Economy Week Ahead: Inflation, Jobless Claims, Retail Sales

The outlook for the global economy darkened as a stream of data from Europe and Asia suggested growth faltered in the third quarter, hobbled by world-wide supply-chain snarls, sharply accelerating inflation and the impact of the highly contagious Delta variant.

U.S. inflation accelerated last month and remained at its highest rate in over a decade, with price increases from pandemic-related labor and materials shortages rippling through the economy from a year earlier.

The Labor Department said last month’s consumer-price index, which measures what consumers pay for goods and services, rose by 5.4%

The gap between yields on shorter- and longer-term Treasury’s narrowed Wednesday after data showed inflation accelerated slightly in September, fueled by investors’ bets that the Federal Reserve may need to tighten monetary policy sooner than expected. Measures of inflation in China and the U.S. highlight this week’s economic data.

China’s exports, long a growth engine for the country’s economy, are expected to increase 21% from a year earlier in September, according to economists polled by The Wall Street Journal. That is down from a 25.6% gain in August. Meanwhile, inbound shipments are forecast to rise 19.1% from a year earlier, retreating from the 33.1% jump in August.

The International Monetary Fund releases its World Economic Outlook report during annual meetings. The latest forecasts are likely to underscore the relatively quick economic rebound of advanced economies alongside a slower recovery in developing nations with less access to Covid-19 vaccines.

China’s factory-gate prices for September are expected to surge 10.4% from a year earlier, a pace that would surpass its previous peak in 2008, according to economists polled by The Wall Street Journal. Higher commodity costs have led to the rise in producer prices this year, but so far that hasn’t fed through to consumer inflation. Economists forecast the consumer-price index rose only 0.7% from a year earlier in September.

September’s U.S. consumer-price index is expected to show inflation remained elevated as companies passed along higher costs for materials and labor. Rising energy prices likely contributed to the headline CPI, while core prices, which exclude food and energy, might start to reflect climbing shelter costs.

The Federal Reserve releases minutes from its September meeting, potentially offering additional insight on plans to start reducing pandemic-related stimulus.

U.S. jobless claims are forecast to fall for the second consecutive week as employers hold on to workers in a tight labor market. The data on claims, a proxy for layoffs, will cover the week ended Oct. 9.

U.S. retail sales are expected to fall in September. U.S. consumers appear to be in decent financial shape, but Covid-related caution, rising prices and widespread supply-chain disruptions are tamping down purchases. The auto industry has been especially hard hit by a semiconductor shortage—separate data released earlier this month show U.S. vehicle sales in September fell to their lowest level since early in the pandemic.

By: WSJ staff

Source: Economy Week Ahead: Inflation, Jobless Claims, Retail Sales – TechiLive.in

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IMF Cuts Global Growth Forecast Amid Supply Chain Disruptions, Pandemic Pressures

The IMF, a grouping made up of 190 member states, promotes international financial stability and monetary cooperation. It also acts as a lender of last resort for countries in financial crisis.

In the IMF’s latest World Economic Outlook report released on Tuesday, the group’s economists say the most important policy priority is to vaccinate sufficient numbers of people in every country to prevent dangerous mutations of the virus. He stressed the importance of meeting major economies’ pledges to provide vaccines and financial support for international vaccination efforts before new versions derail. “Policy choices have become more difficult … with limited scope,” IMF economists said in the report.

The IMF in its July report cut its global growth forecast for 2021 from 6% to 5.9%, a result of a reduction in its projection for advanced economies from 5.6% to 5.2%. The shortage mostly reflects problems with the global supply chain that causes a mismatch between supply and demand.

For emerging markets and developing economies, the outlook improved. Growth in these economies is pegged at 6.4% for 2021, higher than the 6.3% estimate in July. The strong performance of some commodity-exporting countries accelerated amid rising energy prices.

The group maintained its view that the global growth rate would be 4.9% in 2022.

In key economics, the growth outlook for the US was lowered by 0.1 percentage point to 6% this year, while the forecast for China was also cut by 0.1 percentage point to 8%. Several other major economies saw their outlook cut, including Germany, whose economy is now projected to grow 3.1% this year, down 0.5 percent from its July forecast. Japan’s outlook was down 0.4 per cent to 2.4%.

While the IMF believes that inflation will return to pre-pandemic levels by the middle of 2022, it also warns that the negative effects of inflation could be exacerbated if the pandemic-related supply-chain disruptions become more damaging and prolonged. become permanent over time. This may result in earlier tightening of monetary policy by central banks, leading to recovery back.

The IMF says that supply constraints, combined with stimulus-based consumer appetite for goods, have caused a sharp rise in consumer prices in the US, Germany and many other countries.

Food-price hikes have placed a particularly severe burden on households in poor countries. The IMF’s Food and Beverage Price Index rose 11.1% between February and August, with meat and coffee prices rising 30% and 29%, respectively.

The IMF now expects consumer-price inflation in advanced economies to reach 2.8% in 2021 and 2.3% in 2022, up from 2.4% and 2.1%, respectively, in its July report. Inflationary pressures are even greater in emerging and developing economies, with consumer prices rising 5.5% this year and 4.9% the following year.

Gita Gopinath, economic advisor and research director at the IMF, wrote, “While monetary policy can generally see through a temporary increase in inflation, central banks should be prepared to act swiftly if the risks to rising inflation expectations are high. become more important in this unchanged recovery.” Report.

While rising commodity prices have fueled some emerging and developing economies, many of the world’s poorest countries have been left behind, as they struggle to gain access to the vaccines needed to open their economies. More than 95% of people in low-income countries have not been vaccinated, in contrast to immunization rates of about 60% in wealthy countries.

IMF economists urged major economies to provide adequate liquidity and debt relief for poor countries with limited policy resources. “The alarming divergence in economic prospects remains a major concern across the country,” said Ms. Gopinath.

By: Yuka Hayashi

Yuka Hayashi covers trade and international economy from The Wall Street Journal’s Washington bureau. Previously, she wrote about financial regulation and elder protection. Before her move to Washington in 2015, she was a Journal correspondent in Japan covering regional security, economy and culture. She has also worked for Dow Jones Newswires and Reuters in New York and Tokyo. Follow her on Twitter @tokyowoods

Source: IMF Cuts Global Growth Forecast Amid Supply-Chain Disruptions, Pandemic Pressures – WSJ

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The Market Is Right To Be Spooked By Rising Bond Yields

Nobody likes dropping cash, however Tuesday’s stock-price fall worries me greater than the headline of a 2% fall within the S&P 500 ought to. In itself, 2% is not any biggie: three days this yr had larger falls, and on common we now have had seven worse days a yr since 1964.

What bothers me is that the rise in bond yields that triggered the autumn was actually fairly small, and there may simply be much more to return. The ten-year Treasury yield rose solely 0.05 share level, taking it above 1.5%, and the 30-year rose barely extra to only above 2%. If that is the type of response we should always anticipate, then get out your tin hat. Yields must rise 4 occasions as a lot simply to get again to the place they had been in March.

Why, you would possibly fairly ask, are shares abruptly spooked by bond yields? Within the increase as much as March, shares and yields marched increased collectively, and for the previous 20 years increased yields have typically been higher for shares. The distinction is that investors see the central banks turning hawkish, whilst financial development slows, as a result of they will’t ignore excessive inflation.

As  Pascal Blanqué,chief funding officer at French fund supervisor Amundi, places it, the worry is of an increase in charges pushed by inflation alone pushing central banks to behave, somewhat than an increase in charges pushed by financial development pushing central banks round. That is the mind-set that dominated funding till the late Nineteen Nineties. If it sticks, it marks a profound change.

In the long term, it could imply bonds would not present a cushion when inventory costs drop, making portfolios extra unstable. Within the quick time period, if the sharp rise in yields since the Federal Reserve meeting last week is the beginning of a development, then shares are in bother. On the flip aspect, if yields come again down, it is perhaps good for shares—because it was on Friday—somewhat than unhealthy, as has often been the case for a few many years.

To see the risk, suppose again to the spring, when yields had been marching increased. The outlook for inflation is about the identical (buyers are pricing it as excessive however short-term). The outlook for financial development is worse, which gives much less help for shares typically. However central banks have shifted stance from super-easy for just about perpetually to start out speaking about tightening.

That is the improper type of rise in bond yields. When yields had been rising as much as their March excessive of 1.75% for the 10-year Treasury, shares had been on a tear as a result of yields had been being pushed up by the prospect of upper financial development, and so stronger income. Overwhelmed-up worth shares and economically-sensitive sectors soared, whereas Huge Tech and different development shares, plus the dependable earners generally known as high quality shares, went sideways. After March, falling yields boosted development and high quality shares once more, whereas worth and cyclical went sideways.

This time, shares are reacting as they do when yields rise as a consequence of a central financial institution hawkish shift. Huge Tech, other growth stocks and quality suffered the most, as their excessive valuations make them reliant on projected earnings far sooner or later; increased yields make these future earnings much less enticing in contrast with proudly owning tremendous secure bonds. However with out the prospect of upper financial development to spice up earnings, low cost worth and cyclical shares additionally fell when yields rose, albeit by lower than development and high quality.

There’s enormous uncertainty in regards to the potential financial outcomes, so we shouldn’t simply assume that this week’s buying and selling sample will proceed. On the plus aspect, increased capital spending and the pandemic-driven adoption of know-how would possibly enhance productiveness greater than employee shortages push up labor prices. This could damp inflation and speed up development.

A retreat of Covid-19 might ease pressure on manufacturing and change spending again to companies. On the down aspect, hovering power prices and better costs from widespread provide bottlenecks would possibly hit households and weaken the financial system additional, whilst inflation stays excessive—the dreaded stagflation state of affairs.

We ought to be even much less assured about how central banks will react. I see twin triggers for the market’s reassessment. First, Fed coverage makers upped their “dot plot” predictions for rates of interest subsequent yr and the yr after, together with inflation. Second, the Financial institution of England, faced with an energy price crunch and higher-than-forecast inflation, warned of a potential price rise earlier than the tip of this yr. A slew of emerging-market central banks additionally raised charges, as did oil-producer Norway.

If the financial system reacts badly to increased yields, although, the Fed and Financial institution of England would possibly properly shift again to uber-dovishness. The withdrawal of emergency authorities spending measures in a lot of the world may also give the doves a brand new cause to maintain charges low.

Lastly, there’s uncertainty in regards to the market response itself. Possibly Tuesday’s bond strikes had been exacerbated by a mixture of momentum promoting and yields (which transfer in the other way to costs) rising above the brink of 1.5% on the 10-year and a pair of% on the 30-year. It may not be a coincidence that shares did properly on Friday as soon as the 10-year dropped again under 1.5%.

SHARE YOUR THOUGHTS

How involved are you in regards to the late September stock-price fall? Weigh in under. Spherical numbers shouldn’t matter, however typically do, whereas momentum is short-term. Tuesday’s transfer wasn’t pushed by an occasion on the day, so maybe the brand new narrative of hawkishness received stick. In spite of everything, it shouldn’t be that massive a deal to withdraw some financial help when inflation is greater than double the goal and coverage has by no means been simpler.

Given Huge Tech’s outsize share of the general market, buyers within the S&P 500 should be satisfied that if bond yields are going to maintain rising, it is going to be for the great cause of an accelerating financial system, not the unhealthy cause of sticky inflation pushing central banks to behave.

By: james.mackintosh@wsj.com

Source: The Market Is Right to Be Spooked by Rising Bond Yields – WSJ

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East Asia’s Economies Face Slowing Growth and Rising Inequality, World Bank Warns

HONG KONG—Most countries in East Asia face major setbacks in recovering from the coronavirus, the World Bank said, adding to concerns that the resurgent pandemic will widen the economic divide between the region and the Western world.

With the notable exception of China, economic activity across the region has sputtered since the second quarter amid outbreaks of the Delta variant of the coronavirus and relatively slow vaccine rollouts, leading some multilateral institutions to cut growth forecasts for most economies in the region and warn about longer-term problems such as rising inequality.

Overall, the economy of East Asia and the Pacific is on track to expand by 7.5% this year, according to forecasts released Tuesday by the World Bank Group, up from its April forecast of 7.4%. But that improvement is all China, now expected to grow 8.5%, up from 8.1%. The outlook for the rest of the region worsened, with the bank now forecasting growth of just 2.5% this year, down from 4.4% in April.

“The economic recovery of developing East Asia and Pacific faces a reversal of fortune,” said Manuela Ferro, an economist at the Washington, D.C.-based institution. The U.S. economy is expected to outpace the world as a whole by expanding 6% this year, the Organization for Economic Cooperation and Development forecast last week.

In Asia, meanwhile, the pandemic’s persistence threatens to deliver “an impoverishing double whammy of slow growth and increasing inequality,” the World Bank warned, calling it the first time the region has faced such an outlook since the turn of the century. The bank sees 24 million more people below the poverty line in Asia this year than it projected earlier.

Last week, the Manila-based Asia Development Bank cut its growth outlook for developing Asia to 7.1%, from 7.3% in April, in large part because Covid-19 outbreaks led to major lockdowns that slowed manufacturing activity in Southeast Asia, a regional export hub. The ADB now forecasts 3.1% growth this year for Southeast Asia, where countries have struggled to ramp up vaccinations, down from 4.4% previously.

Myanmar, Malaysia and Cambodia are among the countries that have imposed lockdowns and social-distancing rules in recent months as Covid-19 infections surged. That has exacerbated global supply-chain disruptions, delaying production of finished goods from clothes to cars as well as commodities, including coffee and palm oil.

Vaccination rates have picked up in Asia, though they still trail the West. As of the end of August, less than one-third of the region’s population had been fully vaccinated, compared with 52% in the U.S. and 58% in the European Union, according to the ADB.

The World Bank predicts that most Asian countries will push vaccination rates up to 60% by the first half of 2022, which it says will allow for a fuller resumption of economic activity—though it won’t be enough to eliminate infections.

Moreover, Asia’s advantage in the global goods trade—a bright spot for the region for much of the past year—is expected to fade.

Export demand for a range of goods, such as machinery and consumer electronics, has slipped as companies and individuals from richer Western countries shift their spending patterns. Supply capacity in those markets has also started to normalize, while higher shipping costs risk further eroding appetite for imports from Asia.

“Global goods import demand peaked in the second quarter of 2020 and regional exports face stronger competitions as other regions recover,” says the World Bank report.

MARKET TRENDS

We have revised our forecast for China’s 2021 growth from 8.4% to 8.2% to account for recent COVID outbreaks and economic underperformance.,China is experiencing a rash of COVID outbreaks driven by the Delta variant. New cases have emerged in cities across the country, such as Nanjing, Ningbo, and Wuhan.,Several indicators signaled a slowdown in July relative to June: industrial value-added growth fell from 8.8% YOY to 8.3% YOY; retail sales growth slowed from 12.1% YOY to 8.5% YOY; urban unemployment rose from 5.0% to 5.1%.

KEY DEVELOPMENTS

Xi Jinping is shifting the government’s focus away from pursuing growth at any cost toward sharing the fruits of growth more evenly across society. This push is reflected in the rising use of the phrase “common prosperity,” which has started to appear frequently in communications across the government, schools, and media.,While the details behind the “common prosperity” push are not yet clear and policy implementation timelines may be extended, the implications of this shift will be wide-ranging.

In the coming years, China’s leadership will show less forbearance to wealthy individuals and large corporations; instead, it will expect them to support its goals for social equality through measures like direct transfers, donations, program development, and tax changes.,China’s regulatory landscape will also shift in favor of industries that are seen to serve lower-income segments and against those seen to serve higher-income segments. For example, companies serving rural and less developed parts of the country are likely to receive a helping hand, while companies selling luxury items and high-end real estate are likely to face increased barriers in the market.

By: Stella Yifan Xie at stella.xie@wsj.com

Source: East Asia’s Economies Face Slowing Growth and Rising Inequality, World Bank Warns – WSJ

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High-Frequency Charts Show U.S. Economy Softening From Delta

The Delta version has muted the progress of the US economic recovery from the Covid-19 pandemic, with consumers delaying some holiday spending and businesses returning to normal operations, according to multiple high-frequency reports. Show softness in August.

Airlines

The number of passengers passing through airport checkpoints has started declining again. According to data from the Transportation Security Administration, 1.47 million passengers flew on Tuesday, the lowest in more than three months. The seven-day average dropped to about 1.76 million passengers a day at the end of August, from about 2.05 million a month earlier.

While this partly marks the end of the summer holiday season, airlines have cited the Delta version as well. “There has been a slowdown in holiday bookings and an increase in cancellations,” said Helen Baker, senior research analyst at Cowen Inc. As companies delay return to offices, the return of business air travel may also be delayed, she said.

Restaurant Dining

After narrowing the gap to just 5-6% at the end of July, sit-down meals at U.S. restaurants have been down about 10-11% from 2019 levels in recent weeks, according to OpenTable, which processes online reservations. Is. Concerns about Delta and the city’s mandate are playing a part, according to the company.

“We see a clear decline in late July and August,” said OpenTable CEO Debbie Sue. “While several factors may be at play here, we believe the primary driver of the slowdown is diners’ concern about the rise in COVID cases.”

Hotel Occupancy

According to STR, a lodging data tracker, while leisure travel helped boost some popular destinations in the summer, the number of hotel stays declined for four consecutive weeks. Average room rates for three weeks have dropped.

Among the 25 major US markets, none saw engagement in the week ending August 21 compared to the same week in 2019, STR found. Occupancy in San Francisco has dropped by more than 40%, the most of any market.

“Demand looks like it’s doing a little worse than a normal seasonal decline,” said Bill Crowe, Raymond James Financial Analyst. There is a “coolness on travel due to delta-type case growth” with the business-travel markets underperforming.

Job Listing

While the labor market has hardened this year, and many employers say they are struggling to fill positions, there are some signs of a slowdown in demand among Delta. Dental office and child care jobs, for example, have declined in job postings for positions that would call for close contact with the public.

“During the latest wave of the virus, those virus-sensitive sectors have already seen a decline in job postings,” said Indeed chief economist Jed Kolko. If the wave continues, “demand for labor could collapse if people cut back on travel, eating out and other services.” And potential workers may be reluctant to look for work, he said.

Home Again

Big US companies’ plans to bring workers back to their offices in busy business districts are being reversed. Average office occupancy in the 10 largest business districts fell to 31.3% of pre-Covid-19 levels for the week ended August 18, according to data from Kastel Systems.

While the August holidays may have contributed, “the return to normal offices has been a bit slow due to delta,” said JPMorgan Chase Real Estate Investment Trust analyst Anthony Paolone.

This affects not only real estate but also a group of businesses that depend on offices, such as dry cleaners and urban restaurants, and the city through taxes.

“There is a cascading effect for the vibrancy of the various urban cores,” he said.

By: and

Source: High-Frequency Charts Show U.S. Economy Softening From Delta – Bloomberg

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Inside the UK’s Post-Brexit Economy: Why Investors Should Have an Eye on London

London is firmly open for business, and that is a message emanating from the gleaming towers of the city, the corridors of government and the flashing screens of the stock exchange.

wo years ago, the British press was full of news about leaving the European Union (which the UK did formally on January 31, 2020). It was a theme which had dominated the media for years, and there seemed little sign of it changing. Then, news began to emerge of a strange new respiratory virus in a Chinese city called Wuhan…

Now, the worst excesses of COVID-19 seem to be abating, and parts of the world are starting to shake off the strictures of lockdown. We have found, perhaps to our surprise, that life goes on. It is very far from business as usual—adaptation is one of the key skills of the new economic landscape—nevertheless, the world keeps turning, and we must turn with it.

So, what is it like in the UK? What are the opportunities for entrepreneurs, investors and business leaders? How has the landscape changed? Is the UK economy different than it was before?

At the moment, London is a thriving center for the tech industry, home to more than 60 unicorns, according to the annual report of growth platform Tech Nation. Some are growing at an extraordinary rate: DivideBuy, a lending platform, reported average growth of 20,733 percent over a three-year period, while Popsa, a photobook specialist, went up 10,576 percent. And IPOs are on the rise, too; technology and consumer internet listings accounted for more than half of total capital raised in the first six months of 2021.

This development should be prominently on the radar of investors and others. London has traditionally lagged behind the U.S. for tech floatations, but the momentum is firmly on the eastern side of the Atlantic right now. One reason is that tech is becoming understood in a broader context; it is no longer just software and social media, but the heart which drives platforms in all sectors—and that is where London gains an advantage.

The capital has strength in depth in areas like energy, telecommunications and financial services, and that infrastructure increasingly gives it the edge over not just Amsterdam or Frankfurt but even New York. Observers from the U.S. should also be aware of the emerging regulatory environment. The UK government sponsored a review of how companies raise money on the capital markets, led by former cabinet minister and EU commissioner Lord Jonathan Hill of Oareford.

Its recommendations were published with a distinctly deregulatory flavor and have been warmly welcomed by the UK Treasury. Chancellor Rishi Sunak remarked: “Our vision is for a more open, greener and more technologically advanced financial services sector.” That vision is being delivered on a number of fronts. The prospectus regime for companies seeking finance will be reviewed and made “less burdensome” (code for less exhaustive and rigorous).

The government also intends to relax the rules on dual-class shares, allowing differentiated voting rights but only for up to five years and with a maximum voting ratio limited to 20:1. The free float requirements will also be reduced from 25 percent to 15 percent.

All of this is a strong sign of intent. The political establishment has argued bitterly over a vision for the UK after Brexit, but a constant theme has been the creation of a free-market, light-touch-regulation, agile trading hub modelled in part on Singapore and the ghost of colonial Hong Kong. The current conservative administration, pandemic notwithstanding, has a buccaneering wind in its sails, and the effects on investment are clear.

However, there is something more, something besides share prices and rules and floatations. There is, unquestionably, a new mood in the City of London. Like any financial hub, it still bears the scars and the bloodied hands of the financial crisis. But financial services are growing in confidence, beginning to point to the contribution they make to the wider economy and realizing that they have somehow survived the worst of the pandemic.

This new mood combines relief—life, as I noted earlier, goes on—and eager openness. The UK has much to prove in the wake of Brexit, as witnessed by the hyperactivity of international trade secretary Elizabeth Truss, forging deals around the world. Early predictions of the collapse of UK financial services have been proved wrong.

Fund managers are looking at new regulation changes; the overall European market is fracturing among Amsterdam, Frankfurt, Dublin, Luxembourg and Paris; and current estimates are that only 7,400 jobs have been relocated from London to other European centers.

London is firmly open for business, and that is a message emanating from the gleaming towers of the city, the corridors of government and the flashing screens of the stock exchange. There is a sense that anything is possible. Anyone who works in business or finance should prick up their ears, and maybe look at upcoming flights to London.

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By: Eliot Wilson

Eliot Wilson is the cofounder of Pivot Point, a change management, strategy and PR consultancy based in London.

Source: Inside the UK’s Post-Brexit Economy: Why Investors Should Have an Eye on London – Worth

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The U.S. Debt-Ceiling Farce Is a Headache Investors Could Do Without

The latest twists in the seemingly endless saga of the U.S. debt ceiling underscore once again how strange the whole thing is.

The very existence of the debt ceiling is utterly superfluous. Every couple of years members of Congress have to vote to allow borrowing to fund measures that they’ve already approved through individual spending bills. Its main function is political: Whichever party isn’t in power at the time uses it to try to either extract something from, or embarrass, the other side.

On top of that, the limit isn’t really the limit. By invoking the vague catchall of “extraordinary measures,” Uncle Sam can keep on borrowing even after it’s hit the cap—or when the limit has been reinstated following a suspension, as was the case at the end of last month. Given that the alternative is either what’s known as a technical default or a seizing up of everyday government spending, that’s a good thing, even if you’re a fiscal hawk, which is an endangered species these days.

Just because something is mainly theatrical, though, that doesn’t mean it can’t have an impact. This month marks the 10th anniversary of S&P’s decision to strip America of its AAA credit rating, a move that followed one of many bruising Congressional fights over the debt limit. The move by the ratings agency back then sent a shiver through markets and caused a lot of consternation from Wall Street to Washington. But the U.S. has continued to borrow cheaply—indeed, even more cheaply than before.

Right now, the ceiling is at about $28.4 trillion, and the U.S. Treasury’s fancy footwork on accounting should keep U.S. borrowing authority officially intact for a little while. That should allow lawmakers to stitch together enough votes for either an increase or another suspension in the coming months. But what if they don’t?

One subplot of the drama helps put some perspective on this question. With the overall cap for debt back in force as of the start of August, the Treasury has been forced to slash its cash pile—essentially the balance of the government’s main checking account—to around the same level it occupied before the last ceiling suspension. The legislation that governs the ceiling includes a measure to hold things in check; without it, there’d be little to restrain the government from simply issuing tons of debt, while the now-lapsed suspension was still in place, in order to be able to spend the money later.

For quite a long time, some market observers have acted on the assumption that this time around, the cash pile would end up somewhere in the vicinity of $130 billion. In May, though, the Treasury itself said its borrowing plans were premised on the pile amounting to around $450 billion.

Ultimately, the Treasury got down to within around $10 billion of that, which the market appears to accept as close enough. Would it have made much of a difference if they were off by $50 billion or $100 billion—or $500 billion? Would there be any real penalty beyond a bit of political scoring in the never-ending ceiling tussle?

This isn’t a moot point. In its quest to get the cash balance down, the Treasury has affected markets. It has been dialing back its borrowing in T-bills—its shortest-maturity securities—and that, in turn, has been distorting money markets and complicating the Federal Reserve’s management of interest rates.

The issue is that when there’s a shortage of T-bills, they become more expensive, and the yield they offer falls. And because the kinds of people who buy T-bills also invest in a range of other money market instruments, the rates on those come under pressure, too.

That’s not necessarily a concern until it starts pushing the rates on which the Federal Reserve focuses out of its target band. At that point, the Fed needs to pull some other levers. Such a response carries costs while continuing the cycle of distortion.

A further example: On occasion, the imminent approach of a so-called technical default by the world’s largest debtor nation has prompted odd moves in various T-bills as those securities that are most at risk of non-payment become market pariahs. While this is most acutely a problem for investors in those individual issues, it throws out of kilter a market that helps benchmark a huge swath of the world’s borrowing—both government and private.

Nobody can honestly pretend that the ceiling is a mechanism to rein in debt. It causes distortions, and it wastes a lot of time and energy that the denizens of Washington could devote to ensuring the money being borrowed is spent effectively and productively. That’s not to say that debt and deficits don’t matter. But the way the U.S. thinks and legislates on the topic needs to change. —With Alex Harris

By: Benjamin Purvis

Source: The U.S. Debt-Ceiling Farce Is a Headache Investors Could Do Without – Bloomberg

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China’s Slowing V-Shaped Economic Recovery Sends Global Warning

China’s V-shaped economic rebound from the Covid-19 pandemic is slowing, sending a warning to the rest of world about how durable their own recoveries will prove to be.

The changing outlook was underscored Friday when the People’s Bank of China cut the amount of cash most banks must hold in reserve in order to boost lending. While the PBOC said the move isn’t a renewed stimulus push, the breadth of the 50 basis-point cut to most banks reserve ratio requirement came as a surprise.

Data on Thursday is expected to show growth eased in the second quarter to 8% from the record gain of 18.3% in the first quarter, according to a Bloomberg poll of economists. Key readings of retail sales, industrial production and fixed asset investment are all set to moderate too.

The PBOC’s swift move to lower banks’ RRR is one way of making sure the recovery plateaus from here, rather then stumbles.

The economy was always expected to descend from the heights hit during its initial rebound and as last year’s low base effect washes out. But economists say the softening has come sooner than expected, and could now ripple across the world.

“There is no doubt that the impact of a slowing China on the global economy will be bigger than it was five years ago,” said Rob Subbaraman, head of global markets research at Nomura Holdings Inc. “China’s ‘first-in, first-out’ status from Covid-19 could also influence market expectations that if China’s economy is cooling now, others will soon follow.”

Group of 20 finance ministers meeting in Venice on Saturday signaled alarm over threats that could derail a fragile global recovery, saying new variants of the coronavirus and an uneven pace of vaccination could undermine a brightening outlook for the world economy. China’s state media also cited several analysts Monday saying domestic growth will slow in the second half because of an uncertain global recovery.

China’s slowing recovery also reinforces the view that factory inflation has likely peaked and commodity prices could moderate further.

“China’s growth slowdown should mean near-term disinflation pressures globally, particularly on demand for industrial metals and capital goods,” said Wei Yao, chief economist for the Asia Pacific at Societe Generale SA.

The changing outlook reflects the advanced stage of China’s recovery as growth stabilizes, according to Bloomberg Economics.

What Bloomberg Economics Says…

“Looking through the data distortions, the recovery is maturing, not stumbling. Activity and trade data for June will likely paint a similar picture — a slower, but still-solid expansion.”

— The Asia Economist Team

For the full report, click here.

Domestically, the big puzzle continues to be why retail sales are still soft given the virus remains under control. It’s likely that sales slowed again in June, according to Bloomberg Economics, as sentiment was weighed by controls to contain sporadic outbreaks of the virus.

Even with the PBOC’s support for small and mid-sized businesses, there’s no sign of a broad reversal in the disciplined stimulus approach authorities have taken since the crisis began.

The RRR cut was partially to “manage expectations” ahead of the second-quarter economic data this week, said Bruce Pang, head of macro and strategy research at China Renaissance Securities Hong Kong.

“It also provides more policy room going forward, as the momentum of the economic recovery has surely slowed.”

— With assistance by Enda Curran, Yujing Liu, and Bihan Chen

Source: China’s Slowing V-Shaped Economic Recovery Sends Global Warning – Bloomberg

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Critics:

The Chinese economic reform or reform and opening-up; known in the West as the Opening of China is the program of economic reforms termed “Socialism with Chinese characteristics” and “socialist market economy” in the People’s Republic of China (PRC). Led by Deng Xiaoping, often credited as the “General Architect”, the reforms were launched by reformists within the Chinese Communist Party (CCP) on December 18, 1978 during the “Boluan Fanzheng” period.

The reforms went into stagnation after the military crackdown on 1989 Tiananmen Square protests, but were revived after Deng Xiaoping’s Southern Tour in 1992. In 2010, China overtook Japan as the world’s second-largest economy.

Before the reforms, the Chinese economy was dominated by state ownership and central planning. From 1950 to 1973, Chinese real GDP per capita grew at a rate of 2.9% per year on average,[citation needed] albeit with major fluctuations stemming from the Great Leap Forward and the Cultural Revolution.

This placed it near the middle of the Asian nations during the same period, with neighboring capitalist countries such as Japan, South Korea and rival Chiang Kai-shek‘s Republic of China outstripping the PRC’s rate of growth. Starting in 1970, the economy entered into a period of stagnation, and after the death of CCP Chairman Mao Zedong, the Communist Party leadership turned to market-oriented reforms to salvage the failing economy.

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Global Boom in House Prices Becomes a Dilemma for Central Banks

Surging house prices across much of the globe are emerging as a key test for central banks’ ability to rein in their crisis support.

Withdrawing stimulus too slowly risks inflating real estate further and worsening financial stability concerns in the longer term. Pulling back too hard means unsettling markets and sending property prices lower, threatening the economic recovery from the Covid-19 pandemic.

Bubble Trouble

Countries seeing surging real house price growth

Source: OECD

With memories of the global financial crisis that was triggered by a housing bust still fresh in policy makers minds, how to keep a grip on soaring house prices is a dilemma in the forefront of deliberations as recovering growth sees some central banks discuss slowing asset purchases and even raising interest rates.

Federal Reserve officials who favor tapering their bond buying program have cited rising house prices as one reason to do so. In particular, they are looking hard at the Fed’s purchases of mortgage backed securities, which some worry are stoking housing demand in an already hot market.

In the coming week, central bankers in New Zealand, South Korea and Canada meet to set policy, with soaring home prices in each spurring pressure to do something to keep homes affordable for regular workers.

New Zealand policy makers are battling the hottest property market in the world, according to the Bloomberg Economics global bubble ranking. The central bank, which meets Wednesday, has been given another tool to tackle the issue, and its projections for the official cash rate show it starting to rise in the second half of 2022.

Facing criticism for its role in stoking housing prices, Canada’s central bank has been among the first from advanced economies to shift to a less expansionary policy, with another round of tapering expected at a policy decision also on Wednesday.

The Bank of Korea last month warned that real estate is “significantly overpriced” and the burden of household debt repayment is growing. But a worsening virus outbreak may be a more pressing concern at Thursday’s policy meeting in Seoul.

In its biggest strategic rethink since the creation of the euro, the European Central Bank this month raised its inflation target and in a nod to housing pressures, officials will start considering owner-occupied housing costs in their supplementary measures of inflation.

The Bank of England last month indicated unease about the U.K. housing market. Norges Bank is another authority to have signaled it’s worried about the effect of ultra-low rates on the housing market and the risk of a build-up of financial imbalances.

Beginning of the End of Easy Money: Central Bank Quarterly Guide

The Bank for International Settlements used its annual report released last month to warn that house prices had risen more steeply during the pandemic than fundamentals would suggest, increasing the sector’s vulnerability if borrowing costs rise.

While the unwinding of pandemic-era is support is expected to be gradual for most central banks, how to do so without hurting mortgage holders will be a key challenge, according to Kazuo Momma, who used to be in charge of monetary policy at the Bank of Japan.

“Monetary policy is a blunt tool,” said Momma, who now works as an economist at Mizuho Research Institute. “If it is used for some specific purposes like restraining housing market activities, that could lead to other problems like overkilling the economic recovery.”

But not acting carries other risks. Analysis by Bloomberg Economics shows that housing markets are already exhibiting 2008 style bubble warnings, stoking warnings of financial imbalances and deepening inequality.

New Zealand, Canada and Sweden rank as the world’s frothiest housing markets, based on the key indicators used in the Bloomberg Economics dashboard focused on member countries of the Organisation for Economic Co-operation and Development. The U.K. and the U.S. are also near the top of the risk rankings.

As many economies still grapple with the virus or slow loan growth, central bankers may look for alternatives to interest-rate hikes such as changes to loan-to-value limits or risk weighting of mortgages — so called macro-prudential policy.

Yet such measures aren’t guaranteed to succeed because other dynamics like inadequate supply or government tax policies are important variables for housing too. And while ever cheap money is gushing from central banks, such measures are likely to struggle to rein in prices.

“The best approach would be to stop the further expansion of central bank balance sheets,” according to Gunther Schnabl of Leipzig University, who is an expert on international monetary systems. “As a second step, interest rates could be increased in a very slow and diligent manner over a long time period.”

Another possibility is that house prices reach a natural plateau. U.K. house prices, for example, fell for the first time in five months in June, a sign that the property market may have lost momentum as a tax incentive was due to come to an end.

There’s no sign of that in the U.S. though, where demand for homes remains strong despite record-high prices. Pending home sales increased across all U.S. regions in May, with the Northeast and West posting the largest gains.

While navigating the housing boom won’t be easy for central banks, it may not be too late to ward off the next crisis. Owner-occupy demand versus speculative buying remains a strong driver of growth. Banks aren’t showing signs of the kind of loose lending that preceded the global financial crisis, according to James Pomeroy, a global economist at HSBC Holdings Plc.

“If house prices are rising due to a shift in supply versus demand, which the pandemic has created due to more remote working and people wanting more space, it may not trigger a crisis in the same way as previous housing booms,” said Pomeroy. “The problems may arise further down the line, with younger people priced out of the property ladder even more.”

Read More:
A Housing Frenzy Sparks Bidding Wars From New York to Shenzhen

World’s Bubbliest Housing Markets Flash 2008 Style Warnings

Stimulus ‘Pandexit’ Is Next Challenge as Recovery Quickens

As they tip toe away from their crisis settings, monetary authorities in economies with heavily indebted households will need to be especially careful, said Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis who used to work for the ECB and International Monetary Fund.

“Real estate prices, as with other asset prices, will continue to balloon as long as global liquidity remains so ample,” she said. “But the implications are much more severe than other asset prices as they affect households much more widely.”

— With assistance by Theophilos Argitis, and Peggy Collins

By:

Source: Global Boom in House Prices Becomes a Dilemma for Central Banks – Bloomberg

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Critics:

A housing bubble (or a housing price bubble) is one of several types of asset price bubbles which periodically occur in the market. The basic concept of a housing bubble is the same as for other asset bubbles, consisting of two main phases. First there is a period where house prices increase dramatically, driven more and more by speculation. In the second phase, house prices fall dramatically.

Housing bubbles tend to be among the asset bubbles with the largest effect on the real economy, because they are credit-fueled, because a large number of households participate and not just investors, and because the wealth effect from housing tends to be larger than for other types of financial assets.

References

  • Brunnermeier, M.K. and Oehmke, M. (2012) Bubbles, Financial Crises, and Systemic Risk NBER Working Paper No. 18398
  • see eg. Case, K.E., Quigley, J. and Shiller R. (2001). Comparing wealth effects: the stock market versus the housing market. National Bureau of Economic Research, Working Paper No. 8606., Benjamin, J., Chinloy, P. and Jud, D. (2004). ”Real estate versus financial wealth in consumption”. In: Journal of Real Estate Finance and Economics 29, pp. 341-354., Campbell, J. and J. Cocco (2004), How Do Housing Price Affect Consumption? Evidence from Micro Data. Harvard Institute of Economic Research, Discussion Paper No. 2045
  • Stiglitz, J.E. (1990). “Symposium on bubbles”. In: Journal of Economic Perspectives Vol. 4 No. 2, pp. 13-18.
  • Palgrave, R.H. I. (1926), “Palgrave’s Dictionary of Political Economy”, MacMillan & Co., London, England, p. 181.
  • Flood, R. P. and Hodrick, R. J. (1990), “On Testing for Speculative Bubbles”, The Journal of Economic Perspectives, Vol. 4 No. 2, pp. 85–101.
  • Shiller, R.J. (2005). Irrational Exuberance. 3nd. New Jersey: Princeton University Press. ISBN 0-691- 12335-7.
  • Smith, M. H. and Smith, G. (2006), “Bubble, Bubble, Where’s the Housing Bubble?”, Brookings Papers on Economic Activity, Vol. 2006 No. 1, pp. 1–50.
  • Cochrane, J. H. (2010), “Discount Rates”, Working paper, University of Chicago, Booth School of Business, and NBER, Chicago, Illinois, 27 December.Lind, H. (2009). “Price bubbles in housing markets: concept, theory and indicators”. In: International Journal of Housing Markets and Analysis Vol. 2 No. 1, pp. 78-90.

The IRS Has 35 Million Tax Returns In Backlog. Here’s How To Track Your Money

The IRS is facing numerous challenges that have caused setbacks in issuing tax refunds this year. A recent National Taxpayer Advocate report confirmed that some 35 million tax returns are yet to be processed and explained the long delays. The tax agency is tasked with more than usual this time of year. Many 2020 tax returns are requiring adjustments or corrections, disbursing stimulus checks, calculating other tax credits and refunding overpayment on 2020 unemployment compensation.

And then there’s the unprecedented situation brought on by the pandemic. The IRS is taking more than the standard 21 days to send refunds — some taxpayers are waiting months. It’s hard to get live assistance by phone, as many callers wait on hold or aren’t connected due to high call volumes. So what if you need your tax money to cover debt or household expenses? How can you check the status of your money without calling the IRS?

We’ll walk you through how to see your personalized refund status online through IRS tracking tools and what to do if you’re waiting for a tax refund on unemployment benefits, as well. For more on economic relief aid, here are some ways to know if you qualify for the child tax credit payments that start next week. If you’re curious about future stimulus payments or the latest infrastructure deal, we can tell you about that, too. This story has been recently updated.

Why is there a tax refund delay this year?

Because of the pandemic, the IRS ran at restricted capacity in 2020, which put a strain on its ability to process tax returns and created a massive backlog. The combination of the shutdown, three rounds of stimulus payments, challenges with paper-filed returns and the tasks related to implementing new tax laws and credits caused a “perfect storm,” according to a National Taxpayer Advocate review of the 2021 filing season to Congress.

The IRS is open again and currently processing mail, tax returns, payments, refunds and correspondence, but limited resources continue to cause delays. Earlier in the tax season, some refunds were already taking longer than 21 days, including those that required manual processing. The IRS said it’s also taking more time for 2020 tax returns that need review, such as determining recovery rebate credit amounts for the first and second stimulus checks — or figuring earned income tax credit and additional child tax credit amounts.

Here’s a list of reasons your refund might be delayed:

  • Your tax return has errors.
  • It’s incomplete.
  • Your refund is suspected of identity theft or fraud.
  • You filed for the earned income tax credit or additional child tax credit.
  • Your return needs further review.
  • Your return includes Form 8379 (PDF), injured spouse allocation — this could take up to 14 weeks to process.

If the delay is due to a necessary tax correction made to a recovery rebate credit, earned income tax or additional child tax credit claimed on your return, the IRS will send you an explanation. If there’s a problem that needs to be fixed, the IRS will first try to proceed without contacting you. However, if it needs any more information, it will write you a letter.

How can you track the status of your refund online?

To check the status of your income tax refund using the IRS tracker tools, you’ll need to give some information: your Social Security number or Individual Taxpayer Identification Number, your filing status — single, married or head of household — and your refund amount in whole dollars, which you can find on your tax return. Also, make sure it’s been at least 24 hours (or up to four weeks if you mailed your return) before you start tracking your refund.

Using the IRS tool Where’s My Refund, go to the Get Refund Status page, enter your SSN or ITIN, your filing status and your exact refund amount, then press Submit. If you entered your information correctly, you’ll be taken to a page that shows your refund status. If not, you may be asked to verify your personal tax data and try again. If all the information looks correct, you’ll need to enter the date you filed your taxes, along with whether you filed electronically or on paper.

The IRS also has a mobile app called IRS2Go that checks your tax refund status. The IRS updates the data in this tool overnight, so if you don’t see a status change after 24 hours or more, check back the following day. Once your return and refund are approved, you’ll receive a personalized date to expect your money.

Where’s My Refund has information on the most recent tax refund that the IRS has on file within the past two years, so if you’re looking for return information from previous years you’ll need to contact the IRS for further help.

How can you check the status of unemployment tax refunds online?

Taxpayers who collected unemployment benefits in 2020 and filed their tax returns early have started to receive additional tax refunds from the IRS. Under new rules from the American Rescue Plan Act of 2021, millions of people who treated their unemployment compensation as income are eligible for a tax break and could get a hefty sum of money back.

However, it’s not easy to track the status of that refund using the online tools above. To find out when the IRS processed your refund and for how much, we recommend locating your tax transcript by logging in to your account and viewing the transactions listed there. We explain how to do that step-by-step.

What is the wait time for a standard tax refund?

The IRS usually issues tax refunds within three weeks, but some taxpayers have been waiting months to receive their payments. If there are any errors, or if you filed a claim for an earned income tax credit or the child tax credit, the wait could be pretty lengthy. If there is an issue holding up your return, the resolution “depends on how quickly and accurately you respond, and the ability of IRS staff trained and working under social distancing requirements to complete the processing of your return,” according to its website.

The date you get your tax refund also depends on how you filed your return. For example, with refunds going into your bank account via direct deposit, it could take an additional five days for your bank to post the money to your account. This means if it took the IRS the full 21 days to issue your check and your bank five days to post it, you could be waiting a total of 26 days to get your money. If you submitted your tax return by mail, the IRS says it could take six to eight weeks for your tax refund to arrive.

What do the IRS tax refund status messages mean?

Both IRS tools (online and mobile app) will show you one of three messages to explain your tax return status.

  • Received: The IRS now has your tax return and is working to process it.
  • Approved: The IRS has processed your return and confirmed the amount of your refund, if you’re owed one.
  • Sent: Your refund is now on its way to your bank via direct deposit or as a paper check sent to your mailbox. (Here’s how to change the address on file if you moved.)

What does an IRS TREAS 310 deposit mean?

If you receive your tax refund by direct deposit, you may see IRS TREAS 310 for the transaction. The 310 identifies the transaction as an IRS tax refund. This would also apply to the case of those receiving an automatic adjustment on their tax return or a refund due to new legislation on tax-free unemployment benefits. You may also see TAX REF in the description field for a refund.

If you see a 449 instead, it means your refund has been offset for delinquent debt.

What is the IRS phone number to check on a tax refund?

The IRS received 167 million calls this tax season, which is four times the number of calls in 2019. And based on the recent report, only seven percent of calls reached a telephone agent for help. While you could try calling the IRS to check your status, the agency’s live phone assistance is extremely limited right now because the IRS says it’s working hard to get through the backlog. You shouldn’t file a second tax return or contact the IRS about the status of your return.

Even though the chances of getting live assistance are slim, the IRS says you should only call if it’s been 21 days or more since you filed your taxes online, or if the Where’s My Refund tool tells you to contact the IRS. Here’s the number to call: 800-829-1040.

Why will a refund come by mail instead of direct deposit?

There are a couple of reasons that your refund would be mailed to you. Your money can only be electronically deposited into a bank account with your name, your spouse’s name or a joint account. If that’s not the reason, you may be getting multiple refund checks, and the IRS can only direct deposit up to three refunds to one account. Additional refunds must be mailed. Lastly, your bank may reject the deposit and this would be the IRS’ next best way to refund your money quickly.

For more information about your 2020 taxes, here’s the latest on federal unemployment benefits on your taxes and everything to know about the third stimulus check.

Katie Teague headshot

 

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Source: The IRS has 35 million tax returns in backlog. Here’s how to track your money – CNET

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Critics:

Tax returns in the United States are reports filed with the Internal Revenue Service (IRS) or with the state or local tax collection agency (California Franchise Tax Board, for example) containing information used to calculate income tax or other taxes. Tax returns are generally prepared using forms prescribed by the IRS or other applicable taxing authority.

Under the Internal Revenue Code returns can be classified as either tax returns or information returns, although the term “tax return” is sometimes used to describe both kinds of returns in a broad sense. Tax returns, in the more narrow sense, are reports of tax liabilities and payments, often including financial information used to compute the tax. A very common federal tax form is IRS Form 1040.

A tax return provides information so that the taxation authority can check on the taxpayer’s calculations, or can determine the amount of tax owed if the taxpayer is not required to calculate that amount. In contrast, an information return is a declaration by some person, such as a third party, providing economic information about one or more potential taxpayers.

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