US falls into technical recession; Felixstowe port staff vote to strike over pay – business live | Business


US falls into technical recession

The US economy has fallen into a technical recession after economic activity fell for the second quarter in a row.

US GDP shrank by just over 0.2% in April-June, or by 0.9% on an ‘annualised’ basis, government figures show.

That will intensify fears that the global economy is heading into recession, as the energy crisis and soaring inflation hits growth, and is another political headache for President Biden.

Two quarters of negative growth are seen as the technical definition of a recession by economists.

🚨 US GDP contracted 0.9% in the second quarter. This is now the second straight quarter of a decline. For many on Wall Street this would be considered a technical recession.

— annmarie hordern (@annmarie) July 28, 2022

US recessions are, however, officially declared by the National Bureau of Economic Research (NBER), a research group that uses a broad range of measures including jobs growth to decide when the US economy is shrinking.

The NBER often makes its announcement well after a recession has begun, as it assesses other economic factors.

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The big picture, Allianz’s Mohamed El-Erian points out, is that the US is falling deeper into stagflation.

Message is clear from the negative US GDP print (-0.9%) and unfavorable miss on jobless claims:
The US #economy is slowing at a significant rate.
Add to that the 8.7% price change in today’s data and the bottom line is clear:
Deepening stagflation and flashing red #recession risk

— Mohamed A. El-Erian (@elerianm) July 28, 2022

This is a good point about the US economy, and the impact of rising inflation generally, from Josh Boak of AP:

Inflation matters a lot when thinking about GDP—exclude it from the Q2 figures and the economy grew at a 7.8% annual rate.

The fact that nominal growth was wiped out entirely by inflation helps to explain why voters are so angry and unhappy.

— Josh Boak (@joshboak) July 28, 2022

And here’s more reaction to the contraction in the world’s largest economy, from Interactive Investor’s Victoria Scholar:

Despite many saying the US economy remains strong, GDP points to a technical recession with the second straight quarter of negative growth.

The US economy shrank by 0.9% in Q2 2022, compared to market expectations for GROWTH of 0.5% 📉📉📉

— Victoria Scholar (@VictoriaS_ii) July 28, 2022

And James Picerno of Capital Spectator:

Ouch! US GDP contracted in Q2, falling 0.9%, the govt reports — 2nd straight decline. The news will stoke deeper worries about recession risk and the debate about whether a recession has already arrived: pic.twitter.com/Ntm6ujqHbz

— James Picerno (@jpicerno) July 28, 2022

Several factors dragged the US economy into a technical recession in the last quarter.

Business inventories fell, and firms also cut back on investment. Spending on real estate dropped, along with federal government spending, state and local government spending.

But, exports of both goods and services increased, as did personal consumption — showing that consumer spending held up despite weakness elsewhere in the US economy.

The US economy contracted in the first half of 2022

What hurt growth:
Big drop in inventories
Drop in biz investment
Drop in Real Estate spending
Drop in spending on goods (cars, furniture, etc)
Gov’t spending down

What’s doing well:
Consumer spending, esp. on services
Exports pic.twitter.com/Oe3lKUsvi4

— Heather Long (@byHeatherLong) July 28, 2022

The bad news that the US economy shrank again in Q2 will be a major blow for the Biden administration as it prepares for a tough midterm election season, my colleague Dominic Rushe writes.

White House officials have tried to tamp down talk of a recession, arguing that many parts of the economy remain strong.

The 0.9% fall in activity stands in marked contrast to the robust 6.9% annual increase in GDP recorded in the final quarter of 2021 when the economy roared back from Covid shutdowns.

Here’s the full story:

US falls into technical recession

The US economy has fallen into a technical recession after economic activity fell for the second quarter in a row.

US GDP shrank by just over 0.2% in April-June, or by 0.9% on an ‘annualised’ basis, government figures show.

That will intensify fears that the global economy is heading into recession, as the energy crisis and soaring inflation hits growth, and is another political headache for President Biden.

Two quarters of negative growth are seen as the technical definition of a recession by economists.

🚨 US GDP contracted 0.9% in the second quarter. This is now the second straight quarter of a decline. For many on Wall Street this would be considered a technical recession.

— annmarie hordern (@annmarie) July 28, 2022

US recessions are, however, officially declared by the National Bureau of Economic Research (NBER), a research group that uses a broad range of measures including jobs growth to decide when the US economy is shrinking.

The NBER often makes its announcement well after a recession has begun, as it assesses other economic factors.

Felixstowe’s dockworkers have joined a growing wave of employees, in a range of sectors from rail to telecoms, resorting to industrial action this summer.

Unite points out that retail price inflation has now hit 11%, with the consumer price index measure at a 40-year high of 9.4%, and heading for double-digits this autumn when energy bills jump.

Unions warned last night that UK could face a general strike this year, as the summer of industrial unrest intensifies.

A halt to operations at Felixstowe would have devastating effects on the UK supply chain, as the port handles almost half the country’s container traffic, Sky News points out.

Felixstowe struggled with a backlog of containers last autumn, due to the UK’s lorry diver shortage, which led to some ships from Asia being turned away.

Staff at Britain’s biggest container port vote to strike in pay dispute

Staff at the country’s largest container port, Felixstowe, have voted to strike in a dispute over pay, which would caused significant disruption to trade flows and UK supply chains.

The Unite union says staff have rejected a below-inflation 5% pay offer, meaning Felixstowe could ‘come to a standstill’ next month.

A walkout would cause “major logistical problems” for maritime and road haulage transport entering the port, the union says.

Unite general secretary Sharon Graham said:

“The bottom line is this is an extremely wealthy company that can fully afford to give its workers a pay rise. Instead it chose to give bonanza pay outs to shareholders touching £100m.

“Unite is focused on defending the jobs, pay and conditions of its members and we will giving 100 per cent support to our members at Felixstowe.

“Workers should not be paying the price for the pandemic with a pay cut. Unite has undertaken 360 disputes in a matter of months and we will do all in our power to defend workers.”’

Unite’s members at Felixstowe voted 92% in favour of industrial action, on an 81% turnout.

Unite has not given any dates for the strike action, and is hoping that the Felixstowe Dock and Railway Company will come back with a better offer.

Unite regional officer Miles Hubbard explains:

“This dispute is of Felixstowe’s own making. Strike dates have yet to be announced but even at this late stage the dispute could be resolved by the company returning to negotiations and making a realistic offer.”

Retailers will hope they’re not in for more disruption – a lot of product comes in through Felixstowe.
UK’s largest container port faces “standstill” through strikes, union says https://t.co/NnOVv2moa3

— George MacDonald (@GeorgeMacD) July 28, 2022

Friends of the Earth energy campaigner Sana Yusuf argues that a tougher windfall should be imposed on energy firms, to help those struggling.

“Clearly not everyone is struggling with the energy crisis.

“These bumper profits [from Shell and Centrica] will be greeted with disbelief by the millions of people across the UK who are faced with rocketing energy prices.

“The government must impose a tougher windfall tax on energy firms.

The bulk of these profits should be used to insulate our homes and help cash-strapped households pay for their heating this winter, rather than developing more fossil fuel projects that roast the planet.”

Getting back at Centrica’s five-fold jump in earnings….Victoria Scholar, head of investment at interactive investor says the owner of British Gas saw a huge surge in its profits on the back of the war in Ukraine.

That prompted a rally for commodity prices including wholesale gas which hit record highs in Europe this year, she explains:

As a result, Centrica is able to return cash to shareholders via the initiation of a dividend, with traders buying the company’s shares this morning. European gas prices have been soaring once again this week after Russia cut flows to Germany through the key Nord Stream 1 pipeline, with concerns that President Putin will continue to weaponise gas by restricting supply, which keep prices elevated.

In an otherwise challenging year for equities, commodity players have been the standout winners with the geopolitical turmoil providing a tailwind for the sector.

Andy Bruce of Reuters has analysed today’s UK spending figures, and highlights a big shift towards motor fuel at the expense of non-essential goods:

Adjust the @ONS CHAPs card spending data for inflation, you see some big shifts in consumption.

🚗⛽️ Work-related spending (which includes petrol) up 29% vs Feb 2020

🧥🛋️Delayables (clothing, furniture, luxury goods, cars etc) down 28% pic.twitter.com/EzqjwgvBTF

— Andy Bruce (@BruceReuters) July 28, 2022

This stuff doesn’t cover energy bills so much, which are mostly paid via direct debit

— Andy Bruce (@BruceReuters) July 28, 2022





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