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Consumers Should Get Used to Higher Food Prices, IMF
March 4 (Bloomberg) -- Consumers should get used to paying more for food, after prices rose to a record, because farmers will take years to expand production enough to meet demand and drive down costs, the International Monetary Fund said.
People in developing countries are becoming richer and eating more meat and dairy, meaning more grain for livestock feed and land for grazing animals, Thomas Helbling, an adviser for the IMF’s research department, and economist Shaun Roache wrote in an article. Rising demand for biofuels and bad weather also tightened supply, they said.
“Rising food prices may be here to stay,” Helbling and Roache wrote in the article published in the agency’s Finance & Development magazine. “The main reasons for rising demand for food reflect structural changes in the global economy that will not be reversed.”
The world food price index tracked by the United Nations rose to a record in February. Food inflation fueled political unrest across North Africa and the Middle East that toppled leaders in Tunisia and Egypt, the largest wheat importer.
“Over time, supply growth can be expected to respond to higher prices, as it has in previous decades, easing pressure on food markets, but this will take time counted in years, rather than months,” the IMF’s Helbling and Roache said.
After several months of stagnant growth, the economy finally posted a respectively healthy gain in payroll jobs for February. Also, the unemployment rate unexpected slipped further. Overall payroll employment in February grew by 192,000, following a revised 63,000 rise in January and a 152,000 gain in December. The February advance came in marginally lower than the updated consensus forecast for a 200,000 gain (180,000 prior to Thursday's jobless claims report). The December and January revisions were up net 58,000. Private nonfarm payrolls were somewhat stronger, increasing 222,000 in February, following a 68,000 boost in January. Analysts had projected a 190,000 advance in the latest month.
By major sectors, the goods-producing numbers look good, showing a 70,000 jump, following a 35,000 rise in January. For the latest month, manufacturing jobs advanced 33,000 after a 53,000 boost in January. Even better, only 1,000 of the February gain in manufacturing was for motor vehicles. Construction employment increased 33,000 in February, following a 22,000 decline the prior month. Mining rose 4,000 in February.
Private service-providing jobs jumped 152,000 after a 33,000 increase in January. The latest was led by a gain of 47,000 in professional and business services with 16,000 coming from temp help. Health care employment continued to increase in February, expanding by 34,000. Transportation and warehousing employment increased by 22,000 in February, with half of that gain in truck transportation. On the downside, employment in retail trade slipped 8,000-possibly due to adverse winter weather.
Government jobs fell 30,000, following a 5,000 dip in January.
A disappointment in today's report was in earnings. Wage pressures eased in February as average hourly earnings were flat in February, following a 0.4 percent jump the previous month. The February number fell short of the consensus forecast for a 0.2 percent increase. However, given that February followed a very strong January, the latest number is not worrisome. The average workweek for all workers printed at 34.2 hours, compared to the market median forecast for 34.3 hours and prior month level of 34.2 hours.
On a year-ago basis, overall payroll job growth improved to up 1.0 percent in February from up 0.8 percent the prior month.
Turning to the household survey, the unemployment rate edged down to 8.9 percent from 9.0 percent in January. Analysts had expected 9.1 percent.
Today's report is quite encouraging in that a real boost in payroll employment helps to pump up the recovery as the jobs gain will support more consumer spending. The drop in the unemployment rate looks good statistically and politically but is a bit of a quandary as most economists have been expecting a surge in the labor force as discouraged workers return to the job hunt.
On the news, equities initially firmed but then eased slightly. Treasuries were little changed. Overall, the report was net as expected.
Despite downward revisions to fourth quarter GDP, productivity was unrevised for the same period. Nonfarm business productivity rose an annualized 2.6 percent, matching market expectations. The third quarter boost of 2.4 percent was nudged down to 2.3 percent. Unit labor costs also were unrevised at an annualized 0.6 percent dip, coming in marginally lower than analysts' estimate of a 0.3 percent slip. Third quarter costs were revised up slightly to a gain of 0.1 percent from the previous estimate of an annualized decrease of 0.1 percent.
While quarterly annualized figures have improved recently, year-ago productivity numbers continued to be weighed down by weakness in output in mid-2010. Year-on-year, productivity was up 1.9 percent in the fourth quarter-down from 2.9 percent in the third quarter. Year-ago unit labor costs worsened slightly with an annualized minus 0.1 percent in the fourth quarter from minus 1.0 percent in the previous quarter.
Overall, the productivity and cost numbers have been favorable toward corporate profits as companies have squeezed more out of workers not laid off during the recent downturn. However, many economists doubt this pattern can continue and firms soon will have to boost hiring to maintain output and revenue gains.
Today's release had no market impact but an unexpected drop in initial jobless claims lifted both equity futures and Treasury yields. The drop in claims is boosting expectations for a nice gain in payroll employment in Friday's employment situation report.
In clear data pointing strongly to month-to-month acceleration for payroll gains, initial jobless fell a substantial 20,000 in the February 26 week on top of a 25,000 decline in the prior week. The number of claims, at 368,000, is the third sub 400,000 reading in the last four weeks (note the February 19 week was revised 3,000 lower to 388,000). The four-week average, down 12,750 to 388,500, is the first sub 400,000 reading of the recovery. Importantly, the Labor Department reports no special factors clouding the data.
Continuing claims are likewise moving lower, down 59,000 in data for the February 19 week to 3.774 million which is also a recovery low. The four-week average is down 40,000 to 3.864 million with the unemployment rate for insured workers slipping one tenth to 3.0 percent.
Money is moving out of the Treasury market in immediate reaction to this report which will shift expectations toward the high end for tomorrow's employment report.
After recovering two weeks of declines, both purchase and refinancing applications fell back steeply in the February 25 week. Purchase applications fell 6.1 percent with refinancing applications down 6.5 percent. The shortened Presidents' Day week clouds the data but the decline in purchase applications, which fell 3.5 percent when unadjusted for calendar and seasonal effects, nevertheless adds to the building run of negatives out of the housing sector. The decline also hit during a week when rates moved steeply lower, down 16 basis points for 30-year fixed mortgages to an average 4.84 percent.
A surge in layoff announcements out of the government/non-profit group pushed Challenger's February count to 50,702, up from January's 38,519 for the largest total since March last year. Yet outside of the government/non-profit group, which accounted for 16,380 of the total, layoff announcements remain subdued.
ADP estimates February's private payrolls rose 217,000. Compared to the revised 189,000 estimate in January, ADP's data points to modest month-to-month growth for the private payrolls reading of Friday's jobs report.
Income growth jumped in January but spending slowed considerably. Inflation remains on two tracks with headline numbers outpacing the core. Personal income in January increased 1.0 percent, following a 0.4 percent gain the month before. The latest figure came in higher than the consensus estimate of 0.4 percent. Wages & salaries, however, grew a moderate 0.3 percent after gaining at the same pace in December.
As in December, consumer spending for the latest month was led by auto sales and higher gasoline prices. Personal consumption expenditures increased a modest 0.2 percent, following a 0.5 percent advance in December.
For January, strength was led by nondurables, up 0.9 percent (including gasoline), with durables advancing 0.4 percent. Services spending was flat for the latest month. Notably, inflation eroded the gain in overall spending as chained dollar purchases fell 0.1 percent in January after a 0.3 percent boost the month before.
On the inflation front, the PCE price index posted a 0.3 percent rise, matching the gain in December. The core rate was not as strong but still warmed up a bit with a 0.1 percent rise, compared to no change in December. On a year-ago basis, headline PCE prices are up 1.2 percent in January-the same rate as in December. Core inflation held steady at 0.8 percent year-on-year versus in December.
Year on year, personal income for January was up 4.6 percent, compared to 3.8 percent in December. PCEs growth improved to 4.0 percent from 3.9 percent in December.
Income is up, which is good, but spending has slowed. To date, the easing in spending growth is not worrisome given that it is coming off strong months. However, moving forward, healthier gains in wages & salaries are going to be needed to keep spending ahead of what appears to be building headline inflation.