by tyler | May 4, 2023 | CNN, economy
If the latest employment trends continue and economists’ forecasts prove true, Friday’s jobs report could bring back that pre-pandemic feeling.
Economists expect the US economy to have added 180,000 jobs in April, according to consensus estimates on Refinitiv. Excluding the losses during the first year of the pandemic, that would be the smallest monthly gain since December 2019.
It could also hammer home the fact that the US labor market has indeed cooled down from its red-hot recovery over the past two years.
Earlier this week, the latest labor turnover report from the Bureau of Labor Statistics — the Job Openings and Labor Turnover Survey (JOLTS) for March — showed that job openings declined, hiring was flat, quits trended down and layoffs spiked.
“JOLTS is now really pointing in the similar direction as other labor market data: That the labor market is cooling off,” said Nick Bunker, economic research director at the Indeed Hiring Lab, the economic data insight and analysis arm of job website Indeed.
The moderation, which is expected to continue, is the desired and logical outcome of the Federal Reserve’s inflation-fighting barrage of 10 consecutive interest rate hikes. However, it’s unclear how much of a slowing may occur, Bunker said.
“Something that starts as a cooldown can turn into a downturn pretty quickly,” he cautioned.
Economists are expecting the unemployment rate to tick up to 3.6% from 3.5%, according to Refinitiv. Even so, that jobless rate would still be hovering around a historically low range.
To try to glean whether a downswing is turning into a downturn, Bunker said he plans to dig into the unemployment rate, specifically the labor force flows and reasons for unemployment.
“If more people are job losers [than leaving voluntarily], that’s concerning,” Bunker said.
The labor force participation rate continued to climb in March, landing at 62.6%, which matches a pandemic-era high. However, that figure remains below the February 2020 rate of 63.3%.
However, layoff announcements continue to accumulate.
US employers announced 66,995 job cuts last month, bringing the January-April total to 337,411, according to a report released Thursday by outplacement and executive coaching firm Challenger, Gray & Christmas. Outside of 2020, it’s the highest year-to-date total since 2009, according to the report.
The largest share of the cuts occurred at retailers, who slashed 14,689 jobs.
“Retailers and consumer goods manufacturers are preparing for a tightening in consumer spending, particularly with the Fed’s hike to interest rates in an attempt to control inflation,” Andrew Challenger, senior vice president of Challenger, Gray & Christmas said in a statement.
Weekly jobless claims have trended up in recent weeks — initial filings climbed 13,000 to 242,000 last week. However, they remain below historical averages: In the decade before the pandemic, weekly claims averaged 311,000.
Inflation-adjusted consumer spending was flat in March, marking the fourth time in five months that expenditures held steady or declined, according to Commerce Department data released last week.
Consumers are “retrenching,” Tim Quinlan, a Wells Fargo economist told CNN. But it’s not clear yet how much further consumer spending could drop as a result of not only persistently high prices and increasing interest rates but also tighter lending conditions that result from broader banking turmoil, EY economist Gregory Daco noted.
Payroll processor ADP’s monthly look at private-sector employment activity, released two days before the BLS’ employment report, is sometimes looked at as a preview of what to expect from the federal data.
If the April ADP report is any indication, then economists and the markets are in for a surprise. Private-sector employers added 296,000 jobs in April, crushing economists’ expectations for a gain of 148,000 and more than doubling the prior month’s tally of 142,000, according to the ADP National Employment report released Wednesday.
ADP’s tabulations don’t always directly correlate with the official federal report — BLS’ January private-sector payroll gains were three times that of ADP’s.
“ADP hasn’t been too reliable in predicting first prints of BLS payrolls recently, and whereas yesterday’s JOLTS figures pointed to some downside risk for Friday’s nonfarm payroll report, today’s ADP number argues for upside risk,” Michael Feroli, JPMorgan’s chief economist, said in a note on Wednesday.
A separate private-sector indicator, which will be updated on Friday, shows that “the smallest of small businesses,” those with between one and nine employees, are continuing to shed workers.
In March, when overall hiring activity resulted in a net gain in payrolls nationwide, small businesses with nine or fewer employees saw a net loss of 39,600 jobs, according to the Intuit QuickBooks Small Business Index, which is produced by Intuit QuickBooks and an academic team led by Ufuk Ackigit, an economics professor at the University of Chicago.
“Our index shows that the small business employment activity is back to pre-pandemic level,” Ackigit told CNN. “So if it continues to decline this way, we will be in a worse situation relative to pre-pandemic, which is really alarming.”
Fed Chair Jerome Powell can be counted as still in the soft landing camp, and the US labor market’s continued resiliency is a big reason why.
“We’ve raised rates by 5 percentage points in 14 months, and the unemployment rate is 3.5%, pretty much where it was or even lower than it was when we started,” Powell said on Wednesday at a news conference following the conclusion of the central bank’s two-day monetary policy meeting.
Job openings remain high — JOLTS showed there were 1.6 available jobs for every job seeker — and there are indications of gradual cooling in the labor market, he said.
It wasn’t supposed to be possible for job openings to decline as much as they’ve declined without unemployment going up, Powell said.
“It’s possible that we can continue to have a cooling in the labor market without having the big increases in unemployment that have gone with many prior episodes,” he said. “And that would be against history. I fully appreciate that would be against the pattern.”
He added: “It’s still possible that the case of avoiding a recession is, in my view, more likely than that of having a recession. The case of having a recession, I don’t rule that out either: It’s possible that we will have what I hope would be a mild recession.”
by tyler | May 3, 2023 | CNN, economy
There’s good news on the inflation front: Annual price growth fell to its lowest pace in nearly two years, the Commerce Department reported Friday.
But for consumers, the lengthy spell in the crossfire of persistently high prices and rising interest rates has taken its toll.
Inflation-adjusted consumer spending was flat in March, marking the fourth time in five months that expenditures held steady or declined. The pattern makes January’s spending burst look more and more like a one-off spurt.
“The consumer engine is sputtering,” said Gregory Daco, chief economist at EY.
A softening has been expected just given the current economic conditions, coupled with a natural recalibration from post-lockdown splurges. However, economists say it is unclear whether this consumer “retrenching” is a return to more typical spending patterns or a perhaps a harbinger of a recession.
“The full effect of recent banking-sector turmoil and the associated tightening in financial conditions has yet to be felt,” Daco noted. “Further deterioration in the job market — the last remaining leg propping up the consumer — is bound to accelerate the downshift in consumer spending in the coming months. This should lead to the emergence of recessionary conditions by midyear.”
Consumers continue to shell out for experiences, be they pricey concert tickets, trips, or restaurant visits, said Amanda Belarmino, assistant professor of hospitality at the University of Nevada Las Vegas. At the same time, they’re cutting back elsewhere, holding back on those big-ticket items, trading down to private label and lopping off some of the in-home subscription services.
“It seems like consumers are continuing to make these trade-offs of what they find more valuable,” she said.
On the corner of West 72nd Street and Broadway in Manhattan, a longtime hawker of hot dogs is having its best spring in its 50-year history.
Gray’s Papaya, known for its economical franks and a “Recession Special” that has persisted through even the best of times, has found itself in an opportune place during a period when consumers are spending more on experiences but also seeking out comforts and deals amid high inflation.
The hot dog restaurant has been hit by rising prices, like everyone else, but there has been a concerted effort to hold off as long as possible in passing those costs along to customers, co-owner Rachael Gray said.
“We have not raised our prices in seven or eight years, and I’m committed to not raising prices right now,” she told CNN. “I think people need a spot out there that they can go to and get something hearty for not a lot of money.”
The “Recession Special” — launched by Gray’s husband, Nicholas, in the early ’80s as a tongue-and-cheek retort to the economic downturn of the time — is still going strong, although the original $1.95 deal hasn’t been immune to inflation. The combo meal, which consists of two franks and a medium tropical drink for $6.95, remains a top-seller, accounting for at least half of overall sales, Rachael Gray said.
“He said he thought it would bring some attention to the store, which it did immediately,” she said. “And he kept it ever since. Through some of the greatest economic booms we’ve seen, we’ve had the recession special.”
The original special is now joined by two others, a one-dog and three-dog deal that account for nearly another third of sales.
But during the downturns, the O.G. special earns its keep. Gray’s Papaya typically holds its own during a recession.
As such, Rachael Gray is keeping close watch on the yang to the Gray’s Papaya yin: Her architecture practice.
“When the economy goes into recession, my architecture business kind of slows down, his hot dog business speeds up,” she said. “And vice versa: When we’re in a boom, my architecture practice does really well, and his is kind of stable.”
Recently, Gray’s architecture business is slowing down, she said, noting the activity appears to be easing toward a more typical flow than the breakneck pace seen post-pandemic.
“We’re kind of back to a more normal, sustainable pace, but there is concern,” she said. “I am concerned that it’s going to slow down more than we want it to.”
Overall inflation may be easing, but the persistence of high “core” inflation — excluding food and energy — is a drag on consumers, said Sofia Baig, an economist with polling and analysis firm Morning Consult.
“When we look at core inflation, especially core services inflation, it’s still pretty high,” she said. “It’s moderated slightly, but definitely not as much as that top line number. So we’re still seeing pretty high prices for services, including airfare, education, restaurants, things like that, and it’s definitely weighing on the consumer.”
Morning Consult’s latest consumer spending inflation report, released earlier this week, found that real consumer spending sank in March, Baig said. Americans remain price-sensitive and are more likely to trade down in their purchases — or even walk away from them — but also appear to be prioritizing saving and paying down debt.
High inflation on consumer packaged goods (CPG) has plagued consumers for three years, said Carman Allison, vice president of thought leadership North America for NIQ, the consumer analytics company formerly known as NielsenIQ.
As of the week that ended on April 1, CPG prices were up 8.8% year over year, NIQ data shows. That’s a noticeable decline from the 12.2% pace seen last fall, but remains well above the typical range of 2% to 3%.
By Allison’s estimates, consumers are spending $136 now for the same basket of goods that would have cost $100 in 2019, and they’re changing shopping behaviors as a result.
Private label items’ share of overall consumer packaged goods sales hit a record-setting 19.4% in the first quarter of this year, up 11 percentage points from the year before, he said.
Private label growth is one of six indicators that Allison tracks to determine a consumer recession. When reviewing activity within the half-dozen categories of private label purchases, falling consumer sentiment, higher inflationary pressures, shifts to value retailers, buying on promotions and contracting consumption, Allison’s consumer recessionary gauge measured 73 out of 100 in the first quarter.
It increased 17 points from the previous quarter, he said.
“If you ask the economists, ‘Are we in a recession?’ they’re going to say ‘No, we’re not in a recession,’” he said. “But we know that the way consumers are shopping and the way they’re adjusting to the rising cost of living is a recessionary mindset.”
by tyler | May 2, 2023 | CNN, economy
The number of open jobs in the United States has dropped to the lowest level since May 2021, a reflection of a labor market that is slowly settling back into balance after the Federal Reserve’s yearlong campaign to cool off the economy.
Job openings totaled 9.59 million in March, according to monthly data released Tuesday by the Bureau of Labor Statistics. That’s down from an upwardly revised 9.974 million reported in February and represents the third consecutive month that available jobs have fallen.
Economists were expecting 9.775 million openings, according to consensus estimates on Refinitiv.
As of March, the ratio of open jobs to the number of unemployed Americans fell to 1.65, BLS data shows.
“Demand for labor is cooling, and the dynamics of the labor market are normalizing,” said Julia Pollak, chief economist at ZipRecruiter. “After two years of incredibly rapid churn and highly elevated demand, things are now all going back to normal levels and rates.”
The latest Job Openings and Labor Turnover Survey showed that layoffs jumped by nearly 250,000 to 1.8 million — the highest level since December 2020 — while the number of new hires were unchanged at 6.15 million and quits ticked down to 3.85 million from 3.98 million.
“More quits are a sign of worker confidence, and more layoffs and discharges are when employers are more cautious to hire and more likely to cut jobs,” said Erica Groshen, a former BLS head who now serves as the senior economics adviser at the Cornell University School of Industrial and Labor Relations.
“And those move in opposite directions when the labor market starts to weaken,” she said.
Some of the industries seeing the biggest cutback in open positions include those within transportation, warehousing and utilities; construction; and other services.
The largest jump in layoffs during March was seen in the construction industry. The Fed’s aggressive rate-hiking campaign has resulted in weakened demand within the housing sector; however, layoffs in construction have lagged, given a strong backlog in projects post-pandemic.
“I don’t want to overhype one month of data, but if you were looking for a place where the fallout from the aggressive tightening of monetary policy would start, it’d be in the construction industry,” said Nick Bunker, economic research director for North America at the Indeed Hiring Lab.
In recent months, layoff announcements have been mounting, with most of the cutbacks coming from high-growth technology businesses that bulked up as Americans’ behaviors shifted during the pandemic. Companies in sectors such as finance, media, retail and manufacturing have also scaled back their workforces.
However, the broader labor market has remained relatively unfazed. The US economy added a net 1 million jobs during the first quarter.
That rate of growth — already far slower than the breakneck pace of job gains seen during much of the past two years — is expected to show continued moderation when the government releases the April jobs report this Friday.
Economists are expecting the economy to have added only 179,000 jobs during April and for the unemployment rate to climb to 3.6% from 3.5% in March, according to consensus estimates on Refinitiv.
JOLTS data is now pointing in a similar direction as other labor market data, Bunker said.
“The cooldown in the US labor market is unambiguous at this point,” he said.
The declines in openings and increases in layoffs were seen across the country’s four regions. Some of the biggest pullbacks in openings occurred at the small business level, or employers with fewer than 50 workers, Pollak said.
Historically, tightening credit conditions hit small businesses the hardest, she said.
“They are a big drag … they are preventing them from being able to get loans to invest in new equipment or new locations and in growing headcount,” she said. “And that drag is only likely to get worse in the coming months as regional banks stop lending to small businesses [in order] to shore up their capital and reduce their risk of a liquidity crisis.”
Tuesday’s JOLTS report is one of the last pieces of key economic data to be released before the Fed’s policymaking decision on Wednesday.
Economists and analysts expect that the Fed will raise its benchmark rate by another quarter point — marking the central bank’s 10th rate hike since March 2022. Economists also widely anticipate that the Fed will then pause to assess the effects of its own tightening cycle as well as any impacts from the recent upheaval within the banking industry.
by tyler | May 1, 2023 | CNN, economy
Attacks on the Paris offices of multi-billion dollar corporations earlier this month by protesters angry about pension reforms may have tarnished France’s image as a place to do business.
But behind the tumult, Europe’s second-largest economy has shown striking resilience since the pandemic, and is becoming an increasingly attractive destination for businesses and investors looking to expand or establish a foothold in the region.
France’s economy grew 0.2% in the first quarter of this year, its national statistics agency said Friday, after stagnating in the previous quarter. Across the 20 countries that use the euro currency, gross domestic product was weaker, ticking up just 0.1% over the same period.
It’s welcome news for France in a year so far marked by million-strong protests and strikes that have brought parts of the country to a standstill. Unions are demanding the government repeal the law that will raise the retirement age from 62 to 64.
More industrial action is planned for May 1. Yet the long-running protests are unlikely to leave a lasting dent in France’s economy, according to Charlotte de Montpellier, a senior economist at Dutch bank ING.
“Previous experiences of social tensions in France show that the economic impact is generally temporary and fully compensated by a rebound in activity in the following months,” she wrote in a note in March.
Manufacturing output rose 0.7% in the first three months of the year, official statistics showed Friday. Production at oil refineries surged by more than 13% after falling 11.4% in the previous quarter, when their staff went on strike over pay.
This year’s mass protests are just the latest in a succession of crises that have hit France since 2020. But its $2.8 trillion economy has held up comparatively well.
The International Monetary Fund forecasts that the French economy will grow 0.7% in 2023 while its closest peers, Germany and the United Kingdom, are expected to shrink.
In a report in February, the IMF said France had enjoyed a “strong economic recovery from the pandemic,” adding that its more “limited reliance” on Russia’s natural gas had helped keep inflation below price rises in other European countries more dependent on Moscow for energy supplies.
As in other economies, inflation in France has hit multi-decade highs in recent months — pushing some of its smaller businesses toward breaking point — but price rises peaked at a lower level than the euro zone average. Consumer price inflation in France averaged 5.9% last year, compared with 9.2% for the European Union.
That’s partly thanks to the billions of euros the French government spent in 2022 to shield households and businesses from soaring energy prices.
France has also benefited from its traditional advantages. It has long boasted one of the highest rates of labor productivity among its industrialized nations, a booming tourist industry, and it is home to some of the world’s biggest companies, including L’Oréal, TotalEnergies and LVMH. The latter, on Monday, became the first European company to be valued at $500 billion.
Despite the country’s resilience, if the government is to invest more in its economy it needs to rein in “very high” levels of public spending, Jens Larsen, director of global macro-geoeconomics at Eurasia Group, told CNN.
France’s government debt, as a proportion of GDP, is among the highest in the European Union standing at 112% at the end of last year.
The country also has the second-highest tax burden among the 38 mostly developed countries that make up the the Organization for Economic Cooperation and Development, coming behind only Denmark.
Since 2017, when President Emmanuel Macron took office, the government has tried to liberalize the economy and encourage investment into its companies by introducing often deeply unpopular reforms that make it easier for businesses to hire and fire, and ease their tax burden.
The contentious pension changes are “critical” for “demonstrating that France is reformable,” Larsen said, adding that the planned measures would help boost the labor supply and put public finances on a sustainable trajectory.
Kay Neufeld, director of forecasting and thought leadership at the Centre for Economics and Business Research (CEBR), a UK-based think tank, makes a similar assessment.
“Macron is trying to make France and Paris a more attractive place to do business, and it seems to bear some fruit,” he told CNN.
Indeed, foreign investors poured nearly twice as much money into France last year as in 2021, and more than triple the 2019 amount, the year before the pandemic, according to data from the country’s central bank.
And the commercial real estate market in Paris, which includes offices, overtook London’s in the first quarter of 2023 in terms of the total value of sales, data from MSCI shows. Still, the United Kingdom as a whole remained the biggest market in Europe.
Britain’s exit from the European Union has also been a boon for France’s financial sector.
In 2021, France recorded the highest number of new financial sector projects by foreign investors in a decade, according to research from EY, a consultancy. For the first time that year, France also overtook the United Kingdom in securing more investments into the sector from the United States.
Some of the world’s biggest banks have relocated traders from London to Paris, and ramped up local hiring, so they can continue to offer services to EU-based clients that can no longer be provided from Britain.
The headcount at Bank of America
(BAC)’s Paris office is now about six times higher than before the 2016 Brexit vote, according to Vanessa Holtz, chief executive of the bank’s securities business in Europe and head of the lender’s French arm.
The workforce at Morgan Stanley’s Paris office has more than doubled to 330 since March 2021, and the headcount could rise to as many as 500 within the next two years or so, Emmanuel Goldstein, chief executive of Morgan Stanley France, told CNN.
Brexit is only partly responsible for that increase. The bank opened a research center in the French capital last year, employing analysts to support its traders.
“The pool of talent we have seen in France has been huge,” Goldstein said.
For Neufeld at the CEBR, the moment that made him “stop and take notice” came in November.
That month, France overtook Britain for the first time to become home to Europe’s largest stock market by value. As of Friday, the combined market value of the CAC All-Share Index was €3.19 trillion ($3.51 trillion), while London’s FTSE All-Share Index constituents were collectively worth £2.39 trillion ($2.98 trillion).
“Things are coming together in Paris… there’s definitely some momentum there,” Neufeld said.
by tyler | Apr 28, 2023 | CNN, economy
Europe’s economy avoided a recession over the winter, picking up pace slightly in the first quarter of 2023 despite Russia’s war in Ukraine and sizable interest rate hikes aimed at fighting inflation.
Economic output in the European Union rose 0.3% in the first three months of 2023 compared with the previous quarter, according to an initial estimate of gross domestic product released Friday. Among the 20 countries that use the euro, output increased 0.1%.
During the last three months of 2022, GDP — the broadest measure of an economy’s health — fell 0.1% in the European Union and was flat in the euro zone.
The latest numbers mean the region narrowly dodged a recession, which is technically defined as two consecutive quarters of economic contraction.
Yet economists and investors are warning that Europe is not out of the woods. They expect that economic activity will be hit hard later this year as the run-up in borrowing costs dampens households’ and businesses’ appetite for credit and weakens consumer demand. There are also concerns that tumult in the global banking sector could make it harder to access loans.
“We consider it unlikely that this marks the beginning of a sustained economic revival,” Christoph Weil, a senior economist at Germany’s Commerzbank, said in a note to clients. “In the second half of the year the massive rate hikes by central banks worldwide are likely to apply the brake on growth.”
The European Commission, the European Union’s executive arm, forecast in November that both the bloc and the euro zone would enter a technical recession over the winter, and that growth wouldn’t return until the spring.
But unseasonably warm weather and a pullback in energy prices provided some relief. The reopening of China’s economy late last year has also been beneficial, since many European businesses are big exporters to the country.
Economists are holding back cheers, however. Carsten Brzeski, global head of macroeconomics at ING, a Dutch bank, told CNN that signs of economic “divergence” between countries were worrying.
Germany, the European Union’s largest economy, stagnated during the first three months of this year. France, for its part, saw output expand 0.2%, while in Spain and Italy GDP grew 0.5% quarter-over-quarter. In Portugal, it rose 1.6%.
Looking ahead, demand for goods and services across the region is expected to dwindle as higher interest rates gradually feed through to the real economy.
“There is always a delay in impact from monetary tightening,” Brzeski said, noting that the effects would become clearer in the second half of 2023.
On Friday, the International Monetary Fund called on the European Central Bank to keep raising interest rates until the middle of 2024 to fight persistent inflation, Reuters reported.
If rates are pushed higher for longer, that would take a toll on the region’s economy.
“Even as Europe recovers from the energy crisis, the tighter monetary policy which has followed hard on its heels will weigh on investment and consumption,” Andrew Kenningham, chief Europe economist at Capital Economics, said in a research note. “We expect any growth to be feeble and still see a significant risk of recession.”
by tyler | Apr 28, 2023 | CNN, economy
The Federal Reserve’s favorite inflation measure cooled further in March, a sign that the central bank’s massive rate-hike campaign is taking hold, according to new data released Friday by the Commerce Department.
The Personal Consumption Expenditures price index rose 4.2% for the 12 months ended in March, down from an upwardly revised 5.1% in February.
The closely watched core PCE index, where the more volatile components of food and energy are excluded, trended down as well — albeit far more moderately. The core PCE price index was up 4.6% for the year, a slight easing from the 4.7% growth rate notched in February.
On a monthly basis, the headline and core indexes grew 0.1% and 0.3%, respectively. In the month prior, both headline and core PCE indexes ticked up 0.3%.
Economists were expecting the core PCE index to rise 0.3% from the month before and 4.5% for the 12 months ended in March, according to consensus estimates on Refinitiv.
Consumer spending was flat in March, tailing off considerably from a January splurge.
Economists expected spending to decline by 0.1% on a monthly basis.
This story is developing and will be updated.
