Fed's Rate Moves Put Manufacturing Sector at Risk; Job Market, Powell Testimony in Focus This Week

Fed's Rate Moves Put Manufacturing Sector at Risk; Job Market, Powell Testimony in Focus This Week By James Christie

Good day. The American manufacturing sector is starting to show signs of weakness after two years of strong growth, as higher interest rates and a slowdown in exports threaten production. A manufacturing downturn could be a sign of trouble in the broader U.S. economy. Although manufacturing accounts for a relatively small share of gross domestic product, about 11%, it has historically been an early indicator of recession. The Fed's aggressive pace of interest-rate increases to fight inflation has made it more expensive to borrow for big-ticket items such as business machinery. Fed officials in early February approved raising their benchmark rate to the highest level since 2007, and have signaled they are likely to raise rates again when they convene later this month. "As the Fed continues to hike, manufacturing is going to be in the crosshairs," said Jonathan Millar, senior U.S. economist at Barclays. Fed Chair Jerome Powell will discuss monetary policy when he appears before Congress on Tuesday and Wednesday. His testimony, along with reports this week on global trade, job openings and payrolls, will offer more clues about the direction of the economy in 2023.

Now on to today's news and analysis.

Top News Fed's Rate Moves Put Manufacturing Sector at Risk

New orders for manufactured goods contracted for the sixth straight month through February, according to surveys by the Institute for Supply Management. Manufacturing output is down 1.7% from its postpandemic peak in May 2022, according to a three-month moving average of Federal Reserve data.

Weaker manufacturing data suggests that consumers and businesses are starting to retrench in the face of economic uncertainty, said Jonathan Millar, senior U.S. economist at Barclays PLC.

What's Harder for the Fed? Taming Inflation or Renovation Expenses?

Anyone with a recent home renovation project hit by rising costs has distinguished company: The Federal Reserve, the U.S. institution charged with controlling inflation, is also struggling to hold down expenses on its stately digs.

Junk-Rated Companies Are Borrowing Again

Bond yields have been rising again lately. That could create complications for low-rated companies that had just started to enjoy having easier access to credit. A climb in borrowing costs could translate to another slowdown in bond sales-potentially good news for the Fed, which is trying to restrain economic activity as it fights inflation, but bad news for businesses that need to borrow to make ends meet.

U.S. Economy The Economy This Week: U.S. Job Market, Powell Testimony in Focus

Highlights this week include Federal Reserve Chairman Jerome Powell testifying before lawmakers regarding the central bank's monetary policy and the Labor Department report on the job market in February.

Housing Market Momentum Stalls as Critical Season Approaches

Rising mortgage rates are cooling the U.S. housing market, sapping recent buyer interest heading into the crucial spring selling season. Mortgage applications in the week ended Feb. 24. slid to its the lowest level in 28 years.

Cuts at Amazon, Other Tech Companies Don't Spell Recession Yet

Amazon.com Inc.'s halt to construction of a new headquarters, on top of a parade of high-profile tech layoffs, looks ominous for the economy. But the damage will need to spread much further to signal full-blown recession.

Energy Industry Wrestles Over Going Green Too Fast

While the race to develop cleaner energy intensified over the past year, an uneasy consensus emerged on a parallel track: At least in the short term, the world needs more oil and gas, too.

Bars, Hotels and Restaurants Are Fastest-Growing Employers

Operators of hotels, bars and restaurants-hit hard as the Covid-19 pandemic took hold-are now among the country's fastest-growing employers, offsetting a slowdown in tech-related hiring . The leisure-and-hospitality industry is rebuilding its workforce after cutting back during the pandemic's early days. In contrast, companies focused on providing business and tech-related services have slowed their growth in recent months.

Key Developments Around the World Japan Piled Back Into U.S. Treasurys. Investors Worry It Won't Last.

Japan's rebounding appetite for U.S. Treasurys supported shaky bond markets early this year. Now, investors are growing worried that s elling will resume , especially with Treasury yields hurtling toward decade-plus highs.

China Sets Conservative Growth Target as Challenges Loom

China unveiled its lowest growth target in more than a quarter-century as Beijing faces challenges in the domestic and global economy following its emergence from three years of strict Covid-19 measures.

China's New Top Troubleshooters China Favors Chips, AI Executives at Top Political Meetings China's Military-Spending Growth to Accelerate to 7.2% This Year

Ukrainians Work Through Blackouts, Internet Outages

With flashlights ready and devices charged, Ukrainians have acclimated to rolling power outages as Russia targets Ukraine's energy grid. But the damage has made working and communicating online increasingly difficult .

Erdogan's Political Opposition Fractures Ahead of Turkey Election

An influential Turkish political party dropped out of an alliance opposing President Recep Tayyip Erdogan, handing the leader a potential boost ahead of what could be his toughest election campaign in his 20 years in power.

Saudi Arabia and U.A.E. Clash Over Oil, Yemen as Rift Grows

Still formally allies, Saudi Arabia and the United Arab Emirates have diverged on several fronts , competing for foreign investment and influence in global oil markets and clashing on the direction of the Yemen war.

Financial Regulation Roundup U.S. Prepares New Rules on Investment in China

The White House is preparing a new program that could prohibit U.S. investment in some sectors in China, a step to guard U.S. technology advantages during a growing competition between the world's two largest economies.

Hard to Crack Insider-Trading Cases Now Targets of U.S. Government

The Justice Department and the Securities and Exchange Commission are hunting for a new type of insider-trading case, one that once seemed too daunting for regulators and prosecutors to touch.

How Some Crypto Companies Behind Tether Got Bank Accounts

In 2018, the companies behind the most widely traded cryptocurrency struggled to maintain access to the global banking system. Some of their backers turned to shadowy intermediaries and shell companies to get back in.

SEC Is Cracking Down on Crypto Staking. Here's What to Know. Texts From Crypto Giant Binance Reveal Plan to Elude U.S. Authorities Coinbase Buys a Crypto Hedge Fund Forward Guidance Monday (all times ET)

10:30 p.m.: Reserve Bank of Australia interest rate decision

Tuesday

10 a.m.: Fed's Powell speaks to Senate Banking Committee

3 p.m.: U.S. consumer credit for January

4:55 p.m.: Reserve Bank of Australia's Lowe speaks at AFR Business Summit in Sydney

Research Card Data Points to Declining U.S. Consumer Spending in February

U.S. consumer spending shows signs of having weakened in February, Bank of America researchers say in a report. Strong activity in January "was driven by robust job market gains, the 8.7% cost-of-living adjustment (COLA) to social security benefits and a few other factors," they say. BofA's card data show spending per household slowing 1.3% versus a year earlier in the week ending Feb. 25. Overall, the data "suggest that consumer spending could be returning to its tepid pace from 2H 2022," although more time is needed to get a clear read, the researchers say.

-Paulo Trevisani

Commentary The Economy's Road to Wellville

When the Federal Reserve's efforts to slow America's economy don't appear to be working, people like to say it is pushing against a string, but right now the central bank is pushing against something much harder , Justin Lahart writes.

Low-Wage Workers Climb the Earnings Ladder

A paper published by the NBER finds that competition for low-wage workers will be more intense than before the pandemic, and could further reduce income inequality and reshape the business landscape, Justin Lahart writes.

How to Fill an Office Today? Waive the Rent.

Demand for offices isn't as good as the headlines suggest. Landlords need to offer sweeteners to get companies to move in, Carol Ryan writes. Owners are waiving the rent for a portion of the tenancy, with rent-free periods getting longer.

Basis Points Activity among U.S. services providers expanded slightly in February after contracting for seven months, but demand continued to face headwinds from high inflation and rising interest rates, data from a purchasing managers survey showed Friday. The S&P Global U.S. Services PMI index rose from 46.8 in January to 50.6, the highest reading since June and exceeding the 50.0 threshold separating expansion from contraction. (Dow Jones Newswires) Canadian building permits continued to decline in January as construction plans for multi-family homes continued to fall. The total value of building permits declined 4.0% from the month before, to a seasonally adjusted 9.78 billion Canadian dollars, the equivalent of US$7.19 billion, Statistics Canada said. (DJN) Retail sales in the eurozone rose less than expected in January, as household budgets continue to be squeezed by high inflation and rising interest rates. Retail sales volumes rose 0.3% in January, partly offsetting a revised fall of 1.7% in December, according to data from the European Union's statistics agency Eurostat. Economists polled by The Wall Street Journal had forecast a 0.5% increase. (DJN) South Korea's headline inflation moderated in February, easing pressure on the central bank to tighten policy. The benchmark consumer-price index rose 4.8% from a year earlier after a 5.2% gain in January, the country's statistics office said. The latest reading, which was below a median market

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03-06-23 0724ET