Jobs, Consumer Watch
Warning Signs Flash in a Labor Survey as Fed Officials Watch for Weakness The New York Fed’s labor market survey showed cracks just as Jerome H. Powell, the Fed chair, prepares for a closely watched Friday speech.
Americans are increasingly worried about losing their jobs, a new survey from the Federal Reserve Bank of New York released on Monday showed, a worrying sign at a moment when economists and central bankers are warily monitoring for cracks in the job market.
The New York Fed’s July survey of labor market expectations showed that the expected likelihood of becoming unemployed rose to 4.4 percent on average, up from 3.9 percent a year earlier and the highest in data going back to 2014.
In fact, the new data showed signs of the labor market cracking across a range of metrics. People reported leaving or losing jobs, marked down their salary expectations and increasingly thought that they would need to work past traditional retirement ages. The share of workers who reported searching for a job in the past four weeks jumped to 28.4 percent — the highest level since the data started — up from 19.4 percent in July 2023.
The survey, which quizzes a nationally representative sample of people on their recent economic experience, suggested that meaningful fissures may be forming in the labor market. While it is just one report, it comes at a tense moment, as economists and central bankers watch nervously for signs that the job market is taking a turn for the worse. (…)
More from the report:
Experiences
- Among those who were employed four months ago, 88% were still employed, a series low since the start of the survey and down from 91.4% in July 2023. The rate of transitioning to a different employer increased to 7.1%—the highest reading since the start of the survey—from 5.3% in July 2023. The increase compared to a year ago was primarily driven by women.
- The proportion of individuals who reported searching for a job in the past four weeks increased to 28.4%—the highest level since March 2014—from 19.4% in July 2023. The increase was most pronounced among respondents older than age 45, those without a college degree, and those with an annual household income less than $60,000. (…)
- Satisfaction with wage compensation, nonwage benefits, and promotion opportunities at respondents’ current jobs all deteriorated relative to a year ago. Satisfaction with wage compensation at the current job fell to 56.7% from 59.9% in July 2023. Satisfaction with nonwage benefits fell to 56.3% from 64.9%. And satisfaction with promotion opportunities dropped to 44.2% from 53.5%. (…)
Expectations
- The expected likelihood of moving to a new employer increased to 11.6% from 10.6% in July 2023, while the average expected likelihood of becoming unemployed rose to 4.4% from 3.9% in July 2023. The current reading is the highest since the series started in July 2014.
- The average expected likelihood of receiving at least one job offer in the next four months increased to 22.2% from 18.7% in July 2023. The average expected likelihood of receiving multiple offers in the next four months rose to 25.4% from 20.6% in July 2023. (…)
- The average expected likelihood of working beyond age 62 increased to 48.3% from 47.7% in July 2023, and versus a series low of 45.8% in March 2024. The average expected likelihood of working beyond age 67 increased to 34.2% from 32% in July 2023, partially reversing the steady declining trend observed in the series since the onset of the pandemic.
Yesterday, I posted these 2 charts suggesting a stabilizing labor market as characterized by Jay Powell last month:
- Indeed job postings suggest rising labor demand since June (Indeed data through August 8).
Goldman Sachs:
The July employment report was soft, as payroll growth slowed sharply and the unemployment rate rose to 4.3%. More recent data have somewhat alleviated labor market concerns, however, as the employment component of the nonmanufacturing ISM index returned to expansion territory for the first time since November 2023 and initial jobless claims have edged back down.
Furthermore, our estimate of underlying job gains (146k/month) remains near its breakeven pace and our jobs-workers gap continues to signal that there are still 1.1mn more open jobs than unemployed workers seeking to fill them. We therefore forecast that firm labor demand and continued labor force expansion on the back of still-elevated (albeit slowing) immigration will lead job growth to average around 145k/month for the remainder of 2024, and we expect that the unemployment rate will edge down to 4.2% by end-2024.
From The Transcript:
- “We did not see a step down and our outlook for the back half of the year is really for more of a continuation of what we’ve seen. Even in the first couple weeks of August here, things have been remarkably consistent. So I know everyone is looking for some piece of information that maybe indicates further weakness with our members and our customers, we’re not seeing it…So far, we aren’t experiencing a weaker consumer overall” — Walmart ($WMT ) CFO John D. Rainey
- “Well, in our consumer base of 60 million customers spending every week, what you’re seeing is they’re spending at a rate of growth of this year over last year, for July and August so far, about 3%. That is half the rate it was last year at this time. And so the consumer has slowed down. They have money in their accounts, but they’re depleting a little bit. They’re employed, they’re earning money, but if you look at- they’ve really slowed down. So the Fed is in a position they have to be careful that they don’t slow down too much.” — Bank of America ($BAC ) CEO Brian Moynihan
But 3% YoY growth in nominal retail sales (black) is no “real slowdown” in real terms when inflation goes from +2.0% to –0.6% or when CPI-Durables goes from 0% to –4.0%.
China Unleashes Rapid Drop in New-Home Prices With Relaxed Curbs At least 10 cities relaxed, removed new home price guidance
In Beijing, a sudden 18% price cut in May at a mid-sized residential project on the city’s outskirts has forced adjacent new developments to follow suit, according to people familiar, who requested not to be named because the matter is private. Near the southern border, the Shenzhen government approved a 29% cut in unit prices for a complex compared with a year ago, according to other people familiar.
After intervening for years, at least 10 city governments have relaxed or scrapped new-home price guidances to let market demand play a bigger role, according to China Index Holdings Ltd. and public statements.
While it’s mostly smaller cities that have announced the moves, the examples in Beijing and Shenzhen show that even bureaucrats in megacities are starting to relax prices on a case-by-case basis.
The move is expected to drive more developers to cut prices as they benchmark against the second-hand market that’s seen a much steeper decline. That will help remove longstanding market distortions created by government meddling, even if it keeps some buyers on the sidelines as they wait to see how far new-home values will fall. (…)
For years, China’s housing authority tinkered with the price range at which new homes were sold through a “pre-sales permit.” The approach kept new-home prices in the biggest cities in check since late 2016 following a property frenzy. But when second-hand homes went into freefall, the arrangement kept new-home values abnormally resilient. That in turn made it even harder for companies to sell their inventory. (…)
New-home values have declined about 7.2% from June 2021, about half of the 13.6% drop seen in existing-home prices.
Prices of second-hand homes in Shenzhen, once China’s least affordable city, have plunged 37% from a peak in May 2021, according to Centaline Group. They’ve tanked by about 27% in Beijing, Shanghai and Guangzhou from their respective peaks.
The bargains pushed Shenzhen’s existing-home sales in July to the highest by monthly volume in more than four years, according to the city’s biggest real estate agency Leyoujia. The same month, its new-home sales shrank 11% by units from a month earlier. (…)
Many of the cash-strapped developers, who have been in default for more than a year, are counting on sales to reassure debt holders and fight off liquidation.
At least 20 Chinese developers have faced wind-up petitions, according to data compiled by Bloomberg. Dexin China Holdings Co. in June became the latest builder to receive a liquidation order from a Hong Kong court, following China Evergrande Group and Jiayuan International Group Ltd.
In addition, about 80 out of the top 200 real estate companies operating in China have been mired in default, according to data compiled by Bloomberg. More could follow as new-home sales haven’t fully recovered, China Real Estate Information Corp warned in note on Aug. 8. (…)
This will be unsettling for Chinese for a while but improved affordability and the gradual elimination of the inventory overhang will help stabilize prices and restore sentiment. The PBOC survey of urban depositors shows that the share of households expecting falling house prices reached a new high of 24% in Q2 from 10% on average pre-pandemic.
The latest proposal would allow local governments to fund their home purchases by issuing so-called special bonds, the proceeds of which are currently restricted to uses including infrastructure and environmental projects, the people said, asking not to be named discussing private information. Local governments have already used more than half the 3.9 trillion yuan ($546 billion) quota for special bond issuance this year; it’s unclear what portion of the remainder might be directed toward home purchases if the plan is approved. (…)
Only about 8% of the 580 billion yuan available from existing rescue funds has been tapped so far, including a high-profile initiative to backstop home purchases with central bank funding, according to Bloomberg Intelligence.
That’s partly because the expected return from turning unsold homes into affordable housing has stayed below the cost of funding for many local-government borrowers. Rental yields in China’s tier-1 cities averaged just 1.4% in 2023, compared with the central bank’s relending rate of 1.75%, Macquarie Group Ltd.’s economists wrote in May, citing data from Centaline Property Agency. The city of Beijing has recently issued one-year special bonds at 1.65%.
China had 382 million square meters of unsold homes as of July, equivalent to about the size of Detroit, according to official data. The crisis has dragged down everything from the job market to consumption and household wealth over the past two years. President Xi Jinping unveiled sweeping goals last month to bolster the finances of China’s indebted local governments and give them more autonomy in regulating local property markets, though public details of the initiatives have so far been limited.
While state buying of housing inventory is widely seen as a key step toward easing the housing glut and boosting developers’ finances, the central bank’s initial funding is just a fraction of the 1 trillion yuan to 5 trillion yuan that some analysts estimate is needed to address the supply-demand mismatch. (…)
Separately, the Ministry of Natural Resources said in June that it is working with the National Development and Reform Commission to roll out a policy that would allow local governments to buy land using special bonds. (…)
China plans ‘bigger, stronger’ social security fund to aid ageing society
China will beef up its 2.88 trillion yuan ($406 billion) social security fund, making it “bigger and stronger” to help support its rapidly ageing population as the number of new births and younger workforce to support its seniors shrinks. (…)
Ding said the fund will improve and expand the scale of pension fund investments, “actively disclose important financial information to the public” and carry out investments in an “open and transparent manner.”
The disclosures aim to stabilise people’s expectations of old age care, he said. (…)
First concrete steps to improve China’s safety net.
Meanwhile, there are other steps showing China’s broad policy relaxations to boost growth. This is from Almost Daily Grant’s:
A new day of Sino-American collaboration is at hand, as the U.S.-China Financial Working Group hammered out cooperation agreements late last week pertaining to systemically important banks, cross-border payments and monetary policy, among other topics.
Conversations were “professional, pragmatic, candid and constructive” according to a summary from the People’s Bank of China, allowing “the financial management departments of both sides to maintain timely and smooth communication channels and reduce uncertainty [during] financial stress events.”
Renewed efforts by the Middle Kingdom to attract foreign capital colors that regulatory alliance, as state media revealed Friday that Beijing will permit unfettered overseas investment in its lynchpin manufacturing realm, while likewise relaxing strictures across other politically sensitive sectors. That bulletin comes two days after a Ministry of Commerce convened-powwow with representatives from 20 foreign firms including Siemens, SAP, Lego and Medtronic to streamline planned projects within the world’s second-largest economy, with the South China Morning Post reporting that the government invited those companies to get started “at their earliest convenience.”
Informing that conciliatory stance: inbound foreign direct investment summed to RMB 539.47 billion ($75.2 billion) over the first six months of the year, state compiled data show, down 29.6% from the same period a year ago. Similarly, China’s direct investment liabilities in its balance of payments – a measure of foreign direct investment which includes retained earnings – tumbled by nearly $15 billion during the second quarter according to the State Administration of Foreign Exchange (SAFE) following a $5 billion decline from January to March, putting that metric on pace for its first ever annual decline in a data series stretching to 1990.
At the same time, outbound investment reached a record $71 billion over the three months through June, representing a near 80% jump from the $39 billion logged in the second quarter of 2023. In response to “surging appetite” for overseas securities, Reuters relays that banks and asset managers are “scrambling” to bypass state-mandated quotas, reflecting the “latest sign of investors’ lack of confidence in local assets.”
Indeed, international investors have pulled a net $12 billion from mainland equities since the start of June according to data from the Hong Kong stock exchange, leaving that metric in a net outflow since the start of 2024. That has never happened over a full year period since China introduced the Stock Connect trading link, which allows foreign investors to access the market, in 2014.
By way of response, local authorities likewise turn to a well-worn playbook. As the Financial Times reports today, daily data showing foreign investment flows on the Stock Connect are no longer available for viewing, with that information now restricted to quarterly updates.
To little surprise, that decision did not garner universal applause. “While the data provided by global exchanges often vary, the lower transparency will not help attract foreign investment, especially in an emerging market,” Gary Ng, senior economist at Natixis, told the pink paper. “Investors may wonder why it is no longer offered and find it more challenging to justify entry into China.”
Harris proposes raising the corporate tax rate to 28%, rolling back a Trump law
(…) If enacted, the policy would raise hundreds of billions of dollars, as the nonpartisan Congressional Budget Office has projected that 1 percentage point increases in the corporate rate corresponds to about $100 billion over a decade. It would also roll back a big part of former President Donald Trump’s signature legislation in 2017 as president, which slashed the corporate tax rate from 35% to 21%.
Trump, meanwhile, recently said he would cut taxes even further if elected president, including on businesses [to 15%?]. (…)
Republicans are sure to object to a 28% corporate tax rate, meaning Harris may need Democrats to control the House and Senate in order to get it through Congress. But a potential President Harris would have some leverage over the GOP for negotiations on tax policy, as many other portions of the Trump tax cuts expire at the end of 2025, which will lead to a major debate in Congress next year about which parts to extend. (…)
