Reuters News - U.S. economic recovery slow and modest, but some sectors struggling: Fed survey

 (Reuters) - The U.S. economy continued to recover at a slight to modest pace through early October as consumers bought homes and increased spending, but the picture varied greatly from sector to sector, the Federal Reserve said on Wednesday.

The Fed’s survey was conducted in its 12 districts from September through Oct. 9.

“Districts characterized the outlooks of contacts as generally optimistic or positive, but with a considerable degree of uncertainty,” the Fed said in its anecdotal survey of businesses.

After declining from late July to early September, coronavirus infections are on the rise again in the United States. Thirty-four out of 50 states have seen new cases increase for at least two weeks in a row, up from 29 the prior week, according to a Reuters analysis here.

Cooling temperatures may usher more consumers indoors, potentially leading to more cases. Restaurants and other businesses that benefited from outdoor seating over the summer months may also face another setback if customer traffic slows.

House Speaker Nancy Pelosi, a Democrat, reiterated Wednesday she was “optimistic” that Congress can hash out another aid package to help struggling households and businesses before the Nov. 3 election, but doubts linger whether Republicans will get on board.

Fed policymakers pledged at their September meeting to keep interest rates near zero until inflation is on track to stay moderately above the central bank’s 2% target for some time and until the labor market is closer to full employment. Officials are set to meet again shortly after the presidential election, concluding their next gathering on Nov. 5.

Reporting by Jonnelle Marte; Editing by Andrea Ricci

Our Standards: The Thomson Reuters Trust Principles.

BBC News - China's economy continues to bounce back from virus slump

 

China's economy continues its recovery from the Covid-19 pandemic according to its latest official figures.

The world's second-biggest economy saw growth of 4.9% between July and September, compared to the same quarter last year.

However, the figure is lower than the 5.2% expected by economists.

China is now leading the charge for a global recovery based on its latest gross domestic product (GDP) data.

The near-5% growth is a far cry from the slump the Chinese economy suffered at the start of 2020 when the pandemic first emerged.

For the first three months of this year China’s economy shrank by 6.8% when it saw nationwide shutdowns of factories and manufacturing plants.

It was the first time China’s economy contracted since it started recording quarterly figures back in 1992.

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Gathering pace

The key economic growth figures released on Monday suggest that China’s recovery is gathering pace, although experts often question the accuracy of its economic data.

The quarterly figures are compared to the same quarter of 2019.

"I don't think the headline number is bad," said Iris Pang, chief China economist for ING in Hong Kong. "Job creation in China is quite stable which creates more consumption."

China’s trade figures for September also pointed to a strong recovery, with exports growing by 9.9% and imports growing by 13.2% compared to September last year.

Over the previous two decades, China had seen an average economic growth rate of about 9% although the pace has gradually been slowing.

While the Covid-19 pandemic has hampered this year's growth targets, China also remains in a trade war with the US which has hurt the economy.

Broadening recovery

Analysis by Robin Brant, BBC China correspondent

China's economy continues to grow at rates unimaginable in other Covid-hit countries.

Draconian lockdown measures to control the virus combined with some government stimulus appeared to have worked well.

While growth of 4.9% is slightly below some forecasts, industrial output - a good barometer of state controlled activity - came in above expectations.

China's communist party rulers wanted to see ramped up supply, but retail sales were slower than predicted.

Nonetheless it appears to be a broadening recovery with the all-important services sector rebounding.

Domestic tourists and travellers have probably helped the recovery continue by spending their money at home because global restrictions mean they can't - yet - go abroad.

Cash injections

Earlier this year China's central bank stepped up support for growth and employment after widespread travel restrictions choked economic activity. But it has more recently held off on further easing.

Premier Li Keqiang warned earlier in October that China needs to make arduous efforts to achieve its full-year economic goals.

For the second quarter of this year, economic growth in China reached 3.2% as it started its rebound.

"China's economy remains on the recovery path, driven by a rebound in exports," said Yoshikiyo Shimamine, chief economist at the Dai-Ichi Life Research Institute in Tokyo.

"But we cannot say it has completely shaken off the drag caused by the coronavirus."

Travel boom

China's economy should also get a boost this year from "Golden Week" - an annual holiday in October that sees millions of Chinese travel.

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With international travel severely restricted, millions of Chinese have been travelling, and spending, domestically instead.

There were 637m trips in China over the eight-day holiday which generated revenue of 466.6bn RMB ($69.6bn, £53.8bn), according to data from its Ministry of Culture and Tourism.

Duty-free sales in the tropical island province of Hainan more than doubled from last year, soaring by nearly 150% according to the local customs data.

Reuters News - U.S. retail sales beat expectations; outlook murky

 WASHINGTON (Reuters) - U.S. retail sales rose more than expected in September, rounding out a strong quarter of economic activity, but the recovery from the recession is at a crossroads as government money runs out and new COVID-19 infections surge across the country.

Retail sales jumped 1.9% last month as consumers bought motor vehicles and clothing, dined out and splashed on hobbies, the Commerce Department said on Friday. That followed an unrevised 0.6% increase in August. Economists polled by Reuters had forecast retail sales would rise 0.7% in September.

Excluding automobiles, gasoline, building materials and food services, sales increased 1.4% last month after a downwardly revised 0.3% drop in August.

These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. They were previously estimated to have dipped 0.1% in August.

Retail sales have bounced back above their February level, with the pandemic boosting demand for goods that complement life at home, including cars, furniture and electronics.

U.S. stock index futures slightly extended gains after the report. The dollar was weaker against a basket of currencies. U.S. Treasury prices were trading mostly lower.

Fiscal stimulus, especially a weekly subsidy paid to tens of millions of unemployed Americans, boosted retail sales, putting consumer spending and the overall economy on track to post the fastest growth on record in the third quarter.

Growth estimates for the July-September quarter are as high as a 35.2% annualized rate. The economy contracted at a 31.4% pace in the second quarter, the deepest decline since the government started keeping records in 1947.

But money from the government has virtually dried up. The White House and Congress are struggling a reach a deal on another rescue package for businesses and the unemployed. The government reported on Thursday that new claims for unemployment benefits increased to a two-month high last week.

Rising coronavirus infections could lead to business restrictions that might undercut spending on services such as restaurant dining, which remains below pre-pandemic levels.

Growth estimates for the fourth quarter have been cut to as low as a 2.5% rate from above a 10% pace. Some economists believe that historic savings could cushion consumer spending in the absence of more financial aid from the government.

Last month, sales at auto dealership surged 3.6% after rising 0.7 in August. Receipts at restaurants and bars increased 2.1%, though the pace slowed from the 4.3% gain in August. Online and mail-order retail sales rose 0.5%. Furniture store sales gained 0.5%. Receipts at clothing stores jumped 11.0%.

Sales at sporting goods, hobby, musical instrument and book stores rebounded 5.7%. But purchases at electronics and appliance stores fell 1.6% after months of strong gains.

Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Paul Simao

Our Standards: The Thomson Reuters Trust Principles

BBC News - Tax rises of more than £40bn a year 'all but inevitable'

 The Institute for Fiscal Studies said borrowing this year will hit levels not seen in peacetime due to the pandemic.

It said the state had pumped an extra £200bn into the economy to support jobs, businesses and incomes this year.

This was necessary but would mean big tax hikes into the middle of the next decade, the IFS said.

To pay for the services it provides, the UK government borrows from pension funds, insurance companies and investors around the world, then tries to balance its books through taxes.

But in an update originally meant to accompany the chancellor's now scrapped Autumn Budget, the IFS said this would become harder as the crisis rolled on.

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It said the economy was forecast to be 5% smaller in 2024-25 than was projected back in March, which would leave the country with a £100bn hit to its finances from lower tax revenues.

At the same time, it said "higher borrowing will be with us for some time to come".

The government will not, as the chancellor promised just a week ago, "always balance the books" and the Conservative manifesto commitment on lower debt is impossible, says the Institute for Fiscal Studies in its annual audit of the public finances.

Annual government borrowing this year will reach levels only previously reached during world wars, while the national debt will be bigger than the economy, reaching 110% of GDP by 2025.

However, the IFS warns that now is not the time for tax rises or spending cuts. The economy will continue to need support because of one of the worst pandemic hits to growth in the world, alongside the prospect of new post-Brexit trade barriers with the EU.

For now, extra borrowing is helped by extraordinarily low rates of interest paid by the government. But the IFS outlines a scenario where even significant tax rises, worth £40bn a year from the middle of this decade, will fail to get the size of the national debt below 100% of GDP.

Repaying the Covid support spending is, the institute suggests, going to be a delayed and then very gradual programme of tax-and-spend restraint that could last a generation.

Paul Johnson, director of the IFS, said the government had no choice but to ramp up spending in the short term, and there was little it could do "fully to protect the economy into the medium run".

"We are heading for a significantly smaller economy than expected pre-Covid and probably higher spending too.

"Without action, debt - already at its highest level in more than half a century - would carry on rising. Tax rises, and big ones, look all but inevitable, though likely not until the middle years of this decade."

The UK's national debt - how much it owes investors and lenders - rose above £2 trillion for the first time in August.

The think tank said it expects debt will be just over 110% of national income by 2024-25. This would be up from 80% before the pandemic and 35% in the years leading up to the 2007-08 financial crisis.

The IFS said the UK had benefited from historically low interest rates during the crisis, which made it cheaper to borrow.

But it warned any increase in rates could, if not accompanied by stronger growth, be "hugely problematic for the public finances".

The forecast comes as the UK economy remains under stress. In an accompanying analysis, Citibank said every major economy bar China shrank in the first half of this year, mostly by historically large margins.

Spain and the UK did the worst, with output drops of roughly 20%, more than double the hit in the US or Germany.

The bank warned that even if another round of major lockdowns can be avoided, most economies will not return to pre-pandemic levels of output until 2021 or 2022.

And even when the pandemic is over, there will be lingering effects on consumer demand due to increased caution, shifts in behaviour and rising unemployment.

Citibank forecasts the unemployment rate in the UK is likely to increase to about 8% to 8.5% - or 2.7 to 2.9 million people out of work - in the first half of 2021.

That could see unemployment at its highest level since the early 1990s.

Reuters News - After two lost decades, U.S.'s weakest local economies may face worse from pandemic

 (Reuters) - A decade-long economic expansion did little to narrow the gaps between the United States’ prosperous and ailing areas, with thousands of “distressed” zip codes shedding jobs and businesses in a trend that laid the groundwork for the developing “K” shaped recovery from the coronavirus pandemic.

New analysis from the Economic Innovation Group studying economic patterns across roughly 25,000 zip codes showed that from 2000 through 2018, already prosperous areas pulled further ahead, capturing disproportionate shares of the jobs created and the new businesses that were formed.

For 5,000 or so “distressed” zip codes it was by contrast a period of lost opportunity as they fell further behind, with the number of jobs declining even deep into the recovery, and those that remained more concentrated in industries and occupations likely to have been disrupted by the pandemic.

Economists analyzing the U.S. path to recovery are worried that inside national measures of economic growth lie deepening divisions between industries and people as some sectors recover fast, while employment in the leisure and hospitality industry, for example, remains 20% below where it was in February.

Such service sector workers, the EIG found, made up a disproportionate share of workers in areas already falling behind economically.

“Communities that were already vulnerable going in, that had already been largely overlooked by the period of growth preceding the pandemic, are the most vulnerable to its effects,” said EIG President John Lettieri.

Within the roughly 5,000 worst-off zip codes nearly a quarter of working adults were employed in service occupations as of 2018.

By contrast, in prosperous zip codes only 13% of employed adults were in service jobs, while half were in management or professional occupations, a group of jobs considered more adaptable to work-from-home arrangements.

The study combines a variety of statistics on education, poverty rates and employment into an index that divides U.S. zip codes into five groups, with the top 20% considered “prosperous” and the bottom considered distressed.

The study did document improvement. Around 33 million more Americans were living in “prosperous,” “comfortable” or mid-tier zip codes in 2018 than in 2000 - prosperity that increasingly moved towards urban areas. Those zip codes also became more ethnically and racially diverse, with the share of non-white residents in prosperous areas rising from 16% to 26%. More Americans in distressed areas are also graduating high school.

But the gaps remained large. The number of Americans living in distressed areas remained about 50 million, unchanged since 2000, and a disproportionate share were Black and Hispanic. About 56% of Blacks and 45% of Hispanics lived in economically distressed or at-risk areas.

From 2000 through February 2020, the United States went through two recessions, one of them deep, but also had its longest measured period of uninterrupted growth.

It did little to change the economic landscape, with roughly two-thirds of zip codes remaining in the same category in which they started. With a third recession sparked by the pandemic now underway, the divide may grow deeper.

Reporting by Howard Schneider; Editing by Andrea Ricci

Our Standards: The Thomson Reuters Trust Principles.

BBC News - IMF upgrades 2020 economic forecast but warns of a slower 2021

The International Monetary Fund (IMF) is forecasting a somewhat less severe recession than it predicted in June.

The change in the outlook applies to both the global economy and the UK.

But the IMF says in its World Economic Outlook that the global economy is still in deep recession and the risk of a worse outcome than in its new forecast is "sizable".

For Britain, the IMF now predicts the economy will decline by 9.8% this year. The June forecast was 10.2%.

However, the rebound expected next year is also more moderate. In the case of the UK, that downgrade is similar to the upgrade for this year.

The contraction the IMF predicts for 2020 in Britain would be the second deepest fall among the G7 group of largest rich economies. Only Italy is predicted to do worse.

Beyond the G20 India is likely to also likely to experience a deeper decline this year than the UK. So is Spain. Tourism-dependent economies are in a "particularly difficult spot", the report notes.

Government response

For 2021, the British forecast is only a partial recovery of 5.9%, which would leave the economy still smaller than last year.

The predicted global economic contraction is also more moderate than the IMF envisaged four months ago, at 4.4%. That is followed by rebound of 5.2% next year, which is less than the previous prediction. Next year's world downgrade is less than this year's upgrade.

The slightly less-bleak assessment reflects downturns in several large developed economies in the April-to-June quarter of the year that were not as severe as the IMF expected. The return to growth in China, where the pandemic arrived first and was held back first, was stronger than expected.

The outcome would have been weaker, the IMF says, had it not been for the sizable response from governments and central banks that maintained household incomes, protected cash flow for firms and supported lending.

The big departure from the pattern of upgrades is India and some developing economies in South-East Asia. India experienced a particularly sharp decline in economic activity in the second quarter of this year.

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'Major setback'

The IMF warns that the global recovery is not assured while the pandemic continues to spread. Research the agency published last week suggested that the downturn was only partly attributable to lockdown restrictions on activity imposed by governments.

Much of it reflected voluntary social distancing by people reluctant to do things that expose them to increased risk of infection.

The implication of that is that a complete recovery needs more decisive progress in tackling the virus, such as a vaccine.

The report says that most economies will suffer lasting damage. There is likely to be what it calls "a major setback to living standards relative to what was expected before the pandemic". The IMF warns that extreme poverty is likely to rise for the first time in more than twenty years.

Inequality is also likely to increase, the report says. The crisis has particularly affected women, people with precarious employment, and those with relatively lower educational attainment.