Tag Archives: Economy

Dollar falls as U.S. consumer price rises temper in July, data show

By John McCrank

NEW YORK (Reuters) -The dollar fell on Wednesday after U.S. inflation data showed consumer price increases eased in July, taking some pressure off the Federal Reserve to begin scaling back the monthly bond purchases that are part of its toolbox to support the economic recovery.

The dollar index, which measures the greenback against a basket of other major currencies, was down 0.17% at 92.915 at 3:05 p.m. ET (1905 GMT).

Earlier, the U.S. currency hit 93.195, its highest since April 1, and not far off of its 2021 high of 93.439, but it sold off after data showed the consumer price index rose 0.5% last month after climbing 0.9% in June. Excluding the volatile food and energy components, the CPI rose 0.3% after increasing 0.9% in June.

Economists polled by Reuters had forecast overall CPI would rise 0.5% and core CPI 0.4%.

While prices are still rising, the Fed has said it expects inflationary pressures to moderate over time as supply catches up with demand following months of COVID-19 lockdowns.

“The CPI report was enough to cause a bit of profit taking for the U.S. dollar, but at the end of the day, it’s not a game changer for the Fed,” said Kathy Lien, managing director at BK Asset Management. “They’re still going to be announcing taper,” likely within the next six weeks.

The greenback had enjoyed a lift from last week’s better-than-expected U.S. jobs data, as well as from remarks by Fed officials about tapering bond purchases and, eventually, raising rates, sooner than policymakers elsewhere.

Looking forward, the Fed will depend on data when it comes to the timing of the dialing back of its asset purchases, said Edward Moya, senior market analyst at OANDA.

“It’s all going to be all about next month’s employment report and if that does not impress, tapering, as far September goes, might even get pushed out towards the end of the year,” he said.

In Europe, investor sentiment has declined, with a survey showing a third straight month of deterioration in Germany as rising global COVID-19 cases keep markets on edge.

“Investors have to take on board the possibility of news on Fed tapering at a time when COVID is still very apparent in various parts of the world,” said Rabobank analyst Jane Foley.

“The consequence of this is likely to be a firmer dollar,” she added, especially if the euro breaches its 2021 low.

The euro gained 0.16% against the greenback, to 1.17395, following six straight sessions of losses and having fallen as low as 1.1706 in early deals in Europe, near the year’s low of $1.1704.

Sterling gained 0.2% to 1.38645 against the dollar, pulling back from a two-week low.

The yen was up 0.12% at 110.445, after dropping for five consecutive sessions against the dollar.

South Korea reported a record number of COVID-19 cases on Wednesday, while outbreaks in China, Southeast Asia and Australia grow steadily.

The Australian dollar and the New Zealand dollar , seen as riskier currencies, rose after the U.S. CPI report, last up 0.33% and 0.5% respectively.

In cryptocurrencies, bitcoin touched $46,787.60, its highest since May 17. Bitcoin was last up 1.5% at $46,304.54, while ether, the second-biggest cryptocurrency, was up 2.7% at $3,226.18.

(Reporting by John McCrank in New York; additional reporting by Ritvik Carvalho in London; Editing by Kirsten Donovan and Marguerita Choy)

U.S. labor market powers ahead with strong job gains, lower unemployment rate

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. employers hired the most workers in nearly a year in July and continued to raise wages, giving the economy a powerful boost as it started the second half of what many economists believe will be the best year for growth in almost four decades.

The Labor Department’s closely watched employment report on Friday also showed the unemployment rate dropped to a 16-month low of 5.4% and more people waded back into the labor force. The report followed on the heels of news last week that the economy fully recovered in the second quarter the sharp loss in output suffered during the very brief pandemic recession.

“We are charting new economic expansion territory in the third quarter,” said Brian Bethune, professor of practice at Boston College in Boston. “The overall momentum of the recovery continues to build.”

Nonfarm payrolls increased by 943,000 jobs last month, the largest gain since August 2020, the survey of establishments showed. Data for May and June were revised to show 119,000 more jobs created than previously reported. Economists polled by Reuters had forecast payrolls would increase by 870,000 jobs.

The economy has created 4.3 million jobs this year, leaving employment 5.7 million jobs below its peak in February 2020.

President Joe Biden cheered the strong employment report. “More than 4 million jobs created since we took office,” Biden wrote on Twitter. “It’s historic – and proof our economic plan is working.”

Hiring is being fueled by pent-up demand for workers in the labor-intensive services sector. Nearly $6 trillion in pandemic relief money from the government and COVID-19 vaccinations are driving domestic demand.

But a resurgence in infections, driven by the Delta variant of the coronavirus, could discourage some unemployed people from returning to the labor force.

July’s employment report could bring the Federal Reserve a step closer to announcing plans to start scaling back its monthly bond-buying program. The U.S. central bank last year slashed its benchmark overnight interest rate to near zero and is pumping money into the economy through the bond purchases.

“This is the last employment report Chair (Jerome) Powell sees before Jackson Hole, and we have to imagine that he lays the groundwork for a potential September tapering announcement,” said Conrad DeQuadros, senior economic advisor at Brean Capital in New York. “We think the odds continue to rise that tapering begins before the end of 2021.”

Stocks on Wall Street rose, with the Dow Jones Industrial Average and the S&P 500 index hitting record highs. The dollar jumped against a basket of currencies. U.S. Treasury prices fell.

BROAD EMPLOYMENT GAINS

Employment in the leisure and hospitality sector increased by 380,000 jobs, accounting for 40% of the job gains, with payrolls at restaurants and bars advancing by 253,000.

Government payrolls increased by a whopping 240,000 jobs as employment in local government education rose by 221,000. Education jobs were flattered by a seasonal quirk.

Hiring was also strong in the professional and business services, transportation and warehousing, and healthcare industries. Manufacturing payrolls increased by 27,000 jobs, while construction employment rebounded by 11,000 jobs. Retail trade and utilities were the only sectors to shed jobs.

Details of the smaller household survey from which the unemployment rate is derived were also upbeat. Household employment shot up by 1.043 million jobs, leading the unemployment rate to decline half a percentage point to its lowest level since March 2020.

The jobless rate, however, continued to be understated by people misclassifying themselves as being “employed but absent from work.” Without this misclassification, the unemployment rate would have been 5.7% in July.

About 261,000 people entered the labor force, lifting the participation rate to 61.7% from 61.6% in June. The employment-to-population ratio, viewed as a measure of an economy’s ability to create employment, rose to 58.4% from 58% in June.

Even more encouraging, the number of long-term unemployed dropped to 3.4 million from 4 million in the prior month. They accounted for 39.3% of the 8.7 million officially unemployed people, down from 42.1% in June. The duration of unemployment fell to 15.2 weeks from 19.8 weeks in June.

There was also an improvement in the number of people who have permanently lost their jobs. With economic growth this year expected to be around 7%, which would be the fastest since 1984, further recovery is expected.

Faced with a record 9.2 million job openings, employers continued to raise wages to attract workers. Average hourly earnings increased 0.4% last month, with sharp gains in the hospitality industry. That followed a similar rise in June and lifted the year-on-year increase in wages to 4.0% from 3.7%.

Lack of affordable child care and fears of contracting the coronavirus have been blamed for keeping workers, mostly women, at home. There also have been pandemic-related retirements as well as career changes. Republicans and business groups have blamed enhanced unemployment benefits, including a $300 weekly payment from the federal government, for the labor crunch.

Half of the nation’s states led by Republican governors have ended these federal benefits before their Sept. 6 expiration. Economists are cautiously optimistic that the worker shortage will ease in the fall when schools reopen for in-person learning and sustain the strong pace of hiring.

“August should be another big month, and September as well, as there are still millions who need to find work quickly,” said Chris Low, chief economist at FHN Financial in New York.

(Reporting by Lucia Mutikani; Editing by Dan Burns and Paul Simao)

Fed’s Waller: ‘Go early and go fast’ on taper

By Ann Saphir

(Reuters) – Federal Reserve Governor Christopher Waller on Monday said the U.S. central bank could start to reduce its support for the economy by October if the next two monthly jobs reports each show employment rising by 800,000 to 1 million, as he expects.

“We should go early and go fast, in order to make sure we’re in position to raise rates in 2022, if we have to,” Waller said in an interview on CNBC, adding that he could see the Fed announcing a reducing in its monthly bond purchases in September and a start to that reduction in October.

And once the Fed begins the process, Waller said, “There’s no reason you’d want to go slow on the taper, to prolong it – you want to get it done and get it over.”

The Fed is buying $80 billion in Treasuries and $40 billion in mortgage-backed securities each month to help push downward on borrowing costs and speed the recovery. It has said it will continue to make purchases at that pace until the economy makes “substantial further progress” toward the Fed’s goals of full employment and 2% inflation.

Fed Chair Jerome Powell said last week the job market recovery is still “a ways off” from the point where it would be appropriate for the Fed to start paring its bond purchases.

Speaking Friday, Fed Governor Lael Brainard echoed that sentiment, indicating in a speech Friday that she would want to have data from the September jobs report – not available until early October — to make such a decision.

To Waller, an increase of some 1.6 million to 2 million jobs in July and August would mean that the economy will have regained 85% of its job losses, Waller said. That, in his view, meets the “substantial further progress” bar for tapering.

The government is due to release its July report on Friday, and economists estimate it will show U.S. employers added about 880,000 jobs last month.

Waller’s former boss, St. Louis Fed President James Bullard, on Friday also called for the Fed to begin reducing its bond-buying by the fall.

Most on Wall Street have been expecting the taper to start late in 2021 or in 2022.

Waller said he does not believe the Delta variant of the coronavirus will “sideline” the economy. He added that while he believes the recent hot readings on inflation will subside later in the year, there’s “upside risk” to that expectation.

(Reporting by Ann Saphir; editing by Jonathan Oatis and Nick Zieminski)

China says Taliban expected to play ‘important’ Afghan peace role

KABUL (Reuters) -China told a visiting Taliban delegation on Wednesday it expected the insurgent group to play an important role in ending Afghanistan’s war and rebuilding the country, the Chinese foreign ministry said.

Nine Taliban representatives met Foreign Minister Wang Yi in the northern Chinese city of Tianjin on a two-day visit during which the peace process and security issues were discussed, a Taliban spokesperson said.

Wang said the Taliban is expected to “play an important role in the process of peaceful reconciliation and reconstruction in Afghanistan,” according to an account of the meeting from the foreign ministry.

He also said that he hoped the Taliban would crack down on the East Turkestan Islamic Movement as it was a “direct threat to China’s national security,” referring to a group China says is active in the Xinjiang region in China’s far west.

The visit was likely to further cement the insurgent group’s recognition on the international stage at a sensitive time even as violence increases in Afghanistan. The militants have a political office in Qatar where peace talks are taking place and this month sent representatives to Iran where they had meetings with an Afghan government delegation.

“Politics, economy and issues related to the security of both countries and the current situation of Afghanistan and the peace process were discussed in the meetings,” Taliban spokesperson Mohammed Naeem tweeted about the China visit.

Naeem added that the group, led by Taliban negotiator and deputy leader Mullah Baradar Akhund, was also meeting China’s special envoy for Afghanistan and that the trip took place after an invitation from Chinese authorities.

Asked about the Taliban visit, U.S. Secretary of State Antony Blinken said in New Delhi that it was a “positive thing” if Beijing was promoting a peaceful resolution to the war and “some kind of (Afghan) government … that’s truly representative and inclusive.”

“No one has an interest in a military takeover by the Taliban, the restoration of an Islamic emirate,” he said in an interview with CNN-News18 television.

Security in Afghanistan, with which China shares a border, has been deteriorating fast as the United States withdraws its troops by September. The Taliban has launched a flurry of offensives, taking districts and border crossings around the country while peace talks in Qatar’s capital have not made substantive progress.

“(The) delegation assured China that they will not allow anyone to use Afghan soil against China,” Naeem said. “China also reiterated its commitment of continuation of their assistance with Afghans and said they will not interfere in Afghanistan’s issues but will help to solve the problems and restoration of peace in the country.”

(Reporting by Kabul bureau; Additional reporting by Beijing bureau; Editing by Kevin Liffey, William Maclean and Grant McCool)

Factbox: Latest on the worldwide spread of the coronavirus

(Reuters) – The EU is on course to hit a target of fully vaccinating at least 70% of its adult population by the end of summer, given that same percentage of over-18s has now already received a first dose, the European Commission said.

DEATHS AND INFECTIONS

EUROPE

* Ireland became the latest European Union member state to commit to offering COVID-19 vaccines to children aged 12-15 as it opened its strongly subscribed program to 16 and 17-year old’s.

* Greece said children aged 12-15 could be vaccinated with Pfizer/BioNTech and Moderna shots.

ASIA-PACIFIC

* Tokyo’s 2,848 COVID-19 infections are the highest tally that the Olympic host city has reported since the pandemic began, officials said, as media reported that authorities had asked hospitals to prepare more beds for patients, with the Delta variant driving the surge.

* India will meet its target of supplying more than half a billion COVID-19 vaccine doses to its states by the end of this month, the health ministry said, but added not all doses may be administered by then.

* Moderna has pushed back its late-July vaccine shipment schedule for South Korea to August due to supply problems that will also affect other countries awaiting its shots, South Korean health officials said.

* Australia’s Victoria state will lift a strict lockdown, while neighboring New South Wales faces an extension of restrictions after daily new cases spiked to a 16-month peak.

AMERICAS

* The Centers for Disease Control and Prevention (CDC) is set to announce revised mask guidance for fully vaccinated Americans in the wake of rising COVID-19 cases.

* Argentina’s government has signed a deal with U.S. pharmaceutical company Pfizer to acquire 20 million doses of vaccines to be delivered this year, Health Minister Carla Vizzotti told reporters.

MIDDLE EAST AND AFRICA

* Saudi Arabia will impose a three-year travel ban on citizens travelling to countries on the kingdom’s ‘red list’ under efforts to curb the spread of coronavirus and its new variants, state news agency SPA said.

* Nigeria expects to take delivery of 29 million doses of Johnson & Johnson vaccine in August, allowing it to ramp up its vaccination program just as a third wave of infections takes hold, the health minister said.

* Israel is considering giving a third shot of the Pfizer/BioNTech vaccine to its elderly population even before FDA approval to help fend off the Delta variant.

MEDICAL DEVELOPMENTS

* Antibodies triggered by Sinovac Biotech’s vaccine decline below a key threshold from around six months after a second dose for most recipients, although a third shot could have a strong booster effect, according to a lab study.

* Russia has given the green light for clinical trials combining a shot from AstraZeneca and Britain’s Oxford University with Russia’s Sputnik V vaccine to go ahead.

* Moderna is in talks with U.S. regulators to expand the size of an ongoing trial testing its vaccines in children aged between five and 11.

ECONOMIC IMPACT

* World stocks fell after investors sold Chinese internet giants for a third straight day, while real U.S. bond yields hit record lows on worries about the economic outlook ahead of a Federal Reserve meeting.

* The International Monetary Fund maintained its 6% global growth forecast for 2021, upgrading its outlook for the United States and other wealthy economies but cutting estimates for a number of developing countries struggling with surging COVID-19 infections.

(Compiled by Veronica Snoj and Ramakrishnan M.; Editing by Grant McCool, Maju Samuel, Sriraj Kalluvila and Gareth Jones)

PM Bennett seeks to energize Israeli economy by slashing regulations

By Steven Scheer

JERUSALEM (Reuters) – Israeli Prime Minister Naftali Bennett, a former software entrepreneur, pledged on Tuesday to slash regulations to cut the cost of living and help Israel’s small and medium-size businesses flourish as well as its globally successful hi-tech sector.

“We want to ‘hi-tech-icise’ the rest of the economy,” he told a news conference. “We’re going to turn ourselves into a paradise for small and medium businesses … to make it easy and compelling to open a business and succeed.”

Bennett, who took office last month, took a swipe at his predecessor Benjamin Netanyahu, saying Israel had endured 12 years of talk and “minimal execution”.

Finance Minister Avigdor Lieberman said there were 209 regulators in Israel, and that they acted mainly in their own interests instead of aiming to improving productivity, competition and growth.

He pointed to a 2018 report by the Organization for Economic Cooperation and Development which said that reducing the level of regulation to the OECD average would increase Israel’s per-capita GDP by 3.75% in five years, and 5.75% – 75 billion shekels ($23 billion) – over a decade.

A report by the prime minister’s office and finance and justice ministries says Israel’s per capita GDP and productivity have lagged Western peers for a decade due to over-regulation.

Under a framework law, the government plans to establish a single authority to oversee regulatory processes, and to factor speed of processing, competitiveness and pricing into corporate regulations.

($1 = 3.2630 shekels)

(Reporting by Steven Scheer; Editing by Kevin Liffey)

U.S. companies hire more workers; signs labor crunch may be easing

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. job growth accelerated in June, offering tentative signs that a worker shortage could be starting to ease as companies raise wages and offer incentives to entice millions of unemployed Americans sitting at home.

The Labor Department’s closely watched employment report on Friday also showed just over 150,000 people entered the labor force last month. The report suggested the economy ended the second quarter with strong growth momentum, following a reopening made possible by vaccinations against COVID-19.

Still, employment gains remained less than the million or more per month that economists and others had been forecasting at the beginning of the year.

“This may be a sign that some of the temporary labor shortages holding back the employment recovery are starting to ease,” said Andrew Hunter, a senior U.S. economist at Capital Economics.

Nonfarm payrolls increased by 850,000 jobs last month after rising 583,000 in May. That left employment 6.8 million jobs below its peak in February 2020. Economists polled by Reuters had forecast payrolls advancing by 700,000 jobs. There are a record 9.3 million job openings.

The leisure and hospitality industry added 343,000 jobs, accounting for 40% of the employment gains in June. More than 150 million people are fully immunized, leading to pandemic-related restrictions on businesses and mask mandates being lifted. Government employment jumped by 188,000 jobs, driven by state and local government education. End of school year layoffs were fewer relative to the previous year.

Manufacturing added a modest 15,000 jobs. Factories are struggling with rampant worker shortages as well as scarce raw materials, which are forcing some to cut production.

Construction payrolls contracted again last month. Though the sector remains supported by robust demand for housing, expensive lumber is hampering homebuilding.

Politicians, businesses and some economists have blamed enhanced unemployment benefits, including a $300 weekly check from the government, for the labor crunch. Lack of affordable child care and fears of contracting the coronavirus have also been blamed for keeping workers, mostly women, at home.

There have also been pandemic-related retirements as well as career changes. Economists generally expect the labor supply squeeze to ease in the fall as schools reopen and the government-funded unemployment benefits lapse but caution many unemployed will probably never return to work.

Record-high stock prices and surging home values have also encouraged early retirements.

U.S. stocks opened higher on the data. The dollar fell against a basket of currencies. U.S. Treasury prices rose.

WAGES RISING

Average hourly earnings rose 0.3% last month after gaining 0.4% in May. That raised the year-on-year increase in wages to 3.6% from 1.9% in May. Annual wage growth was in part flattered by so-called base effects following a big drop last June.

According to job search engine Indeed, 4.1% of jobs postings advertised hiring incentives through the seven days ending June 18, more than double the 1.8% share in the week ending July 1, 2020. The incentives, which included signing bonuses, retention bonuses or one-time cash payments on being hired, ranged from as low as $100 to as high as $30,000 in the month ended June 18.

Some restaurant jobs are paying as much as $27 per hour plus tips, according to postings on Poachedjobs.com, a national job board for the restaurant/hospitality industry. The federal minimum wage is $7.25 per hour, but is higher in some states.

With employment not expected to return to its pre-pandemic level until sometime in 2022, rising wages are unlikely to worry Federal Reserve officials even as inflation is heating up because of supply constraints. Fed Chair Jerome Powell has repeatedly stated he expects high inflation will be transitory.

The U.S. central bank last month opened talks on how to end its crisis-era massive bond-buying.

Though the unemployment rate rose to 5.9% from 5.8% in May, that was because 151,000 people entered the labor force. The jobless rate continued to be understated by people misclassifying themselves as being “employed but absent from work.” Without this misclassification, the unemployment rate would have been 6.1% in June.

(Reporting by Lucia Mutikani; Editing by Dan Burns, Chizu Nomiyama and Andrea Ricci)

Factbox: Latest on the worldwide spread of the coronavirus

(Reuters) – The Euro 2020 soccer tournament was blamed for a surge in cases as fans have flocked to stadiums, bars and spectator zones across Europe to watch the action while the pandemic still raged.

DEATHS AND INFECTIONS

EUROPE

* Europe’s drug regulator said the vaccines approved in the European Union offered protection against all coronavirus variants, including Delta, but called for active monitoring by vaccine manufacturers to stay alert.

* Prime Minister Boris Johnson said he was confident Britons fully vaccinated against COVID-19 would be able to travel abroad this year.

* A 10-week decline in new infections across Europe has come to an end and a new wave of infections is inevitable if citizens and lawmakers do not remain disciplined, the head of WHO in Europe, Hans Kluge, told a news briefing.

ASIA-PACIFIC

* President Joko Widodo said that Indonesia will impose emergency measures until July 20 to contain an exponential spike in cases that has strained the medical system.

* Japan is considering an extension of two weeks to a month for coronavirus prevention measures in Tokyo and other areas, Japanese media said.

AMERICAS

* Bolivia’s government is looking to stabilize the country’s economy, which last year plunged the most in over half a century, with a mix of fiscal spending, vaccines and gold.

* Dominican health authorities will on Thursday begin distributing a third dose of vaccine in an effort to protect against more contagious new variants.

MIDDLE EAST AND AFRICA

* The United States will begin shipping the first batch of vaccines it has donated to Africa from this weekend, a special envoy of the African Union said, as the continent sees a surge in cases fueled by variants.

* The South African Medical Association threatened to take the government to court because scores of new junior doctors cannot find work placements despite staff shortages during the pandemic.

* Police in Uganda have arrested two nurses and were hunting for a man who had posed as a doctor to sell and administer fake vaccines to hundreds of people, authorities said, amid a rising second wave of infections.

MEDICAL DEVELOPMENTS

* Indian drugmaker Zydus Cadila said it has applied for emergency use approval of its three-dose vaccine that showed efficacy of 66.6% in an interim study and could become the second home-grown shot if regulators consent.

* CureVac said its COVID-19 vaccine was 48% effective in the final analysis of its pivotal mass trial, only marginally better than the 47% reported after an initial read-out two weeks ago.

ECONOMIC IMPACT

* Global stock markets rose on strong European and U.S. shares on Thursday, with stocks brushing off a rapid re-acceleration in coronavirus cases and oil and the dollar extending their first-half rallies.

* Mexico’s factories deteriorated for a 16th straight month in June amid the ongoing COVID-19 crisis and local restrictions, though the pace of contraction was the slowest since the effects of the pandemic first hit Mexico, a survey showed.

* Turkey’s pandemic-era ban on layoffs and a government wage support system, both adopted in early 2020, expired as most remaining restrictions were also lifted, setting the stage for a rise in unemployment.

* The IMF’s executive board approved the second review of Jordan’s four-year reform program and commended it for meeting its fiscal targets despite the fallout from the coronavirus, the finance ministry said.

(Compiled by Federico Maccioni, Amy Caren Daniel and Jagoda Darlak; Edited William Maclean)

Global shares fall on pandemic fears ahead of jobs report

By Carolyn Cohn and Elizabeth Dilts Marshall

NEW YORK (Reuters) -Global shares retreated from recent highs on Wednesday, as Asian markets grew jittery about a resurgence of COVID-19 cases and Western markets awaited Friday’s U.S. jobs report and what it might mean for monetary policy.

Asset markets have been buoyed over the past year by trillions of dollars of monetary and fiscal stimulus by central banks and governments around the world in response to the pandemic.

The success of vaccination rollouts in some places has fueled an economic recovery, and consumer confidence in June surged to 21-year-highs in Europe and 1-1/2-year-highs in the United States.

But fears over a sudden rise in inflation and the highly contagious Delta variant combined with investors taking gains as the first half of the year ended on Wednesday.

“The search for yield is a very powerful force. It doesn’t have (a) narrative right now to stop,” said Sebastien Galy, senior macro strategist at Nordea Asset Management.

MSCI’s all-country world index, which tracks shares across 50 countries, shed 0.28%. It was still set for a fifth straight month of gains, and for a rise of more than 11% in the first half.

The Dow Jones Industrial Average rose 134.39 points, or 0.39%, the S&P 500 gained 3.06 points, or 0.07%, and the Nasdaq Composite dropped 13.63 points, or 0.09%. [.N]

The pan-European STOXX 600 index lost 0.77%. The German DAX fell 159.55, or 1.02%, and London’s FTSE 100 fell 50.08, or 0.71%.

EYES ON PAYROLLS

Data released on Wednesday showed that U.S. private payrolls increased 692,000 jobs in June, more than expected but less than the 886,000 jobs added in May.

That figure pushed the S&P 500 to near record highs on Wednesday. But markets are still focused on the more comprehensive U.S. nonfarm payrolls figures to come on Friday. Economists polled by Reuters were expecting a gain of 690,000 jobs for June, up from 559,000 in May. But the variation among the 63 estimates was large, ranging from 400,000 to more than a million.

The benchmark 10-year yield rose to yield 1.4426%, from 1.48%

The dollar rose 0.357%, headed for its biggest monthly rise since November 2016. The dollar has gained about 2.6% against a basket of currencies this month, partly in the wake of the U.S. Federal Reserve’s hawkish tilt.

A “very optimistic” Fed Governor Christopher Waller on Tuesday said it may need to start dialing down its massive asset purchase program as soon as this year to allow the option of raising interest rates by late 2022.

The euro was down 0.37% to $1.1851, while Britain’s pound was last trading at $1.3807, down 0.20% on the day.

The Japanese yen weakened 0.45% versus the greenback to 111.03 per dollar.

MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.11% lower, while Japan’s Nikkei lost 0.07%. Chinese blue chips added 0.65%.

Indonesia, Malaysia, Thailand and Australia are all battling outbreaks of COVID-19 and tightening restrictions, and Spain and Portugal announced restrictions for unvaccinated British tourists.

Oil prices were heading for monthly and quarterly gains after some data suggested U.S. crude stockpiles were shrinking.

U.S. crude rose 0.36% to $73.24 per barrel and Brent was at $75.08, up 0.43% on the day.

Gold headed for its largest monthly decline since November 2016. Spot gold added 0.2% to $1,765.16 an ounce. U.S. gold futures gained 0.13% to $1,765.10 an ounce.

(Reporting by Carolyn Cohn in London and Elizabeth Dilts Marshall in New York; editing by Jonathan Oatis, Kirsten Donovan)

U.S. consumer spending takes breather amid shortages; inflation rises

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. consumer spending paused in May as shortages hurt motor vehicle purchases, but the supply constraints and increased demand for services helped to lift prices, with the Federal Reserve’s main inflation measure rising by the most in 29 years.

There was, however, some good news on inflation. Consumers this month perceived higher inflation to be temporary, a survey showed on Friday, aligning with the views of Fed Chair Jerome Powell and Treasury Secretary Janet Yellen. Consumers’ inflation expectations are key as they can influence households’ behavior.

With at least 150 million Americans fully vaccinated against COVID-19, which is allowing the economy to reopen and people to travel, dine out and engage in other activities that were restricted during the pandemic, consumer spending is expected to pick up in the coming months. Trillions of dollars in excess savings and rising household wealth due to gains in stock prices and home values are expected to provide a powerful tailwind.

“Spending growth will shift to services from goods, and drive a strong economic recovery throughout the rest of 2021 and all of 2022,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh. “The biggest drags are higher prices for some goods and services and shortages due to production bottlenecks.”

The unchanged reading in consumer spending, which accounts for more than two-thirds of U.S. economic activity, followed an upwardly revised 0.9% jump in April, the Commerce Department said. Consumer spending was previously reported to have increased 0.5% in April. Economists polled by Reuters had forecast consumer spending would rise 0.4% in May.

Motor vehicles and some household appliances are scarce because of supply bottlenecks stemming from the pandemic. A global shortage of semiconductors is hampering motor vehicle production. Spending is also starting to shift back to the services part of the economy, which accounts for two-thirds of consumer spending, though the pace last month was insufficient to offset the drag from goods.

Spending on services rose 0.7%, led by recreation, restaurants and hotels as well as housing and utilities. Spending on goods fell 1.3%, with outlays of long-lasting goods like motor vehicles tumbling 2.8%. Goods spending surged as the pandemic confined people to their homes.

The personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, increased 0.5% after advancing 0.7% in April. In the 12 months through May, the so-called core PCE price index shot up 3.4%, the largest gain since April 1992. The core PCE price index rose 3.1% on a year-on-year basis in April.

The core PCE price index is the Fed’s preferred inflation measure for its flexible 2% target. Year-on-year inflation is accelerating in part as last spring’s weak readings drop from the calculation.

Stocks on Wall Street were trading largely higher, with the S&P 500 index hitting a record high as investors focused on the moderation in the monthly inflation reading. The dollar slipped against a basket of currencies. U.S. Treasury prices were mostly lower.

NO RUNAWAY INFLATION

Though the so-called base effects likely peaked in May, inflation will probably remain high in the near term because of the supply constraints and worker shortages, which are boosting wage growth.

“While we foresee increased inflation stickiness, with core PCE inflation hovering around 3.0% in the second half (of the year), we don’t foresee runaway inflation,” said Lydia Boussour, lead U.S. economist at Oxford Economics in New York.

Consumers seem to agree. The University of Michigan consumer survey’s one-year inflation expectation dropped to 4.2% in June from a decade-high 4.6% in May. The survey noted that “consumers also believed that the price surges will mostly be temporary.”

The five-to-10-year inflation expectation fell to 2.8% this month from 3.0% in May. Fed officials put more emphasis on the five-to-10-year series.

Powell acknowledged this week that “inflation has increased notably in recent months,” but told lawmakers that the U.S. central bank “will not raise interest rates preemptively because we fear the possible onset of inflation.”

When adjusted for inflation, consumer spending fell 0.4% last month after rising 0.3% in April. Despite May’s drop in the so-called real consumer spending, consumption is running higher than its pace in the first quarter.

Gross domestic product growth estimates for this quarter are around a 9% annualized rate, which would be an acceleration from the 6.4% pace logged in the first quarter. Economists believe the economy could achieve growth of at least 7% this year. That would be the fastest growth since 1984. The economy contracted 3.5% in 2020, its worst performance in 74 years.

In addition to the supply squeeze, the ebbing boost from government stimulus checks likely restrained consumer spending last month. Transfer payments from the government dropped 11.7%. That resulted in personal income falling 2.0% after declining 13.1% in April.

But there is ample fuel to drive spending. Wages gained 0.8% after rising 1.0% in April. The saving rate fell to a still-lofty 12.4% from 14.5% in April. Households accumulated at least $2.5 trillion in excess savings during the pandemic.

From July through December some households will receive income under the expanded Child Tax Credit program, which will soften the blow of an early termination of government-funded unemployment benefits in 26 states.

(Reporting by Lucia Mutikani; Editing by Paul Simao)