and ChangXin Memory Technologies — to close the big technological gap with rivals in the US, Europe and elsewhere in Asia.The Financial Times reported earlier this year that YMTC appeared to be supplying Huawei, the telecoms equipment company, with chips in violation of US export controls.“The US government wants granular control over any US technology used for semiconductor manufacturing. It wants to be able to veto the use by, or exports to, specific companies in China across the board,” said Paul Triolo, a technology expert at Albright Stonebridge Group.The US will introduce two rules, according to one person familiar with the situation. The first is designed to stop China securing advanced chips for supercomputers and artificial intelligence applications.China launched its first exascale supercomputer last year, pulling ahead of the US. Most of the processors powering such supercomputers are designed by companies such as Tianjin Phytium Information Technology, but they cannot yet be manufactured in China. The US blacklisted Phytium last year after it emerged that some of its chips were produced by Taiwan Semiconductor Manufacturing Company.Two of the people familiar with the plan said the US would set a threshold of 14 nanometres, which would prevent companies from exporting leading-edge chip technology to China. The first rule will also restrict the export of semiconductor-making equipment.

The administration will use the “Foreign Direct Product Rule”, a mechanism that was first used against Huawei. It bars companies from selling products that use US technology without obtaining an export licence — which is usually hard to secure — from the commerce department.Washington will also implement a second rule that puts foreign countries on notice that companies will be put on an export blacklist — known as the “entity list” — if they do not co-operate with efforts to make sure that the groups are engaging in “secure trade” and not involved in violating other export controls.Eric Sayers, managing partner at security consultancy Beacon Global Strategies, said the overall package was a “bold” move. “It will buy the [Joe] Biden team some goodwill with China hawks on Capitol Hill who have been frustrated with the slow movement of export control policy,” he said.One semiconductor industry executive said questions remained about “how big a shot” the Biden administration wanted to take, adding that the details outlined in the rules would be critical. “There’s a lot of different ways in which the borders [of technology] can be defined,” he said. In an interview with the FT, Sanjay Mehrotra, chief executive of US memory chipmaker Micron, declined to say if the rules would affect sales in China. “China is an important market for the entire semiconductor industry. It’s a large market and our sales there are in line with the rest of the semiconductor industry,” Mehrotra said.The commerce department declined to comment.Follow Demetri Sevastopulo on Twitter More

The consequences for the Fed not bringing inflation under control could be severe. Unemployment could spiral with the lowest earners sustaining the biggest impact.
Economist Joseph Brusuelas said a worst-case scenario would look something like a 5.5% unemployment rate and 3.5 million jobs lost.
That the Fed goes too far and stifles the economy too much is the principal fear of the central bank’s critics.
“I really think the war on inflation has been won. We just don’t know it,” said Leuthold Group strategist James Paulsen.

Jerome Powell, chairman of the US Federal Reserve, speaks during a Fed Listens event in Washington, D.C., US, on Friday, Sept. 23, 2022. Federal Reserve officials this week gave their clearest signal yet that they’re willing to tolerate a recession as the necessary trade-off for regaining control of inflation.
Al Drago | Bloomberg | Getty Images

Think of Federal Reserve Chairman Jerome Powell as a gymnast sprinting across the mat, spiraling, turning, churning, then twisting through the air and trying to make sure he still lands perfectly on his feet.
That’s monetary policy in this era of rapid inflation, swooning economic growth and heightened fears over what could go wrong. Powell is that gymnast, standing on the economic version of an Olympic mat, and having to make sure everything goes right.

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Because if things go wrong, they could go very wrong.
“They have to stick the landing,” said Joseph Brusuelas, U.S. chief economist at RSM.. “It’s the lower end of the economic ladder that is going to bear the burden if the Fed doesn’t stick the landing correctly. They lose jobs and their spending goes down and they have to draw on savings and 401(k)s to make ends meet.”
Consumers pressured by consistently rising prices already are dipping into savings to cover costs.
The personal saving rate was just 3.5% in August, according to the Bureau of Economic Analysis. That was just above a 3% rate in June that was the lowest in 14 years, dating back to the early days of the financial crisis.

Prices for everyday items have been surging at an extraordinary clip. Eggs were up 40% from a year ago in August, butter and margarine soared nearly 30% and gasoline, even with a 10.6% decline in the month, was still more than 25% higher than the same point in 2021.

The consequences for not bringing that under control could be severe, just as they could be if the Fed goes too far in its quest to regain price stability for the U.S. economy.
Brusuelas said a worst-case scenario would look something like a 5.5% unemployment rate and 3.5 million jobs lost as companies have to lay off workers to deal with the economic deceleration and surging costs that would come should inflation run rampant.

The risk of failure

As it stands, the economy is quite likely headed for a recession anyway. The question is how much worse it can end up.
“It’s not a matter of are we going into recession or not, it’s when we’re going to have it and the degree of intensity of the recession,” Brusuelas said. “My sense is we’re in a recession by the second quarter of 2023.”
The Fed cannot just keep raising rates as the economy weakens. It must hike until it reaches an equilibrium where it slows down the economy enough to correct the multifaceted supply/demand mismatches but not so much that it causes deeper, unnecessary pain. According to the Fed’s most recent outlook, policymakers expect to keep going into 2023, with benchmark rates about 1.5 percentage points from the current level.
“If the Fed overdoes it, you’ll have a much deeper recession with higher unemployment,” Brusuelas said.
That the Fed goes too far and stifles the economy too much is the principal fear of the central bank’s critics.
They say there are tangible signs that the 3 percentage points of rate hikes so far in 2022 have accomplished their goal, and the Fed now can pause to let inflation recede and the economy recover, albeit slowly.

“The Fed could quit today and inflation’s going to be back to acceptable levels next spring,” said James Paulsen, chief investment strategist at The Leuthold Group. “I really think the war on inflation has been won. We just don’t know it.”
Paulsen looks at things such as falling prices for commodities, used cars and imported goods. He also said prices on technology-related items are declining, while retail inventories are rising.
On the jobs market, he said the balance of payroll growth this year has come from the supply side of the economy that the Fed wants to stimulate, rather than the demand side that fueled the inflation explosion.
“If they want to, they can cause a needless recession,” Paulsen said. “I just don’t know why they want to do that.”
Paulsen is not alone in his criticism. There are spreading calls around Wall Street for the central bank to dial down its policy tightening and watch how the economy progresses from here.
Wells Fargo head of equity strategy Christopher Harvey said the Fed’s messaging, particularly from Chairman Jerome Powell, that it is willing to inflict “some pain” on the economy is being interpreted as the central bank willing to keep going “until something breaks.”
“What is troubling is the apparent downplaying of capital market signals as the Fed trudges toward its 2% inflation target,” Harvey said in a client note. “Therefore, those signals will need to get louder (i.e. even lower equities and wider spreads) before the Fed reacts. This also implies the recession likely will be longer/more severe than current fundamentals and market risk indicate.”

Human costs

No less an authority than the United Nations issued an agency report Monday in which the UN Conference on Trade and Development warned of the ramifications that the rate hikes could have globally.
“The current course of action is hurting vulnerable people everywhere, especially in developing countries. We must change course,” UNCTAD Secretary-General Rebeca Grynspan told a news conference in Geneva, according to a Reuters account.
Yet the data suggest the Fed still has work to do.
The upcoming consumer price index report is expected to show that the cost of living continued to climb in September. The Cleveland Fed’s Nowcast tracker of the items in the broad-based basket of goods and services the Bureau of Labor Statistics uses to compute the CPI is showing another 0.5% gain excluding food and energy, good for a 6.6% year over year pace. Including food and energy, headline CPI is projecting to rise 0.3% and 8.2% respectively.
While critics argue that those kinds of data points are backward-looking, the Fed faces an added optics issue after it downplayed inflation when it first started rising significantly more than a year ago, and was late to act.

That puts the burden back on policymakers to keep tightening to avoid a scenario like the 1970s and early ’80s, when then-Chairman Paul Volcker had to drag the economy into a tough recession to stop inflation once and for all.
“This is not the ’70s by any stretch of the imagination, for a whole lot of reasons,” said Steve Blitz, chief economist at TS Lombard. “But I would argue that they’re still being overly optimistic at which the inflation rate is going to decelerate on its own.”
For their part, Fed officials have stuck to the company line that they are willing to do whatever it takes to halt price surges.
San Francisco Fed President Mary Daly spoke emphatically about the human consequences of inflation, telling an audience Tuesday that she has been hearing about it from her constituents.
“Right now, the pain that I hear, the suffering that people are telling me what they’re going through, is on the inflation side,” she said during a talk at the Council on Foreign Relations. “They’re worried about their day-to-day living.”
Specifically addressing the wage issue, Daly said she one person told her, “I’m running fast and falling behind every single day. I’m working as hard as I can and I’m falling further behind.”

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The Bank of England stepped in to save a critical market this week. Economists say it was necessary but also worry about the precedent.When the Bank of England announced last week that it would buy bonds in unlimited quantities in an effort to stabilize the market for U.K. government debt, economists agreed it was probably a necessary move to prevent a cataclysmic financial crisis.They also worried it could set a dangerous precedent.Central banks defend the financial stability of the nations in which they operate. In an era of highly leveraged and deeply interconnected markets, that means that they sometimes have to buy bonds or backstop lending to prevent a problem in one area from spiraling into a crisis that threatens the entire financial system.But that backstop role also means that if a government does something to generate a major shock, politicians can be fairly confident that the local central bank will step in to stem the fallout.Some economists say that is essentially what happened in the United Kingdom. Liz Truss, the new prime minister, proposed a huge package of tax cuts and spending during a period of already high inflation, when standard economic theory suggests governments should do the opposite. Markets reacted forcefully: Yields on long-term government debt shot up, and the value of the British pound fell sharply relative to the dollar and other major currencies.The Bank of England announced that it would buy long-term government debt “on whatever scale is necessary” to prevent a full-blown financial crisis. The move was particularly striking because the bank had been poised to begin selling its bond holdings — a plan that is now postponed — and has been raising interest rates in a bid to bring down inflation.Economists broadly agreed that the bank’s decision was the right one. The rapid rise in interest rates sent shock waves through financial markets and upended a typically sleepy corner of the pension fund industry, which, left unaddressed, could have carried severe consequences for millions of workers and retirees, destabilizing the country’s entire financial system.“You saw very substantial market dislocation,” said Lawrence H. Summers, a former U.S. Treasury Secretary who is now at Harvard. “It’s a recognized role of central banks to respond to that.”To some economists, that was exactly the problem: By shielding the U.K. government from the full consequences of its actions — both preventing citizens from feeling the painful aftereffects and keeping government borrowing costs from shooting higher — the policy demonstrated that central bankers stand ready to clean up messy fallout. That could make it easier for elected leaders around the world to take similar risks in the future.Those concerns eased somewhat on Monday when Ms. Truss partly backed down, reversing plans to abolish the top income tax rate of 45 percent on high earners.But she appears poised to go forward with the rest of her proposed tax cuts and spending programs, putting the Bank of England in a delicate spot.Rising Inflation in BritainInflation Slows Slightly: Consumer prices are still rising at about the fastest pace in 40 years, despite a small drop to 9.9 percent in August.Interest Rates: On Sept. 22, the Bank of England raised its key rate by another half a percentage point, to 2.25 percent, as it tries to keep high inflation from becoming embedded in the nation’s economy.Mortgage Market: The uptick in interest rates roiled Britain’s mortgage market, leaving many homeowners calculating their potential future mortgage payments with alarm.Investor Worries: The financial markets have been grumbling with unease about Britain’s economic outlook. The government plan to freeze energy bills and cut taxes is not easing concerns.The “partial U-turn” from Ms. Truss “still leaves the Bank of England with a set of near-impossible choices,” analysts at Evercore ISI wrote in a note to clients. “The only way to alleviate this is for the government to take much bigger steps to restore credibility — but there is little sign this is imminent.”There’s a reason that the interplay between monetary policy and politics in the United Kingdom is garnering so much attention. Central banks have for decades closely guarded their independence from politics. They set their policies to either stoke the economy or to slow it down based on what was necessary to achieve their goals — in most cases, low and stable inflation — free from the control of elected officials.The logic behind that insulation is simple. If central bankers had to listen to politicians, they might let price increases get out of control in exchange for faster short-term growth that would help the party in power.Now, that independence is being tested, and not just in the United Kingdom. Central banks around the world are raising interest rates to try to fight inflation, resulting in slower growth and making it harder for governments to borrow and spend. That is likely to lead to tension — if not outright conflict — between central bankers and elected leaders.It is already beginning. A United Nations agency on Monday warned that the Federal Reserve risked a global recession and significant harm in developing countries, for instance. But the United Kingdom’s example is stark because the elected government is carrying out policy that works against what the nation’s central bank is trying to achieve.“One always worries that actions like these can affect incentives going forward,” said Karen Dynan, a Harvard economist who served as a top official in the Treasury Department under President Obama. “It’s basic economics: People respond to incentives, and fiscal policymakers are people.”Part of the issue is that it is hard for central bankers to single-mindedly focus on controlling inflation in an era when financial markets are fragile and susceptible to disruption — including disruptions caused by elected governments.Before 2008, the Fed had never used mass long-term bond purchases to calm markets in its modern era. It has now used them twice in the span of 12 years. In addition to last week’s moves, the Bank of England also turned to mass bond purchases to calm markets in 2020.Bank of England officials have stressed that the policies they announced last week are a temporary response to an immediate crisis. The bank plans to buy long-dated bonds for less than two weeks and says it will not hold them longer than necessary. The Treasury, not the bank, will be responsible for any financial losses. The bank said it remained committed to fighting inflation, and some economists have speculated that it could raise rates even more aggressively in light of the government’s growth-stoking policies.If the bank is able to hold to that plan, it could mitigate economists’ concerns about the longer-run risks of the program. If interest rates rise again and it gets more expensive for the government to borrow, Ms. Truss will still need to grapple with the costs of her proposed programs, just without facing an imminent financial crisis.But some economists warn that the Bank of England may find the situation harder to extricate itself from than it hopes. It may turn out that the bank needs to keep buying bonds longer than expected, or that it cannot sell them without threatening another crisis. That could have the unintentional side effect of giving the British government a helping hand — and it could demonstrate that it is hard for a big central bank to remove support from its economy when the elected government wants to do the opposite.Liz Truss, Britain’s prime minister, will still need to grapple with the costs of her proposed programs, but she won’t be facing an imminent financial crisis because of the Bank of England’s actions.Alberto Pezzali/Associated PressMs. Truss’s policies — particularly before her partial reversal on Monday — would work directly against the bank’s efforts to cool growth, stoking demand through lower taxes and increased spending. The rapid rise in bond yields last week suggested that investors expected inflation to rise even further.Under ordinary circumstances, these conditions would lead the Bank of England to do even more to bring down the inflation it had already been fighting, raising interest rates more quickly or selling more of its bond holdings. Some analysts early last week expected the bank to announce an emergency rate increase. Instead, the brewing financial crisis forced the bank to do, in effect, the opposite, lowering borrowing costs by buying bonds.While lowering rates and stoking the economy was not the point — just a side effect — some economists warn that those actions risk setting a dangerous precedent in which central banks can only tighten policy to control inflation if their national governments cooperate and do not roil markets in a way that threatens financial stability. That situation puts politicians more in the driver’s seat when it comes to making economic policy.Guillaume Plantin, a French economist who has studied the interplay between central banks and governments, likened the dynamic to a game of chicken: To avoid a financial crisis, either Ms. Truss had to abandon her tax-cut plans, or the Bank of England had to set aside, at least temporarily, its efforts to raise borrowing costs. The result: “The Bank of England had to chicken out,” he said.Policymakers have known for decades that when the government steps in to rescue private companies or individuals, it can encourage them to repeat the same risky behavior in the future, a situation known as “moral hazard.” But in the private sector, there are steps governments can take to offset those risks — regulating banks to reduce the risk of collapse, for example, or wiping out shareholders if the government does need to step in to help.It is less clear what monetary policymakers can do to prevent the government itself from taking advantage of the safety net a central bank provides.“There is a moral hazard here: You are protecting some people from the full consequences of their actions,” said Donald Kohn, a former Fed vice chair and a former member of the Bank of England’s Financial Policy Committee, who agreed that it is necessary to intervene to prevent market dysfunction. “If you think about the entities that benefited from this, one was the chancellor of the Exchequer, the government.”Some forecasters have warned that other central banks might have to pull back on their own efforts to fight inflation to avoid destabilizing financial markets. Some investors are speculating that the Fed will have to end its policy of shrinking government bond holdings early or risk stirring market turmoil, for instance.Not all of those scenarios would necessarily raise the same concerns. In the United States, the Biden administration and the Fed are both focused on fighting inflation, so any reversal by the central bank would probably not look like bowing to pressure from the elected government.Still, the common thread is that financial stability issues could become a hurdle in the fight against inflation — especially where governments do not decide to go along with the push to rein in prices. And how worrying the British precedent proves will depend on whether the Bank of England is capable of backing away from bond buying quickly.“Is this just an exigent moment that they needed to respond to, or does it give the fiscal authority room to be irresponsible?” said Paul McCulley, an economist and the former managing director at the investment firm PIMCO. “The question is who blinks.”Joe Rennison More

Government data showed 10.1 million openings, a decline from 11.2 million in July. Overall hiring, quitting and layoffs were fairly steady.Employers continued to ease off the number of jobs they were hiring for in August, but not by much, adding to the picture of a labor market that’s cooling but still short of available workers.About 10.1 million positions were open at the end of the summer, down from 11.2 million in July, the Labor Department reported Tuesday. That still left 1.7 unemployed workers for each available job, around the highest proportion on record.The job openings rate — calculated by dividing the number of job openings by the sum of employment and open jobs — was 6.2 percent, down from a revised 6.8 percent in July. The number and share of people being hired and leaving their jobs remained about level.Federal Reserve officials have theorized that rather than prompting employers to lay people off, rising interest rates would instead subdue the economy by simply reducing their need for additional workers. So far, that’s happening — but very slowly.“Our perspective is really distorted,” said Diane Swonk, chief economist at the accounting firm KPMG. “It’s still not anything like what we saw prepandemic. It’s cooling from a boil to a rolling simmer. And that’s not enough.”Ms. Swonk referred to data released by the job search website Indeed, which shows a consistently elevated level of new job postings, even though demand for retail workers in particular has leveled off.“They’ve come off their peak, but they’re still plateauing at a high level,” Ms. Swonk said. The share of people quitting their jobs is also an indicator of workers’ confidence that employment opportunities abound. About 4.2 million people gave notice in August, slightly more than during the previous month. That left the rate of people quitting their jobs — the number of people voluntarily leaving their jobs divided by total employment — only slightly below the 3 percent it reached at the end of last year, the highest reading on record.One of the largest drops in openings came in the financial sector, where mortgage brokers have been losing work as rising interest rates are subduing the housing market, although openings in rental and leasing activities rose. Retail openings also dropped, as companies prepared for a softer holiday season.Even while slowing down job postings, companies have been holding on to workers. After rising slightly in the first half of the year, the number of initial claims for unemployment has been trending lower since midsummer as employers have tried to stay fully staffed. In the release by the Labor Department on Tuesday, layoffs ticked up slightly to 1.5 million in August, but remained lower than their historical average.“Simply put, companies slashed payrolls by more than was necessary during the height of the pandemic and are struggling to restore staffing levels to where they were before Covid-19 hit,” Bob Schwartz, an Oxford Economics senior economist, wrote in a note last week. More

US employers cut more than 1mn job vacancies in August, in a sign that the Federal Reserve’s aggressive efforts to cool the economy are starting to hit the labour market.The monthly decline was the second sharpest in two decades of data, eclipsed only by April 2020, when widespread lockdowns froze hiring at the onset of the coronavirus pandemic.The figures come before the release of official jobs data on Friday, which will be closely watched by investors for its influence on how the US central bank will continue with its campaign to stamp out inflation that is running near its highest levels in four decades.Job vacancies, a measure of labour demand, stood at 10.05mn, according to data released on Tuesday by the US labour department, representing more than 1.1mn fewer listings than in July.It was one of the biggest one-month drops in vacancies in two decades of data analysed by the Financial Times, second only to the 1.2mn decline reported in April 2020 after Covid-19 was declared a pandemic.Even as other parts of the US economy have slowed, the labour market has remained hot, keeping upward pressure on inflation. But other figures from the Job Openings and Labor Turnover Survey (Jolts) released on Tuesday also indicated that the employment market could be slowing.The number of workers who voluntarily quit their jobs has been trending down in recent months, but was little changed in August at 4.2mn. So-called quits are still hovering above pre-pandemic levels, a sign that workers are confident they can find new employment opportunities. Meanwhile, the ratio of job vacancies to unemployed people stands at 1.7, having steadied at two for the past six months.“The Jolts report today shows some clear signs that the job market is cooling even if it’s starting from a high temperature,” said Daniel Zhao, an economist at jobs site Glassdoor.The decline in job vacancies should provide some relief for the Fed, which is in the midst of its most aggressive campaign to tighten monetary policy since the early 1980s. Last month, it implemented its third consecutive 0.75 percentage point interest rate increase, which lifted the federal funds rate to a target range of 3 per cent to 3.25 per cent.“[Fed chair] Jay Powell is fist pumping at that job openings number,” said Nick Bunker, an economist for jobs site Indeed.As the Fed lifts rates to a level that actively restrains the economy, policymakers believe the labour market is so tight that it can achieve a better balance without material job losses. They are hopeful employers, who have struggled since the onset of the pandemic to find workers, will be more hesitant to reduce headcount at a time when consumer demand is still elevated.That runs counter to the view held by many Wall Street economists, who forecast the unemployment rate to hover at or above 5 per cent as the Fed ploughs ahead with its efforts to return inflation back to its 2 per cent target. A recession under those circumstances is an inevitability, they argue.

In his first public remarks since becoming Fed governor, Philip Jefferson on Tuesday described the labour market as “very tight”, but said the supply and demand imbalance “seem likely to ease some”.Powell and other officials have more directly acknowledged that the process to restore price stability will involve “some pain”, but still stop short of forecasting a recession. At the press conference that followed the September rate decision, however, Powell admitted: “No one knows whether this process will lead to a recession or if so, how significant that recession would be.”The labour department will release non-farm payrolls data on Friday, which economists expect to show the US economy added 250,000 jobs in September — potentially the smallest monthly increase this year. The unemployment rate is forecast to remain steady at 3.7 per cent, close to a five-decade low.“We’re still seeing employers hiring workers, so there’s still some momentum in this labour market,” Bunker said. “It’s just the speed has come back a little bit.” More

Job openings in August totaled 10.05 million, a 10% drop from the 11.17 million reported in July and more than a million less than expected.
The Job Openings and Labor Turnover numbers are watched closely by the Federal Reserve, which is trying to reverse runaway inflation that has been pushed by the tight labor market.

The number of job openings plunged by more than a million in August, providing a potential early sign that the massive U.S. labor gap is beginning to close.
Available positions totaled 10.05 million for the month, a 10% drop from the 11.17 million reported in July, according to a Bureau of Labor Statistics release Tuesday. That was also well below the 11.1 million FactSet estimate and was the biggest one-month decline since April 2020 in the early days of the Covid pandemic.

The number of hires rose slightly, while total separations jumped by 182,000. Quits, or those who left their jobs voluntarily, rose by 100,000 for the month to 4.16 million.
The Job Openings and Labor Turnover numbers are watched closely by the Federal Reserve, which is trying to reverse runaway inflation through a series of five interest rate increases this year that thus far have totaled 3 percentage points.
One primary area of interest for the central bank has been the ultra-tight labor market, which had been showing about two job openings for every available worker. That ratio contracted to 1.67 to 1 in August.
The job market has been a primary driver of inflation, as the outsized demand for the scarce labor pool has helped drive up wages sharply. Average hourly earnings rose 5.2% over the 12-month period through August. But adjusted for inflation, real earnings actually declined 2.8%.
“Job openings took a major dive in August, falling by more than about 1 million, but they still total more than 10 million. That and other data point to a jobs market that’s still challenging for employers,” said Robert Frick, corporate economist at Navy Federal Credit Union. “But judging by the drop in openings and the high number of Americans who entered the labor force in August, almost 900,000, the worst of the tight labor market is over.”

Health care and social assistance saw the biggest drop in vacancies, falling by 236,000. The “other services” category saw a decline of 183,000, while retail was down 143,000.
Aligning labor supply with demand has been a big goal for the Fed, which uses rate increases to slow the flow of money through the economy. The labor market has shown little reaction to the moves, with weekly jobless claims recently hitting a five-month low and the unemployment rate at 3.7%.
August did see a sharp bump in the labor force, which increased by 786,000, pushing up the participation rate by 0.3 percentage point to 62.4%, tied for highest of the year. The rate remains one full percentage point below where it was in February 2020, just prior to the pandemic.
Markets still expect the Fed to push forward with a fourth consecutive 0.75 percentage point interest rate hike at its next meeting.
Tuesday’s release comes ahead of Friday’s nonfarm payrolls report for September, which is expected to show a gain of 275,000, according to Dow Jones.

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Xi Jinping will shortly be confirmed for a third term as general secretary of the Communist party and head of the military. So, is his achievement of such unchallengeable power good for China or for the world? No. It is dangerous for both. It would be dangerous even if he had proven himself a ruler of matchless competence. But he has not done so. As it is, the risks are those of ossification at home and increasing friction abroad.Ten years is always enough. Even a first-rate leader decays after that long in office. One with unchallengeable power tends to decay more quickly. Surrounded by people he has chosen and protective of the legacy he has created, the despot will become increasingly isolated and defensive, even paranoid.Reform halts. Decision-making slows. Foolish decisions go unchallenged and so remain unchanged. The zero-Covid policy is an example. If one wishes to look outside China, one can see the madness induced by prolonged power in Putin’s Russia. In Mao Zedong, China has its own example. Indeed, Mao was why Deng Xiaoping, a genius of common sense, introduced the system of term limits Xi is now overthrowing.The advantage of democracies is not that they necessarily choose wise and well-intentioned leaders. Too often they choose the opposite. But these can be opposed without danger and dismissed without bloodshed. In personal despotisms, neither is possible. In institutionalised despotisms, dismissal is conceivable, as Khrushchev discovered. But it is dangerous and the more dominant the leader, the more dangerous it becomes. It is simply realistic to expect the next 10 years of Xi to be worse than the last.

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How bad then was his first decade?In a recent article in China Leadership Monitor, Minxin Pei of Claremont McKenna College judges that Xi has three main goals: personal dominance; revitalisation of the Leninist party-state; and expanding China’s global influence. He has been triumphant on the first; formally successful on the second; and had mixed success on the last. While China is today a recognised superpower, it has also mobilised a powerful coalition of anxious adversaries.Pei does not include economic reform among Xi’s principal objectives. The evidence suggests this is quite correct. It is not. Notably, reforms that could undermine state-owned enterprises have been avoided. Stricter controls have also been imposed on famous Chinese businessmen, such as Jack Ma.Above all, deep macroeconomic, microeconomic and environmental difficulties remain largely unaddressed.All three were summed up in former premier Wen Jiabao’s description of the economy as “unstable, unbalanced, uncoordinated and unsustainable”.The fundamental macroeconomic problems are excess savings, its concomitant, excess investment, and its corollary, growing mountains of unproductive debt. These three things go together: one cannot be solved without solving the other two. Contrary to widely shared belief, the excess saving is only partly the result of a lack of a social safety net and consequent high household savings. It is as much because household disposable income is such a low share of national income, with much of the rest consisting of profits. The result is that national savings and investment are both above 40 per cent of gross domestic product. If the investment were not that high, the economy would be in a permanent slump. But, as growth potential has slowed, much of this investment has been in unproductive, debt-financed construction. That is a short-term remedy with the adverse long-term side effects of bad debt and falling return on investment. The solution is not only to reduce household savings, but raise the household share in disposable incomes. Both threaten powerful vested interests and have not happened.The fundamental microeconomic problems have been pervasive corruption, arbitrary intervention in private business and waste in the public sector. In addition, environmental policy, not least the country’s huge emissions of carbon dioxide, remains an enormous challenge. To his credit, Xi has recognised this issue.More recently, Xi has adopted the policy of keeping at bay a virus circulating freely in the rest of the world. China should instead have imported the best global vaccines and, after they were administered, reopened the country. This would have been sensible and also indicated continued belief in openness and co-operation.Xi’s programme of renewed central control is not surprising. It was a natural reaction to the eroding impact of greater freedoms on a political structure that rests on power that is unaccountable, except upwards. Pervasive corruption was the inevitable result. But the price of trying to suppress it is risk aversion and ossification. It is hard to believe that a top-down organisation under one man’s absolute control can rule an ever more sophisticated society of 1.4bn people sanely, let alone effectively.It is not surprising either that China has become increasingly assertive. Western unwillingness to adjust to China’s rise is clearly a part of the problem. But so has been China’s open hostility to core values the west (and many others) hold dear. Many of us cannot take seriously China’s adherence to the Marxist political ideals that have demonstrably not succeeded in the long run. Yes, Deng’s brilliant eclecticism did work, at least while China was a developing country. But reimposition of the old Leninist orthodoxies on today’s highly complex China must be a dead end at best. At worst, as Xi stays indefinitely in office, it could prove something even more dangerous than that, for China itself and the rest of the [email protected] Martin Wolf with myFT and on Twitter More

JPMorgan has declined to include India in a widely followed bond index until at least next year after investors raised concerns about the domestic market’s ability to handle the large volume of capital inflows expected to follow the move.India’s rupee-denominated bonds had been on “positive watch” for a year, prompting expectations among some analysts and investors that a decision would be made this month to add the debt to the GBI-EM Global Diversified index, with inclusion to follow in 2023. Inclusion would have allowed a big chunk of India’s $1tn rupee bond market to join the index at a weighting of up to 10 per cent, opening the door to a potential $20bn-$30bn of inflows. JPMorgan’s decision not to include the bonds was due to investor concerns about India’s market infrastructure, according to a person familiar with the matter. Gloria Kim, head of index research at JPMorgan, said India’s market had “made significant strides in easing the access for foreign portfolio investors . . . [We] will continue to engage with the regulators and market participants, and gather feedback on sufficient resolutions for the remaining hurdles.”The bank opened consultations in the middle of this year with fund managers handling about 85 per cent of the $240bn in assets that follow the benchmark. Managers “overwhelmingly” voiced concerns about India’s lengthy investor registration process and the ability of its market utilities to handle the volume of trade clearing, settlement and custody that would follow inclusion, the person familiar with the process said. The person added that India was likely to remain on “index watch” — without the positive outlook of its previous status — for a further six to nine months.A strategist at one western investment bank in Asia said foreign investors were concerned about India’s capacity to handle clearing and settlement, particularly on the matter of trade matching, which ensures that buy and sell orders from both parties in a transaction line up.Important parts of this process are still handled manually in India, such as matching the time stamp down to the minute and the size of a trade to two decimal places, with any discrepancies resulting in the automatic cancellation of a transaction.Another major challenge has been where and how bond trading should be settled — whether outside India’s borders on a platform such as Euroclear that is familiar to global financial institutions, or in the country, where investors would have to complete onerous registration procedures.An exemption to capital gains tax for foreign investors, which would have paved the way for easier settlement with Euroclear, had been anticipated by analysts ahead of this year’s fiscal announcements in February but failed to materialise.

“With operational issues, it’s always a work in progress,” the strategist said. “It’s an emerging market . . . you’re not trading US Treasuries.”A decision to add Indian debt to one of JPMorgan’s flagship indices would mark an inflection point for global investor exposure to the world’s fifth-largest economy and the fruition of years of discussions between India’s government, index providers and investors.Indian authorities have long been wary of opening the country’s financial markets to foreign hot-money flows, which can quickly change direction. The government’s ability to borrow on local markets in local currency, rather than running the risks of borrowing from foreign investors in foreign currency, has been a valued bulwark against volatility in global markets.But analysts said the government had been persuaded that money benchmarked against indices was likely to be more “sticky”. More