Strong U.S. retail sales boost economic outlook

FILE PHOTO: A stack of shipping containers are pictured in the Port of Miami in Miami, Florida, U.S., May 19, 2016. REUTERS/Carlo Allegri/File Photo

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. retail sales increased more than expected in June, pointing to strong consumer spending, which could help to blunt some of the drag on the economy from weak business investment.

The report from the Commerce Department on Tuesday did not change market expectations that the Federal Reserve will cut interest rates this month for the first time in a decade.

But signs of strong consumer spending and rising underlying inflation suggest the U.S. central bank is unlikely to cut rates by 50 basis points at its July 30-31 policy meeting as markets had initially anticipated.

Fed Chairman Jerome Powell last week told lawmakers the central bank would “act as appropriate” to protect the economy against risks stoked by a trade war between the United States and China, as well as slowing global growth.

“It certainly will counteract weak business spending to some degree,” said Robert Frick, corporate economist at Navy Federal Credit Union in Vienna, Virginia. “Given that the Fed is most worried about foreign economies and the threat of an escalating trade war, it is unlikely to dissuade them from cutting rates soon.”

Retail sales increased 0.4% last month as households stepped up purchases of motor vehicles and a variety of other goods. Data for May was revised slightly down to show retail sales gaining 0.4%, instead of rising 0.5% as previously reported.

Economists polled by Reuters had forecast retail sales edging up 0.1% in June. Compared to June last year, retail sales advanced 3.4%.

Excluding automobiles, gasoline, building materials and food services, retail sales jumped 0.7% last month after an upwardly revised 0.6% increase in May. These so-called core retail sales, which correspond most closely with the consumer spending component of gross domestic product, were previously reported to have increased 0.4% in May.

    June’s strong gain in core retail sales, coming on the heels of solid increases in April and May, suggested an acceleration in consumer spending in the second quarter. Consumer spending grew at its slowest pace in a year in the first quarter.

The dollar rose against a basket of currencies, while U.S. Treasury prices fell.

BROAD GAINS

Consumer spending is being supported by a tight labor market, even as the broader economy is slowing as weaker business investment, an inventory overhang, a trade war between the United States and China, and softening global growth pressure manufacturing.

The Fed reported on Tuesday that manufacturing output rose 0.4% in June, boosted by increased production of motor vehicles and parts, after gaining 0.2% in May. Still, factory production dropped at an annual rate of 2.2% in the second quarter, the biggest drop in three years, after contracting at a 1.9% rate in the January-March period.

“Healthy consumption growth is especially important now amid the U.S. and global industrial slump that we expect to contribute to an outright decline in real business fixed investment in the second quarter and as manufacturers continue to work off the inventory overhang,” said Roiana Reid, an economist at Berenberg Capital Markets in New York.

The Atlanta Fed is forecasting GDP increased at a 1.4% annualized rate in the second quarter. The economy grew at a 3.1% pace in the January-March quarter. The government will publish its snapshot of second-quarter GDP next Friday. The economy is losing speed in part as last year’s stimulus from massive tax cuts and more government spending fades.

Auto sales increased 0.7% in June after a similar gain in May. Receipts at service stations fell 2.8%, reflecting cheaper gasoline. Sales at building material stores rebounded 0.5% after dropping 1.5% in May.

Receipts at clothing stores rose 0.5%. Online and mail-order retail sales climbed 1.7%, matching May’s increase. Receipts at furniture stores advanced 0.5%. Sales at restaurants and bars surged 0.9%. Spending at hobby, musical instrument and book stores was unchanged.

While core inflation perked up in June, gains are likely to remain moderate. A separate report on Tuesday from the Labor Department showed import prices dropped 0.9% last month, the biggest decrease in six months, after being unchanged in May.

Import prices, which exclude tariffs, were held down by a 6.2% drop in the cost of petroleum products. There were also decreases in the prices of imported food and capital goods.

The cost of goods imported from China slipped 0.1%, matching May’s drop. Prices of Chinese goods fell 1.5% in the 12 months through June, the largest decrease since February 2017.

(Reporting by Lucia Mutikani; Additional reporting by Pete Schroeder; Editing by Andrea Ricci)

Graphic: America’s economy and wages are cooling but not its female workforce

A female construction worker stands outside a construction site in Manhattan, New York, U.S., October 3, 2018. REUTERS/Shannon Stapleton

By Jason Lange

WASHINGTON (Reuters) – Data released on Friday showed a return to strong job growth in the United States, allaying some fears the U.S. economy is on a short path to recession. But the data also reinforced the view that economic growth is slowing.

Here are five take-aways from a report by the U.S. Labor Department on U.S. employment during June.

SLOWING GROWTH

Every month the Labor Department surveys payrolls in the private sector to calculate how many hours employees across the nation worked. Seen as a proxy for economic growth, this index of the national work effort grew 0.2% in June, a rate near the muted gains clocked in recent months. That suggests the U.S. economy, which grew at a 3.1% annual rate in the first quarter of this year, could be cooling.

COOLER WAGE GROWTH?

Growth in private sector average hourly earnings accelerated throughout 2018 and through February of this year, when year-over-year growth hit the strongest rate since 2009 at 3.4%. June’s growth rate, however, was a more modest 3.1%. It is probably too early to tell if there has been a break in the upward trend.

Average earnings graphic

WAGE LAGGARDS

The manufacturing sector added 17,000 jobs in June after several months of weak growth or outright decline. Wage growth in the factory sector, however, has underperformed the national average. Wage growth has also been lower in the education and health jobs category tracked by the Labor Department.

leaders_laggards: https://tmsnrt.rs/2FUH8hw

LABOR FORCE INCREASE

A bright spot for the U.S. economy over the last few years has been the increase in the share of the population that either has a job or is looking for one. This so-called labor force participation rate ticked slightly higher in June, both for a key demographic of people of prime working age and for the general population. But the rate for prime-age workers has been mostly falling since January. This suggests the economy might be running lower on its supply of people available to work, which could depress future job growth.

participation rate graphic

WOMEN LEAD

In June, the participation rate fell for men of prime working age, while it rose for women. This is in line with the trend over the last few years. Indeed, the share of men who have jobs or are looking for one was slightly lower in June than it was in January 2017.

Women lead graphic 

(Reporting by Jason Lange; Editing by Dan Grebler)

Palestinians say U.S. ‘deal of the century’ will finish off their state

FILE PHOTO: Palestinian President Mahmoud Abbas meets with White House senior advisor Jared Kushner in the West Bank City of Ramallah in the Israeli-occupied West Bank June 21, 2017. Thaer Ghanaim/PPO/Handout via REUTERS/File Photo

By Samia Nakhoul

BEIRUT (Reuters) – The U.S. blueprint to end the conflict between Israel and the Palestinians, still in draft form after almost two years, is seen by Palestinians, and by some Arab officials and politicians, as a plan to finish off the Palestinian cause.

The initiative, driven by Jared Kushner, Donald Trump’s son-in-law and White House adviser, was billed by the U.S. president as the “deal of the century”.

While its precise outlines have yet to be revealed, Palestinian and Arab sources who have been briefed on the draft plan say Kushner has jettisoned the two-state solution – the long-standing U.S. and international formula that envisages an independent Palestinian state alongside Israel in the West Bank, east Jerusalem and Gaza.

After several postponements, Washington plans a first formal outing of the economic components of the plan at a “Peace for Prosperity” workshop in June in Bahrain.

The plan faces possible delays due to political upheaval in Israel, where Prime Minister Benjamin Netanyahu must fight another election after failing to form a government.

Kushner and Trump, with backgrounds in real estate rather than diplomacy, seem to be approaching this hitherto insoluble conflict as a transaction, three Arab officials briefed on the plan said.

If the politics keep failing, the reasoning seems to be, then try dangling tens of billions of dollars before the Palestinians and Israel’s Arab neighbors and do a deal that could unlock prosperity for the Palestinians and security for Israel, these officials said.

Politically, the deal envisages an expansion of Gaza into part of northern Egypt, under Egyptian control, Palestinian officials briefed on the plan told Reuters. Palestinians would be left with a smaller share of the West Bank and some areas on the outskirts of Jerusalem and no control over their borders. Western and Arab sources confirmed the outline of the plan.

Jason Greenblatt, Trump’s Middle East envoy, said “rumors” about an expansion into Egypt’s Sinai desert were false. He declined to give details of the political plan before it is released.

On the decision not to use the term “two-state solution”, Grenblatt said: “We believe that using certain phrases and labels is not helpful because they lack detail and nuance – they mean different things to different people. The detailed plan, once released, will show what we think may be best solution for the two parties.”

NOT BUYING IT

The Palestinians are not buying it.

“What we’re seeing from the plan is that it will blow up the Palestinians,” one Arab official told Reuters. “The plan doesn’t give justice to the Palestinians.”

“The Palestinian cause is being liquidated – no Jerusalem (as capital), no right of return for refugees, no sovereign state. That is why this American project is dangerous,” one senior Palestinian leader told Reuters.

The deal as outlined so far has been dismissed by President Mahmoud Abbas’ western-backed Palestinian Authority in the Israeli-occupied West Bank.

Abbas has boycotted political dealings with the Trump administration for 18 months. This followed Trump’s decisions in 2017 to recognize Jerusalem as Israel’s capital and move the U.S. embassy there from Tel Aviv.

    Since then, the Trump administration has curtailed aid to the Palestinian Authority, shuttered the Palestine Liberation Organisation (PLO) delegation in Washington and cut off finance to UNRWA, the U.N. agency supporting Palestinian refugees. Washington meanwhile endorsed Israel’s sovereignty over the Golan Heights.

“In practice, they have already started implementing ‘the deal of the century’,” the senior Palestinian leader said, “on the ground, step by step”. “Today, the two-state solution has been scuttled”.  Abbas is not alone in his view of the U.S. deal.

It was rejected by the Islamist Hamas movement, which does not recognize Israel’s right to exist and has only given conditional consent to a state in the occupied Palestinian territories.

The PLO has dismissed the Kushner effort as an attempt to bribe Palestinians into accepting Israeli occupation of the West Bank, a prelude to Israel annexing about half their territory and leaving them with scattered cantons.

Hanan Ashrawi, a moderate Palestinian leader, tweeted that the Kushner plan and the Bahrain conference were just “a handout to make our captivity palatable”.

Palestinian businessmen have opposed the Bahrain gathering despite a plea by Washington to attend, saying their political demands must be addressed in any peace plan.

Qatar said economic prosperity cannot be achieved without political solutions acceptable to Palestinians. Oman said anything that precludes the establishment of a Palestinian state will not be acceptable.

“We are not proposing an economic peace,” Greenblatt said. “We know that is not acceptable to the Palestinians. We’ve been very clear that the full plan includes a political component as well. But the economic plan is an essential component to the full plan.”

MOVING ON

Robert Satloff, executive director of the Washington Institute for Near East Policy, an influential think-tank and supporter of Israel, wrote after interviewing Kushner this month that the deal is a political disaster that should be abandoned.

He said positive economic proposals could be lost by the attempt to skirt around Palestinian rights.

“The only way to protect the long-term viability of the plan’s best aspects is to kill it,” he said.

Satloff wrote that “unlike a real estate transaction in which one party gets the property and the other party gets the cash, a Middle East peace deal starts and ends with the two parties as neighbors, stuck with each other sharing a duplex for eternity”.

Kushner meanwhile visited the Middle East this week seeking support for the June 25-26 Bahrain conference.

The meeting is to talk about the cash. The U.S. plan expects almost all of this  “$50 billion to $70 billion” to be put up by Gulf Arab allies, Saudi Arabia and the United Arab Emirates, Palestinian sources said. Yet even that is now moot.

Saudi Arabia, under Crown Prince Mohammed bin Salman, and the UAE, under Abu Dhabi Crown Prince Mohammed bin Zayed, want to move on from a Palestinian conflict they believe has held back the Arab world.

That means uniting with Israel against Iran and concentrating on domestic challenges such as economic reforms and confronting Islamist radicals.

The Saudi crown prince maintains close ties with Kushner. But his father, King Salman, has twice said there will be no deal unless Israel meets Palestinian rights to a state.

“Kushner has been taken by surprise in his meetings in Riyadh recently, where there has definitely been a change in tone – in private and in public – by the Saudis,” said a senior western diplomat.

Asked for comment, the White House referred to its earlier official statement on Kushner’s February meeting with the crown prince and the king which said they discussed “increasing cooperation” and efforts to facilitate peace between Israelis and Palestinians.

NEW REALITY

The Palestinian official said it is clear that Israel “is creating a new reality on the ground” with the Trump administration’s help – not least by paving the way for the annexation of Jewish settlements in the West Bank.

The Palestinian and Arab officials briefed on the Kushner- Trump plan said its political contours, as explained to them, look like non-starters unless there is a peace deal.

The essential part is Gaza: where 2 million Palestinians are shut into a strip between Israel and Egypt. The idea is to expand it into the north of Egypt’s Sinai peninsula, creating an area where Palestinians can live and work under Egyptian control.

“The plan envisions Gaza stretching from Rafah (its southern border) to El Arish and some parts of Sinai. This area will be a Palestinian expansion in which Palestinians can reside,” the Palestinian leader said.

Big projects, such as an airport, a seaport, an industrial zone and power stations are envisaged, Palestinian sources briefed on the plan said.

On the West Bank, the plan is for Israel to annex and join up the settlements, take the Jordan valley and make it the Israeli border with Jordan, and leave the Palestinians a bit less than half as “an autonomous mini-state under some form of self-government”, the senior Palestinian leader said.

As for Jerusalem, Palestinians would get neighborhoods on the outskirts such as Abu Dis and Beit Hanina and Silwan: “not the real Jerusalem (but) they will tell them this is your Jerusalem”, the Palestinian leader added.

Western diplomats and intelligence sources worry about how the plan might affect Egypt and Jordan. However much money is offered, these sources question whether Egyptians would happily relinquish territory.And Jordan fears a Trump-backed Israel is returning to an old theme: Jordan is Palestine and that is where the Palestinians of the West Bank should go, they say.

 

(Additional reporting by Ghaida Ghantous, Eric Knecht, Suleiman Al-Khalidi and Matt Spetalnick; Editing by Giles Elgood)