Economics

Delinquency rates on credit cards and auto loans spiked to their highest since the Great Recession, according to a New York Fed report out Tuesday.

Why it matters: The striking resilience of the American consumer is a key reason why the economy has avoided a recession. Emerging stress on household balance sheets is one of the few worrying signs for a U.S. economy that has continued to shrug off threats.

• The upswing in delinquency rates are an indication that the Federal Reserve's aggressive interest rate hikes are hitting consumers, who are struggling with the higher cost of borrowing.

What they're saying: "Credit card and auto loan transitions into delinquency are still rising above pre-pandemic levels," Wilbert van der Klaauw, an economic research adviser at the New York Fed, said in a press release.

• "This signals increased financial stress, especially among younger and lower-income households."

• Shrinking gap reflects broader reshaping of supply chains
• US trade deficits with other countries hit record highs

The US goods-trade deficit with China shrank to the smallest total since 2010 last year, reflecting a decline in imports from its geostrategic rival that will be welcomed in Washington.

The excess of imports over exports to China was $279 billion, US Commerce Department data showed Wednesday. As a share of GDP, the goods deficit with China came in at just 1%, the lowest level since 2002.

Chinese imports have faced higher tariffs since former President Donald Trump imposed protectionist measures against the country during his administration. The Biden administration has also sought to reduce China’s role in US supply chains, and to bolster trade with strategic allies and partners instead.

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Investors are paying close attention to the contrasting trajectories of two of Asia’s greatest powers.

A momentous shift is under way in global markets as investors pull billions of dollars from China’s sputtering economy, two decades after betting on the country as the world’s biggest growth story.

Much of that cash is now heading for India, with Wall Street giants like Goldman Sachs Group Inc. and Morgan Stanley endorsing the South Asian nation as the prime investment destination for the next decade.

That momentum is triggering a gold rush. The $62 billion hedge fund Marshall Wace has positioned India as its biggest net long bet after the US in its flagship hedge fund. An arm of Zurich-based Vontobel Holding AG has made the country its top emerging-market holding and Janus Henderson Group Plc is exploring fund-house acquisitions. Even Japan’s traditionally conservative retail investors are embracing India and paring exposure to China.

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• Key equity gauges fluctuate on Monday after big weekly slide
• Regulator’s vow to stabilize markets on Sunday lacked details

Chinese stocks were caught in another volatile session Monday following last week’s rout, as investors assessed the latest pledges by policymakers to stabilize the slumping equity market.

Shares rebounded in the afternoon as the securities regulator said it will take steps to prevent risks stemming from share pledges. The CSI 300 Index ended the day 0.7% higher after earlier dipping 2.1%. Gauges of small cap shares pared losses but still closed deep in the red.

Some $7 trillion has been erased from the value of equities in China and Hong Kong since their peaks in early 2021 as a long-running property slump, weak economic data and tensions with the US rattle investors. Margin calls and forced liquidation faced by shareholders are emerging as a key risk after the latest pledge of support provided few details on how authorities will stem the rout.

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In recent weeks, China’s economic policymaking has been not just inadequate but a little skittish. On January 23rd draft rules on video games disappeared from the regulator’s website a month after their appearance, as if they had never existed. The regulations, which would have sprinkled games with pop-up warnings against “irrational consumption behaviour”, had triggered a steep sell-off in the shares of tech companies like Tencent.

The following day, Pan Gongsheng, governor of China’s central bank, held an unusual press conference in which he cut reserve requirements for banks by more than expected, and vowed to “strive to stabilise the market”. It was an attempt to reassure investors after the bank had failed to cut interest rates earlier in the month.

Whereas other governments are used to being bullied by the markets, China’s prides itself on keeping finance in its place. These concessions to market sentiment were therefore notable. They were not, however, very effective. Data on January 31st showed a slowdown in construction and unremitting declines in manufacturing prices. China’s stockmarkets fell again, returning to levels reached before Mr Pan spoke. According to Bloomberg, the stockmarkets of mainland China and Hong Kong have lost over $1trn in value this year.

China’s policy inconsistency has thus been expensive. And there are other examples. The central government has, for instance, ordered 12 provinces and cities to halt infrastructure projects, according to Reuters. Its worries about wasteful behaviour are understandable. But such strictures will make it all the harder for China’s government to provide the fiscal easing required to revive confidence and growth.

"I'm afraid that we will actually miss out on the future, because we're taking too little risks."

Verena Pausder is a successful German entrepreneur who is clear about where she thinks the economy is going wrong.

This week, it was confirmed that Europe's biggest economy shrank by 0.3% last year.

Whilst the country avoided recession - thanks to a statistical quirk - most economists think Germany will be in that position when the numbers for the first part of this year are published.

Germany's growth is being held back by the twin shocks of the energy crisis, caused by the war in Ukraine, and higher interest rates.

There are also long-term structural issues such as ageing infrastructure, a labour shortage and the cost of tackling climate change.

Mexico overtook the Asian giant in the value of exports to the U.S. in the cumulative first 11 months of 2023, totaling almost $439 billion, while China lagged behind with $393 billion

The anti-China restrictions imposed by the United States are paying dividends and, on one level in particular, Mexico has been the major beneficiary. Since the toughening of President Joe Biden’s rhetoric and the imposition of tariffs and restrictions on the export of critical technologies from China to the U.S., Beijing’s exports have dropped. Over the same period, Mexico has been gaining ground, according to U.S. Census Bureau data released Tuesday.

Mexico overtook the Asian giant in the value of exports to the U.S. in the cumulative first 11 months of 2023, totaling $438.986 billion, while China lagged behind with $393.137 billion. Everything points to 2023 being the year in which Mexico dethroned China as the main exporter to the United States. Among the products that the U.S. purchases most widely from Mexico are cars and auto parts, electronics, petroleum, and agricultural products.

Blockbuster job growth in the past several months has coincided with high-profile layoff announcements by a number of large companies.

So, how are both occurring at the same time? It’s not as contradictory as it might seem. Recent job cuts have been concentrated mainly in just a few sectors: technology, finance and media.

Relative to the U.S. labor force of 160 million people, layoffs so far have been dwarfed by consistently vigorous hiring — a monthly average of 248,000 jobs added over the past six months. The unemployment rate is still just 3.7%, barely above a 50-year low.

It turns out that many of the companies that are now shedding jobs had over-hired during the pandemic, when they thought the trends that emerged then — especially a surge in online shopping — would continue apace. As the economy has normalized, many of these companies have discovered that they no longer need so many employees and have responded with layoffs.

GDP expansion could drop to 3% range in 2024-25 without policy response on real estate

China's economic growth was in line with the country's roughly 5% goal last year but will lose steam in 2024 and beyond, dropping as low as 3.4% in 2028, according to an International Monetary Fund report published Friday.

Real gross domestic product growth for Asia's largest economy will slow to 4.6% in 2024 from an estimated 5.4% last year, according to IMF forecasts.

China's real estate slump and weaker demand for its exports will weigh on growth this year, while in the medium term, the country will face "headwinds from weak productivity and population aging," the IMF said following an annual consultation with Chinese officials.

In tech, 2024 started the way 2023 did — with a wave of layoffs — even though the U.S. economy is booming and the industry is thriving.

Why it matters: Layoffs can be devastating if you're involved, but in the roiling world of tech, regular job cuts are also part of the landscape.

• In tech, company leaders see layoffs as a way to stay efficient, shift priorities and weed out underperformers — while many employees, particularly those with technical skills, assume that finding a new job won't be that hard, and often they're right.
• In many cases, the same companies that are laying people off are also still hiring.
• Tech giants like Microsoft and Amazon, which recently cut jobs in gaming and streaming respectively, are simultaneously planning huge investments in AI.

U.S. employers hired nearly twice as many workers as expected in January.

U.S. employers hired far more workers than expected in January, a staggering flex of economic strength that refutes worries of a recession but could delay highly-anticipated interest rate cuts.

The economy added 353,000 jobs last month while the unemployment rate held steady at 3.7%, a historically low figure, according to data released by the U.S. Bureau of Labor Statistics on Friday.

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The blockbuster performance, however, poses a challenge for the inflation fight taken up by policymakers at the Federal Reserve.

Inflation has fallen significantly from a peak reached last year, but it remains roughly a percentage point higher than the Fed's target rate of 2%.

In light of its progress in cooling inflation, the Fed expects to cut interest rates sometime this year. However, the hot economy could delay those interest cuts for several months, experts told ABC News on Friday.

Job growth posted a surprise increase in January, demonstrating again that the U.S. labor market is solid and poised to support broader economic growth.

Nonfarm payrolls expanded by 353,000 for the month, much better than the Dow Jones estimate for 185,000, the Labor Department’s Bureau of Labor Statistics reported Friday. The unemployment rate held at 3.7%, against the estimate for 3.8%.

Wage growth also showed strength, as average hourly earnings increased 0.6%, double the monthly estimate. On a year-over-year basis, wages jumped 4.5%, well above the 4.1% forecast. The wage gains came amid a decline in average hours worked, down to 34.1, or 0.2 hour lower.

Job growth was widespread on the month, led by professional and business services with 74,000. Other significant contributors included health care (70,000), retail trade (45,000), government (36,000), social assistance (30,000) and manufacturing (23,000).

Saudi Arabia’s fourth-quarter real GDP fell 3.7% year-on-year, according to flash estimates published by the General Authority for Statistics on Wednesday.

That’s a smaller drop than the 4.4% year-on-year slide in the third quarter.

The drop was attributed to a 16.4% decline in oil activities, while non-oil activities and government activities expanded by 4.3% and 3.1%, respectively, year-on-year.

For the full year, Saudi Arabia’s economy shrank 0.9%, according to government data.

• IMF expects emerging economies in Asia to grow at 5.2% in 2024, a 0.4 percentage point upgrade from its forecast in October.
• It also estimates China’s economy will grow 4.6% in 2024, or 0.4 percentage point higher than the IMF’s forecast in October.
• Growth in India will remain strong at 6.5% in both 2024 and 2025, according to the IMF, on resilient domestic demand.

The International Monetary Fund revised up its growth forecast for developing Asia economies in 2024 as it remained optimistic on India, but warned of risks from China’s deepening property sector crisis.

The central bank is widely expected to lower interest rates this year. But with growth and consumer spending chugging along, explaining it may take some work.

The Federal Reserve is widely expected to leave interest rates unchanged at the conclusion of its meeting on Wednesday, but investors will be watching closely for any hint at when and how much it might lower those rates this year.

The expected rate cuts raise a big question: Why would central bankers lower borrowing costs when the economy is experiencing surprisingly strong growth?

The United States’ economy grew 3.1 percent last year, up from less than 1 percent in 2022 and faster than the average for the five years leading up to the pandemic. Consumer spending in December came in faster than expected. And while hiring has slowed, America still boasts an unemployment rate of just 3.7 percent — a historically low level.

The data suggest that even though the Fed has raised interest rates to a range of 5.25 to 5.5 percent, the highest level in more than two decades, the increase has not been enough to slam the brakes on the economy. In fact, growth remains faster than the pace that many forecasters think is sustainable in the longer run.

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Single currency zone’s stagnating GDP figure will add to pressure for ECB interest rate cut

The 20-nation eurozone has narrowly avoided recession after the region’s economy flatlined at the end of 2023, official figures show.

Zero growth in the single currency zone in the final quarter of last year followed a 0.1% economic contraction in the third quarter, meaning that recession – defined as two consecutive quarters of contraction – was just averted. Economists polled by Reuters had expected the eurozone’s economy to shrink by 0.1% in the fourth quarter.

The eurozone’s two biggest economies both performed poorly in late 2023, with Germany contracting by 0.3% and France posting no growth for a second successive quarter, according to Eurostat, the EU’s statistical agency.

There was better news from the other two members of the eurozone’s “big four”. Italy, which had been expected to stagnate, recorded growth of 0.2%, while Spain expanded by 0.6% – three times the 0.2% forecast.

Of the smaller eurozone economies, Portugal grew by 0.8% in the final quarter, Austria expanded by 0.2%, while Ireland’s economy contracted by 0.7% – its fourth successive quarterly fall in 2023.

A geopolitical bias, outdated governance and a too market-oriented framework are only some of the structural deficits of these institutions

As the Bretton Woods institutions complete 80 years of existence – since they were agreed upon at an allies’ conference on a postwar financial and monetary order in the New Hampshire town – some stocktaking is inevitable. This is however a rather depressing exercise.

The international financial institutions, the International Monetary Fund and what came to be known as the World Bank, were created in a buzz of optimism about the potential for international economic co-operation as the second world war was coming to a close. But their functioning has fallen far short of what the architects of the system then would have hoped.

In their first decade, both institutions were heavily focused on lending for reconstruction. Thereafter, when lower-income countries did start receiving funds, the conditionalities associated with the loans – heavily oriented towards ‘fiscal discipline’, expressed as austerity and privatisation of public goods and services – became highly controversial and very often did not deliver the desired outcomes. Through the debt crises of the developing world in the 1980s and 90s, the IMF effectively became the debt collector, enforcing programmes designed to benefit (or even save) the creditor banks based in the Global North.

So well-known was this pattern that by the early part of this century, most lower-income countries had opted for self-insurance, holding excess foreign-exchange reserves to avoid having to approach the IMF. The institution was in decline, with few client countries, and increasingly irrelevant.

Foreign workers and global ties are key to the Netherlands’ economic success, the nation’s central bank chief warned, as anti-immigrant politician Geert Wilders tries to form the next government after his election victory.

“The Dutch economy profits more than any other country from European and international integration,” Governor Klaas Knot said in an interview on Dutch state broadcaster NPO1 on Sunday. “That is our chicken that lays golden eggs and we should not butcher it.”

Knot’s comments come after Wilders’ Freedom Party delivered a shock election victory on Nov. 22, picking up more seats than any of the polls had predicted.

Wilders is currently negotiating with three other parties to form a right-wing government as the country’s next prime minister. While the potential coalition members are likely to reach an agreement over a crackdown on migration, topics including aid to Ukraine, cooperation with the European Union and climate policies may complicate their talks.

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The curious and furious recovery has brought some old ideas back to the fore

Science advances one funeral at a time, to paraphrase Max Planck. The Nobel prize-winning physicist was arguing that new ideas in his field would only catch on once the advocates of older ones died off. With a little adaptation he could have been describing the dismal science, too: economics advances one crisis at a time. The Depression provided fertile soil in which John Maynard Keynes’s theories could grow; the Great Inflation of the 1970s spread Milton Friedman’s monetarist ideas; the global financial crisis of 2007-09 spurred interest in credit and banking.

Sure enough, the recovery from the covid-19 pandemic has given economists another chance to learn from their mistakes. Papers presented at the recent conference of the American Economic Association (AEA) offer clues as to the theories that might eventually become the received wisdom of the next generation.

One such paper takes a harder look at the Phillips curve, which describes a theoretical trade-off between unemployment and inflation. When unemployment is low, the logic goes, inflation should be higher, as competition for workers exerts upward pressure on wages. In turn, consumer prices rise. Yet during the 2010s the curve appeared to have vanished. Unemployment kept falling but inflation stayed quiescent. Then, after the pandemic, the relationship suddenly seemed to re-exert itself: inflation rose as swiftly as unemployment fell.

Central bank will essentially say that interest rate hike cycle has ended

The biggest question going into the Federal Reserve’s policy meeting next week is what sort of smoke signals Fed Chair Jerome Powell will send about the possibility of an interest rate cut at the central bank’s next meeting in March.

Fed watchers agree that Powell will leave the door open for a move as soon as March but officials won’t decide one way or the other because that meeting is two months away.

Right now, markets are pricing in a roughly 50-50 chance of a cut in March.

Debt-laden Chinese property giant Evergrande has been ordered to liquidate by a court in Hong Kong.

Judge Linda Chan said "enough is enough" after the troubled developer repeatedly failed to come up with a plan to restructure its debts.

The firm has been the poster child of China's real estate crisis with over $325bn (£256bn) of liabilities.

When Evergrande defaulted two years ago it sent shockwaves through global financial markets.

The latest decision is likely to send further ripples through China's financial markets at a time when authorities are trying to curb a stock market sell-off.

In a major speech set to be delivered Thursday in Chicago, Treasury Secretary Janet Yellen plans to detail her vision for helping middle-class families overcome affordability challenges, according to excerpts shared first with CNN.

“Our economic agenda is far from finished. There’s much more the President and I would like to do to support the middle class,” Yellen plans to say during the speech at the Economic Club of Chicago.

Treasury officials have billed the speech as one of the most significant Yellen plans to deliver this year and an effort to set the tone for her domestic agenda during 2024.

Yellen plans to balance the Biden administration taking credit for the economic recovery from Covid-19 with acknowledging that many Americans are frustrated with how expensive it is to buy a house, raise children and save money for college.

After an extended period of gloom, Americans are starting to feel better about inflation and the economy — a trend that could sustain consumer spending, fuel economic growth and potentially affect President Joe Biden’s political fortunes.

A measure of consumer sentiment by the University of Michigan has jumped in the past two months by the most since 1991. A survey by the Federal Reserve Bank of New York found that Americans’ inflation expectations have reached their lowest point in nearly three years. And the same survey, released last week, found that the proportion who expect their own finances to improve a year from now is at its highest level since June 2021.

Economists say consumers appear to be responding to steadily slower inflation, higher incomes, lower gas prices and a rising stock market. Inflation has tumbled from a peak of around 9% in June 2022 to 3.4%. According to the Federal Reserve’s preferred price gauge, inflation has reached the Fed’s annual 2% target when measured over the past six months.

Before we get too excited, how much of that R&D funding is on which color of button makes you most likely to click "Buy Now"?