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Weekly Investment Update – Should We Listen to the Bond Market?

Since the beginning of the year, 10-year US Treasury yields have risen to an almost 11-month high as markets anticipate a normalizing economy and further, massive fiscal stimulus.

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This article was originally published by Investors Corner.

Since the beginning of the year, 10-year US Treasury yields have risen by 25bp to an almost 11-month high as markets anticipate a normalising economy and further, massive fiscal stimulus.

The 10-year Treasury yield hit 1.17% on 8 February, marking its highest point in nearly a year. In the eurozone, the benchmark 10-year Bund yield now stands at around -0.45%. That is about 12bp above where it stood at the end of 2020 and a level not seen since last September. The yield on the 10-year UK Gilt jumped from 0.32% in early February to 0.48% the day after the latest Bank of England monetary policy meeting.

Theory and practice

These higher yields reflect an environment that economic textbooks tell us justify upward pressure on long-term rates: widening budget deficits, accelerating inflation, and accommodative monetary policy.

In the US, the budget resolution approved last week authorises a USD 1.9 trillion coronavirus relief bill. This very large fiscal package could be passed quickly and without much change if the Biden administration chooses to proceed by the way of the reconciliation process. A bipartisan bill, which would need at least 10 Republican Senators supporting it, would likely be much smaller, but still significant in historical terms.

Eurozone bond yields reacted to news of an acceleration in core inflation from 0.2% year-on-year in December to 1.4% in January. Primarily idiosyncratic factors are behind the surge: base effects, the adjustment of the basket of goods and services used to measure price levels, and a VAT rise in Germany. Investors will nonetheless be taking a close look at the detailed inflation numbers due out over the next few days.

Gilt yields rose after more-positive-than-expected Bank of England comments on the economic outlook and indications that a move to negative interest rates was not imminent.

Unresolved questions

There are also inflation concerns in the US with surveys are pointing to upward price pressures. Market watchers have begun looking for clues in central bankers’ comments on when asset purchases by the Federal Reserve could be tapered.

Fed chair Jerome Powell had indicated that such action would be premature in the current environment. The central bank’s message has been clear: Monetary policy support remains in place.

The ECB has been equally transparent on its stance. In a recent press interview, President Christine Lagarde repeated: “Our commitment to the euro has no limits. We will act for as long as the pandemic is causing a crisis situation in the euro area.”

The crisis is not over

The encouraging progress on vaccination campaigns (at least in some countries) has raised hopes that a return to ‘normal’ life will be possible in a few months’ time. A cyclical recovery would follow for the rest of 2021. We share this view, but would caution that investors not get too far ahead of themselves. The strong 5.5% rebound in global growth expected by the IMF, after a 3.5% contraction in 2020, does not mean that the scars of the crisis will suddenly disappear.

Take the labour market. The US unemployment rate dropped to 6.3% in January and is now at less than half the 14.8% level from last April. Before the pandemic, however, the rate was only 3.5%. Adjusting the current figure for fluctuations related to temporary layoffs and discouraged workers and the unemployment rate is closer to 8%, little changed since last spring.

Conclusions

An old investment adage says, “Don’t fight the Fed.” Indeed, we expect central banks to continue with their massive asset purchases until there is clear progress on growth and inflation.

However premature expectations for much higher inflation and other growth-related concerns may now seem, we believe a short-duration position in eurozone and US benchmark bonds could be opportune at this point. The same goes for a long position on break-even inflation.

We also remain overweight the Italian BTP bond market as the chances of Mario Draghi leading the next government appear to have increased and the risk of early elections has fallen. Investors’ search for yield should provide further support.


Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice.

 The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.

Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).

Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

Writen by Nathalie Benatia. The post Weekly investment update – Should we listen to the bond market? appeared first on Investors' Corner - The official blog of BNP Paribas Asset Management.

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Economics

Job Seekers More Likely to Apply to Companies That Prioritize Diversity, Equity & Inclusion, Survey Shows

Job Seekers More Likely to Apply to Companies That Prioritize Diversity, Equity & Inclusion, Survey Shows
PR Newswire
TROY, Mich., May 18, 2022

National survey reveals Americans expect employers to remove discriminatory hiring practices
TROY, M…

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Job Seekers More Likely to Apply to Companies That Prioritize Diversity, Equity & Inclusion, Survey Shows

PR Newswire

National survey reveals Americans expect employers to remove discriminatory hiring practices

TROY, Mich., May 18, 2022 /PRNewswire/ -- Nearly three in four Americans say they are more likely to seek employment with companies that are committed to breaking down discriminatory hiring practices, according to an annual survey conducted by staffing and workforce solutions provider Kelly.

Kelly today revealed the findings from its annual Equity@Work survey that show Americans want companies to provide greater access to work for underemployed talent groups including job seekers with criminal backgrounds, those on the autism spectrum, veterans, older workers, and women. More than 4 in 5 (83%) agree employers should do more to remove barriers that keep job seekers in these talent groups from being hired or promoted.

"Companies are in desperate need of skilled talent. At the same time, millions of qualified job seekers face significant barriers to employment," says Kelly Vice President and Equity@Work Program Manager Pam Sands. "It's time employers provide fairer access to work for these talent groups. Our survey results indicate it will have a positive impact on their ability to identify skilled workers across the board."

Nearly 33% of working-age Americans have a criminal offense on their record that often disqualifies them from finding employment. The unemployment rate among adults on the autism spectrum is around 85%. Veterans without four-year degrees often struggle to find civilian employment. Older job seekers can find it challenging to transition careers and there are nearly two million fewer women in the labor force due to the COVID-19 pandemic.

Kelly, which places 350,000 job seekers every year, launched its Equity@Work initiative in 2020 to remove systemic employment barriers for these Americans. Its survey of 1,020 adults in the U.S. shows companies can benefit from hiring policies that embrace these talent groups:

  • 76% of Americans say they are more likely to support businesses committed to breaking down barriers to work.

  • 72% say they are more likely to seek employment with companies committed to eliminating these barriers.

  • 80% say employers should value the relevant skills military veterans have acquired and factor them into hiring decisions.

  • 71% say they are more likely to support businesses that make employment opportunities available to individuals on the autism spectrum.

  • 70% say employers should eliminate or reduce blanket-bans that automatically reject job seekers who have minor, non-violent offenses on their criminal record.

  • 62% agree that women forced out of the workforce due to the pandemic face reduced earning potential and advancement opportunities when they return to work.

  • More than half of Americans (52%) say Baby Boomers face issues of ageism at work.

"The message is loud and clear: Americans expect companies to do better," Sands says. "Recruiting from these underrepresented talent groups is not just the right thing to do, it's good business."

For full survey results and information on Kelly's Equity@Work initiative, visit EquityAtWork.com.  

Equity@Work Survey Methodology
The survey was conducted online by Atomik Research. 1,020 adults in the U.S. completed the survey between Feb. 15 and 21, 2022. The overall margin of error fell within +/- 3 percentage points with a confidence interval of 95%. Researchers implemented sample quotas based on gender identity, geographical regions, age groups and ethnicity to reflect similar statistically representative ratios based on U.S. Census reports.

About Kelly®
Kelly (Nasdaq: KELYA) (Nasdaq: KELYB) connects talented people to companies in need of their skills in areas including Science, Engineering, Education, Office, Contact Center, Light Industrial, and more. We're always thinking about what's next in the evolving world of work, and we help people ditch the script on old ways of thinking and embrace the value of all workstyles in the workplace. We directly employ nearly 350,000 people around the world and connect thousands more with work through our global network of talent suppliers and partners in our outsourcing and consulting practice. Visit kellyservices.com and let us help with what's next for you. Follow Kelly on LinkedIn, Facebook, Twitter, Instagram, and YouTube.

Media Contact
Christian Taske
248-561-8823
christian.taske@kellyservices.com

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SOURCE Kelly Services, Inc.

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Spread & Containment

Shortage of workers threatens UK recovery – here’s why and what to do about it

The nation has very low unemployment figures, but that masks a complex labour market.

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For the first time since records began, there are more job vacancies in the UK than unemployed people, according to the latest monthly labour market figures. This has been driven mainly by a near-fourfold surge in job vacancies to around 1.3 million since the summer of 2020, when economic activity was allowed to resume at the end of the first COVID lockdown.

Record vacancies might seem like a good thing in terms of maintaining low unemployment. But employers across all sectors of the economy are struggling to fill vacancies, which limits economic recovery. So what explains all these vacancies, and what can be done about them?

First of all, the spectacular rise in job vacancies goes far beyond a pre-pandemic “bounce back”. Although the biggest shortages are in hospitality, there have been substantial rises across most sectors. All are above pre-pandemic levels.

Job vacancies and unemployment (thousands)

Office for National Statistics (2020), Vacancy Survey and Labour Force Survey

Demand for labour (that’s all employment plus vacancies) has recovered to almost exactly its pre-pandemic level. But the data indicates that the increase in vacancies is not due to a surge in demand for labour, but because the labour force is shrinking: it dropped by 1.6% or 561,000 between the first quarters (Jan-March) of 2020 and 2022, which is greater than the increase in job vacancies over the same period (492,000).

Notably, people’s reasons for being economically inactive have changed over the past couple of years. Following the first COVID lockdown, the large drop in labour supply among 16-64s (those of working age) was mainly driven by rises in long-term sickness (139,000) and early retirement (70,000).

Reasons for economic inactivity over time, 16-64 year olds

Chart showing why 16-64s are economically inactive over time
Note: the chart shows quarterly rolling years. Author calculations of ONS Annual Population Survey, accessed via Nomis

The drop in the workforce also masks a considerable churn within it, which may be adding to employers’ difficulties in recruiting staff. During the first lockdown, the number of EU workers fell by some 300,000. This has partially recovered, as you can see in the chart below, but there are still around 100,000 fewer than at the start of the pandemic.

Yet this has been more than offset by continued long-term growth in the number of non-EU foreign-born workers in the UK, increasing by some 170,000 since the start of the pandemic. Brexit, in other words, in tandem with the pandemic, has been a source of churn in the labour market.

Change in non UK-born workforce 2019-21

Chart showing what has happened to non-UK nationals working in UK over time
Note: although likely to be indicative of trends, non-UK residents may be underestimated due to the Annual Population Survey/Labour Force Survey shifting from face-to-face to online data collection during the pandemic. Data is currently subject to review and may be revised. Authors' calculations of ONS (2022) Labour Force Survey

The geographic dimension

Until now, little has been known about where this sharp rise in vacancies has been happening, which is an important question if the government is to be able to address geographical imbalances in the economy through its “levelling up” policy.

To help remedy this, we have been studying comprehensive online job vacancy data obtained under a special research agreement with the Urban Big Data Centre at the University of Glasgow to use data scraped from the Adzuna job vacancy search engine. Our data analysis is not yet published in the academic literature, but it provides an early indication of the overall pattern.

The rise in the rate of job vacancies appears remarkably uneven across local authority districts in Great Britain. The two maps below show the change from before the pandemic in February 2020 (on the left) to July 2021 (on the right), the most recent month for which we have been able to compute data. This is likely to still be indicative of the most recent geographic pattern.

Vacancies growth between February 2020 and July 2021

GB maps showing job vacancies by council district
Authors’ calculations based on Adzuna vacancy data (Adzuna. Economic and Social Research Council. Adzuna Data, 2022 [data collection]. University of Glasgow - Urban Big Data Centre), ONS Business Register and employer survey and ONS local authority boundaries

It shows huge increases in vacancies in relatively few districts, while most others show either modest increases or falls. The highest rates are particularly found in remoter rural areas, particularly in the south-west and north-west of England, and in parts of inner London.

Many of these districts are dependent on foreign labour, particularly for agriculture in rural areas, and hospitality and other sectors in London. Again, this may be a sign of the effect of Brexit and the pandemic choking off the growth in the number of EU workers.

What can’t be denied is that the employment market has been restructured in several major inter-related ways in a relatively short period, not only with Brexit but also thanks to rapid increases in remote online working, disruption to global supply-chains and COVID-related ill health.

It would make sense for these factors to produce “mismatches” between the skills and locations of workers and vacancies. For example, many job seekers have skills in declining occupations, such as skilled manual work. Our own analysis backs this up, since we see more job seekers than vacancies in some former industrial towns, particularly in the West Midlands and northern England – exactly the opposite problem to some inner London boroughs and rural districts.

What should be done

Places across the UK where job vacancies are concentrated are likely to experience sharp economic contractions if they are unable to attract more workers soon. Yet the areas that have experienced drops or weak growth in vacancies compared to before the pandemic are also a concern, as they may have been hit harder by issues like global supply chains and the pandemic and may not have enough jobs to go around.

Policies to combat Britain’s labour shortage must therefore be geographically targeted. Areas in need of more jobs, particularly higher-paying jobs, often require long-term investment in infrastructure and skills.

But to help areas in need of more workers, there will need to be creative solutions such as employers offering attractive packages including training and flexible working, and local and national authorities ensuring adequate local availability of affordable housing.

The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.

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Spread & Containment

Global Supply Chain Pressure Index: May 2022 Update

Supply chain disruptions continue to be a major challenge as the world economy recovers from the COVID-19 pandemic. Furthermore, recent developments related…

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Supply chain disruptions continue to be a major challenge as the world economy recovers from the COVID-19 pandemic. Furthermore, recent developments related to geopolitics and the pandemic (particularly in China) could put further strains on global supply chains. In a January post, we first presented the Global Supply Chain Pressure Index (GSCPI), a parsimonious global measure designed to capture supply chain disruptions using a range of indicators. We revisited our index in March, and today we are launching the GSCPI as a standalone product, with new readings to be published each month. In this post, we review GSCPI readings through April 2022 and briefly discuss the drivers of recent moves in the index.

More Stress on Supply Chains

The chart below provides an update of the GSCPI through April; readers can find a link to the updated data series on our new product page. Between December 2021 and March 2022, the index registered an easing of global supply chain pressures, though they remained at very high levels historically. However, the April 2022 reading suggests a worsening of conditions as renewed strains emerge in global supply chains.

April Data Indicate Worsening of Supply Chain Pressures

Sources: Bureau of Labor Statistics; Harper Petersen Holding GmbH; Baltic Exchange; IHS Markit; Institute for Supply Management; Haver Analytics; Bloomberg L.P.; authors’ calculations.

Note: Index is scaled by its standard deviation.

Methodology

Before analyzing this recent pickup in supply chain pressures, we remind readers that the GSCPI is based on two sets of data. Global transportation costs are measured by using data on ocean shipping costs, for we which we employ data from the Baltic Dry Index (BDI) and the Harpex index, as well as BLS airfreight cost indices for freight flights between Asia, Europe, and the United States. We also use supply chain-related components  of Purchase Manager Index (PMI) surveys—“delivery times,” “backlogs,” and “purchased stocks”—for manufacturing firms across seven interconnected economies: China, the euro area, Japan, South Korea, Taiwan, the United Kingdom, and the United States. Before combining these data within the GSCPI by means of principal component analysis, we strip out demand effects from the underlying series by projecting the PMI supply chain components on the “new orders” components of the corresponding PMI surveys and, in a similar vein, projecting the global transportation cost measures onto GDP-weighted “new orders” and “inputs purchased” components across the seven PMI surveys.

Sources of Pressure

So, what are the drivers behind recent moves in the GSCPI? The charts below illustrate how each of the underlying variables contributed to the overall change in the GSCPI in the last two months. Each column represents the contribution, in standard deviations, of each component of our index to the overall change in the index during a given period. In the first chart, we examine February-March 2022. We note that the lessening of supply chain pressures over this period was widespread across the various components, which indicated a welcome reduction in global supply chain disruptions. Most of the series in our data set declined over this period; the U.K. “backlog” component worsened and the U.S. “purchased stocks” component increased marginally.

Widespread Improvements Seen across Components in March 2022

Sources: Bureau of Labor Statistics; Harper Petersen Holding GmbH; Baltic Exchange; IHS Markit; Institute for Supply Management; Haver Analytics; Bloomberg L.P.; authors’ calculations.

In the chart below, we focus on the contributions of the underlying components of the GSCPI from March to April 2022.

Global Supply Chain Pressures Worsen in April 2022

Sources: Bureau of Labor Statistics; Harper Petersen Holding GmbH; Baltic Exchange; IHS Markit; Institute for Supply Management; Haver Analytics; Bloomberg L.P.; authors’ calculations.

As the chart indicates, the worsening of global supply chain pressures in April was predominantly driven by the Chinese “delivery times” component, the increase in airfreight costs from the United States to Asia, and the euro area “delivery times” component, as other components have eased over the month. These developments could be associated with the stringent COVID-19-related lockdown measures adopted in China, as well as the consequences of the Ukraine-Russia conflict for supply chains in Europe.

Finally, as we noted in our previous post and discuss on our product page, recent GSCPI readings are subject to revision. The chart below compares the current GSCPI release with the previous three releases, showing that revisions can have an impact up to a year back in time. The chart indicates that, based on the current vintage of the GSCPI, the decrease in global supply chain pressures through April occurred at a slighter faster pace than previous GSCPI estimates had suggested.

Revised and Realized Data Can Alter Previous Supply Chain Pressure Readings

Sources: Bureau of Labor Statistics; Harper Petersen Holding GmbH; Baltic Exchange; IHS Markit; Institute for Supply Management; Haver Analytics; Bloomberg L.P.; authors’ calculations.

Note: Index is scaled by its standard deviation.

Conclusions

In this post, we provide an update of the GSCPI through April 2022. This estimate suggests that the moderation we have observed in recent months has been partially reversed, as lockdown measures in China and geopolitical developments are putting further strains on delivery times and transportation costs in China and the euro area. Forthcoming readings will be particularly interesting as we assess the potential for these developments to further heighten global supply chain pressures.

Chart Data

Gianluca Benigno is the head of International Studies in the Federal Reserve Bank of New York’s Research and Statistics Group.

Julian di Giovanni is head of Climate Risk Studies in the Bank’s Research and Statistics Group.

Jan J.J. Groen is an economic research advisor in the Bank’s Research and Statistics Group.

Adam Noble is a senior research analyst in the Bank’s Research and Statistics Group.

How to cite this post:
Gianluca Benigno, Julian Di Giovanni, Jan Groen, and Adam Noble, “Global Supply Chain Pressure Index: May 2022 Update,” Federal Reserve Bank of New York Liberty Street Economics, May 18, 2022, https://libertystreeteconomics.newyorkfed.org/2022/05/global-supply-chain-pressure-index-may-2022-update/.


Disclaimer
The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

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