Daily Business Briefing
July 13, 2021Updated
July 13, 2021, 9:50 a.m. ET
July 13, 2021, 9:50 a.m. ETCredit…An Rong Xu for The New York Times
A key measure of inflation jumped sharply in June, a gain that is sure to keep concerns over rising prices front and center at the White House and Federal Reserve.
The Consumer Price Index climbed by 5.4 percent in the year through June, the Labor Department said, as prices for used cars and trucks accelerated rapidly and accounted for more than a third of the surge. The overall inflation change was more than the 5 percent increase reported in May and was the largest year-over-year gain since 2008.
Investors, lawmakers and central bank officials are closely watching inflation, which has been elevated in recent months by both a quirk in the data and by mismatches between demand and supply as the economy rebounds. Quick price gains can squeeze consumers if wages do not keep up, and the pickup could prod the central bank to pull back on support for the economy if it looks as if the inflation is going to prove sustained. The Fed’s cheap-money policies are generally good for markets, so a rapid withdrawal would be bad news for investors in stocks and other asset classes.
Policymakers expect inflation will fade as the economy gets through a volatile pandemic reopening period, but how quickly that will happen is unclear. Prices have climbed faster than officials at the Fed had predicted earlier this year, certain measures of consumer inflation expectations have risen — something that could make inflation a self-fulfilling prophecy if it becomes more extreme — and some officials at the central bank are increasingly wary. At the same time, markets have become more sanguine about the outlook for inflation.
Part of June’s annual jump owes to a data quirk called the “base effect,” which makes gains in the price index look artificially high this year. The quirk was at its most extreme in May, and started to fade slightly in the latest data, but it remains a factor behind the larger-than-usual increase.
Percent change in Consumer Price
Index from a year prior
Some of June’s rise can be explained through
what’s known as base effects — prices were still
low last summer, so the increase last month from
the year prior is larger. But base effects are now
fading, and are not the full story behind the
pickup in inflation.
Percent change in Consumer Price
Index from a year prior
Some of June’s rise can be explained through what’s known as base effects — prices were still low last summer, so the increase last month from the year prior is larger. But base effects are now fading, and are not the full story behind the pickup in inflation.
2021 Consumer Price Index
Here is what the data for June showed:
The index rose 0.9 percent from May to June, faster than the 0.6 percent month-over-month increase the prior month and far more than economists had expected. That was the fastest monthly jump since 2008.
Stripping out volatile food and fuel costs, the C.P.I. also climbed 0.9 percent over the month, up from 0.7 percent the prior month.
The index rose 5.4 percent in the year through June, more than the 5 percent in the year through May.
Stripping out volatile food and fuel prices, the C.P.I. climbed 4.5 percent over the year, up from 3.8 percent in the year through May. That was the fastest pace since 1991.
Car Prices, Rents and Restaurants
Used car prices have been spiking thanks to a semiconductor shortage that has slowed auto production, and they rose 10.5 percent in June. That trend is expected to reverse soon, as production recovers.
Rent and a rental equivalent for owner-occupied houses have been firming, and the fresh data showed that continued. Because they make up nearly a third of overall inflation, that could bolster price gains going forward if it continues. Hotel prices also jumped sharply — 7.9 percent over the month — as demand for vacations bounced back.
The “food away from home” category increased by 0.7 percent from the prior month, and 0.8 percent for full-service meals. Restaurants have seen demand surge even as they struggle to hire, and many have raised wages to attract workers. They may be trying to pass those costs along. Food overall was more expensive, with prices picking up by 0.8 percent from the prior month.
PERsonal Consumption Expenditures
The Fed targets 2 percent inflation on average over time, but it defines that goal using a different inflation index. Still, the C.P.I. is closely watched because it comes out more rapidly than the Fed’s preferred gauge and some of the C.P.I. data feeds into the favored number, called the Personal Consumption Expenditures index. That index has also shown prices rising, and came in at 3.9 percent for May. June’s figure will be reported later this month.
Read moreCredit…Sarahbeth Maney/The New York Times
A Labor Department report on Tuesday that showed prices rising at their fastest monthly pace since 2008 in June presents a new political challenge for President Biden’s economic team, which has quietly concluded that rising prices could linger in the economy slightly longer than administration officials initially expected.
Mr. Biden’s aides continue to say that the current rate of inflation — a 5.4 percent increase in the Consumer Price Index from a year ago, according to the data released on Tuesday — is temporary and largely a product of special circumstances from the pandemic. They point to snarled supply chains in areas like automobile manufacturing, where a shortage of semiconductor chips is slowing production and contributing to a rapid rise in used car and truck prices. Used vehicles accounted for one third of June’s price increases, the Labor Department said.
Administration officials did not appear to be expecting that magnitude of a surge for June. The Biden team saw early signs that the used-car market was beginning to cool off and that other supply pressures, like a jump in lumber prices earlier this year, were also starting to ease, an official said Monday on condition of anonymity because he was not authorized to discuss the inflation report publicly.
Officials were also hopeful that consumers were beginning to shift more of their spending from goods that have been affected by the supply chain disruptions, like lumber and cars, toward services like dining and tourism.
The official repeated the administration’s long-running view that the sharp uptick in prices this spring and summer was the product of those supply constraints, and that it will prove temporary and not the start of a sustained cycle of wage and price increases like the 1970s.
The administration also continues to view the price increases as being inflated by data quirks given that prices fell substantially last year during the depths of the recession, making their rebound this year look larger than it actually is. Those “base effects,” as they are known, are still affecting the inflation data, though they began to moderate in June.
Still, administration officials have subtly shifted their views on how long the so-called transitory price effects will linger in the economy, according to two administration officials, even before this month’s report was released.
In Mr. Biden’s official budget request, released this spring, officials forecast an inflation rate that stayed near historical averages for 2021 and never rose past 2.3 percent per year over the course of a decade. But internally and publicly, administration officials have now begun to acknowledge the possibility that higher inflation could stay with the economy for a year or more.
A recent post from Mr. Biden’s Council of Economic Advisers, titled “Historical Parallels to Today’s Inflationary Episode,” concludes that the past period of inflation most comparable to today’s economy in the United States came immediately after World War II, when supply disruptions drove up prices. That period, the post notes, lasted about two years.
Read moreCredit…Johannes Eisele/Agence France-Presse — Getty Images
The big banks are booking big profits as customers shake off the pandemic and deal makers seize on busy markets.
JPMorgan Chase, the country’s largest bank by assets, on Tuesday reported net income of $11.9 billion in the second quarter, up from $4.7 billion a year earlier. Its earnings per share of $3.78 and revenue of $30.5 billion exceeded analysts’ expectations.
Consumers are starting to spend more on travel and entertainment, and they’re also buying homes and cars at a faster clip, the bank said. Its investment banking fees were the highest they’ve ever been, buoyed by a hot market for mergers and acquisitions.
“Consumer and wholesale balance sheets remain exceptionally strong as the economic outlook continues to improve,” Jamie Dimon, JPMorgan’s chief executive, said in a statement.
The company’s confidence in the rebound was reflected in the release of $3 billion from its rainy-day fund that was set aside for an expected onslaught of consumer defaults that never emerged, thanks to robust government stimulus efforts that helped keep many Americans afloat. Net charge-offs, or debt that the bank has given up trying to recoup, fell 53 percent, “reflecting the increasingly healthy condition of our customers and clients,” Mr. Dimon said.
Goldman Sachs also reported a bigger profit for the quarter compared with the same period a year ago, earning nearly $5.5 billion on revenue of nearly $15.4 billion. On a per-share basis, Goldman’s $15.02 showing was much higher than Wall Street’s prediction of $9.88. Analysts had expected Goldman’s profit to be just $3.4 billion.
But compared with the first three months of 2021, its earnings were smaller, indicating that the bank and Wall Street competitors may be reaching the end of the frenetic period of trading touched off by the pandemic.
Goldman’s trading revenue for the quarter was lower than earlier this year and the same period last year. Its trading in fixed income, commodities and other financial products brought in $4.9 billion in revenues for the quarter, compared with almost $7.6 billion earlier this year and $7.2 billion during the same period a year ago. Analysts had expected a better showing, predicting the bank would take in just over $5 billion from such trades.
Read moreCredit…Charles Platiau/Reuters
Google was fined $593 million by French antitrust authorities on Tuesday for failing to negotiate a deal in “good faith” with publishers to carry news on its platform, a victory for media companies that have been fighting to make up for a drop in advertising revenue that they attribute to the Silicon Valley giant.
French officials said Google ignored a 2020 order from French regulators to negotiate a licensing deal with publishers to use short blurbs from articles in search results. The case has been closely watched because it represents one of the first attempts to apply a new copyright directive adopted by the European Union intended to force internet platforms like Google and Facebook to compensate news organizations for their content.
“When the authority imposes injunctions on companies, they are required to apply them scrupulously, respecting their letter and their spirit,” Isabelle de Silva, president of the French antitrust body, said in a statement.
Google has two months to come up with fresh ideas for compensating news publishers or risks further fines of up to 900,000 euros, about $1.065 million, per day, the French authorities said.
The French decision is the latest flash point in a battle between news publishers and internet platforms over the use of news content. In Europe and elsewhere, policymakers have increasingly sided with publishers who argue internet companies are profiting from the unfair use of their content. Companies like Google and Facebook have argued they are driving traffic to the news websites.
Internet companies fought a copyright law passed earlier this year in Australia that gave publishers more negotiating leverage. It led to a showdown in which Facebook briefly removed news from its platform for users inside the country, before quickly relenting.
As policymakers crack down, Google has been trying to strike deals with individual publishers. In October, the company said it would spend more than $1 billion to license content from international news organizations. And in February, it announced a three-year deal with News Corp., owner of The New York Post and The Wall Street Journal and other prominent news outlets.
Google, which can appeal the fine, said it was “very disappointed” with the French decision and that it was continuing to negotiate with publishers. “We have acted in good faith throughout the entire process,” Google said in a statement. “The fine ignores our efforts to reach an agreement, and the reality of how news works on our platforms.”
The French authorities said Google placed unfair restrictions on its negotiations with publishers, including requiring them to participate in the company’s new licensing program, News Showcase. Google had reached a deal with some prominent French news outlets — including Le Monde, L’Obs and Le Figaro — but others raised concerns about the process.
Google said it was finalizing a global licensing deal with Agence France-Presse, one of France’s largest media organizations.
Read moreCredit…Agence France-Presse — Getty Images
BEIJING — China has prospered during much of the coronavirus pandemic as the world’s factory, making everything from face masks to exercise equipment for housebound consumers. Demand for its products doesn’t appear to be slowing even as Western economies reopen.
China’s General Administration of Customs announced on Tuesday that the country’s exports surged 32.2 percent in June compared with the same month last year. The increase caught many economists by surprise, as one of China’s biggest ports was partially closed for most of June and China’s exports of medical supplies have begun to level off.
China’s export performance in June “is quite impressive and not so easy to understand,” said Louis Kuijs, the head of Asia economics in the Hong Kong office of Oxford Economics.
Mr. Kuijs said that a little more than a third of the increase in value of Chinese exports might reflect rising prices. Chinese factories are passing on their own higher costs to foreign consumers.
Chinese manufacturers face escalating costs these days because prices have increased worldwide over the past year for commodities like iron ore and copper and for industrial materials like steel.
China’s currency, the renminbi, has also strengthened against the dollar. So Chinese producers need to charge more dollars to pay the same wages and other costs denominated in renminbi.
By raising prices for foreign buyers, Chinese factories can preserve their profit margins — at the risk of contributing to inflation elsewhere.
Port and shipping delays are driving the price tags for Chinese goods even higher in foreign markets. The cost of shipping a 40-foot cargo container across the Pacific has ballooned from the usual $4,000 to $5,000 to a record $18,000 or more.
Part of the problem lies in China’s drastic actions to prevent new coronavirus variants from spreading. These measures have included forcing port workers into lengthy lockdowns at the first sign of outbreaks.
China’s policies have been effective in keeping virus cases to a minimum, but at some economic cost.
One of the world’s largest ports, Yantian Port in the southeastern Chinese city of Shenzhen, partially shut down for more than a month from late May through much of June. Shenzhen acted in response to fewer than two dozen coronavirus cases.
When the port fully reopened on June 24, shipping executives and freight forwarders hoped that trade would start returning to normal.
It has not worked out that way.
Dozens of huge container ships fell far behind schedule when they had to wait weeks to dock in Shenzhen. That meant ships later showed up in bunches at ports in other countries, causing further congestion. Chinese export factories also sent goods by truck to alternative ports, like Shanghai’s, leaving them overcrowded as well.
Zhao Chongjiu, China’s deputy minister of transport, defended his country’s tough coronavirus measures. “Everyone knows that during an epidemic, workers in ports must be placed under lockdown, and various countries have taken corresponding measures, so the efficiency of loading and unloading would be reduced,” he said when Yantian reopened.
By mid-June, the freight yard was so crammed with containers at Shanghai’s vast, highly automated Yangshan Deep Water Port that the stacking cranes barely had room to lift containers on and off ships. Dong Haitao, a senior administrator at the adjacent free trade zone, blamed foreign ports for failing to handle arriving containers on time.
“Their schedule of shipments has been disrupted, but not ours,” he said.
Shipping rates for containers have continued to rise steeply in the weeks since Yantian Port reopened. The increase is widely expected to keep going as stores in the United States in particular race to restock shelves for returning shoppers and also start preparing for the Christmas shopping season.
“Each week these rates go up another few hundred dollars,” said Simon Heaney, the senior manager for container shipping research at Drewry Maritime Research in London. “Nobody seems to have any answers, and the only thing we can hope for is Chinese New Year — and that’s obviously a long way off.”
Factories in China typically close for several weeks during the Lunar New Year celebration, which could give the world’s ships time to catch up. But next year’s holiday does not start until the end of January.
Liu Yi and Li You contributed research.
U.S. stock futures fell after data showed inflation in the United States rose in June by more than economists expected. Futures on the S&P 500 index fell as much as 0.4 percent.
The Consumer Price Index rose 0.9 percent from the previous month, compared to expectations of a 0.5 percent increase. The core index, which strips out volatile food and energy prices, also rose 0.9 percent in June.
The yield on 10-year U.S. Treasury notes jumped to 1.38 percent, from 1.34 percent before the inflation data was released. Rising inflation erodes the value of fixed income assets, which sends bond prices lower and their yields higher. Also, rising inflation might encourage the Federal Reserve to reduce stimulus measures sooner than previously anticipated, which would push interest rates higher.
Shares in JPMorgan Chase fell 0.8 percent in premarket trading even after the giant bank reported net income of $11.9 billion in the second quarter, up from $4.7 billion a year earlier. But the bank said its expenses on technology and hiring rose and that demand for loans was flat.
Shares in Goldman Sachs rose 0.3 percent premarket after the investment bank reported a second-quarter jump in revenue from advising on deals that helped offset a slump in trading revenue.
Shares in British banks rose in early trading in London after the Bank of England lifted restraints on dividend payments and share buybacks that had been introduced during the pandemic. Analysts at Bank of America reiterated a buy recommendation for Barclays, NatWest and Standard Chartered.
But by early afternoon in London, as U.S. bank earnings were reported, the shares had reversed their gains. Barclays shares were 0.6 percent lower having risen as much as 2.2 percent. NatWest shares fell 1.7 percent and shares in Standard Chartered declined 0.3 percent.
Elsewhere in markets
Read moreCredit…Andy Rain/EPA, via Shutterstock
Boeing said on Tuesday that it would temporarily slow production of the 787 Dreamliner after it identified new work that needed to be done on the troubled wide-body jet.
The slowdown will cause the company to fall short of a target production rate of five 787s per month as it conducts inspections and completes the extra work, Boeing said. Reuters reported on the new production problem on Monday.
Boeing also said that it expected to deliver less than half of the Dreamliners in its inventory this year, a shift from April when its chief executive, Dave Calhoun, said the company would hand over the majority by 2022.
“We will continue to take the necessary time to ensure Boeing airplanes meet the highest quality prior to delivery,” the manufacturer said in a statement. “Across the enterprise, our teams remain focused on safety and integrity as we drive stability, first-time quality and productivity in our operations.”
Boeing had stopped delivering the 787 last year amid quality concerns related to shims used where parts of the plane’s fuselage, or main body, are joined. The company resumed deliveries in March, but said in May that it had stopped again after the Federal Aviation Administration said it was unconvinced by Boeing’s inspection methods, which relied on using a statistical analysis to identify where inspections were needed. Boeing said on Tuesday that discussions with the F.A.A. are ongoing.
Mr. Calhoun addressed the general 787 production disruptions at an investor conference last month.
“We will work our way and get to a stable delivery rate, which is, right now, our biggest challenge,” he said, adding, “But we think we’re doing this the right way, and we’re doing it alongside the F.A.A.”
News of the production slowdown comes as Boeing released strong, new monthly production and sales figures.
The company said on Tuesday that it had delivered 45 planes to customers in June, the most since March 2019, when its popular 737 Max plane was banned from flying around the world. The grounding of the Max, which was prompted by two fatal crashes, devastated Boeing’s finances and led to the ouster of Mr. Calhoun’s predecessor. The plane was allowed to start flying passengers again late last year.
Boeing also said on Tuesday that it had booked 219 gross orders in June, the most in three years. Nearly all of the orders were part of a record expansion of United Airlines’s fleet. And June was also Boeing’s fifth straight month of positive net sales, after accounting for cancellations.
China’s crackdown on foreign initial public offerings is quickly zooming beyond Didi Chuxing, the ride-hailing giant that government officials banned from app stores just days after it sold shares in the United States. Now, Beijing is proposing new regulatory requirements for all tech companies planning to list their shares abroad and erecting barriers around fintech firms, some of the country’s biggest start-up successes.
At the same time, President Biden is reportedly preparing to warn American companies about the increasing risks of doing business in Hong Kong, further fraying relations between the United States and China. As bankers assess what all this posturing means — economics has trumped politics before — the DealBook newsletter has started to do the math.
I.P.O. fee revenue for U.S. listings of Chinese companies
Chinese companies listing their shares in New York have been hugely lucrative for Wall Street in recent years. Investment banks have already brought in nearly $460 million in underwriting revenue this year, according to Dealogic. More was expected: Bloomberg estimates that about 70 companies based in Hong Kong and China have been set to go public in New York.
U.S. listings of Chinese companies have accounted for nearly 8 percent of Goldman Sachs’s underwriting fees so far this year, and more than 12 percent of Goldman’s underwriting revenue over the previous five years.
Value of private equity deals in China with U.S. investors
Investment firms’ portfolios could suffer, too. If an American I.P.O. is off the table, at least for now, hedge funds and private equity firms that doubled down on Chinese investments in search of growth may see the value of those holdings decline. (Investment firms could, of course, take Chinese companies public in China, but the shallow investor pool and proximity to the government can make that a less desirable path.)
It’s difficult to quantify the exact exposure investment firms have to China, but it looks substantial. U.S. private equity firms were involved in deals worth $45 billion in Greater China in the five years to 2019, according to PitchBook. Carlyle and Warburg Pincus have been among the biggest investors in recent decades.
Read moreCredit…Waldo Swiegers/Bloomberg
Investors are increasingly eyeing the creator economy — the huge, largely unexplored market of providing digital tools to influencers and helping them run their businesses.
The venture capital firm SignalFire estimates that 50 million people around the world consider themselves content creators, while the technology news site The Information estimates that venture capital firms have invested $2 billion into 50 creator-focused start-ups so far this year.
Last month, for example, the venture firm Founders Fund took the lead in a $15 million investment round for Pietra, a start-up aimed at helping influencers launch product lines. In April, Seven Seven Six, a venture firm run by Alexis Ohanian, a Reddit co-founder, and Bessemer Venture Partners announced a $16 million investment in PearPop, a platform that helps creators monetize their collaborations and social media interactions.
The list goes on. In February, the high-profile venture firm Andreessen Horowitz led an investment in Stir, a platform that helps creators manage how they make money, valuing the company at $100 million, Taylor Lorenz and Erin Woo report for The New York Times.
And then there is Clubhouse, the heavyweight of this young market, generating plenty of buzz from Silicon Valley and the media and entertainment world. Clubhouse, which requires an invitation to join, is a social network built around audio-only chat rooms. In April, it raised $200 million in a funding round led by Andreessen Horowitz, putting its valuation at roughly $4 billion.
Major platforms like Spotify, Twitter and Facebook are rushing to catch up to start-ups, particularly Clubhouse. Spotify recently announced its new live audio app, Greenroom, a Clubhouse competitor that Spotify built after acquiring the live audio start-up Locker Room. Twitter has already added its own Clubhouse rival, Twitter Spaces, and both Twitter and Facebook are starting newsletter services to compete with the success of Substack, which allows users to easily set up subscriptions for their writing.