Economy

China will also tackle bottlenecks in supply chains affected by COVID by easing congestion at ports and airports and restoring delivery services, according to a State Council meeting chaired by Premier Li Keqiang.From May 1 till the end of the year, China will exempt delivery firms’ revenues from value-added tax, it added. More

Dear reader,Loaded with armfuls of flowers, joss papers, fruits and an entire roast suckling pig, my family trekked to New Jersey earlier this month to observe Ching Ming. Known in English as the Tomb Sweeping Festival, it is the day on which Chinese people honour their ancestors and clean family burial sites. For me, thanks to my Uncle Paul, it was also a day to contemplate the US supply chain crisis and its impact on the incomes of truckers versus junior bankers.This was our first visit since the pandemic. Family members flew in from as far away as Arizona to help. In between the lighting of incense sticks and the burning of cardboard Louis Vuitton bags — Grandma needs to stay stylish in the immortal realm, my mom says — I caught up with an uncle I haven’t seen in years. Paul is a retired truck driver. Now in his seventies, his bad back and knees are the result of his life on the road. So naturally, our conversation turned to trucking. Haulage is a microcosm of the world economy, fraught with supply chain bottlenecks, inflation and labour shortages. Truck drivers are responsible for moving around 73 per cent of all freight goods in the US. The industry is short of 80,000 drivers, a record number, according to the American Trucking Associations. Federal limits on daily working hours, pandemic-related restrictions and other hurdles have prompted many truck drivers to quit for less stressful jobs.This in turn is exacerbating the supply chain crisis, pushing up freight costs and prices for consumers. At FedEx, shortfalls of workers, including drivers, cost the logistics group more than $1.1bn in the first nine months of its new fiscal year. In February, Amazon said higher operating costs, including for transportation, contributed to more than $4bn in extra expenses during the fourth quarter.Companies have been trying to turn on the charm to hire and retain workers. Walmart, for example, is increasing entry-level pay for in-house truck drivers to as much as $110,000 a year. That is on a par with the income of junior bankers at the Wall Street institutions I write about to make a living myself.Junior bankers should not be offended by the comparison. Their smart colleges taught them all about supply and demand. Higher pay for truckers is partly a function of bad pay in the past. Truckers’ earnings adjusted for inflation are 70 per cent of what they were in the 1970s, according to Reuters calculations based on data from the US Bureau of Labor Statistics.Journalists, these days predominantly graduates, sometimes characterise high pay for non-graduates as anomalous. That underplays the value of physical skills and may also ignore big differences between gross and net income. As a self-employed truck driver, Uncle Paul says his pay quickly got eaten up by gas, insurance and maintenance costs. Then there are all the hours he had to wait around, unpaid, for cargo. Still, he took pride in what he did. It put food on the table and allowed him to put two children through college. A willingness to work with gruelling intensity gives immigrants competitive advantage in the labour market. My parents worked in sweatshops in 1980s New York. These were in the days before the North American Free Trade Agreement spurred the development of low-cost manufacturing in Mexico.Before they became multimillion-dollar loft apartments, the cast-iron buildings that lined the area around Chinatown and Soho were garment factories in which my parents quietly toiled for a piece of the American dream. The rise of unionisation efforts at the likes of Amazon and Starbucks reflects a period of temporary advantage for labour over capital. It also channels long-running frustration with widening income inequality and tough working conditions. For companies, raising pay rates will often cost them less than coping with staff shortages.Society may not assign much worth to the work that Uncle Paul did. But without him, goods would not have been delivered and store shelves would have stayed emptied. Higher pay for drivers now is just the price society pays for that essential service.Enjoy the rest of the week.Pan Kwan YukLex writer More

Elon Musk can walk away from his $44bn takeover of Twitter for just $1bn — less than 1 per cent of his net worth and a fraction of the $21bn of the equity he has committed to complete the acquisition of the social media group.The “reverse termination fee”, revealed in a regulatory filing by Twitter on Tuesday, is a significantly lower penalty than the typical leveraged buyout.The precise terms of the potential penalty had been hotly awaited on Wall Street after Musk said he would fund the Twitter takeover with $13bn of debt, as well as a $12.5bn loan secured against his Tesla stake and a pledge to finance the remaining $21bn of equity himself.Doubts about how Musk would fund his Twitter acquisition helped drive down Tesla shares yesterday. Stock in the electric car company, where Musk is chief executive and a major shareholder, fell more than 12 per cent, wiping $125bn off the value of the company and more than $10bn from the billionaire’s personal net worth. The sell-off came a day after Musk clinched the support of the Twitter board to take the social media platform private.Shares in Tesla have dropped 19 per cent since Musk became Twitter’s largest shareholder more than three weeks ago. Meanwhile, Twitter shares continue to trade below Musk’s $54.20 offer price, indicating investors are unsure the deal will be completed. Yesterday they closed at $49.68.Thanks for all your Elon Musk and Twitter comments. Keep them coming to [email protected]. Here’s the rest of the day’s news — Gordon.The latest from the war in UkraineEnergy market: European gas prices have risen by a fifth today after Russia’s Gazprom suspended supplies to Poland and Bulgaria. Business: US defence group Raytheon Technologies said it expects a boost to its sales as western countries supporting Ukraine replenish their missile supplies.Food security: Disruption to Ukraine’s agriculture industry has upended the ‘breadbasket’ of Europe. Take a look at how with our immersive feature.Sanctions: Switzerland has mirrored all the US and EU sanctions against Russian oligarchs. But it has frozen only $8bn of assets. Why?Opinion: The war, which is causing a many-sided economic shock, is in sum a multiplier of disruption in an already disrupted world, writes Martin Wolf.Five more stories in the news1. Euro tumbles to 5-year low against dollar The European common currency has fallen further today after hitting the lowest point against the dollar since April 2017 in New York yesterday. The hawkish signals from the Federal Reserve and the war in Europe are driving up the dollar.Go deeper: At first glance, the ECB seems to have almost as big an inflation problem as the Fed. But the war in Ukraine means the ECB is “facing a very different beast”. 5. Alphabet earnings disappoint A 14 per cent fall in YouTube’s revenue led to a disappointing set of first-quarter results from Google parent Alphabet. But Microsoft lifted its revenue forecast for the current quarter after a strong performance from its Azure cloud computing division. 3. Leon Black gave £2mn to Russian model for British visa The billionaire financier gave his ex-mistress Guzel Ganieva the money for a UK golden visa and introduced her to a lawyer to discuss her application, hoping to facilitate a transatlantic move that would enable the former fashion model to start a new life far from his home in New York.4. Top US bank investors refuse to back climate proposals Investors refused to back resolutions demanding stricter fossil fuel financing policies at Wells Fargo, Bank of America and Citi yesterday, in a blow to environmentalists hoping to apply more pressure to lenders over climate issues.5. US probes Chinese chipmaker over Huawei ban The Biden administration is looking into claims that Yangtze Memory Technologies Co supplied Huawei with chips for a new smartphone, in a potential violation of US export controls. State-owned YMTC is China’s largest memory chipmaker.The day aheadCompany earnings Meta Platforms is the latest US technology company to report earnings. Investors will be hoping for a better reaction to the results than their last set of results in February, which triggered a 25 per cent share price fall. Boeing, Kraft Heinz and Ford also report on a busy day for US earnings. Economic data Economists polled by Refinitiv have forecast that pending home sales declined 1.6 per cent in March from February.UK foreign minister to add to pressure on Putin In a keynote foreign policy speech Liz Truss will push for reform to a global security architecture that has failed Ukraine.Madeleine Albright’s funeral President Joe Biden is set to speak at the funeral of the first female US secretary of state, who died last month at the age of 84. Read the FT’s obituary of Albright here. (CNN, FT)Join us along with leading figures from Tesla, Volkswagen, Ford Pro, Nissan, Mercedes and Vauxhall at the Future of the Car event on May 9-12. Register here.Poll of the weekNews that Elon Musk has persuaded the Twitter board to support his $44bn offer has led to speculation about the future of the social media platform. Do you think Twitter will be better or worse under Musk’s ownership? Have your say in our poll.

What else we’re reading How to avoid a recession A paper by Alex Domash and Larry Summers pointed out that, since 1955, there have been eight instances where US wage inflation was above 5 per cent and the unemployment rate was below 4 per cent, as they are now. In all eight, a recession followed within two years. History is not destiny, though, writes Robert Armstrong. The pandemic that American politics forgot The loss of nearly 1mn lives in America from Covid-19 has barely registered with domestic voters. There has been no electoral realignment, no intellectual rupture of the kind that followed the Opec oil crisis and no passing of the torch to a new political generation. Two explanations stand out for this curious state of affairs, writes Janan Ganesh. Berkshire Hathaway needs to be broken up When Warren Buffett leaves his post after more than 50 years at the helm, no one else will be able to run the company as successfully as he has. The behemoth conglomerate should be broken up, argues Francine McKenna, editor of The Dig.It’s time to reform Britain’s non-dom tax regime Wealthy residents being allowed to shelter overseas earnings from British tax is not a phenomenon of today’s globalisation — it dates back to 1799. Comprehensive reforms to modernise the non-domicile regime are long overdue, writes our editorial board.Why it makes sense to retrain staff In this week’s episode of the Working It podcast, Isabel Berwick explores how training, or upskilling, has evolved as a way to retain staff in the post-pandemic workplace with communications experts from New York University and the FT’s Work & Careers columnist Emma Jacobs. Sign up to the new Working It newsletter.Plus: Our How To Spend It colleagues have found five great gadgets for hybrid workingFashionNew York’s Metropolitan Museum of Art hails the hidden greats of the American fashion industry. They include Ann Lowe, the designer of Jacqueline Bouvier’s wedding dress from her 1953 marriage to John F Kennedy.

The newly married Kennedys. The designer of the bride’s dress went unmentioned in press reports at the time © Bettmann Archive More

Japan has long boasted of a hefty current account surplus, a source of confidence in its safe-haven yen, but surging fuel import costs and slowing exports amid the Ukraine crisis are creating a trade deficit, hurting Japan’s balance of payments.Japan’s shrinking current account surplus helped push the yen to a two-decade low beyond 129 yen earlier this month. It traded around 128 yen to the dollar since then.”Persistent declines in current account surplus could impact on financial and currency markets,” the four private-sector advisers at the Council on Economic and Fiscal Policy said.The 11-member top advisory panel is comprised of ministers, lawmakers and the Bank of Japan Governor Haruhiko Kuroda.”We must build an economic structure that is resilient to external shocks,” the advisers said in a proposal presented at a meeting of the panel.The advisers also called for steps including decarbonisation efforts, such as restarting nuclear reactors early and saving energy, exporting agricultural produce and promoting inbound tourists to try to improve the current account balance.”We must resume entry aimed for tourism in stages in order to help foreign tourists recover from the plunge” caused by the COVID-19 pandemic,” the advisers said.Japan’s tourism industry has been calling on the government to reopen borders to more visiting tourists, who served as a rare bright spot for the world’s third largest economy until the COVID-19 outbreak over two years ago.Japan has recently eased entry curbs on business travellers and students as it lifted the daily cap for international arrivals, after it was criticised for strict border measures. More

Investing.com — Microsoft and Alphabet have differing fortunes in the first quarter, as TikTok takes a bigger bite out of YouTube’s advertising revenue. The earnings flood continues with Meta, T-Mobile, Qualcomm, Ford and others later. Russia turns off the gas to Poland and Bulgaria as an EU embargo on Russian oil moves closer. Pending home sales and mortgage data are due. Here’s what you need to know in financial markets on Wednesday, 27th April.1. Big Tech’s big divergence may spell trouble for MetaTech giants Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) reported a sharp divergence in their fortunes for the first quarter, with Microsoft beating expectations thanks to a booming cloud-hosting business and a strong performance from LinkedIn (a reflection of trends in the labor market).Alphabet, by contrast, fell well short of expectations as advertising revenue suffered both from increased competition from the likes of TikTok and from the increased willingness of consumers to get off YouTube now that they are no longer locked down.Microsoft stock rose 5.3% in premarket trading while Alphabet fell 3.0% to what would be an 11-month low.The relatively weak performance by Alphabet’s ad business looks likely to weigh on Facebook owner Meta Platforms (NASDAQ:FB) in the runup to its earnings after the close Wednesday.2. Russia weaponizes energy supplies as oil embargo nearsRussia cut off gas supplies to Poland and Bulgaria, after the two former Soviet satellites, refused to pay for their gas in rubles rather than euros or dollars.The weaponization of energy breaks with over 40 years of Russian and Soviet reliability in fulfilling its contracts and pushed European gas futures sharply higher for a second day.The move should be seen as a warning shot to Russia’s biggest customers, Germany and Italy, coming a day after Germany sealed a deal with Poland that will greatly reduce its dependence on Russian oil, and thus make it easier for Germany to drop its opposition to an embargo. Under that deal, Germany will be able to source crude for its refineries from Poland’s import terminal at Gdansk.The escalation of the Ukraine conflict’s economic dimension nonetheless weighed heavily on the euro, which fell to a five-year low against the dollar, and European stocks.3. Stocks set to bounce – a bit – after positive late earnings burstU.S. stocks are expected to bounce back from Tuesday’s drubbing, although they look far from recouping all of their losses – Tesla (NASDAQ:TSLA), for one, bouncing less than 3% premarket after its 12.8% slump in the previous session.By 6:15 AM ET (1015 GMT), Dow Jones futures were up 400 points, or 1.2%, while S&P 500 futures were up 1.0% and Nasdaq 100 futures were up 1.1%.Visa (NYSE:V) and Mondelez (NASDAQ:MDLZ) are both recovering in premarket more than they lost on Tuesday after posting better-than-expected first quarter results, while General Motors (NYSE:GM) and Chipotle (NYSE:CMG) stock are not quite back at the gain line, despite also beating. Texas Instruments (NASDAQ:TXN) is extending losses after warning of supply chain constraints late Tuesday. Mattel (NASDAQ:MAT) is surging after a WSJ report said it’s in talks to sell itself to private equity.T-Mobile (NASDAQ:TMUS), General Dynamics (NYSE:GD), American Tower (NYSE:AMT), CME Group (NASDAQ:CME), Kraft Heinz (NASDAQ:KHC) and Humana (NYSE:HUM) – among many others – all report early, while Qualcomm (NASDAQ:QCOM), Amgen (NASDAQ:AMGN), PayPal (NASDAQ:PYPL) and Ford (NYSE:F) head the late reporters.4. Dollar hits new highs; retail and wholesale inventories, pending home sales dueThere will be fresh insights on to how fast the housing market is weakening when pending home sales data for March are published at 10 AM. They’ve fallen for the last four months against a background of surging prices (up 20% year-on-year according to S&P Global and rising mortgage costs.The Mortgage Banking Association’s weekly data on mortgage applications and rates are due at 7 AM ET. The 30-year mortgage rate hit a 13-year high of 5.20% last week, while applications have fallen for the last six weeks.Retail and wholesale inventory data at 8:30 may also be interesting for any light they shed on how quickly final consumer demand is cooling.Expectations of monetary tightening and recession in Europe drove the dollar index to a new two-year high overnight.5. Oil back above $100 on EU embargo prospects; U.S. inventories riseCrude oil prices consolidated back above $100 a barrel, as the prospect of an EU embargo on Russian oil grew more realistic. Any such move would not only force European buyers to source alternative supplies elsewhere, it would also hit Russia’s production capability, given that its storage tanks and pipelines would likely hit capacity almost immediately, tightening the global market further.Such problems have already led to a marked drop in Russian oil output this month, according to unconfirmed reports. Russia’s largest producer Rosneft, meanwhile, failed to find a single buyer for its regular export tender this week.By 6:25 AM ET, U.S. crude futures were up 0.5% at $102.19 a barrel, while Brent futures were up 0.5% at $105.16 a barrel.That’s despite a surprisingly large rise in U.S. inventories last week, according to the American Petroleum Institute. The U.S. government’s data are due at 10:30 AM ET, as usual. More

The Biden administration is looking into claims that Yangtze Memory Technologies Co, a Chinese semiconductor maker, has supplied Huawei with chips, in a potential violation of US export controls.The White House and US Department of Commerce have received copies of a report that claimed Huawei, the Chinese telecoms equipment supplier that Washington believes is helping Beijing to conduct espionage, was using YMTC memory chips in a new smartphone, according to three people familiar with the case.One US official said the commerce department’s Bureau of Industry and Security had received a “credible” report by TechInsights, a firm that analyses the components inside consumer electronics.“While the department does not comment on the potential existence of investigations, BIS vigorously investigates allegations of violations of the export administration regulations,” said the official, who added that any enforcement action resulting from an investigation would only be made public after that probe was finished.State-owned YMTC is China’s largest memory chipmaker. As with other leading Chinese chipmakers, it is responding to government pressure to step up efforts to wean itself off US equipment but still remains dependent on American technology for some processes.The report said Huawei was using YMTC chips in its Enjoy 20e phone. The chips were made in February 2021, six months after then-president Donald Trump applied the foreign direct product rule, which bans US and foreign groups from exporting US technology to Huawei.“YMTC appears to be violating the FDPR,” Michael McCaul, the top Republican on the US House Foreign Affairs committee, said about the report, which was obtained by the Financial Times.Huawei and YMTC did not comment.The charge is the latest allegation against Chinese groups that Washington believes threaten US security either because of their impact on American companies or over concerns that they are helping the Chinese military under Beijing’s “civil-military fusion” programme, which requires them to share technology with the People’s Liberation Army.The White House last year said YMTC was becoming China’s “national champion memory chip producer”. Some Republicans, including McCaul, want YMTC to be added to the commerce department’s “entity list”, which would control US groups’ sales to the company.McCaul said the revelation underscored the need for action. “We see what is going [on] here but we are not willing to pull the trigger and be more aggressive by putting them on the entity list,” he said. “There are lists of tools exclusively made by US companies that YMTC needs. We could cut them off and nobody could supply them.”Marco Rubio, a Republican senator, recently voiced concern about reports that Apple was considering buying chips from YMTC, which he said had “extensive” PLA links. “It is unacceptable that sales of the next generation of iPhones would end up strengthening the Chinese military,” Rubio wrote to Tim Cook, Apple’s chief executive.Apple did not immediately respond to a request for comment.Although China has companies that offer machines for specialised processes in semiconductor production, such as etching and copper plating, a small number of American enterprises, such as Applied Materials, Lam Research and KLA still have a stranglehold over critical market niches, including in China.Roslyn Layton, co-founder of a group called China Tech Threat, said one reason the US had not previously placed YMTC on the “entity list” was because of successful lobbying from US groups.“YMTC’s partners have been brilliant at working the angles of the US government,” said Layton. “These companies don’t want it on the entity list because they want to sell there.”

To determine whether YMTC was violating FDPR, the commerce department would have to conclude it had “knowledge” that its chips were destined for Huawei. This can be complicated for commodity chips that can be sold off the shelf.A second US official said YMTC seemed to have breached the rule but any decision about punishing it would probably be a “political call”.“There seems to be a great deal more momentum to lessen trade tensions with Beijing than going after them so my sense is that absent political pressure from Congress, they will be looking into this for a very long time,” said the official.The piece was amended to reflect the YMTC chips were made in February 2021Follow Demetri Sevastopulo on Twitter More

Christine Lagarde has spent several days persuading investors the European Central Bank will take a more “gradual” approach than the Federal Reserve to stamping out soaring inflation.However, her insistence that the eurozone economy is not yet as strong as the US has not stopped markets pricing in the possibility of the ECB raising rates for the first time in a decade as soon as July. Such a shift, which analysts at Goldman Sachs and JPMorgan Chase are now forecasting, would mark a turnround for the ECB and its president, who was insisting as recently as December that it was “very unlikely” to raise rates at all in 2022.Markets now bet the ECB will take its deposit rate from minus 0.5 per cent into positive territory by the end of this year and to above 1 per cent next year.Even so, the ECB will still lag far behind the Fed, which last month raised rates by a quarter of a percentage point from close to zero and is expected to announce a half-point rate rise at its policy meeting next week.Jay Powell, Fed chair, has hinted at a string of half-point rises to swiftly bring rates to a “neutral” level that no longer actively stimulates demand. Analysts put the neutral rate at between 2.25 and 2.5 per cent.The Fed will also begin shrinking its $9tn balance sheet as early as June — something the ECB is not planning to do before the end of 2024 at the earliest.At first glance, the ECB seems to have almost as big an inflation problem as the Fed. Eurozone consumer prices rose by a record 7.4 per cent in the year to March — nearly as far above the 2 per cent level targeted by most central banks as the 8.5 per cent rise reported by the US.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

But Lagarde told CBS on Sunday there were several reasons why the ECB was “facing a very different beast” to the Fed, especially the war in Ukraine. Moscow’s invasion has left Europe more exposed to soaring energy costs because of the region’s greater reliance on Russian oil and gas imports.Higher energy prices account for half of eurozone inflation, much more than in the US, Lagarde said, adding: “If I raise interest rates today, it is not going to bring the price of energy down.” Core inflation, stripping out more volatile energy and food prices, was 2.9 per cent, less than half the US level of 6.5 per cent. Lagarde also pointed out that labour markets on the other side of the Atlantic were “incredibly tense” compared with those in Europe.US private sector average hourly earnings were 5.6 per cent higher in March than the previous year. By contrast, annualised labour cost growth in the eurozone has remained sluggish and even slowed to 1.9 per cent in the fourth quarter, down from 2.3 per cent in the previous quarter.Lagarde said these factors, along with fears the war in Ukraine will hit Europe’s economy harder than most regions, meant the ECB aimed to shift policy in “a sufficiently well sequenced, well calibrated, and — for us in Europe — a gradual way, so that we don’t induce recession”.The ECB said earlier this month it expected to stop adding to its bond portfolio in the third quarter. Lagarde went further on Sunday by saying there was a “high probability we do so early in the third quarter and then we will look at interest rates and how and by how much we hike them”. That leaves open the possibility of raising rates at the governing council’s meeting on July 21.Frederik Ducrozet, a strategist at Pictet Wealth Management, said: “The hawks are pushing for a July rate rise, which is not crazy at this time. I can see it happening even if it is not the base case.”Lagarde said the timing of tightening would be “data-dependent”. Analysts said recent business surveys, such as the S&P Global purchasing managers’ index and the Ifo Institute’s index of German business confidence, showed the eurozone had weathered the fallout of the war better than expected — boosting the likelihood of a July rise.“There has been a deterioration of growth, particularly in manufacturing,” said Silvia Ardagna, chief European economist at Barclays. “But we’ve had a much stronger services sector thanks to the reopening of the economy after Covid.”

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

First-quarter gross domestic product figures for the eurozone are likely to back this up when released on Friday. They are expected to show resilient growth of 0.3 per cent from the previous quarter. Eurozone inflation, due on the same day, is set to fall slightly due to lower energy prices — but analysts expect a continued rise in core inflation to keep up the pressure on the ECB to tighten policy.

A concern for the ECB will be that the last few times it raised rates — in 2008 and 2011 — were shortly before eurozone recessions. Some worry it could repeat the mistake again. “All in all, the slowdown is inevitable,” said Jens Eisenschmidt, chief European economist at Morgan Stanley who used to work for the ECB. “We assume an EU oil embargo on Russia in some form this year and then we are not that far away from a technical recession in the second half of the year.” More

LONDON (Reuters) -Rapidly rising prices and falling real incomes are encouraging households to postpone purchases of durable goods such as home appliances and cars, a signal that often accompanies a slowdown in the business cycle.Expensive durables such as cars, furniture, refrigerators, stoves, televisions and computers are the most cyclically sensitive part of consumer spending and usually herald the onset of a downturn.In his presidential address to the American Economic Association in 2017, exploring the role of narratives in propagating the business cycle, economist Robert Shiller characterised a recession as “a time when many people have decided to spend less, to make do for now with that old furniture instead of buying new, or to postpone starting a new business, (or) to postpone hiring new help in an existing business.”In the United States, there are already signs that consumer spending will decelerate in response to higher inflation, declining real incomes, and supply disruptions stemming from the pandemic and Russia’s invasion of Ukraine.Every month, the University of Michigan’s Survey Research Centre conducts a telephone poll of at least 500 households selected to be broadly representative of the Lower 48 states.Roughly 50 questions are asked covering households’ own financial prospects as well as their views on the state of the economy in the near term and over the longer term (https://tmsnrt.rs/3vN0r5N).In the latest survey, conducted in March, 57% of respondents said it was a “bad time” to purchase a major durable item, compared with only 37% who said it was a “good time”.For six months, the percentage saying it is a bad time to buy has been at the highest since 1980, and the balance between good time and bad time responses has also been at the most negative for four decades.Some 42% of respondents said it was a bad time because of high prices, while 7% cited uncertainty about the future, 4% said they couldn’t afford it, and only 1% cited interest rates.In a separate set of questions, the latest survey found 72% of respondents thought it would be a bad time to buy an automobile in the next 12 months, compared with only 24% who thought it would be a good time.Both the percentage of respondents saying it was a bad time to buy and the negative balance were the worst in records going back to 1978 (“Survey of consumers”, University of Michigan, 2022).Some 57% blamed high prices, compared with 5% who cited interest rates, 5% who cited future uncertainty and 4% who said they couldn’t afford to buy.In recent decades, spikes in the bad-time-to-buy measures have corresponded with end-of-cycle recessions or at least mid-cycle slowdowns (“Consumer expectations: micro foundations and macro impact”, Curtin, 2019).INEVITABLE ADJUSTMENTRapidly escalating prices are a major explanation for increasingly negative sentiment among U.S. households about their own finances and the economy.The University of Michigan’s composite index of consumer sentiment has tumbled to its lowest level for more than a decade and is in only the 2nd percentile for all months since 1980.So far, consumers have been more likely to cite prices rather than affordability, interest rates or future uncertainty as the reason why it is a bad time to buy durables and vehicles.But as real incomes diminish and interest rates continue to rise, all these other barriers to durables purchasing are likely to become more important.To some extent, rising prices and reduced spending is an inevitable response to the supply chain problems and capacity constraints that have emerged in manufacturing and freight transportation in the wake of the pandemic.High prices will encourage the rotation of consumer spending from durables to services such as travel, tourism and entertainment, which are only now starting to re-open after lockdowns and quarantines.Some households will postpone major purchases to pay for higher spending on food, fuel and services, as incomes fail to keep pace with inflation.The expected slowdown in durables spending could ease some of the pressure on commodity prices, manufacturing capacity and the freight system, but it could also have recessionary effects if the deceleration is severe.The difference between a recessionary hard landing and an inflation-moderating soft landing is hard for forecasters to predict and policymakers to navigate with precision.In the United States, there is a strong probability of a mid-cycle slowdown or end-of-cycle recession starting in the next few months.In Europe, the region’s proximity to the Russia/Ukraine conflict and higher energy prices mean the probability of a significant slowdown or recession is higher.China’s government has already admitted the increasing frequency of coronavirus outbreaks and strict lockdowns has hit consumer spending, in a long statement on “unleashing consumption potential” published on April 25.The National Development and Reform Commission, the top-level economic planning agency, has promised to stabilise consumption, including in-person services, and encourage more purchasing of durables.In lower-income countries across Asia, Africa and Latin America, rising food and fuel costs are likely to squeeze expenditure on durables even more sharply.With consumers under pressure in all major economies, the likelihood of a recession or at least a significant slowdown in one or more regions is very high and has started to weigh on industrial commodity and energy prices.Related columns:- Economic war pushes business cycle to tipping point (Reuters, March 23)- Global recession risks rise after Russia invades Ukraine (Reuters, March 4)- Fed searches for elusive soft landing (Reuters, Feb. 2)- Global economy faces biggest headwind from inflation (Reuters, Oct. 14)John Kemp is a Reuters market analyst. The views expressed are his own More