LABOR MARKET EASING
The Conference Board’s “survey shows that the “jobs plentiful” response is falling, but remains relatively high. The “jobs hard to get” response remains low. We expect that consumers will continue to increase their spending as long as labor market indicators continue to be sunny even if consumer sentiment remains relatively dark. The “hard” data on consumers should continue to trump the “soft” data based on surveys, in our opinion.” (Ed Yardeni)
Notice that jobs are much less plentiful than before the pandemic.
Indeed Job Postings, available through May 17, are down 4.2% since the latest Job Openings stats were released for March.
The labor market indicators were much “less sunny”in April. Employment growth is clearly slowing, along with wages (black).
S&P Global’s May flash PMI was quite sunny, however:
US business activity growth accelerated sharply to its fastest for just over two years in May, according to provisional PMI survey data from S&P Global, signalling an improved economic performance midway through the second quarter. The service sector led the upturn, reporting the largest output rise for a year, but manufacturing also showed stronger growth.
But:
Employment fell for a second successive month in May, contrasting with the continual hiring trend seen over the prior 45 months. The overall reduction in workforce numbers was only very marginal, however, and less than witnessed in April, as an upturn in manufacturing payrolls was accompanied by a slower rate of job shedding in services.
While factory jobs grew at the fastest rate for ten months in May, buoyed by rising order books and improved business prospects, services employment has now fallen for two successive months, albeit in part due to staff shortages.
(…) companies remain cautious with respect to the economic outlook amid uncertainty over the future path of inflation and interest rates, and continue to cite worries over geopolitical instabilities and the presidential election.
It is an anomaly or perhaps even an advantage of human nature that we can hold seemingly conflicting views about something in our heads. It is rare that this capacity is on display in survey data. In today’s report, some specific survey questions revealed that consumers are simultaneously upbeat about the stock market even as a growing share see a recession as more likely. The release noted “the Perceived Likelihood of a US Recession over the Next 12 Months rose again in May, with more consumers seeing a recession as ‘somewhat likely’ or ‘very likely’. Consumers were nonetheless upbeat about the stock market, with 48.2 percent expecting stock prices to increase over the year ahead, compared to 25.4 percent expecting a decrease and 26.4 expecting no change”
Perception can be more potent than reality. At a near all-time low of 3.2%, half its pre-pandemic level, the savings rate provides little buffer to any shock in either spending power or confidence. The pandemic “excess savings” are spent or eroded by inflation. The U.S. consumer will be much more volatile from now on.
IMF Raises China Economic Growth Forecasts The IMF now projects 2024 gross domestic product growth at 5%, up from its prior forecast of 4.6% made in April
The organization also raised China’s growth forecast for next year by 0.4 percentage points to 4.5%. (…)
The IMF’s revisions also follow one-week visit to China during which staff met with the People’s Bank of China governor, the finance minister and other officials. (…)
Looking ahead, the IMF sees China’s economy slowing to 3.3% by 2029, dragged by an aging population and slower productivity growth. (…)
The IMF expects core inflation to rise but remain low as output remains below potential. It projects core inflation will average 1% in 2024. Against that backdrop, it sees scope for further monetary policy easing. (…)
Gopinath in the statement acknowledged the efforts policymakers have made to rebuild the housing market, but signaled that more needs to be done.
A more comprehensive policy package, including mobilizing central government resources to protect buyers of presold unfinished homes and accelerating the completion of unfinished presold housing, would be more efficient and less costly, she said. (…)
Bloomberg adds:
The Fund is still assessing the effects of the recently announced US tariffs on China, according to Gopinath, who said policies that exacerbate fragmentation are negative for the whole world.
“There has been an increase in more restrictive trade policies across countries,” with about 3,000 new trade restrictions imposed in 2023 — triple the number in 2019 — Gopinath said.
“There has been an increase in risks to the global trading system and we are seeing early signs of fragmentation,” she said. “Trade across countries that are more geopolitically aligned is holding up better than trade across countries that are less geopolitically aligned.”
Countries are also increasingly relying on industrial policies, which can lead to misallocation of resources and could create spillovers that affect other trading partners, Gopinath said.
“When any of these three regions — the US, the European Union or China — puts a subsidy in place, we’ve seen that within the next 12 months, there’s a 75% probability that the other country also retaliates with another subsidy,” she said.
Yuan Weakens to Lowest Since November as China Allows Declines
China’s onshore yuan dropped to the weakest level since November as signs mount that policymakers are slowly letting the currency decline against a resilient dollar.
The yuan fell to as low as 7.2487 per dollar as the People’s Bank of China gradually cut its daily reference rate for the managed currency to a level unseen in four months. The move came as a gauge of the greenback edged higher for a second day on bets the Federal Reserve is still not close to kicking off its rate-cut cycle. (…)
The yuan is not alone in struggling with depreciation pressures in Asia. The currency of its neighboring country Japan just hit the lowest since 2008 against the pound. The likes of the Thai baht and Indonesian rupiah are also inching close to multi-year lows touched recently.
Asian currencies are being weighed by their wide yield discount to the US, which favors the dollar. The rate gap concern is being exacerbated by bets Fed won’t be slashing rates anytime soon due to surprisingly resilient growth and sticky inflation. (…)
The United States used to have cachet in China. Not anymore.
There was a time not so long ago in China when anything American was automatically seen as better. In the 1990s, weddings were held at a McDonald’s near Beijing’s Tiananmen Square. By the 2000s, Nike sneakers, iPhones and dates at Pizza Hut were the badges of middle-class achievement.
America, which is called mei guo or “beautiful country” in Chinese, was the bastion of wealth and ease. Even the moon hung larger in the United States than in China, people used to joke.
Now, Chinese media and commentators mockingly refer to the United States not as mei guo but as mei di — “the beautiful imperialist.” And Chinese shoppers are more likely to be sipping a drink from Luckin, a Chinese coffee chain, than Starbucks or lining up all night to buy Huawei’s Mate 60 Pro than the latest Apple device. Today, no one says the moon is any different when seen from the United States.
“Back in the day, you looked at American brands, you just felt they were cooler,” said Tracy Liu, a 30-year-old translator in Shanghai. “Now people chase after domestic brands.”
For decades, this soft power was one of the United States’ most potent weapons in China. But over the last few years, the United States has lost hearts and minds in China as its cultural luster has faded.
The shift comes as Beijing is expanding its military and technological prowess — and as China’s reputation in the United States has plummeted dramatically amid concerns that it will use underhanded tactics to achieve leader Xi Jinping’s vision of a world where the United States and China are equal.
Together, these two trends push the countries further away from each other and closer to conflict.
“If you want to avoid war and you want to manage a competition or you want manage a common problem like climate, a degree of soft power helps both countries,” said Joseph Nye, former dean at Harvard’s Kennedy School of Government who first popularized the term “soft power” in the 1990s and served as U.S. assistant secretary of defense, often dealing with China.
“If there’s mutual desire to accomplish those objectives, then the extent to which China is attractive in the U.S., and the extent to which the U.S. is attractive in China, can be beneficial to both countries because both countries want an atmosphere that encourages cooperation,” he said. (…)
“It’s a paradigm shift,” said Da Wei, director of the Center for International Security and Strategy at Tsinghua University. “The U.S. image in China is so bad today. It’s probably the worst in the past 40 years since the establishment of diplomatic relations,” he said.
The weakening of American soft power in China coincides with a China that is growing stronger and richer, and is working to create its own cultural cachet. (…)
“One of the central claims the CCP makes to legitimate its rule is that only the CCP can save China and make China strong again, and a big part of that is anti-Americanism,” said Peter Gries, a professor of Chinese politics at the University of Manchester. “So China being better than America has become central to the CCP’s claim to rule.”
Today, Chinese media opine on the “myth of American democracy” and extensively cover U.S. mass shootings, police violence, political polarization and public security problems. (One popular genre on Douyin, the Chinese version of TikTok, is “zero-dollar shopping” in the United States, which features videos of stores being robbed at gunpoint.)
By losing its soft power advantage in China, the United States also loses an important source of leverage: its ability to appeal directly to the Chinese people.
“A Chinese populace that is broadly sympathetic to the United States is a … brake on some of the more aggressive measures that the Chinese government would consider taking,” said Jude Blanchette, who holds the Freeman chair in China studies at the Center for Strategic and International Studies.
“It works in Xi Jinping’s favor if the United States is seen in the eyes of the Chinese people as deteriorating and implacably hostile to China,” he said. (…)
The idea of American atrophy began gaining traction after the global financial crisis eroded faith in the U.S. economic model. During the Trump administration and the chaos of the early years of the coronavirus pandemic, Chinese leaders began boldly proclaiming that “the East is rising and the West is declining.”
“That event really put the next to final nail in the coffin of Chinese admiration for the U.S.A. The final nail was hammered in by the Trump administration,” said David Shambaugh, director of the China Policy Program at George Washington University, referring to the 2009 financial crisis.
“To my knowledge, there is very little residual appeal of the U.S.A. among either the Chinese urban public, among intellectuals or among officials,” he said by email. (…)
These tensions, as well as the steady flow of reports of America’s domestic problems, mean today’s Chinese citizens “no longer regard the United States as some moral high ground or even the future as before,” the popular Chinese blogger Chairman Rabbit wrote. “The United States has shot itself in the foot and destroyed the soft power that it worked so hard to build in China. Not only that, it has created the most difficult rival for itself.”
*******
Thanksgiving Week
Memorial Day reminds me to thank donators to Edge and Odds, something I too often neglect to do, buried in my rather busy schedule, which includes self-imposed leisure time away from the laptop to keep some level of sanity.
I am embarrassed to say that this neglect seems to go back to the spring of 2022. Sincere apologies. Time does fly, even more than we think. My late mother-in-law used to say “the slower I get, the faster time goes by”. So true.
I know I will not be able to find time to personally thank all of you, so here’s my public thank you to (in no particular order):
Hopefully, I did not forget anybody for whom I have the basic info. Others I will need to contact directly (or you send me your full names to edgeandodds [at] gmail.com).
Sincere thanks.
Denis
