Tag Archives: Economy

Discord among Republicans already weighs on Trump’s tax plan

U.S. President Donald Trump meets with a bipartisan group of members of Congress, including U.S. Representative Josh Gottheimer (D-NJ) (L) and Representative Tom Reed (R-NY) (R), at the White House in Washington, U.S. September 13, 2017. REUTERS/Jonathan Ernst

By Amanda Becker and David Morgan

WASHINGTON (Reuters) – Disagreement among U.S. congressional Republicans is already swirling around a tax cut plan unveiled days ago by President Donald Trump, who has proposed repealing the tax on inheritances and eliminating a deduction for state and local tax payments.

The discord shows the difficulty of overhauling the complex U.S. tax code. This task has defied Washington since 1986, the last time a comprehensive rewrite was completed despite lobbyists who defend each tax break.

Trump has yet to score a major legislative win since taking office in January and is pushing hard for a tax code revamp. But his plan is meeting the same internal Republican tensions between moderates and conservatives that have sunk his efforts this year to repeal the Obamacare health law.

“There’s a lot of give and take,” Trump economic adviser Gary Cohn told Fox Business Network on Friday.

Members of the administration “have been meeting everyday with the tax writers trying to figure out where they need to end up to get the votes … we’re going to make sure the president gets what he asks for,” he added.

One obstacle is the projected fiscal impact of the plan, which would slash U.S. revenues and expand the federal deficit and the national debt, which now exceeds $20 trillion.

Republican lawmakers from high-tax states such as New York exited meetings this week with Kevin Brady, chairman of the House of Representatives’ tax-writing committee, saying there would be some sort of compromise on repealing the deduction for state and local tax payments.

Separately, some Republican senators were questioning the repeal of a 40 percent inheritance tax levied on estate assets worth more than $5.5 million, or $11 million for married couples. That tax affects only about 0.2 percent of estates, according to the Tax Policy Center, a Washington think tank.

“That is not a priority for me as we seek to craft this tax bill,” Senator Susan Collins, who has often been a key Republican vote, said in a statement on Thursday.

Republicans want to use a procedure known as budget reconciliation to pass eventual tax legislation, which allows passage with a simple majority in the 100-seat Senate. Republicans hold 52 Senate seats and can only afford to lose support from two senators, with Vice President Mike Pence able to cast a tie-breaking vote. Democrats will likely oppose the legislation.

One Republican fiscal hawk, Senator Bob Corker, has already said he cannot support tax legislation that adds to the annual federal deficit.

“We remain very bearish on any tax legislation passing this year – or next,” Cowen and Co analyst Chris Krueger said in a Friday research note.

The Trump plan, made public last week, calls for up to $6 trillion in tax cuts over 10 years. Without accompanying spending reductions, the budget would hugely expand the deficit, according to some estimates.

The administration contends tax cuts would spur so much economic growth that the resulting new revenues would help offset the cost.

In addition, Republicans are proposing “revenue raisers,” such as ending the deduction for payments of state and local tax, known as SALT. Doing that would raise about $1.3 trillion over a decade, the Tax Policy Center said.

Almost 30 percent of taxpayers currently deduct state and local taxes. In New Jersey, for example, 41 percent of tax filers, meaning individuals or married couples, claimed the deduction, which averaged $17,850, according to a Government Finance Officers Association analysis of Internal Revenue Service data.

Although the deduction disproportionately benefits people in high-tax states and localities, individuals in all states claim it. In Georgia, for example, 33 percent of tax filers claim an average deduction of $9,158, the report said.

Republican Representative Chris Collins of New York, a Trump ally, told reporters earlier this week that lawmakers from high-tax states, such as his own, were discussing “ways to level the playing field,” including capping the amount of the deduction or putting other limits on it.

“There are many districts with Republican members where state and local deduction is used by a large portion of the taxpayers,” said Frank Sammartino, a senior fellow at the Tax Policy Center. “So it’s not surprising that it’s not strictly a blue state/red state thing.”

Senate Democratic leader Chuck Schumer called the state and local tax deduction the “Achilles’ heel” of tax reform and said his party would oppose any move to repeal it. He dismissed compromise plans as unfeasible.

Brady said on Thursday that at this point there has been no change to the framework, but tax writers are “listening very carefully” to lawmakers’ concerns.

“It’s got to be frustrating when you’re in a state where local and state officials really put the screws to taxpayers,” Brady told reporters. “We are determined to provide tax relief to every American, regardless of where they live.”

(Additional reporting by Richard Cowan; Writing by Amanda Becker; Editing by Leslie Adler and Lisa Von Ahn)

Hurricanes Harvey, Irma sink U.S. payrolls in September

FILE PHOTO: Brochures are displayed for job seekers at the Construction Careers Now! hiring event in Denver, Colorado U.S. August 2, 2017. REUTERS/Rick Wilking

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. employment fell in September for the first time in seven years as Hurricanes Harvey and Irma left displaced workers temporarily unemployed and delayed hiring, the latest indication that the storms undercut economic activity in the third quarter.

The Labor Department said on Friday nonfarm payrolls decreased by 33,000 jobs last month amid a record drop in employment in the leisure and hospitality sector.

The decline in payrolls was the first since September 2010. The Department said its analysis suggested that the net effect of Harvey and Irma, which wreaked havoc in Texas and Florida in late August and early September, was to “reduce the estimate of total nonfarm payroll employment for September.”

Economists had forecast payrolls increasing by 90,000 jobs last month. Payrolls are calculated from a survey of employers, which treats any worker who was not paid for any part of the pay period that includes the 12th of the month as unemployed.

Many of the dislocated people will probably return to work. That, together with rebuilding and clean-up is expected to boost job growth in the coming months. Leisure and hospitality payrolls dived 111,000, the most since records started in 1939, after being unchanged in August.

There were also decreases in retail and manufacturing employment last month. Stripping out the effects of the hurricanes, the labor market remains strong. The government revised data for August to show 169,000 jobs created that month instead of the previously reported 156,000.

Harvey and Irma did not have an impact on the unemployment rate, which fell two-tenths of a percentage point to 4.2 percent, the lowest since February 2001. The smaller survey of households from which the jobless rate is derived treats a person as employed regardless of whether they missed work during the reference week and were unpaid as result.

The decrease in the unemployment rate reflected an increase in household employment. It also came despite more people entering the labor force.

The dollar rose against a basket of currencies after the data, while prices for U.S. Treasuries fell. U.S. stock index futures were trading lower.

DISRUPTIONS BOOST WAGES

Underscoring the disruptive impact of the hurricanes, the household survey showed 1.5 million people stayed at home in September because of the bad weather, the most since January 1996. About 2.9 million people worked part-time, the largest number since February 2014.

The length of the average workweek was unchanged at 34.4 hours. With the hurricane-driven temporary unemployment concentrated in low-paying industries like retail and leisure and hospitality, average hourly earnings increased 12 cents or 0.5 percent in September after rising 0.2 percent in August.

That pushed the annual increase in wages to 2.9 percent, the largest gain since December 2016, from 2.7 percent in August. Annual wage growth of at least 3.0 percent is need to raise inflation to the Fed’s 2 percent target, analysts say

The mixed employment report should not change views the Federal Reserve will raise interest rates in December. Fed Chair Janet Yellen cautioned last month that the hurricanes could “substantially” weigh on September job growth, but expected the effects would “unwind relatively quickly.”

The U.S. central bank said last month it expected “labor market conditions will strengthen somewhat further.” The Fed left interest rates unchanged in September, but signaled it expected one more hike by the end of the year. It has increased borrowing costs twice this year.

The employment report added to August consumer spending, industrial production, homebuilding and home sales data in suggesting that the hurricanes will dent economic growth in the third quarter.

Economists estimate that the back-to-back storms, including Hurricane Maria which destroyed infrastructure in Puerto Rico last month, could shave at least six-tenths of a percentage point from third-quarter gross domestic product.

Growth estimates for the July-September period are as low as a 1.8 percent annualized rate. The economy grew at a 3.1 percent rate in the second quarter.

Private payrolls fell by 40,000 jobs, the biggest drop since February 2010. Manufacturing employment slipped by 1,000 jobs pulled down by declines at motor vehicle assembly and chemical plants as well as textile mills.

Retail employment fell by 2,900 jobs as food stores payrolls tumbled 6,900. There were also declines in employment at department stores. Construction payrolls rose 8,000 in September as a 3,900 drop in jobs at homebuilding sites was offset by increases elsewhere.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

Russia throws North Korea lifeline to stymie regime change

Russia throws North Korea lifeline to stymie regime change

By Andrew Osborn

MOSCOW (Reuters) – Russia is quietly boosting economic support for North Korea to try to stymie any U.S.-led push to oust Kim Jong Un as Moscow fears his fall would sap its regional clout and allow U.S. troops to deploy on Russia’s eastern border.

Though Moscow wants to try to improve battered U.S.-Russia relations in the increasingly slim hope of relief from Western sanctions over Ukraine, it remains strongly opposed to what it sees as Washington’s meddling in other countries’ affairs.

Russia is already angry about a build-up of U.S.-led NATO forces on its western borders in Europe and does not want any replication on its Asian flank.

Yet while Russia has an interest in protecting North Korea, which started life as a Soviet satellite state, it is not giving Pyongyang a free pass: it backed tougher United Nations sanctions against North Korea over its nuclear tests last month.

But Moscow is also playing a fraught double game, by quietly offering North Korea a slender lifeline to help insulate it from U.S.-led efforts to isolate it economically.

A Russian company began routing North Korean internet traffic this month, giving Pyongyang a second connection with the outside world besides China. Bilateral trade more than doubled to $31.4 million in the first quarter of 2017, due mainly to what Moscow said was higher oil product exports.

At least eight North Korean ships that left Russia with fuel cargoes this year have returned home despite officially declaring other destinations, a ploy U.S. officials say is often used to undermine sanctions against Pyongyang.

And Russia, which shares a short land border with North Korea, has also resisted U.S.-led efforts to repatriate tens of thousands of North Korean workers whose remittances help keep the country’s hard line leadership afloat.

“The Kremlin really believes the North Korean leadership should get additional assurances and confidence that the United States is not in the regime change business,” Andrey Kortunov, head of the Russian International Affairs Council, a think-tank close to the Russian Foreign Ministry, told Reuters.

“The prospect of regime change is a serious concern. The Kremlin understands that (U.S. President Donald) Trump is unpredictable. They felt more secure with Barack Obama that he would not take any action that would explode the situation, but with Trump they don’t know.”

Trump, who mocks North Korean leader Kim Jong Un as a “rocket man” on a suicide mission, told the United Nations General Assembly last month he would “totally destroy” the country if necessary.

He has also said Kim Jong Un and his foreign minister “won’t be around much longer” if they made good on a threat to develop a nuclear-tipped missile capable of reaching the United States.

STRATEGIC BORDER

To be sure, Beijing’s economic ties to Pyongyang still dwarf Moscow’s and China remains a more powerful player in the unfolding nuclear crisis. But while Beijing is cutting back trade as it toughens its line on its neighbor’s ballistic missile and nuclear program, Russia is increasing its support.

People familiar with elements of Kremlin thinking say that is because Russia flatly opposes regime change in North Korea.

Russian politicians have repeatedly accused the United States of plotting so-called color revolutions across the former Soviet Union and any U.S. talk of unseating any leader for whatever reason is politically toxic in Moscow.

Russia’s joint military exercises with neighboring Belarus last month gamed a scenario where Russian forces put down a Western-backed attempt for part of Belarus to break away.

With Russia due to hold a presidential election in March, politicians are again starting to fret about Western meddling.

In 2011, President Vladimir Putin accused then U.S. Secretary of State Hillary Clinton of trying to stir up unrest in Russia and he has made clear that he wants the United States to leave Kim Jong Un alone.

While condemning Pyongyang for what he called provocative nuclear tests, Putin told a forum last month in the eastern Russian port of Vladivostok that he understood North Korea’s security concerns about the United States and South Korea.

Vladivostok, a strategic port city of 600,000 people and headquarters to Russia’s Pacific Fleet, is only about 100 km (60 miles) from Russia’s border with North Korea.

Russia would be fiercely opposed to any U.S. forces deploying nearby in a reunited Korea.

“(The North Koreans) know exactly how the situation developed in Iraq,” Putin told the economic forum, saying Washington had used the false pretext that Baghdad had weapons of mass destruction to destroy the country and its leadership.

“They know all that and see the possession of nuclear weapons and missile technology as their only form of self-defense. Do you think they’re going to give that up?”

Analysts say Russia’s view is that North Korea’s transformation into a nuclear state, though incomplete, is permanent and irreversible and the best the West can hope for is for Pyongyang to freeze elements of its program.

NOTHING PERSONAL

Kortunov, the think-tank chief close to the Russian Foreign Ministry, said he did not think the Kremlin’s defense of Kim Jong Un was based on any personal affection or support for North Korea’s leadership, likening Moscow’s pragmatic backing to that it has given Syria’s President Bashar al-Assad.

Moscow’s position was motivated by a belief the status quo made Russia a powerful geopolitical player in the crisis because of its close ties to Pyongyang, Kortunov said, just as Russia’s support for Assad has gifted it greater Middle East clout.

He said Moscow knew it would lose regional leverage if Kim Jong Un fell, much as its Middle East influence was threatened when Islamist militants looked like they might overthrow Assad in 2015.

“It’s a very delicate balancing act,” said Kortunov.

“On the one hand, Russia doesn’t want to deviate from the line of its partners and mostly from China’s position on North Korea which is getting tougher. But on the other hand, politicians in Moscow understand that the current situation and level of interaction between Moscow and Pyongyang puts Russia in a league of its own compared to China.”

If the United States were to remove Kim Jong Un by force, he said Russia could face a refugee and humanitarian crisis on its border, while the weapons and technology Pyongyang is developing could fall into even more dangerous non-state hands.

So despite Russia giving lukewarm backing to tighter sanctions on Pyongyang, Putin wants to help its economy grow and is advocating bringing it into joint projects with other countries in the region.

“We need to gradually integrate North Korea into regional cooperation,” Putin told the Vladivostok summit last month.

(Editing by David Clarke)

Wall Street at new record highs as tech, auto advance

A trader works inside a stall on the floor of the New York Stock Exchange (NYSE) in New York, U.S., October 3, 2017. REUTERS/Brendan McDermid

By Ankur Banerjee and Gayathree Ganesan

(Reuters) – All the three main U.S. stock indexes hit fresh record highs on Tuesday, buoyed by a rally in tech stocks and gains in Ford Motor <F.N> and General Motors <GM.N> after the carmakers reported strong September sales.

Seven of the 11 major S&P indexes were higher, led by technology <.SPLRCT> and consumer discretionary <.SPLRCD> sectors.

Major automakers posted higher U.S. new vehicle sales in September, as consumers in hurricane-hit parts of the country rushed to replace flood-damaged cars.

However, the market traded in a narrow range as investors awaited upcoming quarterly earnings from big names to help justify the lofty valuations.

Third-quarter earnings for S&P 500 companies are expected to increase 5.5 percent from a year earlier, according to Thomson Reuters research, after rising a better-than-expected 12.3 percent in the second quarter.

“Tech has been in leadership for the first nine months of this year,” said Art Hogan, chief market strategist at Wunderlich Securities in New York.

The sector is stabilizing as seasonal rotation ends and investors are looking at the stocks as opportunities now, he said.

The markets have been scaling new highs and on Monday found support from factory data that pointed to underlying strength in the U.S. economy.

The encouraging data helped world shares touch their latest record highs on Tuesday, while lifting the dollar to its loftiest in 1-1/2 months.

“The first two days of October seem to be a continuation of what happened in the last two weeks of September … we’re gradually grinding higher in the month of October,” said Hogan.

At 11:07 a.m. EDT, the Dow Jones Industrial Average <.DJI> was up 61.05 points, or 0.27 percent, at 22,618.65, while the S&P 500 <.SPX> was up 0.97 points, or 0.04 percent, at 2,530.09.

The Nasdaq Composite <.IXIC> was up 3.25 points, or 0.05 percent, at 6,519.97.

General Motors’ shares rose 3.7 percent to a record high of $43.32 in morning trading, while Ford’s stock was up 2.05 percent at $12.34.

But rival Tesla Inc <TSLA.O> was down 2 percent after the luxury electric vehicle maker said its planned ramp-up for the new Model 3 mass-market sedan faced production bottlenecks.

Lennar Corp’s <LEN.N> shares rose about 3 percent following a higher-than-expected quarterly profit from the No.2 U.S. homebuilder.

Declining issues outnumbered advancers on the NYSE by 1,455 to 1,286. On the Nasdaq, 1,368 issues rose and 1,358 fell.

(Reporting by Ankur Banerjee in Bengaluru; Editing by Sriraj Kalluvila)

As sanctions bite, North Korean workers leave Chinese border hub

: A North Korean waitress cleans the floor of a North Korean restaurant in Dandong, Liaoning province, China, September 12, 2016. REUTERS/Thomas Peter/File Photo

By Philip Wen

DANDONG, China (Reuters) – North Korean workers have begun to leave the Chinese border city of Dandong, following the latest round of sanctions seeking to restrict Pyongyang’s ability to earn foreign currency income, local businesses and traders say.

Almost 100,000 overseas workers, based predominantly in China and Russia, funnel some $500 million in wages a year to help finance the North Korean regime, the U.S. government says.

Dandong, a city of 800,000 along the Yalu river that defines the border with North Korea, is home to many restaurants and hotels that hire North Korean waitresses and musicians. Their colorful song and dance performances are a tourist attraction.

Thousands of predominantly female workers are also employed by Chinese-owned garment and electronics factories in Dandong, with a significant proportion of their wages going straight to the North Korean state.

The Wing Cafe used to advertise its “beautiful North Korean” waitresses on its shopfront by the Yalu. The sign is now gone, and cafe staff said the waitresses had returned home in recent weeks after their visas expired.

“There have been changes in government policy,” the manager of another restaurant said. “It’s not convenient to say more.”

Recent videos circulating on Chinese social media appear to show hundreds of North Korean women waiting in line to clear immigration at Dandong’s border gate. A Reuters reporter saw a group of around 50 North Korean women waiting to cross the border on Friday morning.

 

HARDER TO SMUGGLE, TOO

Four traders, who deal in goods ranging from iron ore and seafood to ginseng and alcohol, told Reuters the sanctions had all but crippled the usual trade.

More stringent customs checks and patrols by Chinese border police have also made it harder to smuggle goods across the border, according to the traders, who declined to be named due to the subject’s sensitivity.

“The impact has been huge. Dandong’s economy has always counted on border trade,” said one Chinese trader.

In response to Pyongyang’s sixth and largest nuclear test last month, the U.N. Security Council on Sept. 11 passed a resolution prohibiting the use of North Korean workers, strengthening an Aug. 5 resolution that put a cap on the number of workers allowed overseas.

Successive rounds of U.N. trade sanctions have now banned 90 percent of the North’s $2.7 billion of publicly reported exports.

The Sept. 11 sanctions also ordered the closure of all joint business ventures with North Korea and added textiles to a list of banned exports, which already included coal, iron ore and seafood.

In a statement on Thursday, China’s Ministry of Commerce ordered the implementation of the new sanctions across the country within 120 days.

 

FORCED TO LEAVE

The sanctions allow workers to serve out existing contracts. Business people in Dandong, through which most of trade between the two countries flows, said contracts could not be renewed and new visas were not being approved.

A Chinese supervisor at a factory making electronic wiring for automobiles said while most of its 300 North Korean workers were on multi-year contracts expiring at different times, those who arrived in Dandong after Aug. 5 had already been forced to leave. He did not say how many.

The sanctions have come as a rude jolt to Dandong businesses and traders who had long rolled with North Korea’s unpredictability but believed their neighbor’s economic reliance on China would keep its belligerence in check.

Dandong is one of the larger cities in Liaoning province, whose rustbelt economy has struggled under national campaigns to curb industrial overcapacity and ease pollution. Liaoning was China’s worst performer in the first half of 2017, registering GDP growth of 2.1 percent, compared with the national rate of 6.9 per cent, according to official statistics.

“The economy hasn’t been doing well here for the past two years,” said one trader. “This is making a bad situation worse.”

 

(Reporting by Philip Wen; Editing by Bill Tarrant)

 

Dollar set for best week of 2017, stocks near records

FILE PHOTO: U.S. dollar notes are seen in this November 7, 2016 picture illustration. REUTERS/Dado Ruvic/Illustration/File Photo

By Lewis Krauskopf

NEW YORK (Reuters) – The dollar was headed for its strongest week of the year on Friday, while world stock markets climbed back near record-high levels on the last trading day of the quarter.

Firming expectations for another U.S. interest rate increase by year-end, combined with U.S. President Donald Trump’s tax-cut plan, have dominated markets for most of the week.

Data on Friday showed U.S. consumer spending barely rose in August but the report did little to change expectations that the Federal Reserve would raise interest rates again in December. Another report showed the Chicago purchasing management index, which gauges factory activity, came in better-than-expected for September.

“The economic data we got was either on target or it was slightly better than expected so there wasn’t anything negative at all to put a pause on things,” said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas.

“Generally, the overall economic backdrop is very solid. In a bull market when you don’t have bad news you tend to get up moves in the market,” Frederick said.

The Dow Jones Industrial Average <.DJI> fell 18.29 points, or 0.08 percent, to 22,362.91, the S&P 500 <.SPX> gained 4.93 points, or 0.20 percent, to 2,514.99 and the Nasdaq Composite <.IXIC> added 31.99 points, or 0.5 percent, to 6,485.44.

The S&P technology sector <.SPLRCT> led the way, rising 0.6 percent.

The S&P 500 had set a record closing high on Thursday.

The pan-European FTSEurofirst 300 index <.FTEU3> rose 0.34 percent and MSCI’s gauge of stocks across the globe <.MIWD00000PUS> gained 0.34 percent.

The MSCI global index was within 0.5 percent of an all-time high and on pace for its 11th consecutive positive month.

The dollar index <.DXY> was flat. The greenback was up about 1 percent for the week, on track for its best week since December.

“What you have seen is a general closing out of some short dollar positions but for that to be sustained we need greater detail on Trump’s fiscal plans and see it going through,” said James Binny, head of currency portfolio management for EMEA at State Street Global Advisors.

The euro <EUR=> was up 0.29 percent to $1.1818.

Benchmark 10-year notes <US10YT=RR> last fell 4/32 in price to yield 2.3193 percent, from 2.307 percent late on Thursday.

U.S. crude <CLcv1> fell 0.23 percent to $51.44 per barrel and Brent <LCOcv1> was last at $56.88, down 0.49 percent on the day.

Spot gold <XAU=> dropped 0.2 percent to $1,284.52 an ounce.

(Additional reporting by Abhinav Ramnarayan and Saikat Chatterjee in London; Editing by Andrew Bolton and Nick Zieminski)

U.S. consumer spending barely rises; core inflation moderates

FILE PHOTO: New cars are shown for sale at a Chevrolet dealership in National City, California, U.S., June 30, 2017. REUTERS/Mike Blake/File Photo

WASHINGTON (Reuters) – U.S. consumer spending barely rose in August likely as Hurricane Harvey weighed on auto sales and annual inflation increased at its slowest pace since late 2015, pointing to moderation in economic growth in the third quarter.

The Commerce Department said on Friday consumer spending, which accounts for more than two-thirds of U.S. economic activity, edged up 0.1 percent last month also as unseasonably mild temperatures reduced demand for utilities. That followed an unrevised 0.3 percent increase in July.

Last month’s gain in consumer spending was in line with economists’ expectations. When adjusted for inflation, consumer spending slipped 0.1 percent in August, the first drop since January.

The government said the data reflected the effects of Hurricane Harvey. However, it could not separately quantify the total impact of Harvey on the data. It said it made adjustments to estimates where source data were not yet available or did not fully reflect the effects of the storm.

The report was the latest suggestion that Harvey, together with Hurricane Irma, would dent economic growth in the third quarter. The economy grew at a brisk 3.1 percent annualized rate in the second quarter, with consumers doing the heavy lifting.

Harvey, which tore through Texas in late August, has undercut industrial production, homebuilding and home sales. Further declines are expected after Irma slammed Florida in early September.

Economists estimate the storms could slice off as much as six-tenths of a percentage point from third-quarter GDP growth. However, a pick-up in output is expected in the fourth quarter as communities ravaged by the hurricanes rebuild.

Inflation remained benign last month. The personal consumption expenditures (PCE) price index excluding food and energy rose 0.1 percent. The so-called core PCE has increased by the same margin for four straight months.

As a result, the annual increase in the core PCE price index slowed to 1.3 percent after advancing 1.4 percent in July. That was the smallest year-on-year increase since November 2015. The core PCE is the Federal Reserve’s preferred inflation measure and has a 2 percent target.

The U.S. central bank signaled last week it anticipated one more interest rate increase by the end of the year. On Tuesday, Chair Janet Yellen said the Fed needed to continue gradual rate hikes despite uncertainty about the path of inflation. It has increased borrowing costs twice this year.

Harvey also probably impacted on income in August.

Personal income rose 0.2 percent last month after increasing 0.3 percent in July. Savings fell to $522.9 billion in August from $524.8 billion in the prior month.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

U.S. second-quarter economic growth revised higher; jobless claims rise

FILE PHOTO: Customers shop at a Whole Foods store in New York City, U.S., August 28, 2017. REUTERS/Brendan McDermid/File Photo

By Lucia Mutikani

WASHINGTON (Reuters) – The U.S. economy grew a bit faster than previously estimated in the second quarter, recording its quickest pace in more than two years, but the momentum probably slowed in the third quarter as Hurricanes Harvey and Irma temporarily curbed activity.

Gross domestic product increased at a 3.1 percent annual rate in the April-June period, the Commerce Department said in its third estimate on Thursday. The upward revision from the 3.0 percent rate of growth reported last month reflected a slightly faster pace of inventory investment.

Growth last quarter was the quickest since the first quarter of 2015 and followed a 1.2 percent pace in the January-March period. Economists had expected that the second-quarter GDP growth rate would be unrevised at 3.0 percent.

Harvey, which struck Texas, has been blamed for much of the decline in retail sales, industrial production, homebuilding and home sales in August. Further weakness is anticipated in September after Irma slammed into Florida early this month.

Rebuilding is, however, expected to boost GDP growth in the fourth quarter and in early 2018. Estimates for the growth rate in the July-September period are just above 2.2 percent.

However, they could be raised after another report from the Commerce Department on Thursday showed a decline in the goods trade deficit in August as well as large increases in both retail and wholesale inventories.

Harvey and Irma continue to impact the labor market and are expected to cut into job growth this month. In a third report, the Labor Department said initial claims for state unemployment benefits increased 12,000 to a seasonally adjusted 272,000 for the week ended Sept. 23.

Still, the labor market remains strong. Claims have now been below the 300,000 threshold, which is associated with a robust labor market, for 134 straight weeks. That is the longest such stretch since 1970, when the labor market was smaller.

Prices for U.S. Treasuries held losses after the data and the dollar <.DXY> fell to a session low against a basket of currencies. U.S. stock index futures were trading lower.

ROBUST CONSUMER SPENDING

With GDP accelerating in the second quarter, the economy grew 2.1 percent in the first half of 2017. Still, economists believe growth this year will not breach President Donald Trump’s ambitious 3.0 percent target.

Trump on Wednesday proposed the biggest U.S. tax overhaul in three decades, including lowering the corporate income tax rate to 20 percent and implementing a new 25 percent tax rate for pass-through businesses such as partnerships to boost the economy.

But the plan gave few details on how the tax cuts would be paid for without increasing the budget deficit and national debt, setting up what is expected to be a bruising battle in the U.S. Congress.

Growth in consumer spending, which makes up more than two-thirds of the U.S. economy, was unrevised at a 3.3 percent rate in the second quarter as an increase in spending on services was offset by a downward revision to durable goods outlays. Consumer spending in the second quarter was the fastest in a year.

Amid robust consumer spending, businesses accumulated a bit more inventory than previously reported to meet the strong demand. Inventory investment added just over one-tenth of a percentage point to GDP growth in the second quarter. It was previously reported to have been neutral.

Growth in business spending on equipment was unchanged at a rate of 8.8 percent, the fastest pace in nearly two years.

Investment on nonresidential structures was revised to show it increasing at a 7.0 percent pace, up from the previously reported 6.2 percent rate.

Both export and import growth were revised slightly lower. Trade contributed two-tenths of a percentage point to GDP growth last quarter. Housing was a slightly bigger drag on growth in the last quarter than previously reported, subtracting 0.3 percentage point from output.

The government also sharply revised down growth in corporate profits for the second quarter. Profits after tax with inventory valuation and capital consumption adjustments increased at a 0.1 percent rate instead of the previously reported 0.8 percent pace.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

U.S. hopes for ‘good deliverables’ during Trump’s China visit

U.S. Secretary of Commerce Wilbur Ross meets Chinese Premier Li Keqiang at the Zhongnanhai state guesthouse in Beijing, China, September 25, 2017.

By Christian Shepherd

BEIJING (Reuters) – The United States hopes there will be some “very good deliverables” when President Donald Trump visits China, U.S. Commerce Secretary Wilbur Ross said on Monday, striking an upbeat tone amid trade tensions between the two countries.

Trump will likely visit China in November as part of a trip that will take him to an Association of Southeast Asian Nations (ASEAN) summit in the Philippines and an Asia-Pacific Economic Cooperation (APEC) summit in Vietnam.

China’s relationship with the United States has been strained by the Trump administration’s criticism of China’s trade practices and by demands that Beijing do more to pressure North Korea to halt its nuclear weapons and missiles programs.

Meeting in Beijing, Ross told Chinese Premier Li Keqiang he and his delegation had been greeted very warmly which augurs well for Trump’s forthcoming trip to meet Chinese President Xi Jinping.

“We are looking forward to a very good session including a lot of American CEOs and we hope there will be some very good deliverables,” Ross said, in comments in front of reporters.

Li told Ross that the two countries’ common interests far outweighed their differences and their economic and trade relationship had enormously benefited both countries and the world.

“China is the world’s largest developing country while the United States is the world’s biggest developed country,” Li said.

“In addition to that, China and the United States are the largest trading partners with each other, so I think it is fair to say that our common interests far outweigh our differences and divergences,” he added.

“Over the years, economic and trade relations between our two countries have always served as a ballast for our overall bilateral relationship and also these important trade and economic relations have benefited enormously our two peoples as well as the whole world.”

State media quoted Li as further saying that China hopes the United States will give fair treatment to Chinese companies’ investments there, as well as ease restrictions on high-tech exports.

Meeting earlier in the day, Chinese Commerce Minister Zhong Shan told Ross that there was huge potential for cooperation and China was willing to “manage and control” disputes, the ministry said in a statement.

China was willing to create good conditions for Trump’s visit and ensure his trip was fruitful, Zhong added.

Xi and Trump met for the first time in person at Trump’s Mar-A-Lago estate in Florida in April. Trump has since played up his personal relationship with Xi, even when criticizing China over North Korea and trade.

The two sides launched a 100-day economic plan at that meeting, including some industry-specific announcements such as the resumption of American beef sales in China.

There has since been limited progress on trade relations.

Ross’s visit comes at a time of heightened trade tensions between the United States and China following Trump’s decision earlier this month to block a Chinese-backed private equity firm from buying a U.S.-based chipmaker.

In August, Trump authorized an inquiry into China’s alleged theft of intellectual property – the first direct trade measure by his administration against Beijing.

During his campaign, Trump vowed repeatedly to declare China a currency manipulator once in office but in April backed off from that threat.

Trump’s administration has also repeatedly called on China to do more to rein in North Korea and has threatened new sanctions on Chinese banks and other firms doing business with Pyongyang.

China says it is already doing all it can to pressure North Korea and that those countries directly involved in the stand-off on the peninsula should take responsibility for resolving tensions.

There was no mention of North Korea in the comments Li and Ross made in front of reporters.

 

(Reporting by Christian Shepherd; Writing by Ben Blanchard; Editing by Nick Macfie)

 

Dudley sees Fed rate hikes; inflation weakness ‘fading’

William Dudley, President of the New York Federal Reserve Bank, answers a question, after addressing the Indian businessmen at the Bombay Stock Exchange (BSE) in Mumbai, India May 11, 2017.

By Jonathan Spicer

SYRACUSE, N.Y. (Reuters) – The Federal Reserve is on track to gradually raise interest rates given the recent inflation weakness is fading and the U.S. economy’s fundamentals are sound, an influential Fed policymaker said on Monday, reinforcing the central bank’s confident tone.

New York Fed President William Dudley, among the first U.S. central bankers to speak publicly since a decision last week to hold rates steady for now, cited the soft dollar and strong overseas growth among the reasons he expects slightly above-average U.S. economic activity and a long-sought rise in wages.

“With a firmer import price trend and the fading of effects from a number of temporary, idiosyncratic factors, I expect inflation will rise and stabilize around the (Fed’s) 2 percent objective over the medium term,” he told students and professors at Onondaga Community College.

“In response, the Federal Reserve will likely continue to remove monetary policy accommodation gradually,” added Dudley, a close ally of Fed Chair Janet Yellen and a permanent voter on monetary policy.

Dudley’s comments were similar to his speech earlier this month, and reinforced the growing expectation that the Fed is set to raise rates for a third time this year in December. That notion was driven home by Fed forecasts published last week, when the central bank held rates but announced the beginning of a long process of shedding bonds it accumulated to boost the economy.

Still, others at the Fed are less anxious to tighten policy in the face of price readings that have sagged since February, despite strong jobs growth. Futures traders give a December rate hike about a 55-percent probability, according to Reuters data.

Dudley nodded to the three devastating hurricanes that have struck parts of the U.S. south and the Caribbean, noting their effects will likely make it more difficult to interpret economic data in coming months. He said, though, that the effects would likely be short-lived and noted that such events tend to boost economic activity as rebuilding gets underway.

In a speech focused on workforce development, he said the Fed, which is tasked with achieving maximum sustainable employment, “cannot declare success if we have people who want to work but lack the skills to fill available jobs.” Yet he noted that the Fed’s tool kit is limited and best works to provide incentives for firms to invest and grow.

“There are greater incentives for businesses to invest in labor-saving technologies” and the labor market improves, he said. “Investment spending should also benefit from a better international outlook and improvement in U.S. trade competitiveness caused by the dollar’s recent weakness.”

 

(Reporting by Jonathan Spicer; Editing by Chizu Nomiyama)