Faltering Demand for New Workers

On net, the JOLTS data for July continue the cautionary tale about labor demand that the openings and turnover data have been telling for some time now. While in early August the July nonfarm payroll numbers forced markets to come to terms with the end of the exceptional jobs market that had followed the pandemic, JOLTS data has shown a labor market that is at, or slightly looser than, its 2019 state for some months now.

The most recent job openings data show few signs of the past year’s cooling in labor market coming to an end. Job openings at the end of July fell to 7.67 million from a downwardly revised 7.91 million (previously 8.18 million) in June. The continued downward trend adds to the latest readings on ebbing employer demand for new workers. A leveling-off in small business hiring plans has perhaps allayed some fears of further cooling in labor market conditions, but both today’s JOLTS data and Indeed’s new job postings provide little evidence that demand for workers is stabilizing.

Job openings per employed person, one of the Fed’s favorite metrics to gauge the balance between the demand and supply for workers, plummeted to 1.07 in July—about half of its post-pandemic peak. The drop in this measure comes as little surprise given the increase in unemployment in July. Still, as it slips, workers are becoming less confident in the prospects of finding work. Separately released data on consumer confidence has seen the share of consumers who report jobs as “plentiful” less the share reporting jobs as “hard to get” fall back to 2017 levels.

Decreased confidence and employers regaining the upper hand in hiring is manifesting in a depressed rate of workers quitting their jobs. Through the month-to-month volatility, the three-month moving average of the quit rate remains near its 2016–2017 level. Still, the anemic quit rate and dismal consumer perceptions of the labor market are not necessarily a reason to panic. After the feverish pace of turnover and an altered perception of “plentiful” given the remarkable post-pandemic environment, a return to a quieter period was not only somewhat inevitable, but by design as a part of the Fed’s tightening cycle. With fewer workers voluntarily leaving their jobs, employer hiring needs have settled down. The hiring rate remained suppressed on trend, and sits in the range of 2014 onboarding levels.

Even as demand for new workers continues to slide, employers remain reluctant to let go of existing workers. In July, the involuntary separation rate (i.e., employer-initiated layoffs and discharges as a percent of total employment) ticked up slightly to 1.1% but remains historically low. Other more timely measures of layoffs (such as initial claims, WARN notices and Challenger layoff announcements) provide little indication that separations are set to increase dramatically in the near term, keeping involuntary job separations as one of the brightest spots in labor market data at present. Even so, given the feeble demand for new workers, layoffs need to stay low in order to avoid a more marked slowdown in net hiring.

  

Source: U.S. Department of Labor and Wells Fargo Economics

As we flagged in our May JOLTS report, while for years the job market was able to cool via decreases in excess job vacancies without increases in the unemployment rate, we are now at the point where further slowing looks set to translate to higher joblessness. This is apparent in the Beveridge Curve, which plots the relationship between the unemployment rate and the rate of vacant job openings. The notable increase in the unemployment rate over recent months has accompanied a return of the job opening rate (4.6% in July) to 2019 levels and pushed the labor market firmly off the vertical portion of the Beveridge Curve.

We will get the unemployment rate for August on Friday, and we expect the jobless rate edged back to 4.2%. Even as the unemployment rate likely moderated after temporary layoffs carried the increase in July, between month-to-month volatility the labor market still appears on track to get somewhat worse before it gets better. With the jobs market back on the flatter portion of the Beveridge Curve, additional weakening in labor demand is likely to result in firms adjusting current staffing and not just job postings. While the continued cooling in the labor market evident in today’s JOLTS report—cooling beyond just normalization in the jobs market—is at this point undesired by the Fed, the key metrics in Friday’s job report—headline payrolls and the unemployment rate—will be critical in determining how much the FOMC may cut rates at its September 18 meeting.

This JOLTS report is for July. Indeed job postings, through August 30th, suggest labor demand may have stopped declining last month.

Wage growth may have stabilized in the 4.5-5.0% range vs 3.5-4.0% pre-pandemic.

Fed’s Beige Book Shows Stagnant, Declining US Economic Activity Employers more selective with hiring but layoffs remain rare

Employment levels were generally flat to up slightly, according to the report released Wednesday. While reports of layoffs were rare, some firms noted cutting shifts and hours, leaving advertised positions unfilled or reducing headcount through attrition.

“Employers were more selective with their hires and less likely to expand their workforces, citing concerns about demand and an uncertain economic outlook,” the report said.

Prices and wages increased modestly during the period, according to the Fed.

The Cleveland Fed compiled the latest edition of the Beige Book using information gathered on or before Aug. 26. The report includes commentary and anecdotes about business conditions in each of the Fed’s 12 regional districts, collected directly from businesses and other contacts.

The number of districts reporting flat or declining activity rose to nine in recent weeks, up from five in the prior period. Economic activity grew in three districts. Contacts, however, generally expected economic activity to remain stable or improve somewhat in coming months. (…)

This is helping a lot:

Oil prices slide

Analysts see several unrelated reasons for the recent declines.

• Weak Chinese economic data keeps arriving.
• Reports of a deal among rival Libyan factions to restore production.
• The end of the U.S. summer driving season.

“As long as we don’t see a major hurricane head into the Gulf,” Patrick De Haan, GasBuddy’s head of petroleum analysis, said in a research note, “the national average could fall below $3 [per gallon] in the next two months.”

Data: Yahoo Finance. Chart: Axios Visuals

In spite of geopolitical concerns, the price of oil fell sharply in recent days (chart). OPEC+ may delay production increases scheduled to start next month as a result of weaker Chinese oil demand. Furthermore, traders may be betting that a direct war between Israel and Iran is less likely. So oil’s geopolitical risk premium is falling and the technical picture looks quite bearish. That’s been bullish for bonds. (Ed Yardeni)

AI Adopters Aren’t Slashing Jobs So Far, NY Fed Survey Shows

On net, about 5% of service-industry firms in the New York area that reported using AI said that they reduced employees over the past six months, according to the Fed study conducted in August. The survey found little change in employment at manufacturers that adopted AI.

The researchers found that churn in employment among firms deploying AI is set to increase. But service companies using the technology said they’re more likely to add jobs than reduce them over the coming six months, a reversal of the pattern in the preceding period. (…)

Overall, 25% of service firms reported using AI and the share is set to rise to 32% in the coming six months. Among manufacturers, it’s forecast to remain at the current level of 16%. Across both industry groups, AI adopters said they are retraining around one-quarter to one-third of their staff, and predicted that the share will rise sharply in the coming months.

The most widely cited use of the technology was for marketing, advertising, business analytics and customer service, according to the survey. (…)

BoC Policy Monitor: Three in a row and plenty more to go

(…) Overall, there was very little changed relative to July as Macklem reiterated it is still “reasonable” to expect further rate cuts (as long as inflation cooperates). At the margin, there appears to be a bit more confidence on the inflation outlook as shelter prices are seen as “starting to slow”. And as we got a sense of in July, they “increasingly” want to guard against too much slack and inflation undershooting over the projection horizon.

They therefore “need” growth to pick up. What does it mean for the meetings ahead?

To us, the BoC’s base case outlook is for continued 25 basis points cuts at each of the remaining meetings in 2024 (and likely well into 2025 too). However, there is a growing focus on downside inflation/economic risks which should keep markets pricing some probability of a larger-than-25 basis point cut. That’s appropriate in our view given the balance of risks in the labour market and on the growth outlook. (…)

Eurozone economy grows at fastest pace in three months

The seasonally adjusted HCOB Eurozone Composite PMI Output Index increased for the first time since May to a three-month high of 51.0 in August, from 50.2 in July. Rising further above the 50.0 no-change mark, the latest figure therefore pointed to a re-acceleration of growth, although the overall pace of expansion that was implied was only marginal overall.

Growth in the euro area was fueled entirely by services activity, which rose at the fastest rate in three months. Manufacturing production continued to shrink, extending the current sequence of decline in factory output to 17 months.

A major force behind August’s accelerated euro area expansion was France, where private sector output rose at the quickest rate since May 2022. Despite this, the eurozone’s second-largest economy still ranked behind Spain (the best-performing nation for which Composite PMI data are available), which posted a solid and slightly stronger upturn. Improved growth rates were also seen in Ireland and Italy, while Germany bucked the trend by posting a second successive decline in private sector business activity.

Although output growth quickened across the single currency union in August, latest HCOB PMI survey data revealed a further modest decrease in the volume of incoming new business received by private sector firms. Weighing on demand was a sharp and steeper deterioration in sales across the manufacturing sector, more than offsetting a slightly quicker improvement in service sector new orders.

Export business presented a headwind to sales performance in August. The latest survey data showed that new orders received from non-domestic clients shrank at the quickest rate since January. Manufacturers and service providers both recorded weaker new export business midway through the third quarter.

Capacity pressures continued to dwindle across the eurozone’s private sector, as evidenced by a seventeenth successive monthly reduction in backlogs of work. Additionally, the pace at which outstanding business fell was the quickest since February.
For the first time since the start of 2021, the seasonally adjusted HCOB Employment Index recorded below the critical 50.0 threshold, signalling a reduction to workforce numbers across the euro area private sector. That said, the decline was only fractional overall as sustained (albeit softer) job creation across the service sector was only narrowly cancelled out by headcount reductions across the manufacturing industry.

Nevertheless, renewed job cutting came amid a further deterioration in business confidence – the third in as many months. Although eurozone firms anticipate output to rise over the coming 12 months, the degree of optimism slipped to its lowest in the year-to-date.
Meanwhile, the latest HCOB PMI survey revealed a marked cooling of input price inflation, with overall operating costs rising at a pace that was the weakest in 2024 so far and broadly aligned with its pre-pandemic average. There was a particularly marked easing of cost pressures across the service sector. However, prices charged for euro area goods and services rose at the quickest pace since April.

The HCOB Eurozone Services PMI Business Activity Index signalled a quicker pace of expansion in output across the single currency union’s services economy midway through the third quarter. Increasing to 52.9 in August, from 51.9 in July, the index was at its highest level in three months and broadly in line with its historical average since 1998 (52.7).

Stronger activity was supported by a concurrent rise in new business inflows. The upturn in sales was slightly stronger than that seen in the previous survey period, but only mild overall. Demand growth was reflective of improved domestic market conditions, as new export business shrank at the quickest rate since February.

Outstanding order volumes fell for a fourth month in succession during August. The rate of backlog depletion also accelerated to its fastest for six months. A faster workload completion rate came amid a further uplift in employment levels. The rate of job creation was the softest in 2024 so far, however.

Input prices faced by eurozone service providers rose again in August, albeit to the weakest extent in over three years. Despite cost pressures abating, prices charged increased at the strongest rate since May

Commenting on the PMI data, Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said:

“The Olympic Games in Paris brought plenty of victories, and the French service sector was certainly among the winners. The latter helped drive accelerated growth in the eurozone’s service sector for August. But the big question is whether this boost is sustainable. The positive vibes from the Games and the ongoing Paralympics might carry through into September in part, but we expect the slowdown in growth, which started in May, to likely resume in the coming months.

“As for the ECB, they are probably breathing a small sigh of relief thanks to the latest prices data. Although service providers nudged up their prices slightly more in August compared to July, overall cost pressures, especially those driven by wages, have eased. This will likely weigh more heavily in the ECB’s considerations. Coupled with the favourable inflation numbers Eurostat recently released for August, the ECB is likely to see this as further justification for cutting interest rates at their September 12 meeting.

“The “Olympic effect” is also set to ensure that the eurozone’s GDP will show growth in the third quarter. It’s encouraging that the service sector is showing growth across the board geographically, with the HCOB PMI above 50 points in all four major eurozone economies. However, it’s a tale of two sectors: while services are driving the growth, the manufacturing sector remains stuck in recession, with conditions worsening in several countries, including Germany and France.”

Eurozone retail sales continue to flatline

(…) Retail sales have been slowly bottoming out after a large post-pandemic correction, but there is no evidence yet of a real recovery. The 0.1% increase in July still leaves retail sales 0.3% below the May reading.

Retail sales have suffered from the reopening of services after the pandemic and from a decline in real incomes for Europeans, which has limited goods consumption. While the reopening effects have been wearing off and real incomes are recovering, there is still no evidence of a rebound for retail. This also limits inflation expectations for goods, even though input costs have increased recently.

As a first reading of what the consumer is doing in the third quarter, this does not give us much hope of a surprise surge in household consumption. Perhaps the Olympics have boosted consumption in France, but don’t expect major surprises there. Today’s sluggish sales figures illustrate the weak economic growth environment that the eurozone is currently in.

Country Garden Seeks Fresh Onshore Debt Overhaul as Sales Slump Builder says home sales yet to recover, funds being restricted

(…) “The company seeks to negotiate a new debt management plan with bondholders to better align with the latest situation in the property market and corporate funding,” Country Garden told Bloomberg News on Thursday. The firm has yet to secure enough cash to repay its onshore bond principal and interest and needs to seek debt extensions, it added.

The distressed real estate company pointed to waning homebuyer demand and a deteriorating market outlook, which led to a 78% plunge in its contracted sales in the first eight months. Fund allocation restrictions also made it unable to collect enough money for payments due, the company added.

Country Garden, once China’s biggest developer by sales, has seen a sharper slowdown than its peers due to its focus on projects in smaller cities. It defaulted on dollar notes in October and has been pushing back onshore bond payment dates.

As the impact of China’s latest housing rescue package wanes, new-home sales in so-called tier-3 cities have shrunk faster, according to a note by researcher China Index Holdings. Country Garden’s year-to-date sales decline is more than double the 36.5% slide at the 100 biggest real estate companies tracked by China Real Estate Information Corp. (…)

China’s Earnings Setback Sows Fresh Doubts About Stock Rebound Major tech firms’ EPS growth was the slowest since late 2022

Earnings per share for the MSCI China Index fell 4.5% from the year earlier in the second quarter, its worst in five quarters, according to data from Bloomberg Intelligence. Underscoring the contraction was weakening support from the country’s eight biggest tech firms, whose overall EPS growth at 19% was the slowest since the last quarter of 2022. (…)

“The biggest drag on this earnings season is weakening domestic demand,” said Minyue Liu, an investment specialist for Greater China and global emerging-market equities at BNP Paribas Asset Management. (…)

As the nation’s tech giants intensify cost control to boost profitability, investors are shifting their focus toward their ability to generate revenue in an increasingly tough climate.

“Overall, the guidance from many of these tech companies on the sales outlook suggests lingering consumer weakness, and that is what is holding back market sentiment at the moment,” said Marvin Chen, a Bloomberg Intelligence analyst. (…)

The earnings picture is even more bleak in other industries.

Real estate and consumer staples firms, the most direct casualties of weaker purchasing power, were among the biggest laggards in the latest earnings season: major developer China Vanke Co. suffered a half-year loss for the first time in more than two decades, while retailers including Li Ning Co. have toned down sales guidance.

Banks are also under pressure as falling interest rates and depressed loan demand has driven margins to record low levels.

All that has fueled pessimism about the outlook of Chinese stocks. The consensus EPS growth estimate for MSCI China this year has slid to about 11%, from 15% at the beginning of the year and a peak of 16% late last year, a Bloomberg Intelligence analysis shows.

“We expect more disappointing earnings results to come through and trigger further consensus downward revisioning,” Morgan Stanley strategists including Laura Wang wrote in a note last week. “We therefore continue to caution against premature optimism at the broad index level and see a largely range-bound market.”

US Election a Top Global Risk But Tricky to Forecast, BofA Says Variables include president and congress makeup, geopolitics

The US election is emerging as one of the top risks to the global economic outlook, though it’s tougher than usual to predict just how it will play out, according to Bank of America’s head of global economics research.

Both candidates — former President Donald Trump and Vice President Kamala Harris — have yet to specify their policy platforms and are operating in an economy that’s quite different from just four years ago, Claudio Irigoyen said in an interview in Hong Kong Thursday. (…)

“The market is not trading the election yet. The market has been focusing a lot on the behavior of the US economy” and how much the Fed will cut interest rates this year, he added. (…)

Goldman Sachs Group Inc. this week cautioned that US GDP faces a hit in the case of a Trump victory as the drag on growth from tariffs and tighter immigration would outweigh the boost from a positive fiscal impulse.

Trump has floated across-the-board tariffs of 10% on imports and levies of 60% on Chinese goods. Harris has described such plans as a tax on the middle class, but is broadly expected to continue on President Joe Biden’s path of trying to reduce reliance on Chinese imports and block its access to advanced technologies.

The challenge for the Fed will be contending with the risk of higher inflation if heavy tariffs are implemented, Irigoyen said. A Republican sweep would present the highest risk of abrupt policy change, Bank of America found in a July report, with the boost from lower taxes canceled out by higher tariffs. (…)

MANUFACTURING PMIs (2)

USA: Production falls for first time in seven months

The seasonally adjusted S&P Global US Manufacturing Purchasing Managers’ Index™ (PMI®) posted 47.9 in August, down from 49.6 in July and below the 50.0 no-change mark for the second consecutive month. The latest reading signaled a modest deterioration in the health of the manufacturing sector, and one that was the most marked in 2024 so far. (…)

Firms scaled back production in response to falling sales as demand across the sector waned. Indeed, new business decreased for the second month running. The solid reduction in new orders was the most marked since June 2023. In some cases, clients showed a reluctance to commit to new projects given a slowdown in market demand. Inflationary pressures also had a negative impact on new business.

New export orders were down again, falling for the third month running and at a solid pace. Geopolitical issues were partly responsible for the latest reduction in overseas demand, according to respondents.

As was the case with production, manufacturers saw a renewed decline in employment midway through the third quarter. Staffing levels decreased for the first time in 2024 so far, reflecting falling new orders and lower output requirements.

Purchasing activity was also scaled back, with the pace of decline the sharpest in the year-to-date. Firms reported efforts to draw down inventories in response to falling new orders, resulting in a sixth successive monthly drop in stocks of inputs. In part, the reduction in pre-production inventories also reflected efforts to improve cash flow.

Despite a reduction in capacity, manufacturers were again able to work through outstanding business as new orders fell solidly. Backlogs of work were depleted for the twenty-third month running, and at the fastest pace since April. (…)

In contrast to the picture for stocks of purchases, inventories
of finished goods increased during August, the second month in a row in which this has been the case. Some respondents indicated that they had made use of the spare capacity provided by a reduction in client demand to replenish stocks of finished products, while others noted unintended inventory accumulation.

The rate of input cost inflation quickened to a 16-month high in August and was above the average seen prior to the COVID-19 pandemic. Higher costs for shipping and labor were reported, alongside rising raw material prices. In turn, output prices also increased at a faster pace, albeit one that was still the second-slowest in 2024 so far. (…)

• ISM Rises for the Wrong Reasons in August

(…) Only two of the five components that feed into the headline rose in August. Employment (up 2.6 to 46.0) and inventories, which rose twice as much (+5.8 points to 50.3). Production, supplier deliveries and new orders were all lower. The most disconcerting development is the 2.8 point drop in new orders, which took this leading indicator to its lowest since May of last year.

While a sub-50 print may indicate a discouraging backdrop for the factory sector, it takes an even lower reading to signal outright recession for the broader economy; 42.5 in fact, according to the ISM. So today’s report for August activity is broadly consistent with a theme that has been in place for the better part of the past two years: the economy is still expanding even if the factory sector is not. (…)

The new orders component slid nearly three points to the lowest reading since May of last year, and the only of the six largest industries to report an increase in new orders was the computer & electronic products—which has been a notable bright spot in an otherwise flagging sector. The measure of current production also slid deeper into contraction last month.

As mentioned, most of the strength came from inventories. While inventories can be volatile, it’s the first time this component crested above 50 since early 2024 and the release notes manufacturers adjusting to lower output levels and timing issues. In other words, this inventory was unintended and a consequence of slowing demand. Without the inventory build, the overall ISM composite index would have seen a decline twice as large in August. (…)

Canada: PMI moves closer to stabilisation in August

(…) August’s survey revealed weaker contractions in both output and new orders. Panellists nonetheless continued to report a subdued economic environment, both at home and abroad. Clients were said to be hesitant in committing to new work linked to some uncertainty in the geopolitical and global economic outlooks.

New export orders declined for a twelfth successive month, although the rate of contraction also softened noticeably to its slowest since May.

The lack of incoming new work and reduced production requirements meant firms cut their staffing levels for the second time in the past three months. The decline was also the steepest in 2024 so far, with reports of the nonreplacement of leavers and some concerns about the economic outlook leaving firms reticent to hire new workers. (…)

Some firms remained concerned over the impact on demand of elevated prices and high interest rates.

Price pressures intensified during August. Input price inflation accelerated to its steepest level since April 2023, linked to higher prices for a variety of inputs (plastics were especially noted). There were also reports that unfavourable exchange rate movements and high shipping costs had raised overall input prices. In response, manufacturers raised their own charges to the greatest degree since last November. Meanwhile, firms also reported ongoing sea freight delays. (…)

Global manufacturing production, new orders and employment all decline slightly in August

The J.P.Morgan Global Manufacturing PMI™ – a composite index produced by J.P.Morgan and S&P Global Market Intelligence in association with ISM and IFPSM – fell to an eight-month low of 49.5 in August, to remain below the neutral 50.0 mark for the second successive month.

Out of the 31 surveys for which August data were available, 18 registered a PMI reading consistent with a deterioration in manufacturing operating conditions. This included downturns in the US, the euro area as a whole and Japan. Although, the China PMI moved slightly back above the nochange mark, at 50.4 it remained at a subdued level. Solid growth was seen in India – which was also the best performer by far – the UK and South Korea (among others).

August saw global manufacturing production decrease, albeit only slightly, for the first time in 2024 so far. Output contracted in both the intermediate and investment goods industries. Although the upturn at consumer goods producers continued, the rate of growth was only mild and the weakest during the current 13-month sequence of expansion.

July and August have seen back-to-back contractions in the level of new work received by global manufacturers. The rate of growth was also identical to the prior survey month.

All three of the sub-industries covered by the survey (consumer, intermediate and investment goods) saw new order intakes decrease. The trend in global trade was especially subdued, as the volume of new export business flows fell for the third straight month and at the quickest pace since last December. China, the US, Japan, Germany and the UK were among the larger exporting nations to register reduced new export order intakes. (… )

The outlook for the global manufacturing sector remained potentially lacklustre in August. Business optimism remained below its long-run survey average and among the weakest over the past one-and-a-half years. The forward looking new orders-to-finished goods inventory ratio was also unchanged from July’s nine-month low. Manufacturers’ cautious outlook was also reflected in further reductions to purchasing activity and inventory holdings.

Average purchase prices rose for the thirteenth consecutive month in August, albeit to the weakest extent since May. Part of the increase in costs was passed on to clients, as highlighted by a further rise in average selling prices.

China Services Expansion Cools in New Sign of Economic Weakness

The Caixin China services purchasing managers’ index fell to 51.6 in August, versus 52.1 the previous month, according to a statement released by Caixin and S&P Global on Wednesday. (…)

“Competition in the sector was still fierce, and boosting sales through price cuts became a priority for businesses,” Wang Zhe, senior economist at Caixin Insight Group, said in a statement. “Surveyed companies adopted a cautious approach to hiring to save costs, leaving the labor market under pressure.” (…)

Official data published over the weekend showed service industries from restaurants to tourism near contraction during the last month of summer. The sector is at the center of piecemeal government action to revive consumer demand weighed down by a prolonged real estate crisis. (…)

The non-manufacturing measure of activity in construction and services eked out growth last month thanks to consumer appetite during the summer holiday season, the National Bureau of Statistics said on Saturday. Unlike the official services PMI, the Caixin survey focuses more on smaller private firms. (…)

Bloomberg omitted this important, more forward-looking, segment of the survey:

Service activity expansion was sustained by rising new business inflows in August according to the latest data. Chinese service providers often linked the expansion of new work to better underlying demand conditions and a widening of service offerings. In line with overall business activity, new work inflows expanded at a softer rate compared to July.

In contrast, export business increased at an accelerated pace. According to panellists, there was an uptick in overseas client interests, including in the tourism industry, which supported faster export business growth.

How Immigration Remade the U.S. Labor Force A historic influx of migrants has changed the size, makeup and outlook of the U.S. labor market and the economy.

Good article by the WSJ’s Paul Kiernan, supplementing my arguments that surging immigration helped “normalize” the U.S. labor market (see Lucky Fed!).

(…) Immigrants who have arrived since the start of 2020 face higher jobless rates than the broader population. Unemployment for recent immigrants averaged 8.2% between May and July, versus 4.2% for American-born workers and 3.5% for earlier immigrant cohorts. Overall unemployment has crept up this year, to 4.3% in July, in part due to the swelling numbers of immigrants looking for jobs.

Recent immigrants tend to earn less than U.S.-born workers because of their lower level of education, lack of English, and in some cases because they are working without permission. They might also compete with existing workers with less education and put downward pressure on their wages, too. Through these channels, the surge in immigration could weigh slightly on overall wages and productivity in the near term, according to the CBO.

However, the drag fades over time as migrants gain experience, and those with college degrees contribute to innovation, the CBO says. And from the day they start working, migrants pay federal taxes, helping to reduce the federal deficit. (…)

For Volkswagen, the Bumpy Road to Electric Vehicles Starts to Hit Home The auto giant is considering cuts it has long avoided in Germany as it contends with tepid interest in a high-cost technology.

(…) Group Chief Financial Officer Arno Antlitz blamed the poor result squarely on the poor postpandemic recovery. “In Europe, two million fewer vehicles are currently sold than before Covid,” he said.

However, a big bet on electric vehicles under former CEO Herbert Diess with products such as the ID.3 and ID.4 is another reason for today’s weak profitability, according to analysts.

“There are plants dedicated to EVs that aren’t producing at the levels expected and costs are out of whack,” said Bernstein analyst Stephen Reitman.

A few days before Volkswagen announced its December deal with the union, the German government unexpectedly canceled EV subsidies. The technology has struggled to win over fresh cohorts of buyers who may be wary of patchy public charging infrastructure and high prices.

EV sales in Germany, where Volkswagen is the market leader, fell by a fifth in the year through July, compared with the same period of 2023. (…)

The company also needs to compete with lower-cost, faster-moving Chinese EV makers, not just in China but increasingly in Europe too. Chinese manufacturers have a cost advantage of as much as 30%, according to industry estimates. (…)

BYD, the Chinese brand that last year overtook Volkswagen in China, is still a marginal player in Europe, but it is growing fast and spending lavishly. This summer it sponsored the high-profile Euro 2024 soccer tournament and last week agreed to buy its German distributor. (…)

In his statement, Blume noted that “Germany in particular as a manufacturing location is falling further behind in terms of competitiveness.”

Labor costs in Germany are the highest in Europe, according to an analysis by the German Association of the Automotive Industry. A German auto worker cost roughly €62 an hour last year—equivalent to roughly $68.50—compared with €23 for a Czech worker and €29 for a Spanish one. In Hungary, where BYD is building a factory to avoid European Union tariffs, auto workers are paid only €16 an hour.

Germany’s energy costs also have risen since the country lost access to cheap Russian pipeline gas as a result of the war in Ukraine. (…)

Axios has this important factoid:

VW is also a bloated company compared with its competitors, meaning it has less margin for error. The company had some 684,000 employees in 2023. That’s about 309,000 more than the ever-efficient Toyota, which sold about 2 million more vehicles than VW worldwide last year.

Meanwhile

China EVs, Hybrids Set to Cement Sales Lead Over Gasoline Cars

Sales of electric and hybrid vehicles in China likely surged in August, surpassing faltering deliveries of conventional gasoline cars for the second month in a row.

Sales of electric and plug-in hybrid vehicles rose 42% year-on-year to just over a million units, according to preliminary data from China’s Passenger Car Association Wednesday. Overall vehicle shipments meanwhile shrank 1% from the same period last year to 1.9 million units. Sales of EVs and hybrids are expected to be 53% of the total in the month. (…)

The strong momentum in the EV segment for what is normally a slow period for car production and sales comes after the government doubled subsidies for trading in old vehicles at the end of July. Buyers who purchase qualifying new EVs or gasoline cars can receive up to 20,000 yuan ($2,811).

EV makers benefited from the boost. Stellantis partner Zhejiang Leapmotor Technologies Ltd.’s August sales surged 113% compared with the same time last year, and premium brand Zeekr grew 46%. Market leader BYD Co. increased deliveries in August by 30% to 370,854 vehicles.

Yuqian Ding, head of China autos research at HSBC Qianhai Securities Ltd., said BYD’s monthly volumes into September and October will continue to be robust with its strong new model supply, expanding overseas footprint, and enhanced trade-in subsidy “likely to refresh new highs on monthly deliveries.”