Tag Archives: Labor

IMF Sees Japan Inc.’s Cash Hoard as Excessive and Wages Too Low

Bloomberg, Sep 28, 2016

The rich and powerful versus the weak and underpaid.

That’s how the International Monetary Fund sees Japan’s relationship between employers and workers. Unless more is done to address the problems in the country’s labor market, Japan as a whole will be the loser, according to the IMF’s mission chief for the country, Luc Everaert.

“We are concerned the reduction in the wage bargaining power of labor has gone too far,” Everaert said in an interview in Tokyo. “We have introduced too much flexibility in the Japanese labor market in favor of employers.”

Everaert, 55, was speaking after data from the Bank of Japan on Monday showed corporate cash and deposits rose to a record 242 trillion yen ($2.4 trillion) last quarter, underscoring employers’ reluctance to heed calls for stronger wage growth and capital investment. Stagnation in salaries is undermining consumer spending in Japan and efforts to spur inflation and sustained economic expansion.

It is not the first time Everaert has waded into the wages debate since becoming the IMF’s mission chief for Japan in September last year. He has advocated using moral suasion to name and shame highly profitable companies that won’t raise salaries much, and suggested using tax incentives to promote pay hikes.

Japan’s company-based labor unions have focused on trying to maintain lifetime employment for full-time workers at the expense of pushing for more pay, and have provided little or no representation for the rising number of people on part-time, contract and temporary positions. This second category of employees, collectively known as non-regular workers, now account for about 40 percent of the labor market.

Everaert views Japan as having gone from one extreme — a rigid lifetime model that handicaps companies’ ability to adapt to economic changes — to another that provides so little job security and benefits to non-regular workers, which ultimately harms the economy because it crimps consumer spending.

“The lifetime model has served the Japanese economy well from a historical perspective in the 60s and 70s,” he said. “I think the system has outlived its usefulness.”

Labor Mobility

Japan needs employment contracts somewhere in between these extremes, which would allow companies to restructure their workforces, while providing reasonable severance conditions and benefits to workers, including portable pension plans, he said. Everaert noted that boosting the mobility of full-time, regular employees would be good for wage dynamics and the efficient allocation of labor.

He does give the government credit for efforts to raise the minimum wage and pay for nursing care workers.

Everaert said the government should do away with a spousal tax deduction that reduces the incentive of many married women to work full-time.

Without labor-market reforms, the central bank’s monetary easing and the fiscal stimulus from Prime Minister Shinzo Abe’s government will fall short of changing the course of the Japanese economy, Everaert said.

“It’s crucial if Abenomics want to achieve their targets within the time-frame that they set for themselves,” he said. Without boosting wage growth and getting the right amount of flexibility into the labor market, Japan won’t see growth rates much higher than those of today, he said.


Employers in U.S. Add 160,000 Workers, Fewest in Seven Months

Bloomberg, May 6, 2016


* Retailers, construction companies pull back after recent gains
* Jobless rate was unchanged at 5%, while worker pay accelerated

Employers in April added the fewest number of workers in seven months and the U.S. jobless rate held steady as subdued economic growth prompted a more moderate rate of hiring.

The 160,000 gain in payrolls followed a revised 208,000 rise in March, a Labor Department report showed Friday. The median forecast in a Bloomberg survey called for a 200,000 April advance. The jobless rate, projected to ease, stayed at 5 percent, while wage growth accelerated.

Industries that showed strong first-quarter job growth pulled back, with retailers cutting payrolls by the most in two years and construction companies adding the fewest positions since June. More tempered additions to headcounts shows hiring managers are adjusting in the wake of economic growth that has slowed for three straight quarters.

“The labor market is still reasonably healthy,” Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York, said before the report. “We’ve probably seen the best job growth,” but “we expect the payrolls gains to fade as we get to the very end of this year and into next year.”

Estimates of 92 economists in the Bloomberg survey ranged from payrolls gains of 160,000 to 315,000. March was initially reported as a 215,000 increase. Revisions to prior reports subtracted a total of 19,000 jobs to payrolls in the previous two months.

The unemployment rate, which is derived from a separate Labor Department survey of households, was projected to ease to 4.9 percent, according to the survey median.

Hourly Earnings

The bright spot in the report was in workers’ wages. Average hourly earnings climbed 0.3 percent from the prior month after a 0.2 percent advance. Worker pay increased 2.5 percent over the 12 months ended in April after a 2.3 percent gain a month earlier.

The acceleration in April may have reflected a calendar quirk. Since the 15th of the month fell within the employment survey week, increases in bi-monthly pay are more likely to have been captured, according to RBS Securities Inc. and Morgan Stanley economists.
Wages been hovering just above a 2 percent yearly gain on average since the current expansion began in mid-2009.

The average work week for all private workers rose by six minutes to 34.5 hours.

Retailers reduced payrolls by 3,100 in April, the most since February 2014. Economists had projected retail hiring would ease up in April after a first-quarter surge of 157,500.

Construction Employment

In construction, employment rose by just 1,000 after jumping 41,000 in March that may have reflected milder weather across the country.

Employment in leisure and hospitality also softened, rising by 22,000, the smallest gain in a year.

Professional and business services posted the strongest job growth in April, boosting payrolls by 65,000, the most in six months. Employment in health services increased 38,000.

The household survey showed employment fell by the most since October 2013 and the participation rate, which shows the share of working-age people in the labor force, decreased to 62.8 percent, from 63 percent.

The underemployment rate — which includes part-time workers who’d prefer a full-time position and people who want to work but have given up looking — fell to 9.7 percent from 9.8 percent.

Federal Reserve policy makers, who are considering when to raise interest rates next after lifting them in December for the first time in almost a decade, have said they will make further moves gradually. Sustained wage growth would help lift inflation closer to the central bank’s goal.


Sweden Seen Leaving Difficult Choices for Later as Economy Booms

Bloomberg, Apr 12, 2016


Sweden’s Finance Minister Magdalena Andersson is expected to paint a rosy picture of the economy when she presents her spring budget — and kick the difficult decisions down the road.

The government on Wednesday may forecast that the $570 billion economy, powered by record low interest rates and spending on refugees, will grow by about 4 percent this year, according to Nordea Bank. While Sweden’s generosity in accepting migrants has led to rising costs, fast growth in revenue is partly helping the nation to cope the with record influx.

“There seems to be a clear underlying trend that tax income is increasing more than expected because the economy is doing well,” said Michael Grahn, an economist at Danske Bank. “As long as the strong trend in the labor market continues, that’s more important for the fiscal balance.”

The country erected border controls late last year as the stream of refugees from Syria, Afghanistan and other trouble spots was overwhelming welcome services and threatening budget stability. Debate is now swirling over what changes need to be made to Sweden’s tightly regulated labor and housing markets to help absorb the about 250,000 people that have sought refuge since 2014.

Swedbank economists Anna Breman and Cathrine Danin say that while measures presented so far, including increased spending, will help economic growth, they don’t permanently boost the pace of expansion. While the budget will likely be in balance for 2016, longer term public finances may be undermined and changes are in particular needed in the labor market to make sure refugees find jobs, they said.

“Social exclusion creates long-term costs for individuals and society as a whole, which weighs on the Swedish economy,” Breman and Danin said.

The supplemental budget, which will be revealed on Wednesday at 8 a.m. in Stockholm, already includes more tax increases that were promised in the main budget unveiled last year. Prime Minister Stefan Loefven has said raising taxes was necessary to increase spending on labor market programs and education to drive down unemployment.

While the total number of unemployed is falling amid strong demand for labor, there’s a large inflow of job seekers in the establishment program for refugees. More than half of the country’s unemployed are now born abroad, monthly data from Public Employment Service showed on Tuesday.

The biggest measure announced so far by the Social Democratic and Green Party coalition is 10 billion kronor ($1.23 billion) in extra funding a year to municipalities to compensate for refugee-related costs. While it’s up in the air how this will be financed — by borrowing or by raising taxes — it’s not a sum that will break the bank, economists say.

Danske Bank’s Grahn said 10 billion kronor is a “rounding error.”

Labor Market Minister Ylva Johansson on Friday preempted the budget, revealing that the government sees unemployment falling to 6.6 percent in 2020 from about 7 percent. More labor reforms will be announced in the second half of the year to fulfill a 2014 election pledge of having the lowest unemployment in the EU in 2020, according to Johansson.

Torbjoern Isaksson, an economist at Nordea, expects the government will have to make some tough choices, including potentially reaching into the labor market where most rules are set between labor unions — key Social Democratic allies — and employer groups.

“These are politically sensitive issues, but they probably need to consider lowering labor market thresholds in terms of hiring costs, or through subsidizes,” he said. “If you get this kind of supply chock of labor with low productivity you need to come up with some new ideas.”


Fed Sees ‘Moderate’ Growth, Says Considering December Hike

Bloomberg, Oct 28, 2015


Federal Reserve policy makers said the economy is still expanding at a “moderate” pace and they will consider tightening policy at their next meeting in December without making a commitment to act this year.

Even with a slower pace of recent job gains, “labor market indicators, on balance, show that underutilization of labor resources has diminished since early this year,” the Federal Open Market Committee said in a statement Wednesday following a two-day meeting in Washington.

The Fed also removed a line from September’s statement saying that global economic and financial developments “may restrain economic activity somewhat,” saying Wednesday only that the central bank is monitoring the international situation.

Chair Janet Yellen and her colleagues have been watching for more labor-market improvement and signs that inflation is rising toward their goal, despite headwinds from overseas, as they debate the first rate increase since 2006. At last month’s meeting, 13 of 17 officials still expected a hike this year provided the economy grew as forecast.

The assessment of the labor market, which said the pace of job gains “slowed and the unemployment rate held steady,” compared with last month’s language citing “solid job gains and declining unemployment.” The U.S. added 142,000 jobs in September, less than the 200,000 economists in a Bloomberg survey had forecast and well below the 205,000 average for the first eight months of 2015.

The FOMC vote was 9-1, as Richmond Fed President Jeffrey Lacker dissented for a second straight meeting, again calling for a quarter percentage-point rate increase.

‘Solid Rates’

Household spending and business fixed investment have been “increasing at solid rates in recent months,” the Fed said, compared with September’s language that those indicators have “been increasing moderately.”

The Fed reiterated that it expects inflation to rise gradually toward its 2 percent goal in the medium term.

Officials have held the benchmark overnight federal funds rate target in a zero-to-0.25 percent range since December 2008.

Investors before Wednesday’s statement saw a 4 percent chance that the Fed would move this month, based on pricing in fed funds futures that assumes a 0.375 effective rate after liftoff. They saw a roughly 35 percent chance of a move in December, as of 11:20 a.m. in Washington.

Subdued inflation has been a hurdle for the central bank as it moves closer to a rate increase. Even as the jobless level has fallen to 5.1 percent, close to policy makers’ 4.9 percent estimate of full employment, inflation has remained well below the committee’s 2 percent goal. The Fed’s preferred gauge of prices rose by just 0.3 percent in the 12 months through August.

Labor Market

In contrast, continued labor-market improvement has been a bright spot for the Fed as it looks to fulfill its dual mandate of maximum employment and stable prices. That makes the September slowdown in job growth a potential source of concern. Even so, several officials have indicated that a slower pace of job gains is acceptable and even desirable as labor-market slack ebbs.

“Looking to the future, we’re going to need at most 100,000 new jobs each month,” San Francisco Fed President John Williams said on Sept. 28 in Los Angeles. “In the mindset of the recovery, that sounds like nothing; but in the context of a healthy economy, it’s what’s needed for stable growth.”

Several important readings on the economy will be released later this week, including the initial estimate of third-quarter growth on Thursday. Economists surveyed by Bloomberg News estimated expansion slowed to a 1.5 percent annualized pace, from 3.9 percent in the previous three months.

The global outlook has proved another stumbling point for policy makers as they assess if the U.S. economy is strong enough to handle a rate rise.

China Slowdown

A slowdown in China has helped to push down commodity prices, which is contributing to low inflation, while still-subdued economic performance in trading partners including Japan and the euro area have driven up the value of the dollar and cut into U.S. exports. The greenback had risen 9.2 percent against the euro and 0.5 percent against the Japanese yen since the start of the year, as of Wednesday at 9:43 a.m. in Washington.

The People’s Bank of China lowered benchmark interest rates last week, its sixth cut in a year, and European Central Bank President Mario Draghi said on Oct. 22 that he will investigate all options for more stimulus in December. That could include extending quantitative easing beyond its current end-date of September 2016, boosting monthly asset purchases from 60 billion euros and cutting the deposit rate. Those moves could brighten the international outlook if they succeed in propping up growth.

Global risk flows both ways: The International Monetary Fund on Oct. 7 told officials to protect their financial systems from possible instability as the Fed prepares to raise interest rates, saying shocks or policy missteps risk derailing the global economy and triggering equity market sell-offs. The fund described the preconditions for a Fed rate rise as “nearly in place.”


Fed Delay Looks Like 2013 All Over Again

Bloomberg, Sep 18, 2015

* September delay echoes Bernanke’s caution in slowing QE
* Fed once again facing overseas risks and government shutdown

Federal Reserve ChairJanet Yellen shows signs of taking a page out of her predecessor’s policy playbook as she inches toward the central bank’s first interest rate increase in nine years: Delay action in September only to move in December.

While the Fed on Thursday opted to keep rates pinned near zero for now, Yellen told a press conference that most policy makers still expect to raise rates this year. She highlighted the strength of the U.S. economy, tying the decision to delay liftoff to fresh uncertainty about the outlook abroad and to financial market turbulence over the past month.

Janet Yellen speaks during a news conference on Thursday, Sept. 17.
Janet Yellen speaks during a news conference on Thursday, Sept. 17.
Photographer: Andrew Harrer/Bloomberg

“I do not want to overplay the implications of these recent developments, which have not fundamentally altered our outlook,” she said. “The economy has been performing well, and we expect it to continue to do so.”

Yellen’s approach has parallels to the strategy that former Fed ChairmanBen S. Bernanke pursued in 2013 as officials debated whether to start scaling back bond purchases. Citing uncertainties to the outlook, Bernanke put off a move to begin tapering in September before deciding to go ahead in December.

Just like today, much of the Fed’s initial reservations about acting in 2013 centered on developments in emerging markets, which had been rocked by Bernanke’s suggestion a few months earlier that a taper was on its way. Looming in the background then, as it is now, was the threat of a U.S. government shutdown.

Then and Now

Today’s situation “lines up in so many ways” with that of 2013, saidAneta Markowska, chief U.S. economist at Societe Generale in New York, pointing to the upcoming fiscal showdown and emerging market concerns. “If all of that is resolved by December, my expectation is that the data will definitely support a hike.”

Investors may get more clues to Yellen’s thinking when she speaks on Sept. 24 in Amherst, Massachusetts.

Traders in the federal funds futures market marked down the chances of a December rate rise to below 50 percent following news of the decision, compared with 64 percent on Wednesday. That’s based on the assumption that the effective fed funds rate will average 0.375 percent after liftoff.

“When they didn’t go then, I think there was a very strong sense that they would go in December,” saidMichael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, referring to Bernanke’s taper. “Now, people are even having doubts about whether they will even go this year.” Feroli himself forecasts a December move.

Yellen said the Federal Open Market Committee discussed the possibility of raising rates at this week’s meeting, but decided not to in light of the heightened uncertainties abroad and the slightly lower expected path for inflation.

Wait and See

“The Committee judged it appropriate to wait for more evidence, including some further improvement in the labor market, to bolster its confidence that inflation will rise to 2 percent in the medium term,” she said.

Slowing growth in China has rippled across the world, hitting commodity-producing countries hard. Domestically, Fed officials are also grappling with an inflation rate that remains too low, rising just0.3 percent for the 12 months ended July, according to the Fed’s preferred measure of price pressures.

“They clearly are a bit risk averse,” saidLuke Tilley, chief economist at Wilmington Trust in Wilmington, Delaware, which manages $77 billion. “They are ultimately looking for that confidence for inflation to come back up.”

Tilley said Fed officials will be watching for some stabilization in commodity prices and a firming in market-based measures of inflation expectations.

Inflation Expectations

Yellen said the FOMC “has taken note” of recent declines in those measures and would “continue to monitor inflation developments carefully.”

“I think our credibility hinges on defending our inflation target, not only from threats that it rises above, but also that we not have, over the medium-term, that we want to see inflation get back to 2 percent,” she said.

She also repeatedly highlighted the importance of continued improvements in the jobs market to help buttress her confidence that inflation ultimately will rise back to the Fed’s 2 percent goal. In Yellen’s view of the world, wage increases — and inflation — should start to accelerate as unemployment falls further and further.

The economy created 2.92 million jobs in the year ended in August, pushing the jobless rate down to 5.1 percent, around the level that many Fed policy makers consider full employment.

The labor market isn’t the only thing percolating. Consumer spending, which Yellen said was the main driver of the economy, climbed 3.2 percent in the 12 months through July, among the best year-over-year readings of the current expansion. And the turmoil in financial markets didn’t deter households in August, with auto sales climbing to their highest level since 2005.

Impressive Performance

“We are looking at, as I emphasized, a U.S. economy that has been performing well and impressing us by the pace at which it is creating jobs and the strength of domestic demand,” Yellen said.

While she held out the possibility of the Fed raising rates at its next meeting in October, economists and traders weren’t buying it. The odds of a move next month are only about one in five, according to dealings in the fed funds futures market.

Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said it may even be tough for Yellen to fully convince investors that the Fed is going to go ahead with a rate rise this year.

“It is going to be very hard to change market psychology,” he said. “Traders feel the odds favor additional delay on Yellen’s part.”

“My forecast is December, but I would not stake my life on it,” he added.