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Business

Strong U.S. economic growth expected in fourth quarter, outlook darkening

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  • Fourth-quarter GDP forecast to increase at a 2.6% rate
  • Strong consumer spending seen; other sectors to contribute
  • Weekly jobless claims expected to rise moderately

WASHINGTON, Jan 26 (Reuters) – The U.S. economy likely maintained a strong pace of growth in the fourth quarter as consumers boosted spending on goods, but momentum appears to have slowed considerably towards the end of the year, with higher interest rates eroding demand.

The Commerce Department’s advance fourth-quarter gross domestic product report on Thursday could mark the last quarter of solid growth before the lagged effects of the Federal Reserve’s fastest monetary policy tightening cycle since the 1980s kick in. Most economists expect a recession by the second half of the year, though mild compared to previous downturns.

Retail sales have weakened sharply over the last two months and manufacturing looks to have joined the housing market in recession. While the labor market remains strong, business sentiment continues to sour, which could eventually hurt hiring.

“This looks like it could be the last really positive, strong quarterly print we’ll see for a while,” said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina. “Markets and most people will look through this number. More recent data are suggesting that economic momentum is continuing to slow.”

According to a Reuters survey of economists, GDP growth likely increased at a 2.6% annualized rate last quarter after accelerating at a 3.2% pace in the third quarter. Estimates ranged from a 1.1% rate to a 3.7% pace.

Robust second-half growth would erase the 1.1% contraction in the first six months of the year.

Growth for the full year is expected to come in at around 2.1%, down from the 5.9% logged in 2021. The Fed last year raised its policy rate by 425 basis points from near zero to a 4.25%-4.50% range, the highest since late 2007.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, is expected to have grown at a pace faster than the 2.3% rate notched in the third quarter. That would mostly reflect a surge in goods spending at the start of the quarter.

Spending has been underpinned by labor market resilience as well as excess savings accumulated during the COVID-19 pandemic. But demand for long-lasting manufactured goods, which are mostly bought on credit, has fizzled and some households, especially lower income, have depleted their savings.

Economic growth also likely received a lift from business spending on equipment, intellectual property and nonresidential structures. But with demand for goods tanking, business spending also lost some luster as the fourth quarter ended.

Despite the clear signs of a weak handover to 2023, some economists are cautiously optimistic that the economy will skirt an outright recession, but rather suffer a rolling downturn, where sectors decline in turn rather than all at once.

ROLLING RECESSION

They argue that monetary policy now acts with a shorter lag than was previously the case because of advances in technology and the U.S. central bank’s transparency, which they said resulted in financial markets and the real economy acting in anticipation of rate hikes.

“We will continue to have positive GDP numbers,” said Sung Won Sohn, a finance and economics professor at Loyola Marymount University in Los Angeles. “The reason is sectors are taking turns going down, and not simultaneous declining. The rolling recession began with housing and now we are seeing the next phase which is consumption related.”

Indeed, with demand for goods slumping, factory production has declined sharply for two straight months. Job cuts in the technology industry were also seen as flagging cutbacks in capital spending by businesses.

While residential investment likely suffered its seventh straight quarterly decline, which would be the longest such streak since the collapse of the housing bubble triggered the Great Recession, there are signs the housing market could be stabilizing. Mortgage rates have been trending lower as the Fed slows the pace of its rate hikes.

Inventory accumulation was seen adding to GDP last quarter, but with demand slowing, businesses are likely to focus on reducing stock in their warehouse rather than placing new orders, which would undercut growth in the quarters ahead.

Trade, which accounted for the bulk of GDP growth in the third quarter, was seen either making a small contribution or subtracting from GDP growth. Strong growth is expected from government spending.

While the labor market thus far has shown remarkable resilience, economists argue that deteriorating business conditions will force companies to slow hiring and lay off workers.

Companies outside the technology industry as well as interest-rate sensitive sectors like housing and finance are hoarding workers after struggling to find labor during the pandemic.

A separate report from the Labor Department on Thursday is likely to show initial claims for state unemployment benefits rose to a seasonally adjusted 205,000 for the week ended Jan. 21, from 190,000 in the prior week, according to a Reuters survey of economists.

“We expect initial jobless claims will eventually start to turn back up after their recent drop, consistent with an eventual downturn in payrolls and a rise in the unemployment rate,” said Kevin Cummins, chief economist at NatWest Markets in Stamford, Connecticut. “In turn, we expect spending to slow as consumers will be less willing to run down savings in the face of a deteriorating labor market.”

Reporting by Lucia Mutikani; Editing by Andrea Ricci

Our Standards: The Thomson Reuters Trust Principles.

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Business

U.S. home sales slump to 12-year low; glimmers of hope emerging

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  • Existing home sales drop 1.5% in December
  • Sales fall 17.8% in 2022, sharpest annual decline since 2008
  • Median house price rises 2.3% from year ago

WASHINGTON, Jan 20 (Reuters) – U.S. existing home sales plunged to a 12-year low in December, but declining mortgage rates raised cautious optimism that the embattled housing market could be close to finding a floor.

The report from the National Association of Realtors on Friday also showed the median house price increasing at the slowest pace since early in the COVID-19 pandemic as sellers in some parts of the country resorted to offering discounts.

The Federal Reserve’s fastest interest rate-hiking cycle since the 1980s has pushed housing into recession.

“Existing home sales are somewhat lagging,” said Conrad DeQuadros, senior economic advisor at Brean Capital in New York. “The decline in mortgage rates could help undergird housing activity in the months ahead.”

Existing home sales, which are counted when a contract is closed, fell 1.5% to a seasonally adjusted annual rate of 4.02 million units last month, the lowest level since November 2010. That marked the 11th straight monthly decline in sales, the longest such stretch since 1999.

Reuters Graphics

Sales dropped in the Northeast, South and Midwest. They were unchanged in the West. Economists polled by Reuters had forecast home sales falling to a rate of 3.96 million units. December’s data likely reflected contracts signed some two months earlier.

Home resales, which account for a big chunk of U.S. housing sales, tumbled 34.0% on a year-on-year basis in December. They fell 17.8% to 5.03 million units in 2022, the lowest annual total since 2014 and the sharpest annual decline since 2008.

Reuters Graphics

The continued slump in sales, which meant less in broker commissions, was the latest indication that residential investment probably contracted in the fourth quarter, the seventh straight quarterly decline.

This would be the longest such streak since the collapse of the housing bubble triggered the Great Recession.

While a survey from the National Association of Home Builders this week showed confidence among single-family homebuilders improving in January, morale remained depressed.

Single-family homebuilding rebounded in December, but permits for future construction dropped to more than a 2-1/2- year low, and outside the pandemic plunge, they were the lowest since February 2016.

A “For Rent, For Sale” sign is seen outside of a home in Washington, U.S., July 7, 2022. REUTERS/Sarah Silbiger

Stocks on Wall Street were trading higher. The dollar rose against a basket of currencies. U.S. Treasury prices fell.

MORTGAGE RATES RETREATING

The worst of the housing market rout is, however, probably behind. The 30-year fixed mortgage rate retreated to an average 6.15% this week, the lowest level since mid-September, according to data from mortgage finance agency Freddie Mac.

The rate was down from 6.33% in the prior week and has declined from an average of 7.08% early in the fourth quarter, which was the highest since 2002. It, however, remains well above the 3.56% average during the same period last year.

The median existing house price increased 2.3% from a year earlier to $366,900 in December, with NAR Chief Economist Lawrence Yun noting that “markets in roughly half of the country are likely to offer potential buyers discounted prices compared to last year.”

The smallest price gain since May 2020, together with the pullback in mortgage rates, could help to improve affordability down the road, though much would depend on supply. Applications for loans to buy a home have increased so far this year, a sign that there are eager buyers waiting in the wings.

House prices increased 10.2% in 2022, boosted by an acute shortage of homes for sale. Housing inventory totaled 970,000 units last year. While that was an increase from the 880,000 units in 2021, supply was the second lowest on record.

“Home price growth is likely to continue to decelerate and we look for it to turn negative in 2023,” said Nancy Vanden Houten, a U.S. economist at Oxford Economics in New York. “The limited supply of homes for sale will prevent a steep decline.”

In December, there were 970,000 previously owned homes on the market, down 13.4% from November but up 10.2% from a year ago. At December’s sales pace, it would take 2.9 months to exhaust the current inventory of existing homes, up from 1.7 months a year ago. That is considerably lower than the 9.6 months of supply at the start of the 2007-2009 recession.

Though tight inventory remains an obstacle for buyers, the absence of excess supply means the housing market is unlikely to experience the dramatic collapse witnessed during the Great Recession.

A four-to-seven-month supply is viewed as a healthy balance between supply and demand. Properties typically remained on the market for 26 days last month, up from 24 days in November.

Fifty-seven percent of homes sold in December were on the market for less than a month. First-time buyers accounted for 31% of sales, up from 30% a year ago. All-cash sales made up 28% of transactions compared to 23% a year ago. Distressed sales, foreclosures and short sales were only 1% of sales in December.

“While the stabilization of affordability will be good news for potential home buyers, a lack of available inventory could remain a constraint for home buying activity,” said Orphe Divounguy, a senior economist at Zillow.

Reporting by Lucia Mutikani;
Editing by Dan Burns and Andrea Ricci

Our Standards: The Thomson Reuters Trust Principles.

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World

Xi says COVID control is entering new phase as cases surge after reopening

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  • China overcame unprecedented difficulties in COVID battle: Xi
  • Still a time of struggle for controlling COVID: Xi
  • In Wuhan, surge in new cases shows signs of easing
  • Shanghai has 10 million infections, health official says
  • End of zero-COVID curbs prompts global concern

WUHAN/BEIJING, Dec 31 (Reuters) – Chinese President Xi Jinping called on Saturday for more effort and unity as the country enters a “new phase” in its approach to combating the pandemic, in his first comments to the public on COVID-19 since his government changed course three weeks ago and relaxed its rigorous policy of lockdowns and mass testing.

China’s abrupt switch earlier this month from the “zero-COVID” policy that it had maintained for nearly three years has led to infections sweeping across the country unchecked. It has also caused a further drop in economic activity and international concern, with Britain and France becoming the latest countries to impose curbs on travellers from China.

The switch by China followed unprecedented protests over the policy championed by Xi, marking the strongest show of public defiance in his decade-old presidency and coinciding with grim growth figures for the country’s $17 trillion economy.

In a televised speech to mark the New Year, Xi said China had overcome unprecedented difficulties and challenges in the battle against COVID, and that its policies were “optimised” when the situation and time so required.

“Since the outbreak of the epidemic … the majority of cadres and masses, especially medical personnel, grassroots workers braved hardships and courageously persevered,” Xi said.

“At present, the epidemic prevention and control is entering a new phase, it is still a time of struggle, everyone is persevering and working hard, and the dawn is ahead. Let’s work harder, persistence means victory, and unity means victory.”

New Year’s Eve prompted reflection online and by residents of Wuhan, the epicentre of the COVID outbreak nearly three years ago, about the zero-COVID policy and the impact of its reversal.

People in the central city of Wuhan expressed hope that normal life would return in 2023 despite a surge in cases since pandemic curbs were lifted.

Wuhan resident Chen Mei, 45, said she hoped her teenage daughter would see no further disruptions to her schooling.

“When she can’t go to the school and can only have classes online it’s definitely not an effective way of learning,” she said.

VIDEO REMOVED

Across the country, many people voiced similar hopes on social media, while others were critical.

Thousands of users on China’s Twitter-like Weibo criticised the removal of a video made by local outlet Netease News that collated real-life stories from 2022 that had captivated the Chinese public.

Many of the stories included in the video, which by Saturday could not be seen or shared on domestic social media platforms, highlighted the difficulties ordinary Chinese faced as a result of the previously strict COVID policy.

Weibo and Netease did not immediately reply to a request for comment.

One Weibo hashtag about the video garnered almost 4 million hits before it disappeared from platforms at about noon on Saturday. Social media users created new hashtags to keep the comments pouring in.

“What a perverse world, you can only sing the praises of the fake but you cannot show real life,” one user wrote, attaching a screenshot of a blank page that is displayed when searching for the hashtags.

The disappearance of the videos and hashtags, seen by many as an act of censorship, suggests the Chinese government still sees the narrative surrounding its handling of the disease as a politically sensitive issue.

HOSPITALS OVERWHELMED

The wave of new infections has overwhelmed hospitals and funeral homes across the country, with lines of hearses outside crematoriums fuelling public concern.

China, a country of 1.4 billion people, reported one new COVID death for Friday, the same as the day before – numbers that do not match the experience of other countries after they reopened.

UK-based health data firm Airfinity said on Thursday that about 9,000 people in China were probably dying each day from COVID. Cumulative deaths in China since Dec. 1 have likely reached 100,000, with infections totalling 18.6 million, it said.

Zhang Wenhong, director of the National Centre for Infectious Diseases, told the People’s Daily in an interview published on Saturday that Shanghai had reached a peak of infections on Dec. 22, saying there were currently about 10 million cases.

He said those numbers indicated that some 50,000 people in the city of 25 million would need to be hospitalized in the next few weeks.

At the central hospital of Wuhan, where former COVID whistleblower Li Wenliang worked and later died of the virus in early 2020, patient numbers were down on Saturday compared with the rush of the past few weeks, a worker outside the hospital’s fever clinic told Reuters.

“This wave is almost over,” said the worker, who was wearing a hazmat suit.

A pharmacist whose store is next to the hospital said most people in the city had now been infected and recovered.

“It is mainly old people who are getting sick with it now,” he said.

In the first indication of the toll on China’s giant manufacturing sector from the change in COVID policy, data on Saturday showed factory activity shrank for the third straight month in December and at the sharpest pace in nearly three years.

Reporting by Martin Quinn Pollard, Tingshu Wang and Xiaoyu Yin in Wuhan, Eduardo Baptista in Beijing; Writing by Sumeet Chatterjee
Editing by Helen Popper and Frances Kerry

Our Standards: The Thomson Reuters Trust Principles.

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World

China’s factory, retail sectors skid as COVID hits growth

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  • China’s industrial output growth slows more than expected
  • Retail sales contraction deepens
  • Property investment falls most in over two decades
  • Nationwide jobless rate climbs
  • Near-term outlook darkens following COVID relaxation – analysts

BEIJING, Dec 15 (Reuters) – China’s economy lost more steam in November as factory output slowed and retail sales extended declines, both missing forecasts and clocking their worst readings in six months, hobbled by surging COVID-19 cases and widespread virus curbs.

The data suggested a further deterioration in economic conditions as lockdowns in many cities, a property-sector crunch and weakening global demand pointed to a bumpy road ahead even as Beijing ditched some of the world’s toughest anti-virus restrictions following widespread and rare public protests.

Industrial output rose 2.2% in November from a year earlier, missing expectations for a 3.6% gain in a Reuters poll and slowing significantly from the 5.0% growth seen in October, the National Bureau of Statistics (NBS) data showed on Thursday. It marked the slowest growth since May, partly due to disruptions in key manufacturing hubs Guangzhou and Zhengzhou.

Retail sales fell 5.9% amid broad-based weakness in the services sector, also the biggest contraction since May. Analysts had expected the gauge of consumption to shrink 3.7%, accelerating from a 0.5% dip in October.

In particular, sales in the contact-intensive catering sector fell 8.4% from a year earlier, accelerating from the 8.1% decline in October.

Meanwhile, automobile production slumped 9.9%, swinging from an 8.6% gain in October.

China’s yuan eased against the dollar on Thursday, as the data hit investor confidence.

“The weak activity data suggest that the policy needs to be eased further to revive the growth momentum,” said Hao Zhou, chief economist at GTJAI. “The increased size of the MLF rollover this morning is in line with the overall easing policy tones. Looking ahead, we also forecast that the rates for MLF will be lowered by 10bps next Q1.”

China’s central bank ramped up cash injections into the banking system on Thursday and held interest rates on the medium-term policy loans, or MLF, to keep liquidity conditions ample.

Reuters Graphics Reuters Graphics

The world’s second-largest economy has been depressed by its zero-COVID policy, as tight movement controls hampered consumption and production. Other headwinds the country faces are its property slump, global recession risks and geopolitical uncertainties.

Property investment fell 19.9% year-on-year, the fastest pace since the statistics bureau began compiling data in 2000, according to Reuters calculations based on data from the NBS.

Policymakers have rolled out support for the sector on almost all fronts, including credit lines from banks, bond financing and equity financing, but analysts said such effects have yet to be seen as home sales still remained weak.

Fixed asset investment expanded 5.3% in the first 11 months of the year, versus expectations for a 5.6% rise and growth of 5.8% in January-October.

Hiring remained low among companies wary about their finances. The nationwide jobless rate rose to 5.7% in November from 5.5% in October. Youth unemployment dipped to 17.1% from 17.9% in October.

“December data might be even worse – that’s not because everything is getting worse in China, because the end of the tunnel is coming,” said Alicia Garcia-Herrero, chief economist of Asia-Pacific at Natixis.

“I am expecting a big collapse in industrial production in December. This will be the immediate consequence of the opening up,” she said, downgrading GDP growth in the fourth quarter to 2.8% from 3% previously.

China has set out plans to expand domestic consumption and investment, state media said on Wednesday, as policymakers face multiple challenges following abrupt relaxations of harsh COVID-related restrictions, which are expected to usher in a surge of infections.

That would hit businesses and consumers, while a weakening global economy hurts Chinese exports.

China’s economy grew just 3% in the first three quarters of this year and is expected to stay around that rate for the full year, well below the official target of “around 5.5%”.

All eyes are on the closed-door annual Central Economic Work Conference, when Chinese leaders gather to set next year’s economic agenda. They will likely map out more stimulus steps, eager to underpin growth and ease disruptions caused by a sudden end to COVID-19 curbs, policy insiders and analysts said.

($1 = 6.9593 Chinese yuan)

Additional reporting by Liz Lee, Liangping Gao and Kevin Yao; Editing by Sam Holmes

Our Standards: The Thomson Reuters Trust Principles.

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Business

China’s producer prices fall, consumer inflation slows on soft demand

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  • PPI falls for a second month
  • Nov PPI -1.3% y/y vs -1.3% y/y in October
  • Nov CPI +1.6% y/y vs +2.1% y/y in October

BEIJING, Dec 9 (Reuters) – China’s factory-gate prices showed an annual fall for a second month in November while consumer inflation slowed, indicating weak activity and soft demand in an economy that has been held back by tough pandemic controls.

Analysts said they expected the government to keep interest rates low and take measures to boost confidence.

The producer price index (PPI) was down 1.3% on a year earlier, unchanged from an annual contraction seen in October, according to National Bureau of Statistics (NBS) data issued on Friday. That was slower than a 1.4% fall tipped in a Reuters poll.

The November consumer price index (CPI) rose at its slowest pace in eight months, climbing 1.6% from a year earlier, which was less than the 2.1% annual rise seen in October but in line with a Reuters poll.

“These data suggest the economic momentum (continues) to weaken,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

A high-level political meeting on Tuesday, a gathering of the ruling Communist Party’s Politburo, emphasised that in 2023 the government would focus on stabilising growth, promoting domestic demand and opening up to the outside world.

Zhang said that, although the government had eased pandemic controls over the past week, it would take further measures to spur the economy.

“The Politburo meeting … identified weak confidence as a major problem for the economy,” he said. “I expect the government will do more to boost market and household confidence. The fast pace of reopening indicates the government’s sense of urgency.”

Growth in the world’s second-largest economy has sagged this year, largely impacted by the uncompromising COVID-19 curbs as global demand has also wavered.

The producer price deflation and milder consumer price inflation of November accompanied record COVID-19 infections and related curbs that disrupted production and curbed mobility.

Although markets have cheered the shift in pandemic policy, economists say it will likely depress growth over the next few months as infections surge, bringing an economic rebound only later in 2023.

Reuters Graphics

Producer deflation was led by the steel industry, in which prices were down 18.7%.

Part of the explanation for slower growth in consumer prices was in food markets.

Food prices were up 3.7% on a year earlier, whereas the rise seen in October was 7.0%. Within the food category, pork was a factor behind moderating inflation: it was 34.4% pricier in November than in the same month last year, but in October the annual rise had been 51.8%.

Underlying core annual inflation, which excludes volatile food and energy prices, was just 0.6% in November, unchanged from October

“The overall inflation pressure remains benign in China, and we expect the CPI inflation will be around 1.6% for 2023, down from 2.0% in 2022. Given this, the monetary policy will remain accommodative over the coming year,” said Hao Zhou, chief economist at Guotai Junan Group.

China’s central bank has kept its benchmark one-year loan prime rate at 3.65% since August. It expects consumer inflation to remain moderate next year.

Reporting by Liangping Gao and Liz Lee; Editing by Edmund Klamann and Bradley Perrett

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Business

S&P 500, Nasdaq snap losing streaks after jobless claims rise

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  • Weekly jobless claims rise in line with estimates
  • Moderna, Pfizer up as FDA authorizes updated COVID boosters
  • Exxon climbs after boosting buyback program
  • Indexes up: Dow 0.55%, S&P 0.75%, Nasdaq 1.13%

Dec 8 (Reuters) – The S&P 500 (.SPX) ended higher on Thursday, snapping a five-session losing streak, as investors interpreted data showing a rise in weekly jobless claims as a sign the pace of interest rate hikes could soon slow.

Wall Street’s main indexes had come under pressure in recent days, with the S&P 500 shedding 3.6% since the beginning of December on expectations of a longer rate-hike cycle and downbeat economic views from some top company executives.

Such thinking had also weighed on the Nasdaq Composite (.IXIC), which had posted four straight losing sessions prior to Thursday’s advance on the tech-heavy index.

Stocks rose as investors cheered data showing the number of Americans filing claims for jobless benefits increased moderately last week, while unemployment rolls hit a 10-month high toward the end of November.

The report follows data last Friday that showed U.S. employers hired more workers than expected in November and increased wages, spurring fears that the Fed might stick to its aggressive stance to tame decades-high inflation.

Markets have been swayed by data releases in recent days, with investors lacking certainty ahead of Federal Reserve guidance next week on interest rates.

Such behavior means Friday’s producer price index and the University of Michigan’s consumer sentiment survey will likely dictate whether Wall Street can build on Thursday’s rally.

“The market has to adjust to the fact that we’re moving from a stimulus-based economy – both fiscal and monetary – into a fundamentals-based economy, and that’s what we’re grappling with right now,” said Wiley Angell, chief market strategist at Ziegler Capital Management.

The Dow Jones Industrial Average (.DJI) rose 183.56 points, or 0.55%, to close at 33,781.48; the S&P 500 (.SPX) gained 29.59 points, or 0.75%, to finish at 3,963.51; and the Nasdaq Composite (.IXIC) added 123.45 points, or 1.13%, at 11,082.00.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., December 7, 2022. REUTERS/Brendan McDermid

Nine of the 11 major S&P 500 sectors rose, led by a 1.6% gain in technology stocks (.SPLRCT).

Most mega-cap technology and growth stocks gained. Apple Inc (AAPL.O), Nvidia Corp (NVDA.O) and Amazon.com Inc (AMZN.O) rose between 1.2% and 6.5%.

Microsoft Corp (MSFT.O) ended 1.2% higher, despite giving up some intraday gains after the Federal Trade Commission filed a complaint aimed at blocking the tech giant’s $69 billion bid to buy Activision Blizzard Inc . The “Call of Duty” games maker closed 1.5% lower.

The energy index (.SPNY) was an exception, slipping 0.5%, despite Exxon Mobil Corp (XOM.N) gaining 0.7% after announcing it would expand its $30-billion share repurchase program. The sector had been under pressure in recent sessions as commodity prices slipped: U.S. crude is now hovering near its level at the start of 2022.

Meanwhile, Moderna Inc (MRNA.O) advanced 3.2% after the U.S. Food and Drug Administration authorized COVID-19 shots from the vaccine maker that target both the original coronavirus and Omicron sub-variants for use in children as young as six months old.

The regulator also approved similar guidance for fellow COVID vaccine maker Pfizer Inc (PFE.N), which rose 3.1%, and its partner BioNTech, whose U.S.-listed shares gained 5.6%.

Rent the Runway Inc (RENT.O) posted its biggest ever one-day gain, jumping 74.3%, after the clothing rental firm raised its 2022 revenue forecast.

Volume on U.S. exchanges was 10.07 billion shares, compared with the 10.90 billion average for the full session over the last 20 trading days.

The S&P 500 posted 15 new 52-week highs and three new lows; the Nasdaq Composite recorded 82 new highs and 232 new lows.

Reporting by Shubham Batra, Ankika Biswas, Johann M Cherian in Bengaluru and David French in New York; Editing by Vinay Dwivedi, Sriraj Kalluvila, Anil D’Silva and Richard Chang

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Business

U.S. labor market shrugs off recession fears; keeps Fed on tightening path

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  • Nonfarm payrolls increase 263,000 in November
  • Unemployment rate steady at 3.7%; participation rate falls
  • Average hourly earnings rise 0.6%; up 5.1% year-on-year

WASHINGTON, Dec 2 (Reuters) – U.S. employers hired more workers than expected in November and increased wages, shrugging off mounting worries of a recession, but that will probably not stop the Federal Reserve from slowing the pace of its interest rate hikes starting this month.

Despite the strong job growth, some details of the Labor Department’s closely watched employment report on Friday were a bit weak, which economists said could be flagging upcoming labor market weakness. Household employment decreased for a second straight month. About 186,000 people left the labor force, keeping the unemployment rate unchanged at 3.7%.

Labor market tightness and strength keeps the Fed on its monetary policy tightening path at least through the first half of 2023, and could raise its policy rate to a higher level where it could stay for sometime. It also underscores the economy’s resilience heading into was is expected to be a tough year.

“November’s labor market report was clearly bad news for the Fed’s war on inflation,” said Jan Groen, chief U.S. macro strategist at TD Securities in New York. “The Fed has no other choice than to remain in tightening mode for the near future, with 50 basis points hikes in December and February.”

Nonfarm payrolls increased by 263,000 jobs last month. Data for October was revised higher to show payrolls rising 284,000 instead of 261,000 as previously reported. Monthly job growth of 100,000 is needed to keep pace with growth in the labor force.

Economists polled by Reuters had forecast payrolls increasing 200,000. Estimates ranged from 133,000 to 270,000. Employment growth has averaged 392,000 per month this year compared with 562,000 in 2021.

Hiring remains strong despite announcements of thousands of job cuts by technology companies, including Twitter, Amazon (AMZN.O) and Meta (META.O), the parent of Facebook.

Economists say these companies are right-sizing after over-hiring during the COVID-19 pandemic, noting that small firms remain desperate for workers.

There were 10.3 million job openings at the end of October, with 1.7 openings for every unemployed person, many of them in the leisure and hospitality as well as healthcare and social assistance industries.

The gains in employment last month were led by the leisure and hospitality sector, which added 88,000 jobs, most of them at restaurants and bars. Leisure and hospitality employment remains down 980,000 from its pre-pandemic level.

There were 45,000 jobs added in healthcare, while government payrolls increased 42,000. Construction employment increased by 20,000 jobs despite the housing market turmoil, while manufacturing added 14,000 jobs.

But retail trade employment fell by 30,000 jobs, with most of the losses in general merchandise stores. Transportation and warehousing payrolls decreased by 15,000 jobs. Temporary help jobs, a segment normally considered a harbinger of future hiring, decreased by 17,200.

“The labor market might encounter some bumps in the road next year, but it’s heading into 2023 cruising,” said Nick Bunker, head of economic research at the Indeed Hiring Lab.

Fed Chair Jerome Powell said on Wednesday the U.S. central bank could scale back the pace of its rate hikes “as soon as December.” The Fed has raised its policy rate by 375 basis points this year from near zero to a 3.75%-4.00% range in the fastest rate-hiking cycle since the 1980s.

Policymakers meet on Dec. 13 and 14. Attention now shifts to November’s consumer price data due on Dec. 13.

Stocks on Wall Street fell. The dollar rose against a basket of currencies. U.S. Treasury prices were lower.

WAGES ACCELERATE

With the labor market still tight, average hourly earnings increased 0.6% after advancing 0.5% in October. That raised the annual increase in wages to 5.1% from 4.9% in October. Wage growth peaked at 5.6% in March.

Reuters Graphics Reuters Graphics

The broad wage gains suggest that the moderation in inflation, evident in October data, will be gradual. Economists said this also raised concerns about a wage-price spiral that could keep service prices rising outside the shelter component. Fed officials have shied away from calling a price-wage spiral.

“The broad-based nature of the increase and its consistency with other data on wages makes us think that around 5% average hourly earnings growth is not an aberration,” said Andrew Hollenhorst, chief U.S. economist at Citigroup in New York.

Strong wage gains are helping to drive consumer spending, which surged in October, leading economists to believe that an anticipated recession next year would be short and shallow. But there are some signs of weakness emerging in the labor market.

Household employment decreased by 138,000 jobs, the second straight monthly decline. Though household employment tends to be volatile as it is drawn from a smaller sample compared to nonfarm payrolls, economists said the divergence between these two measures was important to watch.

“The household survey may be better in capturing turning points in the labor market than the payroll survey, since the payroll survey is unable to adequately capture activity in opening and closing firms while the household survey can,” said Sophia Koropeckyj, a senior economist at Moody’s Analytics in West Chester, Pennsylvania.

Others, however, argued nonfarm payrolls were a better gauge and expected household employment to converge with payrolls.

The participation rate, or the proportion of working-age Americans who have a job or are looking for one, slipped to 62.1% from 62.2% in October. Some of the decrease in household employment and participation was likely because of illness, with 1.6 million people saying they were absent from work because they were sick, up 265,000 from October.

The participation rate for Americans 55 years and older fell, possibly reflecting retirements. The employment-to-population ratio dipped to 59.9% from 60.0% in October.

Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci

Our Standards: The Thomson Reuters Trust Principles.

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Business

Inflation worries hurt U.S. consumer confidence; house prices decelerating

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  • Consumer confidence index falls 5.3 points to 102.5
  • Labor market differential drops to 32.5 from 38.1
  • House price gains slow further in August

WASHINGTON, Oct 25 (Reuters) – U.S. consumer confidence ebbed in October after two straight monthly increases amid rising concerns about inflation and a possible recession next year, but households remained keen to purchase big-ticket items like motor vehicles and appliances.

The Conference Board survey on Tuesday also showed more consumers planned to buy a home over the next six months, despite soaring borrowing costs. The steady rise in consumers’ buying intentions could provide some stability for the economy in the near-term.

But there are signs that the Federal Reserve’s aggressive interest rate hikes are starting to cool the labor market, with a decline in the share of consumers viewing jobs as “plentiful” and a rise in those saying employment was “hard to get.”

“The biggest risk is the unknown lagged effects from the Fed’s cumulative tightening and the economy may not feel the full effects until next year when recession risks are high,” said Jeffrey Roach, chief economist at LPL Financial in Charlotte, North Carolina.

The Conference Board’s consumer confidence index fell to 102.5 this month from 107.8 in September. Economists polled by Reuters had forecast the index at 106.5. The decline in confidence was across all age groups, but more pronounced in the 35-54 and well as the 55 and over cohorts.

Regionally, there were marked decreases in Florida, probably because of Hurricane Ian, and Ohio. Consumers’ 12-month inflation expectations rose to 7.0%, likely reflecting a recent reversal in gasoline prices after falling over the summer, from 6.8% last month. Food also remains very expensive.

Stubbornly high inflation and fading confidence are a blow to President Joe Biden and Democrats’ hopes of retaining control of Congress in Nov. 8 mid-term elections.

The Fed, fighting the fastest-rising inflation in 40 years, has raised its benchmark overnight interest rate from near zero in March to the current range of 3.00% to 3.25%, the swiftest pace of policy tightening in a generation or more. That rate is likely to end the year in the mid-4% range, based on the U.S. central bank officials’ own projections and recent comments.

The survey’s present situation index, based on consumers’ assessment of current business and labor market conditions, tumbled to 138.9, the lowest level since April 2021, from 150.2 in September.

Its expectations index, based on consumers’ short-term outlook for income, business and labor market conditions, fell to 78.1 from 79.5 last month. The expectations index remains below a reading of 80, a level associated with a recession and suggests that the risks of a downturn could be rising.

The survey’s so-called labor market differential, derived from data on respondents’ views on whether jobs are plentiful or hard to get, dropped to 32.5, the lowest reading since April 2021, from 38.1 in September.

This measure correlates to the unemployment rate from the Labor Department and is still high by historical standards. Unemployment benefits data show the labor market remains tight.

Stocks on Wall Street were trading higher. The dollar fell against a basket of currencies. U.S. Treasury prices rose.

SPENDING PLANS RISE

Even as consumers worried about the economy’s outlook, they remained interested in buying big-ticket items over the next six months, though they pulled back on travel plans, suggesting many Americans intended to stay home over the holiday season.

The share of consumers planning to buy motor vehicles increased to the highest level since July 2020. More consumers planned to buy appliances such as refrigerators, washing machines and vacuum cleaners.

“Consumers have abundant excess saving and they are willing to dig into this pile of cash to keep their real spending at least stable, even as inflation eats into their real incomes,” said Scott Hoyt, senior economist at Moody’s Analytics in West Chester, Pennsylvania.

Consumers were also more inclined to buy a house, probably encouraged by a sharp slowdown in house price inflation.

But surging mortgage rates remain an obstacle. The 30-year fixed mortgage rate averaged 6.94% last week, the highest in 20 years, up from 6.92% in the prior week, according to data from mortgage finance agency Freddie Mac.

A separate report on Tuesday showed the S&P CoreLogic Case-Shiller national home price index increased 13.0% year-on-year in August after advancing 15.6% in July. On a monthly basis, prices fell 0.9% in August, the second straight monthly drop.

A third report from the Federal Housing Finance Agency showed home prices increased 11.9% in the 12 months through August after rising 13.9% in July. Prices fell 0.7% on a monthly basis after decreasing 0.6% in July. It was the first time since March 2011 that monthly prices posted back-to-back declines.

“We expect home price inflation to slow in the remainder of 2022, falling to single digits by year-end and to zero by the second quarter of 2023,” said Nancy Vanden Houten, lead U.S. economist at Oxford Economics in New York. “With home sales falling as deteriorating affordability sidelines many buyers, prices will have to adjust. However, inventory remains low, and we think that will keep a floor under home prices.”

Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci

Our Standards: The Thomson Reuters Trust Principles.

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Business

Soaring rent, food costs keep U.S. inflation on front burner; labor market tight

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  • Consumer prices increase 0.4% in September
  • CPI advances 8.2% on year-on-year basis
  • Core CPI rises 0.6%; jumps 6.6% year-on-year
  • Weekly jobless claims increase 9,000 to 228,000

WASHINGTON, Oct 13 (Reuters) – U.S. consumer prices increased more than expected in September as rents surged by the most since 1990 and the cost of food also rose, reinforcing expectations the Federal Reserve will deliver a fourth straight 75-basis-point interest rate hike next month.

The report from the Labor Department on Thursday also showed a measure of underlying inflation posting its biggest annual increase in 40 years as consumers also paid more for healthcare. The data followed on the heels of last week’s strong employment report, which showed solid job gains in September and a drop in the unemployment rate to a pre-pandemic low of 3.5%.

“This is not what the Fed wants to see six months into one of the most aggressive tightening cycles in decades,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.

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The consumer price index rose 0.4% last month after gaining 0.1% in August. Economists polled by Reuters had forecast the CPI would climb 0.2%.

Food prices increased 0.8%, with the cost of food at home advancing 0.7% amid rises in all six major grocery store food groups. Owners’ equivalent rent, a measure of the amount homeowners would pay to rent or would earn from renting their property, shot up 0.8%, the largest increase since June 1990.

The hefty jumps offset a 4.9% decline in gasoline prices. But gasoline prices have likely bottomed following last week’s decision by the Organization of Petroleum Exporting Countries and allies to cut oil production.

The war in Ukraine also poses an upside risk to food prices. Private industry data suggests rents could be close to peaking.

Stubbornly high inflation, which is running way above the Fed’s 2% target, is not only a challenge for the U.S. central bank, but also a blow to President Joe Biden and Democrats’ hopes of retaining control of Congress in elections next month.

Biden in a statement acknowledged the pain that higher prices were inflicting on American families, but also pointed out the considerable slowdown in the third quarter, with inflation rising at an average 2% annualized rate after an 11% pace in the prior quarter.

In the 12 months through September, the CPI increased 8.2% after rising 8.3% in August, decelerating for a third straight month. The annual CPI peaked at 9.1% in June, which was the biggest advance since November 1981.

Financial markets have almost fully priced in the prospect that the Fed will raise rates by another three-quarters of a percentage point at a Nov. 1-2 policy meeting, according to CME Group’s FedWatch tool.

The Fed has hiked its policy rate from the near-zero level in March to the current range of 3.00% to 3.25%. Policymakers at the Sept. 20-21 meeting “expected inflation pressures to persist in the near term,” according to minutes of the meeting released on Wednesday.

Stocks on Wall Street were trading higher. The dollar slipped versus a basket of currencies. U.S. Treasury yields rose.

A woman shops for groceries at El Progreso Market in the Mount Pleasant neighborhood of Washington, D.C., U.S., August 19, 2022. REUTERS/Sarah Silbiger/File Photo

BROAD-BASED PRESSURE

Excluding the volatile food and energy components, the CPI climbed 0.6% in September, matching the rise in August. The so-called core CPI is being largely driven by the higher costs for rental accommodation.

Pressure is also coming from healthcare costs, which jumped 0.8%, the most since October 2019, as consumers paid more for doctor visits. Rents and healthcare are the most sticky components of the CPI, suggesting that inflation could remain elevated for a while even as goods prices moderate. Core services prices increased 0.8%, the largest gain since 1982.

Prices for new motor vehicles rose 0.7% as supply remains tight. Motor vehicle insurance also cost more as did household furnishings and operations, grooming, education and airline fares. But apparel prices fell 0.3% and prices for used cars and trucks declined for a third straight month. That resulted in core goods prices being unchanged, mirroring a similar reading in Wednesday’s producer prices report for September.

This is largely a function of slowing demand and loosening global supply chains, which economists say could lead to a period of lower goods prices, even outright declines. But with spending swinging back to services, that would be insufficient to significantly cool inflation.

The core CPI jumped 6.6% in the 12 months through September, the most since August 1982, after rising 6.3% in August.

With the CPI and PPI data in hand, economists estimate that the closely watched core personal consumption expenditures (PCE) price index rose 0.4% in September, which would lift the year-on-year increase to 5.1% from 4.9% in August. The PCE inflation data will be released at the end of the month.

“Sticky-high services inflation is a reflection of the resilience of the labor market, since services are labor-intensive and produced domestically,” said Michael Gapen, chief U.S. economist at Bank of America Securities in New York.

“The Fed needs to slow the labor market down significantly to bring inflation back to target.”

While a second report from the Labor Department showed the number of Americans filing new claims for unemployment benefits increased last week, that was likely because of Hurricane Ian, which cut a swath of destruction across Florida and the Carolinas at the end of September.

Initial claims for state unemployment benefits rose 9,000 to a seasonally adjusted 228,000 for the week ended Oct. 8. Unadjusted claims jumped 32,275 to 199,662. Applications surged by 10,368 in Florida. There were also big increases in filings in New York, California and Texas, while claims in Puerto Rico remained elevated in the aftermath of Hurricane Fiona.

The number of people receiving benefits after an initial week of aid, a proxy for hiring, rose 3,000 to 1.368 million in the week ending Oct. 1. There were 1.7 job openings for every unemployed person on the last day of August.

“The labor market remains extremely tight and companies continue to be unwilling to lay off workers,” said Conrad DeQuadros, senior economic advisor at Brean Capital in New York.

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Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Paul Simao

Our Standards: The Thomson Reuters Trust Principles.

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Business

Wall Street closes with sharp gains as final quarter begins

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  • Tesla down as Q3 deliveries miss market estimates
  • U.S. factory activity slowest in ~2.5 years in Sept -ISM
  • Credit Suisse, Citi cut 2022 year-end target for S&P 500
  • Indexes up: Dow 2.66%, S&P 500 2.59%, Nasdaq 2.27%

Oct 3 (Reuters) – Wall Street’s three major indexes rallied to close over 2% on Monday as U.S. Treasury yields tumbled on weaker-than-expected manufacturing data, increasing the appeal of stocks at the start of the year’s final quarter.

The U.S. stock market has suffered three quarterly declines in a row in a tumultuous year marked by interest rate hikes to tame historically high inflation, and concerns about a slowing economy.

“The U.S. yield markets (are) pulling back – that’s been a positive … and that connotes a more risk-on environment,” said Art Hogan, chief market strategist at B. Riley Wealth in Boston.

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Further supporting rate-sensitive growth stocks, the benchmark U.S. 10-year Treasury yield fell after British Prime Minister Liz Truss was forced to reverse course on a tax cut for the highest rate.

All 11 major S&P 500 (.SPX) sectors advanced to positive territory, with energy (.SPNY) being the biggest gainer.

Oil majors Exxon Mobil Corp (XOM.N) and Chevron Corp rose more than 5%, tracking a jump in crude prices as sources said the Organization of the Petroleum Exporting Countries and its allies are considering their biggest output cut since the start of the COVID-19 pandemic.

Megacap growth and technology companies such as Apple Inc (AAPL.O) and Microsoft Corp (MSFT.O) rose over 3% respectively, while banks <.SPXBK> advanced 3%.

Data showed manufacturing activity increased at its slowest pace in nearly 2-1/2 years in September as new orders contracted, likely as rising interest rates to tame inflation cooled demand for goods. read more

The Institute for Supply Management said its manufacturing PMI dropped to 50.9 this month, missing estimates but still above 50, indicating growth.

“The economic data stream actually came in worse than expected. In a very counterintuitive fashion that likely represents good news for equity markets,” said Hogan.

“(While) good economic data, strong readings had been a catalyst for selling, this is the first time we’ve actually seen some negative news be a catalyst.”

All three major indexes ended a volatile third quarter lower on Friday on growing fears that the Federal Reserve’s aggressive monetary policy will tip the economy into recession.

The Dow Jones Industrial Average (.DJI) rose 765.38 points, or 2.66%, to 29,490.89; the S&P 500 (.SPX) gained 92.81 points, or 2.59%, at 3,678.43; and the Nasdaq Composite (.IXIC) added 239.82 points, or 2.27%, at 10,815.44.

Volume on U.S. exchanges was 11.61 billion shares, compared with the 11.54 billion average for the full session over the last 20 trading days.

Tesla Inc (TSLA.O) fell 8.6% after it sold fewer-than-expected vehicles in the third quarter as deliveries lagged way behind production due to logistic hurdles. Peers Lucid Group (LCID.O) gained 0.9% and Rivian Automotive (RIVN.O) fell 3.1%. read more

Major automakers are expected to report modest declines in U.S. new vehicle sales, but analysts and investors worry that a darkening economic picture, not inventory shortages, will lead to weaker car sales. read more

Citigroup and Credit Suisse became the latest brokerages to lower 2022 year-end targets for the S&P 500, as U.S. equity markets bear the heat of aggressive central bank actions to tamp down inflation. read more

Credit Suisse also set a 2023 year-end price target for the benchmark index at 4,050 points, adding that 2023 would be a “year of weak, non-recessionary growth and falling inflation.”

Advancing issues outnumbered decliners on the NYSE by a 5.04-to-1 ratio; on Nasdaq, a 2.70-to-1 ratio favored advancers.

The S&P 500 posted one new 52-week high and 23 new lows; the Nasdaq Composite recorded 58 new highs and 282 new lows.

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Reporting by Echo Wang in New York; Additional reporting by Ankika Biswas and Bansari Mayur Kamdar in Bengaluru; Editing by Anil D’Silva, Arun Koyyur and Richard Chang

Our Standards: The Thomson Reuters Trust Principles.

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