Tag: Federal Reserve

US industrial production stagnates as factory output declines

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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US industrial production stagnated in April, restrained by a drop in factory output that highlights a manufacturing sector struggling for traction.
Production at factories, mines and utilities was unchanged after a downwardly revised 0.1% gain a month earlier, Federal Reserve data showed Thursday (May 16).

Manufacturing output fell 0.3%, held back by motor-vehicle production, after a downwardly revised 0.2% March increase. Excluding autos, factory output eased only 0.1%. Mining declined, largely due to a slump in coal mining, while output at utilities picked up.

Manufacturing, which accounts for three-fourths of total industrial production, has had difficulty building momentum amid rising input prices and inconsistent demand. The Institute for Supply Management’s latest measure of factory activity moved back into contraction territory in April after expanding a month earlier for the first time since 2022.

Also Read: Indian exporters want RBI to earmark an amount for priority sector lending for exports

The ISM’s latest semiannual economic forecast, released Wednesday, showed manufacturers expect 2.1% revenue growth on average this year, a downgrade from their December projection. Input prices, which increased 1.6% through April, are projected to remain under 2% for the year.

US producers are also contending with tepid export markets and higher borrowing costs that are restraining capital spending in the economy. Motor vehicle production fell 2% after solid advances in the prior two months. Output also declined for producers of wood products, electrical equipment and machinery.

Business equipment production has dropped in four of the last five months, while output of consumer goods edged up slightly and construction supplies declined. Separate figures Thursday showed housing starts rose by less than forecast.

Also Read: SEBI bans Varanium Cloud, promoter over alleged IPO funds misuse

The Fed’s report showed capacity utilisation at factories, a measure of potential output being used, fell to 76.9%. The overall industrial utilisation rate was little changed at 78.4%.

While factory customers have made progress over the past year in getting stockpiles more in line with demand, government figures on Wednesday showed retail sales stagnated in April after downwardly revised gains in the prior two months.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

US applications for jobless benefits come back down after last week’s 9-month high

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Fewer Americans applied for unemployment benefits last week as layoffs remain at historically low levels even as other signs that the labour market is cooling have surfaced.

Jobless claims for the week ending May 11 fell by 10,000 to 222,000, down from 232,000 the week before, the Labor Department reported Thursday (May 16). Last week’s applications were the most since the final week of August 2023, though it’s still a relatively low number of layoffs.

The four-week average of claims, which evens out some of the week-to-week fluctuations, rose by 2,500 to 217,750. Weekly unemployment claims are considered a proxy for the number of US layoffs in a given week and a sign of where the job market is headed. They have remained at historically low levels since millions of jobs were lost when the COVID-19 pandemic hit the U.S. in the spring of 2020.

In April, US employers added just 175,000 jobs, the fewest in six months and a sign that the labour market may be finally cooling off. The unemployment rate inched back up to 3.9% from 3.8% and has now remained below 4% for 27 straight months, the longest such streak since the 1960s. The government also recently reported 8.5 million job openings in March, the lowest number of vacancies in three years.

Also Read: US inflation could reach 2% by end of 2024, says Ed Yardeni

Moderation in the pace of hiring, along with a slowdown in wage growth, could give the Fed the data it has been seeking in order to finally issue a cut to interest rates. A cooler reading on consumer inflation in April could also play into the Fed’s next rate decision.

The Federal Reserve raised its benchmark borrowing rate 11 times beginning in March of 2022 in a bid to stifle the four-decade-high inflation that took hold after the economy rebounded from the COVID-19 recession of 2020. The Fed’s intention was to loosen the labour market and cool wage growth, which can fuel inflation.

Many economists thought there was a chance the rapid rate hikes could cause a recession, but jobs remain plentiful and the economy is still broadly healthy thanks to strong consumer spending.

Though layoffs remain at low levels, companies have been announcing more job cuts recently, mostly across technology and media. Google parent company Alphabet, Apple and eBay have all recently announced layoffs.

Also Read: US April inflation eased slightly in first sign of slowdown this year

Outside of tech and media, Walmart, Peloton, Stellantis, Nike and Tesla have recently announced job cuts. In total, 1.79 million Americans were collecting jobless benefits during the week that ended May 4. That’s up 13,000 from the previous week.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Powell reiterates Fed likely to keep rates higher for longer to curb inflation

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Federal Reserve Chair Jerome Powell said the US central bank needs to be patient as it awaits more evidence that high interest rates are curbing inflation, doubling-down on the need to keep borrowing costs elevated.

Powell reiterated it will likely take longer than previously thought to attain the confidence needed to lower interest rates, echoing remarks made following the Fed’s latest meeting on May 1. He described current rates as restrictive by “many, many measures” but noted time will tell if policy is sufficiently restrictive to bring inflation back to the Fed’s 2% target.

“We think about the effect of the things we’re doing on financial conditions more broadly and on the economy,” Powell said Tuesday during an event hosted by the Foreign Bankers’ Association in Amsterdam. “All of those things lead us to believe at this time that policy is restrictive, and that it looks like it will take longer for us to become confident that inflation is coming down to 2% over time.”

“We think that it’s probably a matter of just staying at that stance for longer,” he added.

During the moderated discussion between Powell and European Central Bank Governing Council member Klaas Knot, the Fed chief reiterated it wasn’t likely that the Fed’s next move will be a rate hike. Powell added it’s more likely that the Fed will just keep the policy rate where it is.

US central bankers, including Powell, have expressed disappointment at the lack of inflation progress in the first quarter. Earlier this month, policymakers kept their benchmark policy rate unchanged at a 23-year high, a level Powell said he was prepared to maintain “for as long as appropriate.”

Powell said that he expects inflation will move lower on a monthly basis, but price figures in the first quarter have tempered his confidence.

“The first quarter in the United States was notable for its lack of further progress on inflation,” he said. “We did not expect this to be a smooth road, but these were higher than I think anybody expected.”

“What that has told us is that we’ll need to be patient and let restrictive policy do its work,” Powell said.

Producer Prices

The producer price index, a measure of wholesale prices, topped all economists’ forecasts in April, a government report showed Tuesday. That said, several components from the report that feed into the calculation of the Fed’s preferred inflation gauge — the personal consumption expenditures price index — were more mixed.

Powell described Tuesday’s report as “mixed.” The consumer price index for April will be released Wednesday, and economists surveyed by Bloomberg estimate prices rose a firm 3.4% from a year earlier.

The US economy continues to show resilience even with the Fed settling in with higher-for-longer rates. Non-farm payrolls have averaged 246,000 a month so far this year, and unemployment remains low. The April jobs report, however, did show some signs of moderation, with a slower pace of job growth and an unexpected tick up in unemployment.

Powell described the labor market as “very strong” with signs of gradual cooling and re-balancing, in part driven by an increase in labor supply from immigration as well as an easing in demand. He added the labor market is about as tight as it was before the pandemic in 2019.

European Outlook

ECB officials including President Christine Lagarde have signaled they’ll begin to lower borrowing costs at their June meeting, a sentiment Knot echoed Tuesday. What happens after is less clear and more controversial.

Some European policymakers favor a series of quick rate cuts to reduce the burden on the euro-area economy, while others call for caution, arguing with persisting risks to consumer prices. Though ECB officials insist on being independent from the Fed, there seems to be some disagreement on how much the ECB’s monetary policy can diverge from that of its US counterpart.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

US job market sees significant drop, hits three-year low

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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US job openings fell to a three-year low in March, while the number of people quitting their jobs declined, signs of easing labor market conditions that over time could aid the Federal Reserve’s fight against inflation.

The Job Openings and Labor Turnover Survey, or JOLTS report from the Labor Department on Wednesday was, however, tempered somewhat by other data showing a measure of prices paid by manufacturers for raw materials jumped to the highest level in nearly two years in April as commodity prices increased.

Falling goods prices were the major driver of the moderation in inflation last year. With price pressures picking up in the first quarter, the surge in input costs is unwelcome news. Fed officials on Wednesday kept the US central bank’s benchmark overnight interest rate unchanged in the current 5.25%-5.50% range, where it has been since July.

Policymakers signaled they were still leaning towards eventual reductions in borrowing costs, but put a red flag on recent disappointing inflation readings.

The Fed has raised its policy rate by 525 basis points since March 2022. Financial markets have pushed back the expected timing of a rate cut this year to September from June.

“Continued cooling in the labor market is part of the Fed’s plan to help return inflation to 2%, with job openings serving as one of the Fed’s barometers,” said Mark Streiber, an economic analyst at FHN Financial. “While it is too early to say that the easy goods disinflation we experienced in 2023 is over, upward pressure on goods is an unwelcome development for the Fed.”

Job openings, a measure of labor demand, were down 325,000 to 8.488 million on the last day of March, the lowest level since February 2021, the Labor Department’s Bureau of Labor Statistics said. Data for February was revised slightly higher to show 8.813 million unfilled positions instead of the previously reported 8.756 million.

Economists polled by Reuters had forecast 8.686 million job openings. Vacancies peaked at a record 12.182 million in March 2022. There were 1.32 job openings for every unemployed person, down from 1.36 in February. This ratio averaged 1.19 in 2019, indicating the labor market is gradually cooling.

March’s decline in job openings was led by construction, with 182,000 fewer unfilled positions. Vacancies decreased by 158,000 in finance and insurance. But job openings rose by 68,000 in state and local government education.

The decrease in job postings was concentrated in the West and Midwest. There were also fewer open positions in the South, which has experienced robust employment growth. Job postings increased in the Northeast. Demand for labor dropped considerably among small businesses with one to nine employees and establishments with 50 to 249 workers.

Small businesses have accounted for much of the increase in hiring following the pandemic. Declining vacancies led some economists to anticipate a sharp slowdown in overall job growth in the second quarter. The job openings rate fell to 5.1%, the lowest since January 2021, from 5.3% in February.

Employment is, however, expected to remain positive this year, keeping the economic expansion on track.

Stocks on Wall Street pared losses following the Fed’s rate decision. The dollar was steady against a basket of currencies. US Treasury prices rose.

MANUFACTURING FALTERS

Hiring dropped 281,000 to 5.500 million in March and the hires rate fell to 3.5% from 3.7% in February.

Layoffs decreased 155,000, the most in nearly a year, to 1.526 million. That was the lowest level since December 2022, pointing to a solid labor market. Low layoffs have accounted for solid job growth.

“Companies have shifted their focus from addressing staffing shortages by aggressively recruiting new workers to more proactively retaining the workers they have,” said Julia Pollak, chief economist at ZipRecruiter.

The number of people quitting their jobs dropped 198,000 to 3.329 million in March, the lowest level since January 2021. The decline in resignations was concentrated in trade, transportation and utilities, as well as other services.

The quits rate, viewed as a measure of labor market confidence, slipped to 2.1%, which was the lowest since August 2020 and followed 2.2% in February.

It soothed fears of a resurgence in wage growth after labor costs surged in the first quarter. Nonetheless the outlook for inflation remains challenging.

A survey from the Institute for Supply Management (ISM) on Wednesday showed its measure of prices paid by manufacturers for inputs shot up to 60.9 in April, the highest reading since June 2022, from 55.8 in March. That partly reflected higher oil prices. The overall ISM manufacturing PMI dropped to 49.2 last month from 50.3 in March, which was the highest and first reading above 50 since September 2022.

A PMI reading above 50 indicates growth in the manufacturing sector, which accounts for 10.4% of the economy.

“Oil prices have since returned to levels from the end of March, though they are likely to remain supported by resilient global demand as the outlook for China and the US improves,” said Matthew Martin, US economist at Oxford Economics.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Bottomline: Investors must look beyond the conflicts

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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West Asia has always been a hotbed of hostilities. The region has seen over 100 conflicts, big and small, since 1900, and several among these have been sparked by hatred that has simmered for years, like the ones between Israel and Hamas-led Palestinian militants. Many of the nations in the region have uneasy borders, quite like the India-Pakistan border, where frequent skirmishes are the order of the day. The moot question today, though, is whether what’s happening in the Middle East can escalate and hurt other economies of the world and roil markets. While each time is different, we did some digging to draw some indications from history.

Source: Wiki

What history tells us

We looked at conflicts in West Asia since 1990 for clues on market direction. For this, we took note of the movement in the S&P500 index from near the time of the break-out of the conflict to three months and six months after this. The results don’t offer a very clear picture but do suggest that there may not be much lasting impact of these conflicts on the broad direction of the market over a three-to-six-month period.

While the index was down 16% three months after the start of the Gulf War, it had recovered to just a negative 3% six months down the line. Three months after the Yemeni Civil War the index was flat, but six months down the line, it was 6% lower. In the case of other conflicts like the Iraq War and the Iran-Israel conflict in June 2006, the index was higher both three and six months down the line.

Hence, according too much significance to the present conflict between Israel and Iran from an economic perspective may not be fair, though there could be supply disruptions in the energy market and further troubles in shipping goods across the world.

Worries beyond West Asia

Even as concerns around West Asia hostilities may not be enough to derail the trend in equity markets, there are several other factors presently at play that can cause a significant change in outlook. The US Presidential Election to be held in November could have a significant bearing on how the world’s largest economy steers itself.

Then there’s the US Federal Reserve’s flip-flop on interest rate trajectory, with “higher for longer” now on the table versus three to four interest rate cuts during the year anticipated earlier. There’s also the big disruption with AI and the floundering fortunes of the EV business, that need to be kept an eye on. But most importantly, it is the froth building up in several asset classes, including equities, with most experts finding it hard to justify any further upside in valuations.

So, while the Israel-Iran conflict may not be a big enough reason for you to re-evaluate your investment strategy, there are enough other factors at play that would suggest you should be guarding against adventurism at this point. Tread cautiously.

Happy investing.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Central banks globally may start cutting rates by second half of 2024: IMF

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The International Monetary Fund (IMF) expects major central banks worldwide to start cutting key policy rates by the second half of the year, as inflation declines and inflation expectations remain anchored, it said in its latest World Economic Outlook report released on Tuesday.

“With inflation projected to continue declining toward targets and longer-term inflation expectations remaining anchored, policy rates of central banks in major advanced economies are generally expected to start declining in the second half of 2024,” the IMF said.

Among major central banks, by the fourth quarter of 2024, the Federal Reserve’s policy rate is expected to decline from its current level of about 5.4% to 4.6%, the IMF said in its report.

The Bank of England is expected to reduce its policy rate from about 5.3% to 4.8%, and the European Central Bank (ECB) will reduce its short-term rate from about 4.0% to 3.3%, the IMF added.

For Japan, the IMF said, policy rates are projected to rise gradually, reflecting growing confidence that inflation will sustainably converge to target over the medium term despite Japan’s history of deflation.

The report also highlighted that, though major central banks have raised policy interest rates to “restrictive” levels, concerns about high rates leading to an economic downturn globally did not materialise for several reasons.

“To counter rising inflation, major central banks have raised policy interest rates to levels estimated as restrictive. As a result, mortgage costs have increased and credit availability is generally tight, resulting in difficulties for firms refinancing their debt, rising corporate bankruptcies, and subdued business and residential investment in several economies. The commercial real estate sector, including office markets, is under especially strong pressure in some economies, with rising defaults and lower investment and valuations, reflecting the combined effects of higher borrowing costs and the shift toward remote work since the pandemic,” it said in the report.

Concerns of a global economic downturn caused by a sharp rise in policy rates, however, have not materialised as some central banks—including the ECB and the Federal Reserve—raised their nominal interest rates after inflation expectations started to rise, resulting in lower real rates that initially supported economic activity, the report concluded.

The Bank of Japan has continued to keep policy rates near zero, resulting in a steady decline in real interest rates, the IMF said, adding that, by contrast, the central banks of Brazil, Chile, and several other emerging market and developing economies raised rates relatively quickly, resulting in earlier increases in real interest rates.

Second, the IMF said, households in major advanced economies were able to draw on substantial savings accumulated during the pandemic to limit the impact of higher borrowing costs on their spending.

Third, changes in mortgage and housing markets over the pre-pandemic decade of low interest rates have limited the drag of the recent rise in policy rates on household consumption in several economies, the IMF added.

“As the global economy approaches a soft landing, the near-term priority for central banks is to ensure that inflation comes down smoothly; they should neither ease policies prematurely nor delay too long and risk causing target undershoots,” the IMF said in its report.

The IMF has pegged global growth, which stood at 3.2% in 2023, to continue at the same pace in both 2024 and 2025.

ALSO READ | IMF raises India’s FY25 growth forecast to 6.8%; pegs global growth at 3.2% in 2024, 2025

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

When will Fed cut rates? As US economy flexes its muscles, maybe later or not at all

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Ever since the Federal Reserve signaled last fall that it was likely done raising interest rates, Wall Street traders, economists, car buyers, would-be homeowners — pretty much everyone — began obsessing over a single question: When will the Fed start cutting rates?

But now, with the U.S. economy showing surprising vigor, a different question has arisen: Will the central bank really cut rates three times this year, as the Fed itself has predicted — or even cut at all? The Fed typically cuts only when the economy appears to be weakening and needs help.

Lower interest rates would reduce borrowing costs for homes, cars and other major purchases and probably fuel higher stock prices, all of which could help accelerate growth. An even more robust economy might also benefit President Joe Biden’s re-election campaign.

Friday’s blockbuster jobs report for March reinforced the notion that the economy is managing quite nicely on its own. The government said employers added a huge burst of jobs last month — more than 300,000 — and the unemployment rate dipped to a low 3.8% from 3.9%.

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Some analysts responded by arguing that it’s clear the last thing the economy needs now is more stimulus from lower rates.

“If the data is too strong, then why are we cutting?” asked Torsten Slok, chief economist at Apollo Global Management, a wealth management firm. “I think the Fed will not cut rates this year. Higher (rates) for longer is the answer.”

In March, the central bank’s policymakers — as a group — had penciled in three rate cuts for 2024, just as they had in December. Some economists still expect the Fed to carry out its first rate reduction in June or July. But even at last month’s Fed meeting, some cracks had emerged: Nine of the 19 policymakers forecast just two rate cuts or fewer for 2024.

Since then, Friday’s jobs data, combined with an unexpectedly buoyant report showing that factory output is expanding again after months of contracting, suggested that the economy is extending an unexpected run of healthy growth. Despite the Fed’s aggressive streak of rate hikes in 2022 and 2023, which sent mortgage rates and other borrowing costs surging, the economy is defying long-standing expectations that it would weaken.

Also Read: Citi predicts up to five rate cuts from the US Fed this year

Such trends have made some Fed officials nervous. Though inflation is down sharply from its peak, it remains stubbornly above the Fed’s 2% target. Rapid economic growth could reignite inflation pressures, undoing the progress that has been made.

In a slew of speeches this past week, several Fed officials stressed that there was little need to cut rates anytime soon. Instead, they said, they need more information about where exactly the economy is headed.

“It’s much too soon to think about cutting interest rates,” Lorie Logan, president of the Federal Reserve Bank of Dallas, said in a speech. “I will need to see more of the uncertainty resolved about which economic path we’re on.”

Raphael Bostic, head of the Atlanta Fed, said he favored just one rate cut this year — and not until the final three months. And Neel Kashkari, president of the Minneapolis Fed, sent stock prices falling Thursday afternoon after raising the possibility that the Fed might not cut at all this year.

“If we continue to see strong job growth,” Kashkari said, “if we continue to see strong consumer spending and strong GDP growth, then that raises the question in my mind, well, why would we cut rates?”

Still, a strong economy and hiring, by themselves, might not necessarily preclude rate reductions. Chair Jerome Powell and other officials, such as Loretta Mester, president of the Cleveland Fed, have underscored that the main factor in the Fed’s rate-cutting decision is when — or whether — inflation will resume its fall back to the central bank’s 2% target. They note that the economy managed to grow briskly in the second half of 2023 even while inflation fell steadily. Inflation is just 2.5% now, according to the Fed’s preferred measure, down from a peak of 7.1%.

Still, in January and February, “core” prices — which exclude volatile food and energy costs — rose faster than is consistent with the Fed’s target, raising concerns that inflation hasn’t been fully tamed.

As a result, the government’s upcoming reports on inflation will be scrutinized for any signs that inflation is easing further. Wednesday’s report on the consumer price index is expected to show that core prices rose 0.3% from February to March, which generally is too fast for the Fed’s liking.

One reason why Powell suspects the economy can keep growing even as inflation cools is that the supply of workers has soared in the past two years. This trend makes it easier for the economy to produce more and avoid shortages even when demand stays strong. It also helps keep wage and price growth in check.

A surge in immigration in the past two years, most of it unauthorized, has dramatically increased the number of workers willing to fill jobs. Their entry into the job market has mostly ended the labor shortages that bedeviled the economy after the pandemic and caused wages to spike for workers in retail, restaurants, and hotels.

“There are significantly more people working,” Powell said in a discussion at Stanford University this week. “It’s a bigger economy, rather than a tighter one.”

Whether that trend of a rising labor supply can continue this year will help determine the Fed’s next steps.

Still, speaking at a conference at the San Francisco Fed last month, even Powell acknowledged that the healthy economy reduces the urgency of rate cuts: “This economy doesn’t feel like it’s suffering from the current level of rates.”

Indeed, Slok and some Fed officials think borrowing costs aren’t restraining the economy as much as they would have in the past. That’s because in today’s economy, several trends could keep growth, inflation and interest rates higher than in the past two decades. These include a more productive economy, larger government budget deficits and the return of some manufacturing to the United States, where it is more expensive, from overseas.

“It is extremely difficult to make the case that the Fed should be cutting rates at all — and arguably, the debate about raising rates again should be more lively than it is currently,” said Thomas Simons, an economist at Jeffries, a brokerage.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Another month of robust US job growth points to continued economic strength

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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America’s employers delivered another outpouring of jobs in March, adding a sizzling 303,000 workers to their payrolls and bolstering hopes that the economy can vanquish inflation without succumbing to a recession in the face of high-interest rates.

Last month’s job growth was up from a revised 270,000 in February and was far above the 200,000 jobs that economists had forecast. By any measure, it amounted to a major burst of hiring, and it reflected the economy’s ability to withstand the pressure of high borrowing costs resulting from the Federal Reserve’s interest rate hikes.

With the nation’s consumers continuing to spend, many employers have kept hiring to meet steady customer demand. Friday’s report from the Labor Department also showed that the unemployment rate dipped from 3.9% to 3.8%. The jobless rate has now remained below 4% for 26 straight months, the longest such streak since the 1960s.

The government also revised its estimate of job growth in January and February by a combined 22,000. Normally, a blockbuster bounty of new jobs would raise concerns that a vibrant labour market would force companies to sharply raise pay to attract and keep workers, thereby fanning inflation pressures.

But the March jobs report showed that wage growth was mild last month, which might allay any such fears. Average hourly wages were up 4.1% from a year earlier, the smallest year-over-year increase since mid-2021. From February to March, though, hourly pay did rise 0.3% after increasing 0.2% the month before.

Also Read: US denies asking India to cut Russian oil imports amid price cap

The economy is sure to weigh on Americans’ minds as the November presidential vote nears and they assess President Joe Biden’s re-election bid. Many people still feel squeezed by the inflation surge that erupted in the spring of 2021. Eleven rate hikes by the Fed have helped send inflation tumbling from its peak. But average prices are still about 18% higher than they were in February 2021 — a fact for which Biden might pay a political price.

In a statement Friday, though, Biden argued that the economy’s strong performance means that his policies are paying off. “My plan is growing the economy from the middle out and the bottom up, investing in all Americans and giving the middle class a fair shot,” he said. “Inflation has come down significantly. We’ve come a long way, but I won’t stop fighting for hard-working families.”

The 303,000 jobs that the economy added in March were the largest gain since last May. And they boosted average monthly job growth so far this year to a vigorous 276,000, an improvement even on 2023’s robust average of 251,000.

The unemployment rate fell last month even though a sizable 469,000 people entered the labour force looking for work. That influx increased the proportion of Americans who either have a job or are looking for one from 62.5% in February to 62.7%. A bigger labour force tends to ease pressure on companies to significantly raise wages, thereby slowing inflation pressures.

Though most industries added jobs last month, hiring was mainly concentrated in three categories: Healthcare and private education, leisure and hospitality and government accounted for nearly 69% of the hiring. In addition, construction companies added a solid 39,000 jobs.

Four years after the pandemic curbed travel and forced shutdowns of restaurants, bars and entertainment venues, those industries have finally regained their pre-pandemic employment level, with a category that includes such businesses adding 49,000 jobs in March.

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The Fed’s policymakers are tracking the state of the economy, the job market and inflation to determine when to begin cutting interest rates from their multi-decade highs. Rate cuts by the Fed would likely lead, over time, to lower borrowing rates across the economy.

The central bank’s policymakers started raising rates two years ago to try to tame inflation, which by mid-2022 was running at a four-decade high. Those rate hikes — 11 of them from March 2022 through July 2023 — helped drastically slow inflation. Consumer prices were up 3.2% in February from a year earlier, far below a peak of 9.1% in June 2022.

The much higher borrowing costs for individuals and companies that resulted from the Fed’s rate hikes were widely expected to trigger a recession, with waves of layoffs and a painful rise in unemployment. Yet to the surprise of just about everyone, the economy has kept growing steadily and employers have kept hiring at a healthy pace.

Some economists believe that a rise in productivity — the amount of output that workers produce per hour — made it easier for companies to hire, raise pay and post bigger profits without having to raise prices. In addition, an influx of immigrants into the job market is believed to have addressed labor shortages and slowed upward pressure on wage growth. This helped cool inflation even as the economy kept growing.

“This report is like the macroeconomist’s Holy Grail,’’ said Julia Pollak, chief economist at the online job marketplace ZipRecruiter. “It’s pointing toward noninflationary growth.”

Noting the strong job growth, the influx of new workers, declining unemployment and slowing wage growth, Pollak said, “It suggests that the Fed can walk and chew gum at the same time, bringing down inflation without crippling the labour market.”

In the meantime, the Fed has signalled that it expects to cut rates three times this year. However, it is awaiting more inflation data to gain further confidence that annual price increases are heading toward its 2% target. Some economists have begun to question whether the Fed will need to cut rates anytime soon in light of the consistently durable U.S. economy.

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The still-strong demand for labour has meant that some employers are still struggling to fill vacancies. One of them is John Zmuda, president of Moseys Production Machinists in Anaheim, California, who said it’s still “extremely hard’’ to find workers. Though he receives plenty of resumes, Zmuda said “it seems like most people are just wage-hunting” rather than seeking a long-term career.

Moseys, a family-owned company that supplies the defense, aerospace, and healthcare industries, wants to add three or four workers to a staff of 27. Zmuda said he has raised wages by 10% over the past year or so. But California’s high cost of living, especially for housing, puts off some potential recruits.

Like many manufacturers, Moseys depends heavily on robots. But for an employer, automation goes only so far. “People bring to the table their minds and eyes,” Zmuda said. “Robots do not. People will think before they do something.’’

Likewise, in Duncan, Oklahoma, Southern Machine Works, which also supplies the aerospace and defense industries, needs four or five machinists. “It’s really been a struggle to find anyone,’’ said Frank Burch, CEO of the third-generation family firm.

Attracting recruits to a rural town of 23,000 is difficult, especially when the oil field services giant Halliburton is nearby and seeking workers, too. “We’re just hiring individuals that seem to have the mental capacity to learn the business, and then we’re teaching them through our in-house training program,” Burch said.

Employers, he suggested, will probably have to get used to tighter labour markets, “When you look at the demographics of the country – the baby boom’s gone, the current generation just isn’t having children. I just don’t really see it changing in my lifetime.’’

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Stocks flat, oil climbs as dollar cornered by yen and yuan

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Stock markets took a breather on Monday from their record highs of recent sessions as investors looked to an abbreviated trading week, capped by key US inflation data on Friday, due to the impending Easter holiday.

US stock index futures were slightly weaker. Market participants are hoping that Friday’s US price data will back investor bets for a June interest rate cut by the Federal Reserve. Boeing Co was a focus on Wall Street after the planemaker said its CEO Dave Calhoun would step down by year-end amid a sprawling safety crisis.

Oil benchmark Brent hovered close to $86 a barrel as hostilities intensified in the Middle East, and between Russia and Ukraine, with energy infrastructure targeted in the two-year-old war.

The dollar slipped, with the threat of currency intervention from Japanese authorities and a government-driven rally in China’s yuan weighing on the U.S. currency. The yen was within striking distance of a 32-year low as Japan’s top currency diplomat said on Monday the unit’s weakness did not reflect fundamentals.

The MSCI All Country stock index was down 0.1%, though still only about 5 points below its all-time high of last Thursday. In Europe, the STOXX index of 600 companies was a touch weaker at 508.10 points after hitting a lifetime high of 510.46 points on Friday. Goldman Sachs raised its 2024 target for the benchmark to 540 from 510, citing potential improvement in economic growth and rate cuts.

US stock indexes also hit record highs last week, with the S&P 500 on Friday ending with its biggest weekly percentage gain of 2024 after the US Federal Reserve stuck with projections for three rate cuts by year’s end.

Jason Da Silva, director of global investment strategy at Arbuthnot Latham, said the Fed’s comments gave markets some comfort and Monday’s signs of consolidation in stocks should not be surprising after the momentum seen so far this year.

“The market is just taking in what it’s seen in the last week or two, but unless there are any major surprises in either inflation or growth, it’s hard to see where the market cracks come through,” Da Silva said.

US INFLATION DATA

The main data event of the week will be the US core personal consumption expenditure (PCE) price index on Friday, which is seen rising 0.3% in February, keeping the annual pace at 2.8%. Analysts say that anything higher would be taken as a setback to bets for a Fed rate cut in June.

Many markets are closed for the Easter break on Friday when the PCE data is due for release, so the full reaction may not come until next week. Fed Chair Jerome Powell was sufficiently dovish last week to leave futures implying around a 74% chance of a June easing, up from 55% a week earlier.

Powell will participate in a moderated discussion at a policy conference on Friday, while Fed governors Lisa Cook and Christopher Waller are also appearing this week.

Europe has its own inflation tests with consumer price data out from France, Italy, Belgium and Spain, ahead of the overall EU CPI report on April 3. Sweden’s central bank meets on Wednesday and is generally expected to keep rates at 4.0%.

In Asia, Japan’s Nikkei dipped 1.1%, having spiked 5.6% last week to a fresh all-time peak as the yen weakened. Even a shift away from super-easy policies by the Bank of Japan (BOJ) could not dent the dollar, as investors assumed it was not the start of a series of hikes and futures imply a rate of just 20 basis points by year-end.

The dollar was at 151.22 yen, having climbed 1.6% last week to a peak of 151.86. Markets are wary of testing 152.00, a level that has drawn Japanese intervention in the past. The euro was at $1.0831, having been dragged down in the wake of the Swiss franc after the SNB’s rate cut.

The strength of the dollar had taken some shine off gold, though the metal was edging higher again to $2,174 an ounce, after hitting a record peak last week. Oil prices were underpinned by Ukraine’s attacks on Russian refineries, along with data showing a fall in US rig counts.

Brent rose 0.3% to $85.74 a barrel, while U.S. crude firmed 0.4% to $80.98 per barrel. Both benchmarks have risen steadily this year, up between 11 and 12.5% by Friday’s close.

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Dollar ends week under pressure as data keeps rate cut hopes alive

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The dollar traded modestly weaker against most major peers on Friday and was on pace for its worst weekly showing against the euro this year after mixed data kept an anticipated June interest rate cut from the Federal Reserve on the table.

Nonfarm payrolls increased by 275,000 jobs last month, the labor department’s Bureau of Labor Statistics said in its closely watched employment report on Friday. Data for January was revised down to show 229,000 jobs created instead of 353,000 as previously reported.

The unemployment rate rose to 3.9% in February after holding at 3.7% for three straight months, the data showed.

“The market had been getting a little worried, I think, that the Fed was stepping back from being in a position to cut rates soon, particularly given the recent inflation reports,” said Stuart Cole, chief economist at Equiti Capital.

“Today’s report should provide some optimism that, even if the scale of loosening will not be as strong as considered at the turn of the year, things are still moving in the right direction to allow the Fed to cut this year,” he said.

“In the short term at least, I think the dollar will be trading on a softer footing,” Cole added.

The euro was 0.06% lower against the dollar at $1.09425. The common currency hit an eight-week high earlier in the session and was up nearly 1% for the week, its best weekly performance against the buck since the week ended Dec. 22.

The ECB kept rates at record highs of 4.00% on Thursday while cautiously laying the ground to lower them later this year, saying it had made good progress in bringing down inflation.

The euro got a lift this week as the dollar came under pressure after Federal Reserve Chair Jerome Powell sounded more confident about cutting interest rates in coming months.

Speaking on Thursday, Powell said the Fed was “not far” from having the confidence it needed to cut rates. Currencies typically weaken if central banks lower interest rates.

“(Friday’s data) really kind of solidifies what Chair Powell was saying this week, about the confidence he had in the potential to begin the rate cutting cycle this year,” said Lindsey Bell, chief strategist at 248 Ventures in Charlotte, North Carolina.

Meanwhile, the yen rose to a five-week high against the dollar, aided by reports the Bank of Japan is warming to the idea of raising interest rates and considering a new quantitative monetary policy framework.

Jiji news agency reported the BoJ is considering a framework that will show the outlook for upcoming government bond buying amounts.

Separately, Reuters reported a growing number of BoJ policymakers could support ending negative interest rates this month on expectations that this year’s annual wage negotiations will yield strong results, four sources familiar with its thinking said.

Against the yen, the dollar was 0.68% lower at 147.05 yen, its weakest since Feb. 2.

“The yen is rising as speculation mounts that the BoJ will buck the global central bank trend and hike interest rates later this month,” said Kathleen Brooks, research director at XTB.

“In the short term, a powerful downtrend seems to be building for USD/JPY, and we believe that this pair could test 145.00,” she added.

Sterling rose on Friday against a weakening euro and dollar after signs that the European Central Bank (ECB) and the U.S. Federal Reserve might be closer to cutting rates than the Bank of England (BoE). The pound rose 0.34% to $1.2854 after hitting its highest since late July.

Firming hopes that interest rates in the U.S. and Europe will start to fall in June also helped prop up the risk-sensitive Australian and New Zealand dollars. The Aussie was up 0.09% while the kiwi was 0.05% higher.

In cryptocurrencies, bitcoin was up 2.77% at $69,207, after hitting a record high of $70,175.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow