Tag: Economy

Categories
Business

‘The economic system is braking exhausting,’ says billionaire Barry Sternlicht

The US economy is slowing down sharply, says Barry Sternlicht of Starwood Capital

The US economy is teetering on the brink of a serious downturn if the Federal Reserve doesn’t put the brakes on its rate hikes, said billionaire CEO Barry Sternlicht.

The central bank has already raised interest rates four times this year and is widely expected to raise them by 75 basis points next week to tame inflation. Earlier this week, consumer prices rose 0.1% instead of the 0.1% fall economists polled by Dow Jones had been expecting.

related investment news

So we're positioned in four sectors and some of the stocks we like in eachCNBC Investing ClubSo we’re positioned in four sectors and some of the stocks we like in each

However, Sternlicht believes the Fed came in too late and is now too aggressive.

“The economy is decelerating sharply,” the chairman and CEO of Starwood Capital Group told CNBC’s “Squawk Box” on Thursday.

“If the Fed keeps going like this, they’re going to have a serious recession and people are going to lose their jobs,” he added.

Consumer confidence is terrible and CEO confidence is “lousy,” Sternlicht said. Supply chain issues are being resolved, and stocks are now backing up in warehouses, which will result in huge discounts, he said.

Stock picks and investment trends from CNBC Pro:

“The CPI, the data they’re looking at, is old data. All they have to do is call Doug McMillon at Walmart, call one of the real estate guys and ask what’s happening with our apartment rents,” he said, noting that rental growth is now slowing.

The continuation of interest rate hikes will also cause a “big crash” in the real estate market, Sternlicht predicted. The once-hot housing market is slowing fast, with mortgage rates on a 30-year term loan up over 6% — up from 3.29% at the start of the year, according to Mortgage News Daily.

While the Fed’s target is 2%, inflation should be 3% to 4%, Sternlicht said.

“Inflation fueled by wage growth is fabulous. We should want wages to go up,” he said.

Interest rates are rising – how to protect your money

“You can pay higher rents, you can buy your equipment, you can go out to restaurants if you have big pay increases.”

Sternlicht believes it is imminent when the “serious recession” will hit.

“I find [in the] fourth quarter. I think now,” he said. “You’ll see cracks everywhere.”

Correction: Doug McMillon is CEO of Walmart. A previous version misspelled his name.

Categories
World News

Inflation is not nearly gas prices anymore, as value will increase broaden throughout the economic system

The market reaction to CPI numbers is justified, says Wells Fargo's Paul Christopher

A person shops at a supermarket as inflation impacted consumer prices in New York City, June 10, 2022.

Andrew Kelly | Reuters

For most of the year, the inflation narrative among many economists and policymakers was that it was essentially a food and fuel problem. Once supply chains eased and gas prices eased, the reasoning went, this would help lower food costs and in turn ease price pressures across the economy.

However, August’s CPI figures put that narrative to the test, with widening increases now suggesting that inflation may be more stubborn and firm than previously thought.

CPI excluding food and energy prices — known as core inflation — rose 0.6% for the month, double the Dow Jones estimate, leading to a 6.3% year-on-year increase in the cost of living. Including food and energy, the index rose 0.1% on a monthly basis and a robust 8.3% on a 12-month basis.

Just as importantly, the source of the gain wasn’t gasoline, which fell 10.6% for the month. While the fall in energy prices over the summer helped dampen inflation headlines, it failed to quell fears that inflation will remain a problem for some time to come.

The expansion of inflation

Instead of fuel, it was food, shelter and medical services that drove up costs in August, levying a costly tax on those who could least afford it and raising important questions about where inflation is headed from here.

“Core inflation numbers were hot across the board. The breadth of sharp price increases, from new vehicles to medical services to rent increases, everything was sharply up,” said Mark Zandi, chief economist at Moody’s Analytics. “That was the most disturbing aspect of the report.”

In fact, new car prices and medical supplies each rose 0.8% over the month. Housing costs, which include rent and various other housing-related expenses, make up almost a third of the CPI weight and rose 0.7% on the month.

Grocery costs were also a nuisance.

The Home Grocery Index, a good predictor of food prices, rose 13.5% last year, the largest such increase since March 1979. Prices of items like eggs and bread continued their meteoric rise, fueling household budgets further charged.

For medical benefits, the 0.8% monthly increase is the fastest monthly increase since October 2019. Vet costs increased 0.9% month-on-month and 10% year-on-year.

“Even things like clothing prices, which often go down, have gone up a bit [0.2%]. My view is that if they stay at these lower oil prices and assuming they don’t bounce back, it will lead to broad inflation moderation,” Zandi said. “I didn’t change my inflation forecast to go back to it [the Federal Reserve’s 2% target] to early 2024, but I’d say I stand by that forecast with less conviction.”

Why everyone is so obsessed with inflation

On a positive note, things like plane tickets, coffee, and fruit have all come down in price again. A survey released earlier this week by the New York Fed showed consumers are less concerned about inflation, although they still expect the rate to hover at 5.7% a year from now. There are also signs that supply chain pressures are easing, which should at least be disinflationary.

Higher oil possible

But about three-quarters of the CPI stayed above 4% year-on-year with inflation, reflecting a longer-term trend that belies the idea of ​​”temporary” inflation that the White House and Fed had been pushing.

And low energy prices are not a matter of course.

The US and other G-7 countries say they intend to introduce price controls on Russian oil exports from December 5, potentially inviting retaliatory action that could lead to price hikes later in the year.

“Should Moscow halt all natural gas and oil exports to the European Union, the United States and the United Kingdom, then there is a strong possibility that oil prices will retest the highs reached in June and move the average price of ordinary gas significantly higher again currently $3.70 per gallon,” said Joseph Brusuelas, chief economist at RSM.

Brusuelas added that even if housing is in a slump and a possible recession, he thinks the price declines there are unlikely to carry through as housing has “about a good year to go before the data in this critical ecosystem”.

With so much inflation in the pipeline, the big economic question is how far the Fed will go with raising rates. Markets are banking on the central bank raising interest rates by at least 0.75 percentage point next week, which would take the fed funds rate to its highest level since early 2007.

“Two percent stands for price stability. That’s her goal. But how do they get there without breaking something,” said Quincy Krosby, chief equity strategist at LPL Financial. “The Fed is not done yet. The road to 2% will be difficult. Overall, we should see inflation continue to fall. But at what point do they stop?”

Concerns about acceleration in core inflation are growing

Categories
Business

The place Walmart, Amazon, Goal are spending billions in slowing financial system

You can make money on Walmart and Home Depot in the next 12 months, says UBS's Michael Lasser

A Walmart employee loads a robotic warehouse tool with an empty shopping cart to be filled with a customer’s online order at a Walmart micro-fulfillment center in Salem, Massachusetts January 8, 2020.

Boston Globe | Boston Globe | Getty Images

When the economy slows, the classic response for consumer companies is to cut back: slow hiring, potentially laying off employees, cutting back on marketing, or even slowing the pace of technology investment and postponing projects until business picks up again.

But that’s not at all what America’s struggling retail sector is doing this year.

With the S&P Retail Index down nearly 30% this year, most of the industry is increasing capital spending investments by double digits, including industry leaders Walmart and Amazon.com. Among the top performers, only struggling apparel maker Gap and hardware store chain Lowe’s fare well. At electronics retailer Best Buy, profit fell by more than half in the first half of the year – but investments rose by 37 percent.

“There’s definitely concern and awareness of costs, but prioritization is happening,” said Thomas O’Connor, vice president of supply chain-consumer retail research at consultancy Gartner. “A lesson has been learned from the aftermath of the financial crisis,” said O’Connor.

The selection? Investments from high-spending leaders like Walmart, Amazon and Home Depot are likely to cause customers to be drawn away from weaker peers over the next year, when cash flow from consumer discretionary is expected to recover from a year-long drought in 2022 and shopping for spending on goods revive is actually shrunk early this year.

After the 2007-2009 downturn, 60 companies classified by Gartner as “efficient growth companies” that invested during the crisis saw their earnings double between 2009 and 2015, while other companies’ earnings were little changed, according to a 2019 report 1,200 US and European companies.

Companies have taken this data to heart. A recent Gartner survey of finance leaders across all industries shows that investing in technology and human resources are the latest spending companies are looking to cut as the economy struggles to prevent recent inflation from triggering a new recession. Budgets for mergers, environmental sustainability plans, and even product innovation are taking a back seat, Gartner data shows.

Zoom In IconArrows pointing outwards

Today, some retailers are improving the way supply chains work between stores and their suppliers. That’s a focus at Home Depot, for example. Others, like Walmart, are striving to improve in-store operations so shelves are restocked faster and fewer lost sales.

The trend toward more investment has been developing for a decade but has been catalyzed by the Covid pandemic, said Progressive Policy Institute economist Michael Mandel.

“Even before the pandemic, retailers were moving from investing in structure to actively investing in equipment, technology and software,” Mandel said. “[Between 2010 and 2020]Software investment in the retail sector increased by 123%, compared to a 16% increase in manufacturing.”

At Walmart, money is pouring into initiatives like VizPick, an augmented reality system that connects to workers’ phones and allows employees to restock shelves faster. The company increased its capital expenditures by 50% to $7.5 billion in the first half of its fiscal year, which ends in January. The investment budget is expected to grow 26 percent to $16.5 billion this year, said Arun Sundaram, an analyst at CFRA Research.

“The pandemic has obviously changed the entire retail environment,” Sundaram said, forcing Walmart and others to be efficient in their back offices and make even more use of online channels and in-store pickup options. “As a result, Walmart and all other retailers have improved their supply chains. You see more automation, less manual picking [in warehouses] and more robots.”

Last week Amazon announced its latest acquisition of warehouse robots, Belgian company Cloostermans, which offers technology to move and stack heavy pallets and goods, as well as pack products together for delivery.

Home Depot’s campaign to overhaul its supply chain has been going on for several years, O’Connor said. According to the company’s financials, the One Supply Chain project is hurting profits for now, but it’s central to both operational efficiencies and a key strategic goal — creating deeper bonds with professional contractors who spend far more than they do Home improvement who were the bread and butter of Home Depot.

“To serve our professionals, it’s really about removing friction through a variety of enhanced product offerings and features,” executive vice president Hector Padilla told analysts on Home Depot’s second-quarter conference call. “These new assets in the supply chain allow us to do this at a different level.”

The store of the future for aging brands

Some retailers are more focused on refreshing an aging private label. At Kohl’s, the highlight of this year’s investment budget is an expansion of the company’s relationship with Sephora, which is adding convenience stores to Kohl’s 400 stores this year. The partnership helps the mid-tier retailer add some flair to its otherwise stodgy image, which contributed to its relatively weak sales growth in the first half of the year, said Landon Luxembourg, retail expert at consultancy Third Bridge. At Kohl’s, investments more than doubled in the first half of this year.

About $220 million of the increase in Kohl’s spending was related to investments in beauty inventory to support the 400 Sephora stores opening in 2022, CFO Jill Timm said. “We’re going to continue that next year. … We look forward to working with Sephora on this solution for all of our stores,” she told analysts at the company’s recent earnings announcement in mid-August.

Target is spending $5 billion this year to add 30 stores and modernize another 200, bringing the number of stores renovated since 2017 to more than half the chain. It’s also expanding on its own beauty partnership, first unveiled in 2020 with Ulta Beauty, adding 200 Ulta centers in stores en route to 800.

Telsey: There's a real divide between low-income and high-income consumers

And the biggest lender of all is Amazon.com, which had over $60 billion in capital expenditures in 2021. While Amazon’s reported capital expenditure numbers include its cloud-computing division, the company spent nearly $31 billion on property, plant and equipment in the first half — following an already record-breaking 2021 — though the investment made the company’s free cash flow negative .

That’s enough to make even Amazon hit the brakes a little, as CFO Brian Olsavsky tells investors that Amazon is shifting more of its investment money into cloud computing. This year, it is estimated that around 40% of spending will support warehouses and transport capacity, compared to last year’s combined 55%. It also plans to spend less on global deals — “to better align with customer demand,” Olsavksy told analysts after its recent gains — already a much smaller budget item percentage.

At Gap — whose shares are down nearly 50% this year — executives have defended their capex cuts, saying they need to defend earnings this year and hope for a rebound in 2023.

“We also believe there is an opportunity to more meaningfully slow the pace of our investments in technology and digital platforms to better optimize our operating profits,” Chief Financial Officer Katrina O’Connell told analysts following the latest results.

And Lowe’s deflected an analyst’s question about spending cuts, saying it could continue to take market share from smaller competitors. Lowe’s has been the better stock market performer compared to Home Depot over the past one-year and year-end periods, though both posted sizeable declines in 2022.

“Home improvement is a $900 billion marketplace,” said Lowe CEO Marvin Ellison, without mentioning Home Depot. “And I think it’s easy to just focus on the two biggest players and determine the overall market share gain just based on that, but this is a really fragmented market.”

Categories
World News

India’s Economic system, Slammed by Covid-19, Wants Its Misplaced Development

India’s Economy, Slammed by Covid-19, Needs Its Lost Growth

NEW DELHI – Coronavirus continues to weigh on India’s battered economy, putting growing pressure on Prime Minister Narendra Modi to encourage an emerging recovery and get the country back to work.

The coronavirus, which struck in two waves, has killed hundreds of thousands of people and brought cities to a standstill at times. Infections and deaths have decreased and the country is back to work. On paper, economists predict that growth could skyrocket in the second half of the year.

However, it can take years for the damage to be repaired. According to India Ratings, a rating agency, economic performance from April to June this year was 9.2 percent lower than in the same period in 2019.

The coronavirus has essentially robbed India of the momentum it needed to create jobs for its young and rapidly growing workforce. It has also exacerbated longer-term problems that are already holding back growth, such as high debt, lack of competitiveness with other countries, and political missteps.

Economists are particularly concerned about the slow vaccination rate and the possibility of a third wave of the coronavirus that could prove disastrous for any economic recovery.

“Vaccination progress is slow,” said Priyanka Kishore, director of India and Southeast Asia at Oxford Economics, in a research briefing last week that only 11 percent of the population are fully vaccinated. The company reduced its growth rate for 2021 from 9.1 percent to 8.8 percent.

Even 8.8 percent growth would be a strong number in better times. Compared to the previous year, India’s economy grew by 20.1 percent from April to June, according to estimates by the Department of Statistics and Program Implementation on Tuesday evening.

But these comparisons benefit from comparing it to India’s dismal performance last year. The economy contracted 7.3 percent last year when the government shut down the economy to stop a first wave of the coronavirus. That led to huge job losses, which are among the biggest hurdles to growth today, experts say.

Real household incomes have continued to fall this year, said Mahesh Vyas, executive director of the Center for Monitoring the Indian Economy. “Until that is fixed,” he said, “the Indian economy cannot recover.”

At least 3.2 million Indians lost stable, well-paid jobs in July alone, Mr. Vyas estimated. Small traders and day laborers suffered greater job losses than others during the lockdowns despite being able to return to work after the restrictions were lifted, Mr Vyas said in a report earlier this month.

Updated

Aug. 31, 2021, 7:36 p.m. ET

“Salary jobs aren’t that elastic,” he said. “It’s difficult to get back a lost job.”

About 10 million people have lost such jobs since the pandemic began, Mr Vyas said.

Mr Modi’s administration this month sought to revitalize the economy by selling nearly $ 81 billion worth of stakes in state-owned assets such as airports, train stations and stadiums. Economists, however, largely see politics as a step towards generating money in the short term. It remains to be seen whether it will lead to more investment, they say.

“The whole idea is for the government to borrow this money from the domestic market,” said Devendra Kumar Pant, chief economist at India Ratings. “But what happens if this project goes to a local player and he has to take out loans in the home market? Your domestic credit demand will not change. “

Dr. Pant added that the question of the willingness of private actors to preserve these assets over the long term and how monetization policies would ultimately affect prices for consumers.

Understand US vaccination and mask requirements

    • Vaccination rules. On August 23, the Food and Drug Administration fully approved Pfizer-BioNTech’s coronavirus vaccine for people aged 16 and over, paving the way for increased mandates in both the public and private sectors. Private companies are increasingly demanding vaccines for employees. Such mandates are legally permissible and have been confirmed in legal challenges.
    • Mask rules. The Centers for Disease Control and Prevention in July recommended that all Americans, regardless of vaccination status, wear masks in public places indoors in areas with outbreaks, reversing the guidelines offered in May. See where the CDC guidelines would apply and where states have implemented their own mask guidelines. The battle over masks is controversial in some states, with some local leaders defying state bans.
    • College and Universities. More than 400 colleges and universities require a vaccination against Covid-19. Almost all of them are in states that voted for President Biden.
    • schools. Both California and New York City have introduced vaccine mandates for educational staff. A survey published in August found that many American parents of school-age children are opposed to mandatory vaccines for students but are more supportive of masking requirements for students, teachers, and staff who do not have a vaccination.
    • Hospitals and medical centers. Many hospitals and large health systems require their employees to receive a Covid-19 vaccine, due to rising case numbers due to the Delta variant and persistently low vaccination rates in their communities, even within their workforce.
    • New York City. Proof of vaccination is required by workers and customers for indoor dining, gyms, performances, and other indoor situations, though enforcement doesn’t begin until September 13th. Teachers and other educational workers in the city’s vast school system are required to have at least one vaccine dose by September 27, without the option of weekly testing. City hospital staff must also be vaccinated or have weekly tests. Similar rules apply to employees in New York State.
    • At the federal level. The Pentagon announced that it would make coronavirus vaccinations compulsory for the country’s 1.3 million active soldiers “by mid-September at the latest. President Biden announced that all civil federal employees would need to be vaccinated against the coronavirus or undergo regular tests, social distancing, mask requirements and travel restrictions.

“In India, things are more likely to get worse than better,” he said, adding that the costs for users of highways and other infrastructure could increase.

During the second wave in May, Mr. Modi defied the demands of many epidemiologists, including Dr. Anthony Fauci, the director of the US National Institute of Allergy and Infectious Diseases, to reinstate a statewide lockdown.

The 2021 lockdowns were nowhere near as severe as the nationwide curbs last year that pushed millions of people from cities to rural areas, often on foot, because trains and other transportation had been shut down.

During the second wave, core infrastructure projects across the country employing millions of local migrant workers were exempted from restrictions. More than 25,000 miles of Indian highway projects as well as rail and urban subway improvements continued.

On Tuesday, Dr. Pant, India’s growth estimates of 20.1 percent for the period April to June are nothing more than an “illusion”. In roughly the same period last year, growth shrank by a record 24 percent so much that even double-digit growth this year would leave the economy where it was two years ago.

Economists say India will have to spend money, or even large, to realize the full potential of its huge low-skilled workforce. “There is a need for very basic primary health facilities, primary services to provide food for children,” said Mr. Vyas. “All of these are very labor intensive jobs, and these are mostly government services.”

One of the reasons Indian governments typically haven’t spent in these areas, Vyas said, is because it was viewed as “not a sexy thing”. Another is the “dogmatic fixation” of governments on keeping budget deficits under control, he said. The government simply cannot rely on the private sector alone to create jobs, Vyas said.

The “only solution,” he said, is for the government to spend and stimulate private investment. “You have a demotivated private sector because there is not enough demand. That is holding India back. “

Categories
Health

India’s new mortgage ensures might have restricted affect on the Covid-hit financial system

India's new loan guarantees may have limited impact on the Covid-hit economy

Indian People queue up at a COVID screening center at Ram Manohar Lohia Hospital,(RML) after a case emerged in Delhi causing a panic situation in Delhi India, 04 March 2020.

Imtiyaz Khan | Anadolu Agency | Getty Images

India has rolled out a slew of measures amounting to 6.3 trillion rupees ($84.9 billion) aimed at boosting the Covid-struck economy — but economists are skeptical that it will have a major impact on short-term growth.

The impact of those policies — that amount to about 2.8% of GDP — on the country’s fiscal deficit target is expected to be comparatively small.

Economists pointed out that the bulk of the support comes in the form of loan guarantees — instead of direct stimulus such as checks that are paid directly to households. Besides, some of the measures were previously announced and have already been factored into calculations.

For the current fiscal year that ends in March 2022, India’s fiscal deficit target is around 6.8% of GDP. A fiscal deficit is the gap between a government’s income and spending, and implies that the country is spending more than its revenue.

“While the headline impact of the announcements is sizeable, for much part these were credit guarantees, making the net impact on the fiscal math smaller,” said Radhika Rao, an economist with Singapore’s DBS Group, in a note on Tuesday.

She explained that some measures — such as subsidies, free food grain and support toward pediatric health — may have a likely impact on the fiscal deficit. But, there might be “some wiggle room” from a higher nominal GDP and a likely reprioritization in existing spending to minimize the risk of exceeding the fiscal deficit target.

What was announced?

Finance Minister Nirmala Sitharaman on Monday announced several support measures, including the provision of loan guarantees of around $35 billion to help small businesses and sectors adversely affected by the pandemic.

Sitharaman said the government will provide additional credit of 1.1 trillion rupees ($14.8 billion) to businesses in sectors such as health care, tourism and others.

The government will also expand the emergency credit line guarantee scheme by another 1.5 trillion rupees ($20.2 billion), from an earlier limit of 3 trillion to 4.5 trillion rupees.

The scheme allows banks and non-bank lenders to give emergency loans to eligible borrowers to run their businesses and those loans are guaranteed by the government, which covers default risks for lenders.

When first introduced, the scheme was seen as a relief for India’s micro, small and medium businesses that are under pressure due to the pandemic-hit crisis.

India also announced a credit guarantee scheme for micro finance institutions that typically lend to the smallest borrowers in the country, such as small business owners. The government will spend another $12.6 billion to provide free food grain to millions of people until November.

Stimulating growth

The latest support measures were similar to how the government responded to India’s first wave of coronavirus outbreak last year, Rao told CNBC by email. Monday’s announcement was aimed at improving the flow of credit to the worst-affected sectors and vulnerable households, she said.

“The fiscal push is predominantly on the supply side rather than a direct boost to demand, containing the extent of immediate boost to growth,” she said. The ongoing reopening of the economy and improving vaccination progress will likely be “bigger catalysts of near-term recovery,” she added.

India’s economy grew 1.6% from a year ago from January to March this year.

Economists have warned that the GDP print for April to June — the first quarter for the current fiscal year — may not paint the full picture of the crisis in South Asia’s largest economy as a result of a devastating second wave of coronavirus outbreak.

Aditi Nayar, principal economist at credit ratings agency ICRA, the Indian affiliate of Moody’s, also pointed out that the success of loan guarantees will depend on how many new loans are disbursed by the lenders.

Fiscal deficit target

Economists pointed out that the loan guarantees will have limited upfront costs for the government.

Nomura’s Sonal Varma and Aurodeep Nandi said in a note that the fiscal stimulus announced during the second wave of outbreak, including Monday’s measures, amount to about 0.59% of GDP. Along with the government’s additional spending on free Covid-19 vaccines, the total fiscal impact for the current year is expected to be around 0.65% of GDP, they said.

Still, Nomura expects India to overshoot its fiscal deficit target of 6.8% on the back of additional expenditures and potentially lower disinvestment figures. The Japanese investment bank revised up its fiscal deficit estimate to 7.1% of GDP for the current year.

Some of the economic measures from Monday, worth 2.4 trillion rupees, are spread over the next two to four years, according to ICRA’s Nayar. “Some of these had already been announced at the time of the Budget, and therefore, a portion of their cost has already been factored in,” she said in a note.

Rao from DBS estimated that there is a risk that the deficit may exceed the target by 0.3% to 0.5% of GDP.

Categories
Business

Shares, JBS Hack and the Financial system: Dwell Enterprise Updates

A dormant JBS processing plant in Greeley, Colo.

Daily Business Briefing

June 2, 2021Updated 

June 2, 2021, 2:49 p.m. ET

Credit…Chet Strange/Getty Images

Production began to resume at nine beef plants in the United States on Wednesday after a cyberattack on the world’s largest meat processor forced them to shut down a day earlier.

Union officials said Wednesday that certain plants were operational but were not at full capacity yet. JBS had said late Tuesday that the “vast majority” of its plants would reopen the next day.

About 400 workers were back on the job at the JBS beef plant in Souderton, Pa., versus about 1,500 who would work in a typical day, said Wendell Young IV, the president of the United Food and Commercial Workers Local 1776, which represents workers at the plant. A JBS beef plant in Cactus, Texas, canceled work for many employees scheduled for one of its shifts on Wednesday, according to a Facebook post meant for workers.

Mr. Young added that the company had told the union that the plant would be running essentially as normal by Thursday, although workers’ start times would be delayed by a few hours.

JBS did not immediately return requests for comment.

The attack has raised concerns about the vulnerability of critical American businesses. Jen Psaki, the White House press secretary, urged companies on Wednesday to increase their cybersecurity measures, saying it was “up to a number of these private-sector sector entities to protect themselves.”

Ms. Psaki declined to say whether the U.S. government was planning to retaliate. “We’re not taking any options off the table in terms of how we may respond, but of course there is an internal policy review process to consider that,” she said.

JBS had told the Biden administration on Tuesday that it was a ransomware attack, and that the ransom demand had come from “a criminal organization likely based in Russia,” a White House official said on Tuesday. Ms. Psaki did not provide more specifics on Wednesday, but she said that the administration was in direct contact with the Russians and that President Biden would bring up the issue of cyberattacks with President Vladimir Putin of Russia when they meet in two weeks.

Thousands of workers in Australia, Canada and the United States were affected as shifts were altered or outright canceled Monday and Tuesday. Some U.S. plants were still not back to regular operations on Wednesday. In Australia, factory workers and graziers have not been told when plants would reopen, local news outlets reported.

Prices could increase as a result of the cyberattack, analysts for the Daily Livestock Report said on Wednesday. And the disruption could lead to less so-called spot supplies, the analysts wrote, which could “leave little available for smaller buyers.”

Even so, the analysts said that the attack was likely to “be only a small part in the big picture” as retail meat prices continue to climb during the summer.

The attack was the second to hamper a critical U.S. business operation. Last month, a ransomware attack on Colonial Pipeline, which transports gas to nearly half the East Coast, set off fuel shortages and panic buying.

Read moreHomebuilding in Delaware last month. Significant growth in employment is expected to start in the second half of 2021, the U.N. labor organization said. Credit…Alyssa Schukar for The New York Times

Global employment will take years to return to prepandemic levels, the United Nations’ labor organization said on Wednesday in a report that urged governments to build social protection systems to avoid the destabilizing effects of deepening economic and social inequality.

The pandemic wiped out around 144 million jobs last year, including a projected 30 million new jobs that would have been created, the International Labor Organization said in its assessment of employment and social trends.

“The hit on labor markets in terms of jobs, and in terms of the effect on people’s incomes, has been four times greater than the financial crisis,” Guy Ryder, the organization’s director general, said in an interview.

The organization expects to see significant growth in employment starting in the second half of 2021, but “this will be uneven and not enough to repair the damage caused by the crisis,” Mr. Ryder said.

Overall, the global economy is unlikely to restore those lost jobs until at least by 2023, and that will depend on progress in curbing the spread of the coronavirus, a prospect now overshadowed by its resurgence in Asia and parts of Latin America.

Rich countries, with access to vaccines and the financial resources to support wage-support plans, will recover faster. The United States is likely to face unemployment of around 5.1 percent this year, the report said, dropping to around 3.9 percent in 2022, a level marginally lower than at the start of the pandemic.

But around the world, some 205 million people will still be unemployed in 2022, up from 187 million before the pandemic started, the organization said, most of them in lower income and poor countries. “This unequal recovery risks accentuating still further inequalities in the world of work between countries and within countries,” Mr. Ryder said.

The pandemic has had a “dramatic” social impact, disproportionately hitting employment of women and youth; reversing progress in reducing forced and child labor, and sharply driving up the number of working people still trapped in poverty, Mr. Ryder said.

“It’s very difficult to make comparisons with the 1930s, but we’re in that sort of territory,” he said, referring to the Great Depression. “Unless we take care of what’s happening in the world of work and labor markets, there are some very unpleasant things that can happen in the world.”

Read moreKatherine Tai, the United States trade representative, said the actions would give time for international tax negotiations to progress.Credit…Pete Marovich for The New York Times

The Biden administration on Wednesday moved closer to imposing tariffs on certain goods from six countries in retaliation for taxes those nations have imposed on digital services offered by companies like Facebook, Amazon and Google.

The United States finalized a list of products that would be subject to tariffs but immediately suspended the levies for 180 days while international tax negotiations proceeded.

Under the administration’s announcement, 25 percent tariffs would apply to about $2.1 billion worth of goods from Austria, Britain, India, Italy, Spain and Turkey.

The Trump administration began investigating those countries’ digital services taxes in June 2020, and the Biden administration faced a one-year deadline to take action.

The announcement comes as countries around the world are trying to reach agreement on a range of international tax issues. Those negotiations are being conducted through the Organization for Economic Cooperation and Development.

“The United States is focused on finding a multilateral solution to a range of key issues related to international taxation, including our concerns with digital services taxes,” Katherine Tai, the United States trade representative, said in a statement. “The United States remains committed to reaching a consensus on international tax issues through the O.E.C.D. and G20 processes.”

Ms. Tai added that the actions on Wednesday “provide time for those negotiations to continue to make progress while maintaining the option of imposing tariffs” if necessary at a later date.

In addition to the six countries included in the announcement, France has also been a target for potential retaliatory tariffs by the United States over its digital services tax. The Trump administration planned to put in place tariffs on $1.3 billion worth of French goods, including cosmetics and handbags, but in January, it suspended the tariffs indefinitely.

Read moreA Depop pop-up store in London in 2019.Credit…avid M. Benett/Getty Images

Depop, the fashion resale marketplace beloved by Generation Z, will be acquired by Etsy for $1.6 billion, the two companies announced on Wednesday.

The cash deal, which is expected to close by the third quarter of this year, underscores the growing influence of clothing resale platforms. More shoppers are turning to the secondhand market for something cheaper and — potentially — greener as the overproduction of clothing increasingly adds to landfills.

The trend appears to have been accelerated by the pandemic as more shoppers looked to declutter wardrobes, earn cash by selling their old clothes or set up fashion customization businesses from their bedrooms.

Investor appetite is also on the rise. Last month, Europe’s largest secondhand fashion marketplace, Vinted, raised 250 million euros in a funding round that valued the start-up at €3.5 billion ($4.26 billion), while in the United States companies such as ThredUp and Poshmark have gone public this year.

Depop, which was founded in 2011, has been particularly successful in building a marketplace for younger consumers, who are adopting secondhand fashion faster than any other group. Ninety percent of its users are under 26, with 30 million users across 150 countries. The platform is particularly known for its vintage clothes and streetwear — and for creating a new cohort of online influencers famous for selling their wares.

“We are simply thrilled to be adding Depop — what we believe to be the resale home for Gen Z consumers — to the Etsy family,” said the Etsy chief executive, Josh Silverman.

He said he believed the platform had “significant potential to further scale” and said that he saw “significant opportunities for shared expertise and growth synergies” for Etsy’s apparel sector, which was valued at $1 billion last year.

According to the Boston Consulting Group, the global market for pre-owned apparel is worth up to $40 billion a year — about 2 percent of the total apparel market. It is expected to grow 15 to 20 percent annually for the next five years.

The transaction is expected to close in the third quarter of 2021, subject to antitrust reviews in Britain and the United States.

Read moreThe home décor superstore At Home in California.Credit…Getty Images

The home décor superstore At Home agreed last month to sell itself to the private equity firm Hellman & Friedman for about $2.4 billion. But just over a week later, the company’s largest shareholder, CAS Investment Partners, publicly opposed the deal, arguing that it was “grossly” undervalued.

At the heart of the dispute is how to value a company that got a pandemic bounce, but may soon face a new reality. At Home filed its proxy statement on Wednesday, offering an in-depth look at how it is grappling with these dynamics — and the DealBook newsletter broke down the details.

  • The pandemic halted those efforts, and At Home’s stock price plunged below $2 a share. But homebound shoppers pushed up net sales by nearly 50 percent in its third quarter — and its share price rose, too. At Home restarted the sales process in November.

  • In March, when At Home’s stock was trading at around $28 a share, Hellman & Friedman and another unnamed private equity firm jointly bid $32 a share. Talks continued as At Home’s rebound continued — the company twice updated its projections — prompting Hellman & Friedman to raise its offer five times. (The other firm dropped out after bidding surpassed $32.)

  • Hellman finally offered $36 a share, up 17 percent from where At Home’s stock traded before the deal talks leaked. On Wednesday, its shares are trading a little above that, likely on shareholders’ hopes of a higher offer.

The question is how much At Home’s business will continue to grow. CAS thinks the company could be worth more than $135 a share by the end of its 2026 fiscal year, and that the right sale price is therefore above $70 a share — a roughly 128 percent premium.

But At Home is worried that shoppers will revert to prepandemic habits. Other retailers whose businesses jumped during the pandemic have disappointed investors:

  • Shares of Home Depot dipped last month despite smashing expectations, and that company declined to provide financial guidance for next year.

  • The Container Store also saw its shares fall last month despite topping expectations, and is similarly withholding guidance.

At Home is looking for other buyers. As part of the go-shop provision in the Hellman deal, the retailer has reached out to 17 financial sponsors and seven companies. So far, just one — an investment firm — has signed a nondisclosure agreement, though it has yet to make an offer.

Read more

AMC Entertainment, the movie theater chain that’s been a target of small investors in so-called meme stocks, soared on Wednesday, climbing to a $30 billion market valuation.

The shares rose 115 percent by midafternoon, to above $68 apiece, extending a run that has lifted them by more than 3,100 percent this year. The gains were quick enough to warrant a trading pause on the New York Stock Exchange, a measure aimed to allow traders to catch up to a quickly rising or falling stock.

The trading mirrors a frenzy in shares of GameStop in January. Then, like now, small investors egged each other on in forums like WallStreetBets on Reddit, by sharing their successes and ideas and encouraging more buying. Their reasons vary: Some of the earliest investors were driven by the view that companies like AMC and GameStop were being undervalued, others are hoping to help push up the price to force losses onto hedge funds that bet against the stock, and others still aren’t taking the investment seriously at all.

Shares of GameStop rose about 7 percent on Wednesday, to about $267, but are well below their highs from late January when the stock climbed to as high as $347.

AMC acknowledged its growing base of small investors on Wednesday, saying it would offer them perks like free popcorn. The company said in a statement that more than three million small investors own its shares, and their ownership accounts for more than 80 percent of its shares.

“Many of our investors have demonstrated support and confidence in AMC,” Adam Aron, AMC’s chief executive, said in the statement.

The company has also taken advantage of the run-up in shares to bolster its financial position. AMC on Tuesday said it raised $230.5 million by selling shares to a hedge fund. The hedge fund, Mudrick Capital Management, has since sold the stake, Bloomberg News reported.

  • Stocks in the United States and Europe were slightly higher on Wednesday. The S&P 500 rose 0.2 percent and the Stoxx Europe 600 climbed 0.3 percent.

  • Oil prices climbed with futures continuing at their highest since late 2018. West Texas Intermediate, the U.S. benchmark, climbed above $68 a barrel.

  • Recent economic data has pointed to a strengthening economic recovery, but investors are closely watching for inflation that might require central banks to take action that could curb growth. On Wednesday, the Organization for Economic Cooperation and Development said that the annual inflation rate across its 38 member countries rose to 3.3 percent in April 2021, compared with 2.4 percent in March. The jump was fueled by an increase in energy prices of 16.3 percent, the highest rate since September 2008.

Read moreEmployees of Verizon put away traffic cones after installing fiber optic cables on 138th Street and Park Avenue in the Mott Haven neighborhood of the Bronx, New York, last week.Credit…Desiree Rios for The New York Times

Veterans of the nation’s decade-long efforts to extend the broadband footprint worry that President Biden’s new infrastructure plan carries the same bias of its predecessors: Billions will be spent to extend the internet infrastructure to the farthest reaches of rural America, where few people live, and little will be devoted to connecting millions of urban families who live in areas with high-speed service that they cannot afford.

There is a political and economic logic to devoting billions of taxpayer dollars to bringing broadband to the rural communities that make up much of former President Donald Trump’s political base, which Mr. Biden wants to win over. But some critics worry that a capital-heavy rural-first strategy could leave behind urban America, which is more populous, diverse and productive, Eduardo Porter reports for The New York Times.

About 81 percent of rural households are plugged into broadband, compared with about 86 percent in urban areas, according to Census Bureau data. But the number of urban households without a connection, 13.6 million, is almost three times as big as the 4.6 million rural households that don’t have one.

Connecting urban families does not require laying thousands of miles of fiber optic cable through meadows and glens. In cities, telecom companies have already installed a lot of fiber and cable. Extending broadband to unserved urban households, most of them in low-income neighborhoods and often home to families of color, typically requires making the connection cheaper and more relevant.

Read more

  • The new media company that would combine WarnerMedia and Discovery has a name: Warner Bros. Discovery. David Zaslav, the executive who will run the combined companies if the merger is approved by regulators, announced the name at a town-hall-style meeting on Tuesday with WarnerMedia employees in Burbank, Calif. In his first opportunity to introduce himself to his prospective employees, Mr. Zaslav, who has been in charge of Discovery since 2007, spoke with the WarnerMedia chief executive Jason Kilar from the stage of the Steven J. Ross Theater on the Warner Bros. lot. The two executives did not mention the future of Mr. Kilar, who has retained a legal team to negotiate his exit from the company.

Americans will be eligible for a free beer from Anheuser-Busch once the country’s vaccination rate reaches 70 percent.Credit…John Gress/Reuters

The brewing giant Anheuser-Busch said on Wednesday that it would offer Americans another incentive to get vaccinated: free beer.

The company said in a statement that it would “buy America’s next round” of beer, seltzer or nonalcoholic beverage once the country reached President Biden’s goal of having 70 percent of the adult population get at least one coronavirus vaccination by July 4. So far, 63 percent of adult Americans have received at least one dose.

“We pride ourselves on stepping up both in times of need and in times of great celebration, and the past year has been no different,” said Michel Doukeris, the chief executive of Anheuser-Busch, which will offer adults a $5 virtual credit card for beverages if the vaccination goal is met. “As we look ahead to brighter days with renewed optimism, we are proud to work alongside the White House to make a meaningful impact for our country, our communities and our consumers.”

Reaching the vaccination goal by Independence Day may not be easy. The pace of vaccinations in the United States has slowed, with the biggest gains in recent weeks made in vaccinating 12- to 15-year-olds, who are not eligible for the free beer. However, progress has been made in reaching some groups with the highest rates of vaccine hesitancy, including Latinos and people without college degrees, according to the Kaiser Foundation.

Anheuser-Busch’s offer comes as other businesses and states have introduced their own giveaways to encourage vaccinations. Gov. Jim Justice of West Virginia said on Tuesday that the state would give away guns and other prizes, including trucks and lifetime hunting and fishing licenses, to vaccinated residents.

Other states, including California, New Mexico and Ohio, have started lottery drawings to award cash prizes to those who have been vaccinated.

Read moreCredit…Sally Thurer

Today in the On Tech newsletter, Shira Ovide writes that to fully understand the tech industry and ensure that its goals don’t go off the rails, we need to talk more about the companies that are in the meh middle.

Categories
Business

Japan’s Yo-Yoing Financial system Shrinks as Virus Spreads and Vaccinations Lag

Japan’s Yo-Yoing Economy Shrinks as Virus Spreads and Vaccinations Lag

Japan’s economy contracted in the first three months of 2021 and continued to alternate between growth and contraction as the vaccination campaign threatened to hold back recovery from the pandemic, although other major economies appeared poised for rapid growth.

In about a year since the coronavirus emerged, Japan’s domestic demand has seen cycles of shrinking and expansion as coronavirus cases have risen and consumers have withdrawn indoors and then infections have receded and businesses have welcomed customers back to have.

Japan is currently experiencing a resurgence of virus cases with much of the country in a state of emergency and the number of deaths rising, particularly in Osaka. According to analysts, the yo-yo economic pattern is unlikely to stop until the country has vaccinated a significant portion of its population. These efforts have only just begun and are unlikely to accelerate significantly in the months ahead.

These dynamics could potentially drag the country back into recession – defined as two consecutive quarters of contraction – later this year as it struggles to control the spread of more deadly and contagious variants of coronavirus.

Japan’s economy, the third largest in the world after the US and China, contracted 1.3 percent from January to March, an annual decline of 5.1 percent. The contraction followed two consecutive quarters of expansion.

Growth skyrocketed in the second half of last year as consumers who had holed up at home for months to avoid the virus piled into department stores, restaurants, bars and theaters.

The recovery went a long way in getting the economy out of the huge hole that formed in the early months of the pandemic. However, as the new data shows, the turnaround is fragile and will be difficult to sustain as long as the country continues to face the threat from the virus.

“We are in a situation where we cannot relax until the vaccine is well distributed,” said Keiji Kanda, senior economist at the Daiwa Institute of Research in Tokyo.

In early 2020, when the pandemic hit, Japan’s economy was already battling headwinds from falling demand from China, a hike in consumption tax, and a devastating typhoon. When the country plunged into distress this spring, domestic consumption crumbled and exports fell to new lows.

The result was the biggest blow to the economy since 1955, when the country first began using gross domestic product to measure its growth.

Even so, the impact of the pandemic on Japan was relatively minor compared to the devastation in the US and many European countries. Japan has never been completely locked down and the total death toll remains below 12,000.

Updated

May 17, 2021, 6:24 p.m. ET

These factors, combined with – by some measures – the world’s largest stimulus measures, have kept the country’s unemployment rate low and propped up many small businesses such as restaurants and hotels.

While Japan’s pandemic response has managed to mitigate the worst of the economic damage, the recovery will continue to be an uphill battle, said Tomohiro Ota, senior economist at Goldman Sachs in Japan.

Trade has rebounded in recent months as some countries reopened, but “without a recovery in consumption we cannot go back to the days before Covid,” he said.

To achieve this goal, two steps forward and one step back had to be taken. Home consumption has increased in waves that increase and decrease as the number of cases increases.

Japan’s state of emergency last spring devastated domestic demand when people stashed at home. Consumption recovered briefly in summer and autumn. A similar upswing followed a second state of emergency in January.

Last month, authorities put the country in dire straits for the third time to review the spread of the coronavirus ahead of the Olympics, which are slated to begin in Tokyo in late July.

The latest round of restrictions only affects parts of the country, but also includes major metropolitan areas such as Tokyo and Osaka and is stricter than the previous one. Earlier iterations focused on shortening the opening times of bars and restaurants. In this version, for the first time, officials demanded that department stores restrict most services and that restaurants stop serving alcohol.

The economic impact of the measures will depend on the response of a public already tired of staying home, said Taro Saito, an executive research fellow at the NLI Research Institute in Tokyo.

“We cannot say with certainty that there will be a contraction between April and June,” he said because of the restrictions. But “if the target areas expand, this could put pressure on growth. The situation is very fluid. “

The stop-and-go pattern is likely to repeat itself for some time, said Izumi Devalier, Japan’s chief economist at Bank of America Merrill Lynch.

“The domestic economy continues to be affected by developments surrounding the virus,” Devalier said, adding that vaccination remained key to improving domestic demand.

Japan’s vaccine rollout was one of the slowest among major industrialized nations. Authorities have approved the use of only one vaccine, made by Pfizer and BioNTech, and strict regulations that require vaccinations to be given by doctors and nurses have slowed its spread. Just over 3 percent of the country has received an initial shot, and vaccines are unlikely to be made available to the general population until late this summer at the earliest.

“Japan is way behind other countries that were in their vaccination programs at the time,” Ms. Devalier said, adding that slow progress “simply delays recovery.”

Mr. Kanda of the Daiwa Institute of Research said, “If vaccination makes good progress, economic activity can basically resume from fall this year.”

But, he added, “if the current pace continues, we could see another explosion of infections.”

Categories
World News

Charges could need to rise considerably to maintain economic system from overheating

Rates may have to rise somewhat to keep economy from overheating

Treasury Secretary Janet Yellen admitted Tuesday that interest rates may need to rise to contain burgeoning growth in the US economy, driven in part by trillions of dollars in government stimulus spending.

“Interest rates may have to go up a bit to make sure our economy doesn’t overheat,” Yellen said during an economic forum presented by The Atlantic. “Although the extra spending is relatively small in relation to the size of the economy, it could result in very modest rate hikes.”

“But these are investments that our economy needs to be competitive and productive. I think it will make our economy grow faster,” she added.

Later in the day, she softened her comments a little about the need for higher interest rates, saying she respected the independence of the Federal Reserve and was not trying to influence decision-making there. Yellen was chairman of the Fed from 2014-18. The Fed sets interest rates through its Federal Open Market Committee.

“I don’t predict or recommend it,” Yellen told the Wall Street Journal CEO Council Summit. “If someone values ​​the Fed’s independence, I think that person is me, and I find that the Fed can be relied on to do whatever it takes to achieve its dual mandate goals.”

The US economy burned with GDP growing 6.4% in the first quarter. Goldman Sachs recently announced that the second quarter will grow by around 10.5%.

Since the outbreak of the Covid-19 pandemic in March 2020, Congress has allocated around $ 5.3 trillion in stimulus spending, resulting in a budget deficit of more than $ 3 trillion in fiscal 2020 and a deficit of 1.7 trillion US dollars in the first half of fiscal 2021.

Biden’s government is pushing for an infrastructure plan that could spend an additional $ 4 trillion on various longer-term projects.

Although she said the US needs to focus on financial responsibility in the longer term, she said spending on matters central to the government’s mission has been ignored for too long.

President Joe Biden “is taking a very ambitious approach that makes up for more than a decade of under-investment in infrastructure, research and development, people, communities and small businesses, and it’s an active approach,” said Yellen. “But we’ve worked far too long to solidify long-term problems in our economy.”

The Fed has anchored short-term rates near zero for more than a year, despite the fact that the economy has grown the fastest in nearly 40 years. Central bank officials have vowed to maintain the accommodation policy until the economy makes “significant further progress” towards full employment and inflation, which averaged 2% over the longer term.

Inflation concerns have arisen amid all the spending and rapid growth, but Fed officials have said that after a brief spike this year, price pressures are likely to ease.

Yellen has said that for the most part she is not worried about inflation becoming an issue, although she has added that there are tools to remedy this should it happen. Fed chairman Jerome Powell recently said the main tool for controlling inflation is higher interest rates.

White House press secretary Jen Psaki said Biden “certainly agrees with his Treasury Secretary” on the potential need for higher interest rates, according to various media reports.

Speaking of concerns about the US’s huge deficits, Yellen said, “We have to pay for some of the things we do,” even though the government still has “reasonable fiscal space”.

Become a smarter investor with CNBC Pro.

Get stock picks, analyst calls, exclusive interviews and access to CNBC TV.

Sign up today to start a free trial.

Categories
Business

Europe’s Economic system Shrank in First Quarter, Revealing a Recession: Reside Updates

Shuttered storefronts in Milan last month. Extended lockdowns across Europe have slowed economic growth.

Here’s what you need to know:

Credit…Alessandro Grassani for The New York Times

The eurozone economy contracted by 0.6 percent over the first three months of the year, sliding back into recession, as the still-raging pandemic prompted governments to extend lockdowns.

Coming a day after the United States disclosed that its economy expanded 1.6 percent over the same period, the European downturn presented a contrast of fortunes on opposite sides of the Atlantic.

Propelled by dramatic public expenditures to stimulate growth, as well as swift increases in vaccination rates, the United States — the world’s largest economy — expanded rapidly during the first months of 2021. At the same time, the 19 nations that share the euro currency were caught in the second part of a so-called double-dip recession, reflecting far less aggressive stimulus spending and a botched effort to secure vaccines.

But figures for gross domestic product represent a snapshot of the past, and recent weeks have produced encouraging signs that Europe is on the mend. The alarming spread of Covid-19 in major economies like Germany and France has begun to trend downward, factories have revived production, while growing numbers of people are on the move in cities.

Even as the German economy diminished by 1.7 percent from January to March, Italy and Spain slipped by much smaller magnitudes — 0.4 percent and 0.5 percent respectively. The French economy grew by a modest 0.4 percent, though its prospects face a fresh challenge in the form of new pandemic restrictions imposed this month by the government.

The initial lockdowns last year punished Europe’s economies, bringing large swaths of commercial life to a halt. But the current restrictions are calibrated to reflect improved understanding of how the virus spreads. Rather than closing their doors altogether, restaurants in some countries are serving meals on patios and dispensing takeout orders. Roofers, carpenters and other skilled trades have resumed work, so long as they can stay outside.

“We have sort of learned to live with the pandemic,” said Dhaval Joshi, chief strategist at BCA Research in London. “We are adapting to it.”

Vaccination rates are increasing throughout Europe, a trend likely to be advanced by the European Union’s recent deal to secure doses from Pfizer.

Most economists and the European Central Bank expect the eurozone to expand at a blistering pace over the rest of 2021, yielding growth of more than 4 percent for the full year.

Still, even in the most hopeful scenario, Europe’s recovery is running behind the United States, a reflection of their differing approaches to economic trauma.

Since last year, the United States has unleashed additional public spending worth 25 percent of its national economic output for pandemic-related stimulus and relief programs, according to the International Monetary Fund. That compares to 10 percent in Germany.

But Europe also began the crisis with far more comprehensive social safety net programs. While the United States directed cash to those set back by the pandemic, Europe limited a surge in unemployment.

“Europe has more insurance schemes,” said Kjersti Haugland, chief economist at DNB Markets, an investment bank in Oslo. “You don’t fall as hard, but you don’t rebound that sharply either.”

Exxon reported a $2.7 billion profit in the first three months of the year, thanks to rising production and higher chemical prices.Credit…Lee Celano/Reuters

Exxon Mobil and Chevron, the two biggest oil companies in the United States, on Friday reported their first quarterly profits after several quarters of losses, signaling that the energy industry is rebounding from the coronavirus pandemic.

Oil prices have climbed in recent months and are now roughly where they were before the pandemic’s full force was felt. As a result, Exxon reported a $2.7 billion profit in the first three months of the year, compared with a loss of $610 million in the same period a year ago. Chevron said its profit was $1.4 billion, down from $3.6 billion a year earlier. Chevron this week raised its dividend by nearly 4 percent.

The American oil benchmark price, now around $64 a barrel, has tripled since last April. Natural gas prices have also strengthened during the recovery.

“The strong first quarter results reflect the benefits of higher commodity prices and our focus on structural cost reductions,” Darren Woods, Exxon’s chief executive, said in a statement.

Only six months ago, many analysts warned that Exxon would have to cut its dividend, but now the shareholder payout appears safe because of rising production and higher chemical prices. Exxon this month reported yet another in a string of big oil discoveries off the coast of Guyana, one of its most important growth areas.

At Chevron, sales and other revenue in the quarter increased to $31 billion, $1 billion more than the year-ago quarter.

“Earnings strengthened primarily due to higher oil prices as the economy recovers,” said Mike Wirth, Chevron’s chief executive.

Both companies suffered losses from the severe Texas freeze in February. Exxon reported that lost sales and repairs cost the company nearly $600 million. Chevron said its results were weakened by $300 million in lost oil and refining production and repairs.

Volkswagen wanted to have a little fun when it introduced the all-electric ID.4 to the United States in March. The Securities and Exchange Commission wasn’t laughing.Credit…Bryan Derballa for The New York Times

Volkswagen’s American unit was only kidding when it put out the word late in March that it was changing its name to “Voltswagen” to show its commitment to electric vehicles. To say the April Fool’s joke didn’t land is an understatement. Now the misfired marketing gag has prompted an inquiry by the Securities and Exchange Commission.

Volkswagen did not dispute reports in Der Spiegel and other German media that the S.E.C. was looking into whether the carmaker misled shareholders with the faux rebranding. Volkswagen in Germany declined to comment Friday.

Publicly listed companies are not supposed to fool their shareholders, even in jest. Some media reported the purported name change as fact until Volkswagen of America admitted it was all a joke.

German law also requires companies to be honest with their shareholders, but a spokeswoman for the stock market regulator, known as Bafin, said the agency saw no basis to investigate the Voltswagen issue.

It is unlikely that Volkswagen will face a serious penalty if the S.E.C. finds a violation, at least not compared to the tens of billions of dollars that an emissions scandal has cost the company since 2015. The gag does not appear to have had any influence on the price of Volkswagen shares, which rose for several days even after the company admitted it was all a ruse.

Like a comedian bombing onstage, the most painful consequence may be the humiliation.

Comments from Marin. J. Wash, the labor secretary, on gig workers sent shares of Uber, Lyft, Fiverr and DoorDash down sharply.Credit…Pool photo by Pat Greenhouse/EPA, via Shutterstock

Martin J. Walsh, the labor secretary, said on Thursday that “in a lot of cases” gig workers in the United States should be classified as employees, not independent contractors. “In some cases they are treated respectfully and in some cases they are not, and I think it has to be consistent across the board,” he told Reuters.

Shares of Uber, Lyft, Fiverr and DoorDash fell sharply on the news. These companies’ business models depend on classifying workers as independent contractors, who are not entitled to labor protections like a minimum wage or overtime pay.

But how much control does Mr. Walsh have over how companies classify their employees?

There’s no single law that makes workers employees or contractors. The Labor Department can enforce the Fair Labor Standards Act, which establishes the federal minimum wage and overtime pay. This law applies only to employees, and who should fall into that category has been the subject of a long-running debate.

In 2015, the Obama administration issued guidance that many interpreted to mean that app-based workers should be considered employees. It was rescinded by the Trump administration.

In 2021, the Trump administration issued a rule that would have made it easier for the same companies to classify workers as contractors. It was nixed by the Biden administration. Mr. Walsh’s comments suggest his interpretation will be similar to the Obama administration’s. And David Weil, reportedly President Biden’s nominee to lead the Labor Department’s wage and hour division, wrote the 2015 guidance.

New guidance wouldn’t change the law, but it could change how the Labor Department decides whether to bring lawsuits against gig economy companies. “It’s implicitly a sign to employers that you should comply with this interpretation or there’s a risk of enforcement,” Brian Chen, a staff attorney at the National Employment Law Project, told the DealBook newsletter.

Although such guidance is nonbinding, Benjamin Sachs, a professor at Harvard Law School, said courts “tend to give it deference” when making decisions. “I wouldn’t be surprised if we saw specific action coming from the department sometime this year,” said William Gould, a Stanford law professor and the former chairman of the National Labor Relations Board.

Ari Emanuel, the chief executive of the entertainment conglomerate Endeavor. “We’re platform agnostic, and we serve all parties,” he said of the streaming wars.Credit…Shannon Stapleton/Reuters

The Endeavor Group, the entertainment conglomerate run by the Hollywood mogul Ari Emanuel, pulled its initial public offering at the last minute in 2019, amid lukewarm interest from investors. Last year posed its own difficulties, with a pandemic that hurt its live events business as well as its talent agency.

But Endeavor finally made its market debut on Thursday, closing the day with a market cap of more than $10 billion. Mr. Emanuel spoke with the DealBook newsletter about what changed — and what comes next.

On why the I.P.O. went ahead this time:

“There was confusion with regard to the U.F.C., so we cleaned that up,” Mr. Emanuel said about the mixed-martial arts league that Endeavor is acquiring full control of with proceeds from the offering. Debt was also a worry before, and the company’s leverage will be reduced with help from a $1.7 billion private placement, with Third Point and Elliot Management among the investors. S&P Global upgraded the company’s credit rating on Thursday.

Endeavor also used the pandemic period to restructure and consolidate, shifting further away from its talent agency roots. And Mr. Emanuel expects its events business, entertainment relationships and intellectual property will help feed a demand for “content in all forms” after the pandemic: “We’re the story about coming out.”

On Endeavor’s role in the streaming wars:

“We’re platform agnostic, and we serve all parties,” Mr. Emanuel said. The broadcasters are spending “huge” amounts to build out their streaming platforms. “I don’t have to do that,” he said. “I just have to supply it.”

On how he met Elon Musk, who is joining Endeavor’s board:

“I definitely cold called. That’s kind of in my nature,” Mr. Emanuel said. “We’ve represented him in some of his endeavors. And then over time, he and I became friendly.”

“He’s also a great entrepreneur, meaning he knows how hard it is to build and run a company,” he added, noting that they often call each other for advice.

On whether he has any concerns about putting Mr. Musk on the board given the Tesla chief’s run-ins with securities regulators:

“No.”

Receiving the AstraZeneca vaccine in Budapest.Credit…Akos Stiller for The New York Times

The vaccine developed by AstraZeneca and the University of Oxford brought in $275 million in sales from about 68 million doses delivered in the first three months of this year, AstraZeneca reported on Friday.

AstraZeneca disclosed the figure, most of which came from sales in Europe, as it reported its first-quarter financial results. It offers the clearest view to date of how much money is being brought in by one of the leading Covid vaccines.

AstraZeneca, which has pledged not to profit on its vaccine during the pandemic, has been selling the shot to governments for several dollars per dose, less expensive than the other leading vaccines. The vaccine has won authorization in at least 78 countries since December but is not approved for use in the United States.

The vaccine represented just under 4 percent of AstraZeneca’s revenue for the quarter; it was nowhere near the company’s biggest revenue generator. By comparison, the company’s best-selling product, the cancer drug Tagrisso, brought in more than $1.1 billion in sales in the quarter.

AstraZeneca has said it is planning to seek emergency authorization for its vaccine to be used in the United States, even as it has become clear that the doses are not needed. The Biden administration said this week that it would make available to the rest of the world up to 60 million doses of its supply of AstraZeneca shots, pending a review of their quality.

If the company does win authorization from the U.S. Food and Drug Administration, it could help shore up confidence in a vaccine whose reputation been hit by concerns about a rare but serious side effect involving blood clotting. The F.D.A.’s evaluation process is considered the gold standard globally.

Johnson & Johnson, whose vaccine was authorized for emergency use at the end of February, reported last week that its vaccine generated $100 million in sales in the United States in the first three months of the year. The federal government is paying the company $10 a dose. Like AstraZeneca, Johnson & Johnson has pledged to sell its vaccine “at cost” — meaning it won’t profit on the sales — during the pandemic.

Vaccines from Pfizer and Moderna cost more, and neither company has said that it will forego profits. Pfizer has said that it expects its vaccine to bring in about $15 billion in revenue this year; Moderna said it anticipates $18.4 billion in sales.

Both companies are scheduled to report their first-quarter results next week.

By: Ella Koeze·Data delayed at least 15 minutes·Source: FactSet

U.S. stocks fell in early trading on Friday, with the S&P 500 pulling back from a record high reached the day before, as traders closed positions for the end of the month and continued to react to company earnings.

Despite Friday’s decline, the S&P 500 is still on track for a gain of about 5 percent for April, its best monthly showing since November — when stocks rallied nearly 11 percent in the wake of the U.S. presidential election.

The benchmark stock index had hit a record after data showed the American economy grew strongly at the start of the year. Forecasters predict the economy will be back to its prepandemic size by the summer and will help drive global economic growth.

Oil prices fell, with futures on West Texas Intermediate, the U.S. benchmark, dropping more than 2 percent to $63.50 a barrel.

  • The Stoxx Europe 600 index was slightly lower. The index is heading for a second consecutive week of losses, which hasn’t happened since October.

  • The eurozone economy contracted by 0.6 percent over the first three months of the year, sliding back into recession, as the pandemic prompted governments to extend lockdowns. The decline was smaller than economists surveyed by Bloomberg had forecast, but it still puts much of Europe in a double-dip recession.

  • AstraZeneca rose 3.4 percent in London after the drugmaker’s first-quarter earnings beat analysts expectations. The company also said that the vaccine it developed with the University of Oxford brought in $275 million in sales from about 68 million doses in the first three months of the year; the company has pledged not to profit from the vaccine.

  • Barclays shares plunged 6 percent after what the bank’s chief executive described as a “mixed result” for its first-quarter earnings. Income from trading in equities rose but fell for other assets. Still, the bank has a sunny outlook for the future. Jes Staley, the chief executive, said he expected the British economy to grow at the fastest pace since 1948.

  • Twitter shares dropped 13 percent after the social media platform cautioned investors that its user numbers were unlikely to increase substantially this year when compared with the spike caused by the pandemic.

  • Amazon rose about 1 percent after it reported $108.5 billion in sales in the first three months of the year, up 44 percent from a year earlier. It also posted $8.1 billion in profit, an increase of 220 percent from the same period last year.

  • With the pandemic shifting sales online and consumers flush with stimulus checks, Amazon on Thursday reported $108.5 billion in sales in the first three months of the year, up 44 percent from a year earlier. It also posted $8.1 billion in profit, an increase of 220 percent from the same period last year. The high volume of orders during the pandemic has let Amazon operate more efficiently. It has run its warehouses closer to full capacity, and delivery drivers have made more stops on their routes, with less time driving between customers. The number of items Amazon sold grew 44 percent, but the cost to fulfill those orders was up only 31 percent.

  • Twitter reported on Thursday that its revenue in the first quarter of the year was $1.04 billion, a 28 percent increase from the same quarter the previous year that modestly exceeded analyst expectations. Net income for the quarter was $68 million, a turnaround from an $8.4 million loss in the same quarter a year ago. The banning of former President Donald J. Trump did not appear to have hurt Twitter’s financial performance in the quarter. The company saw a 20 percent jump in daily active users who see ads, to 199 million. It also added new advertising formats, leading to a 32 percent increase in ad revenue in the quarter.

Tesla has been losing market share even as demand for rooftop solar power has grown.Credit…Caleb Kenna for The New York Times

Tesla’s solar ambitions date to 2015 when it announced that it would sell panels and home batteries alongside its electric cars. A year later, Elon Musk, the company’s chief executive, promised that Tesla’s new shingles would turbocharge installations by attracting homeowners who found solar panels ugly.

After delays, Tesla began rolling out the shingles in a big way this year, but it is already encountering a major problem, Ivan Penn reports for The New York Times.

The company is hitting some customers with price increases before installation that are tens of thousands of dollars higher than earlier quotes, angering early adopters and raising big questions about how Tesla, which is better known for its electric cars, is running its once dominant rooftop solar business.

The shingles remain such a tiny segment of the solar market that few industry groups and analysts bother to track installations.

Tesla is not the only company to pursue the idea of embedding solar cells, which convert sunlight into electricity, in shingles. Dow Chemical, CertainTeed, Suntegra and Luma, among others, have offered similar products with limited success.

But given Mr. Musk’s success with Tesla’s electric cars and SpaceX’s rockets, Tesla’s glass shingles attracted outsize attention. He promised that they would be much better than anything anybody else had come up with and come in a variety of styles so they could resemble asphalt, slate and Spanish barrel tiles to fit the aesthetic of each home.

During a quarterly earnings call on Monday, Mr. Musk insisted that demand for Tesla’s solar roofs “remains strong” even though the company had raised prices substantially. He described the last-minute increases as a teething problem.

Customers are unhappy with the growing pains. Dr. Peter Quint was eager to install Tesla’s solar shingles on his 4,000-square-foot home in Portland, Ore., until the company raised the price to $112,000, from $75,000, in a terse email. When he called Tesla for an explanation, he was put on hold for more than three hours.

“I said, ‘This isn’t real, right?’” said Dr. Quint, whose specialty is pediatric critical care. “The price started inching up. We could deal with that. Then this. At that price, in our opinion, it’s highway robbery.”

The average selling price of Ford models rose 8 percent in the first three months of 2021 compared with a year ago, to $47,858, according to the auto-sales data provider Edmunds.com.Credit…Mohamed Sadek for The New York Times

In the first months of 2021, what was good for the auto industry was decidedly good for the American economy.

Spending on motor vehicles and parts rose almost 13 percent in the first quarter, making a big contribution to the increase in gross domestic product, the Commerce Department reported Thursday. Strong sales of new and used vehicles were propelled by consumers who had delayed purchases earlier in the pandemic and by others who — because of the virus — wanted to rely less on public transit or shared transportation services like Uber.

Two rounds of stimulus payments since late December were a big factor. Low interest rates, readily available credit, rising home values and stock prices, and strong trade-in values for used models also eased the path for consumers.

In fact, demand in the first quarter was robust enough that the auto industry was able to post healthy results despite a shortage of computer chips that forced temporary shutdowns of many auto plants.

The number of new cars and light trucks sold increased 11 percent from the comparable period a year earlier, to 3.9 million, according to the auto-sales data provider Edmunds.com.

On Wednesday, Ford Motor reported it made a $3.3 billion profit in the quarter, its highest total since 2011. While it produced 200,000 fewer vehicles in the quarter than it had planned, the average selling price of Ford models rose to $47,858, 8 percent higher than in the first quarter a year ago, Edmunds reported.

The combination of strong consumer demand and tight inventories — partly a result of the chip shortage — has produced something of a dream scenario for auto retailers. At AutoNation, the country’s largest chain of dealerships, many vehicles are being sold near or at sticker price even before they arrive from the factory.

“I’ve never seen so much preselling of shipments,” said Mike Jackson, the chief executive. “These vehicles are coming in and going right out.”

In the first quarter, AutoNation’s revenue jumped 27 percent, to $5.9 billion, and the company reported $239 million in profit. That was a turnaround from a loss a year ago, when the pandemic crimped sales and forced AutoNation to close stores.

Categories
Business

Europe’s financial system is predicted to shrink whereas the U.S.’s grows.

Europe’s economy is expected to shrink while the U.S.’s grows.

European authorities will release data on Friday that are widely expected to show another economic downturn in the first three months of the year as the ongoing pandemic has led governments to extend lockdowns.

A day after the United States announced that its economy had grown 1.6 percent over the same period – a robust annual rate of 6.4 percent – the expected European contraction shows a contrast of happiness on opposite sides of the Atlantic.

Driven by dramatic public spending to stimulate growth and a rapid surge in vaccination rates, the United States – the world’s largest economy – expanded rapidly in the first few months of 2021. At the same time, the 19 nations that share the euro currency were likely trapped in the second part of a so-called double-dip recession, due to far less aggressive stimulus spending and botched vaccine security efforts.

However, economic growth is a snapshot of the past and the last few weeks have shown encouraging signs that Europe is on the mend. Although Covid-19 is spreading alarmingly in large economies like Germany and France, factories have revived production as more and more people are out and about in cities.

The initial lockdowns last year penalized European economies and brought much of business to a standstill. However, the current restrictions are calibrated to allow a better understanding of the spread of the virus. Instead of closing their doors all the way, restaurants in some countries serve meals on terraces or place take-away orders. Roofers, joiners and other craftsmen have resumed their work as long as they can stay outside.

“We have learned to deal with the pandemic,” said Dhaval Joshi, chief strategist at BCA Research in London. “We adapt.”

Vaccination rates are increasing across Europe, a trend likely to be driven by the recent European Union agreement to secure Pfizer’s doses.

By depriving households of money to spend, the pandemic has resulted in savings – money that can enter businesses when fears of the virus subside.

Most economists and the European Central Bank assume that the euro zone will expand rapidly in the further course of 2021 and achieve growth of more than 4 percent for the year as a whole.

Even in the most hopeful scenario, Europe’s recovery is lagging behind the United States, reflecting their different approaches to economic trauma.

Since last year, the United States has allocated additional public spending equivalent to 25 percent of its national economic output to pandemic-related stimulus programs and aid programs, according to the International Monetary Fund. That is 10 percent in Germany.

But Europe also started the crisis with far more extensive social safety nets programs. As the United States directed cash to those who were pushed back by the pandemic, Europe limited spikes in unemployment.

“Europe has more insurance systems,” said Kjersti Haugland, chief economist at DNB Markets, an Oslo investment bank. “You don’t fall as hard, but you also don’t bounce off as hard.”