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US reports blowout job growth; unemployment rate lowest since 1969

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US reports blowout job growth; unemployment rate lowest since 1969

US job growth accelerated sharply in January while the unemployment rate hit more than a 53-1/2-year low of 3.4%, pointing to a stubbornly tight labor market, and a potential headache for Federal Reserve officials as they fight inflation.

The Labor Department’s closely watched employment report on Friday also showed job creation in the past year was much stronger than previously estimated, suggesting the economy was nowhere near a recession. Though wage inflation cooled further in January, average hourly earnings increased faster in 2022 than previously estimated.

The strength in hiring, which occurred despite layoffs in the technology sector as well as in sectors like housing and finance that are sensitive to interest rates, poured cold water on market expectations that the US central bank was close to pausing its monetary policy tightening cycle.

Economists said the head-scratching report and other data on Friday showing a sharp rebound in services industry activity last month suggested the Fed could lift its target interest rate above the recently projected 5.1% peak and keep it there for some time.

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“The labor market is still running hot, too hot for the Fed’s liking,” said Daniel Vernazza, chief international economist at UniCredit Bank in London. “Anyone that thought the Fed might stop hiking as soon as its March meeting is likely to be disappointed on this evidence.”

The survey of establishments showed nonfarm payrolls surged by 517,000 jobs last month, the most in six months. Economists in a Reuters poll had expected a gain of 185,000. Data for December was revised higher to show 260,000 jobs added instead of the previously reported 223,000. Employment growth last month was well above the monthly average of 401,000 in 2022.

With January’s report, the Labor Department’s Bureau of Labor Statistics (BLS) published its annual payrolls “benchmark” revision and updated the formulas it uses to smooth the data for regular seasonal fluctuations in the establishment survey.

The economy added 568,000 more jobs in the 12 months through March 2022 than previously reported. Revisions to payrolls data from April through December also showed more jobs created than previously estimated. The economy added 4.8 million jobs in 2022 instead of the 4.5 million previously reported.

The revisions dispelled claims by researchers at the Philadelphia Fed who published a paper in December suggesting employment growth in the second quarter of 2022 was overstated by about a million jobs.

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The BLS revised its industry classification system, which resulted in about 10% of employment reclassified into different industries. Last month’s broad increase in employment was led by the leisure and hospitality sector, which added 128,000 jobs, with 99,000 of them in restaurants and bars.

Leisure and hospitality employment remains 495,000 jobs below its pre-pandemic level. Professional and business services employment rose by 82,000, with temporary help jobs, a harbinger for future hiring, rebounding by 25,900 after declining for several months. Government payrolls jumped 74,000, boosted by the return of striking university workers in California.
Construction payrolls increased by 25,000 jobs, which were mostly among specialty trade contractors. Manufacturing employment rose by 19,000 jobs.

WAGE GROWTH SLOWS

Average hourly earnings increased 0.3% last month after gaining 0.4% in December. That lowered the year-on-year increase in wages to 4.4%, the smallest rise since August 2021, from 4.8% in December. But wage growth was revised up for 2022, suggesting only a moderate pace of cooling in wage inflation than previously thought. The average workweek increased to 34.7 hours from 34.4 hours in December.

“While it is natural to be skeptical of the degree of strength in payroll growth and the increase in total hours worked given the perceived slowing of growth, we have been pointing out that almost all the labor market indicators going into this report showed an improvement in labor market conditions,” said Conrad DeQuadros, senior economic advisor at Brean Capital in New York.

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President Joe Biden said the employment report was a sign that his economic plan was working. “Jobs are going up, inflation is going down,” the Democratic president wrote on Twitter.

The Fed on Wednesday raised its policy rate by 25 basis points to the 4.50%-4.75% range, and promised “ongoing increases” in borrowing costs. Government data this week showed there were 11 million job openings at the end of December, with 1.9 openings for every unemployed person.

The BLS also incorporated new population estimates in the household survey, from which the unemployment rate is derived. As such, the unemployment rate of 3.4%, the lowest since May 1969, is not comparable to December’s 3.5% rate, though it was not impacted by the new population controls.

Household employment jumped 894,000, but accounting for the new population estimates, the increase was only 84,000. About 886,000 people entered the labor force, though the number declined by 5,000 after adjusting for the population controls.

The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, rose to 62.4% in January from 62.3% in December. It was unchanged after taking the new population estimates into account.

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The employment report hinted at a rebound in manufacturing production last month. There are also signs that retail sales got off to a strong start in 2023. The economy continued to show resilience despite 450 basis points of rate hikes since last March.

“The Fed would be well-served to consider this as a success and think that slowing down the pace of hikes, would allow the job market to bend, but maybe not break,” said Rick Rieder, chief investment officer of global fixed income at BlackRock in New York.

“Today presents good evidence of a job market not breaking and evidence of how the economy can adapt and adjust to remain vibrant in the face of major headwinds.”

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Power tariff hikes: The more you devalue rupee, the more capacity charges you pay

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Power tariff hikes: The more you devalue rupee, the more capacity charges you pay

Devaluation – a process that started under former finance minister Miftah Ismail in late 2017 and late 2018 but gained momentum under the PTI government – is the root cause of inflation shouldn’t be a contested statement as it has made imports even more expensive for Pakistan.

And that’s countries like Pakistan are the worst affected due the rising commodities prices in global market as weaker currencies mean the overall impact is much deeper for them than the rest.

Read more: Rupee collapse is the reason behind all ills Pakistan is facing

This argument was endorsed by none other a high-ranking government official – Power Division Secretary Rashid Langrial who said on Monday that the capacity [charges] payment had doubled after the dollar exchange rate increased from Rs100 to Rs300, thus resulting in skyrocketing electricity tariffs for consumers. 

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Geopolitics, economic slowdown: US business optimism about China outlook at record low

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Geopolitics, economic slowdown: US business optimism about China outlook at record low

Geopolitics and a slowing economy are fuelling pessimism among US businesses operating in China, with the proportion of firms optimistic about their five-year outlook in the country falling to a record low, a survey released on Tuesday said.

Even after the ending of COVID curbs, which weighed heavily on both revenues and sentiment in 2022, the percentage of surveyed US firms optimistic about the five-year China business outlook fell to 52 per cent, according to the annual survey published by American Chamber of Commerce (AmCham) in Shanghai.

This was the lowest level of optimism reported since the AmCham Shanghai Annual China Business Report was first introduced in 1999.

“Frankly, if there was one thing that surprised me about the survey this year it was that number,” said AmCham Shanghai Chairman, Sean Stein. “By the time we did this year’s survey a lot of the illusions had fallen away that we would see a sustained rebound in economic growth (post-COVID).”

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Geopolitics remained a major concern for many firms, with US-China tensions cited as a top business challenge by 60pc of the survey’s 325 respondents, equal to the number who pointed to China’s economic slowdown as a top challenge.

Concern over the transparency of China’s regulatory environment also grew, with one third reporting that policies and regulations towards foreign companies had worsened in the past year, though many respondents pointed to United States government policy rather than China’s when asked about pressure to decouple.

Companies have been at the centre of deteriorating relations between the two countries for several years. China has criticised US efforts to block China’s access to advanced technology and US firms have expressed concern about fines, raids and other actions that make doing business in China risky.

Last month, US Commerce Secretary Gina Raimondo said during a visit to China that US companies have complained to her that China has become “uninvestible”.

Geopolitical tensions were also cited as the top risk to China’s future economic growth in the AmCham report, with improved US-China relations the number one factor respondents said would improve their industry’s prospects in China.

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AmCham’s Stein said that the survey had been conducted prior to Raimondo’s visit and, since then, he believed companies had begun to reconsider whether they had been “too pessimistic that there wasn’t any way to get out of a constant downward slide (in US-China relations)”.

A larger percentage of firms, 40pc, up from 34pc last year, are currently redirecting or looking to redirect investment that had been earmarked for China, mainly to Southeast Asia.

This echoed a report published by Rhodium Group last week, which said that India, Mexico, Vietnam and Malaysia were receiving the vast majority of investment U.S. and European firms were shifting away from China.

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Chinese loans to Africa plummet to near two-decade low

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Chinese loans to Africa plummet to near two-decade low

 Chinese sovereign lending to Africa fell below $1 billion last year – the lowest level in nearly two decades – underscoring Beijing’s shift away from a decades-long big ticket infrastructure spree on the continent, data showed on Tuesday.

The drop in lending reflected in data from Boston University’s Global China Initiative comes as several African nations struggle with debt crises and China’s own economy is facing growing headwinds.

Africa has been a focus of President Xi Jinping’s ambitious Belt and Road Initiative (BRI), launched in 2013 to recreate the ancient Silk Road and extend China’s geopolitical and economic influence through a global infrastructure development push.

Boston University’s Chinese Loans to Africa Database estimates Chinese lenders provided $170 billion to Africa from 2000 to 2022.

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But lending has declined sharply since a 2016 peak. Just seven loans worth $1.22 billion were signed in 2021. Nine loans totalling $994 million were agreed last year, marking the lowest level of Chinese lending since 2004.

While those two years coincide with the COVID-19 pandemic, researcher Oyintarelado Moses told Reuters that there are other contributing factors.

“A lot of that really has to do with the level of risk exposure,” said Moses, who manages the database and co-authored a report released on Tuesday.

While African governments largely welcomed Chinese lending and infrastructure projects, Western critics have accused Beijing of saddling poor nations with unsustainable debt.

Zambia – a major Chinese borrower – became the first African country to default during the COVID-19 pandemic in late 2020. Other governments, including Ghana, Kenya and Ethiopia, are also struggling.

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China, meanwhile, is facing its own problems at home as policymakers struggle to revive growth amid persistent weakness in the crucial property industry, a faltering currency and flagging global demand for its manufactured goods.

“China’s domestic economy is playing a huge role here,” said Moses.

The China Development Bank and the Export-Import Bank of China – the two institutions behind most of the lending to Africa – have been redeployed to support the domestic economy, while much of the overseas lending that remains is going to markets closer to home.

The decline in loans does not necessarily mean an end to Chinese engagement in Africa, however.

The Boston University analysis found that certain trends – fewer loans over $500 million and more focus on social and environmental impacts – appeared to reflect China’s stated push towards a more high-quality, greener Belt and Road Initiative.

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“This is such a huge part of the relationship, I think there’s still going to be interest from Chinese lenders,” Moses said. “It’s just that it’s going to look different.”

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