Global Housing Shortages Are Crushing Immigration-Fueled Growth

Economic

Summary:

Households go backwards in 13 developed economies as record immigration runs into a housing crisis.

Across much of the developed world, one of the most dependable drivers of economic growth is faltering.

For decades, the rapid inflow of migrants helped countries including Canada, Australia and the UK stave off the demographic drag from aging populations and falling birth rates. That’s now breaking down as a surge of arrivals since borders reopened after the pandemic runs headlong into a chronic shortage of homes to accommodate them.

Canada and Australia have escaped recession since their Covid contractions, but their people haven’t with deep per-capita downturns eroding standards of living. The UK’s recession last year looked mild on raw numbers but was deeper and longer when measured on a per-person basis.

All up, thirteen economies across the developed world were in per-capita recessions at the end of last year, according to exclusive analysis by Bloomberg Economics. While there are other factors — such as the shift to less-productive service jobs and the fact that new arrivals typically earn less — housing shortages and associated cost-of-living strains are a common thread. Global Housing Shortages Are Crushing Immigration-Fueled Growth_1

Global Housing Shortages Are Crushing Immigration-Fueled Growth_1

So is the immigration-fueled economic growth model doomed? Not quite.

In Australia, for instance, the inflow of roughly one million people, or 3.7% of the population, since June 2022 helped plug a chronic shortages of workers in industries such as hospitality, aged care and agriculture. And in the UK — an economy near full employment — arrivals from Ukraine, Hong Kong and elsewhere have made up for a lack of workers after Brexit.

Skills shortages across much of the developed world mean more, not fewer, workers are needed. Indeed, the US jobs market and economy are running hotter than many thought possible as an influx of people across the southern border expands the labor pool — even as immigration shapes up as a defining issue in the November presidential election.

Global Housing Shortages Are Crushing Immigration-Fueled Growth_2

While the US has seen a widely-covered surge in authorized and irregular migration, the scale of the increase actually pales in comparison to Canada’s growth rate. For every 1,000 residents, the northern nation brought in 32 people last year, compared with fewer than 10 in the US.

Put another way: Over the past two years, 2.4 million people arrived in Canada, more than New Mexico’s population, yet Canada barely added enough housing for the residents of Albuquerque.

Canada’s experience shows there’s a limit to immigration-fueled growth: Once new arrivals exceed a country’s capacity to absorb them, standards of living decline even if top-line numbers are inflated. The Bank of Nova Scotia estimates a productivity-neutral rate of population growth is less than a third of what Canada saw last year, which would be more in line with the US pace.

So even as that record population growth keeps Canada’s GDP growing, life is getting tougher, especially for younger generations and for immigrants such as 29-year-old Akanksha Biswas.

Biswas arrived in Canada in the middle of 2022, just as per-capita GDP started plunging amid the start of the post-pandemic immigration boom and the Bank of Canada’s aggressive interest-rate tightening cycle.

The former Sydneysider moved to Toronto for what she believed would be a better life with a lower cost of living and greater career prospects. Instead, she faced higher rent, lower pay and limited job opportunities.

“I actually had a completely different picture in my mind about what life would be like in Toronto,” said Biswas, who works in advertising. “Prices were almost similar, but there’s a lot more competition in the job market.”

Canada’s working-age population grew by a million over the past year but the labor market only created 324,000 jobs. The upshot: The unemployment rate rose by more than a full percentage point, with young people and newcomers again the worst hit.

Global Housing Shortages Are Crushing Immigration-Fueled Growth_3

Biswas spends more than a third of her income on the monthly rent bill of C$2,800 ($2,050), splitting the cost with her partner. She’s dining out less and making coffee at home instead of going to the cafe. She’s also pushing back plans to have children or buy a home.

“I don’t see my future here if I want to raise a family,” she says.

Global Housing Shortages Are Crushing Immigration-Fueled Growth_4

While millions of Americans also face a housing affordability crisis, their real disposable income growth has stayed above the rise in home prices over much of the past two decades. Not so in Canada. The median price for homes in Toronto is now C$1.3 million, nearly three times that of Chicago, a comparable US city.

The chronic underbuilding of homes and decades of continuous rises in prices has drained funds from other parts of the economy toward housing. That lack of investment in capital — combined with firms’ focusing instead on expanding workforces due to cheaper labor costs — has driven down productivity, which the Bank of Canada says is at “emergency” levels.

Growing anxiety around the housing crunch forced Prime Minister Justin Trudeau’s government to scale back on its immigration ambitions, halting the increase of permanent resident targets and putting a limit on the growth of temporary residents for the first time.

Canada’s goal is now to cut the population of temporary foreign workers, international students and asylum claimants by 20%, or roughly by half a million people, over the next three years. That’s expected to slash the annual population growth rate by more than half to an average of 1% in 2025 and 2026.

Meantime, Biswas and her partner are calling it quits on their Canada experiment and moving to Melbourne, where they reckon they can afford a two-bedroom apartment for less than what they paid for a one-bedroom space in Toronto.

But life won’t be easy Down Under either as many of the same strains are playing out, with Australia facing its worst housing crisis in living memory.

Building permits for apartments and town houses are near a 12-year low and there remains a sizable backlog of construction work, largely due to a lack of skilled workers. The government has tried to plug the labor supply gap by boosting the number of migrants, only to find that’s making the problem even worse.

Just like Canada’s experience, the ballooning population is not only exacerbating housing demand, it’s also masking the underlying weakness in the economy.

GDP has expanded every quarter since a short Covid-induced recession in 2020, yet on a per-capita basis, GDP contracted for a third consecutive quarter in the final three months of 2023 — the deepest decline since the early 1990s economic slump.

In absolute terms, Australia’s per-capita GDP is now at a two-year low — a “material under-performance” versus the US and an outcome that could spur higher unemployment, according to Goldman Sachs Group Inc.

Angst about the lack of housing, soaring rents and surging home prices has prompted Anthony Albanese’s ruling Labor government to crack down on student visas.

“It has been proven over many many years that there’s a positive to Australia from a high migration intake,” said Stephen Halmarick, chief economist at the nation’s biggest lender Commonwealth Bank of Australia. “But in the very near term, you can see that it’s putting upward pressure on rents, house prices and clearly that’s a concern for many and the demand for some services is seeing sticky inflation.”

Neighboring New Zealand is grappling with a similar headache.

The government there last month made immediate changes to an employment visa program, introducing an English-language requirement and reducing the maximum continuous stay for a range of lower-skilled roles, citing “unsustainable” net migration. The changes were part of a plan to “create a smarter immigration” that is “self-funding, sustainable and better manages risk,” Immigration Minister Erica Stanford said in the statement at the time.

Calvin Jurnatan, 30, moved to Sydney from Indonesia in December to study construction design as a gateway to becoming a permanent resident. Months later, he still doesn’t have a job. One reason is that migrants face long and expensive processes to get their qualifications recognized.

Global Housing Shortages Are Crushing Immigration-Fueled Growth_5

Jurnatan’s failure to find a part-time role in construction comes despite the sector being high on the skills shortage list, especially after the government set an ambitious goal of building 1.2 million new homes by 2029. That target looks increasingly unachievable, industry players say.

Frustrated, Jurnatan has stopped looking for construction jobs and is instead scouting the retail sector where roles are easier to find. He’s doing some freelance photography to eke out a living and says he wouldn’t recommend Australia to his family and friends back home.

“People are struggling,” he said. “I’m struggling. It’s not cheap and everyone needs to work really, really hard here. So, when people call me and ask, ‘hey, how is living in Sydney right now?’ I tell them the truth.”

Independent think tank the Committee for Economic Development of Australia found in a recent report that the hourly wage gap between recent migrants and Australian-born workers increased between 2011 and 2021. On average, migrants who have been in Australia for 2 to 6 years earn more than 10% less than similar Australian-born workers.

“There are big costs from not making the best use of migrants’ skills,” according to CEDA’s senior economist Andrew Barker.

Over in Europe, its largest economy, Germany, also saw a per-capita recession that comes against a backdrop of rising political tensions over a large number of asylum seekers, housing shortages and a misfiring economy. Bloomberg Economics analysis shows that France, Austria and Sweden are also among those who have suffered per-capita recessions.

Global Housing Shortages Are Crushing Immigration-Fueled Growth_6

In Britain, too, record levels of migration have begun to weigh on the economy. A technical recession in the second half of last year saw headline GDP slip 0.4%, yet the slump was longer and deeper when adjusted for population. Per-capita GDP has contracted 1.7% since the start of 2022, falling in six out of the seven quarters and stagnating in the other.

With Britain close to full employment and over 850,000 dropping out of its workforce since the pandemic, immigration has helped employers fill widespread worker shortages, not least in the health and social care sectors.

“A very good bit of the growth that we saw through the 2010s was down to net migration,” said Paul Johnson, director of the Institute for Fiscal Studies. “In terms of the overall size of the economy, it’s been really important. What’s really hard to say is what impact the net immigration has had on the per-capita numbers.”

Global Housing Shortages Are Crushing Immigration-Fueled Growth_7

UK GDP has expanded 23% since the start of 2010. On a per-person basis, growth in output has been far less impressive at 12%.

Over the same period, the population has surged, growing an estimated 11%, or almost 7 million, to 69 million. The Office for National Statistics expects it to hit close to 74 million in 2036 in updated population projections that now predict faster growth. Over 90% of the increase in the population expected between 2021 and 2036 will come from migrants, it said in January.

“If we hadn’t had such high immigration, housing would be cheaper than it is at the moment, possibly quite significantly,” Johnson said. “But the converse of that is that the problem has been that we simply haven’t built enough houses, given what we know is happening to the size of the population.”

The UK’s post-Brexit immigration system aimed to stop cheap labor from Europe and prioritize high-skilled workers. However, the government allows some foreign workers easier access if they are in shortage-hit sectors.

Global Housing Shortages Are Crushing Immigration-Fueled Growth_8

“Those shortages really are pretty much always caused by poor paying conditions, although the employers will tell you it’s all skills,” said Alan Manning, labor market economist at the London School of Economics. “Then they start complaining about ‘we can’t afford higher wages and so we have to have migrants so we can keep our existing wages.’”

The growing pressures on housing and stretched public services are prompting a backlash among voters against Rishi Sunak’s ruling Conservative government ahead of a general election expected later this year. It has hemorrhaged support to the right-wing populist Reform UK party, which is promising “net zero immigration,” while the Tories are polling in single digits among 18- to 24-year-olds who put housing as their second-most important issue.

The opposition Labour party has promised a “blitz” of planning reforms to unlock construction, as well as restraint on immigration as it heads toward what’s widely anticipated to be a sweeping election victory.

Global Housing Shortages Are Crushing Immigration-Fueled Growth_9

A shortage of properties for the bigger population has sent house prices to over eight times average earnings in England and Wales, and 12 times in London. In 1997, they were 3.5 times earnings and four times, respectively. A lack of supply has also caused rental costs to rocket at a record pace in the last 12 months, worsening a cost-of-living crisis for young Britons especially.

Official figures show that 234,400 homes were added to the UK housing supply in 2022-23, well below the levels needed to meet huge demand and the 300,000-a-year target the Tories promised to reach by the mid-2020s at the last election.

Global Housing Shortages Are Crushing Immigration-Fueled Growth_10

“If we’re looking to grow GDP by throwing more people at it, then we need more housing,” said Peter Truscott, chief executive of FTSE 250 housebuilder Crest Nicholson.

However, UK housebuilders and the government have struggled to boost construction of new homes to the levels needed. A restrictive planning system has been used by Nimbys — “not in my back yard” — to block local developments and efforts to overhaul the system by the ruling Conservatives were scuppered by concerns of a backlash in their rural southern heartlands.

“We have a completely utterly dysfunctional planning system in the UK,” said Truscott. “Forty years in house building, it’s never been so bad, and the rate of decline in planning has been quite incredible over the last couple of years.”

While encouraged by Labour plans, he cautions that it will take two parliamentary terms to make a difference as supply chain constraints will prevent an instant “flood” of new homes.

The longer voters in the UK, Australia, Canada and similar economies see their living standards go backwards, the more their opposition to rapid immigration programs will harden. A lasting fix requires government policies, especially in housing, that convince both would-be migrants and the existing populations of the benefits of immigration-led economic growth.

Source：Bloomberg

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Add to Favorites

Cohen

Economic

Doubling down on his contrarian view, Citi chief U.S. economist Andrew Hollenhorst told Bloomberg TV on Thursday that he sees a hard landing. In fact, inflation and the labor market will weaken enough that the Federal Reserve will cut benchmark rates four times this year—far more than the one or two cuts Wall Street expects.

His warning proved prescient as the Labor Department's payroll report the following day showed that the economy added 175,000 jobs in April, down sharply from the blockbuster increase of 315,000 in March and well below the 233,000 gain that economists had predicted.

On Thursday, Hollenhorst said other data have been signaling weakness in the labor market, including surveys of consumers and businesses that say jobs are getting harder to find, companies are less eager to hire, and employees are feeling more worried about keeping their jobs.

To be sure, data in recent weeks have offered mixed signals on the economy. The latest employment cost index rose more than expected, suggesting a strong job market. Meanwhile, the first-quarter GDP report showed growth cooled more sharply than anticipated. But that was due largely to a wider trade deficit and slower inventory restocking, while consumer demand remained robust.

But Hollenhorst is convinced there won't be a soft landing, and said financial markets are starting to move away from that hope as well.

“The reason I think the Fed's going to see enough to cut is because we're more toward the hard landing end of the spectrum,” he told Bloomberg TV.

Meanwhile, the Fed won't wait for both inflation and the labor market to weaken before cutting rates, he noted. It only needs to see one or the other.

When asked if his view for four rate cuts this year also means that they wouldn't provide enough economic stimulus to stave off a hard landing, Hollenhorst said almost every monetary policy cycle has played out that way.

“We're in the higher-for-longer stage of the policy cycle,” he explained, noting that stubborn inflation has prevented rates from coming down. “The next stage of the policy cycle is a weakening of the labor market. Once it starts gradually weakening, it then weakens more sharply. I think that's exactly what's playing out now.”

In February, even amid blowout jobs reports, Hollenhorst was warning about a harding landing and told CNBC that he expected a recession by the middle of this year.

Looking past the upbeat headline jobs numbers, he said there were signs of softness, such as the number of hours worked and the number of full-time jobs dropping.

Source: Fortune

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

FastBull Featured

Data Interpretation

At 8:30 a.m. (ET) on May 3, the U.S. Bureau of Labor Statistics released its latest report on nonfarm payrolls:

U.S. nonfarm payroll employment increased by 175,000 in April, lower than the expected 243,000 and the previous 315,000 (revised).

The U.S. unemployment rate came in at 3.9% in April, slightly above the expected and the previous 3.8%.

U.S. average hourly earnings rose by 3.9% over the past 12 months, compared to expectations of 4% and the previous 4.1%.

Total nonfarm payroll employment increased by 175,000 in April, lower than the average monthly gain of 242,000 over the prior 12 months. The change in total nonfarm payroll employment for February was revised down by 34,000, to +236,000, and the change for March was revised up by 12,000, to +315,000. Job growth slowed in the leisure and hospitality, construction and government sectors. Employment declined in motor vehicle and parts dealers and temporary help services sectors. Job gains occurred in health care, transportation and retail trade.

The unemployment rate was 3.9% in April, with 6.5 million unemployed, little changed from the previous reading, and the rate has remained in the 3.7%-3.9% range since August 2023.

The labor force participation rate remained unchanged at 62.7% in April, and the employment-to-population ratio was little changed at 60.2%. The measures have shown little change over the year. The number of people employed part-time for economic reasons, at 4.5 million, changed little in April.

In April, average hourly earnings for all employees on private nonfarm payrolls increased by 7 cents, or 0.2%, to $34.75. Over the past 12 months, average hourly earnings have increased by 3.9%. It was the lowest growth rate since June 2021.

The latest nonfarm payroll data suggests that the U.S. labor market is now slowing down somewhat after strong growth earlier in the year. The market's reaction shows that the current non-farm payrolls boosted expectations for a rate cut. However, the data's soft across the board from the Fed's perspective, which is what really matters here and an unemployment rate of 3.9% is not something disastrous. This indicates an economy that is not declining dramatically, but it definitely indicates a looser labor market. The Fed is looking for data points that pull them back away from the long period of tightening. The one caveat would be that the labor market reports are notoriously fickle and what we see this month might not be what we turn around and see next month. It gives the Fed some hope, but it does not establish the trend for them.

U.S. Treasury yields and the U.S. dollar both fell and stock index futures rose after the report was released. Swap contracts resumed expectations for two 25bp rate cuts by the Fed in 2024. Traders expected the Fed's first rate cut to occur in September compared with November previously. The likelihood of a September cut has increased to over 50%.

U.S. April Nonfarm Payrolls Report

Risk Warnings and Disclaimers

Add to Favorites

Samantha Luan

Economic

Commodity

Oil prices have recorded the biggest weekly decline in three months thanks in large part to challenging economic indicators and growing demand concerns. Last week, U.S. crude inventories posted an unexpected rise, with the American Petroleum Institute (API) reporting a build of 4.91 million barrels, a sharp contrast from the anticipated decrease of 1.1 million barrels. This build has come after reports that U.S. crude production surged to 13.15 million barrels per day in February, up from 12.58 million barrels in January, suggesting supply is outpacing demand.

But it’s not just bearish crude oil metrics driving the oil price decline. The EIA has provided an initial estimate that U.S. gasoline demand declined 4.4% Y/Y in April, a negative sign for oil bulls that has triggered a rapid pivot by speculative funds towards the short side of the market. However, commodity analysts at Standard Chartered have argued that the demand pessimism is overblown. According to StanChart, there appears to be a systemic downwards bias in the weekly estimates of U.S. fuel demand, with actual gasoline demand exceeding estimates in 22 of the past 24 months, while distillate demand (mainly diesel) has been revised higher in all of the past 24 months. The analysts point out that last September, the EIA put gasoline demand at 8.014 million barrels per day (mb/d), a stark contrast from the 9.465 mb/d recorded for in September 2022. Across the whole month, the EIA data implied a y/y demand drop of 5.6%, eliciting talks of demand destruction with some experts contending that demand was at its weakest since 1999. However, it later turned out that actual gasoline demand only fell 0.4% Y/Y, far milder than the EIA estimate of a 5.6% decline. StanChart believes the EIA’s estimate for April gasoline demand is too low with actual demand likely to be surprise to the upside.

Oil Demand Likely To Surprise To The Upside_1

May & June Critical To Oil Fundamentals

Weekly data by the Energy Information Administration (EIA) reveals U.S. crude stockpiles shot up to 7.3 million barrels for the week to April 26, a sharp swing from a draw of 6.4 million barrels posted the previous week marking the highest inventory levels since last June. Adding to the bearish data are expectations that the Fed will keep its benchmark federal-funds rate unchanged at around 5.3% as inflation appears to have reversed course.

However, Standard Chartered has predicted that global oil markets will record the biggest stock draws in the first half of 2024 in May and June, implying we have entered a key period for oil fundamentals that will determine whether the market will tighten further or disappoint. StanChart says to watch global oil demand closely, predicting demand will hit an all-time high of 103.1 mb/d in May and increase further to 103.8 mb/d in June. The analysts have also predicted a y/y demand growth of 1.62 mb/d in May and 1.74 mb/d in June.

Meanwhile, OPEC+ is set to hold its next ministerial meeting on June 1 in Vienna. StanChart’s model shows that the organization has ample room to increase output by over 1 mb/d in Q3 without negatively impacting global inventories. However, analysts have pointed out that OPEC is unlikely to make any drastic moves when it meets in June because it won’t have full information on whether the expected H1 tightening was fully delivered. Given this backdrop, StanChart sees the global supply deficit exceeding 2 mb/d in August if production stays at current levels, noting the markets are yet to price in the potential deficit.

In contrast to oil markets, natural gas markets have suddenly turned bullish thanks to EU mulling cutting off more Russian gas as well as a late cold snap in Europe forcing EU gas inventories to reverse course. TotalEnergies (NYSE:TTE) CEO Patrick Pouyanne has predicted that natural gas and LNG prices will spike after the EU sanctions Russian gas from the Yamal LNG project. Henry Hub prices are up 4.7% in Friday’s intraday session and have gained 24.4% over the past week to trade at $2.14/MMBtu. However, it’s going to be interesting to see whether these gains will hold considering that experts still expect Europe’s spare storage capacity to become constrained in late summer, although the cold snap has pushed back the timing of the tightness by about three weeks.

Source:oilprice

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Thomas

Economic

Commodity

Energy

In the lowest growth since 2020, demand is likely to rise 340,000 barrels per day (bpd), to stand at 26.5 million bpd this year, says consultancy Wood Mackenzie, down from growth of 700,000 bpd last year, as China nears the point of peak transport fuel demand and the U.S. has surpassed it.

"Penetration of electric vehicles has been increasing in U.S. and China," said Woodmac analyst Sushant Gupta.

"For this year Chinese demand will grow by only 10,000 bpd, due to higher EV uptake."

Consultancy Rystad Energy pegs global gasoline demand at about 26 million bpd in 2024, up about 300,000 bpd from growth of about 700,000 bpd in 2023, fuelled by the consumption boom after the pandemic, said analyst Mukesh Sahdev.

China, once the world's driver of gasoline demand, is expected to account for more than half of all EV sales this year, the International Energy Agency has said.

Gasoline consumption by the world's largest crude importer is set to grow by about 1.3%, or about 2 million tons, to 165.1 million metric tons (3.8 million bpd) this year, forecasts by a research arm of China National Petroleum Corp (CNPC) show.

The research arm of China's biggest refiner, Sinopec, expects gasoline demand to rise by 1.7%, or about 3 million tons, to stand at 182 million tons this year.

As falling prices spur demand, the share of electric cars sold this year could reach 45% in China, about 25% in Europe and more than 11% in the United States, the IEA estimates.

By comparison, booming car sales, along with high economic growth and low EV penetration, are driving gasoline demand in India and Indonesia.

India's petrol consumption will hit a fresh record of 39.2 million tons (908,000 bpd) in the year to March 2025, up about 5% from 37.2 million tons in the year to March 2024, government estimates showed.

MARGIN PRESSURE

U.S. gasoline consumption fell to about 376 million gallons per day (8.94 million bpd) in 2023 after hitting a record 392 million gallons in 2018, according to the U.S. Energy Information Administration.

Demand in 2024 is expected to be flat, analysts said.

As a result, U.S. refining margins are expected to stay under pressure after the peak summer driving season, Woodmac and Rystad analysts said.

In Europe, gasoline demand will grow by 50,000 bpd or 2.3% in 2024 to 2.19 million bpd, in line with recent years, FGE said.

Stagnant European petrol demand and rising competition from Nigeria's new Dangote refinery, the largest in Africa and Europe that could add 280,000-300,000 bpd of gasoline to global balances, will put European refining margins under pressure, Woodmac said.

Gasoline margins across the United States and Asia have gained 85% this year, to stand at about $29 from a barrel of WTI crude on May 1 and 29% and about $13 from a barrel of Brent crude on April 30, respectively, on expectations of robust summer demand, LSEG data showed.

Margins gained strength early this year due to scattered refinery outages in Asia and the U.S., while higher freight costs due to attacks on Red Sea shipping and Russian energy infrastructure supported European gasoline markets.

Eurobob gasoline was worth around $23 from a barrel of Brent crude on May 1, up from the $19.67 average in April last year, the data showed.

Source: Reuters

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

FastBull Featured

Remarks of Officials

Fed Governor Michelle Bowman delivered a speech on May 3, the main content of which is as follows.

We have not seen further progress over the first quarter of this yea. The 12-month measures of total and core personal consumption expenditures (PCE) inflation have moved roughly sideways since December. With the latest core PCE inflation well above average inflation in the second half of last year, I expect inflation to remain elevated for some time. The recent pickup seems to be evident across many goods and services categories.

Economic activity has remained strong over the first three months of this year. Consumer spending on services remained robust, and residential activity and business investment in equipment and intangibles strengthened. Payroll employment has increased at a strong pace through April this year, partly reflecting increased immigrant labor supply. The labor market remained tight, with the unemployment rate remaining below 4%, and the number of job openings relative to unemployed workers is still above its pre-pandemic level. Wage growth has remained higher than the pace consistent with our 2% inflation goal.

The current stance of monetary policy is restrictive, and my baseline outlook continues to be that inflation will decline further with the policy rate held steady, but I still see a number of upside inflation risks, including that spillovers from regional conflicts could disrupt global supply chains and the loosening in financial conditions and additional fiscal stimulus could add momentum to demand. Finally, there is a risk that strong consumer demand for services, increased immigration, and continued labor market tightness could lead to persistently high core services inflation. Given the current low inventory of affordable housing, the inflow of new immigrants to some geographic areas could result in upward pressure on rents.

In light of these risks, and the general uncertainty regarding the economic outlook, I will continue to watch the data closely as I assess the appropriate path of monetary policy. I remain willing to raise the federal funds rate at a future meeting should the incoming data indicate that progress on inflation has stalled or reversed.

Bowman's Speech

Risk Warnings and Disclaimers

Add to Favorites

Cohen

Economic

China's services activity expansion slowed a touch amid rising costs, but growth in new orders accelerated and business sentiment rose solidly in a boost to hopes of a sustained economic recovery, a private sector survey showed on Monday.

The Caixin/S&P Global services purchasing managers' index (PMI) eased to 52.5 from a 52.7 in March, remaining in expansionary territory for the 16th straight month. The 50-mark separates expansion from contraction.

The world's second-largest economy grew faster than expected in the first quarter but it is still facing a host of challenges including a prolonged property slump and lacklustre domestic demand.

"The strong start to the year is consistent with the Caixin manufacturing and services PMIs, which have remained in expansionary territory for several straight months," said Wang Zhe, Senior Economist at Caixin Insight Group.

Overall new business hit the highest since May last year, while better overseas demand and growth in tourism activity helped propel growth in new export orders to their fastest pace in ten months.

That in turn helped lift business confidence among Chinese service providers in the 12 months ahead to the highest this year.

Companies did continue to face some cost pressure, with input price rises for material, labour and energy though the uptick remained below the long-run survey average. That led firms to increase prices charged to their customers, while they remained reluctant to fill vacancies created by departures.

"Consistent efforts should be made to ensure earlier policies are implemented effectively and promptly, maintaining the current economic recovery momentum and eventually improving overall market expectations," Wang said.

Economists say the Caixin survey is skewed more towards smaller, export-led firms than the much broader official PMI, which showed a sharp slowdown in services sector activity for last month.

The Caixin/S&P's composite PMI, which tracks both the services and manufacturing sectors, rose to 52.8 last month from 52.7 in March, marking the fastest pace since May in 2023.

China's economy has struggled to mount a solid post-COVID revival, mainly due to the ripple effects on confidence and demand stemming from a prolonged property sector crisis.

While pockets of strength in the first quarter GDP report raised hopes of a steady recovery through the rest of the year, the general consensus among economists is that a robust revival is some way off.

Investors and analysts say China's structural reform efforts must go hand-in-hand with greater stimulus measures to foster a stronger and sustainable economic recovery.