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Americans see slightly higher inflation as uncertainty grows

Detail from the front of the United States Federal Reserve Board

NEW YORK (Reuters) – An increasingly important gauge of U.S. inflation expectations edged higher last month but remained broadly depressed, as Americans said they were less certain about prices in the years ahead.

In what could be welcome news for the Federal Reserve, the New York Fed’s April survey of consumers released on Monday found expectations for inflation one year ahead rose to 2.6 percent, from 2.5 percent in March, while three-year-out expectations jumped to 2.8 percent, the highest reading in five months.

The U.S. central bank wants to be confident that inflation is headed higher before raising interest rates for a second time, after its December “liftoff” from near zero. The New York Fed gauge is still close to its lowest levels since it was launched in mid-2013.

The monthly survey also showed median inflation uncertainty jumped sharply. The one-year-ahead measure was at its highest level in five months while the three-year measure was at its highest in six months.

The internet-based survey taps a rotating group of 1,200 households and is done by a separate organization.

(Reporting by Jonathan Spicer; Editing by Meredith Mazzilli)

Greece passes painful fiscal reforms, heeding EU

Greek PM Tsipras addresses lawmakers during a parliamentary session before a vote of tax and pension

By George Georgiopoulos and Renee Maltezou

ATHENS (Reuters) – Greek lawmakers passed unpopular pension and tax reforms on Monday that a European official said marked a major advance in negotiations towards unlocking more rescue funds from the country’s creditors.

Euro zone finance ministers will hold talks on Greece’s progress on economic and fiscal reforms later in the day, and assess if it has met terms of its multi-billion euro bailout.

A positive sign-off on the review will unlock more than 5 billion euros ($5.7 billion) to ease Greece’s squeezed finances and cover debt repayments maturing in June and July.

Greece also hopes the sign-off will launch discussions on debt relief, and euro zone officials in Brussels said the finance ministers would discuss how to reprofile its debt to make future servicing costs manageable.

“We have an important opportunity before us for the country to break this vicious cycle, and enter a virtuous cycle,” Prime Minister Alexis Tsipras earlier told parliament during a debate on the reforms, which opposition lawmakers voted against.

While markets welcomed the vote, thousands of demonstrators protested outside parliament. Police used teargas when isolated groups hurled petrol bombs in a central Athens square.

Under the measures passed early on Monday, a combination of social security reform and additional taxation aims to ensure Greece will attain savings to meet an agreed 3.5 percent budget surplus target before interest payments in 2018, helping it to regain bond market access and make its debt load sustainable.

Greece’s 10-year bond yield hit its lowest level in four months on Monday, and European Commission Deputy President Jyrki Katainen said the package was “a major step forward”.

Eurogroup finance ministers would probably not release more funds right away but further discussions on debt relief would come before a new tranche was released, he told Finnish broadcaster YLE.

‘TOMBSTONE FOR GROWTH’

During the debate, opposition parties argued pension cuts and tax hikes would prove recessionary, dealing another blow to a population fatigued by years of austerity.

“The measures will be a tombstone for growth prospects,” said Kyriakos Mitsotakis, leader of the conservative New Democracy party which leads in opinion polls.

Tsipras was re-elected in September on promises to ease the pain of austerity for the poor and protect pensions after he was forced to sign up to a new bailout in July to keep the country in the euro zone.

Monday’s reforms are part of a package that aims to generate savings equivalent to 3 percent of GDP, raising income tax for high earners and lowering tax-free thresholds.

It increases a ‘solidarity tax’ and introduces a national pension, while phasing out benefits for poor pensioners.

Greeks could face a new bout of taxes within weeks.

Athens has been in talks with lenders over increasing value added tax, introducing additional taxes on fuel and tobacco, hotel overnight stays and internet use, officials said.

Finance Minister Euclid Tsakalotos said the reforms would affect the rich and not the poor. Greece had done what was expected of it and deserved debt relief, he said.

“Our word is a contract. We have done what we promised and hence the IMF and Germany must provide a solution that is feasible, a solution for the debt that will open a clear horizon for investors,” Tsakalotos told lawmakers.

In Berlin, German government spokesman Steffen Seibert said the finance ministers needed to review the economic reforms before any additional debt relief could be decided on.

(Reporting by George Georgiopoulos and Renee Maltezou; Editing by Mary Milliken and Clarence Fernandez; editing by John Stonestreet)

U.S. employment gains hit seven-month low, labor force shrinks

By Lucia Mutikani

WASHINGTON (Reuters) – The U.S. economy added the fewest number of jobs in seven months in April and Americans dropped out of the labor force in droves, signs of weakness that cast doubts on whether the Federal Reserve will raise interest rates before the end of the year.

Nonfarm payrolls increased by 160,000 jobs last month as construction employment barely rose and the retail sector shed jobs, the Labor Department said on Friday. That was the smallest gain since September and below the first-quarter average job growth of 200,000.

Adding to the report’s weak tone, employers added 19,000 fewer jobs in February and March than previously reported. While the unemployment rate held at 5.0 percent that was because people dropped out of the labor force.

“For those who had thought a June rate hike was in play, this was a nail in the coffin. This raises questions about a September rate hike. I would like to think the economy is in a better place at the end of the year,” said Phil Orlando, chief equity market strategist at Federated Investors in New York.

The stepdown in job gains could temper expectations of a strong rebound in economic activity in the second quarter after growth nearly stalled in the first three months of the year.

Economists polled by Reuters had forecast payrolls rising 202,000 last month and the jobless rate unchanged at 5 percent.

The dollar dropped to session lows against the euro and the yen after the report. Prices for U.S. government debt rose, while U.S. stock index futures fell marginally.

Average hourly earnings were the only bright spot in the employment report, rising eight cents or 0.3 percent last month.

That took the year-on-year increase to 2.5 percent from 2.3 percent in March, still below the 3.0 percent advance that economists say is needed for inflation to rise to the Fed’s 2.0 percent target.

RATE HIKE PROBABILITIES DIMINISHING

The U.S. central bank last month offered a fairly upbeat assessment of the labor market, saying that conditions had “improved further.” The Fed raised its benchmark overnight interest rate in December for the first time in nearly a decade. Fed officials have forecast two more rate hikes for this year.

Market-based measures of Fed policy expectations have virtually priced out an interest rate increase at the Fed’s June 14-15 meeting, according to CME Group’s FedWatch. They see a less than 40 percent probability of rate hikes in September and November, with a 48 percent chance at the December meeting.

The labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job, fell 0.2 percentage point to 62.8 percent. It had increased 0.6 percentage point since dipping to 62.4 percent in September.

The labor force fell by 362,000 as people dropped out in April. The employment-to-population ratio fell to 59.7 percent from a seven-year high of 59.9 percent.

A broad measure of unemployment that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment slipped one-tenth of a percentage point to 9.7 percent last month. The vast private services sector dominated employment gains in April, adding 174,000 jobs. Retail payrolls fell 3,100 after hefty gains in the first quarter, despite sluggish sales.

While information employment was unchanged last month, a Labor Department official said there was no sign that a strike by about 40,000 Verizon workers had impacted the data.

Manufacturing added 4,000 jobs last month after shedding 29,000 in March, the biggest loss for the sector since December 2009.

There were further job losses in mining as the energy sector adjusts to weak profits from a recent prolonged plunge in oil prices. Mining payrolls fell 8,000 last month. Mining employment has decreased by 191,000 jobs since peaking in September 2014, with 75 percent of the losses in support activities.

Gains in construction employment slowed sharply, with the sector adding 1,000 jobs in April, after home building showed some signs of fatigue last month.

(Reporting by Lucia Mutikani; Additional reporting by Richard Leong in New York; Editing by Andrea Ricci)

U.S. Oil industry bankruptcy wave nears size of telecom bust

Dead sunflowers stand in a field near dormant oil drilling rigs which have been stacked in Dickinson, North Dakota

By Ernest Scheyder and Terry Wade

HOUSTON (Reuters) – The rout in crude prices is snowballing into one of the biggest avalanches in the history of corporate America, with 59 oil and gas companies now bankrupt after this week’s filings for creditor protection by Midstates Petroleum and Ultra Petroleum.

The number of U.S. energy bankruptcies is closing in on the staggering 68 filings seen during the depths of the telecom bust of 2002 and 2003, according to Reuters data, the law firm Haynes & Boone and bankruptcydata.com.

Charles Gibbs, a restructuring partner at Akin Gump in Texas, said the U.S. oil industry is not even halfway through its wave of bankruptcies.

“I think we’ll see more filings in the second quarter than in the first quarter,” he said. Fifteen oil and gas companies filed for bankruptcy in the first quarter.

Some oil producers appear to be holding on, hoping the price of crude stabilizes at a higher level. In February, oil slumped as low as $27 a barrel from peaks above $100 a barrel nearly two years ago. U.S. crude has recovered somewhat, and on Tuesday was trading a little below $44 a barrel. [O/R]

Until recently, banks had been willing to offer leeway to borrowers in the shale sector, but lately some lenders have tightened their purse strings.

A widely predicted wave of mergers in the shale space has yet to materialize as oil price volatility makes valuations difficult, and buyers balk at taking on debt loads until target companies exit bankruptcy.

The telecom and energy boom-and-bust cycles have notable parallels. Pioneering technology brought an influx of investment to each industry, a plethora of new, small companies issued high levels of debt, and a subsequent supply glut sapped pricing just as demand fell sharply.

Neither this crash nor the telecom crack-up in the early 2000s rival the housing and financial bust in 2007-2009 in terms of magnitude and economic impact. But losses for energy investors in the stock and bond markets in the last two years are significant. It remains unclear how long it will take to get through the worst of the declines, and who will be left standing when it is over.

A 60 percent slide in oil prices since mid-2014 erased as much as $1.02 trillion from the valuations of U.S. energy companies, according to the Dow Jones U.S. Oil and Gas Index <.DJUSEN>, which tracks about 80 stocks. This has already surpassed the $882.5 billion peak-to-trough loss in market capitalization from the Dow Jones U.S. Telecommunications Sector Index in the early 2000s.

In the debt market, there are also signs that lots of money could be lost this time around, especially in high-yield bonds.

During its boom, U.S. oil and gas companies issued twice as much in bonds as telecom companies did in the latter part of the 1990s through the early 2000s.

Between 1998 and 2002, about $177.1 billion in new bonds were sold in the U.S. telecommunications sector; less than 10 percent were junk bonds. U.S. oil and gas companies sold about $350.7 billion in debt between 2010 and 2014, the peak years of the oil-and-gas boom, with junk bonds making up more than 50 percent of all issuance, according to Thomson Reuters data.

(Reporting by Ernest Scheyder and Terry Wade; Editing by David Gaffen and David Gregorio)

Economies could shrink by mid century due to scarce water

A shrimp farm affected by drought is seen in Bac Lieu province, in the Mekong Delta, Vietnam

By Sebastien Malo

NEW YORK (Thomson Reuters Foundation) – Economies across large swathes of the globe could shrink dramatically by mid-century as fresh water grows scarce due to climate change, the World Bank reported on Tuesday.

The Middle East could be hardest hit, with its gross domestic product slipping as much as 14 percent by 2050 unless measures are taken to reallocate water significantly, the Washington-based institution said in a report.

Such measures include efficiency efforts and investment in technologies such as desalination and water recycling, it said.

Global warming can cause extreme floods and droughts and can mean snowfall is replaced by rain, with higher evaporation rates, experts say.

It also can reduce mountain snow pack that provides water, and the melting of inland glaciers can deplete the source of runoff, they say. Also, a rise in sea level can lead to saltwater contaminating groundwater.

“When we look at any of the major impacts of climate change, they one way or the other come through water, whether it’s drought, floods, storms, sea level rise,” Richard Damania, World Bank lead economist and lead author of the report, told reporters in a telephone conference.

Fresh water shortages could take a toll on sectors from agriculture to energy, the World Bank said.

“Water is of course at the center of life, but it’s also at the center of economic activity,” Damania said.

Water scarcity would not have the same impact worldwide, and Western Europe and North American economies would likely be spared, according to the World Bank models.

But rising economies such as China and India could be hard hit, it said.

In the Sahel belt that stretches across Africa below the Sahara, GDP could well dip some 11 percent with water scarcity, the World Bank said. A similar impact would be felt in Central Asia, it said.

But measures to reallocate fresh water could show gains in some regions, the bank said.

For example, a shift in allocation could lead to GDP growth of about 11 percent by 2050 in Central Asia, the bank said.

The World Bank also advocated pricing water consumption, a proposal that has stirred controversy and is opposed by those who do not think water should not have any price tag.

“If you’re making money out of water, particularly if you’re using a lot of water as a commercial user, then it’s reasonable to suggest that you pay minimally enough to cover the cost of providing you with that water,” Damania said.

“This might well mean free water if you are exceedingly poor,” he said.

About a quarter of the world’s population, or some 1.6 billion people, live in countries where water already is scarce, according to the World Bank.

Last month, 175 nations signed a deal reached last year in Paris to slow global warming and cut greenhouse gas emissions.

(Reporting by Sebastien Malo, Editing by Ellen Wulfhorst. Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers humanitarian news, women’s rights, trafficking, property rights and climate change. Visit http://news.trust.org)

Wall Street Opened Lower on Tuesday with weak Chinese data

By Tanya Agrawal

(Reuters) about the health of the global economy.

Activity at China’s factories shrank for the 14th straight month in April as demand stagnated, a private survey showed.

Australia’s central bank also sprang a surprise by cutting interest rates to a record low of 1.75 percent, the first easing in a year as it seeks to restrain a rising currency and insulate the economy from creeping deflation.

“The negative news out of China and Australia having to stimulate its economy again is spooking the market today,” said Peter Cardillo, chief market economist at First Standard Financial in New York.

“The market is in the midst of a pullback and nervous about lower growth, which might mean weaker earnings in the coming quarters.”

At 9:39 a.m. ET (1339 GMT) the Dow Jones industrial average was down 130.46 points, or 0.73 percent, at 17,760.7, the S&P 500 was down 14.51 points, or 0.7 percent, at 2,066.92 and the Nasdaq Composite was down 32.71 points, or 0.68 percent, at 4,784.88.

Nine of the 10 major S&P sectors were lower, with the energy index’s 1.48 percent fall leading the decliners.

Oil prices fell as rising output from the Middle East and North Sea renewed concerns about a global supply overhang. [O/R]

The S&amp 500 has jumped 14 percent since mid-February, helped by recovering oil prices and an accommodative Federal Reserve. However, the index faltered last week, weighed down by lackluster earnings and mixed economic data.

Although first-quarter earnings from S&P 500 companies have mostly beaten analysts’ expectations, they are still expected to fall 5.7 percent from a year earlier, according to Thomson Reuters data.

The Fed, which held monetary policy steady last week, is focusing on data, while keeping the door open for a rate hike in June.

The United States could see two further interest rate hikes this year but uncertainties abound including the impact on the economy should Britain vote to leave the European Union, Atlanta Fed President Dennis Lockhart said on Tuesday.

Still, traders are pricing in only one rate hike at the end of the year.

Investors will be keeping an eye on unemployment numbers at the end of the week for signs confirming that the labor market continues to gain in strength.

Shares of drugmaker Pfizer were up 2.2 percent at $33.50 after the company reported a rise in quarterly revenue.

American International Group fell 2.3 percent to $55.22 after reporting a lower-than-expected profit for the third straight quarter.

Declining issues outnumbered advancing ones on the NYSE by 2,217 to 485. On the Nasdaq, 1,729 issues fell and 568 advanced.

The S&amp 500 index showed five new 52-week highs and one new low, while the Nasdaq recorded seven new highs and 16 new lows.

(Reporting by Tanya Agrawal; Editing by Anil D’Silva)

U.S. Construction spending rises to 8 1/2 year high

Construction is seen on a new housing development along the riverfront in Detroi

WASHINGTON, May 2 (Reuters) – – U.S. construction spending rose to an 8-1/2-year high in March and the prior month’s outlays were revised higher, pointing to sustained strength in the sector despite a sharp downturn in spending by energy firms.

Construction spending increased 0.3 percent to the highest level since October 2007, following an upwardly revised 1.0 percent jump in February, the Commerce Department said on Monday.

Economists polled by Reuters had forecast construction spending rising 0.5 percent in March after a previously reported 0.5 percent decline in February.

Construction outlays were up 8.0 percent from a year ago.

Though February’s outlays were revised higher, construction spending for January was revised down to show a 0.3 percent drop instead of the previously reported 2.1 percent increase.

A drop in nonresidential construction investment helped to hold down economic growth to a meager 0.5 percent annualized rate in the first quarter. Much of the weakness in spending on nonresidential structures reflected relentless aggressive spending cuts in the energy sector, which is reeling from last year’s plunge in oil prices.

In March, construction spending was supported by a 1.1 percent surge in private construction, which hit its highest level since October 2007. Outlays on private residential construction increased 1.6 percent. Spending on private nonresidential structures, which also includes factories and offices, advanced 0.7 percent to the highest level since October 2008.

Public construction outlays fell 1.9 percent in March as outlays on state and local government construction projects, the largest portion of the public sector segment, declined 1.4 percent. Federal government construction spending tumbled 7.4 percent in March.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

Fed’s Kaplan says may back June or July rate rise

A guard walks in front of a Federal Reserve image before press conference in Washington

By David Milliken and Marc Jones

LONDON (Reuters) – Dallas Federal Reserve President Robert Kaplan said on Friday that he could back a rise in U.S. interest rates as soon as June or July, if U.S. economic data firms up as he expects.

Kaplan, who does not currently vote this year on the Federal Open Market Committee, said interest rates should rise gradually but that financial markets had underestimated the Fed’s readiness to follow December’s rate rise with another move.

“We’ll see how the second quarter unfolds but I think the market may well be underestimating how soon we might move next,” Kaplan said at an event in London hosted by think-tank OMFIF.

“If the second-quarter data is firming you will see me advocating in the not too distant future that we try to take the next step. We will see what meeting, whether that means June or July or what else. I’d like to see it happen,” he told reporters after.

The Fed kept rates on hold at 0.25-0.5 percent this week and signaled it was in no rush to raise them again soon, citing slowing economic activity despite an improved labor market.

The message pushed the dollar sharply lower and helped drive oil prices to their highest so far this year.

For economists it also added to a feeling that has been growing since the start of the year that U.S. rates may not be set to diverge from those in Europe and Japan as much as many had predicted.

Kaplan’s remarks were the first from a U.S. policymaker after this week’s Fed rate decision, and appeared calculated to drive home a more hawkish message on rates.

If GDP growth rebounds this quarter, as expected, “I personally will be moving toward advocating some removal of accommodation sooner rather than later,” Kaplan said in a Bloomberg TV interview after his speech.

“I will also advocate that we take these steps in a gradual and patient manner,” he said, expressing a cautious view on normalizing rates held widely at the Fed.

LOWER PEAK

Kaplan also said he expected rates to peak at a lower level than seen historically.

In forecasts released last month, all but one of the Fed’s 17 policymakers said they believe it will be appropriate to raise rates at least twice this year. Traders are betting on just one hike.

The Fed raised rates last December for the first time in nearly a decade but has kept them unchanged since then over worries about global growth and low inflation.

Kaplan forecast U.S. gross domestic product growth this year at 2.0 percent, slightly faster than he projected last month.

U.S. employers can continue to add jobs at a “healthy” pace without overheating the economy, largely because of a global labor surplus putting downward pressure on inflation, he said.

But Kaplan also expressed confidence that inflation, which has undershot the Fed’s 2.0 percent target for years, will return to that level over the medium term as the downward pressure from a strong U.S. dollar and cheap oil abates.

He told reporters he would be looking to see whether other economic indicators caught up with measures of a labor market that was rapidly closing in on full employment.

“It’s going to have to get reconciled one way or the other. It’s either going to happen with the PCE (inflation) and other numbers firming, or other numbers weakening,” he said.

“We still believe the consumer in the U.S. is strong and has the capacity to be spending.”

The state of the debate ahead of Britain’s June 23 referendum on whether to stay in the European Union could also affect Kaplan’s view about a Fed hike on June 15.

Sterling could suffer a “sudden depreciation” if Britain left the EU, he said, with ripple effects for the world economy.

(Reporting by Marc Jones, David Milliken and Ann Saphir; Editing by Clive McKeef and James Dalgleish)

EU not fully prepared to deal with failing banks

EU flags flutter outside the EU Commission headquarters in Brussels

By Francesco Guarascio

BRUSSELS (Reuters) – The European Union still has work to do to prepare for handling bank collapses in the event of a new financial crisis, EU officials said on Friday, urging member states to agree on pooling more resources to weather future storms.

Following the euro zone debt and banking crisis, EU countries have designed a banking union meant to strengthen lenders’ financial stability, but have not brought the plan to completion yet.

During the 2008-12 financial crisis euro zone countries paid billions of euros to rescue failing lenders who were exposed to risky financial products.

“There is still lots to be done to make sure that we are in the best possible position to resolve a failing bank,” EU Financial Services Commissioner Jonathan Hill said on Friday before praising the progress achieved since the last financial crisis in making the European banking system more stable.

A key new instrument to prevent banking crisis is the upfront drafting of resolution plans for the main euro zone banks, so that when a lender is on the verge of collapse it can be rescued in a short timeframe, ideally in a weekend.

The Single Resolution Board, a new EU banking body, is in charge of preparing these plans but only some of them are already available.

“We have come a long way, but we are not there yet. We do not have these plans yet for all banks, but we are getting there,” SRB member Joanne Kellermann told a conference on Friday.

The head of the economic affairs committee of the European Parliament Roberto Gualtieri urged the SRB to have resolution plans ready by the end of the year for all banks under its remit.

Kellermann said she was confident that plans will be ready for the majority of major euro zone banks, assuring that the SRB would be able to deal with possible crisis, if they emerged.

POOLING RESOURCES

As part of the banking union, euro zone states have agreed on common supervision of the bloc’s banks and have set up the Single Resolution Fund (SRF) to rescue ailing lenders, but have failed to agree on a financial backstop to support the SRF in its early years.

“We need to provide a credible long-term backstop for the single resolution mechanism,” Hill said.

In a document addressed to EU finance ministers in April, France and Italy have called for the euro zone bailout fund, the European Stability Mechanism, to provide financial support to the SRF. The ESM has a lending capacity of 500 billion euros.

Euro zone countries are also divided on setting up a European deposit insurance scheme (EDIS), designed to be the third and last pillar of the banking union.

National deposit insurance schemes are in place in EU states to underwrite savings of up to 100,000 euros ($114,040) if domestic lenders fail, as required by EU rules.

But national schemes may prove insufficient to deal with multiple failures.

“EDIS would make banks better protected if there were larger local shocks,” Hill said.

Despite strong backing from all EU institutions and many states, the plan is not taking off because of German opposition, as Berlin fears that its wealthier deposit guarantee funds may be used to rescue savers in other countries.

(Editing by Philip Blenkinsop and Ed Osmond)

Americans filing for unemployment benefits bouncing back

ob applicants await their turn at the Lockheed Martin booth at "Hiring Our Heroes" military job fair in

WASHINGTON, (Reuters) – The number of Americans filing for unemployment benefits bounced back from a 42-1/2-year low last week, but the underlying trend remained consistent with tightening labor market conditions.

Initial claims for state unemployment benefits increased 9,000 to a seasonally adjusted 257,000 for the week ended April 23, the Labor Department said on Thursday.

Claims for the prior week were revised to show 1,000 more applications than previously reported.

Economists polled by Reuters had forecast claims rising to 260,000 in the latest week. Jobless claims have now been below 300,000, a threshold associated with healthy labor market conditions, for 60 weeks, the longest stretch since 1973.

A Labor Department analyst said there were no special factors influencing last week’s claims data and no states hadbeen estimated.

The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell 4,750 to 256,000 last week, the lowest since December 1973.

The number of people still receiving benefits after an initial week of aid decreased 5,000 to 2.13 million in the week ended April 16, the lowest since November 2000.

The four-week average of the so-called continuing claims declined 10,500 to 2.16 million, the lowest reading since November 2000. The continuing claims data covered the survey week for April’s unemployment rate.

The four-week average of continuing claims fell 47,750 between the March and April survey periods, suggesting an improvement in the unemployment rate. The jobless rate was at 5.0 percent in March.

(Reporting By Lucia Mutikani; Editing by Andrea Ricci)

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