Economy

This is the final instalment of a three-part series on the booming labour market in the USSpeaking at a community college in Cleveland, Ohio, a year ago, US president Joe Biden heralded the dawn of a new kind of labour market recovery under his watch.“My sole measure of economic success is how working families are doing, whether they have jobs that deliver dignity,” he said. “We want to get something economists call ‘full employment’. Instead of workers competing with each other for jobs that are scarce . . . we want the companies to compete to attract workers.”By many measures, Biden and his economic team have achieved that primary goal: the jobless rate has dropped to 3.5 per cent and employers have created more than 8mn new jobs in just 15 months, wiping away fears that the labour market could experience the same sort of sluggish recovery it suffered for years in the aftermath of the financial crisis. Yet the much-desired “hot” economy the White House and congressional Democrats championed so doggedly — and engineered through the $1.9tn stimulus package enacted in March 2021 — has been accompanied by a messy mix of high inflation, labour shortfalls and supply chain disruptions that have been exacerbated by Russia’s invasion of Ukraine and new waves of coronavirus infections. These factors are weighing heavily on American households and businesses, meaning Biden and his party are getting little or no political credit for the jobs boom and wage gains ahead of the midterm elections. It is a troubling verdict in the court of public opinion for an administration that desperately wanted to deliver tangible economic benefits to middle-class Americans, to fend off a new populist backlash and show that US democracy could produce positive economic results.A CBS News/YouGov poll conducted last week showed that just 36 per cent of Americans approved of Biden’s handling of the economy, while 64 per cent disapproved, a massive gap that will be exceedingly difficult to close ahead of the November vote, when most political analysts are expecting Democrats to lose control of the House of Representatives and possibly the Senate. “It’s a great labour market for the average American worker, with lots of unfilled positions and a lot of opportunity,” said Mark Zandi, an economist at Moody’s Analytics who has advised Democratic and Republican presidential campaigns. “If someone told [Biden officials] that’s what the world would look like today, with no other colour, they’d say, ‘Fantastic, we’re going to be riding high here politically.’ But that’s not the case.”“People are still pretty upset, still pretty pessimistic and on edge,” he added.In recent weeks, the president and other senior US officials have sought to defend their economic policies in response to criticism from Republicans and even some Democrats that they poured excessive stimulus into the economy, and were too dismissive of the threat posed by higher prices. “Inflation is absolutely a problem, and it’s critical to address it. But I think at the same time, we should recognise how successful [the stimulus] was in leading to an economy where instead of having a large number of workers, utterly unable to find jobs, exactly the opposite is true,” Janet Yellen, the US Treasury secretary, told members of the Senate banking committee this month.Heather Boushey, a member of the White House council of economic advisers, said: “Being able to have this conversation about inflation at this moment is because so many folks have jobs. [Inflation] is hard on families. This is definitely a serious and important issue, but it is different than high unemployment.”Heidi Shierholz, president of the left-leaning Economic Policy Institute think-tank, insisted Biden had shifted the paradigm of the labour market for the better. “We had graduating class after graduating class in the aftermath of the Great Recession for years entering into extremely weak labour markets. That has really lasting effects, and we’re not doing that to Generation Z. We made different choices and that is remarkable for workers,” she said.Yet the benefits of an expanding labour market are clearly being undercut by the higher cost of living ripping through households, with even hefty nominal wage increases being outpaced by rising inflation in a way that is very palpable to the average voter.According to an AP-NORC poll conducted this month, 51 per cent of Americans say Biden’s policies have done “more to hurt than help” the economy, while 18 per cent say they have helped and 30 per cent believe they have not made a difference.“This is the worst year we’ve had in 40 years in terms of real wages,” said Jason Furman, a Harvard University economist and former adviser to past president Barack Obama. “You’ve had . . . a small number of people gaining and a large number of people losing, and so I don’t find it at all surprising that people who have gotten the biggest pay cuts they’ve ever gotten when adjusted for inflation aren’t that happy.”Biden has sought to project empathy with Americans displeased with the economic landscape. “For every worker I met who’s gained a little bit of breathing room to seek out a better paying job, for every entrepreneur who’s gained confidence to pursue their small business dreams, I know that families all across America are hurting because of inflation,” he said earlier this month. But his administration has limited tools to change the dynamic. White House officials had hoped that passage of their $1.5tn, trimmed-down “Build Back Better” economic legislation, including tax increases on the wealthy and childcare subsidies, would cool the economy and expand labour supply in the medium and long term, but those plans have been blocked by opposition in Congress.Austan Goolsbee, a professor of economics at the University of Chicago and a former economic aide to Obama, said: “There’s not any controlling thing that the White House could do, [like] go down in the basement and [say] ‘Oh, here’s the lever we forgot to flip’ and flip it now. It’s not a wait-and-see attitude, it’s just you have to wait because it takes a long time for this stuff to shift around.”“When you have resurgences of variants of the virus, that sets it back, and when you have wars driving up the cost of commodities, that sets it back,” he added. Ultimately, the fate of Biden’s labour market — and the Democrats’ political hopes — are now in the hands of the Federal Reserve, which is embarking on a cycle of interest rate increases to tame inflation, with the aim of cooling down the labour market without triggering a new recession.Moody’s Zandi said ideally this would mean slowing the pace of payroll expansion from an average of about half a million jobs per month to about 100,000-150,000 a month, to avoid a scenario in which the economy “blows past full employment” and the jobless rate runs below 3 per cent, which could trigger an even more dangerous wage-price spiral.“It’s really about getting growth to moderate without going into reverse, and that’s the process we’re in the middle of and you can feel that’s starting to happen,” he said. More

Your browser does not support playing this file but you can still download the MP3 file to play locally.Russia’s blockade of the port of Odesa is preventing Ukraine from exporting vital supplies of grain to a hungry world. A failure to resolve the problem will lead to food price rises and starvation, resulting in more migration and global unrest, according to David Beasley, head of the UN World Food Programme. He talks to Gideon about what needs to be done to avert catastrophe.Clips: NewsNation, ABC news, CNNWant to read more?Military briefing: Ukraine seeks way to break Russia’s Black Sea blockadePakistan seeks to renegotiate IMF loan as food prices surge‘Millions’ at risk of death as Ukraine war hits food supplies, Egypt warnsWorld’s poorest nations to receive aid amid soaring food pricesSubscribe to The Rachman Review wherever you get your podcasts – please listen, rate and subscribe.Presented by Gideon Rachman. Produced by Fiona Symon. Sound design by Breen TurnerRead a transcript of this episode on FT.com See acast.com/privacy for privacy and opt-out information.Transcripts are not currently available for all podcasts, view our accessibility guide. More

Nancy Auma, a 35-year-old market trader, sits by a large mound of finger-sized silvery fish caught in Lake Victoria. Her stall is in one of the crowded thoroughfares of Mathare, a huge informal settlement in Nairobi, seven hours by bus from Kisumu, the Kenyan lakeside city where she purchases the fish. She must make this journey often — at the hefty cost of Ks3,000 ($26), thanks to rising fuel prices — to buy fresh supplies.These repeated trips to Kisumu are a waste of time and money, Auma admits, but she lacks the cash flow to buy larger amounts of inventory.Millions of small kiosk-holders such as her — selling products from rice and sugar to batteries, cleaning products and household supplies — suffer the same costs as they struggle to secure and pay for stock.But a new wave of start-ups, including Wasoko — which tops the FT’s Africa’s Fastest Growing Companies ranking, compiled with data company Statista — is now trying to help informal shopkeepers by reducing friction in the retail supply chain. Others in the field, broadly defined as digitalising the informal sector, include TradeDepot, Sabi and Twiga — the latter focusing on fresh produce.Wasoko started in Kenya in 2016 as Sokowatch, rebranding in March. It has expanded to 60,000 merchants in six countries, with Tanzania, Rwanda and Uganda added in east Africa and, more recently, Senegal and Ivory Coast. The company, which makes about $30mn of sales a month, recently raised $125mn in a Series B funding, valuing it at $625mn.

Fish trader Nancy Auma with her stall in Mathare, Nairobi © David Pilling

Daniel Yu, a California-born software developer and linguist, dropped out of the University of Chicago to start the business after winning a $10,000 entrepreneurial grant for his idea. The concept came to him during an overseas study period in Egypt, where he noticed stallholders struggling to get their inventory.“The ordering and restocking for the store were quite difficult,” he says. “So I started working on this idea of ordering systems to connect the shopkeepers to suppliers.” 

The theory was that a Unilever or a Procter & Gamble could not profitably deliver, say, $10 of inventory to a stallholder, he explains, so they sell instead to a large wholesaler.Wasoko, by bundling multiple orders from thousands of shopkeepers and stallholders and placing them with big manufacturers, would solve the economy of scale problem, getting the products quickly and cheaply to stallholders, while taking a slice of the transaction cost.First, a prototype was built, enabling orders to be made on an app or via numerical codes sent from a “feature phone” — a basic mobile with limited additional capabilities. Then, Yu started cold-calling big companies, presenting a solution to their distribution problems. Eventually, Wrigley, the chewing gum manufacturer, decided to try the model in Kenya.The original idea, says Yu, had been an asset-light model where software did all the heavy lifting. But he soon realised that Wasoko would need to get into the logistics business, organising distribution points and running a fleet of vehicles, mainly small vans.“When you’re running out of rice, you can order from us another 25kg bag or whatever, and we will deliver it to that shop the same day and free of charge, in an average of about two and a half hours,” he says. Established customers can order now and pay later, generally a week after delivery.If the proposition seems too good to be true, Yu says the key is what he calls the “few to many” nature of his business.A relatively small number of suppliers provide the 300 or so goods he offers to thousands of customers. That is good for Wasoko’s model, though it does not yet solve Auma’s fish supply problem, as Wasoko does not deal in fresh produce.In Nigeria, where TradeDepot operates along similar lines, the offering is 10 times larger, at 3,000 goods, reflecting the scale of Africa’s most populous country. TradeDepot serves 110,000 merchants, whose typical order, made two to three times a month, is $100-$150.Like Wasoko, TradeDepot extends credit to shopkeepers, using the picture built up of order patterns and customer footfall to determine a credit rating.Typical fees are a 4-6 per cent effective monthly interest rate, with loans normally paid back within two weeks, explains Onyekachi Izukanne, chief executive and a co-founder of the business.“We have the thesis that the big problem is access to financial services,” he says. “There’s a broken supply chain and these informal merchants and small businesses have some access to inventory, but it comes to them expensive, and we want to rationalise that.”Aubrey Hruby, co-founder of the Africa Expert Network and an investor in African start-ups, says she thinks the next wave of (companies with market capitalisations above $1bn) will be those that successfully digitise the informal retailer supply chain.“The problem with the informal market is not that it’s informal — it’s that it’s inefficient,” Hruby says. “I went down to see a big outdoor market in Lagos and saw this woman who was a big buyer of tomato paste. She used to buy her supplies from a friend down the street. Now, she compares prices to get the best deal. Her kids helped her use the app as she’s not that digitally savvy.”Even if the trader pays in cash, says Hruby, the transaction can be digitised as it moves through the system. “This is certainly going to embed fintech, and it also gets at this other area,” she says, referring to the vast informal trading sector that is much bigger than the narrow middle-class interests targeted by many fintechs. More

Fed minutes released Wednesday indicated that officials are prepared to move ahead with multiple 50 basis points interest rate increases.
In addition, the Federal Open Market Committee said policy may have to move past “neutral” and into “restrictive” territory.
The minutes indicate that members are hopeful they can bring down inflation, but also concerned about financial stability risks.

Federal Reserve officials earlier this month stressed the need to raise interest rates quickly and possibly more than markets anticipate to tackle a burgeoning inflation problem, minutes from their meeting released Wednesday showed.
Not only did policymakers see the need to increase benchmark borrowing rates by 50 points, but they also said similar hikes likely would be necessary at the next several meetings 

They further noted that policy may have to move past a “neutral” stance in which it is neither supportive nor restrictive of growth, an important consideration for central bankers that could echo through the economy.
“Most participants judged that 50 basis point increases in the target range would likely be appropriate at the next couple of meetings,” the minutes said. In addition, Federal Open Market Committee members indicated that “a restrictive stance of policy may well become appropriate depending on the evolving economic outlook and the risks to the outlook.”
The May 3-4 session saw the rate-setting FOMC approve a half percentage point hike and lay out a plan, starting in June, to reduce the central bank’s $9 trillion balance sheet consisting mostly of Treasurys and mortgage-backed securities.
That was the biggest rate increase in 22 years and came as the Fed is trying to pull down inflation running at a 40-year high.

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Market pricing currently sees the Fed moving to a policy rate around 2.5%-2.75% by the end of the year, which would be consistent with where many central bankers view a neutral rate. Statements in the minutes, though, indicate that the committee is prepared to go beyond there.

“All participants reaffirmed their strong commitment and determination to take the measures necessary to restore price stability,” the meeting summary stated.
“To this end, participants agreed that the Committee should expeditiously move the stance of monetary policy toward a neutral posture, through both increases in the target range for the federal funds rate and reductions in the size of the Federal Reserve’s balance sheet,” it continued.
On the balance sheet issue, the plan will be to allow a capped level of proceeds to roll off each month, a number that will reach $95 billion by August, including $60 billion Treasurys and $35 billion for mortgages. The minutes further indicate that an outright sale of mortgage-backed securities is possible, with notice of that happening well in advance.
The minutes mentioned inflation 60 times, with members expressing concern about rising prices even amid confidence that Fed policy and the easing of several contributing factors, such as supply chain problems, combined with tighter monetary policy would help the situation. On the other hand, officials noted that the war in Ukraine and the Covid-associated lockdowns in China would exacerbate inflation.
At his post-meeting news conference, Fed Chairman Jerome Powell took the unusual step of addressing the American public directly to stress the central bank’s commitment to taming inflation. Last week, Powell said in a Wall Street Journal interview that it would take “clear and convincing evidence” that inflation was coming down to the Fed’s 2% target before the rate increases would stop.
Along with their resolve to bring down inflation came concerns about financial stability.
Officials expressed concern that tighter policy could cause instability in both the Treasury and commodities market. Specifically, the minutes cautioned about “the trading and risk-management practices of some key participants in commodities markets [that] were not fully visible to regulatory authorities.”
Risk management issues “could give rise to significant liquidity demands for large banks, broker-dealers, and their clients.”
Still, officials remained committed to raising rates and reducing the balance sheet. The minutes stated that doing so would leave the Fed “well positioned later this year” to reevaluate the effect policy was having on inflation.

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TOKYO (Reuters) – Japan plans to call for moving ahead with a new “green” gross domestic product (GDP) indicator that will reflect the country’s progress in reducing greenhouse gas emissions, a draft of its annual economic policy outline seen by Reuters showed.The government will make a mention of moving forward with the safe restart of nuclear power plants, the draft of the long-term policy outline showed.Tokyo has pledged to cut carbon emissions by 46% in 2030 compared to 2013 levels, for which it needs to make a massive push into decarbonisation.The policy outline will call for expanding production of electric car batteries and building more charging station, as well as setting up more hydrogen stations.The government seeks to meet a goal of having electric vehicles account for all new car sales by 2035, the draft showed.The government’s policy outline will be the first to be compiled under Prime Minister Fumio Kishida, and serve as a basis for future economic policy-making. It is expected to be finalised upon cabinet approval early next month.Kishida last week laid out a plan to issue an estimated 20 trillion yen ($157 billion) worth of “green transition” bonds to help finance investment to achieve a carbon-neutral society.The Japanese premier said the country would need at least 150 trillion yen in combined private- and public-investment in the next decade to achieve a carbon-neutral society.($1 = 127.4600 yen) More

The services producer price index rose 1.7% in April from a year earlier, accelerating from a 1.3% gain in March and marking the fastest annual pace of gain since February 2022, Bank of Japan (BOJ) data showed. The rise was driven mostly by surging overseas freight costs, but hotel, advertisement and rental fees also increased as more companies in the service industry began passing on their higher costs to customers. The outlook for service prices will be among key factors the BOJ will scrutinise in deciding how soon it may follow other central banks in raising ultra-low interest rates. BOJ Governor Haruhiko Kuroda has justified keeping rates low by pointing to Japan’s modest wage and service price growth, arguing the recent cost-push inflation will prove temporary unless accompanied by solid domestic demand. “In Japan, wages have risen, but the rate of increase has remained moderate,” Kuroda said in a speech on Wednesday.”A common challenge for each country is to determine the magnitude and persistence of the inflationary pressure. In doing so, it will be important to capture the relationship between three prices, namely, the price of goods and services, wages, and commodity prices,” he said. More

BENGALURU (Reuters) – Rampant rises in Australian house prices will grind almost to a halt this year, and an 8% decline is expected in 2023 as a cost-of-living crisis worsens and mortgage rates rise, a Reuters poll of property market analysts found.Cheap loans based on near-zero interest rates have nearly doubled house prices since the global financial crisis of the late 2000s, turning Australia into one of the world’s least affordable places to buy property.Prices surged over 20% last year, the biggest annual increase since 1989, making it much harder for first-time buyers to get on the property ladder.That blistering pace will slow to just 1.0% this year, according to the median forecast in the May 11-25 poll of 11 analysts, down sharply from 6.7% forecast in a February poll.Prices are forecast to drop 8.0% next year, more than the 5.0% expected in the previous survey.”The risk of a crash cannot be ignored, given the high level of household debt and that it’s been more than 11 years since the last rate hike,” said Shane Oliver, chief economist at AMP (OTC:AMLTF), who expects house prices to fall 10-15% into 2024. 2efd351e-c305-4b4a-b936-fe23fccdf5f41RECORD MORTGAGE DEBTAustralia’s central bank this month raised its cash rate for the first time since November 2010, by 25 basis points to 0.35%, and flagged more hikes to come.A sudden rise in borrowing costs could sharply dent housing activity, in a country where about 6% of employment is closely tied to the residential construction sector, eventually leading to slower economic growth.”A steep increase in mortgage rates over the coming year will weigh heavily on house prices,” said Adelaide Timbrell, senior economist at ANZ. It will also be a challenge for heavily indebted households in a country which has a record A$2 trillion of mortgage debt outstanding.A substantial decline in prices is needed to make housing more affordable for those who don’t already own.”A very large correction in prices would be needed to enable ‘affordable’ housing, particularly in Sydney and Melbourne, though the wage outlook is key to how much of a correction would be needed,” Timbrell added.Wages are lagging, at least by the official measure which showed annual pay growth ticked up only slightly in the first quarter to 2.4%, half the pace of inflation.Both ANZ and Knight Frank said average prices would have to fall 40% – roughly the amount U.S. house prices tumbled during the global financial crisis – to make Australian housing affordable.House prices in Sydney and Melbourne were forecast to fall 2.5-3.0% this year and 9.0% next. In Brisbane, Adelaide and Perth, prices were expected to rise 2.0-6.5% this year but decline 4.5% in 2023. More

(Reuters) – From export bans to price controls, governments in Asia are taking a much more targeted approach than their Western counterparts in curbing global inflationary pressure, a strategy that appears to be working at least for now.While inflation remains a serious economic challenge in Asia, the measures have in many countries helped shield the public from some of the price rises and meant most central banks in the region have not had to raise interest rates as quickly as they have elsewhere.The various efforts have also shifted some of the cost burdens away from consumers and small businesses largely to government balance sheets.”We have not seen any weakening in purchasing power,” said Baskoro Santoso, investor relations officer at Indonesian snack maker Mayora Indah.The company has adjusted prices since the second half of last year but has not seen a material hit to business, especially during the Ramadan festive period, he said.Indonesia, a country with a history of financial volatility and price swings, last week hiked energy subsidies by $24 billion to contain energy costs, having only just lifted a controversial export ban on palm oil.Although many retailers in Southeast Asia’s largest economy have still had to pass on price hikes, household demand remains strong and inflation is within the central bank’s 2-4% target band.In South Korea, government caps on electricity bills provide a competitive edge for global manufacturers like Samsung Electronics (OTC:SSNLF) and Hyundai Motor and help cushion the hit to households’ disposable incomes.The caps instead have squeezed state-run power utility Korea Electric Power (NYSE:KEP) Corp, which reported a record quarterly loss on sharply higher fuel import costs, increasing the chance of a government capital infusion.India this month banned wheat exports as a scorching heat wave curtailed output and domestic prices hit record highs.And this week, Malaysia said it would stop exports of 3.6 million chickens monthly from June until prices stabilised. It also runs mechanisms to subsidise fuel and cooking oil.Gareth Leather, senior Asia economist at Capital Economics, said Malaysia’s heavy fuel and transport subsidies have likely knocked about 1.5 percentage points off the country’s inflation, which was just 2.3% in April.Such intervention in domestic supply is not new for many Asian governments, which are sensitive to public backlash from price hikes, although economic reforms and a stronger focus on fiscal discipline over the past decade have given greater room for market forces. SHOOTING UPSTREAMIn contrast, Western governments have been reluctant to intervene in production lines to bring down prices of key items such as food and fuel. U.S. and UK inflation has now surged to decade-highs, crimping retailers’ profit and shoppers’ spending power.Walmart (NYSE:WMT), Target (NYSE:TGT) and Kohl’s (NYSE:KSS) were among major U.S. retailers that reported earnings this month that missed Wall Street expectations by the widest margin in at least five years due to surging inflation.The burden to contain prices in Europe and the United States has mostly been carried by monetary policy, with the U.S., UK and Canadian central banks now engaged in aggressive interest rate hike cycles.That contrasts with a markedly more benign policy outlook in Southeast Asia, where most central banks have only recently commenced a very cautious shift away from extremely low interest rates, with tightening expected to be more gradual than in the West.In Thailand, headline inflation has only just breached the central bank’s target range of 1-3% and the bank’s chief has pledged continued monetary support for the economic recovery.But while that outlook remains broadly supportive for business, many retailers in Thailand still feel the squeeze as customers refuse to accept price increases, a sign policy alone won’t be able to help all sectors.”It’s the peak of the durian season that you normally make big profits,” said Radavadee Ratanachaiuchukorn, president of fresh fruit exporter Chotakkarasup Co. Ltd, referring to the tropical fruit.”But because of higher costs, we hardly get a profit margin. This really hurts us… For new orders, we will have to increase the prices or we can’t survive.” More