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Elon Musk: US recession more likely than not in near term
Tesla chief executive Elon Musk has warned that the US economy could soon fall into recession.
In an interview with Bloomberg News at the Qatar Economic Forum in Doha this morning, Musk said it appears “more likely than not” that the US economy enters recession in the near term.
Asked about president Biden’s prediction that a recession was “not inevitable” despite rising inflation, Musk pointed out that it will happen eventually… and quite possibly soon.
Musk said:
“A recession is inevitable at some point. As to whether there is a recession in the near term, I think that is more likely than not.
It’s not a certainty, but it appears more likely than not.
Musk isn’t alone. A poll of academic economists earlier this month found that nearly 70% predict the US economy will tip into a recession next year, as the Federal Reserve lifts interest rates aggressively in an attempt to cool inflation.
During the interview, Musk also said Tesla plans to cut its salaried workforce by about 10% over the next three months, which will work out as a 3.5% cut in total headcount.
Musk said:
“Tesla is reducing its salaried workforce roughly 10% over the next three months or so. We expect to grow our hourly workforce. We grew very fast on the salaried side, grew a little too fast in some areas”
Musk added that supply constraints were the biggest brake on Tesla’s growth, rather than competition from rival automakers.
On his planned takeover of Twitter, Musk said there are still a few “unresolved matters”, including the issue of how many bots are on the social media platform [earlier this month he threatened to walk away from the deal]
And asked whether he would support Donald Trump in the next US presidential election, Musk said he was “undecided at this point on that election.”
Markest up despite recession fears – but is it just a bear market rally?
Back in the markets… European stocks are holding their earlier gains, with the UK’s FTSE 100 now up 0.8%, or 56 points, at 7177 points.
Investors are anticipating that Wall Street will open higher, after the Juneteenth holiday on Monday.
A positive start to New York trading would be a relief after the S&P 500 plunged into a bear market last week.
FUTURES RALLYING BEFORE MARKET OPEN
DOW +1.66% 📈
S&P 500 E-MINI +1.85% 📈
NASDAQ +1.91% 📈— Papertrade (@papertrade_gg) June 21, 2022
But with recession fears swirling (as Elon Musk has shown), the economic picture is still troubling.
The FT’s Naomi Rovnick writes:
Hani Redha, multi-asset portfolio manager at PineBridge Investments, characterised Tuesday’s moves as a “bear market rally,” caused by a “psychological desire” for a shift in the market mood.
“It doesn’t really change the bigger picture of growth slowing down and tightening financial conditions,” he added.
“That combination still remains the overarching theme, which is pretty challenging.”
Recession worries are also rising in Germany.
The Federation of German Industries (BDI) more than halved its economic forecast for 2022 this morning, predicting German gross domestic product will only grow by 1.5% this year. Before the Ukraine war began, it forecast growth of 3.5%
The BDI also said a halt in Russian gas deliveries would make recession inevitable in Europe’s largest economy.
The influential German Chambers of Industry and Commerce (BDI) has revised down its economic growth estimate for Germany to 1.5% for 2022.
— dpa news agency (@dpa_intl) June 21, 2022
Britain’s postal workers could soon join railway staff in taking industrial action over pay.
The Communications Workers Union has announced it is serving notice for a national ballot on pay at the postal group Royal Mail. It is seeking an inflation-based, no strings pay award.
Papers will be sent to CWU members on the 28th of June, with the result due three weks later. The results of the ballot would inform a decision on whether to take industrial action.
CWU’s deputy general secretary Terry Pullinger said, in a video posted on Twitter, that the union will recommend industrial action if there’s not been any movement on the pay claim by then.
Pullinger said:
“Today we will be serving a notice on Royal Mail Group over a pay claim, our claim for an inflation-based no strings pay award. The company has imposed a 2% pay award, miles away from where inflation is, totally inadequate.
“We will have the result on the 19th of July. At that point, depending on where we are, we will make decision as whether we need to take industrial action, and if there has been no movement that is exactly what we will be recommending.”
Pullinger added that Royal Mail’s CEO, Simon Thompson, received a bonus of more than £140,000, taking his overall package to over £700,000 last year.
We are serving notice for a National Ballot on Pay on Royal Mail Group today – ballot papers dispatched next Tuesday – vote yes or forever accept less https://t.co/jEucE1RuB3
— The CWU (@CWUnews) June 21, 2022
Royal Mail has said it doesn’t believe there are grounds for industrial action, and that its pay offer is worth up to 5.5% [including a 2% productivity bonus, and agreement on changes to conditions such as an expanded Sunday parcel delivery offer].
A Royal Mail spokesperson said:
“We offered a deal worth up to 5.5% for CWU grade colleagues, the biggest increase we have offered for many years, which was rejected by the CWU.”
Last month, communications regulator Ofcom announced a formal investigation into Royal Mail, after almost a fifth of first-class deliveries arrived at least a day late in the year to April.
UK factory growth softens
Growth at UK manufacturers is slowing and order books have softened, in another sign that economic demand is easing.
The CBI’s latest survey of British factories has found that manufacturing output growth slowed slightly in the three months to June, and is expected to ease further in the three months ahead.
Output increased in 12 out of 17 sectors in the three months to June, led by the motor vehicles and aerospace sub-sectors. But the food, drink & tobacco sub-sector shrank for the first time in just over a year.
Factory bosses reported that export order books fell back to a normal level in June, but were still above their long-term averages.
Encouragingly, fewer manufacturers plan to raise their prices than earlier this year. A net balance of 58% of firms expected domestic price growth for the three months ahead, down from 75% in May and a survey record of +80% in March 2022.
That is the weakest expectations for selling price inflation since September 2021 (although significantly above the long-run average).
Broadly positive story coming from our latest manufacturing survey, with output growth strong, stock adequacy improving, and price growth expectations easing. However, many manufacturers continue to tell us that they’re facing strong cost pressures and recruitment difficulties https://t.co/OdjJvAtS0A
— Martin Sartorius (@SartoriusMartin) June 21, 2022
Signs of weaker growth could be deterring some firms from raising prices.
Anna Leach, CBI deputy chief economist, explains:
“While manufacturing output is still being supported by a backlog of orders, growth appears to be softening.
Stocks of finished goods are now seen as broadly adequate and we may be seeing the first signs that weaker activity is beginning to slow the pace of price increases in the sector.
Manufacturers continue to report a range of challenges, including significant cost pressures, shipping delays, shortages of key inputs, and, not least, recruitment difficulties. Skills shortages remain widespread and are a key constraint on growth. All of these trends are weighing on confidence.”
Stock adequacy improved in June. Stocks of finished goods were seen as broadly adequate, having been reported as inadequate for much of the past year #ITS pic.twitter.com/9CeSsMhqgp
— CBI Economics (@CBI_Economics) June 21, 2022
Expectations for domestic price growth for the three months ahead eased notably in June. While price expectations remained historically strong, they were at their lowest since September 2021 #ITS pic.twitter.com/NOHcjXOUhi
— CBI Economics (@CBI_Economics) June 21, 2022
There could be more disruption to flights next month, as Spain-based easyJet’s cabin staff will go on strike for nine days in July,
The workers will walk out July 1, 2, 3, 15, 16, 17, 29, 30 and 31 to protest against low wages, Miguel Galan, the general secretary of union USO’s easyJet section, told reporters this morning.
Yesterday easyJet announced it would cut its summer flight schedule, as staff shortages left airlines and airports unable to handle the increase in travel as Covid restrictions were lifted.
Full story: Britons face paying £380 a year more as supermarket inflation hits 13-year high
Supermarket inflation hit 8.3% in the past month, the highest rate in 13 years, adding £380 to annual bills as the rising cost of living weighs on families, my colleague Sarah Butler reports:
Sales fell at all the big supermarkets as shoppers switched to discounters Aldi and Lidl and bought more own-label goods in an effort to keep a lid on spending, according to the latest data from Kantar.
Sales of supermarkets’ cheapest own-label products rose 12% while Aldi and Lidl’s sales rose by 7.9% and 9.5% respectively in the three months to 12 June. Aldi’s share of the grocery market is 9.6%, less than 1% behind Morrisons where sales fell by 7.2% in the three-month period making it the biggest loser in the market.
Here’s the full story:
Despite the money-saving trend, families splashed out during the platinum jubilee celebrations, buying a third more alcohol and 35% more ice-cream than during an average week, according to Kantar.
Sales of lemon curd were also up 16% as many people had a go at making the official jubilee trifle.
The pound has gained against the US dollar, as traders anticipate that UK interest rates will keep rising.
Sterling is up 0.5% today at $1.2314, following Huw Pill’s warning that further tightening is needed.
The pound dropped below $1.20 last week for the first time since the first pandemic lockdowns in March 2020, but it looking perkier this week.
Neil Wilson of Markets.com says the Bank ought to do more to protect the pound, as a weak currency pushed up import costs.
Interesting comments from Bank of England chief economist Huw Pill this morning on sterling, saying they should take into account the exchange rate, though he stressed it is not the target.
But given a lot of the inflation in Britain is imported dollar-based inflation – ie rising dollar prices on global markets – the Bank would do well to do more to defend the currency.
Catherine Mann, one of the MPC’s hawkish dissenters last week, called [on Monday] for more rapid interest rate rises and warned the BoE was in danger of falling behind the Fed.
BoE chief economist sees further rate rises ahead
Pill told the Institute of Chartered Accountants in England and Wales this morning that the Bank was ready to act:
“We will do what we need to do to get inflation back to target.
And at least in my view, that will require further tightening of monetary policy over the coming months.
Last week, the Bank’s Monetary Policy Committee raised interest rates for the fifth time in a row, from 1% to 1.25%. Pill was one of six policymakers who backed this, while three voted for a larger rise to 1.5%.
Some economists predict the Bank could act more aggressively in August, with a 50-bp hike that would take Bank Rate to 1.75%.
Yesterday, fellow MPC member Catherine Mann called for more rapid rate rises, to prevent a weak pound pushing up imported inflation.
Mann pointed out that other central banks such as the Fed and the ECB expect to lift their borrowing costs, which would hit sterling if the BoE lagged behind. She also suggested rates could then be cut to support growth, once the inflationary shock had ebbed.
Pill, though, says monetary policy was a ‘blunt instrument’, which must focus on its main goal of controlling inflation, rather than trying to stabilise the exchange rate or economic activity.
Pill told the ICAEW:
“Monetary policy is not a panacea.
Monetary policy is not an instrument that allows you to achieve lots and lots of different things at short term: stabilise the exchange rate, fine-tune developments in employment or activity.
Huw Pill doesn’t sound a fan of Catherine Mann’s idea yesterday of bigger BoE rate rises to boost sterling: “Monetary policy is not an instrument that allows you to achieve lots and lots of different things at short term: stabilise the exchange rate, fine-tune developments…”
— David Milliken (@david_milliken) June 21, 2022
Economist Nouriel Roubini is also warning that the US could be in recession soon.
Elon Musk: US recession more likely than not in near term
Tesla chief executive Elon Musk has warned that the US economy could soon fall into recession.
In an interview with Bloomberg News at the Qatar Economic Forum in Doha this morning, Musk said it appears “more likely than not” that the US economy enters recession in the near term.
Asked about president Biden’s prediction that a recession was “not inevitable” despite rising inflation, Musk pointed out that it will happen eventually… and quite possibly soon.
Musk said:
“A recession is inevitable at some point. As to whether there is a recession in the near term, I think that is more likely than not.
It’s not a certainty, but it appears more likely than not.
Musk isn’t alone. A poll of academic economists earlier this month found that nearly 70% predict the US economy will tip into a recession next year, as the Federal Reserve lifts interest rates aggressively in an attempt to cool inflation.
During the interview, Musk also said Tesla plans to cut its salaried workforce by about 10% over the next three months, which will work out as a 3.5% cut in total headcount.
Musk said:
“Tesla is reducing its salaried workforce roughly 10% over the next three months or so. We expect to grow our hourly workforce. We grew very fast on the salaried side, grew a little too fast in some areas”
Musk added that supply constraints were the biggest brake on Tesla’s growth, rather than competition from rival automakers.
On his planned takeover of Twitter, Musk said there are still a few “unresolved matters”, including the issue of how many bots are on the social media platform [earlier this month he threatened to walk away from the deal]
And asked whether he would support Donald Trump in the next US presidential election, Musk said he was “undecided at this point on that election.”
European stock markets have opened higher, as shares continue to recover from last week’s slump.
But online grocer Ocado has tumbled over 5%, after tapping investors for £575m to find its expansion plans.
Ocado said it wanted the cash to “invest in innovation at a faster pace”.
The fund-raising comes as the pandemic boom in home deliveries fades, and customers look for cheaper groceries.
Fitch, the credit rating agency, last night downgraded its outlook on Ocado to negative on Monday, and warned it would take longer than expected for the UK-listed group’s international operations to turn a profit.
The pan-European Stoxx 600 index is up 1%, with gains in Germany, France, Milan and Madrid.
Hospitality industry expected to lose £500m of revenue from strikes
Geneva Abdul
Today’s UK rail strikes are going to cost the hospitality industry’s restaurants, pubs and other businesses £500m in revenue, the CEO of UKHospitality said.
Speaking on BBC Radio 4’s Today programme, Kate Nicholls said with businesses shutting early, or not opening in response to the rail strikes, hospitality employees also won’t be able to work.
This strike will also not only have an impact this week, it will hit consumer confidence going forward. And as a result of the pandemic, one in three of our businesses have no cash reserves, one in five have still not returned to making a profit.
So they are incredibly fragile and they cannot withstand anymore of these severe economic shocks.
My colleague Geneva Abdul is live-blogging today’s industrial action on the transport network, here:
Rolls-Royce offers workers £2,000 to help ease cost of living crisis
The UK’s escalating cost-of-living squeeze has prompted engineering group Rolls-Royce to offer a £2,000 payment to around 14,000 UK staff.
The aircraft engineering group told staff on Monday that it would give the cash lump sum to 11,000 shop-floor workers as well as 3,000 junior managers.
The shop-floor workers are also being offered a 4% pay rise for 2022, backdated to March.
A Rolls-Royce spokesperson said the company was offering the majority of its staff a cash lump sum of £2,000 “to help them through the current exceptional economic climate”.
He said it was the first time the company has paid out a cash lump sum that is not linked to performance, but to the economic climate, adding:
“In addition, we are offering our shopfloor staff the highest annual pay rise for at least a decade, back-dated to March, and together these measures represent around a 9% pay increase for them.”
Despite rising food bills, Britons did splash out on the Queen’s Platinum Jubilee celebrations.
Sales during the week of the Platinum Jubilee (which included two bank holidays) were £87m higher than in an average week, with an increase in alcohol and and ice cream.
Market leader Tesco and Aldi and Lidl were the only groups to increase their market share on a sales value basis over the 12 weeks.
Only the discounters increased sales, Kantar reports, as customers tried to make their money stretch further.
Supermarket sales fell by 1.9% during the 12 weeks to June 12 year-on-year, but were up 0.4% in the last four weeks.
Introduction: Grocery inflation hit 13-year high
Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.
UK consumers are facing the steepest increase in food bills in 13 years, as the cost of living crisis hits households.
Grocery price inflation jumped to 8.3% over the four weeks to June 12 – up from 7% a month earlier and its highest level since April 2009, new figures from data firm Kantar show.
This means annual grocery bills will jump by £380 this year, adding to the burden on people who also face surging energy bills and record price for petrol and diesel at the pumps.
Fraser McKevitt, head of retail and consumer insight at Kantar, says food bills are rising sharply:
“This is over 100 pounds more than the number we reported in April this year, showing just how sharp price increases have been recently and the impact inflation is having on the sector,”
With food prices jumping, shoppers are increasingly swapping branded items for cheaper own-label products.
Kantar reports that sales of branded products fell by 1% in the 12 weeks to June 12, while own-label sales rose by 2.9% and value own-label lines jumped by 12%.
McKevitt said sales of own-label lines have been “boosted by Aldi and Lidl’s strong performances, both of whom have extensive own-label repertoires”, adding:
“We can also see consumers turning to value ranges, such as Asda Smart Price, Co-op Honest Value and Sainsbury’s Imperfectly Tasty, to save money.”
We reported last month that the UK’s “golden era” of cheap food was over, and Kantar’s figures confirm that the squeeze on households is getting worse.
Also coming up today
Britain’s biggest nationwide rail strike for 30 years has begun, leaving train passengers facing widespread disruption and cancellations as workers responsible for train lines and infrastructure across the UK walked out.
Industry leaders fear the economic disruption will be considerable, as travellers and commuters decide to stay at home, with strikes also planned for Thursday and Saturday.
Last-ditch talks yesterday failed to resolve the bitter dispute over pay, jobs and conditions, with all sides blaming each other for the lack of progress.
The RMT said train operating companies made a late pay offer yesterday, believed to be about 2-3%, with strings attached and no guarantees against compulsory redundancies. That’s a long way below inflation, which hit 9% in April.
Richard Burge, chief executive of the London Chamber of Commerce and Industry, warned that the capital “cannot afford a summer of chaos on the railways and tube lines”, given the slowing economy.
“While this strike will be damaging, a recession is looking likely regardless; as such, I wouldn’t pin an eventual recession on this strike.”
The agenda
- 8am BST: Kantar’s report on UK grocery sector
- 11am BST: CBI industrial trends survey of UK factories in May
- 1.30pm BST: Chicago Fed National Activity Index
- 3pm BST: US existing home sales for May
