Economy

Edmund S. Phelps said the U.S. needs to get productivity growth on the kind of level is was in the 50s and 60s.
The Nobel Prize winner said it was “really important for people’s morale that they come home from time to time with better paychecks than they had before”.
He also said the Federal Reserve needed to signal a greater willingness to continue to act aggressively to combat inflation.

The U.S. needs to return to the kind of economic and productivity growth it saw in mid-20th century to boost public spirits, according to a Nobel Prize-winning economist. 
“We badly need to get back to economic growth,” Edmund S. Phelps, director of the Center on Capitalism and Society at Columbia University, told CNBC’s “Squawk Box Europe” on Wednesday. 

“By that I don’t mean an artificial temporary boom or a slower descent into lower employment, I mean that we’ve really got to get productivity growth on an upward climb approaching what it was in the 50s and 60s,” he said. 
Phelps was awarded the 2006 Nobel in Economic Sciences for his work challenging the Phillips Curve, the view, popular in the 1950s and 60s, that the price for reduced unemployment was a one-time increase in inflation. 
Phelps introduced the factor of inflation expectations into the Phillips Curve, showing unemployment is determined by the functioning of the labor market rather than inflation figures, so a stabilization policy can only diminish short-term fluctuations in unemployment.  
“A lot of people listening to this program might think, well gee whiz, after centuries of rapid growth, haven’t we had enough? We’re not starving anymore after all, what’s all this fuss about economic growth?” Phelps told “Squawk Box Europe.”

“But I think it’s really important for people’s morale that they come home from time to time with better pay checks than they had before. It boosts their morale, it makes them less worried about how they’re doing compared with other people,” he continued. 

“Everybody is doing so-so when you’re in virtual stagnation in terms of productivity, and in that landscape, which we’re unfortunately in now, it’s really important that we get the growth rate up.” 
U.S. GDP fell 0.9% in the second quarter following a 1.6% drop in the first quarter, though analysts say the economy is not yet in a recession and may avoid one. 
Productivity, measured as nonfarm business employee output per house, also fell in both quarters, decreasing by 7.4% and 4.6% quarter-on-quarter. 
These were the weakest back-to-back readings since records began in 1947.
The U.S. recorded productivity growth of 2.8% from 1947-1973, which fell to 1.2% from 1973-1979, according to data from the U.S. Bureau of Labor Statistics. 
Productivity growth has failed to return to its post-war level since, coming in at 1.4% from 2007-2019 and 2.2% from 2019-2021.
On current economic pressures, Phelps commented: “The government has been running huge fiscal deficits in recent years, and as a result the public debt has risen to sky-high levels. To me, it’s just unimaginable that fiscal policy would be used at this point to create further stimulus to demand.
“I think we need to have somewhat lower demand to cool off the economy a bit and get the unemployment rate back to some sustainable level.” 
Natural market forces will slow the rate of inflation over several years, he said, but the Federal Reserve must be more aggressive than it has been and signal a willingness to continue to act in strong magnitudes.

WATCH LIVEWATCH IN THE APP More

Apple is in talks to make Apple Watches and MacBooks in Vietnam for the first time, marking a further win for the south-east Asian country as the US tech giant seeks to diversify production away from China.Apple suppliers Luxshare Precision Industry and Foxconn have started test production of the Apple Watch in northern Vietnam with the aim of producing the device outside China for the very first time, three people with direct knowledge of the matter told Nikkei Asia.Vietnam is already Apple’s most important production hub outside China, producing a wide range of flagship products for the American company, including iPad tablets and AirPods earphones.The Apple Watch is even more sophisticated, according to industry experts, who say that squeezing so many components into such a small case requires a high degree of technological skill. Producing the device would be a win for Vietnam as the country attempts to further upgrade its tech manufacturing sector.Apple has also continued to shift iPad production to Vietnam after Covid-related lockdowns in Shanghai caused massive supply chain disruptions. BYD of China was the first to assist with this shift, though sources told Nikkei Asia that Foxconn, too, is now helping build more iPads in the south-east Asian nation. Apple is also in talks with suppliers to build test production lines for its HomePod smart speakers in Vietnam, the people said.On the MacBook front, Apple had asked suppliers to set up a test production line in Vietnam, two sources said. However, progress in moving mass production to the country had been slow, partly as a result of pandemic-related disruptions but also because notebook computer production involved a larger supply chain, multiple sources said. That network is currently centred on China and very cost-competitive, they added.“AirPods, Apple Watch, HomePod and more . . . Apple has big plans in Vietnam, apart from iPhone manufacturing,” one of the people with direct knowledge of the situation said. “The components for MacBooks have become more modularised than in the past, which makes it easier to produce the laptops outside of China. But how to make it cost-competitive is another challenge.”Apple’s diversification to Vietnam started with AirPods, which went into mass production there in 2020. The earphones were among the first Apple products whose assembly was shifted out of China after a trade war between Washington and Beijing broke out under former US president Donald Trump.The move signalled a change of approach for Apple, which had depended on China for almost all of its production needs for decades.For Vietnam, Apple’s shift — and the US-China tensions more broadly — have been a boon. The number of Apple suppliers with facilities in the country has increased to at least 22 from 14 in 2018, according to Nikkei Asia’s analysis of Apple’s latest available suppliers list and interviews with sources. Many other big electronics manufacturers such as Google, Dell and Amazon have also set up production in Vietnam to diversify beyond China, Nikkei Asia has previously reported.Eddie Han, a senior analyst with Isaiah Research, told Nikkei Asia that electronics makers are trying to strike a balance amid Washington-Beijing tensions.“Geographically, we find major international electronics brands such as Apple and Samsung trying to lower dependence on making products inside China. But on the other hand, these international players have adopted more China-based suppliers such as Luxshare and BYD for Apple, and Huaqin for Samsung to build more of their products,” Han said. “Those are moves to balance the geopolitical impacts.”He added: “China’s role as the world’s most important factory has been challenged since the trade war and then later its energy and zero-Covid policies. That really makes Vietnam, which is close to China, an ideal destination for many electronics makers as the nation gradually grows its supply chain ecosystem.”Apple, Foxconn and Luxshare did not respond to Nikkei Asia’s request for comment. A version of this article was first published by Nikkei Asia on August 17 2022. ©2022 Nikkei Inc. All rights reservedRelated storiesIndia’s Vedanta set to choose site for $20bn tech hub with FoxconniPhone assembler Pegatron announces new co-CEO roleApple warns suppliers to follow China rules on ‘Taiwan’ labellingApple’s patent history reveals a major push into autos More

ISTANBUL (Reuters) – Turkey’s economy expanded 7.5% annually in the second quarter of the year, a Reuters poll showed on Wednesday, while the full-year growth forecast stood at 4%, pointing a drop in economic activity in the second half of the year reflecting weaker demand conditions.The economy expanded 7.3% year-on-year in the first quarter, driven by strong performances strong exports and robust domestic demand. It is expected to have kept up the strong performance in the second quarter.President Tayyip Erdogan’s new economic programme has prioritised growth and exports, while aiming to tackle inflation by shoring up Turkey’s chronic current account deficit instead of rate hikes.An easing cycle under Erdogan’s programme led the lira to end last year down 44% against the dollar and shed another 27% so far this year, sending inflation to a 24-year high of nearly 80% in July.While the rate cuts aimed at stimulating the economy, analysts predict that activity could cool in the second half of the year due to a downward trend in demand and an expected economic slowdown in Turkey’s largest trade partners.The median estimate of 13 economists in a Reuters poll for annual gross domestic product (GDP) growth in the second quarter stood at 7.5%, within a range of 5% and 8.7%.The full-year growth was lower, with the median estimate of 18 economists standing at 4.05% and forecasts ranging between 3.3% and 5%.Turkey’s central bank cited signs of a slowdown in the third quarter last week when it shocked markets by cutting its policy rate by 100 basis points to 13%.”It is important that financial conditions remain supportive to preserve the growth momentum in industrial production and the positive trend in employment,” the bank said.Finance Minister Nureddin Nebati said on Tuesday that he expects growth in the second quarter to come in higher than the 7.3% recorded in the first quarter.Turkey’s economy was one of few to narrowly expand in 2020, thanks largely to cheap loans. It bounced back in 2021, expanding 11%.The Turkish Statistical Institute is expected to announce second quarter growth results at 0700 GMT on Aug. 31. More

“Our new growth projection is 150 basis points above market consensus of 4.2%,” UBS economist Gyorgy Kovacs said in the report.Tourism revenues are expected to reach 20 billion euros this year, topping projections of 15 billion and last year’s 10.5 billion, including a positive effect on job creation, the report said.Central bank data showed that non-resident arrivals rose 241.5% in June on the year, with revenue up 224.5%. Arrivals corresponded to 89.0% of their level in 2019, a record year for tourism, while revenue exceeded it.Greece’s economy expanded in the first three months of the year at a faster pace than in last year’s fourth quarter but on an annual basis the rate of growth eased to 7.0% percent from 8.1%.Official second quarter gross domestic product (GDP) data is due to be released on Sept. 7.UBS sees downside risks this year from a gradual deterioration in business sentiment and potential disruption to gas flows to Europe. It revised its 2023 Greek growth forecast down to 4.0% from 4.7%.It said average inflation could easily top 9% this year.Greece’s annual consumer inflation slowed to 11.6% in July from 12.1% the previous month, remaining close to its highest level in nearly three decades.The government is expected to spend 6 billion euros on energy subsidies this year, about 3.0% of GDP. More support may be announced on Sept. 10 although likely to only amount to around 1.0% of GDP, UBS said. More

PARIS (Reuters) -President Emmanuel Macron told the French on Wednesday there were tough months ahead as “freedom has a cost”, with his government warning that there may be increases in energy prices as the war in Ukraine grinds on. However, unions rejected his call for sacrifices to be made, saying workers needed higher pay to cope with rising inflation.Macron said people were living through a series of crises, with the extreme temperatures, fires and drought of the past weeks, the Ukraine war and disruptions to global trade. Addressing the first cabinet meeting since the summer break, Macron said the world faced the end of an easy abundance of goods and resources and “of a certain carefreeness”.”Freedom has a cost,” Macron said, urging his ministers to be ambitious and the French to accept new measures. “The battles we have to fight … will only be won through our efforts.” In the coming weeks his government will have to decide whether to renew price caps on electricity and gas that expire at the end of the year, and maintain a fuel rebate, which together have helped keep French inflation lower than many European peers but weigh heavily on public finances.France could not maintain energy price caps to help households cope with soaring inflation forever, government spokesman Olivier Veran said after the cabinet meeting. “There may be price increases,” he said.Pension and unemployment benefit schemes reforms are also in the works and could trigger street protests. UNIONS PLAN PROTESTSMacron, who won a second presidential mandate in April but lost his majority in parliament, faces tough challenges, including persuading lawmakers to pass the 2023 budget. The government will present legislation in September to speed up energy infrastructure projects and hammer out a short-term plan to secure energy supplies for the winter, Veran said.France is also working on an “energy restraint plan” that would ask all citizens to commit to a “hunt for waste”, such as turning off lights when leaving offices, Macron said in July.France is less reliant than some neighbours on gas imports from Russia, which account for about 17% of its gas consumption. But concerns about supply from Russia nevertheless remain.Philippe Martinez, the head of the CGT labour union, told BFM TV after Macron’s comments that protests in September would call for measures to boost wages and limit price increases.”We will stand up against these new sacrifices,” he said. His union has called for a day of nationwide strikes on Sept. 29.Philippe Gosselin, a lawmaker for the opposition conservative Les Republicains, said Macron needed to press ahead with reforms after a few slow months following his election. “Since the legislative elections, in fact, there has been no real direction,” Gosselin told Reuters. More

COLOMBO/LONDON (Reuters) -A team from the International Monetary Fund (IMF) will meet Sri Lanka’s president on Wednesday for talks to finalise a bailout package, including restructuring debt of about $29 billion, amid the nation’s worst financial crisis in more than seven decades.The second such IMF visit in three months comes as the Indian Ocean island scrambles to lock down a staff-level pact with the global lender for a possible $3 billion programme to pave its way out of the crisis.”The IMF team will meet with the president and a finance ministry delegation later today,” an official at the presidential secretariat told Reuters, declining to be identified as he was not authorised to speak to the media.The team will also hold talks with the central bank governor and other officials, including representatives of Sri Lanka’s financial and legal advisers Lazard (NYSE:LAZ)’s and Clifford Chance.The main sticking point of the talks is how to find a sustainable track for Sri Lanka’s unwieldy debt, which stood at 114% of GDP at the end of last year, so as to clinch a staff-level agreement in September.Sri Lanka has $9.6 billion in bilateral debt and its private credit, which includes international sovereign bonds, stands at $19.8 billion, finance ministry data show.Japan and China are the largest holders of bilateral debt, with the latter accounting for about $3.5 billion. Overall, when commercial debt is added, China holds about a fifth of Sri Lanka’s debt portfolio.”The issue will be how Chinese and domestic debt will be included in the talks,” said Timothy Ash, senior emerging markets sovereign strategist at BlueBay Asset Management.”Other bilateral creditors won’t be willing to allow China to get away with not having comparable treatment this time. China is part of the problem, and needs to be part of the solution this time.”For months the population of 22 million has struggled with soaring inflation, economic contraction and a severe shortage of essential items of food, fuel and medicine caused by a record slump in foreign reserves.The country’s most severe financial crisis since independence from Britain in 1948 stemmed from the combined impact of the COVID-19 pandemic and economic mismanagement, stoking unprecedented protests.In July, the then-president Gotabaya Rajapaksa fled the country and resigned after a mass uprising triggered by what many Sri Lankans saw as his mishandling of the financial crisis.President Ranil Wickremesinghe, who is also the finance minister, plans to ask Japan to lead talks on bilateral debt restructuring after Sri Lanka secures IMF support.The government is “negotiating on many fronts, and it has to make progress at least with the big creditors” for debt talks to move forward, said Sergi Lanau, deputy chief economist at the Institute of International Finance (IIF). More

Last year, Moldova’s economy grew by almost 14%.The ministry said that the inflation forecast for 2022 had been raised to 29.5% from the previous of 21.9% and the local currency rate had been weakened to 19.14 leu per $1 from 18.81.The country expects its industrial output will grow by 1.5% while the agriculture sector will shrink by 18% because of the drought.The ministry said that the government would discuss amendments to the 2022 budget at its Wednesday meeting, prompted by the fact that economic performance would be worse than previously expected.Earlier Moldova appealed to the International Monetary Fund for help with the extra financial burden of supporting Ukrainian refugees who have sought safety across the border and whose number currently is about 89,000 in the country of 2.6 million people. More

Investing.com — The dollar strengthens and bond yields rise as the Federal Reserve’s biggest dove fails to signal any intention to pivot away from tighter policy. Durable goods orders data are due. Bed Bath & Beyond gets a crucial lifeline. Electric vehicle makers come under the spotlight as one of China’s rising stars makes a bad miss. And oil roars back on talk of an OPEC+ supply cut. Here’s what you need to know in financial markets on Wednesday, August 24.1. ‘Dove’ Kashkari stays hawkishThose hoping that Tuesday’s raft of weak economic data could elicit some promise of moderation from the Federal Reserve at its Jackson Hole symposium on Friday, look set to be disappointed. Neel Kashkari, the Minneapolis Fed governor who was for years the biggest inflation ‘dove’, insisted late on Tuesday that the Fed’s priority has to stay on bringing inflation down.Kashkari told a local business event that the Fed would have to resort to “Volckeresque” methods – referencing the acute high interest rates of the 1980s – if it allowed inflation expectations to become de-anchored.Weak numbers from July’s new home sales and S&P Global’s purchasing manager survey for August had briefly revived talk of an imminent ‘dovish pivot’ from the central bank on Tuesday. It’s the turn of durable goods orders at 08:30 ET (12:30 GMT) and pending home sales data at 10:00 ET to reprise that role later.2. BBBY gets a lifelineThe rollercoaster in Bed Bath & Beyond (NASDAQ:BBBY) stock looks set to continue after The Wall Street Journal reported that it has taken a big step to securing a liquidity lifeline, allowing it to pay down some of its huge debts and bolster its cash on hand.The WSJ said BBBY had told interested parties that it has selected a lender to provide a loan following a marketing process conducted by JPMorgan. That came at the end of a day that started with a report saying that various suppliers had refused to ship products to it because of its inability to pay.BBBY stock rose over 12% in premarket.3. Stocks set to open flat; NVIDIA, Salesforce to report after the bellThe broader market is set to open as flat as the proverbial pancake, however, as those investors who aren’t still on vacation remain content to wait for Fed Chair Jerome Powell’s speech on Friday from Wyoming.By 06:25 ET, Dow Jones futures were down 22 points, or less than 0.1%, while the S&P 500 futures and Nasdaq 100 futures contracts were both down in line.Stocks likely to be in focus later include Nordstrom (NYSE:JWN), which became the latest retailer to warn of further inventory clearances and pressure on margins for the rest of the year. Nordstrom warned late on Tuesday that “customer traffic and demand decelerated significantly beginning in late June, predominantly at Nordstrom Rack.” The stock was down over 13% in premarket.Today’s earnings highlight is also after the bell, in the shape of chipmaker NVIDIA (NASDAQ:NVDA) and software giant Salesforce (NYSE:CRM).Also in focus will be Farfetch (NYSE:FTCH), which finally nailed down an agreement to buy a big chunk of Richemont ‘s (SIX:CFR) online operation YNAP in a deal that confirms some hefty value destruction at the Swiss giant in an ill-judged foray into e-commerce.4. XPeng plunge puts EV makers in the spotlightElectric vehicle makers will also be in the spotlight after the Hong Kong-listed stock of China’s Xpeng (HK:9868) slid more than 12% in response to some weak guidance for the third quarter.The company said it expects to deliver between 29,000 and 31,000 electric vehicles in the current quarter, which would be a year-on-year increase of between 13%-21%, but still well below market expectations, due largely to well-documented problems with COVID-19 in its home market.Xpeng said it’s confident that the launch of the G9 SUV in September and two new models in 2023 will help it enter a new growth cycle.5. Crude oil bounces after talk of supply cut; EIA inventories dueCrude oil prices bounced back above $100 a barrel as the market – after an initially relaxed response – finally took on board comments from Saudi Arabia’s oil minister warning of a potential need to cut output.By 06:30 ET, U.S. crude futures were up 0.7% at $94.39 a barrel, while Brent crude was up 0.6% at $100.78 a barrel. More