Janet Yellen and her Federal Reserve colleagues are finally succeeding in their efforts to generate higher inflation. Now they must do the same for wages to prevent U.S. households from getting squeezed.
The price measure tracked by the central bank rose 1.8 percent in May from a year earlier, the biggest 12-month gain since October 2012, and just shy of policy makers’ 2 percent goal, data showed yesterday. After adjusting for inflation, consumer spending dropped for a second consecutive month.
Americans are paying more to fill up their grocery carts and cars’ fuel tanks, leaving less for discretionary items, including the latest fashions, restaurant meals and movie tickets
Commerce Department data yesterday showed those concerns weren’t misplaced. Consumer purchases, after accounting for the influence of prices, fell 0.1 percent in May after a 0.2 percent decline a month earlier, signaling the rebound in growth this quarter will be more muted than previously projected.
“My own expectation is that as the labor market begins to tighten, we will see wage growth pick up some,” Yellen told reporters on June 18 after the Fed’s policy meeting. “If we were to fail to see that, frankly I would worry about downside risk to consumer spending.”
Wages, SalariesWages and salaries have increased 2.5 percent year-over-year on average since the last recession, compared with 4.3 percent in the previous expansion. Consumer spending, which accounts for almost 70 percent of the economy, has grown an average 2.2 percent in this recovery, lagging behind the 3 percent advance in the prior one...
One reason for the cutbacks is that Americans want to have more cash available for a rainy day. The nation’s saving rate jumped to 4.8 percent in May, the highest since September, yesterday’s Commerce Department data showed. ...
The consumer has, right now in their wallets, the ability to go out and spend, but they lack the confidence to do that,” said Tom Porcelli, chief U.S. economist at RBC in New York and the second-best forecaster of personal spending in the past two years, according to data compiled by Bloomberg. “One of the key ingredients that’s missing is confidence in their income growth and job growth.
2--Bank of Japan, more confident about recovery, quietly eyes stimulus exit, Reuters
- The Bank of Japan has begun shifting its focus from supporting growth to ways of phasing out its massive stimulus, taking first tentative steps towards a potentially momentous move for the world economy.
Current and former central bankers familiar with internal discussions say an informal debate is under way on how to prepare for an exit from the BOJ's 13-month-old "quantitative and qualitative monetary easing."
3--US planning to split Iraq, gulf news
4--Are the Wars in the Middle East and North Africa Really About Oil?, WA blog
5--Terror In Iraq: Roots And Motivation, Global Research
6--Abenomics picks up speed, Economist
The battle for Japan...
Mr Abe’s high approval ratings are tied to the stockmarket, so he first paid attention to its investors. He promised to cut Japan’s corporate-tax rate from its current level of around 35%, first to 29% and then lower—a symbolic step long demanded by Japan Inc. He also wants to push the ultraconservative Government Pension Investment Fund (GPIF), the world’s deepest pot of savings, into taking greater risks to boost returns. The GPIF’s leadership has accused the government of cynically using it to lift the stockmarket.
Anti-reformers argued for stopping there, doing little to disrupt ordinary Japanese lives. Instead, the government is starting to tackle the so-called “bedrock” regulations holding back three important parts of the economy: farming; medical services; and the labour market. When Mr Koizumi tried to break through these rules, by, for example, allowing manufacturers to hire temporary workers from firms such as Pasona, it provoked a public backlash.
A controversial proposal of recent weeks, known as the “white-collar exemption”, seeks to tackle Japan’s culture of inhumanely long working hours and low productivity, particularly in services. Highly paid professionals, as elsewhere, will no longer earn “overtime” pay. Mr Abe wants workers paid for work, not hours. But labour unions have misrepresented the measure as a ruse to cut pay for the rank-and-file. “Salarymen” are shown on television furiously opposing it, even though the exemption will not touch most of them. Yet the plan is to go much further in labour-market reform and give firms the right to fire workers. Sacking permanent employees, still the majority of the labour force, is in effect impossible today. Unpopular as it would be, this reform would have the biggest economic impact of any....
Despite his past image as a social conservative intent on maintaining Japan’s traditional gender roles, Mr Abe’s government is to allow foreign workers to care for children and the elderly in a series of “special economic zones”, and so help women climb the career ladder. This has elicited the usual xenophobia, including from the labour minister. Mr Tamura suggested that foreign influences might damage the development of Japanese youngsters. The LDP may also change the tax system to stop penalising working wives. Millions of couples who benefit from the current system will be up in arms
Mr Abe also seems willing to take on powerful vested interests in farming and in health care. Supporters see as among his boldest moves an attempt to overhaul Japan Agriculture (JA), a network of agricultural co-operatives that is one of the LDP’s most powerful political supporters. In health care, the government will allow patients to combine private medical care with publicly covered medicine in many more cases, rather than forcing them to forfeit their public coverage when opting for advanced treatments. That should boost advanced health care and lay the ground for increased medical tourism.
7---Did the federal reserve’s taper slow housing and cause a new recession? , oc housing
8---Abenomics: Prices climb most in 32 years as wages limp along, JT
Consumer prices climbed in May at their fastest pace in 32 years, swelled by the hike in the consumption tax and higher utility charges that are squeezing Japanese budgets as wage gains remain limited.
Consumer prices excluding fresh food but not energy, rose 3.4 percent from a year earlier, the Statistics Bureau said Friday, matching the median forecast in a Bloomberg survey of 30 economists.
Household spending subsequently sank 8 percent, more than the forecast fall of 2.3 percent, separate data showed.
Accelerating inflation is a boost for the Bank of Japan as it targets 2 percent inflation — a goal that strips out the impact of April’s 3 percentage point tax rise. At the same time, wages are failing to keep pace with price gains.
“It’s likely CPI gains will slow down from here and stay around 1 percent as the impact of a weak yen and energy prices fade,” Takuji Aida, chief economist at Societe Generale SA in Tokyo, said before Friday’s report. “The key is wage growth” as pay rises are needed to support inflation, Aida said.
In an interview this week, Prime Minister Shinzo Abe declared the end of the deflation that wiped out much of Japan’s growth over the past 15 years.
Wages excluding overtime payments and bonuses fell for a 23rd month in April. Regular gasoline prices were the highest since September 2008 as of Monday, according to the trade ministry.
All 14 major gas and electricity companies raised prices from May to the highest level since the current pricing system began in May 2009, according to the Asahi Shimbun. Tokyo Electric Power Co. announced a price hike of 5.3 percent in May for households, reflecting the higher tax, rising energy costs and other factors.
9---Corporate tax cut no ‘magic wand,’ warns ministry adviser, JT
10--Subprime credit card, Testosterone Pit
During the first quarter, 3.7 million credit cards were issued to subprime borrowers, up a head-scratching 39% from a year earlier, and the most since 2008. A third of all cards issued were subprime, also the most since 2008, according to Equifax. That was the glorious year when “subprime” transitioned from industry jargon to common word. It had become an essential component of the Financial Crisis.
As before, subprime borrowers pay usurious rates. These are people who think they have no other options, or who have trouble reading the promo details, or who simply don’t care as long as they get the money. In the first quarter, the average rate was 21.1%, up from 20.2% a year ago, while prime borrowers paid an average of 12.9% on their credit cards, and while banks that are lending them the money paid nearly 0%
11--The Pipeline That Could Keep the Peace in Afghanistan, wsj
Here's where the U.S. comes in. In recent years, both Chevron and Exxon-Mobil have expressed interest in TAPI. But there is a sticking point. Turkmenistan says it won't sign an agreement on TAPI until the U.S. government indicates that it is firmly behind the project. Two years ago, Turkmenistan President Gurbanguly Berdimuhamedow received a letter backing Chevron's project from then-Secretary of State Hillary Clinton. But he knew that there had been not a word of support from the National Security Council or White House, let alone the U.S. president. This led to suspicions in Ashgabat that Mr. Obama was hanging back.
Some say this silence was caused by Turkmenistan's bad record on democracy and human rights. But there are winds of change as thousands of Turkmen students sent abroad for study are now returning with new ideas from the larger world. Whether they enter government service, business or education, they are bound to have a liberalizing effect. Meanwhile, a refusal to back TAPI would deny the U.S. any possibility of influencing Turkmenistan in the future.
Now the silence from Washington has ended. Earlier this month, President Obama sent a letter to President Berdimuhamedow emphasizing a common interest in helping develop Afghanistan and expressing Mr. Obama's support for TAPI and his desire for a major U.S. firm to construct it.
13---Japan household spending falls, casts doubts on BOJ optimism , Reuters
14--Japan's households stung by consumption tax , sober look
Japan's household spending fell sharply in May as the consumption tax hike took its toll. While some decline was expected, the 8% year-on-year drop puts the BOJ's optimistic economic forecast in doubt. As inflation cools with the diminishing impact of weaker yen (discussed here), the central bank is likely to accelerate asset purchases later this year.
"'Stock buyback announcements in the second quarter are on track to be the lowest in seven quarters,' said David Santschi, Chief Executive Officer of TrimTabs. 'Buybacks in June have sunk to just $11.5 billion, the lowest level since May 2012.''The sharp slowdown in buybacks is a negative sign for the U.S. stock market,' Santschi said. 'Share repurchases are the main way companies reduce the float of shares. Perhaps fewer companies like what they see when they look into the future.'TrimTabs explained that the decline in buybacks is not the only cautionary sign for U.S. equity investors. Merger activity has skyrocketed, while companies are selling new shares at the fastest pace since last autumn. 'Our liquidity indicators aren’t as positive for U.S. equities as they were a month ago,' said Santschi. 'While the bull market isn’t necessarily ending, investors should be more cautious on the long side.'"
16--The Beginning Of The End Of The Bull Market? by Mark Hulbert via WSJ Marketwatch
"Few paid attention a couple of weeks ago when the government announced that corporate profitability had declined markedly last quarter.
Yet future historians may eventually look back and pinpoint that report as the beginning of the end of this aging bull market. That’s because the first-quarter’s decrease could signal the long-awaited return to historically average profitability levels. If so, the stock market will have to struggle mightily just to keep its head above water over the next five years.
Once we make these assumptions, calculating the stock market’s return over the next five years becomes a matter of simple math. The picture isn’t pretty: Its five-year return, annualized, is minus 2.8%."
17--Region-wide war threatens as Iraqi state disintegrates, wsws
18--ACLU report exposes US federal government’s role in creating “paramilitary police, wsws
19--Japan Prices Rise Most Since ’82 on Tax, Utility Fees: Economy , Bloomberg
20--Waging war against Russia, one pipeline at a time, Eric Draitser, RT