Recession in the U.S. Appears No Closer as Jobs Market and Spending Brush Off Fed Rate Increases

Recession in the U.S. Appears No Closer as Jobs Market and Spending Brush Off Fed Rate Increases By James Christie

Good day. Despite the rise in interest rates imposed by the Federal Reserve to try to cool hot inflation in the U.S., Americans are splurging on activities they skipped during pandemic lockdowns, such as travel, concerts and dining out. That has pushed businesses to staff up to satisfy the pent-up demand, as Friday's employment report underscored, noting the addition of a seasonally adjusted 339,000 jobs in May. It appears the same inflation that so worries the Fed translates into higher wages and profits, fueling spending. Such resilience is easing concerns about a looming recession and suggests the Fed might need to raise interest rates more to bring inflation down from its current rate around 5% toward the central bank's 2% target. Some Fed officials have indicated it may be time to pause their rate-raising campaign at their meeting this month. But they are leaving the door open to resuming rate increases later this year.

Now on to today's news and analysis.

Top News Why the U.S. Remains Far From Recession

More than a year after the Federal Reserve began rapidly raising interest rates to tame inflation, the hallmarks of a widely expected recession remain elusive.

Employers are hiring aggressively, consumers are spending freely, the stock market is rebounding and the housing market appears to be stabilizing-the most recent evidence that the Fed's efforts have yet to significantly weaken the economy.

Instead, the lingering effects of the pandemic have left consumers and employers still playing catch-up. That momentum could prove self-sustaining .

Behind Rise in Unemployment, Job Market Is Really Strong Get Ready for the Full-Employment Recession

Jobs Report Is Unlikely to Resolve Fed Rate Debate

Friday's jobs report does little to change the Federal Reserve's debate over holding rates steady this month. But it strengthens the likelihood officials would pair any June pause with a stronger preference to raise rates later.

Wall Street Backs Off Bets on Fed Rate Cuts

Persistent strength in the economy has wrong-footed bets that the Federal Reserve will make large interest-rate cuts this year, potentially undermining a key element of support for the 2023 stock rally.

Pro Take: Are There More Workers to Pull Into the U.S. Economy? By Bob Fernandez

Friday's employment report blew away projections: 339,000 new jobs. Additionally, the percentage of prime-age workers who have jobs or are looking for one reached its highest level in 21 years, 83.3%, for the month of May, according to Bureau of Labor Statistics data. Federal Reserve officials believed labor-market tightness was easing, but the new data show a vigorous job market more than a year into the central bank's tightening campaign to slow the economy. Read more .

U.S. Economy U.S. Labor Market Shows Resilience With Strong May Hiring

U.S. employers added a seasonally adjusted 339,000 jobs last month and March and April's totals were both revised upward for a net gain of 93,000 jobs. The unemployment rate rose to 3.7%, an uptick from April's 3.4%.

Zombie Mortgages Could Force Some Homeowners Into Foreclosure

Many homeowners are facing large bills and even foreclosure threats from investors who own their second mortgages , loans often made more than a decade ago. High home prices have given the investors a new incentive to try to collect.

Key Developments Around the World OPEC+ Sticks to Oil Output Target After Members Clash Over Quotas

Saudi Arabia said it would cut 1 million barrels of oil a da y as part of a deal between OPEC and its allies after one of the most contentious production meetings in recent years amid concerns over slowing global energy demand.

Exxon, Chevron Near Deals to Drill in Gas-Rich Algeria

The drilling deals, which could be complete by the end of the year, would give the companies a foothold in a country that is an increasingly important supplier of natural gas to Europe following Russia's invasion of Ukraine.

Corporate America Scales Back Hopes for China Revival

From chip maker Qualcomm to industrial bellwethers Caterpillar and DuPont, U.S. companies are reporting weak results out of China as its reopening from three years of Covid-related isolation has failed to gain steam.

As China Risks Grow, Manufacturers Seek Plan B-and C and D

For much of the past decade, Western companies have sought an alternative to China to manufacture goods-a shift executives call "China plus one." Increasingly, the strategy looks more like China plus many .

Ukraine's Zelensky: We Are Ready for Counteroffensive

Ukrainian President Volodymyr Zelensky said he was now ready to launch a long-awaited counteroffensive but tempered a forecast of success with a warning: It could take some time and come at a heavy cost.

Russia Says Ukraine Has Launched Attacks on Front Lines Financial Regulation Roundup Online Banks Are Winning the Deposit War

Online banks pulled off a tall order in 2023: They brought in more deposits than they lost , while deposits in the first quarter fell from December at regional-bank powerhouses such as U.S. Bank and Truist Financial.

Big Banks Could Face 20% Boost to Capital Requirements

U.S. regulators are preparing to force large banks to shore up their financial footing , moves they say will help boost the resilience of the system after a spate of midsize bank failures this year.

SEC Drops 42 Enforcement Cases It Says Were Tainted

The Securities and Exchange Commission is dismissing 42 enforcement cases after finding that some of its employees improperly accessed legal records that should have been walled off from them, the agency said Friday.

Forward Guidance Monday (all times ET)

10 a.m.: ISM Report on Business Services PMI for May; Introductory remarks by ECB's Lagarde to European Parliament Committee on Economic and Monetary Affairs hearing

Tuesday

5 a.m.: ECB Consumer Expectations Survey results

Commentary Super-Powered Labor Market Fights the Fed

Federal Reserve policy makers, for their part, still seem likely to keep rates on hold when they meet later this month, perhaps taking a bit of cover from the rise in the unemployment rate, Justin Lahart writes.

A Lifeline for Property Is All Gummed Up

Banks are getting stingy with commercial property mortgages, and ideally alternative lenders could step in and help landlords refinance debts, but this part of the lending market isn't in great shape , Carol Ryan writes.

Basis Points Commodity prices are in retreat , signaling a slowdown in the world economy but lending central banks a hand in their fight against inflation. Fitch Ratings said its AAA rating for the U.S. remains on rating watch negative as the agency considers "the full implications of the most recent brinkmanship episode and the outlook for medium-term fiscal and debt trajectories" following a deal among U.S. lawmakers to resolve the latest debt ceiling crisis. (Dow Jones Newswires) Brazil's industrial production declined in April, led by a sharp fall in capital goods. Output fell a seasonally adjusted 0.6% from March and 2.7% from a year earlier, the Brazilian Institute of Geography and Statistics said. (DJN) A private gauge of China's service activities edged up in May and remained in expansionary territory for the fifth consecutive month, suggesting continued recovery in the services sector after Beijing's lifting of Covid restrictions. (DJN) Singapore's manufacturing activity shrunk further in May, owing to faster contraction in new orders, new exports, factory output and inventory. (DJN) Germany's trade surplus climbed unexpectedly on month in April as exports rose and imports fell, a sign of increased foreign demand for German goods at the start of the second quarter. (DJN) Newly re-elected Turkish President Recep Tayyip Erdogan introduced a new cabinet that changed the leadership in the areas of foreign policy and security and signaled a shift in economic policies that have pushed the country to the brink of financial instability. Feedback Loop

This newsletter is compiled by James Christie in San Francisco.

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June 05, 2023 07:17 ET (11:17 GMT)

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