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Business

U.S. labor market powers ahead with strong job gains, lower unemployment rate

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  • Nonfarm payrolls increase 943,000 in July; June revised up
  • Unemployment rate falls to 5.4% from 5.9% in June
  • Average hourly earnings gain 0.4%; workweek steady

WASHINGTON, Aug 6 (Reuters) – U.S. employers hired the most workers in nearly a year in July and continued to raise wages, giving the economy a powerful boost as it started the second half of what many economists believe will be the best year for growth in almost four decades.

The Labor Department’s closely watched employment report on Friday also showed the unemployment rate dropped to a 16-month low of 5.4% and more people waded back into the labor force. The report followed on the heels of news last week that the economy fully recovered in the second quarter the sharp loss in output suffered during the very brief pandemic recession.

“We are charting new economic expansion territory in the third quarter,” said Brian Bethune, professor of practice at Boston College in Boston. “The overall momentum of the recovery continues to build.”

Nonfarm payrolls increased by 943,000 jobs last month, the largest gain since August 2020, the survey of establishments showed. Data for May and June were revised to show 119,000 more jobs created than previously reported. Economists polled by Reuters had forecast payrolls would increase by 870,000 jobs.

The economy has created 4.3 million jobs this year, leaving employment 5.7 million jobs below its peak in February 2020.

President Joe Biden cheered the strong employment report. “More than 4 million jobs created since we took office,” Biden wrote on Twitter. “It’s historic – and proof our economic plan is working.”

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Hiring is being fueled by pent-up demand for workers in the labor-intensive services sector. Nearly $6 trillion in pandemic relief money from the government and COVID-19 vaccinations are driving domestic demand.

But a resurgence in infections, driven by the Delta variant of the coronavirus, could discourage some unemployed people from returning to the labor force.

July’s employment report could bring the Federal Reserve a step closer to announcing plans to start scaling back its monthly bond-buying program. The U.S. central bank last year slashed its benchmark overnight interest rate to near zero and is pumping money into the economy through the bond purchases.

“This is the last employment report Chair (Jerome) Powell sees before Jackson Hole, and we have to imagine that he lays the groundwork for a potential September tapering announcement,” said Conrad DeQuadros, senior economic advisor at Brean Capital in New York. “We think the odds continue to rise that tapering begins before the end of 2021.”

Stocks on Wall Street rose, with the Dow Jones Industrial Average (.DJI) and the S&P 500 (.SPX) index hitting record highs. The dollar (.DXY) jumped against a basket of currencies. U.S. Treasury prices fell. read more

BROAD EMPLOYMENT GAINS

Employment in the leisure and hospitality sector increased by 380,000 jobs, accounting for 40% of the job gains, with payrolls at restaurants and bars advancing by 253,000.

A “Now Hiring” sign advertising jobs at a hand car wash is seen along a street in Miami, Florida, U.S. May 8, 2020. REUTERS/Marco Bello/File Photo

Government payrolls increased by a whopping 240,000 jobs as employment in local government education rose by 221,000. Education jobs were flattered by a seasonal quirk.

Hiring was also strong in the professional and business services, transportation and warehousing, and healthcare industries. Manufacturing payrolls increased by 27,000 jobs, while construction employment rebounded by 11,000 jobs. Retail trade and utilities were the only sectors to shed jobs.

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Details of the smaller household survey from which the unemployment rate is derived were also upbeat. Household employment shot up by 1.043 million jobs, leading the unemployment rate to decline half a percentage point to its lowest level since March 2020.

The jobless rate, however, continued to be understated by people misclassifying themselves as being “employed but absent from work.” Without this misclassification, the unemployment rate would have been 5.7% in July.

About 261,000 people entered the labor force, lifting the participation rate to 61.7% from 61.6% in June. The employment-to-population ratio, viewed as a measure of an economy’s ability to create employment, rose to 58.4% from 58% in June.

Even more encouraging, the number of long-term unemployed dropped to 3.4 million from 4 million in the prior month. They accounted for 39.3% of the 8.7 million officially unemployed people, down from 42.1% in June. The duration of unemployment fell to 15.2 weeks from 19.8 weeks in June.

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There was also an improvement in the number of people who have permanently lost their jobs. With economic growth this year expected to be around 7%, which would be the fastest since 1984, further recovery is expected.

Faced with a record 9.2 million job openings, employers continued to raise wages to attract workers. Average hourly earnings increased 0.4% last month, with sharp gains in the hospitality industry. That followed a similar rise in June and lifted the year-on-year increase in wages to 4.0% from 3.7%.

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Lack of affordable child care and fears of contracting the coronavirus have been blamed for keeping workers, mostly women, at home. There also have been pandemic-related retirements as well as career changes. Republicans and business groups have blamed enhanced unemployment benefits, including a $300 weekly payment from the federal government, for the labor crunch.

Half of the nation’s states led by Republican governors have ended these federal benefits before their Sept. 6 expiration. Economists are cautiously optimistic that the worker shortage will ease in the fall when schools reopen for in-person learning and sustain the strong pace of hiring.

“August should be another big month, and September as well, as there are still millions who need to find work quickly,” said Chris Low, chief economist at FHN Financial in New York.

Reporting by Lucia Mutikani;
Editing by Dan Burns and Paul Simao

Our Standards: The Thomson Reuters Trust Principles.

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Business

Fed’s Brainard: Can’t wrap head around not having U.S. central bank digital currency

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Federal Reserve Board Governor Lael Brainard speaks at the John F. Kennedy School of Government at Harvard University in Cambridge, Massachusetts, U.S., March 1, 2017. REUTERS/Brian Snyder

July 30 (Reuters) – Federal Reserve Governor Lael Brainard on Friday laid out a range of reasons for “urgency” around the issue of developing a U.S. central bank digital currency, including the fact that other countries such as China are moving ahead with their own.

“The dollar is very dominant in international payments, and if you have the other major jurisdictions in the world with a digital currency, a CBDC (central bank digital currency)offering, and the U.S. doesn’t have one, I just, I can’t wrap my head around that,” Brainard told the Aspen Institute Economic Strategy Group. “That just doesn’t sound like a sustainable future to me.”

Fed officials are taking a deep dive into the digital payments universe, collecting public feedback on the potential costs and benefits as well as design considerations with a view to publishing a discussion paper in early September.

Fed Chair Jerome Powell in comments earlier this month described the analysis as a key step in accelerating the Fed’s efforts to determine if it should issue its own CDBC.

“One of the most compelling use cases is in the international realm, where intermediation chains are opaque and long and costly,” Brainard said on Friday.

But there are domestic reasons too for a U.S.-backed digital currency, she said: the dramatic rise in stablecoins, a form of cryptocurrency pegged to a conventional currency such as the U.S. dollar but not backed by any government.

Stablecoins could proliferate and fragment the payment system, or one or two could emerge as dominant, she said. Either way, “in a world of stablecoins you could imagine that households and businesses, if the migration away from currency is really very intense, they would simply lose access to a safe government backed settlement asset, which is of course what currency has always provided.”

A CBDC could also help solve other problems, she suggested, including the difficulty during the pandemic of getting government payments to people without bank accounts, who also tend to be the very people who need the payments the most.

Reporting by Ann Saphir;
Editing by Sandra Maler

Our Standards: The Thomson Reuters Trust Principles.

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Business

Fed’s Powell bets economy will navigate new coronavirus surge

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Federal Reserve Chair Jerome Powell adjusts his tie as he arrives to testify before a Senate Banking, Housing and Urban Affairs Committee hearing on “The Semiannual Monetary Policy Report to the Congress” on Capitol Hill in Washington, U.S., July 15, 2021. REUTERS/Kevin Lamarque/File Photo

WASHINGTON, July 30 (Reuters) – Federal Reserve Chair Jerome Powell’s belief that the U.S. economy has “learned to handle” the coronavirus and won’t be swamped in a fresh wave of infections or by rising inflation may get tested in coming weeks as schools reopen, supply chains remain clogged, and federal unemployment benefits wane.

Data released on Thursday showed the risk ahead as the country navigates the transition from an economy dependent for the last year on federal government benefits to one where those emergency programs expire and private incomes take over. read more

The economy returned to its pre-pandemic level of output in the second quarter, according to gross domestic product data released by the Commerce Department on Thursday, a rebound that came earlier than many expected. But the report also showed personal income dropping alongside a decline in federal transfer payments and the economy growing at an annual rate of 6.5%, slightly below the 7% expected by the U.S. central bank. read more

It was massive federal stimulus, unemployment benefits and other payments that led to the “better-than-anyone-expected” outcomes during a coronavirus surge last summer, which Powell cited on Wednesday as evidence that each COVID-19 wave has had successively less economic impact.

Those government payments are disappearing just as concerns rise around the spread of the more infectious Delta variant of the virus, putting a new note of caution around the U.S. growth outlook.

Despite second-quarter GDP being slightly lower than expected and the Delta variant “a key downside risk,” Lydia Boussour, lead U.S. economist for Oxford Economics, said she continued to anticipate 7% growth for the full year as supply-chain problems ease, goods get onto shelves, and consumers continue spending.

“We still expect the economy to maintain strong momentum,” she wrote in a note.

By contrast, Paul Ashworth, chief North America economist at Capitol Economics, painted a dour economic picture in which the Delta variant becomes a drag and rising prices cut into household purchasing power. Inflation measures in Thursday’s GDP report, at greater than 6%, are the highest since the early 1980s when the Fed was battling entrenched price increases.

Ashworth said economic growth may slow to just 3.5% in the second half of the year, “with the impact from the fiscal stimulus waning, surging prices weakening purchasing power, the Delta variant running amok in the South.”

‘DEFIANTLY UPBEAT’

Powell issued his blunt assessment of COVID-19’s threat to the economy during a news conference on Wednesday to discuss the Fed’s latest policy meeting. In their statement, policymakers said the economic recovery appeared on track, that the impact of the virus on the economy continued to wane, and that the economy was making progress toward the day when the Fed could reduce some of the emergency steps taken in 2020 to nurse the economy through the pandemic. read more

Coupled with earlier changes, the Fed’s actions this week continued the central bank’s steady divorce between the ongoing pandemic and the outlook for the economy.

Epidemiologists have warned from early on that the coronavirus would not disappear – with true herd immunity a stretch goal in a country with high levels of vaccine hesitancy – but rather be a part of the social and economic background for years to come.

The Fed, in successive steps, has seemed to adopt to that view. Since April it has stopped referring to the pandemic as a factor weighing on the economy, emphasized the impact of vaccinations, and this week said, in effect, that the virus would remain as a future risk, but not a significant one.

“We’ve kind of learned to live with it,” Powell told reporters. Even with the Delta variant filling hospitals in some parts of the country, “with a reasonably high percentage of the country vaccinated and the vaccine apparently being effective … the effects will probably be less. There probably won’t be significant lockdowns and things like that.”

Whether that remains the case will be seen through the late summer and fall. Some companies already have delayed the planned return of their workforces to offices, potentially pushing out the day when downtown retail stores and restaurants see their weekday traffic return.

Powell acknowledged that, at the margins and for a while at least, the Delta surge could lead to further complications if school districts delay the reopening of in-person learning, or if sidelined workers wait a few more weeks to return to their jobs.

But for now, and absent a clear darkening of the economic outlook, it won’t derail Fed planning that anticipates continued job growth, and needs to manage the risks of potentially higher inflation as well.

Diane Swonk, chief economist at Grant Thornton, called Powell’s commentary this week “defiantly upbeat,” and listed the hurdles his outlook faces – from the Delta variant to the slow, ongoing efforts of millions of unemployed workers to match themselves with new jobs.

The new infection surge “has already delayed the return to offices for some companies to later this year,” Swonk wrote. “We are becoming accustomed to spending during outbreaks, as Powell noted … That spending has been supported by fiscal stimulus. That will wane as we enter 2022.”

Reporting by Howard Schneider
Additional reporting by Lindsay Dunsmuir;
Editing by Dan Burns and Paul Simao

Our Standards: The Thomson Reuters Trust Principles.

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Business

Investors eye COVID-19 spread, Golden Cross to gauge U.S. dollar trajectory

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A U.S. dollar note is seen in front of a stock graph in this November 7, 2016 picture illustration. REUTERS/Dado Ruvic/Illustration

July 23 (Reuters) – A rally in the U.S. dollar has investors looking at a broad range of factors — from global COVID-19 infections to yield gaps — to determine whether the greenback will continue appreciating.

The dollar is up 4% from its lows of 2021 and is among the world’s best performing currencies this year, boosted by last month’s hawkish shift from the Federal Reserve, burgeoning inflation and safe-haven demand driven by COVID-19 worries.

Because of the dollar’s central role in the global financial system, its moves ripple out towards a broad range of asset classes and are closely watched by investors.

For the United States, a period of sustained dollar strength would be a double-edged sword, helping tamp down inflation by increasing the currency’s buying power while denting the balance sheets of exporters by making their products less competitive abroad.

On the other hand, dollar strength would continue pushing down currencies such as the euro and British pound, potentially giving a boost to the recoveries in those countries.

Here are several things investors are watching to determine the dollar’s trajectory.

THE DELTA VARIANT

Some investors believe the dollar – a popular safe haven during uncertain times – will rise if the Delta variant of COVID-19 spreads and risk aversion grows in markets.

COVID worries have already helped the dollar notch gains against the currencies of countries where the Delta variant is proliferating, including the Australian dollar and the British pound. Those gains could fade if coronavirus concerns ebb in coming months, however.

“We’re seeing a lot of risk factors and uncertainty across assets, said Simon Harvey, senior FX market analyst at Monex Europe. “Investors are looking at all these and saying that they’re going to find refuge in the dollar.”

GLOBAL GROWTH

While some investors are concerned the U.S. rebound is slowing, it still outpaces the bounce seen in Europe and other regions.

That gap in growth, illustrated by such metrics as stronger manufacturing sector growth and inflation, is among the factors putting upward pressure on the dollar, said Morgan Stanley’s James Lord in a recent podcast.

“There is a case still for the dollar to strengthen as we do see more divergence,” he said.

YIELD GAP

Though Treasury yields have recently slid, the gap between real yields on U.S. government debt and some foreign bonds has widened, raising the allure of dollar-denominated assets. Real yields represent the cost of borrowing after stripping out inflation effects.

The spread between the real yield on 10-year Treasury Inflation Protected Securities at “constant maturity” and those on their German counterpart, for instance, stood at 72 basis points late Thursday, up from 63 basis points two months ago.

POSITIONING SQUEEZE

Speculators’ net short positions on the U.S. dollar fell to their lowest level since March 2020 last week, according to calculations by Reuters and U.S. Commodity Futures Trading Commission data released on July 16.

“The most crowded trade in the world through the first quarter was the short dollar. We had, unquestionably, a squeeze on the way back,” said Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto.

The dwindling bearish sentiment could mean there is less fuel for further dollar gains. At the same time, “the dollar and other currencies do tend to overshoot when they are correcting, in both directions,” Schamotta said.

GOLDEN CROSS

The Dollar Index’s (.DXY) 50-day moving average is close to crossing above its 200-day moving average and forming a chart pattern known as a “Golden Cross” that is seen as a bullish signal by those who follow technical analysis.

A Golden Cross “could herald another leg higher for the greenback,” said Joe Manimbo, senior market analyst at Western Union Business Solutions.

Reporting by Saqib Iqbal Ahmed; editing by Ira Iosebashvili and Richard Pullin

Our Standards: The Thomson Reuters Trust Principles.

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Business

U.S. housing starts accelerate, building permits skid to eight-month low

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  • Housing starts increase 6.3% in June; May revised down
  • Single-family starts rise 6.3%; multi-family up 6.2%
  • Building permits drop 5.1%; single-family down 6.3%

WASHINGTON, July 20 (Reuters) – U.S. homebuilding increased more than expected in June, but permits for future home construction fell to an eight-month low, likely reflecting hesitancy caused by expensive building materials as well as shortages of labor and land.

The report from the Commerce Department on Tuesday suggested a severe shortage of houses, which has boosted prices and sparked bidding wars across the country, could persist for a while. Demand for houses is being driven by low mortgage rates and a desire for more spacious accommodations during the COVID-19 pandemic.

Though lumber prices are coming down from record highs, builders are paying more for steel, concrete and lighting, and are grappling with shortages of appliances like refrigerators.

“Reports of multi-month delays in the delivery of windows, heating units, refrigerators and other items have popped up across the country, delaying delivery of homes and forcing builders to cap activity, and many builders continue to point to a shortage of available workers as a separate challenge,” said Matthew Speakman, an economist at Zillow.

Housing starts rose 6.3% to a seasonally adjusted annual rate of 1.643 million units last month. Data for May was revised down to a rate of 1.546 million units from the previously reported 1.572 million units. Economists polled by Reuters had forecast starts would rise to a rate of 1.590 million units.

Despite last month’s increase, starts remained below March’s rate of 1.737 million units, which was the highest level since July 2006. Homebuilding increased in the West and the populous South, but fell in the Northeast and Midwest.

Single-family starts rose 6.3% to a rate of 1.160 million units. The volatile multi-family homebuilding category advanced 6.2% to a pace of 483,000 units.

Starts increased 29.1% on a year-on-year basis in June.

Permits for future homebuilding fell 5.1% to a rate of 1.598 million units in June, the lowest level since October 2020. Permits are now lagging starts, suggesting that homebuilding will slow in the coming months.

Stocks on Wall Street were trading higher after a sharp selloff on Monday. The dollar (.DXY) gained versus a basket of currencies. U.S. Treasury yields fell.

BUILDERS CAUTIOUS

While lumber futures have dropped nearly 70% from a record high in early May, economists caution that higher prices are likely to prevail because of wildfires in the Western United States.

Real estate signs advertise new homes for sale in multiple new developments in York County, South Carolina, U.S., February 29, 2020. REUTERS/Lucas Jackson/File Photo

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Dustin Jalbert, head of Fastmarkets RISI’s lumber team, also noted that log prices are soaring in the interior of the Canadian province of British Columbia and duties are potentially set to increase on Canadian producers later this year.

There are also signs that the exodus to suburbs and other low-density areas in search of larger homes for home offices and schooling is gradually fading as COVID-19 vaccinations allow companies to recall workers back to offices in city centers.

A rise in COVID-19 infections among unvaccinated Americans also poses a risk to the housing market outlook.

Economists expect the housing market, one of the economy’s star performers during the coronavirus pandemic, was a mild drag on gross domestic product in the second quarter.

Still, homebuilding remains underpinned by the dearth of homes available for sale. The inventory of previously-owned homes is near record lows, leading to double-digit growth in the median house price.

A survey from the National Association of Home Builders on Monday showed confidence among single-family homebuilders fell to an 11-month low in July.

Shortages and higher input prices likely weighed on new home sales in June. The Mortgage Bankers Association Builder Application Survey, which was published on Tuesday, showed mortgage applications for new home purchases fell 23.8% in June from a year ago. Applications decreased 3% compared to May. The data has not been adjusted for typical seasonal patterns. The Commerce Department is due to publish new home sales data for June next Monday.

Homebuilders and a group of other stakeholders met last Friday with White House officials, including Commerce Secretary Gina Raimondo and Housing and Urban Development Secretary Marcia Fudge, to discuss strategies to address the short-term supply chain disruptions in the homebuilding sector.

Building permits fell in all four regions in June. Single-family permits dropped 6.3% to a rate of 1.063 million units, the lowest since August 2020. Permits for multifamily housing slipped 2.6% to a rate of 535,000 units.

The backlog of single-family homes yet to be started grew in June to the highest level since October 2006.

“Widespread anecdotal reports point to builders delaying or turning down orders to allow shortages to ease and to catch up to a growing construction backlog,” said Mark Palim, deputy chief economist at Fannie Mae in Washington.

Housing completions fell 1.4% to a rate of 1.324 million units last month. Single-family home completions declined 6.1% to a rate of 902,000 units, the lowest level since October.

Realtors estimate that single-family housing starts and completion rates need to be in a range of 1.5 million to 1.6 million units per month to close the inventory gap.

The stock of housing under construction rose 1.8% to a rate of 1.359 million units last month.

Reporting by Lucia Mutikani
Editing by Chizu Nomiyama and Paul Simao

Our Standards: The Thomson Reuters Trust Principles.

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World

Saudi Arabia plans new national airline as it diversifies from oil

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CAIRO, June 29 (Reuters) – Saudi Arabia’s Crown Prince Mohammed bin Salman announced plans on Tuesday to launch a second national airline as part of a broader strategy to turn the kingdom into a global logistics hub as it seeks to diversify from oil.

The creation of another flag carrier would catapult Saudi Arabia into the 5th rank globally in terms of air transit traffic, official state media reported, without giving details on when and how the airline would be created.

Prince Mohammad has been spearheading a push for Saudi Arabia, the biggest Arab economy and the largest country in the Gulf geographically, to boost non-oil revenues to about 45 billion riyals ($12.00 billion) by 2030.

Making the kingdom a global logistics hub, which includes the development of ports, rail and road networks, would increase the transport and logistics sector’s contribution to gross domestic product to 10% from 6%, state news agency SPA said.

“The comprehensive strategy aims to position Saudi Arabia as a global logistics hub connecting the three continents,” Prince Mohammed was quoted as saying in the SPA report.

“This will help other sectors like tourism, haj and umrah to achieve their national targets.”

The addition of another airline would increase the number of international destinations from Saudi Arabia to more than 250 and double air cargo capacity to more than 4.5 million tonnes, the SPA report said.

With current flag bearer Saudi Arabian Airlines (Saudia), the kingdom has one of the smallest airline networks in the region relative to its size. Saudia has struggled with losses for years and like global peers, has been hit hard by the coronavirus pandemic.

Local media reported earlier this year that the kingdom’s sovereign wealth fund, the Public Investment Fund, (PIF), planned to build a new airport in Riyadh as part of the new airline launch, without giving further details.

The fund is the main vehicle for boosting Saudi Arabian investments at home and abroad as the young prince, known in the West as MbS, seeks to diversify the kingdom’s oil-heavy economy through his Vision 2030 strategy.

($1 = 3.7503 riyals)

Reporting by Nayera Abdallah and Alaa Swilam; Writing by Ghaida Ghantous and Marwa Rashad; Editing by Sonya Hepinstall, Marguerita Choy and Jane Wardell

Our Standards: The Thomson Reuters Trust Principles.

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