Fast take: U.S. consumer inflation muted, just don’t buy a used car

By Dan Burns

(Reuters) – U.S. consumers on balance paid only a little bit more for goods and services last month as supply chain disruptions that contributed to a bump up in inflation over the summer began to ease, a welcome respite for the millions who remain unemployed.

While that easing pressure on pinched consumers might offer a benefit to Republican President Donald Trump’s reelection prospects against Democratic challenger Joe Biden, it does come with a big “on the other hand” caveat: It is the latest sign of fading momentum in the rebound from this spring’s record-setting economic slump.

A bit of inflation typically is an indication of strengthening demand, an encouraging signal that consumers have reliable sources of income allowing them to contribute to growing an economy that hinges extensively on their spending. But with roughly 11 million still out of work and desperate for a new round of COVID-19 relief from Washington, September’s modest uptick in prices is no such signal.

Here’s Jefferies chief financial economist Aneta Markowska’s take: “After several months of above-trend gains, price pressures are finally normalizing. Both headline and core CPI increased by just 0.2% (month-to-month) in September, with the underlying details painting an even weaker picture.”

In fact, she notes prices would have been unchanged but for one thing: The largest monthly increase in used car and truck prices since 1969. And with cash-strapped consumers increasingly reliant on their own transport to get to an on-site job, that’s no welcome development.

Food price increases, too, are moderating after a big run up in the spring, but where you eat makes a big difference.

If eating at home, as millions without work have no choice but to do, then food prices were lower for a third straight month.

If eating out, though, as more consumers are doing as restaurants continue to reopen around the country, prices shot up by the most in 12 years last month.

(Reporting by Dan Burns; Editing by Andrea Ricci)

U.S. consumer confidence stabilizes as economy reopens

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. consumer confidence nudged up in May, suggesting the worst of the novel coronavirus-driven economic slump was probably in the past as the country starts to reopen, but it would probably take a while to dig out of the hole amid record unemployment.

The Conference Board said on Tuesday its consumer confidence index edged up to a reading of 86.6 this month from a downwardly revised 85.7 in April. Economists polled by Reuters had forecast the index rising to 87.5 in May from the previously reported reading of 86.9 in April.

Businesses across the country are opening doors after shuttering in mid-March as states and local governments took drastic measures to slow the spread of COVID-19, the respiratory illness caused by the virus, almost grounding the country to a halt. The economy contracted at its deepest pace in the first quarter since the Great Recession and lost at least 21.4 million jobs in March and April.

“While the decline in confidence appears to have stopped for the moment, the uneven path to recovery and potential second wave is likely to keep a cloud of uncertainty hanging over consumers’ heads,” said Lynn Franco, senior director of economic indicators at The Conference Board in Washington.

Stocks on Wall Street rallied, spurred by the reopening of the economy and optimism about a potential coronavirus vaccine. The dollar was trading lower against a basket of currencies. U.S. Treasury prices fell.

The Conference Board survey’s present situation measure, based on consumers’ assessment of current business and labor market conditions, fell to a reading of 71.1 this month from 73.0 in April. This measure has declined by nearly 100 points in the last couple of months, underscoring the impact of COVID-19.

But the expectations index based on consumers’ short-term outlook for income, business and labor market conditions climbed to 96.9 from a reading of 94.3 in April.

Despite the improvement in expectations, households remained worried about their finances. They also anticipated higher inflation, which could lead to a sense of diminished purchasing power and hurt much-needed consumer spending.

The Conference Board’s so-called labor market differential, derived from data on respondents’ views on whether jobs are plentiful or hard to get, improved to a reading of -10.4 in May from -15.7 in April. That measure closely correlates to the unemployment rate in the Labor Department’s employment report.

The percentage of consumers expecting an increase in income dropped to 14.0% this month from 17.2% April and the proportion anticipating a drop fell to 15.0% from 18.4%.

A separate report from the Commerce Department on Tuesday showed new home sales increased 0.6% to a seasonally adjusted annual rate of 623,000 units last month. Still, the gain left the bulk of March’s 13.7% plunge intact.

March’s sales pace was revised down to 619,000 units from the previously reported 627,000 units. Economists polled by Reuters had forecast new home sales, which account for about 10% of housing market sales, diving 21.9% to a pace of 480,000 units in April.

(Reporting by Lucia Mutikani, Editing by Franklin Paul and Andrea Ricci)

As U.S. meat workers fall sick and supplies dwindle, exports to China soar

By Tom Polansek

CHICAGO (Reuters) – U.S. President Donald Trump ordered meat processing plants to stay open to protect the nation’s food supply even as workers got sick and died. Yet the plants have increasingly been exporting to China while U.S. consumers face shortages, a Reuters analysis of government data showed.

Trump, who is in an acrimonious public dispute with Beijing over its handling of the coronavirus outbreak, invoked the 1950 Defense Production Act on April 28 to keep plants open. Now he is facing criticism from some lawmakers, consumers and plant employees for putting workers at risk in part to help ensure China’s meat supply.

“We know that over time exports are critically important. I think we need to focus on meeting domestic demand at this point,” said Mike Naig, the agriculture secretary in the top U.S. pork-producing state of Iowa who supported Trump’s order.

Processors including Smithfield Foods, owned by China’s WH Group Ltd, Brazilian-owned JBS USA [JBS.UL] and Tyson Foods Inc temporarily closed about 20 U.S. meat plants as the virus infected thousands of employees, prompting meatpackers and grocers to warn of shortages. Some plants have resumed limited operations as workers afraid of getting sick stay home.

The disruptions mean consumers could see 30% less meat in supermarkets by the end of May, at prices 20% higher than last year, according to Will Sawyer, lead economist at agricultural lender CoBank.

While pork supplies tightened as the number of pigs slaughtered each day plunged by about 40% since mid-March, shipments of American pork to China more than quadrupled over the same period, according to U.S. Department of Agriculture data. https://tmsnrt.rs/2YLF1XN

Smithfield, which China’s WH Group bought for $4.7 billion in 2013, was the biggest U.S. exporter to China from January to March, according to Panjiva, a division of S&P Global Market Intelligence. Smithfield shipped at least 13,680 tonnes by sea in March, Panjiva said, citing its most recent data.

Smithfield, the world’s biggest pork processor, said in April that U.S. plant closures were pushing retailers “perilously close to the edge” on supplies.

The company is now retooling its namesake pork plant in Smithfield, Virginia, to supply fresh pork, bacon and ham to more U.S. consumers, according to a statement. The move is an about-face after the company reconfigured the plant last year to process hog carcasses for the Chinese market, employees, local officials and industry sources told Reuters.

The Virginia facility currently serves export markets like China and domestic customers, according to Smithfield. Most U.S. pork processors routinely export products to more than 40 international markets, company spokeswoman Keira Lombardo said.

The virus infected about 850 employees at another Smithfield pork plant in Sioux Falls, South Dakota. Across the U.S. industry, about 5,000 infections and 20 deaths occurred, according to the U.S. Centers for Disease Control and Prevention.

“That tragic outcome is all the worse when the food being processed is not going to our nation’s families,” said U.S. Representative Rosa DeLauro, a Democrat from Connecticut. “That is what the Defense Production Act is all about: protecting America’s national interests, not China’s.”

Pork processor Fresh Mark resumed making bacon and ham for global customers at a Salem, Ohio, plant it shut in April over coronavirus cases.

“If we start having a shortage in America, I think it should stay here,” said Bruce Fatherly, a maintenance worker at the plant and member of the Retail, Wholesale and Department Store Union.

Fresh Mark said exports are a small part of its business.

WHOLE HOGS

The supply concerns could not have been foreseen when Trump signed a deal in January to ease a trade war he started with Beijing two years earlier. China promised to increase purchases of U.S. farm goods by at least $12.5 billion in 2020 and $19.5 billion in 2021, over the 2017 level of $24 billion.

The White House declined to comment. The USDA and U.S. Trade Representative’s office did not respond to requests for comment.

China increased its purchases because of its dire need for protein after a pig disease called African swine fever led to the death of half the country’s herd over the past two years. Beijing lifted a nearly five-year ban on U.S. chicken imports in November and also waived retaliatory tariffs on meat shipments to help boost supplies.

Year-to-date, about 31% of U.S. pork has been exported, totaling about 838,000 tonnes, according to the U.S. Meat Export Federation. One-third of that volume went to China, accounting for more than 10% of total first-quarter production, the industry group said.

Carcasses, which include most of the pig, were the top product shipped to China in January and February, according to USDA. Loads also include feet and organs that many Americans do not eat.

Exports to China set a record for the period from January to March, and shipments to all destinations in March set a record for any month, according to USDA.

JBS, which produces pork, beef and chicken, told Reuters it reduced exports to focus on meeting U.S. demand during the pandemic. About 280 employees at a JBS beef plant in Greeley, Colorado, have been infected with the virus, and seven died, union officials said.

“I think we need to take care of our country and our needs first,” said Kim Cordova, president of the local United Food and Commercial Workers International Union that represents plant employees.

Tyson Foods did not respond to requests for comment about exports.

Suppliers like Tyson have limited meat products for retailers because of plant closures. Kroger Co and Costco Wholesale Corp, meanwhile, restricted shoppers’ meat purchases.

U.S. farmers, who struggled financially during the trade war with Beijing, say they still need importing countries, including China, to buy their pork. Prior to the pandemic, they grappled with an oversupply of hogs.

“There’s enough meat for all channels if we could get these plants back up and rolling,” said Brian Duncan, a hog farmer and vice president of the Illinois Farm Bureau.

(Additional reporting by Karl Plume in Chicago and Dominique Patton in Beijing; editing by Caroline Stauffer and Edward Tobin)

Target says shoppers stocking up on essentials over coronavirus fears

Target says shoppers stocking up on essentials over coronavirus fears
(Reuters) – Target Corp said on Tuesday it was seeing a surge in U.S. store traffic as people stockpile disinfectants and food amid fears of the coronavirus outbreak.

“We’ve certainly seen a U.S. consumer that’s starting to stock up on household essentials, disinfectants, food and beverage items, all those staple items that the CDC has recommended…,” Chief Executive Brian Cornell said on a post-earnings call with analysts.

“We’ve seen aggressive shopping across the country in our stores.”

However, the company said the epidemic has not so far impacted its business.

(Reporting by Uday Sampath in Bengaluru; Editing by Arun Koyyur)

Trump proposes rule on importing medicines which industry says won’t cut costs

By Michael Erman and Carl O’Donnell

NEW YORK (Reuters) – The Trump administration on Wednesday said it is proposing a rule to allow states to import prescription drugs from Canada, moving forward a plan announced this summer that the president has said will bring cheaper prescription drugs to Americans.

Importation of drugs from Canada as a way to lower costs for U.S. consumers has been considered for years. Alex Azar, secretary of the Department of Health and Human Services (HHS), called the move “a historic step forward in efforts to bring down drug prices and out-of-pocket costs.”

He said HHS would also offer guidance to drugmakers that wish to voluntarily bring drugs that they sell more cheaply in foreign countries into the United States for sale here.

Both pathways for importation were announced in July when Azar unveiled a “Safe Import Action Plan.”

Azar could not provide an estimate as to how soon Americans could start receiving drugs from Canada. He said the proposed rule would need to pass through a 75-day comment period before being finalized.

“We’re moving as quickly as we possibly can,” he said.

Governors of states including Florida, Maine, Colorado, Vermont and New Hampshire have already expressed an interest in importing drugs from Canada once the pathway to do so is fully in place, he said. States would be required to explain how any proposed drug imports would reduce drug prices for consumers.

The proposal faces opposition from large U.S. pharmaceutical and biotech companies.

Jim Greenwood, current head of biotech industry group BIO and a former Republican congressman, said that importation would not result in lower prices for consumers, citing nonpartisan budget experts and past FDA commissioners.

“Today’s announcement is the latest empty gesture from our elected lawmakers who want us to believe they’re serious about lowering patients’ prescription drug costs,” Greenwood said.

The Canadian government has also criticized the plan. The country’s ambassador said last month that importing medicines from Canada would not significantly lower U.S. prices. Reuters previously reported that Canada had warned U.S. officials it would oppose any import plan that might threaten the Canadian drug supply or raise costs for Canadians.

Drugs approved to be imported from Canada would exclude many prescribed drugs, such as biologic drugs, including insulin, controlled substances and intravenous drugs.

Trump, a Republican, has struggled to deliver on a pledge to lower drug prices before the November 2020 election. Healthcare costs are expected to be a major focus of the campaign by Trump and Democratic rivals vying to run against him.

The Trump administration in July scrapped an ambitious policy that would have required health insurers to pass billions of dollars in rebates they receive from drugmakers to Medicare patients.

Also in July, a federal judge struck down a Trump administration rule that would have forced pharmaceutical companies to include the wholesale prices of their drugs in television advertising.

Both the House of Representatives and the Senate are putting forth drug pricing bills that contain some of the proposals Trump has advocated, such as indexing public drug reimbursements to foreign drug costs.

But Trump has said he will veto the Democrat-led House bill if it comes to his desk on the grounds that it would slow down innovation.

(Reporting by Michael Erman and Carl O’Donnell; Editing by Leslie Adler and Nick Macfie)

The Fed will soon cut U.S. interest rates. What will it mean for your wallet?

FILE PHOTO: Federal Reserve Board building on Constitution Avenue is pictured in Washington, U.S., March 19, 2019. REUTERS/Leah Millis/File Photo

By Trevor Hunnicutt and Jason Lange

NEW YORK/WASHINGTON (Reuters) – A decision by the Federal Reserve to cut interest rates may do little at this point to cut some of the costs that matter to many U.S. consumers.

From mortgages to credit cards, banks and other lenders may resist offering substantially lower rates to consumers, analysts said, even if the central bank makes a widely expected cut to its policy rate, currently targeted between 2.25% and 2.50%.

For one thing, some borrowing costs are already low and markets have already priced in expectations the Fed would support the economy. Mortgage rates have also dropped, with rates on the average 30-year U.S. home loan falling under 4.1%, near a 22-month low, more than half a point below the average since the global financial crisis more than a decade ago, according to the Mortgage Bankers Association.

“If we drive down into the mid-3.7%, mid-3.8% range, you’re talking about historic affordability from a purchasing power standpoint,” said Mark Fleming, chief economist for First American Financial Corp, which provides insurance related to real estate transactions. “There’s not a lot of wiggle room here in the first place. I think we established five or six years ago that a mortgage rate around 3.5% or 3.6% is a floor. That’s about as low as you can go.”

That low mortgage level was when the Fed’s rates were near zero and the central bank was buying mortgage bonds in the aftermath of the financial crisis to drive longer-term rates even lower – a far cry from where policy is now.

At the same time, one of the Fed’s main goals in cutting rates is to bring inflation up to the 2% level policymakers consider healthy, and maybe even higher to make up for long periods of missing that target. If the Fed succeeds, longer-term bonds most sensitive to inflation could fall in price, causing their yields to rise. Because U.S. mortgages are benchmarked to those longer-term bonds, rates could rise again.

For many consumers, the obstacle to buying a house has not been mortgage rates, but stricter lending standards that reduced access to mortgages in the first place. Big price increases and limited supply have also made housing less affordable. Lower rates could make housing even more out of reach by spurring demand, driving prices even higher.

Financing for new cars might be a different story, though, especially given the large role of automakers themselves in the car loan business. Those businesses have an incentive to increase lending to support the auto market.

Savers, meanwhile, have been rewarded in recent months for shopping around for higher-yielding savings accounts and certificates of deposit. Thanks to increased competition, some online banks have been pushing yields up for those products even with the expected rate cut.

That could change if the Fed is embarking on a prolonged series of rate cuts, as some investors are betting. But the biggest factor could still be overall competition between financial institutions for savers’ money, said Morningstar Inc analyst Eric Compton.

Consumers, however, are in a much better place than they have been in years, by some measures. They have higher take-home pay, lower debt and better credit scores than during the financial crisis. “You’ve got consumers that are pretty healthy, savings rates are pretty good,” said Neal Van Zutphen, president of Intrinsic Wealth Counsel Inc, a financial planner. “They’re taking advantage of this anticipatory drop in rates.”

(Reporting by Trevor Hunnicutt in New York and Jason Lange in Washington; Editing by Leslie Adler)

U.S. consumer confidence at 18-year high; house price gains slow

FILE PHOTO - A home for sale is seen in Santa Monica, California, U.S., March 21, 2017. REUTERS/Lucy Nicholson

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. consumer confidence rose to an 18-year high in October, driven largely by a robust labor market, bolstering expectations that strong economic growth would continue through early 2019.

But a weakening housing market and tightening financial market conditions are casting a shadow on the economic expansion that is in its ninth year, the second longest on record. Home price gains slowed further in August, other data showed, another sign that higher mortgage rates were weighing on housing demand.

“We don’t know how long this is going to hold up, but the consumer is bullish on the outlook and this means the economy is going to continue to advance in this long economic expansion from the last recession,” said Chris Rupkey, chief economist at MUFG in New York.

The Conference Board said its consumer confidence index reading rose to 137.9 this month, the highest since September 2000, from a downwardly revised 135.3 in September. Economists polled by Reuters had forecast the consumer index slipping to 136.0 from the previously reported 138.4 in September.

Consumers’ assessment of current business and labor market conditions improved despite a sharp stock market sell-off and jump in U.S. Treasury yields, which have tightened financial market conditions. The stock market’s S&P 500 index has dropped more than 8 percent this month.

The Conference Board survey puts more emphasis on the labor market. The survey’s so-called labor market differential, derived from data about respondents saying jobs are scarce or plentiful, was the most favorable since January 2001.

This measure closely correlates to the unemployment rate in the Labor Department’s employment report. Economists said it raised the possibility that the unemployment rate could drop further from a near 49-year low of 3.7 percent. The government will publish its October employment report on Friday.

“At the end of the day, it is the job market, or the security of having a job with a regular paycheck, that supports confidence and spending,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. “So far, so good.”

Consumer confidence at multi-year highs bodes well for spending in the upcoming holiday season. More consumers planned to buy automobiles and houses over the next six months, but the share of those intending to purchase major appliances slipped.

The dollar was near a 2 1/2-month high against a basket of currencies, while stocks on Wall Street were higher. U.S. Treasury yields rose.

HOUSING DEMAND SOFTENING

The economy grew at a 3.5 percent annualized rate in the third quarter and is considered on course to achieve the Trump administration’s target of 3.0 percent annual growth this year.

Growth has been spurred by a $1.5 trillion tax cut. Economists estimate the tax cut stimulus peaked in the third quarter and expect growth to gradually slow from the second half of 2019, restrained in part by higher interest rates.

The Federal Reserve has increased borrowing costs three times this year and in September removed a reference to monetary policy remaining “accommodative” from its policy statement. The U.S. central bank is expected raise rates gain in December.

Higher borrowing costs have cooled housing demand; sales and homebuilding declined in September.

A separate report on Tuesday showed the S&P CoreLogic Case-Shiller composite home price index of 20 U.S. metropolitan areas rose 5.5 percent in August from a year ago after increasing 5.9 percent in July. Growth in house prices has slowed from as high as 6.8 percent in March. Prices had been boosted by a shortage of properties on the market, but now mortgage rates have risen to seven-year highs.

“The sharp gain in mortgage rates thus far in 2018 continues to weigh on home sales as well as home prices,” said Brent Campbell, an economist at Moody’s Analytics in West Chester, Pennsylvania.

“With the Fed continuing to tighten monetary policy through the rest of 2018 and into 2019, mortgage rates are likely to rise, even more, resulting in less housing demand and modest house price growth in 2019.”

(Reporting By Lucia Mutikani; Editing by David Gregorio)