Fed Decision to Hold Rates Steady Was a ‘Close Call’ Federal Reserve officials who have spoken following last week’s high-profile policy meeting say a rate increase this year remains in the cards.
(…) The camp advocating caution won over the Federal Open Market Committee, which voted 9-1 on Thursday to keep its benchmark rate near zero—where it has been since December 2008—to get a better read on how global economic turbulence and unsettled markets are affecting the outlook. (…)
9-1 is not really a close call!
But the real surprise is the inconsistent message from Mrs. Yellen who had promised clear communications. During her press conference last week:
- U.S. real gross domestic product (GDP) is estimated to have expanded at a 2-1/4 percent pace in the first half of the year, a notably stronger outcome than expected in June
- The outlook abroad appears to have become more uncertain of late.
- the situation abroad bears close watching.
- I do not want to overplay the implications of these recent developments,
- which have not fundamentally altered our outlook.
- I want to emphasize domestic developments have been strong.
- The economy has been performing well, and we expect it to continue to do so.
- And as I’ve said in the past, we don’t want to wait until we’ve fully met both of our objectives to begin the process of tightening policy given the lags in the operation of monetary policy.
- The Fed should not be responding to the ups and downs of the markets and it is certainly not our policy to do so. But when there are significant financial developments, it’s incumbent on us to ask ourselves what is causing them. And of course what we can’t know for sure, it seem to us as though concerns about the global economic outlook were drivers of those financial developments. And so, they have concerned us in part because they take us to the global outlook and how that will affect us.
- So, it’s a lot of different pieces, different cross currents, some strengthening the outlook, some creating concerns, but overall, no significant change in the economic outlook.
Yet, the FOMC cut its forecast for growth, potential growth, inflation and future fed funds rate.
U.S. Existing Home Sales Fall Rising home prices are starting to catch up with buyers and may be leading some to put off buying for a little longer.
Existing home sales tumbled 4.8% in August to a 5.31 million seasonally adjusted annual rate, the National Association of Realtors said Monday, the steepest month-to-month decline since January, when they fell 4.9%.
Behind the decline were particularly big drops in the West and the South, two areas where prices have risen particularly sharply. In the South, where the median home price is up 6% over a year ago, month-to-month sales fell 6.6%. And in the West, where the median price rose 7.1% over the year, sales were down 7.8%.
Nationwide, the median home price hit $228,700 in August, a 4.7% increase over a year ago.
Sales of single-family homes were down 5.3% in August while sales of condominiums and co-ops dropped 1.6%. (Charts from Haver Analytics)
China is bracing for its second bond default by a central government-owned company, offering one of the biggest tests yet of Beijing’s willingness to impose market discipline on lossmaking state groups.
A unit of one of the elite club of 112 big enterprises directly owned by the central government, China National Erzhong Group employed a workforce of more than 13,000 in 2012, when it had assets of Rmb25bn. But a slowing economy saddled with industry overcapacity has hobbled the heavy industry group, leading to losses of Rmb8.4bn in 2014. (…)
The company suspended trading of Rmb1bn in five-year notes sold in 2012, citing “uncertainty” about whether it could meet a Rmb56.5m ($8.9m) interest payment due next week. (…)
China’s Workers Stumble as Factories Stall As factories run out of money and construction projects idle, China sees a rise in unrest
(…) Now, many migrant workers struggle to find their footing in a downshifting economy. As factories run out of money and construction projects turn idle across China, there has been a rise in the last thing Beijing wants to see: unrest. (…)
“There’s a broad structural imbalance in China’s labor market—a shortage of low-end labor and surfeit of high-end workers,” said Peng Xizhe, professor of population and development at Fudan University in Shanghai. “In China’s job market today, we see university graduates struggling to find work, while employers are finding it hard to fill traditional blue-collar positions.” (…)
China Labour Bulletin, a Hong Kong-based watchdog, has tracked more than 1,600 labor protests and strikes in China since January, already exceeding last year’s overall tally of 1,379. (…)
The recent unrest is still far from the massive protests that swept over China in the late 1990s and early 2000s as state-owned enterprises laid off tens of millions of workers and local governments expropriated farmland around emerging cities for development.
But the rise in frequency of strikes and protests has caused concern in Beijing, which in March urged bureaucrats across the country to prioritize “harmonious labor relations.” (…)
Wages in China’s manufacturing sector now exceed comparable levels in South and Southeast Asia by as much as six times, according to the state-backed Chinese Academy of Social Sciences. Some of the work has shifted to neighboring countries like Cambodia and Vietnam, while factories are also moving deeper into the mainland, and closer to home for many migrants. (…)
With the central bank leaving the question of when it will move hanging over markets, its focus on economic data and international circumstances means every report will stir more volatility, according to Morgan Stanley. (…)
Traders are entering “a new era” for currency volatility, according to a Sept. 17 report from Morgan Stanley. Data dependence by the Fed, declining currency reserves and regulatory changes mean elevated price swings will characterize the U.S. tightening cycle more than in the past, the bank’s New York-based analysts Calvin Tse and Evan Brown wrote. (…)
“What markets will be focused on is not only U.S. inflation but inflation around the world and growth around the world,” Rick Rieder, chief investment officer for fixed income at BlackRock Inc., the world’s largest money manager, said at a press event in New York on Sept. 18. “You’ll see more volatility going forward in FX.” (…)
Three alternative indicators suggest less of a deceleration in the world’s second-largest economy, and reduced risk of a hard landing. (…)
“The economy is still stable and we don’t see much volatility in consumption,” said Zhao Meng, Shanghai-based founder of UnionPay Advisors Co., which tracks bank-card spending data in real time to measure consumption patterns across various industries. “People still have the buying power.” (…)
* Rebounds at smaller businesses
Online interest in small- and medium-sized enterprises is seeing a rebound in September after recently falling to the lowest level since 2010, according to a preliminary reading of an index developed by Beijing-based Baidu Inc., which handles more than 6 billion searches a day.
Baidu tracks how often users click links to smaller companies. “Internet users’ search requests can reflect the market demand, and indicate the state of the businesses,” the company said in an e-mailed response to Bloomberg News.
* Rising prices in Alibaba shopping carts
Consumer-price inflation has picked up amid gains in food prices while a three-year streak of factory-gate deflation deepens. An index developed by Alibaba Group Holding Ltd., China’s largest e-commerce company, shows consumer prices quickening more than the government’s official reading.
Prices for all goods sold online rose 7.4 percent in August, an index developed by the Hangzhou-based company’s research arm shows.
Among 10 categories of goods Alibaba tracks, prices for a group that includes collectibles and financial services rose 14.1 percent from a year earlier, while the category for entertainment and education increased 13.7 percent. Food was 13.1 percent more expensive compared to a year earlier.
Still, there were some signs of deflation. Another indicator tracking a fixed basket of about 100,000 products showed prices for consumer staples fell compared with a year earlier, due mostly to cheaper clothing.
* Booming business at luxury hotels
An index of spending at luxury hotels in China rose to a record last month, indicating that wealthier travelers indulged themselves this summer, according to UnionPay Advisors, a research unit of China UnionPay Co., operator of the network that handles transactions for almost all of the nation’s bank cards.
Real-estate transactions have rebounded from last year’s lows, UnionPay data and official gauges show. UnionPay’s Zhao said he also sees signs of risk with spending at restaurants at about the same level as 2011, representing a sharp decrease from last year, according to his company’s data.
Based on our monthly GDP tracker, growth in July and August ran at 6.6 percent year on year — some way below the government’s 7 percent target. With a higher base to contend with, September data is unlikely to show much improvement. In the second quarter, our monthly indicator undershot the official reading as surging financial sector value added boosted growth (our monthly index doesn’t capture service sector output). In the third quarter, the collapse in the equity market means financial sector output will be more subdued. That raises the chances GDP will come in closer to the level predicted by our monthly tracker.
Glencore tumbled as much as 16 percent, the most ever, and slid below 100 pence for the first time since it began trading in 2011. Anglo American Plc touched a 15-year low and Antofagasta Plc sank 7 percent. KAZ Minerals Plc, a small copper miner in Kazakhstan, lost 25 percent.
The moves come following the reduction in growth forecasts for China by the Asian Development Bank which said that countries’ declining appetite for raw materials would hurt commodity-focused export economies.