Tag Archives: U.S. Economy

Trump-Xi trade armistice clears way for more market gains

FILE PHOTO: U.S. President Donald Trump and China's President Xi Jinping shake hands after making joint statements at the Great Hall of the People in Beijing, China, November 9, 2017. REUTERS/Damir Sagolj/File Photo

By Jonathan Spicer and Lewis Krauskopf

NEW YORK (Reuters) – One of the darkest clouds hanging over Wall Street somewhat dissipated on the weekend when China and the United States agreed to shelve any new tariffs and reset discussions, at least temporarily halting an increase in their tensions over trade.

Investors said the agreement, lasting 90 days, between Chinese President Xi Jinping and U.S. President Donald Trump at the G20 summit, spelled a reprieve for stocks and could pave the way for a positive bookend to a volatile trading year.

U.S. stock index futures jumped as trading for the week began late on Sunday, with benchmark S&P 500 e-mini futures up 1.55 percent. Treasury futures were soft, suggesting an appetite for risk-taking could extend last week’s gains in the stock market.

The trade tension between Washington and Beijing, along with an uncertain outlook for U.S. rate hikes, have for months dogged prospects for equities. The U.S. pledge not to boost tariffs on $200 billion of Chinese goods could mark the most important deal in years between the world’s top two economies.

“It sets a pretty positive tone (and) stocks should have a decent rally into December,” said Nathan Thooft, Boston-based global head of asset allocation for Manulife Asset Management.

Thooft said he believed the Trump administration was using a threat to raise tariffs to 25 percent on Jan. 1, from 10 percent now as a negotiating tactic. “So when you start to see evidence that there is the ability to come to some type of agreement, that has to be viewed as a positive,” he said.

The stock market logged an official correction after a selloff in October and continued volatility in November that, just over a week ago, had left the benchmark S&P 500  stock index down 10 percent from its all-time high.

Markets rebounded last week on comments perceived as dovish from Federal Reserve Chair Jerome Powell, though the S&P was up only 2.4 percent in 2018.

The latest trade standoff began in September when the United States imposed the 10-percent tariffs, prompting China to respond with its own. Ahead of the leaders’ dinner in Argentina, investors had been bracing for a range of outcomes including a worse-case end to talks and more tit-for-tat measures that would have continued to crimp economic and corporate profit growth.

Instead, the Americans and Chinese officially lauded the result.

Beijing agreed to buy what the White House called a “very substantial” amount of agriculture, energy, industrial and other products. While the clock ticks on the 90-day tariff reprieve, the two sides will try to work out thorny issues including technology transfer, intellectual property and cyber theft.

“It’s not solved by any stretch of the imagination,” said Thooft. But risk assets and cyclical U.S. sectors like materials and industrials should benefit, he said on Sunday.

An initial jump late on Sunday of nearly 2 percent in Nasdaq 100 e-mini futures suggested that technology companies, many of which were hardest hit in the selloff, could rebound.

Gary Shapiro, CEO of the Consumer Technology Association, said he was encouraged by the trade talks and warned that raising tariffs to 25 percent as the White House had threatened “would likely hurt consumers, put several American companies out of business and displace thousands of American workers.”

POWELL TESTIMONY

Energy prices could also rebound on Monday since cooling trade tensions could boost the world economy and spur demand.

Oil prices had dropped from a four-year high of about $76 per barrel in early October to just above $50 on Friday. But U.S. crude oil was up 2.7 percent to $52.37 a barrel as of 6:07 p.m. EST (2307 GMT) on Sunday.

Aside from trade policy, Wall Street’s attention has also been trained on Fed policy.

Powell was scheduled to testify on Wednesday to a congressional Joint Economic Committee. But the hearing is expected to be postponed to Thursday because major exchanges will be closed on Wednesday in honor of former U.S. President George H.W. Bush, who died on Friday at the age of 94.

Last week, Powell backed the Fed’s gradual tightening but said its policy rate was “just below” a range of estimates of the so-called neutral level that neither stimulates nor cools growth. In response, stocks shot up and largely recovered November’s earlier losses.

In the wake of Powell’s speech, Nicholas Colas, co-founder of DataTrek Research, said: “what happens in Buenos Aires will determine if stocks post a positive 2018.”

The specter of a global trade war has hovered over the market since March when Trump announced tariffs on imported steel and aluminum. He also recently said the United States was studying auto tariffs, which could ripple through Europe and Japan, while a pact with Canada and Mexico left some investors heartened about potential progress with China.

Nancy Lazar, economist at research firm Cornerstone Macro, said in a note that the 90-day tariff delay and China’s “incremental concessions” are good news.

“But given the stern U.S. stance, we’re certainly not raising our outlook,” she said of a 2.8-percent growth estimate for the fourth quarter, still comfortably above potential.

With U.S. corporate leaders increasingly voicing concerns over rising costs associated with tariffs, Wall Street appeared set on Monday to welcome any development that eases those pressures.

(Reporting by Jonathan Spicer and Lewis Krauskopf; Editing by Grant McCool and Sandra Maler)

U.S. job growth jumps; annual wage gain largest since 2009

People wait in line at a stand during the Executive Branch Job Fair hosted by the Conservative Partnership Institute at the Dirksen Senate Office Building in Washington, U.S., June 15, 2018. REUTERS/Toya Sarno Jordan

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. job growth rebounded sharply in October and wages recorded their largest annual gain in 9-1/2 years, pointing to further labor market tightening that could encourage the Federal Reserve to raise interest rates again in December.

The Labor Department’s closely watched monthly employment report on Friday also showed the unemployment rate steady at a 49-year low of 3.7 percent as 711,000 people entered the labor force, in a sign of confidence in the jobs market.

Sustained labor market strength could ease fears about the economy’s health following weak housing data and stalling business spending. President Donald Trump cheered the robust report, which came less than a week before the midterm elections that will decide who controls the U.S. Congress.

“These are incredible numbers,” Trump tweeted.

Nonfarm payrolls increased by 250,000 jobs last month as employment in the leisure and hospitality sector bounced back after being held down by Hurricane Florence, which drenched North and South Carolina in mid-September.

There were also big gains in manufacturing, construction and professional and business services payrolls. Data for September was revised to show 118,000 jobs added instead of the previously reported 134,000.

Economists polled by Reuters had forecast payrolls increasing by 190,000 jobs in October and the unemployment rate unchanged at 3.7 percent. The Labor Department said Hurricane Michael, which struck the Florida Panhandle in mid-October, “had no discernible effect on the national employment and unemployment estimates for October.”

Average hourly earnings rose five cents, or 0.2 percent, in October after advancing 0.3 percent in September. That boosted the annual increase in wages to 3.1 percent, the biggest gain since April 2009, from 2.8 percent in September.

Employers also increased hours for workers last month. The average workweek increased to 34.5 hours from 34.4 hours in September.

“The report shows a booming U.S. economy with a sufficient whiff of wage inflation to keep the Fed on track to raise rates in December and at least twice next year,” said David Kelly, chief global strategist at JPMorgan Funds in New York.

Strong annual wage growth mirrors other data published this week showing wages and salaries rising in the third quarter by the most since mid-2008. Hourly compensation also increased at a brisk pace in the third quarter.

Firming wages support views that inflation will hover around the Fed’s 2.0 percent target for a while. The personal consumption expenditures price index excluding the volatile food and energy components, which is the Fed’s preferred inflation measure, has increased by 2.0 percent for five straight months.

The Fed is not expected to raise rates at its policy meeting next week, but economists believe October’s strong labor market data could see the U.S. central bank signal an increase in December. The Fed raised borrowing costs in September for the third time this year.

U.S. stocks were trading mostly lower and the dollar was slightly weaker against a basket of currencies on Friday. Prices of U.S. Treasuries were lower.

WORKER SHORTAGE

Employers, scrambling to find qualified workers, are boosting wages. There are a record 7.14 million open jobs.

Online retail giant Amazon.com Inc announced last month that it would raise its minimum wage to $15 per hour for U.S. employees starting in November. Workers at United States Steel Corp are set to receive a hefty pay rise also.

Employment gains have averaged 218,000 jobs per month over the past three months, double the roughly 100,000 needed to keep up with growth in the working-age population.

That is seen supporting the economy through at least early 2019 when gross domestic product is expected to significantly slow as the stimulus from the White House’s $1.5 trillion tax cut package fades.

The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, increased two-tenths of a percentage point to 62.9 percent last month.

A broader measure of unemployment, which includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment, fell to 7.4 percent last month from 7.5 percent in September. The employment-to-population ratio rose two-tenths of percentage point to 60.6 percent, the highest since January 2009.

Last month, employment in the leisure and hospitality sector increased by 42,000 jobs after being unchanged in September. Retail payrolls rose by only 2,400, likely restrained by layoffs related to Steinhoff’s Mattress Firm bankruptcy as well as some store closures by Sears Holdings Corp.

Construction companies hired 30,000 more workers in October. Jobs in the sector have been increasing despite weakness in the housing market. Government payrolls rose by 4,000 jobs in October.

Manufacturing employment increased by 32,000 jobs in October after adding 18,000 positions in September. Job gains in the sector, which accounts for about 12 percent of the U.S. economy, could slow after a survey on Thursday showed a measure of factory employment fell in October.

So far, manufacturing hiring does not appear to have been affected by the Trump administration’s protectionist trade policy, which has contributed to capacity constraints at factories. The United States is locked in a bitter trade war with China as well as tit-for-tat tariffs with other trade partners, including the European Union, Canada and Mexico.

Despite the protectionist measures, the trade deficit continues to deteriorate. In a separate report on Friday, the Commerce Department said the trade gap increased 1.3 percent to $54.0 billion in September, widening for a fourth straight month.

(Reporting by Lucia Mutikani; Editing by Clive McKeef and Paul Simao)

U.S. regains crown as most competitive economy for first time since 2008

FILE PHOTO: U.S. President Donald Trump gestures as he delivers a speech during the World Economic Forum (WEF) annual meeting in Davos, Switzerland January 26, 2018. REUTERS/Denis Balibouse/File Photo

By Katanga Johnson

WASHINGTON (Reuters) – The U.S. economy sits atop of the World Economic Forum’s annual global competitiveness survey for the first time since the 2007-2009 financial crisis, benefiting from a new ranking methodology this year, the Swiss body said on Tuesday.

In its closely-watched annual Global Competitiveness Report, the WEF said the U.S. is the country closest to the “frontier of competitiveness,” an indicator that ranks competitive productivity using a scale from zero to 100.

The U.S. beat off Singapore, Germany, Switzerland and Japan, the other top four markets, with a score of 85.6 out of 100, the report said, due to its “vibrant” entrepreneurial culture and “strong” labor market and financial system.

The World Economic Forum, the same organization that runs the Davos meeting of global powerbrokers each January, bases its rankings of 140 economies on a dozen drivers of competitiveness, including a country’s institutions and the policies that help drive productivity.

This year the WEF changed its methodology to better account for future readiness for competition, such as a country’s idea generation, entrepreneurial culture, and the number of businesses that disrupt existing markets.

The last time the U.S. topped the list was 2008.

The WEF said it was too early to factor in how the Trump administration’s recent trade policies would affect its ranking.

“While it is too early for the data to filter through in this year’s report, we would expect trade tensions with China and other trading partners to have a negative impact on the US’ competitiveness in the future, were they to continue,” Saadia Zahidi, the managing director at the World Economic Forum, said in an email.

“Open economies are more competitive.”

(Reporting by Katanga Johnson; Editing by Michelle Price)

A decade of U.S. economic sluggishness may have just snapped back to normal

FILE PHOTO: A U.S. five dollar note is seen in this illustration photo June 1, 2017. REUTERS/Thomas White/Illustration/File Photo

By Howard Schneider

WASHINGTON (Reuters) – For a solid decade after the collapse of Lehman Brothers touched off a global financial crisis, there was good reason to think the U.S. economy remained broken, from skepticism about the health of the labor market to tepid economic growth and the moribund rate of interest paid on U.S. Treasury bonds.

In a heartbeat, that seemed to change this week, adding facts on the ground to Federal Reserve Chairman Jerome Powell’s glowing portrait of a historically rosy and extended period of super-low unemployment, modest inflation, and steady growth.

It came through Amazon.com Inc’s move to a $15 minimum wage, possibly setting the bar for companies nationwide. It came through a jump in long-term bond yields that signaled faith the gears of growth will remain engaged for a record-long recovery.

On Friday, it came through the 3.7 percent unemployment rate, a 49-year low, continuing a run of employment growth that many analysts, including at the Fed, have long expected to slow.

“Wage inflation is creeping higher,” said Russell Price, senior economist at Ameriprise Financial Services Inc in Troy, Michigan.

“There’s no question the job market in the United States is possibly at its best in a generation. There’s no question or debate about that. The jobs report has become an inflation report.”

Treasury bond yields rose further on the payrolls report, with the benchmark 10-year note yield touching its highest level since 2011, and U.S. stocks slipped.

The week’s events were not just consistent with the good times scenario both Powell and U.S. President Donald Trump have laid out. They validated it, and in doing so pointed to a U.S. economy that may be starting to work more like it used to.

As an exercise in old-fashioned supply and demand, Amazon’s decision to raise starting wages across the board was perhaps the best example. Fed and other officials have been anticipating for a while, in fact, that the lack of available workers would prompt companies to raise wages.

“When productivity growth is faster, that is your opportunity to share some of your extra output with your workers. That’s what gets wages higher,” said Vincent Reinhart, Chief Economist at investment manager Standish, and former head of the Fed’s monetary affairs division.

Even former skeptics have become open to the idea that a recent rise in productivity may turn into a trend, drawing comparisons with the “Great Moderation” period of growth during the 1990s, which also featured low unemployment and solid wage growth

The rise in long-term bond rates also may herald a return to more normal conditions, giving cautious investors a reasonable return after years of lackluster outcomes, and easing concerns about a flat or “inverted” yield curve that would herald loss of faith in the future.

There is reason to think it may continue.

To pay for the Republican tax cuts and the bump in defense spending, the Treasury is flooding the market with bonds at a near-record pace, with gross issuance of bills, notes and bonds in August topping $1 trillion in a month for only the second time ever, according to federal SIFMA data.

To sell all those bonds, the Treasury may have to pay higher rates. Meanwhile, a major customer, the Fed, whose purchases of $3.5 trillion of assets during and after the crisis helped foster the recovery, has started shrinking its bond portfolio by $50 billion a month.

There are risks surrounding the week’s development, and a few anomalies.

The Fed, for example, is convinced that with its gradual continuing rate increases, inflation will remain controlled – even as unemployment dives for years to come below levels not seen since the 1960s. If inflation does kick in, as it might be expected to do with such a hot labor market and with Trump’s tariffs pushing up the cost of some imports, it would force the Fed to speed up rate hikes and possibly end the party.

Surging bond rates could also throw cold water on Powell’s positive thinking, and call the Fed’s whole strategy of gradual rate increases into question. High Treasury rates mean higher rates for mortgage lending, auto loans, and a host of other forms of credit that could slow the real economy more than the Fed would like.

“The tariffs, quotas, and trade threats are like shooting the starter’s pistol to say: let’s think about renegotiating” wages and salaries, said Reinhart. “It is possible that the limited influence of resource slack on wages and prices was because we were just stuck, (but) that could change.”

A “divergent” U.S. economy, as Cleveland Fed President Loretta Mester warned, could also mean a stronger dollar – and fewer exports and growth.

But as she noted, for a decade now the concern has been about persistent weakness – that the economy was stuck in a state of what prominent economists deemed “secular stagnation.”

The return of volatility, of reasonable returns for savers, of wage pressure benefiting workers, may all pose risks.

But they are the risks of a more normal world.

“The economy is performing extraordinarily well, at least relative to recent history,” said Joseph LaVorgna, chief Americas economics at Natixis. “It’s not the boom of the late ’90s, but it’s doing pretty well.”

(Reporting by Howard Schneider; additional reporting by Jonathan Spicer and Herbert Lash in New York; Editing by Dan Burns and Nick Zieminski)

Federal Reserve prepares for next crisis, bets it will begin like the last

FILE PHOTO: The Federal Reserve building is pictured in Washington, DC, U.S., August 22, 2018. REUTERS/Chris Wattie/File Photo

By Jonathan Spicer and Howard Schneider

BOSTON (Reuters) – The Federal Reserve painted a picture of the U.S. economy that was almost too good to be true at its last meeting, with inflation seen contained in the near future despite the lowest unemployment rate in 20 years.

The Fed’s forecasts were labeled “out of this world” by one economist at the annual National Association for Business Economics (NABE) conference in Boston this week.

On the tenth anniversary of the 2008 financial crisis, which started with an unexpected panic in an under-appreciated corner of the financial sector, the emphasis in recent Fed speeches and research on avoiding excess leverage and financial market imbalances is understandable, but risks ignoring the possibility that the next recession may result from runaway inflation.

“There clearly has been a shift at the Fed toward more attention” to leverage ratios, financial buffers and other measures of financial market resilience, said Robert Gordon, economist and social sciences professor at Northwestern University and an expert on productivity and economic growth. “They have governors who are particularly appointed to be in charge of that now in a sense that they didn’t used to.”

Earlier, Gordon told the NABE conference that the Fed’s inflation forecasts were “unbelievable” and continued strong job creation will inevitably boost prices even though few see an immediate threat.

Global trade policy tensions, an emerging market debt crisis, or some other shock may happen, but would need to be large and sustained to undermine the 3.0 percent growth that the $20 trillion U.S. economy is currently enjoying.

Few believe the U.S. housing sector poses the same risk it did in the early 2000s, and while student loans and other consumer borrowing have grown, overall household credit and debt payment levels are manageable.

Still, if the Trump administration nominates the Fed’s former financial-stability guru, Nellie Liang, as a board governor, as expected, efforts to avoid another financial crisis could increase further.

In reports to Congress, the Fed has, for example, highlighted concerns about commercial real estate and the stock market where rising prices could reverse sharply as interest rates rise.

The likely choice of Liang comes after Fed chair Jerome Powell recently downplayed the relevance of traditional inflationary signals in setting interest rates and noted that in the last two recessions the trouble started in financial markets.

“Risk management suggests looking beyond inflation for signs of excesses,” he said in late August at the annual conference in Jackson Hole, Wyoming.

Yet Powell also said last month he sees only moderate risks across a dashboard of indicators, including household leverage and current bank capital levels.

TIME FOR A BUFFER?

A test may come in two months when Fed governors decide whether to raise the so-called countercyclical capital buffer for banks which would force them to set aside more capital to cushion a downturn.

Fed Governor Lael Brainard has argued the buffer should be raised from zero, citing the shot of fiscal stimulus from last year’s U.S. tax cuts and high asset prices in the context of a decade-long economic expansion.

Metrics analyzed by Liang as head of the Fed’s financial stability division are not yet cause for concern, but her research has made clear that tools like the countercyclical buffer could be used to limit credit growth before it becomes problematic.

CYCLE ENDINGS

Liang, a senior fellow at Brookings Institution, has also argued that tighter monetary policy and early intervention is best to ward off possible crises, so some expect her to oversee a broader financial stability file as a Fed governor.

Financial market imbalances could be sparked by spending from the 2017 tax cuts or further stock price gains, Goldman Sachs economists wrote recently.

Yet with unemployment at 3.9 percent, and U.S. banks stabilized by post-crisis regulations, many economists believe the end of this long business cycle will be marked by a traditional resurgence of inflation and corresponding Fed interest rate rises.

The Fed itself expects unemployment to hover between 3.5 and 3.7 percent through 2021, roughly a full percentage point below levels seen as consistent with a stable inflation rate.

“I think it’s inevitable it will be associated with higher rates of inflation,” said Harvard economics professor James Stock, a former member of President Barack Obama’s Council of Economic Advisers.

The Fed has been raising interest rates gradually since late 2015 to head off future problems but it is less clear how rising rates might affect risk-taking in the “shadow” banking sector, where hedge funds and other less-regulated firms extend credit to riskier companies. In July, the Fed warned that “borrowing among highly levered and lower-rated businesses remains elevated.”

In a recent paper presented at the Brookings Institution, former Fed Chair Ben Bernanke said one lesson from the crisis is that policymakers needed to include interactions between credit markets and the economy in their projections, in effect weaving financial stability concerns into models of how the economy responds to different shocks.

Asked how concerned he was about current financial market signals, Boston Fed President Eric Rosengren told the conference on Monday: “I don’t think there is an alarm going off. But I do think there are a lot of yellow lights.”

 

U.S. factory activity races to 14-year high in August

A production operator checks a panel at the SolarWorld solar panel factory in Hillsboro, Oregon, U.S, January 15, 2018. Picture taken January 15, 2018 REUTERS/Natalie Behring

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. manufacturing activity accelerated to more than a 14-year high in August, boosted by a surge in new orders, but growing concerns over rising raw material costs as a result of import tariffs could restrain further growth.

The Institute for Supply Management (ISM) said on Tuesday its index of national factory activity jumped to 61.3 last month, the best reading since May 2004, from 58.1 in July. A reading above 50 indicates growth in manufacturing, which accounts for about 12 percent of the U.S. economy.

The ISM described demand as remaining “robust,” but cautioned that “the nation’s employment resources and supply chains continue to struggle.” According to the ISM, respondents to the survey were “again overwhelmingly concerned about tariff-related activity, including how reciprocal tariffs will impact company revenue and current manufacturing locations.”

President Donald Trump’s “America First” trade policy has led to an escalating trade war with China and tit-for-tat import tariffs with other trading partners, including the European Union, Canada, and Mexico.

Trump has defended the duties on steel and aluminum imports and a range of Chinese goods as necessary to protect American industries from what he says is unfair foreign competition.

Economists have warned that the tariffs could disrupt supply chains, undercut business investment and slow the economy’s momentum.

The ISM’s new orders sub-index increased to a reading of 65.1 last month from 60.2 in July. Factories reported hiring more workers last month, with production increasing sharply.

The survey’s supplier deliveries index jumped to a reading of 64.5 last month, highlighting the rising bottlenecks in the supply chain, from 62.1 in July. It hit a 14-year high of 68.2 in June.

U.S. stocks were trading lower while yields of U.S. Treasuries were higher. The dollar <.DXY> was stronger against a basket of currencies.

CONSTRUCTION SPENDING TEPID

In a separate report on Tuesday, the Commerce Department said construction spending barely rose in July as increases in homebuilding and investment in public projects were overshadowed by a sharp drop in private nonresidential outlays.

Construction spending edged up 0.1 percent. Data for June was revised up to show construction outlays declining 0.8 percent instead of the previously reported 1.1 percent drop.

Economists polled by Reuters had forecast construction spending increasing 0.5 percent in July. Construction spending increased 5.8 percent on a year-on-year basis.

Spending on private residential projects rebounded 0.6 percent in July following two straight months of declines.

While homebuilding rose in July, the overall trend has slowed, with builders continuing to complain about rising material costs as well as persistent land and labor shortages. Residential investment contracted in the first half of the year.

Spending on private nonresidential structures, which includes manufacturing and power plants, dropped 1.0 percent in July. That was the biggest decline since August 2017 and followed a 0.1 percent gain in June.

Overall, spending on private construction projects slipped 0.1 percent in July after decreasing 0.5 percent in June.

Investment in public construction projects increased 0.7 percent after tumbling 1.7 percent in June. Spending on federal government construction projects rebounded 2.5 percent. That followed a 3.0 percent drop in June.

State and local government construction outlays advanced 0.6 percent in July after falling 1.6 percent in the prior month.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

Fed set to hold rates steady, remain on track for more hikes

FILE PHOTO: The Federal Reserve Building stands in Washington, DC, U.S., April 3, 2012. REUTERS/Joshua Roberts/File Photo

By Lindsay Dunsmuir

WASHINGTON (Reuters) – The Federal Reserve is expected to keep interest rates unchanged on Wednesday, but solid economic growth combined with rising inflation are likely to keep it on track for another two hikes this year even as President Donald Trump has ramped up criticism of its push to raise rates.

The U.S. central bank so far this year has increased borrowing costs in March and June, and investors see additional moves in September and December. Policymakers have raised rates seven times since December 2015.

The Fed will announce its decision at 2 p.m. EDT (1800 GMT) on Wednesday. No press conference is scheduled and only minor changes are anticipated compared with the Fed’s June policy statement, which emphasized accelerating economic growth, strong business investment and rising inflation.

“They’ve got expectations pretty much where they want them,” said Michael Feroli, an economist with JPMorgan. “They may need to finesse how they word the language on inflation, but I think the ultimate message is going to be the same.”

The U.S. economy grew at its fastest pace in nearly four years in the second quarter as consumers boosted spending and farmers rushed shipments of soybeans to China to beat retaliatory trade tariffs, Commerce Department data showed on Friday.

The Fed’s preferred measure of inflation – the personal consumption expenditures (PCE) price index excluding food and energy components- increased at a 2.0 percent pace in the second quarter, the data also showed. The latest monthly figures released on Tuesday showed prices in June were 1.9 percent higher than a year earlier.

The core PCE hit the U.S. central bank’s 2 percent inflation target in March for the first time since December 2011.

U.S. labor costs, a key measure of how much slack is left in the market, posted their largest annual gain since 2008 in the second quarter, the Labor Department said on Tuesday.

TRUMP CRITICISM

Economic growth has been buoyed by the Trump administration’s package of tax cuts and government spending, and Fed Chairman Jerome Powell has said overall the economy is in a “really good place.”

The unemployment rate stands at 4.0 percent, lower than the level seen sustainable by Fed policymakers.

The central bank is expected to continue to raise rates through 2019 but policymakers are keenly debating when the so-called “neutral rate” – the sweet spot in which monetary policy is neither expansive nor restrictive – will be hit.

Rate-setters are closely watching for signs that inflation is accelerating and they are expecting economic growth to slow as the fiscal stimulus fades.

They also remain wary of the potential effects of a protracted trade war between the United States and China which could push the cost of goods higher and hurt company investment plans.

The Fed’s policy path will see interest rates peak at much lower levels than in previous economic cycles. Even so, Trump, in a departure from usual practice that presidents do not comment on Fed policy, said he was worried growth would be hit by higher rates.

Administration officials played down the president’s comments, saying he was not seeking to influence the Fed.

On the campaign trail, Trump criticized Powell’s predecessor as Fed chief, Janet Yellen, for keeping rates too low.

Trump appointed Powell and Fed Governor Randal Quarles, and he has three other nominees to the rate-setting committee awaiting U.S. Senate confirmation. Almost all have been seen as mainstream in their attitude to economic policy. Economists say Trump has little influence over Fed policy beyond the personnel changes he has already made.

Trump’s tweets are a far cry from the 1970s when then-President Richard Nixon told the Fed chairman to kick rate setters “in the rump” to keep rates low until after an election. That stoked inflation and eventually strengthened the Fed’s independence, something that has become even more entrenched since.

“Powell is obviously someone who values the Fed’s independence,” said Paul Ashworth, an economist with Capital Economics. “I don’t expect them to change tack because of political pressure.”

(Reporting by Lindsay Dunsmuir; Editing by Andrea Ricci and Paul Simao)

Malicious cyber activity cost U.S. economy $57 billion – $109 billion in 2016: White House report

A hooded man holds a laptop computer as blue screen with an exclamation mark is projected on him in this illustration picture taken on May 13, 2017. REUTERS/Kacper Pempel/Illustration -

WASHINGTON (Reuters) – A White House report estimated on Friday that malicious cyber activity cost the U.S. economy between $57 billion and $109 billion in 2016.

The estimate was contained in a report by the White House Council of Economic Advisers on the economic costs of cyber threats.

The report quoted the U.S. intelligence community as saying the main foreign culprits responsible for much cyber activity are Russia, China, Iran and North Korea.

(Reporting By Steve HollandEditing by Chizu Nomiyama)

Utilities, mining boost U.S. industrial production

Robotic arms spot welds on the chassis of a Ford Transit Van under assembly at the Ford Claycomo Assembly Plant in Claycomo, Missouri April 30, 2014.

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. industrial production increased more than expected in December as unseasonably cold weather at the end of the month boosted demand for heating, but manufacturing output barely rose, pointing to moderate growth in the industrial sector.

Strong demand for utilities bolsters expectations of an acceleration in consumer spending in the fourth quarter, which could prompt analysts to raise their economic growth estimates for the October-December period.

The Federal Reserve said on Wednesday industrial output surged 0.9 percent last month also buoyed by robust gains in mining production after slipping 0.1 percent in November.

Economists polled by Reuters had forecast industrial production advancing 0.4 percent in December. Industrial production rose at an annual rate of 8.2 percent in the fourth quarter, the biggest gain since the second quarter of 2010.

For all of 2017, industrial output rose 1.8 percent, the first and largest increase since 2014.

The industrial sector is being supported by a strengthening global economy and a weakening dollar, which is helping to make U.S. exports more competitive relative to those of the nation’s main trading partners. A survey early this month showed an acceleration in factory activity in December, with a measure of new orders recording its best reading since January 2004.

The dollar maintained gains versus a basket of currencies after the data, while prices for U.S. Treasuries were little changed.

Mining production increased 1.6 percent in December amid a rebound in oil and gas well drilling. Utilities production accelerated 5.6 percent last month after declining 3.1 percent in November.

Bitter cold gripped a large part of the country at the end of December. The surge in utilities demand added to strong December retail sales in supporting expectations of an acceleration in consumer spending in the fourth quarter.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 2.2 percent annualized rate in the third quarter.

But manufacturing output gained only 0.1 percent in December, putting a wrinkle on the report, after rising 0.3 percent in the prior month. Manufacturing production jumped 1.5 percent in October.

Manufacturing output was last month held back by a 1.5 percent drop in the production of primary metals. Motor vehicle and parts production increased 2.0 percent. Manufacturing production rose at a 7.0 percent rate in the fourth quarter.

With output accelerating last month, capacity utilization, a measure of how fully industries are deploying their resources, increased to 77.9 percent, the highest since February 2015, from 77.2 percent in November.

Capacity utilization is 2 percentage points below its long-run average. Officials at the Fed tend to look at capacity use as a signal of how much “slack” remains in the economy and how much room there is for growth to accelerate before it becomes inflationary.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

U.S. producer prices rise broadly in February

A combine drives over stalks of soft red winter wheat during the harvest on a farm in Dixon, Illinois, July 16, 2013. REUTERS/Jim Young

WASHINGTON (Reuters) – U.S. producer prices increased more than expected in February, and the year-on-year gain was the largest in nearly five years, pointing to a steady rise inflation pressures.

The Labor Department said on Tuesday that its producer price

index for final demand increased 0.3 percent last month after rising 0.6 percent in January. Economists polled by Reuters had forecast a 0.1 percent uptick.

In the 12 months through February, the PPI jumped 2.2 percent, the biggest advance since March 2012 and ahead of the 2.0 percent gain forecast in the Reuters poll. It followed a 1.6 percent increase in January.

Producer prices are rising as the prior weak readings, induced by cheap oil, drop out of the calculation. Crude oil prices have risen above $50 per barrel.

Also boosting price pressures are the dollar’s 1.5 percent drop against the currencies of the United States’ main trading partners since January and overall commodity price gains in tandem with a firming global economy.

A key gauge of underlying producer price pressures that excludes food, energy and trade services increased 0.3 percent in February, the biggest gain since April 2016. The so-called core PPI rose 0.2 percent in January.

Core PPI increased 1.8 percent in the 12 months through February after advancing 1.6 percent in January.

The Federal Reserve has a 2 percent inflation target and tracks a measure that is currently at 1.7 percent. Fed officials were due to start a two-day policy meeting later on Tuesday.

The U.S. central bank is expected to raise its overnight benchmark interest rate by 25 basis points to a range of 0.75 percent and 1.00 percent. It has projected three hikes in 2017.

In February, prices for final demand services increased 0.4

percent, accounting for more than 80 percent of the rise in the PPI. That was the biggest rise since June 2016 and followed a 0.3 percent gain in January.

The cost of energy products increased 0.7 percent last month, slowing from January’s 4.7 percent surge.

Wholesale food prices increased 0.3 percent after being unchanged in January. Healthcare costs rose 0.2 percent after a similar gain in January. Those costs feed into the Fed’s preferred inflation measure, the core personal consumption expenditures index.

The volatile trade services component, which measures changes in margins received by wholesalers and retailers, rose 0.4 percent last month after shooting up 0.9 percent in January.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Lisa Von Ahn)