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US economy likely logged its weakest performance in 74 years in 2020

WASHINGTON: The US economy likely contracted at its sharpest pace since World War Two in 2020 as COVID-19 ravaged services businesses like restaurants and airlines, throwing millions of Americans out of work and into poverty.

The Commerce Department‘s snapshot of fourth-quarter gross domestic product on Thursday is also expected to show the recovery from the pandemic losing steam as the year wound down amid a resurgence in coronavirus infections and exhaustion of nearly $3 trillion in relief money from the government.

The Federal Reserve on Wednesday left its benchmark overnight interest rate near zero and pledged to continue injecting money into the economy through bond purchases, noting that “the pace of the recovery in economic activity and employment has moderated in recent months.”

President Joe Biden has unveiled a recovery plan worth $1.9 trillion, and could use the GDP report to lean on some lawmakers who have balked at the price tag soon after the government provided nearly $900 billion in additional stimulus at the end of December.

“Last year was awful for the economy,” said Sung Won Sohn, a finance and economics professor at Loyola Marymount University in Los Angeles. “This was the first service industry recession in recent memory where a lot of jobs were lost.”

Economists are forecasting that the economy contracted by as much as 3.6% in 2020, the worst performance since 1946. That would follow 2.2% growth in 2019 and would be the first annual decline in GDP since the 2007-09 Great Recession.

In the fourth quarter, GDP is estimated to have expanded at a 4% annualized rate, according to a Reuters survey of economists. The virus and lack of another spending package curtailed consumer spending, and partially overshadowed robust manufacturing and the housing market.

The anticipated big step-back, following a historic 33.4% growth pace in the July-September period, would leave GDP roughly 2.3% below its level at the end of 2019. With the virus not yet under control, economists are expecting growth to further slow down in the first quarter of 2021, before regaining speed by summer as the additional stimulus kicks in and more Americans get vaccinated.

“No doubt it will be a challenging few months as the vaccines struggle to get distributed and lockdowns remain in place,” said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina. “However, as COVID gets under control, we expect growth to ratchet higher, running at around a 7% pace in the second half of the year.”

K-SHAPED RECOVERY
The services sector has borne the brunt of the coronavirus recession, disproportionately impacting lower-wage earners, who tend to be women and minorities. That has led to a so-called K-shaped recovery, where better-paid workers are doing well while lower-paid workers are losing out.

The stars of the recovery have been the housing market and manufacturing as those who are still employed seek larger homes away from city centers, and buy electronics for home offices and schooling. Manufacturing’s share of GDP has increased to 11.9% from 11.6 at the end of 2019.

A survey last week by professors at the University of Chicago and the University of Notre Dame showed poverty increased by 2.4 percentage points to 11.8% in the second half of 2020, boosting the ranks of the poor by 8.1 million people.

Rising poverty is likely be underscored by persistent labor market weakness. The Labor Department is expected to report on Thursday that 875,000 more people filed for state unemployment benefits last week, according to a Reuters survey.

About 16 million Americans were receiving unemployment checks at the end of 2020. The economy shed jobs in December for the first time in eight months. Only 12.4 million of the 22.2 million jobs lost in March and April have been recovered.

Lack of jobs and the expiration of a government weekly jobless subsidy likely restrained growth in consumer spending to about a 3% rate in the fourth quarter. Consumer spending, which accounts for more than two-thirds of the U.S. economy, notched a record 41% pace in the July-September quarter.

Renewed business restrictions likely kept spending on services subdued. Demand for goods that complement life at home probably boosted business investment, with double digit growth expected again in the fourth quarter.

Businesses were also rebuilding inventories last quarter, which is likely to have contributed to GDP growth. But the inventory accumulation included imports, likely leading to a larger trade deficit, which subtracted from growth.

Another quarter of double-digit growth is expected from the housing market, thanks to historically low mortgage rates. Government spending was likely weak, hurt by state and local governments, whose finances have been squeezed by the pandemic.

US trade deficit hits record USD 73.3 billion in August

The US trade deficit increased to a record USD 73.3 billion in August as a small gain in exports was swamped by a much larger increase in imports. The Commerce Department reported Tuesday that the monthly trade deficit increased 4.2 per cent in August, rising to an all-time high, surpassing the previous record of USD 73.2 billion set in June.

The trade deficit represents the gap between what the country exports to the rest of the world and the imports it purchases from other countries.

In August, exports rose 0.5 per cent to USD 213.7 billion, reflecting revived overseas demand. But imports, even with all the supply chain problems at ports, were up an even stronger 1.4 per cent to USD 287 billion.

The politically sensitive deficit with China surged 10.8 per cent to USD 31.7 billion.

Katherine Tai, the Biden administration’s top trade negotiator, announced Monday that the United States plans to launch new trade talks with China but will maintain the Trump-era tariffs as it pushes to get China to fulfill pledges it has made to buy more US goods and services.

The Biden administration has spent months since coming into office reviewing the economic relationship with China, the world’s second largest economy.

China blasts US over trade restrictions on Xinjiang firms

China on Friday hit out at a “bandit-like” US government after Washington banned imports of solar panel materials from a Chinese company and placed trade restrictions on four others for alleged use of forced labour in Xinjiang.

The White House said in a statement Thursday that the use of forced labour was part of Beijing’s systematic effort to repress millions of ethnic Uyghurs and other minorities in the far-west region.

Washington said that Hoshine Silicon Industry would not be able to sell its products in the United States due to “reasonable indications” of forced labour in its manufacturing process.

The Commerce Department also announced that Hoshine and four other Xinjiang firms would be subject to tight restrictions on their ability to acquire US commodities, software and technology.

“The United States believes that state-sponsored forced labour in Xinjiang is both an affront to human dignity and an example of the PRC’s unfair economic practices,” the White House said.

China lashed out at the order, calling it a “bandit-like act no different from pillaging other people’s property” that creates “forced poverty and forced unemployment” among Xinjiang’s people.

“The US uses human rights as a pretence… to unscrupulously oppress the industrial development of Xinjiang,” said foreign ministry spokesman Zhao Lijian at a routine briefing Friday.

Zhao said the United States “politicises normal economic and trade cooperation” and “wantonly oppresses Chinese companies… to hold back China’s development”.

The Xinjiang region supplies close to half of the world’s polysilicon used in solar panels.

The four other companies include two producers of polysilicon materials — Daqo New Energy and Xinjiang GCL New Energy Material Technology — plus aluminium processor Xinjiang East Hope Nonferrous Metals and state-owned Xinjiang Production and Construction Corps, already sanctioned for alleged forced labour in cotton processing.

An official from US Customs and Border Protection, which issued the block on Hoshine imports, estimated that the United States imported goods from the company worth $150 million over the past 30 months.

Asked if the US trade actions could conflict with promoting solar energy, US Homeland Security Secretary Alejandro Mayorkas said stopping forced labour comes first.

“Our environmental goals will not be achieved on the backs of human beings in a forced labour environment,” Mayorkas told reporters.

The import ban on Hoshine follows similar action against producers and users of cotton and tomato products from the region as well as hair products such as weaves.

The United States also recently placed a ban on imports from a leading Chinese fishing company, Dalian Ocean, for its alleged use of forced labour, unrelated to Xinjiang.

US economy grows 6.4% in Q1, and it’s likely just the start

The US economy grew at a solid 6.4% rate in the first three months of the year, setting the stage for what economists believe may be the strongest year for the economy in about seven decades.

Growth in the gross domestic product, the country’s total output of goods and services, was unchanged from two previous estimates, the Commerce Department said Thursday, an acceleration from the 4.3% pace of the fourth quarter.

Economists believe that economic growth has continued to accelerate in the current quarter, which ends this month, as vaccinations become widespread and Americans eager to get outside are being welcomed by newly re-opened businesses. Surging activity from consumers is being fueled in part by nearly $3 trillion in financial support that the government has approved since December.

Additional economic data that emerged Thursday also points to a nation that has regained its footing quickly after being thwacked by a global pandemic, though jobless claims remain stubbornly above 400,000.

“This summer will be hot for the US economy,” said Lydia Boussour, lead US economist for Oxford Economics. “As the health situation continues to improve, consumers sitting on piles of savings will give into the urge to splurge on services and experiences they felt deprived of during the pandemic.”

Boussour forecast that GDP growth in the current April-June quarter will surge to an annual rate of 12% and growth for the entire year will come in at 7.5%. That would be the best annual performance since 1951.

Even economists whose forecasts for 2021 growth range from 6% to 7% believe growth this year will be the best since a 7.2% gain in 1984, when the US was emerging from an extended and painful recession.

Economists believe growth this quarter will be enough to push GDP output above the previous peak reached at the end of 2019 before the pandemic struck and cut off the longest economic expansion in US history.

The data released Thursday was government’s third and final look at first-quarter GDP, and arrived along side a separate report from the Commerce Department that showed May orders from US factories for big-ticket manufactured goods rose for the 12th time in the last 13 months.

Orders for durable goods – meant to last at least three years – climbed 2.3% in May, reversing a 0.8% drop in April. That heated activity is taking place despite a backlogged supply chain and a shortage of workers.

Orders for aircraft shot up 27.4% last month after climbing 31.5% in April, the Commerce Department said. Excluding transportation orders – which can bounce wildly from month to month – durable goods orders rose 0.3% last month.

Factories anticipating a return to normalcy or better are ramping up operations to match demand as jobless claims continue to tick lower.

The number of Americans applying for unemployment benefits dropped last week as the job market continues to heal, albeit more slowly than many economists expected at this point in the recovery.

Jobless claims fell just 7,000 from the previous week to 411,000, the Labor Department said Thursday. While that is far from the rush to work that has been anticipated for some time now, weekly claims have fallen steadily this year from about 900,000 in January.

Even if job growth has not met most expectations, Americans are spending money and lots of it as summer kicks off.

Consumer spending, which accounts for more than two-thirds of economic activity, grew at a sizzling annual rate of 11.4% in first three months of the year, the Commerce Department said Thursday. It’s likely that some of that spending is being juiced by a round of $1,400 inpidual payments that were included in the $1.9 trillion support package Congress passed in March.

The first-quarter spending gain reflected increases in goods purchases, led by auto sales, and gains in spending on services, led by food services and travel accommodations, two areas that have benefited from the re-opening of the economy as vaccinations have increased.

Business investment grew at a strong 11.7% rate, better than the previous estimate of 10.8% growth, while government spending increased at a 5.7% rate, slightly below last month’s estimate of a 5.8% gain.

The trade deficit grew in the first quarter, subtracting 1.5 percentage points from growth, as a recovering US economy attracted rising imports while US exporters struggled with weaker overseas demand.

Inflation | CPI soars to six-month high; WPI also hits record peak

Retail inflation hardened to a six-month high in May, joining the rising trend in wholesale inflation that also strengthened to a record, but experts said the Reserve Bank of India (RBI) may tolerate these levels for a while given concerns over growth.

Retail inflation, as measured by the consumer price index (CPI), accelerated to 6.3% in May from 4.23% in April, breaching the upper band of the RBI’s 2-6% range for the first time in six months, data from the statistics office showed.

The wholesale price index (WPI), released separately by the commerce department, showed inflation at 12.94% in May, the highest in the current series with 2011-12 as the base, magnified by the year-earlier low base. WPI inflation was -3.37% in May 2020 and 10.49% in April 2021.

Rising wholesale inflation, increasingly reflected in retail inflation as well, is going to make things difficult for the RBI, said Sunil Kumar Sinha, principal economist, India Ratings. “However, given the growth inflation dynamics, Ind-Ra believes RBI will not be in a hurry to tinker with either the policy rate or its accommodative policy stance,” he said.

In its monetary policy review earlier this month, the central bank had held rates and reaffirmed its accommodative policy as it pared the growth forecast for FY22 by a percentage point to 9.5%.

Most economists now expect the economy to grow at high single digits in FY22 against double-digit estimates at the beginning of the fiscal because of the severe second wave of the pandemic.

“This outcome complicates the direction of monetary policy,” said Radhika Rao, economist, DBS. “However, the RBI is likely to stick with the US Fed’s playbook on opting to pin this spurt on transient cost-push pressures.”

CPI closely watched by RBI
Retail inflation, more closely watched by the RBI, is likely to ease going ahead as lockdowns are lifted and supply constraints ease.

CARE Ratings expects retail inflation at 5-5.5% with an upside bias in FY22.

Food and commodities
Retail inflation was largely driven by food and fuel while at the wholesale level, commodities caused the spike in May. Retail food inflation accelerated to 5.01% from 1.96 % in April, as the price of meat, fish, eggs, oils and fats surged from a year ago. Fuel inflation was 11.58% on higher retail prices of petrol and diesel. Services inflation also rose as health, transport and personal care costs increased during the second wave of the pandemic.

At the wholesale level, fuel inflation rose to 37.6% in May from 20.9% in April while inflation in manufactured items climbed to 10.8% from 9%. Wholesale inflation in food moderated to 4.3% from 4.9%.

policy | US imposes preliminary anti-dumping duties of over 50% on metal pipes made in India

WASHINGTON: The US has announced hefty preliminary anti-dumping duties on metal pipes imported from India, China and four other countries, in an aggressive tactic by the Trump administration to protect the American industry and lower the trade deficit.

Six US pipe manufacturers had filed the antidumping complaint with the Commerce Department in January.

Announcing the preliminary determinations in anti-dumping duty investigations of imports of the pipes, the US Department of Commerce yesterday said the six countries were selling the large diameter-welded pipe — used to transport oil, gas and other fluids — far below the fair price, and that dumping harms the US industry.

India has been slapped with an anti-dumping duty of 50.55 per cent. US imports of the pipe from India last year totalled USD 294.7 million.

The other countries being hit with duties are China (132.63 per cent), Greece (22.51 per cent), Canada (24.38 per cent), South Korea (14.97 to 22.21 per cent) and Turkey (3.45 to 5.29 per cent).

Dumping occurs when a foreign company sells an imported product at an artificially low price.

The US Customs and Border Protection will collect cash deposits from India and the five other importers, according to a statement by the US Commerce Department.

“With respect to the India and Turkey investigations, Commerce will adjust the cash deposit rates by the amount of export subsidies found in the companion countervailing duty investigations,” it said.

“The strict enforcement of US trade law is a primary focus of the Trump Administration,” the statement said.

“Since the beginning of the current Administration, Commerce has initiated 120 new anti-dumping and countervailing duty investigations – this is a 216 per cent increase from the comparable period in the previous administration,” it added.

The Commerce Department said it will make a final ruling in November on whether the pipe from India and China is dumped into the US market.

If the independent International Trade Commission finds that US industry was not harmed from the imports, the duties will be refunded.

For the Canada, Greece, Korea, and Turkey investigations, the final ruling will be made by January 2019..