Economy

Worker productivity fell 7.5% in the first quarter, the fastest decline since 1947.
At the same time, labor costs as measured against productivity soared 11.6%, bringing the increase over the past four quarters to 7.2%, the fastest rise in about 40 years.
Weekly jobless claims increased to 200,000, well above the Wall Street estimate.

People work at the Rivian Automotive electric vehicle factory in Normal, Illinois, April 11, 2022.
Kamil Krzaczynski | Reuters

Worker productivity fell to start 2022 at its fastest pace in nearly 75 years while labor costs soared as the U.S. struggled with surging Covid cases, the Bureau of Labor Statistics reported Thursday.
Nonfarm productivity, a measure of output against hours worked, declined 7.5% from January through March, the biggest fall since the third quarter of 1947.

At the same time, unit labor costs soared 11.6%, bringing the increase over the past four quarters to 7.2%, the biggest gain since the third quarter of 1982. The metric calculates how much employers pay workers in salary and benefits per unit of output.

Wall Street already had been looking for a 5.2% drop in productivity and an increase of 10.5% in unit labor costs. On a four-quarter basis, productivity fell 0.6%, the biggest decline since the fourth quarter of 1993.
Taken together, the numbers underline the inflation surge in the U.S., which has seen prices rise at the fastest level in more than 40 years. Federal Reserve officials on Wednesday announced they would be raising interest rates half a percentage point as part of an ongoing effort to control inflation.
A separate Labor Department report Thursday showed that jobless claims increased to 200,000 for the week ended April 30, a 19,000 gain from the previous period and above the Dow Jones estimate for 182,000.
Continuing claims, which run a week behind the headline number, fell 19,000 to 1.38 million, the lowest level since Jan. 17, 1970.

The productivity data reflect a quarter in which a variety of factors converged to cause a 1.4% decline in the rate of economic growth as measured by gross domestic product.
Rising Covid cases, runaway inflation and the Russian invasion of Ukraine dented activity, though most economists expect growth to resume later in the year. Fed Chairman Jerome Powell said at his post-meeting news conference Wednesday that he still sees the U.S. in a strong position though inflation must be tamed if the recovery is to remain strong.

WATCH LIVEWATCH IN THE APP More

As prices for energy, food and commodities rise after Russia’s invasion of Ukraine, the impact is being felt sharply around the world. In Britain, the central bank pushed interest rates to their highest level in 13 years on Thursday, in an effort to arrest rapidly rising prices even as the risk of recession is growing.The bank predicted that inflation would rise to its highest level in four decades in the final quarter of this year, and that the British economy would shrink by nearly 1 percent.“Global inflationary pressures have intensified sharply in the buildup to and following the invasion,” Andrew Bailey, the governor of the Bank of England, said on Thursday. “This has led to a material deterioration in the outlook,” he added, for both the global and British economies. On an annual basis, the economy would also shrink next year.The Bank of England raised interest rates to 1 percent from 0.75 percent, their highest level since 2009. Three members of the nine-person rate-setting committee wanted to take a more aggressive step and raise rates by half a percentage point. The Bank of England has raised rates at every policy meeting since December.Prices rose 7 percent in Britain in March from a year earlier, the fastest pace since 1992. The central bank predicts the inflation rate will peak above 10 percent in the last quarter of the year, when household energy bills will increase again after the government’s energy price cap is reset in October. Ten percent would be the highest rate since 1982.The rapidly changing landscape was reflected in the prospects for economic growth. In 2023, the bank now predicts, the economy will shrink 0.25 percent instead of growing 1.25 percent, which it predicted three months ago.On Wednesday, policymakers at the U.S. Federal Reserve increased interest rates half a percentage point, the biggest jump in 22 years, in an effort to cool down the economy quickly as inflation runs at its fastest pace in four decades. The U.S. central bank also said it would begin shrinking its balance sheet, allowing bond holdings to mature without reinvestment.On Thursday, the Bank of England said its staff would begin planning to sell the government bonds it had purchased, but a decision on whether to commence these sales hasn’t been made. The bank stopped making new net purchases at the end of last year after buying 875 billion pounds ($1.1 trillion) in bonds. The bank said it would provide an update in August.The outlook for the global economy has been rocked by the war in Ukraine, which is pushing up the price of energy, food and other commodities such as metals and fertilizer. The Covid-19 pandemic continues to disrupt trade and supply chains, particularly from shutdowns stemming from China’s zero-Covid policy. Last month, the International Monetary Fund slashed its forecast for global economic growth this year to 3.6 percent from 4.4 percent, which was predicted in January.The challenge for policymakers in Britain is stark. The Bank of England has a mandate to achieve a 2 percent inflation rate. At the same time, there is evidence that the economy is already slowing down, consumer confidence is dropping and businesses are worried that price increases will depress consumer spending, a key driver of economic growth. With inflation at its highest level in three decades and wage growth unable to keep up, British households are facing a painful squeeze on their budgets.Household disposable income, adjusted for inflation, is expected to fall 1.75 percent this year, the second largest drop since records began in 1964, the bank said. The central bank’s challenge is to slow inflation to ease the pressure on households and businesses without cooling the economy too much and tipping it into a recession.“Monetary policy must, therefore, navigate a narrow path between the increased risks from elevated inflation and a tight labor market on one hand, and the further hit to activity from the reduction in real incomes on the other,” Mr. Bailey said on Thursday.Weighing that alternative, policymakers figured that pressures on costs for business and prices for consumers would persist unless they took action. Companies expect to strongly increase the selling prices for their goods and services in the near term, after the sharp rises in their expenses, the bank said. At the same time, inflation could become more entrenched because the unemployment rate is low, forcing companies to raise wages to meet their hiring needs. More

Federal regulators on Thursday proposed significant changes to the Community Reinvestment Act, which addresses fair housing practices.
The changes look to offer clearer guidelines and public benchmarks for evaluation while allowing smaller banks to continue operating under the former rules.
The proposal seeks public comment through Aug. 5.

Lumber at the site of a house under construction in the Cielo at Sand Creek by Century Communities housing development in Antioch, California, U.S., on Thursday, March 31, 2022.
David Paul Morris | Bloomberg | Getty Images

Bank regulators on Thursday proposed the first sweeping changes in more than 25 years to a controversial law aimed at increasing lending to low- and moderate-income communities.
The changes would tailor the Community Reinvestment Act’s approach to making sure banks are not engaging in “redlining,” or refusing to put money in areas often populated by minorities and lower wage earners.

Passed in 1977, the act has been a sore spot among some banks, particularly larger lenders, who complain about the costs and reporting burdens. However, affordable housing advocates say the CRA has been pivotal in providing equal housing opportunities.
“The CRA is one of our most important tools to improve financial inclusion in communities across America, so it is critical to get reform right,” said Lael Brainard, the Federal Reserve vice chair. “It evaluates bank engagement across geographies and activities in order to ensure the CRA is effective in supporting a robust and inclusive financial services industry.”
Since the last CRA revisions, online and mobile banking has become a major part of the finance industry without more specific guidelines for how they will be evaluated under fair housing guidelines.
The changes look to offer clearer public benchmarks for evaluation while allowing smaller banks to continue operating under the former rules.
Larger lenders have pushed back against the CRA expansion, saying the rules would add to their costs and are overreaching.

Fed governor Michelle Bowman said she generally supports the opportunity for revisions but expressed hesitation about the ramifications in the new proposal.
For instance, she noted that banks with assets greater than $10 billion would be subject to a raft of new disclosure requirements involving car loans, mobile and online banking services and community development funding.
“While I support issuing the proposed rule for public comment, there are significant unanswered issues posed by the proposal,” Bowman said. “Fundamentally, we do not know if the costs imposed under the proposal will be greater than the benefits.”
The proposal seeks public comment through Aug. 5, with anticipation that it would take effect a few months after publication in the Federal Register.

WATCH LIVEWATCH IN THE APP More

This week financiers’ eyes have been firmly fixed on the Federal Reserve. No wonder. On Wednesday the US central bank raised rates at the most aggressive pace for 22 years, as Jay Powell, Fed chair, finally acknowledged the obvious: inflation is “much too high”. But as investors parse Powell’s words, they should spare a thought for a central bank on the other side of the world: the Reserve Bank of New Zealand.In recent years, this tiddler has often been an unlikely harbinger of bigger global trends. In the late 20th century, for instance, the RBNZ pioneered inflation targeting. More recently, it embraced climate reporting ahead of most peers.Last year, it started tightening policy before most counterparts. And this week it went further: its latest financial stability report warns of a “plausible” chance of a “disorderly” decline in house prices, as the era of free money ends.Unsurprisingly, the RBNZ also said it hopes to avoid a destabilising crash. But the key point is this: the Kiwi central bankers know they have an asset bubble on their hands, since property prices have jumped 45 per cent higher in the last two years and “are still estimated to be above sustainable levels”. This reflects both ultra-low rates and dismally bad domestic housing policies.And it is now telling the public and politicians that this bubble needs to deflate, hopefully smoothly. There is no longer a Kiwi “put” — or a central bank safety net to avoid price falls.If only the Fed would be as honest and direct. On Wednesday Powell tried to engage in some plain speaking, by telling the American people that inflation was creating “significant hardship” and that rates would need to rise “expeditiously” to crush this. He also declared “tremendous admiration” for his predecessor Paul Volcker, who hiked rates to tackle inflation five decades ago, even at the cost of a recession.However, what Powell did not do was discuss asset prices — let alone admit that these have recently been so inflated by cheap money that they are likely to fall as policy shifts. A central bank purist might argue that this omission simply reflects the nature of Powell’s mandate, which is to “promote maximum employment and stable prices for the American people”, as he said on Wednesday. In any case, evidence about the short-term risk of asset price falls is mixed.Yes, the S&P 500 has dipped into correction territory twice this year, with notable declines in tech stocks. However, the American stock indices actually rallied 3 per cent on Wednesday, after Powell struck a more dovish tone than expected by ruling out a 75 basis point rise at the next meeting.And there is no sign of any fall in American property prices right now. On the contrary, the Case-Shiller index of home prices is 34 per cent higher than it was two years ago, according to the most recent (February) data. However, it beggars belief that Powell could crush consumer price inflation while leaving asset prices intact. After all, one key factor that has raised these prices to elevated levels is that the Federal Reserve’s $9tn balance sheet almost doubled during the COVID-19 pandemic (and has expanded it nine-fold since 2008.) And, arguably, the most significant aspect of the Fed’s decision on Wednesday is not that 50bp rise in rates, but the fact that it pledged to start trimming its holdings of mortgages and treasuries by $47.5bn each month, starting in June — and accelerate this to a $90bn monthly reduction from September. According to calculations by Bank of America, this implies a $3tn balance sheet shrinkage (quantitative tightening, in other words) over the next three years. And it is highly unlikely that the impact of this is priced in. After all, QT on this scale has never occurred before, which means that neither Fed officials nor market analysts really know what to expect in advance. Or as Matt King, an analyst at Citibank, observes: “The reality is that tightening hasn’t really started yet.” Of course, some economists might argue that there is no point in the Fed spelling out this risk to asset prices now, given how this might hurt confidence. That would not make Powell popular with a White House that is facing a difficult election, Nor would it help him achieve his stated goal of a “soft” (or “softish”) economic landing, given that consumer sentiment has wobbled in recent months. But the reason why plain speaking is needed is that a dozen years of ultra-loose policy has left many investors (and households) addicted to free money, and acting as if this is permanent. Moreover, since the Fed has repeatedly rescued investors from a rapid asset price correction in recent years — most recently in 2020 — many investors have an innate assumption that there is a Fed “put”.So if Powell truly wants to emulate his hero Volcker, and take tough measures for long-term economic health, he should take a leaf from the Kiwi book, and tell the American public and politicians that many asset prices have been pumped unsustainably high by free money. That might not win him fans in Congress. But nobody ever thought it would be easy to deflate a multitrillion dollar asset price bubble. And the Fed has a better chance of doing this smoothly if it starts gently and early. Wednesday’s rally shows the consequences of staying [email protected] More

(Reuters) – Euro zone government bond yields extended their decline on Thursday after the Bank of England slashed its forecast for the British economy in 2023.The Bank of England raised interest rates to their highest since 2009 at 1% on Thursday to counter inflation now heading above 10%, even as it warned that Britain risks falling into recession.”It’s 100% Bank of England,” said Antoine Bouvet senior rates strategist at ING. “They downgraded their forecast for the UK economy, and it seems that the tightening cycle is about to end soon. That’s a dovish signal also for the euro zone,” he added.By 1201 GMT on Thursday, Germany’s 10-year yield, the benchmark for the bloc, was down 2.5 basis points (bps) to 0.96% after briefly rising back above 1% in earlier trade. Two-year yields, sensitive to interest rate expectations, were down 7 bps to 0.21%. Money markets slightly lowered their bets on ECB hikes, now pricing in around 82 bps of ECB rate hikes by year-end, compared to around 88 before the Bank of England decision. They also moved to price in less than 20 bps of ECB hikes by July. In Italy, a key beneficiary of ECB stimulus, the 10-year yield was down 9.5 bps to 2.87%, tightening the closely watched risk premium over German bonds to 191 bps, after hitting the highest since May 2020 at over 198 bps on Wednesday.With the focus on the Bank of England’s economic outlook, there was little reaction to remarks by ECB chief economist Philip Lane, who said the bank is preparing for a sequence of rate hikes that will put its benchmark in positive territory. The path it takes is more important than the exact date of the first move, Lane added. The Bank of England meeting followed the U.S. Federal Reserve, which on Wednesday raised its benchmark interest rate by half a percentage point, the biggest rise in 22 years, but chairman Jerome Powell explicitly ruled out raising rates by 75 basis points (bps) in a coming meeting, triggering a sharp rally in U.S. Treasuries and stocks.In earlier trade, euro zone bond yields had followed overnight moves in U.S. Treasuries, but yields had fallen less than across the Atlantic, where the two-year Treasury yield fell 13 bps on Wednesday. “I think euro rates still have a hawkish ECB to consider, there’s not a change on that front,” said Peter McCallum, rates strategist at Mizuho in London. Earlier on Thursday, ECB board member Fabio Panetta said the bank should not raise interest rates in July, a move an increasing number of policymakers are advocating, and should wait to see euro zone second quarter GDP data. In the primary market, Spain raised 5.61 billion euros from five to 50-year bonds and France raised 10.99 billion euros from 10 to 30-year bonds. More

(Reuters) – U.S. stocks were set for a lower open on Thursday, a day after the Federal Reserve’s less aggressive tone sparked a rally on Wall Street, with investors keeping an eye out for jobs data this week for more clues on future rate hikes. Citigroup (NYSE:C) slipped 0.7% in premarket trading to lead losses among big banks. Megacap companies slid, with Meta Platforms and Amazon.com (NASDAQ:AMZN) down 1% each.The benchmark S&P 500 index recorded its biggest one-day percentage gain in nearly two years on Wednesday, after the Fed raised its benchmark overnight interest rate by half a percentage point as expected and said it would begin shrinking its $9 trillion asset portfolio next month in an effort to further lower inflation.Fed Chair Jerome Powell explicitly ruled out raising rates by 75 basis points in a coming meeting, calming nerves over fears of aggressive policy tightening.”I don’t think it’s surprising that short-term traders are looking to lock in some profits,” Sam Stovall, chief investment strategist at CFRA, said.”The real question is, was yesterday’s rally simply a reflex rally because stocks had been oversold and are we now just headed back in the same direction as we were prior to the Fed meeting.”The focus now shifts to the U.S. Labor Department’s closely watched monthly employment report on Friday for clues on labor market strength and its impact on monetary policy.Worries about Fed policy moves, mixed earnings from some big growth companies, the conflict in Ukraine and pandemic-related lockdowns in China have hammered Wall Street recently, overshadowing a better-than-expected quarterly reporting season.The tech-heavy Nasdaq has declined 17.1% year-to-date, compared with a 9.8% drop in the S&P 500 and a 6.3% fall in the blue-chip Dow.Of the 368 S&P 500 companies that have reported earnings as of Wednesday, 79.9% have topped analyst expectations, according to Refinitiv data.At 08:40 a.m. ET, Dow e-minis were down 161 points, or 0.47%, S&P 500 e-minis were down 26.5 points, or 0.62%, and Nasdaq 100 e-minis were down 105.75 points, or 0.78%. Twitter Inc (NYSE:TWTR) rose 2.2% as Elon Musk secured $7.14 billion in funding from a group of investors that includes Oracle Corp (NYSE:ORCL) co-founder Larry Ellison to fund his $44 billion takeover of the social-media company.EBay Inc and Etsy (NASDAQ:ETSY) Inc slid 7.0% and 12.3%, respectively, after the online retailers projected downbeat second-quarter revenue. Albemarle (NYSE:ALB) Corp jumped 13.7% as the lithium producer raised its full-year forecasts on robust demand and higher prices for the metal used in electric vehicle batteries.Booking Holdings (NASDAQ:BKNG) climbed 10.3% after the online travel agency posted upbeat first-quarter earnings and said global travel trends pointed to a busy summer season, especially in Europe. More

By 1205 GMT, sterling was down 2% against the U.S. dollar at $1.2381, its lowest level since July 2020. . It was set for its biggest one-day fall since March 2020, when the outbreak of COVID-19 wreaked havoc on world markets.It also slumped 1.3% against the euro to its lowest level since December 2021 at 85.04 pence .The BoE kept its forecast for economic growth this year at 3.75%, but slashed its forecast for 2023 to show a contraction of 0.25% from a previous estimate of 1.25% growth. It cut its growth projection for 2024 to 0.25% from a previous 1.0%.BoE Governor Andrew Bailey said the forecasts do not meet the technical definition of recession but of a very sharp slowdown.”The weakness of the growth outlook means that the inflation outlook is pretty weak too,” said Chris Scicluna, head of economic research at Daiwa Capital Markets. “Markets are right to take a step back and we had thought that scale of tightening priced in was excessive.” UK gilt futures dropped and two-year gilt yields fell more than 14 basis points, the sharpest drop since March 1.A split also emerged in the Monetary Policy Committee with two members saying the guidance was too strong, given the risks to growth.”Two members’ suggestion that further hikes are not appropriate is resonating,” said Neil Jones, head of hedge fund sales at Mizuho in London.London’s FTSE stock index, however, took comfort from a weakening currency. It was last up 1.6% , while UK bank stocks index fell almost 1%. More

Stubbornly high inflation also prompted Iceland to lift rates by one percentage point on Wednesday, and India delivered an unscheduled rate rise. Some, such as the Bank of England, worry their economies are headed for recession, but that ha not stopped them from signalling more hikes are coming.Here is a look at where policymakers stand on the path out of the pandemic-era stimulus, ranked in terms of hawkishness. 1) NORWAY Norway’s central bank, Norges Bank, kept rates on hold on Thursday after hiking them by a quarter point to 0.75% in March, when it announced plans to tighten policy more quickly than previously planned. It plans to hike again in June and raise rates to 2.50% by end-2023, with three more hikes than projected previously. 2) NEW ZEALANDThe Reserve Bank of New Zealand is one of the world’s most hawkish central banks.It raised its cash rate last month by 50 bps to 1.5%, the biggest rise in two decades and the fourth hike in this cycle. With inflation at 30-year highs, markets expect another 50 bps hike this month — the RBNZ forecasts rates will peak around 3.35% by end-2023. 3) CANADA The Bank of Canada kicked off its rate-rise cycle in March, and raised rates last month by 50 bps to 1%, its biggest single move in over two decades.It is also letting maturing bonds roll off its balance sheet. BoC Governor Tiff Macklem reckons rates are still far below neutral levels, estimated between 2%-3%. Markets expect rates to approach 3% by year-end, with another half-point rise seen on June 1. 4) BRITAINThe BoE hiked rates to 1% on Thursday, their highest since 2009, to tame inflation it now forecasts will top 10% this year.Policymakers also hardened their language on the need for more tightening in the coming months, so much so that two of the nine BoE rate setters called the guidance too strong given the risk of Britain falling into recession.Markets expect rates to reach 2%-2.25% by end-2022. 5) UNITED STATES The Federal Reserve on Wednesday raised its key rate by 50 bps, the biggest jump in 22 years, and markets were relieved that the Fed did not go with a 75 bps move. Still, the Fed said it was ready to deliver more half-point hikes and plans next month to start reducing its $9 trillion stash of assets accumulated during the coronavirus pandemic to help bring inflation under control.6) AUSTRALIA The Reserve Bank of Australia raised rates by 25 bps to 0.35% on Tuesday and flagged more ahead. Having insisted for months that rate hikes were way off, the RBA finally joined the rate-rise club.The policy sea-change came after data showing first-quarter consumer inflation spiking to 20-year peaks of 5.1%. Core inflation hit 3.7%, above the RBA target band for the first time since 2010.Futures pricing points to rates reaching 2.5% by end-2022 and 3.5% by mid-2023, which would be the most aggressive RBA tightening cycle in modern history.7) SWEDEN A late-comer to the inflation battle, Sweden’s Riksbank last week notched up rates by 25 bps to 0.25% to contain inflation running at its highest since 1991 at above 6%. The Riksbank’s policy rate is now positive for the first time since 2014. It had said as recently as February that rates were not expected to rise until 2024. Now it expects to hike two or three more times this year, with more next year to take rates above 1%. 8) EURO ZONE The dovish European Central Bank has become more hawkish given record-high inflation at 7.5%. ECB board member Isabel Schnabel said this week rates may need to rise as soon as July. A precursor to any rate hike must be the end of bond purchases, and this could come at the end of June, she added.Markets price 90 bps of tightening this year, meaning the key -0.50% depo rate could exit negative territory soon. 9) SWITZERLAND The Swiss National Bank remains firmly dovish even though Swiss inflation surged to 2.4% in March, well above the SNB’s price stability goal of 0%-2%.It has refused to signal higher rates, insisting that a strong franc helps guard against inflation. 10) JAPANThe Bank of Japan remains the holdout dove. Last week it strengthened its commitment to keep rates ultra-low by vowing to buy unlimited amounts of bonds to defend a bond yield target. That sent the yen to two-decade lows against the dollar.Japan’s core consumer prices rose at their fastest pace in more than two years in March, but a fragile economy means the BOJ is no rush to tighten policy.($1 = 0.9329 Swiss francs) More