Posts Tagged ‘unemployment rate’

U.S. Adds Below-Forecast 155,000 Jobs as Wage Gain Misses

December 7, 2018
  • Monthly earnings increase 0.2%, compared with 0.3% forecasts
  • Unemployment rate holds at 3.7%, lowest level since 1969
U.S. Adds 155,000 Jobs in November, Jobless Rate Holds Steady at 3.7%

U.S. jobs and wages rose by less than forecast in November while the unemployment rate held at the lowest in almost five decades, indicating some moderation in a still-healthy labor market.

Image result for U.S. Auto workers, factory, photos

Nonfarm payrolls increased by 155,000 after a downwardly revised 237,000 gain in the prior month, a Labor Department report showed Friday. The median estimate in a Bloomberg survey called for an increase of 198,000. Average hourly earnings rose 0.2 percent from the prior month, compared with forecasts for 0.3 percent, though wages matched projections on an annual basis, up 3.1 percent for a second month.

Treasury yields initially dipped and the dollar declined as the report added to signs that economic growth is cooling a bit, following weakness in business-equipment orders and an ebbing of consumer optimism. While the data may spur more concern over the outlook after stocks and bond yields tumbled this week, some investors may see the prospect of a slower pace of Federal Reserve interest-rate increases as a positive following an expected hike this month, as equity futures rose following the jobs data.

“It’s not like 155,000 is a terrible number, but it’s below what people were looking for,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. After an unusually strong two quarters for the economy, “we’re looking for growth to step down this quarter and you should probably also expect to see the labor market cool off some. It’s consistent with the economy coming off what people call a sugar rush.”

For the Fed’s interest-rate hikes, “December is pretty close to a done deal,” Feroli said. “For next year, it depends what the data looks like the next couple of months. It doesn’t feel like things are softening in an alarming way. If it’s really soft, they’ll take a break.”

The jobless rate was unchanged at 3.7 percent in November, matching estimates. Fed Chairman Jerome Powell said late Thursday that the U.S. labor market is “very strong” by many measures and that the economy is “performing very well overall.”

Even so, one key risk is the trade war between the U.S. and China, the world’s two largest economies. While the nations agreed last weekend on a 90-day pause for new tariffs, the accumulated levies and developments have created uncertainty for companies and may weigh on the employment outlook.

Retail Payrolls

Retailers showed solid demand for workers overall, hiring 18,200 people in the month before Christmas; general-merchandise stores added the most employees while clothing and electronics stores cut workers. Transportation and warehousing, a category closely linked to retail, also saw gains of 25,400 in the month.

Construction jobs rose by 5,000, the weakest since a decline in March, as gains cooled among residential specialty trade contractors. Manufacturing remained strong at an increase of 27,000.

The monthly gain in average hourly earnings for all private workers followed a downwardly revised 0.1 percent increase, the report showed. The annual increase topped 3 percent for a second month, reflecting how companies are steadily raising pay to attract and retain workers as the availability of workers tightens.

The gains probably still aren’t fast enough, though, to spur concerns of runaway inflation among Fed officials. While the unemployment rate is well below the level that central bankers consider sustainable in the long run, inflation has remained close to the central bank’s target, leading some to question whether the Fed should keep raising interest rates.

Here are other highlights from the report:

Payrolls

  • Revisions subtracted 12,000 jobs from payrolls in the prior two months, resulting in a three-month average gain of 170,000.
  • Private payrolls rose by 161,000, compared with the median estimate for 198,000; government payrolls decreased by 6,000.
  • Service providers added 132,000 jobs, including 40,100 in health care and social assistance. The 32,000 gain in professional and business services was the smallest since December 2017.

Wages

  • Average hourly earnings for production and non-supervisory workers increased 3.2 percent from a year earlier, following 3.2 percent in the prior month.
  • The average work week decreased to 34.4 hours from 34.5 hours in the prior month; a shorter workweek has the effect of boosting average hourly pay.

Households

  • The participation rate was unchanged from the prior month at 62.9 percent. The measure tracks share of working-age people either with jobs or actively looking.
  • The employment-population ratio, another broad gauge of labor-market health, was unchanged at 60.6 percent.
  • The U-6, or underemployment rate, rose to 7.6 percent from 7.4 percent. This measure includes part-time workers who want a full-time job and people who are less active in seeking work.

https://www.bloomberg.com/news/articles/2018-12-07/u-s-payrolls-rise-below-forecast-155-000-as-wage-gain-misses

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US hiring slowed to 155K jobs, jobless rate stayed 3.7%

December 7, 2018

U.S. employers pulled back on hiring in November, adding just 155,000 jobs. That’s below this year’s average monthly gains but enough to suggest that the economy is expanding at a solid pace despite sharp gyrations in the stock market.

The Labor Department says the unemployment rate remained 3.7%, nearly a five-decade low, for the third straight month. Average hourly pay rose 3.1% from a year ago, matching the previous month’s figure, which was the best since 2009.

Photographer: Alex FLynn/Bloomberg

The economy is expanding at a healthy pace but rising trade tensions between the U.S. and China, ongoing interest rate increases by the Federal Reserve, and slowing global growth have roiled financial markets. Analysts expect growth to slow but remain solid in 2019 as the impact of last year’s tax cuts fade.

– Associated Press – Friday, December 7, 2018

U.S. Core Inflation Accelerates

January 12, 2018

Bloomberg

By Katia Dmitrieva

 Updated on 
  • Investor expectations increase for Fed rate hike in March
  • Retail sales data indicate robust holiday-shopping season
The Marriner S. Eccles Federal Reserve building stands in Washington, D.C.

Photographer: Andrew Harrer/Bloomberg

The underlying pace of U.S. inflation unexpectedly accelerated in December amid increased housing costs, reinforcing the outlook for the Federal Reserve to raise interest rates several times in 2018.

Excluding food and energy, the so-called core consumer price index increased 1.8 percent from a year earlier after a 1.7 percent advance, including a 0.3 percent monthly gain that topped analyst projections and was the most in almost a year. Including all items, the broader CPI showed a smaller gain in December in line with estimates, as energy prices declined, a Labor Department report showed Friday.

Investors’ already-firm expectations rose for a Fed interest-rate increase in March, as the data could help calm an increasingly heated debate among central bank officials over why inflation has stayed relatively placid despite solid economic growth and the lowest unemployment rate since 2000. Fed policy makers have penciled in three rate hikes in 2018 following three last year

A separate Commerce Department report on Friday showed U.S. retail sales rose in December and November’s gain was revised upward, indicating a robust holiday-shopping season.

“The data is consistent with the view of the Fed on inflation, which is that weakness in growth before was due to transitory factors,” said Lewis Alexander, chief economist at Nomura Securities International Inc. in New York, who had projected a 0.3 percent monthly gain in core prices. “It’s in line with an economy operating at full employment.”

He said the biggest positive was the revision to the November retail data, which suggests that fourth-quarter economic growth may have been stronger than previously thought.

Economist Estimates

The 0.3 percent monthly increase in the core CPI topped the 0.2 percent median estimate of economists surveyed by Bloomberg. Shelter costs rose 0.4 percent, the most since August, including a 0.4 percent increase in rents and 0.3 percent in owners’ equivalent rent, one of the categories designed to track rental prices.

Prices of medical care rose 0.3 percent, as the index for prescription drugs advanced 1 percent.

The pickup in the core CPI data may help reinforce expectations that the Fed is making progress on stable inflation, one of its twin goals along with maximum employment.

At the same time, the central bank’s preferred gauge of inflation — a separate figure based on consumer purchases and issued by the Commerce Department — has mostly missed its 2 percent goal in the past five years. The measure excluding food and energy is also below their target. December figures are due Jan. 29.

Other Details

  • Energy prices fell 1.2 percent from previous month after 3.9 percent gain; food costs advanced 0.2 percent following no change
  • Lodging away from home rose 0.8 percent after a November decline
  • Used-vehicle prices posted a 1.4 percent gain, while the CPI for new vehicles advanced 0.6 percent
  • Prices of airfares fell 0.5 percent, apparel also down 0.5 percent
  • Hourly earnings adjusted for inflation rose 0.4 percent from December 2016, according to a separate report from the Labor Department

— With assistance by Kristy Scheuble

https://www.bloomberg.com/news/articles/2018-01-12/u-s-core-inflation-accelerates-amid-increase-in-shelter-costs

U.S. Economy Added 209,000 Jobs in July — Dow hits fresh record high

August 4, 2017
Aug 4, 2017 at 9:46 am ET

U.S. employers added a seasonally adjusted 209,000 jobs in July. The unemployment rate fell to 4.3%. Economists surveyed by The Wall Street Journal expected employers to add 180,000 jobs and unemployment to tick down to 4.3%.

This month, we’re also testing a new type of notification as part of our live coverage. Tell us what you think in our short survey.

http://www.wsj.com/livecoverage/july-jobs-report-labor-employment-analysis

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US created 209,000 jobs in July, vs 183,000 jobs expected

  • The U.S. economy added 209,000 jobs in July and the unemployment rate dipped to 4.3 percent, according to a government report Friday.
  • The report comes with the economy at a crossroads as President Trump has promised 3 percent economic growth.
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The U.S. economy continued a strong summer, adding 209,000 jobs in July while the unemployment rate fell to 4.3 percent, the lowest since March 2001, according to a government report Friday.

Economists surveyed by Reuters had expected the report to show growth of 183,000; the unemployment rate met expectations. A more encompassing rate that includes discouraged workers and the underemployed was unchanged at 8.6 percent.

The number of employed Americans hit a new high of 153.5 million thanks to a surge of 345,000. The employment-to-population ratio also moved up to 60.2 percent, its highest level since February 2009.

Stock market futures liked the news, rising to indicate a positive open, while government bond yields also moved considerably higher.

“Kind of an all-around strong headline number,” said Tony Bedikian, head of global markets for Citizens Bank. “More people are coming into the labor force and finding jobs. It’s difficult to find anything really negative in the report.”

The closely watched wage number was unchanged from previous months, with average hourly earnings up 2.5 percent on an annualized basis. The average work week also was unchanged at 34.5 hours.

Bars and restaurants provided the biggest boost for the month with 53,000 more positives, while professional and business services contributed 49,000, the Bureau of Labor Statistics said.

In addition to the strong July report, June’s 222,000 gain was revised up to 231,000 though May was cut from 152,000 to 145,000.

Significant job gains also came from health care, with 39,000.

“This is an unambiguously positive jobs report, as it suggests that consumers will have the wherewithal to increase spending (with solid job gains and faster wage growth) and that inflation may be slowly pushed higher by tighter labor and product markets,” said David Berson, chief economist at Nationwide.

If there was a blemish in the month’s numbers, it came from the distribution of jobs to lower-income sectors. Job creation was strongly titled to part-time, which gained 393,000 positions, while full-time fell by 54,000.

Those counted as not in the labor force fell by 156,000 to 94.7 million while the labor force itself surged by 349,000 to 160.5 million.

The report comes with the economy at a crossroads. While job gains have continued apace during the Trump administration, wage increases have remained tepid as the president has promised growth closer to 3 percent than the average 1.9 percent so far this year.

President Donald Trump was quick to react, praising the numbers as indicative of stronger growth.

Excellent Jobs Numbers just released – and I have only just begun. Many job stifling regulations continue to fall. Movement back to USA!

In addition, the Federal Reserve is watching the numbers closely, particularly for wage increases. The central bank has indicated it plans one more interest rate hike this year as well as the beginning of its program to unwind the bond portfolio it accrued while trying to stimulate the economy out of the financial crisis.

Indeed, traders increased the chances that the Fed moves again before the end of 2017. Chances of a move at the December meeting are now just above 50 percent.

“If the labor market continues to tighten over the coming months, as the survey evidence suggests it will, the Fed will press ahead with rate hikes and balance sheet normalization later this year,” said Michael Pearce, U.S. economist at Capital Economics.

https://www.cnbc.com/2017/08/04/us-nonfarm-payrolls-july-2017.html

Get the market reaction here.

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“This is a Goldilocks report for the markets,” said Michael Gapen, chief United States economist at Barclays, meaning it was neither discouraging nor overheated. Citing the healthy payroll growth and steady gain in average hourly earnings in July, he added, “It really bodes well for macroeconomic growth.”

Indeed, stocks were higher in early trading after the release of the report, an indication Wall Street could post fresh records Friday. On Wednesday, the Dow Jones industrial average crossed the 22,000 mark for the first time.

Economists had been expecting a gain of 180,000 jobs, so the actual data is a sign that the economy is growing faster than other indicators had suggested.

Dow hits fresh record high

30m ago09:31

NFP: Low-paid jobs lead the way

43m ago09:18

US economy added 227,000 jobs in January, above economists’ expectations of 180,00 — But wages in January rose only slightly and unemployment rate and labor force participation rate both up

February 3, 2017

The first jobs report of 2017 crushed it.

The US economy added 227,000 jobs in January, above economists’ expectations of 180,000. This extends the record streak of job creation in the US.

However, wages in January rose by just 2.5% year-over-year, below expectations of 2.7%.

The survey reference period that the job growth numbers are based on is the pay period including the 12th of the month. Therefore, technically, this jobs report looks at numbers from the final days of the Obama administration. At the same time, various sentiment indicators have ticked up in the months after Trump’s election, suggesting that the new president may have influenced these figures.

Additionally, the labor force participation rate ticked up to 62.9% from 62.7%, but is still near the lowest levels in decades. An analysis by the President’s Council of Economic Advisers suggested that about half of the decline had come from structural, demographic factors, with the baby boomers starting to retire, while the other from cyclical factors related to the Great Recession.

The unemployment rate ticked up slightly to 4.8%, following the prior month’s reading of 4.7%.

Most analysts had been gearing up for a solid jobs report, with consensus expectations for nonfarm payrolls to increase by about 175,000. However, some folks argued the report could surprise on the upside given solid economic data in the past week.

“Data in the past week, however, have introduced some upside risk and thus another 200k+ payroll print cannot be excluded,” wrote a TD Securities US strategy team led by Michael Hanson, chief of US macro strategy, in a note to clients.

Agriculture Department seeks correction from Fox News on food-stamp fraud report

December 30, 2016

By Erik Wemple
The Washington Post

December 29 at 4:52 PM

The Agriculture Department is asking Fox News to correct a report from Tuesday morning’s edition of “Fox & Friends” alleging new heights for food-stamp fraud in the United States. Introducing a panel discussion on the topic, co-host Abby Huntsman said, “Food-stamp fraud is at an all-time high, and some of the worst offenders this year have included a state lawmaker and a millionaire. This year, it is estimated $70 million of taxpayer money was wasted on food-stamp fraud. So is it time to end the program altogether?”

Jeez, wonder where Fox News stands on food stamps?

A write-up of the segment repeats this allegation: “According to the USDA, $70 million of taxpayer money was wasted in 2016 due to food stamp fraud.”

According to the USDA, that’s false. “We are not quite sure where this came from,” a USDA spokesperson tells the Erik Wemple Blog. “We saw that there was as story on Breitbart. We have not issued a report on this recently. There is no new rate that we’ve published. So we’re not quite sure why they’re so interested in stirring this up.” The program in question is the Supplemental Nutrition Assistance Program (SNAP), which assists millions “eligible, low-income individuals and families and provides economic benefits to communities.”

The program’s role in helping needy people acquire food has made it a favorite target of Fox News over the years. “You can use EBT cards … down at the organic market in the East Village,” protested former Fox Newser Andrea Tantaros years ago, summing up the house ideology toward SNAP. “You can get organic salmon, wild salmon — it’s insanity.” A promo for one show sounded this theme: “Food stamp abusers, feeding on taxpayers. America’s poor are actually living the good life.” The network’s role in playing up food-stamp shenanigans was a favorite topic of former “Daily Show” host Jon Stewart.

And even though Fox News claims brand-new information on food-stamp fraud, the USDA insists that its most recent analysis is several years old. From 2009 to 2011, claims a USDA report, the rate of “trafficking” of SNAP benefits jumped from 1.0 percent to 1.3 percent — though that rate is down from almost 4 percent in the 1990s. “Trafficking” refers to transactions in which SNAP beneficiaries sell their benefits to retailers for cash, commonly at discounted rates; it is one form of food-stamp-related fraud.

Now here comes the mind-blowing part: Take that 1.3 percent trafficking rate from 2009 to 2011 and apply it to the 2016 SNAP budget of about $70 billion. It comes out to about $910 million, or more than 10 times the rate that Fox News claimed on its show. So even as it reported that food-stamp fraud had hit an all-time high, Fox News was actually reporting a preposterously low number for food-stamp fraud. Only a program as idiotic as “Fox & Friends” is capable of such feats.

Think back to 2012, when “Fox & Friends” depicted the Obama administration as presiding over a near-doubling of the unemployment rate — a nasty distortion accomplished by cherry-picking two distinct measures. The Erik Wemple Blog have asked Fox News for more information on the food-stamp report and await an answer. A Fox News spokesperson indicates that this matter will be addressed on tomorrow’s program.

This month, Fox News announced Huntsman’s move from correspondent to a co-host of “Fox & Friends Weekend.” A press release quoted Huntsman as saying something that no sentient TV news person would ever voluntarily articulate: “I … am excited to officially join the ‘Fox & Friends’ family.” If so, she should be excited about independently vetting every story presented to her by her “Fox & Friends” colleagues, because more career-compromising embarrassments of this sort are part of the brand.

Economists Question China’s Consistent Growth Numbers — “Not aligned with accepted global standards” — “Never never land”

October 19, 2016

China says its economy grew 6.7% for the third consecutive quarter

Chinese farmers worked at their paddy fields in a village in Congjiang county, southwest China's Guizhou province on Tuesday.
Chinese farmers worked at their paddy fields in a village in Congjiang county, southwest China’s Guizhou province on Tuesday. PHOTO:AGENCE FRANCE-PRESSE/GETTY IMAGES

BEIJING–Fresh doubts emerged over the reliability of Chinese statistics on Wednesday after officials said the economy grew 6.7%—for the third consecutive quarter.

It was the first time since Beijing started releasing quarterly figures in 1992 that it had achieved such a feat of consistency.

Economists say it is rare for a fast-growing economy to clock the same growth quarter after quarter. In China, it happens because Beijing sets a hard economic target—6.5% to 7% this year—then does what it takes to reach this level, whether through fiscal stimulus, arm twisting of state companies or creative accounting, these people say.

The International Monetary Fund and numerous economists have urged Beijing to scrap that system, saying it leads to excessive fiscal stimulus that fuels manufacturing overcapacity and debt.

“It’s quite implausible that growth would be 6.7% for three straight quarters,” said Julian Evans-Pritchard, an economist with Capital Economics Pte. “They’re obviously smoothing the data quite a bit” he said, adding: “Even by Chinese standards, this is a new level of stability.”

China’s one-party state places a premium on stability, control and gradualism, economists say. Higher growth targets also help stem unemployment that could fuel social instability and threaten party control, they add. China’s official unemployment rate has remained between 4% and 4.3% since 2002. Yet a paper from an American nonprofit group, the National Bureau of Economic Research, says the actual rate was an average of nearly 11% between 2002 and 2009.

Economists say Chinese growth data appears to be massaged by one or two tenths of a percentage point–worth $10 billion to $20 billion in output. Any more would draw heightened global scrutiny, they say.

“There always seems to be a tendency to round up rather than down,” said IHS Markit Ltd.economist Brian Jackson. “They tend to use something like the “other services” category.

China’s National Bureau of Statistics didn’t immediately respond to questions. But in the past it has said that its methodology is sound and in keeping with accepted global standards.

In past periods of double-digit growth, Beijing often appeared to go the other way, understating growth and inflation numbers, economists say.  A study this year by economists Emi Nakamura, Jón Steinsson, and Miao Liu in the American Economic Journal concluded that China underreported growth by several percentage points a year in the late 1990s, then overestimated growth and inflation after 2002. “Chinese official statistics are ‘too smooth,’” it said, which it said may be the result of political sensitivities as well as poor data gathering methods.

“Concerns about inflation are one factor often cited as contributing to the discontent that lead to the 1989 Tiananmen Square protests,” it said. “The remarkable stability of growth and inflation statistics over the past two decades has undoubtedly been an important source of popular support for the Chinese Communist Party.”

China’s statistics have also come under question at home. When Chinese Premier Li Keqiang was party secretary of northeastern Liaoning province in 2007 he was quoted in a leaked U.S. cable decrying the accuracy of what he called “man-made” statistics, adding that he relied on measures presumably more difficult to manipulate, including electricity output and freight traffic.

Since then, numerous banks have created their own version of a “Li Keqiang index” inspired by his apparent skepticism.

China has made periodic efforts to improve—or at least defend—the veracity of its growth numbers. Earlier this month, President Xi Jinping stressed the importance of preventing fake government statistics, vowing at a central leading group on reform to punish data cheaters, according to the official Xinhua News Agency.

Late last year, local officials in northeastern Liaoning, Heilongjiang and Jilin provinces admitted doctoring gross domestic product statistics during an anticorruption probe, Xinhua said.

Officials have strong incentives to fudge growth statistics, economists say. While Beijing has edged away from evaluating local officials solely on growth statistics, the numbers remain an important criterion for getting promoted. Double counting is another factor when, for example, transactions across borders are claimed by both provinces. National statisticians now collect their own independent provincial data in a bid to improve the data’s accuracy. In 2015, China adopted an IMF standard aimed at strengthening its data system.

The official 6.7% growth figure for the January through March period, when growth seemed particularly weak, was the most questionable of the three, many economists said.

Mr. Evans-Pritchard said growth in the third quarter may have exceeded 6.7% while the first quarter was lower. “This allows China to reverse some massaging they did earlier, bring their data closer to reality,” he said.

RHB Capital Bhd. economist Fan Zhang warned: “There could be more intervention as growth slows. They’ve set a target of 6.5% from now until 2020 and need to make that target.”

Write to Mark Magnier at mark.magnier@wsj.com

http://www.wsj.com/articles/economists-question-chinas-consistent-growth-numbers-1476880761

U.S. August Jobs Report Due Friday — Here’s what to look for….

September 2, 2016

The Labor Department on Friday releases the August jobs report. Watch for signs the economy can maintain this summer’s renewed momentum in job growth. Economists project the economy added 180,000 jobs last month and the unemployment rate dropped to 4.8% from 4.9% in July.

By Eric Morath
The Wall Street Journal

Employers added 255,000 jobs in July and 292,000 in June, the best two-month stretch of job creation this year. That eased fears caused by a weak May report. Overall payroll growth in 2016 remains below the pace of the prior two years. Look to see if August growth slows and for any revisions to earlier months.


2 Jobless Rates
The unemployment rate is expected to hold below 5% and remain near postrecession lows. That number will get more attention as the presidential campaign heads into the home stretch. But watch the broader measure that includes discouraged workers and those in part-time jobs who want full-time work. That number remains elevated seven years into the expansion, compared with the narrower jobless rate.

3 Wage Gains
Average hourly earnings rose 2.6% from a year ago, matching the best gain of the expansion. If wage growth keeps that pace, it would be a sign the labor market is tightening further and could help support consumer spending in the second half of the year.

2.6%  — Change in average hourly earnings for private-sector workers, from a year earlier
4 Participation Equation
While hiring and wages are up and unemployment is down, the share of Americans in the labor force is only slightly above a 40-year low. And the figure has trended down since hitting a peak for the year in March. A high number of Americans on the sidelines of the labor force suggests there’s more slack in the jobs market than the headline figures suggest.

5 Fed Watch

Friday’s report will be watched closely for what it means to the Federal Reserve. Firm hiring and a steady unemployment rate could bolster the case for central bankers to raise their benchmark interest rate this month for the first time since December. But a severe miss of expectations, as happened in May, could cause Fed officials to recalculate. “Our decisions always depend on the degree to which incoming data continues to confirm the committee’s outlook,” Fed Chairwoman Janet Yellen said last week.

http://blogs.wsj.com/briefly/2016/09/01/5-things-to-watch-in-the-august-jobs-report-3/

US jobless claims higher but still point to tight market

March 24, 2016

AFP

In keeping with the record of strong hiring in US industry over the past two years, new jobless claims have now held below 300,000 a week for 55 straight weeks, the best streak since 1973. Photo by Getty Images

WASHINGTON (AFP) – Claims by newly jobless workers for unemployment benefits rose last week but remained near historically low levels pointing to a tight jobs market, Labor Department data showed Thursday.

Initial jobless claims, a sign of the pace of layoffs, rose to 265,000 in the week ending March 19, from the prior week’s revised level of 259,000 claims.

In keeping with the record of strong hiring in US industry over the past two years, new jobless claims have now held below 300,000 a week for 55 straight weeks, the best streak since 1973.

The four-week moving average ticked higher by 250 to 259,750 new claims, compared to 292,750 a year ago.

Job growth has been solid in the US economy, with 242,000 jobs added in February as the unemployment rate held at 4.9 percent for the second straight month, the lowest since February 2008.

Beijing Factor: Hong Kong’s credit rating risks cut — Moody’s downgrade — Hong Kong’s close ties to the mainland resulted in Moody’s issuing the downgrade

March 12, 2016

Credit rating changes would lead to high interest and debt repayment for city’s major infrastructure projects

Hong Kong’s close ties to the mainland resulted in Moody’s issuing the downgrade

By Danny Lee, Jennifer Ngo and Phila Siu
South China Morning Post

Hong Kong’s credit rating could be cut, economic experts have warned, after Moody’s downgraded the SAR’s outlook to “negative” yesterday.

Major infrastructure projects like the third runway and the MTR expansion funded through borrowing could be hit by more costs from servicing higher interest and debt repayments, if a cut follows.

All eyes will be on whether the other big three rating agencies Standard & Poor’s and Fitch follow suit.

“The credit rating outlook downgrade is a step away from a full downgrade,” warned Baptist University’s Dr Billy Mak Sui-choi. “It’s a warning the credit rating will change.”

Moody’s cut the city’s long-term debt outlook to “negative” from “stable ” citing Hong Kong’s reliance on trade amid a slowdown in the mainland Chinese economy.

Financial Secretary John Tsang Chun-wah however blasted the rating agency saying that Moody’s was mistaken in interpreting “close links with China” as a risk.

“Yes, Hong Kong has close ties with the mainland – it isn’t a ‘China risk’ but a ‘China opportunity’,” he said.

The government said the city’s sound economic fundamentals, robust financial regulatory regime, resilient banking sector and fiscal strength would help the local economy handle any challenges down the road.

Moreover, it is actually “time to consider an upgrade for Hong Kong,” Tsang added.

Moody’s also said “domestic political tensions” and “evidence of interference from China in Hong Kong’s policy formulation and implementation” was consistent with a downgrade.

Tsang said the assessment was “totally wrong” and one the government does not agree on.

“We have been implementing the ‘one country, two systems’ policy with diligence,” he said.

John Tsang believes Hong Kong’s sound fundamentals will help it shake off future economic challenges. Photo: Sam Tsang

Terence Chong Tai-leung, of Chinese University’s department of economics, said the outlook cut was more “an expression of a political view of the company [Moody’s] than a financial or economic one.”

The professor however said the “implications” of a downgrade meant it would affect the fundraising costs for the Hong Kong government and big corporations like the MTR and the Airport Authority.

Chong added the total effect of a downgrade may not be that high citing diverse sources of funding and low worldwide interest rates that could be funded by banks.

Indicating a difference in opinion, the agency forecast Hong Kong would see “muted” economic growth over the next five years.

“Increasing political linkages are likely to weigh on Hong Kong’s institutional strength. In addition, the risks to China’s economic and financial stability may also undermine Hong Kong’s own economic and financial outlook,” Moody’s said in a statement.

Predecessor Antony Leung Kam-chung said he was aware many industries, including retail and real estate, was experiencing a downturn. He hoped the government’s investment in infrastructure and other means to draw more tourists could ease the economic pressure.

“If we don’t do something, the unemployment rate can go above 5 per cent in a year’s time,” he said. The rate now stands at 3.3 per cent.

http://www.scmp.com/news/hong-kong/economy/article/1923583/hong-kongs-credit-rating-risks-cut-financial-secretary-blasts

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