Boeing cuts jet demand forecast on pandemic crisis

By Eric M. Johnson and Tim Hepher

SEATTLE/PARIS (Reuters) – Boeing cut its rolling 20-year forecast for airplane demand on Tuesday, sending its shares lower as the COVID-19 pandemic lays waste to deliveries over the next few years.

The U.S. plane maker, which dominates jet sales together with Europe’s Airbus, forecast 43,110 commercial aircraft deliveries over the next 20 years, down 2% from 44,040 projected a year ago and worth an unchanged $6.8 trillion at list prices.

While fleets are still expected to almost double, it is the first time since the 2009 financial crisis that Boeing has cut the 20-year demand forecast in terms of the number of deliveries.

Boeing, also for the first time, lifted the lid on the first half of the 20-year period, showing steep declines for the coming decade on the heels of the COVID-19 crisis. It predicted 18,350 deliveries for 2020-2029, down 10.7% from an unpublished forecast of 20,550 embedded in the last report.

“The industry clearly has been dramatically impacted … by the pandemic,” Commercial Marketing Vice-President Darren Hulst said.

Boeing shares fell as much as 3.3% after the report.

A key forecast for passenger traffic growth – once a reliable 5% a year – has been edging lower since 2015 as a record aviation boom peaked. But it took a sharp knock lower in the latest report, falling to 4% from 4.6% a year ago.

Boeing, America’s largest exporter, lowered its assumption for average global economic growth over 20 years to 2.5% from 2.7% after the pandemic plunged key markets into recession.

Even so, Boeing expressed confidence that demand would return towards previous trends in the 2030’s, just as it did after earlier economic shocks. Environmentalist critics say the crisis is an opportunity for the industry to get smaller.

WEAK DEMAND FOR BIG JETS

“It will take longer from this crisis but … the industry will prove resilient again; the fundamentals aren’t changing,” Hulst said.

Demand will be buoyed in part by a rise in the number of replacements as airlines accelerate the retirement of older jets to save running costs and meet environmental goals.

Thousands of jets have been parked during the crisis, especially long-haul twin-aisle models, owing to the widespread border restrictions choking international air travel.

Boeing cut its 20-year forecast for twin-aisle models such as its 787 Dreamliner and the Airbus A350 by more than 10%. At 7,480 jets, down from 8,340 a year ago, that part of the 20-year forecast is now lower than 8,000 for the first time since 2010.

Twin-aisle demand will be especially slow in the next 10 years with deliveries of only 3,060 aircraft, Boeing said.

The 20-year forecast for smaller single-aisle jets, such as the grounded 737 MAX, dipped 0.5% from the last survey. Previously Boeing had been revising it up by about 3.5-4% year in, year out.

Boeing now sees 32,270 deliveries in the medium-haul single-aisle category, traditionally the cash cow of large plane makers. That includes 13,570 deliveries between now and 2029.

Although medium-haul travel is showing signs of revival, particularly in the booming China market, airlines there continue to sit on the sidelines amid U.S. trade tensions.

While global passenger demand has been mauled by COVID-19, demand for freighters has gone up as shippers seek alternatives to the cargo space being left empty in unused passenger jets.

Despite that near-term bump, Boeing cut its 20-year forecast for freighters by 10.6% to 930 jets on weaker trade and a move by carriers to group shipments into bigger jets to reduce costs.

(Reporting by Eric M. Johnson in Seattle; Editing by Mark Potter and David Goodman)

Kudlow sees single-digit unemployment in August, ‘V’ recovery

(Reuters) – White House economic adviser Larry Kudlow on Thursday said he expects the U.S. unemployment rate to return to single-digit levels as early as this month and growth in the third quarter should be 20% or more as the economy recovers from the recession triggered by the coronavirus pandemic.

“The key point that I would make is the economy is rebounding, it looks like a V-shaped recovery and the recent news now is even better than it was a month ago,” Kudlow said in a virtual appearance at a conference hosted by the Council of the Americas.

(Reporting By Jonnelle Marte and Dan Burns; Editing by Chizu Nomiyama)

Trump urges U.S. to halt most social activity in virus fight, warns of recession

By Jeff Mason and Steve Holland

WASHINGTON (Reuters) – President Donald Trump urged Americans on Monday to halt most social activities for 15 days and not congregate in groups larger than 10 people in a newly aggressive effort to reduce the spread of the coronavirus in the United States.

Announcing new guidelines from his coronavirus task force, the president said people should avoid discretionary travel and not go to bars, restaurants, food courts or gyms.

As stocks tumbled, Trump warned that a recession was possible, a development that could affect his chances of re-election in November. The Republican president said he was focused on addressing the health crisis and that the economy would get better once that was in line.

The task force implored young people to follow the new guidelines even though they were at lesser risk of suffering if they contract the virus. Older people, especially those with underlying health problems, are at the greatest risk if they develop the respiratory disease.

“We’ve made the decision to further toughen the guidelines and blunt the infection now,” Trump told reporters at the White House. “We’d much rather be ahead of the curve than behind it.”

Reporters staggered their seating, sitting in every other seat in the White House briefing room, to follow social distancing measures.

Trump said the worst of the virus could be over by July, August or later. He called it an invisible enemy.

“With several weeks of focused action, we can turn the corner and turn it quickly,” he said.

The president has taken criticism for playing down the seriousness of the virus in the early days of its U.S. spread. On Monday, when asked, he gave himself a good grade for his response.

Trump said a nationwide curfew was not under consideration at this point.

Normally a cheerleader for the U.S. economy, he acknowledged the possibility of a recession while brushing off another dramatic decline on stock markets as investors worried about the virus.

“The market will take care of itself,” Trump said, adding it would be very strong once the virus was handled. The president has long considered soaring stock markets to be a sign of his administration’s success.

Trump said the administration had talked regularly about domestic travel restrictions but hoped not to have to put such measures in place.

He said he thought it would still be possible for G7 leaders to meet at the Camp David retreat in Maryland in June. Trump upset European countries, which make up a large part of the G7, by instituting travel restrictions from European countries without consulting with them first.

(Reporting by Jeff Mason and Steve Holland; Additional reporting by Timothy Ahmann, Lisa Lambert and Makini Brice; Editing by Peter Cooney)

Fed says risks to economy easing, but calls out coronavirus in report to Congress

By Howard Schneider and Lindsay Dunsmuir

WASHINGTON (Reuters) – A “moderately” expanding U.S. economy was slowed last year by a manufacturing slump and weak global growth, but key risks have receded and the likelihood of recession has declined, the U.S. Federal Reserve reported in its latest monetary policy report to the U.S. Congress.

“Downside risks to the U.S. outlook seem to have receded in the latter part of the year, as the conflicts over trade policy diminished somewhat, economic growth abroad showed signs of stabilizing, and financial conditions eased,” the Fed said, noting that the U.S. job market and consumer spending remained strong.

“The likelihood of a recession occurring over the next year has fallen noticeably in recent months.”

Among the risks the Fed did note: the fallout from the spreading outbreak of coronavirus in China, “elevated” asset values, and near-record levels of low-grade corporate debt that the Fed fears could become a problem in an economic downturn.

Overall, however, the Fed saw risks to a more than decade long U.S. recovery easing following its three interest rate cuts in 2019, and evidence that “the global slowdown in manufacturing and trade appears to be at an end, and consumer spending and services activity around the world continue to hold up.”

It cautioned that “the recent emergence of the coronavirus, however, could lead to disruptions in China that spill over to the rest of the global economy.”

By law the Fed twice a year prepares a formal report for the U.S. Congress on the state of the economy and monetary policy.

Much of its amounts to a review of recent events. The new document repeats the Fed’s assessment that the current level of the federal funds rate, in a range of between 1.5% and 1.75% was “appropriate” to keep the recovery track.

It also reviewed the spike in the federal funds rate last fall and the steps the Fed has taken to relieve funding pressures, repeating it considers the measures technical and not a change in monetary policy.

Fed Chair Jerome Powell will present the report at two public hearings next week, and some Democratic U.S. senators have already posed in writing a series of questions challenging the Fed’s actions in those short-term funding markets.

The document did include a separate section analyzing how a slump in manufacturing last year impacted economic growth overall, after concern a downturn in that sector might pull the United States into a recession.

The Fed concluded that the slowdown in factory output, which also meant less business for parts and services suppliers, cut overall growth in gross domestic product between 0.2 and 0.5 percentage points.

That falls “well short” of the threshold associated with past recessions, the Fed said.

(Reporting by Howard Schneider and Lindsay Dunsmuir; Editing by Andrea Ricci)

Global protests gaining attention in financial markets

Global protests gaining attention in financial markets
By Marc Jones and Mike Dolan

LONDON (Reuters) – An alarming spread of street protests and civil unrest across the world in recent weeks looms large on the radar of financial markets, with investors wary the resulting pressures on stretched government finances will be one of many consequences.

Money managers and risk analysts seeking a common thread between often unconnected sources of popular anger – in Hong Kong, Beirut, Cairo, Santiago and beyond – reckon the unrest is particularly worrying following years of modest global economic growth and relatively low joblessness.

If, as many fear, the world is slipping back into its first recession in more than a decade, then the root causes of restive streets will only deepen and force embattled governments to loosen purse strings further to fund better employment, education, healthcare and other services to placate them.

Forced fiscal loosening in a world already swamped with debt and heading into another downturn may unnerve creditors and bond holders, especially those holding government debt as an insurance against recession and a haven from volatility.

“Protests per se are unpredictable for investors by definition and fit a pattern of rising political risks that have affected market perceptions in almost all geographies,” said Standard Chartered Bank strategist Philippe Dauba-Pantanacce.

“Investors will get more nervous when they see that a country’s IMF package or investment promises are conditioned on fiscal consolidation and that the first austerity measures are followed by massive protests.”

More broadly popular pushback against debt reduction and austerity raises serious questions about how still-mushrooming debt loads can be sustained, even after the massive central bank intervention to underwrite it in recent years.

Many also fear the feedback loop.

According to the International Monetary Fund this month, a global downturn half as severe as the one spurred by the last financial crisis in 2007-9 would result in $19 trillion of corporate debt being considered “at risk” – defined as debt from firms whose earnings would not cover the cost of their interest payments let alone pay off the original debt.

Rising bankruptcies at so-called “zombie” firms would, in turn, risk spurring rising job losses and yet more unrest.

Marc Ostwald, global strategist at ADM Investor Services, said he saw many of the protests as ‘straws that break the camel’s back’ – tipping points in a broad swathe of long-standing complaints about inequality, corruption and oppression, variations on the broader themes of populism and anti-globalization.

But Ostwald said there was a worry for financial markets who have surfed rising debt piles for years thanks to central bank money printing and bond buying.

“At some point the smothering impact of QE (quantitative easing) will run its course,” Ostwald said.

“And as many of the zombie companies then go to the wall, so governments will face rising unemployment and desperately need to borrow money to prop up their economies – particularly as social unrest rises, as we are witnessing.”

Of the dozens of protest movements that have emerged in recent years, here are some of the most prominent ones.

HONG KONG

Hong Kong has been battered by five months of often violent protests after the city state tried to bring in legislation that would have allowed extraditions to mainland China. The plan has been formally withdrawn but it is unlikely to end the unrest as it meets only one of five demands pro-democracy protesters have.

On Tuesday, authorities announced HK$2 billion ($255 million) relief measures for the city’s economy, particularly in its transport, tourism and retail industries. It followed a more sizeable HK$19.1 billion ($2.4 billion) package in August to support the underprivileged and businesses. Hong Kong’s Financial Secretary has also said more assistance will be given if needed.

The Hang Seng, one of Asia’s most prominent share markets, is down 12% since the protests started and although it has been recovered some ground over the last two months, it has continued to lag other major markets.

LEBANON

Hundreds of thousands of people have been flooding the streets for nearly two weeks, furious at a political class they accuse of pushing the economy to the point of collapse.

Prime Minister Saad al-Hariri announced on Monday a symbolic halving of the salaries of ministers and lawmakers, as well as steps toward implementing long-delayed measures vital to fixing the finances of the heavily indebted state.

Markets are increasingly worried it will all end in default. The government’s bonds are now selling at a 40% discount and Credit Default Swaps, which investor use as insurance against those risks, have soared.

IRAQ

Similar factors were behind deadly civil unrest in Iraq which flared in early October. More than 100 people died in violent protests across a country where many Iraqis, especially young people, felt they had seen few economic benefits since Islamic State militants were defeated in 2017.

The government responded with a 17-point plan to increase subsidized housing for the poor, stipends for the unemployed and training programs and small loans initiatives for unemployed youth.

 

EXTINCTION REBELLION

This London-bred movement is pushing for political, economic and social changes to avert the worst devastation of climate change. XR protesters began blockading streets and occupying prominent public spaces late last year, and following 11 days of back-to-back protests in April the UK government symbolically declared a climate “emergency”.

The movement is developing alongside the growing FridaysForFuture led by Swedish teenager Greta Thunberg which sees school children boycott lessons on Fridays.

It has been particularly strong in Germany and the government there recently launched the ‘Gruene Null’ or ‘Green Zero’ policy which specifies that any spending that pushes the government’s budget into deficit must be on climate-focused investments.

Incoming European Commission chief, Ursula von der Leyen, has also introduced an ambitious “European Green Deal” which would include the support of 1 trillion euros ($1.11 trillion) in sustainable investments across the bloc.

Amazon <AMZN.O> Chief Executive Officer Jeff Bezos last month pledged to make the largest U.S. e-commerce company net carbon neutral by 2040.

CHILE

At least 15 people have died in Chile’s protests which started over a hike in public transport costs but have grown to reflect simmering anger over intense economic inequality as well as costly health, education and pension systems seen by many as inadequate.

Chile’s President Sebastian Pinera announced an ambitious raft of measures on Tuesday aimed at quelling the unrest, including with a guaranteed minimum wage, a hike in the state pension offering and the stabilization of electricity costs.

ECUADOR

Violent protests at the start of October forced Ecuadorean President Lenin Moreno to scrap his own law to cut expensive fuel subsidies that have been in place for four decades.

The government had estimated the cuts would have freed up nearly $1.5 billion per year in the government budget, helping to shrink the fiscal deficit as part of a $4.2 billion IMF loan deal Moreno had signed.

BOLIVIA

Mass protests and marches broke out in Bolivia this week after the opposition said counting in the country’s presidential election at the weekend was rigged in favor of current leader Evo Morales.

The unrest – already the severest test of Morales’ rule since he came to power in 2006 – could spread if his declaration of outright victory is confirmed, after monitors, foreign governments and the opposition called for a second-round vote.

EGYPT

Protests against President Abdel Fattah al-Sisi broke out in Cairo and other cities in September following online calls for demonstrations against alleged government corruption, as well as recent austerity-focused measures.

Protests are rare under the former army chief and about 3,400 people have been arrested since the protests began, including about 300 who have since been released, according to the Egyptian Commission for Rights and Freedoms, an independent body.

The country’s main stock market <.EGX30> dropped 10% over three days as the protests kicked off although it has since recovered over half of that ground.

FRANCE

The Gilets Jaunes movement named after the fluorescent yellow safety vests that all French motorists must carry began a year ago to oppose fuel tax increases, but quickly morphed into a broader backlash against President Emmanuel Macron’s government, rising economic inequality and climate change.

Macron swiftly reversed the tax hikes and announced a swathe of other measures worth more than 10 billion euros ($11.3 billion) to boost the purchasing power of lower-income voters. That was followed up with another 5 billion euro package of tax cuts in April.

ARAB SPRING

Beginning in late 2010, anti-government protests roiled Tunisia. By early 2011 they had spread into what became known as the Arab Spring wave of protests and uprisings which ended up toppling not only Tunisia’s leader but Egypt, Libya, and Yemen’s too. The Arab Spring uprisings in Syria developed into a civil war that continues to be waged today.

ETHIOPIA

A total of 16 people have been killed in at least four cities since fierce clashes broke out on Wednesday against the reformist policies of Nobel Prize-winning Prime Minister Abiy Ahmed.

The greater freedoms that those policies bring have unleashed long-repressed tensions between Ethiopia’s many ethnic groups as local politicians claim more resources, power and land for their own regions. Ethiopia is due to hold elections next year.

(Reporting by Marc Jones and Mike Dolan, additional reporting by Karin Strohecker in London and Mitra Taj in La Paz; Editing by Sonya Hepinstall)

In farm-rich Argentina, hunger cries ring in leaders’ ears amid crisis

In farm-rich Argentina, hunger cries ring in leaders’ ears amid crisis
By Nicolás Misculin and Miguel Lobianco

CLAYPOLE, Argentina (Reuters) – In the hard-up neighborhood of Claypole on the outskirts of Argentine capital Buenos Aires, Elena Escobar makes her way to the local Caritas Felices soup kitchen to serve food to street children who scrape by from meal to meal.

Escobar, 53, says the volunteer-run kitchen has seen a surge of kids and families seeking help over the last few months, amid a biting recession and fast-rising prices that have pushed millions of people into poverty.

“There are many children in need, many malnourished, with kids that get to dinner time and don’t have any food,” said Escobar. The kitchen receives over 100 children each week, up from around 20-30 when it opened its doors in April.

The rise in hunger and poverty creates a complex backdrop for the leaders of Latin America’s no. 3 economy, who are in knife-edge talks with creditors to avoid default on billions of dollars of debt amid economic and political upheaval.

Ahead of a presidential election on Oct. 27, officials will head to Washington this month to meet with the International Monetary Fund (IMF), a major backer that struck a $57 billion funding deal with the country last year.

Those talks are likely to weigh on the current administration of President Mauricio Macri and the next one, likely led by left-leaning Peronist Alberto Fernandez, the front-runner to win the vote.

The Claypole kitchen is far from alone in witnessing rising hardship, with government data showing poverty rates jumped to 35% in the first half of 2019 amid recession and steep inflation, from 27.3% a year earlier.

‘A SCOURGE’

Around 13% of children and adolescents went hungry in 2018, according to data from the Pontificia Universidad Católica Argentina, and rising food prices have become a regular target of popular anger in street protests around the country.

Political leaders know something must be done, but face a complex juggling act: bolstering growth and spending to ease issues such as hunger, while cutting debt and averting a damaging default that would shut off access to global markets.

“We can’t live in peace with such a scourge,” left-leaning Fernandez said in a speech on Monday in reference to hunger, which he described as Argentina’s “greatest shame.”

Fernandez, who has been buoyed by support for populist running mate Cristina Fernandez de Kirchner, blames Macri and austerity measures agreed with the International Monetary Fund for the rise in poverty and hunger.

Macri’s running mate, Miguel Pichetto, meanwhile, said on Monday the way to eradicate hunger was to generate employment and attract “big global companies” to Argentina.

Both sides have said they would honor the country’s debts with creditors, including the IMF, though neither has laid out a clear plan for how to do so while boosting spending at home.

Most investors expect some sort of losses.

Indeed, Moody’s Investors Service anticipates holders of Argentina dollar bonds will need to write off  10% to 20% of their investments, while Fitch Ratings believes the government will write down local and dollar debt.

‘JUST NO WORK’

Hunger and poverty are not new in Argentina, but have risen abruptly over the past two years amid a series of economic shocks that have rattled the grain-exporting nation, famed for its rich arable land and cattle.

The issues have become a lightning rod for anti-government protests and marches, with the hardships of the poor brought into sharp focus as the government has been locked in talks with creditors about repayments on around $100 billion in debts.

Driving the problem is stubborn inflation, a tumbling peso and a slump in domestic production and consumption, which have hurt spending power, incomes and jobs.

“There is just no work,” said 46-year-old Isabel Britez, a volunteer at the Los Piletones dining room in Buenos Aires, who said that was the main message she heard from people eating at the kitchen, which serves around 2,000 meals a day.

Macri, looking to revive his election hopes, has rolled out plans to bolster jobs, including tax cuts for employers. He also announced a freeze on some food prices earlier this year.

Sergio Chouza, an economist at the University of Avellaneda in Buenos Aires, said food prices have rocketed nearly 60% over the past year, with basics such as dairy up as much as 90%.

“That results in a deterioration of diets and pushes many people below the poverty line,” he said.

MORE NOODLES, LESS MEAT

Poverty is a key reason for Macri’s fall from grace. His economic austerity, part of the $57 billion funding deal agreed with the IMF last year, reined in deficits but hit growth and voters’ wallets.

Macri was defeated heavily in a primary election in August. Since then, he has announced lower taxes for the middle class and higher subsidies for the poor along with food aid. The Senate approved an emergency food law last month.

“Perhaps we underestimated the impact of the economic situation on the elections. (The poverty issue) affected the vote for Mauricio,” Eduardo Amadeo, a Macri ally and member of Argentina’s house of deputies, told Reuters.

“The reforms we launched have stabilized the economy and we have tried to reduce the impact from the devaluation in August on people’s wallets,” Amadeo said.

A spokesman for the Ministry of Health and Social Development listed official measures to deal with the crisis, but declined to comment further on poverty rates.

In the meantime, even as soup kitchens flourish, some volunteers say meals are getting more meager amid tight funding conditions and as food donations dry up.

“Previously, people donated some meat and chicken; now we only get noodles and rice,” said Lorena Nievas, who works at the Abrazando Hogares soup kitchen in the southern Patagonian city of Puerto Madryn.

For many residents, however, there is no choice.

“I have people from the street who come in for their lunch and snacks here. It’s all the food they get,” she said.

(Reporting by Nicolas Misculin and Miguel Lobianco; Editing by Adam Jourdan and Bernadette Baum)

Hong Kong children form chains of protest as economic worries grow

Secondary school students hold placards as they join a human chain protesting against what they say is police brutality against protesters, after clashes at Wan Chai district in Hong Kong, China September 9, 2019. REUTERS/Amr Abdallah Dalsh

By Jessie Pang

HONG KONG (Reuters) – Hundreds of uniformed school students, many wearing masks, formed human chains in districts across Hong Kong on Monday in support of anti-government protesters after another weekend of clashes in the Chinese-ruled city.

Metro stations reopened after some were closed on Sunday amid sometimes violent confrontations, although the mood in the Asian financial hub remained tense.

Early on Monday, before school started, rows of students and alumni joined hands chanting “Hong Kong people, add oil”, a phrase that has become a rallying cry for the protest movement.

“The school-based human chain is the strongest showcase of how this protest is deep-rooted in society, so deep-rooted that it enters through the school students,” said Alan Leong, an alumnus of Wah Yan College in the city’s Kowloon district.

Three months of protests over a now withdrawn extradition bill have evolved into a broader backlash against the government and greater calls for democracy.

Police said they had arrested 157 people over the previous three days, including 125 males and 32 females aged 14 to 63, bringing the total number of arrests to more than 1,300.

The former British colony is facing its first recession in a decade as the protests scare off tourists and bite into retail sales in one of the world’s most popular shopping destinations.

Tourist arrivals plunged 40% in August year on year, said Paul Chan, the city’s finance secretary, with sustained clashes blocking roads and paralyzing parts of the city. Disruptions at the city’s international had also hit the tourism industry.

“The most worrying thing is that the road ahead is not easily going to turn any better,” Chan said in his blog on Sunday, noting that some hotels had seen room rates plunge up to 70%.

Activists started fires in the street and vandalized a Mass Transit Railway (MTR) station in the main business district of Central on Sunday after thousands rallied peacefully at the U.S. consulate, calling for help in bringing democracy to the special administrative region.

The students, brandishing posters with the protesters’ five demands for the government, called on authorities to respond to the promises of freedom, human rights and rule of law, promised when Britain returned Hong Kong to Chinese rule in 1997. One of the five demands – to formally withdraw the extradition bill – was announced last week by embattled leader Carrie Lam, but protesters are angry about her failure to call an independent inquiry into accusations of police brutality against demonstrators.

U.N. human rights chief Michelle Bachelet urged people to protest peacefully and called on authorities to respond to any acts of violence with restraint.

The protesters’ other demands include the retraction of the word “riot” to describe demonstrations, the release of all those arrested and the right for Hong Kong people to choose their own leaders.

A journalist wearing a hard hat and protective goggles at a police briefing condemned the use by police of pepper spray against media over the weekend.

‘CRUSHED’

In a rare public appearance, Lam walked around the central business district with the city’s Transport and Housing Secretary Frank Chan and MTR officials to inspect the damaged station, where she chatted with staff and commuters.

Dressed in a black suit, she examined electronic ticketing machines and boarded up windows smashed the previous day, according to footage by public broadcaster RTHK.

Following the demonstration at the U.S. consulate on Sunday, Hong Kong’s government warned foreign lawmakers not to interfere in the city’s internal affairs after thousands of protesters called on U.S. President Donald Trump to “liberate” the city.

Hong Kong returned to China in 1997 under a “one country, two systems” formula that guarantees freedoms not enjoyed on the mainland. Many Hong Kong residents fear Beijing is eroding that autonomy.

China denies the accusation of meddling in the city and says Hong Kong is an internal affair. It has denounced the protests, accusing the United States and Britain of fomenting unrest, and warned of the damage to the economy.

Chinese state media on Monday said Hong Kong was an inseparable part of China and any form of secessionism “will be crushed”.

The China Daily newspaper said Sunday’s rally was proof foreign forces were behind the protests and warned demonstrators should “stop trying the patience of the central government”.

Pro-democracy activist Joshua Wong was released from police custody after breaching bail conditions following his arrest in August when he was charged along with a number of other prominent activists for inciting and participating in an unauthorized assembly.

A senior U.S. official, speaking on condition of anonymity, said the United States was monitoring events.

“The freedoms of expression and assembly are core values that we share with the people of Hong Kong, and those freedoms must be vigorously protected. As the president has said, ‘They’re looking for democracy and I think most people want democracy’,” the official said.

(Reporting by Jessie Pang, Anne Marie Roantree, Donny Kwok and Twinnie Siu; Additional reporting by Joseph Campbell in Hong Kong, Roberta Rampton in Washington and Stephanie Nebehay in Geneva; Writing by Farah Master; Editing by Lincoln Feast, Robert Birsel)

U.S. consumer spending strong; manufacturing struggling

FILE PHOTO: People tour The Shops during the grand opening of The Hudson Yards development, a residential, commercial, and retail space on Manhattan's West side in New York City, New York, U.S., March 15, 2019. REUTERS/Brendan McDermid

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. retail sales surged in July as consumers bought a range of goods even as they cut back on motor vehicle purchases, which could help to assuage financial market fears that the economy was heading into recession.

The upbeat report from the Commerce Department on Thursday, however, will likely not change expectations that the Federal Reserve will cut interest rates again next month as news from the manufacturing sector remains dour, underscoring the darkening outlook for the economy against the backdrop of trade tensions and slowing growth overseas.

A key part of the U.S. Treasury yield curve inverted on Wednesday for the first time since June 2007, triggering a stock market sell-off. An inverted Treasury yield curve is historically a reliable predictor of looming recessions.

Financial markets have fully priced in a 25-basis-point rate cut at the U.S. central bank’s Sept. 17-18 policy meeting. The Fed lowered its short-term interest rate by a quarter of a percentage point last month, citing the acrimonious U.S.-China trade war and slowing global economies.

But the data could push markets to dial back expectations of a 50-basis-point rate cut next month.

“So yes, consumers are lifting economic growth and easing pressure on the Federal Reserve to cut more aggressively, but the trade war itself, and the rhetoric that accompanies it will push for more rate cuts,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto.

Retail sales increased 0.7% last month after gaining 0.3% in June, the government said. Economists polled by Reuters had forecast retail sales would rise 0.3% in July. Compared to July last year, retail sales increased 3.4%.

Excluding automobiles, gasoline, building materials and food services, retail sales jumped 1.0% last month after advancing by an unrevised 0.7% in June. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

U.S. stock index futures extended gains after the release of the data. U.S. Treasury yields rose while the dollar <.DXY> was slightly weaker against a basket of currencies.

STRONG LABOR MARKET

July’s gain in core retail sales suggested strong consumer spending early in the third quarter, though the pace will likely slow from the April-June quarter’s robust 4.3% annualized rate. Consumer spending, which accounts for more than two-thirds of the economy, is being underpinned by the lowest unemployment rate in nearly half a century.

While a separate report from the Labor Department on Thursday showed an increase in the number of Americans filing applications for unemployment benefits last week, the trend in claims continued to point to a strong labor market.

Solid consumer spending is blunting some of the hit on the economy from the downturn in manufacturing, which is underscored by weak business investment. There are, however, red flags for the labor market coming from manufacturing.

The sector’s struggles were highlighted by a third report from the Fed on Thursday showing factory production dropped 0.4% in July. Output at factories has declined more than 1.5% since December 2018. Manufacturing, which makes up about 12% of the economy, is also being weighed down by an inventory overhang, especially in the automotive sector.

Manufacturing productivity tumbled at its fastest pace in nearly two years in the second quarter, with factories cutting hours for workers, another report from the Labor Department showed.

Manufacturing’s troubles appear to have persisted into the third quarter. Though a report from the Philadelphia Fed on Thursday showed factory activity in the mid-Atlantic region slowed less than expected in August amid an increase in new orders, manufacturers reported hiring fewer workers.

A measure of factory employment dropped to its lowest level since November 2016. The weakness in factory employment in the region that covers eastern Pennsylvania, southern New Jersey and Delaware was mirrored by another survey from the New York Fed. Activity in New York state was little changed this month, with employment measures deteriorating further.

“The health of factories is still an important driver of growth and the soft patch for production remains a factor that is keeping economic growth in the slow lane,” said Chris Rupkey, chief economist at MUFG in New York.

The economy grew at a 2.1% rate in the second quarter, decelerating from the first quarter’s 3.1% pace. Growth estimates for the third quarter are below a 2.0% rate.

In July, auto sales fell 0.6% after rising 0.3% in June. Receipts at service stations rebounded 1.8%, reflecting higher gasoline prices. Sales at building material stores gained 0.2%.

Receipts at clothing stores increased 0.8%. Online and mail-order retail sales jumped 2.8%, the most in six months, after rising 1.9% in June. They were likely boosted by Amazon.com Inc’s <AMZN.O> Prime Day.

Receipts at furniture stores rose 0.3%. Sales at restaurants and bars accelerated 1.1%. But spending at hobby, musical instrument and book stores dropped 1.1% last month.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

Predicting the next U.S. recession, investors apprehensive

FILE PHOTO: Ships and shipping containers are pictured at the port of Long Beach in Long Beach, California, U.S., January 30, 2019. REUTERS/Mike Blake

By Saqib Iqbal Ahmed

NEW YORK (Reuters) – A protracted trade war between China and the United States, the world’s largest economies, and a deteriorating global growth outlook has left investors apprehensive about the end to the longest expansion in American history.

The recent rise in U.S.-China trade war tensions has brought forward the next U.S. recession, according to a majority of economists polled by Reuters who now expect the Federal Reserve to cut rates again in September and once more next year.

Trade tensions have pulled corporate confidence and global growth to multi-year lows and U.S. President Donald Trump’s announcement of more tariffs have raised downside risks significantly, Morgan Stanley analysts said in a recent note.

Morgan Stanley forecast that if the U.S. lifts tariffs on all imports from China to 25 percent for 4-6 months and China takes countermeasures, the U.S. would be in recession in three quarters.

Goldman Sachs Group Inc <GS.N> said on Sunday that fears of the U.S.-China trade war leading to a recession are increasing and that Goldman no longer expects a trade deal between the world’s two largest economies before the 2020 U.S. presidential election.

Global markets remain on edge with trade-related headlines spurring big moves in either direction. On Tuesday, U.S. stocks jumped sharply higher and safe-havens like the Japanese yen and Gold retreated after the U.S. Trade Representative said additional tariffs on some Chinese goods, including cell phones and laptops, will be delayed to Dec. 15.

Besides watching developments on the trade front economists and investors are watching for signs they hope can alert them to a coming recession.

1. THE YIELD CURVE

The U.S. yield curve plots Treasury securities with maturities ranging from 4 weeks to 30 years. When the spread between the yield on the 3-month Treasury bill and that of the 10-year Treasury note slips below zero, as it did earlier this year, it points to investors accepting a lower yield for locking money up for a longer period of time.

As recession signals go, this so-called inversion in the yield curve has a solid track record as a predictor of recessions. But it can take as long as two years for a recession to follow a yield curve inversion.

The closely-followed yield spread between U.S. 2-year and 10-year notes has also narrowed – marking the smallest difference since at 2007 – according to Refinitiv data.

GRAPHIC – Yield curve as a predictor of recessions🙂

2. UNEMPLOYMENT

The unemployment rate and initial jobless claims ticked higher just ahead or in the early days of the last two recessions before rising sharply. Currently the U.S. unemployment rate is near a 50-year low.

“Although job gains have slowed this year, they continue to signal an above-trend economy,” economists at BofA Merrill Lynch Global Research said in a recent note.

Claims will be watched over the coming weeks for signs that deteriorating trade relations between the United States and China, which have dimmed the economy’s outlook and roiled financial markets, were spilling over to the labor market.

(GRAPHIC – Unemployment rate: )

3. GDP OUTPUT GAP

The output gap is the difference between actual and potential economic output and is used to gauge the health of the economy.

A positive output gap, like the one now, indicates that the economy is operating above its potential. Typically the economy operates furthest below its potential at the end of recessions and peaks above its potential towards the end of expansions.

However, the output gap can linger in positive territory for years before a recession hits.

(GRAPHIC – The GDP output gap peaks before recessions🙂

4. CONSUMER CONFIDENCE

Consumer demand is a critical driver of the U.S. economy and historically consumer confidence wanes during downturns. Currently consumer confidence is near cyclical highs.

(GRAPHIC – Consumer confidence is at cyclical highs: )

5. STOCK MARKETS

Falling equity markets can signal a recession is looming or has already started to take hold. Markets turned down before the 2001 recession and tumbled at the start of the 2008 recession.

The recent pullback in U.S. stocks has done its share to raise concerns about whether the economy is heading into a recession. On a 12-month rolling basis, the market has turned down ahead of the last two recessions. The 12-month rolling average percent move is now below the recent highs of January 2018 but still above higher than the lows hit in December.

(GRAPHIC – The S&P 500 has fallen during recessions🙂

6. BOOM-BUST BAROMETER

The Boom-Bust Barometer devised by Ed Yardeni at Yardeni Research measures spot prices of industrials inputs like copper, steel and lead scrap, and divides that by initial unemployment claims. The measure fell before or during the last two recessions and has retreated from a peak hit in April.

(GRAPHIC – The Boom-Bust Barometer🙂

7. HOUSING MARKET

Housing starts and building permits have fallen ahead of some recent recessions. U.S. homebuilding fell for a second straight month in June and permits dropped to a two-year low, suggesting the housing market continued to struggle despite lower mortgage rates.

(GRAPHIC – Housing starts have fallen before prior recessions: )

8. MANUFACTURING

Given the manufacturing sector’s diminished role in the U.S. economy, the clout of the Institute for Supply Management’s (ISM) manufacturing index as a predictor of U.S. GDP growth has slipped in recent years. However, it is still worth watching, especially if it shows a tendency to drop well below the 50 level for an extended period of time.

ISM said its index of national factory activity slipped to 51.2 last month, the lowest reading since August 2016, as U.S. manufacturing activity slowed to a near three-year low in July and hiring at factories shifted into lower gear, suggesting a further loss of momentum in economic growth early in the third quarter.

“The slowdown in manufacturing activity likely reflects, in part, the tariffs that went into effect over the course of last year,” economists at BofA Merrill Lynch Global Research said in a note on Friday.

(GRAPHIC – ISM Manufacturing Index: )

9. EARNINGS

S&P 500 earnings growth dipped ahead of the last recession. Earnings estimates for S&P 500 companies have been coming down but companies are still expected to post growth for most quarters this year.

(GRAPHIC – Earnings fell during the last recession: )

10. HIGH-YIELD SPREADS

The gap between high-yield and U.S. government bond yields rose ahead of the 2007-2009 recession and then widened dramatically.

Credit spreads typically widen when perceived risk of default rises. Spreads have fallen from their January highs.

(GRAPHIC – Junk bond yields jumped in the 2008 recession🙂

11. FREIGHT SHIPMENTS

The Cass Freight Index, a barometer of the health of the shipping industry produced by data company Cass Information Systems Inc, logged a 5.3% year-over-year decline in June. That marked the index’s seventh straight month with a negative reading on a year-over-year basis.

“Whether it is a result of contagion or trade disputes, there is growing evidence from freight flows that the economy is beginning to contract,” Broughton Capital analyst Donald Broughton wrote in the June Cass Freight Index report.

(GRAPHIC – Cass Freight Index – shipments🙂

12. MISERY INDEX

The so-called Misery Index adds together the unemployment rate and the inflation rate. It typically rises during recessions and sometimes prior to downturns. It has slipped lower in 2019 and does not look very miserable.

(GRAPHIC – The Misery Index: )

(Reporting by Saqib Iqbal Ahmed; Editing by Chizu Nomiyama)

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)