US factory activity, private payrolls up

US factory activity has ticked up in May after slowing for two straight months and private employers have stepped up hiring, suggesting the economy is regaining speed after struggling at the start of the year.

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The signs of renewed vigour in the economy and labour market tightness could encourage the Federal Reserve to raise interest rates later in June.

“The economy is moving forward at an acceptable pace and the Fed is likely to hike rates in June, but there is a cloud over the path of rates later on this year,” said Chris Rupkey, chief economist at MUFG in New York.

The Institute for Supply Management (ISM) said its index of national factory activity ticked up to a reading of 54.9 in May from 54.8 in April. The index hit a two-and-a-half-year high of 57.7 in February amid optimism over President Donald Trump’s pro-business policy proposals.

It had declined for two consecutive months as concerns mounted in the business community that political scandals could derail the Trump administration’s economic agenda, including its push to cut corporate and individual taxes.

A reading above 50 in the ISM index indicates an expansion in manufacturing, which accounts for about 12 per cent of the US economy. The manufacturing recovery remains underpinned by the energy sector as steady increases in crude oil prices boost drilling activity, fuelling demand for machinery.

The ISM survey’s new orders sub-index increased to 59.5 in May from 57.5 in April. A measure of factory employment jumped to a reading of 53.5 from 52.0 in April. Manufacturers of food and fabricated metals products reported difficulties finding qualified workers.

Manufacturers continued to steadily increase inventories and still viewed their customers’ stocks as too low, according to the survey. While raw materials prices rose for a 15th straight month, the pace of increase slowed sharply in May.

The upbeat economic data helped lift US stocks, with each of the major indexes hitting record highs. The dollar rose against a basket of currencies, while US Treasury debt prices fell slightly.

The ADP National Employment Report showed private payrolls increased by 253,000 jobs last month, beating economists’ expectations for a gain of 185,000 jobs. Private payrolls rose by 174,000 jobs in April.

The ADP report is jointly developed with Moody’s Analytics and was released ahead of the Labor Department’s more comprehensive nonfarm payrolls report on Friday, which includes both public and private-sector employment.

The ADP report, however, is not a good predictor of the private payrolls component of the employment report. According to a Reuters survey of economists, payrolls likely increased by 185,000 jobs in May after a gain of 211,000 in April. The unemployment rate is forecast to be unchanged at a 10-year low of 4.4 per cent.

Still, the ADP report added to data this week showing an acceleration in consumer spending in April.

The economy grew at a 1.2 per cent annualised rate in the first quarter. The Atlanta Fed is forecasting gross domestic product increasing at a 4.0 per cent pace in the second quarter.

Minutes of the Fed’s May 2-3 policy meeting, which were published last week, showed that while policymakers agreed they should hold off hiking rates until there was evidence the growth slowdown was transitory, “most participants” believed “it would soon be appropriate” to raise borrowing costs.

The US central bank hiked rates by 25 basis points in March. It is expected to do so again at its June 13-14 policy meeting.

In a third report on Thursday, the Labor Department said initial claims for state unemployment benefits jumped 13,000 to a seasonally adjusted 248,000 for the week ended May 27.

It was the 117th straight week that claims were below 300,000, a threshold associated with a healthy labour market. That is the longest such stretch since 1970, when the labour market was smaller.

A Labor Department official said claims for California and seven other states were estimated because of the Memorial Day holiday on Monday, which could have distorted the data.

The four-week moving average of claims, considered a better measure of labour market trends as it irons out week-to-week volatility, rose only 2,500 to 238,000 last week.

“While the claims report put a damper on what has been a pretty upbeat run for most of the recent labour market data, we still have a fairly favourable view of labour market conditions,” said Daniel Silver, an economist at JPMorgan in New York.

The Fed on Wednesday said in its Beige Book report of anecdotal information on business activity collected from contacts nationwide that labour markets continued to tighten from early April through late May.

It also said “most” districts had cited worker shortages across a broadening range of occupations and regions.

A fourth report by global outplacement consultancy Challenger, Gray & Christmas showed layoffs announced by US-based employers surged 41 per cent to 51,692 in May. Nearly 40 per cent of the job cuts were announced by Ford Motor Co, according to the report.

‘Make our planet great again’: Macron tells Trump it’s a ‘mistake’ to abandon Paris agreement

And cheekily adapting the nationalist slogan used by Trump on his election campaign trail, Macron urged defenders of the climate to “make our planet great again.

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In a TV address broadcast both in French and English, Macron said he respected Trump’s decision, “but I do think it is an actual mistake both for the US and for our planet.”

“Climate change is one of the major issues of our time. It is already changing our daily lives but it is global,” Macron said.

“Everyone is impacted and if we do nothing our children will know a world of migrations, of wars of shortage, a dangerous world, it is not the future we want for ourselves, it is not the future we want for our children, it is not the future we want for our world.”

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Referring to Trump’s idea of redrawing the 2015 accord, he said, in the French version, “we will not in any way renegotiate an agreement that is less ambitious” than the present one.

“I reaffirm clearly that the Paris Agreement remains irreversible and will be implemented not just by France but by all the other nations,” Macron vowed.

He added: “To all scientists, engineers, entrepreneurs, responsible citizens who were disappointed by the decision of the president the United States, I want to say that they will find in France a second homeland.

“I call on them, come and work here with us, to work together on concrete solutions for our climate, our environment.”

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Macron said that he would move swiftly to define “a common strategy and to launch new initiatives” with France’s partners.

“We will succeed because we are fully committed, because wherever we live, whoever we are, we all share the same responsibility: make our planet great again,” said Macron, tweaking the “Make America great again” slogan promoted by Trump.

Bombers need Hooker up forward: Worsfold

Essendon coach John Worsfold insists he has no plans to send misfiring forward Cale Hooker back to a defensive post.

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Hooker, an All-Australian defender in 2014, was held goalless in last week’s loss to Richmond, but will line up in attack when the Bombers face Greater Western Sydney on Saturday.

Former Melbourne great Garry Lyon blasted Hooker’s performance, saying he played like “he has no clue what he’s doing” in the loss to the Tigers.

The 28-year-old, who is in the first season of a lucrative five-year deal, has managed just 16 goals in 10 games in 2017.

“At the moment we think that our best forward line has Cale in it,” Worsfold told reporters on Friday.

“We’re really pleased (with him) … our forward line efficiency has been outstanding.

“The one game we won the inside 50s we won by 10 goals. So there’s other areas of our game that we’ve got to improve to make sure that that forward line gets more opportunity.

“Cale’s performed the role pretty well.”

The Bombers are currently ranked 16th in the competition for inside 50s, averaging 46.9 a game.

Worsfold made three changes for the Spotless Stadium clash, recalling Martin Gleeson, Brent Stanton and Ben Howlett.

James Kelly (groin), Darcy Parish (calf) and Matt Dea (omitted) all depart the side that sits 11th on the ladder with a 5-5 record.

Parish will likely miss two games and resume after the Bombers’ bye round, but the news isn’t as good for Patrick Ambrose, who has re-injured the quad muscle that has kept him out since round five.

Matthew Leuenberger has recovered from the illness that ruled him out last week, but Tom Bellchambers was preferred to lead the ruck against the Giants after his 40-hitout performance in round 10.

“Tommy had an interrupted pre-season, so Leuey was in there through being available and up and going,” Worsfold said.

“And it was up to Tommy to stay in really good form and wait for opportunities, which he did.

“Now the pressure’s back on Leuey to win the spot back.”

Essendon midfielder Brendon Goddard will play his 300th AFL game on Saturday. Worsfold said the 32-year-old’s form warranted a new contract for 2018, but added a decision won’t be made until later this season.

Concerns over growing shisha tobacco black market

A federal politician and Australia’s customs agency fear a decade-old tax change has turned ethnic business owners away from legally importing tobacco popular in shisha bars.

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Molasses tobacco is commonly smoked through water pipes and is popular in Sydney and Melbourne ethnic communities in so-called “shisha,” or “hookah,” bars.

The tobacco is placed in a pipe, then heated by charcoal, and smokers inhale it through a mouthpiece.

But a federal politician warns a change in the way wet shisha tobacco is taxed may have opened a window for a black-market trade.

South Australian senator Skye Kakoschke-Moore is sitting on parliament’s inquiry into illegal tobacco.

“Nobody seems to know exactly how much of this product is coming into Australia that’s not being declared and how big the actual market is. We know from KPMG that they estimate the entire illicit tobacco market in Australia is around 14 per cent. Border Force disputes that, but they don’t have their own model yet to determine how much of the market is illegal.”

In 2008, tariff rules were changed so the tax on molasses tobacco was based on its overall weight, rather than just its tobacco content.

That made it more expensive.

The wet, heavy substance contains more than just tobacco, including ingredients such as honey, glycerin and chemicals to give it flavour.

Australian Border Force commissioner Roman Quaedvlieg told a Senate Estimates hearing last month molasses tobacco’s popularity and the declared amounts entering the country appear to conflict.

“There is a disparity between declared molasses and what we think is the consumption rate. That tells me indicatively that we have an illegal molasses-importation problem, and it’s something that we’re looking at.”

Senator Kakoschke-Moore says authorities should have anticipated it.

“It has been nearly a decade, and I think what’s happened here is there’s been a breakdown, in terms of forward planning. When the tax office changed their treatment of shisha, I don’t think that they anticipated it would drive the market underground to the extent that it did and that, in 10 years’ time, we’d be in a situation where the majority of our shisha has been imported illegally.”

Melbourne shisha-bar owner Ali Adam says the 2008 tax change had a severe effect on his business.

“When that happened, probably we lost about 30 to 40 per cent of our customers, just due to the price rise. (If) we start charging fair tax for this product, that will stop the smugglers, it will stop everything. (If) that will be the right price, it will go through the right channels.”

Senator Kakoschke-Moore says she is worried the profits made on shisha tobacco could be funding crime.

“It could be quite sophisticated criminals operating in a broader criminal network. The AFP have said that they would only look at this issue if they believed that there was a link between the importation of shisha and broader criminal-network involvement. Anecdotally, they’re starting to see that now. I would like to see that anecdotal evidence move to hard physical evidence.”

Border Force deputy commissioner Michael Outram says he agrees it needs further investigation.

“We’ve taken on investigations in relation to molasses tobacco. Again, one of the areas that’s of potential concern for us is the amount of money that can be raised and then sent back to other parts of the world and then used for nefarious purposes, and that’s another angle that we’re looking at.”

Last year’s federal Budget boosted funding for the Border Force’s Tobacco Strike Team by $7.7 million over two years.

Border Force officials say the force has expanded its mission from simply intercepting illegal tobacco shipments at the borders to disrupting and dismantling organised-crime rings.

 

Emissions scheme needed for electricity

The Turnbull government is under renewed pressure to establish an emission intensity scheme after two of its agencies said it was their preferred option for affordable, secure and lower emissions electricity generation.

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In joint advice to the government, the Australian Energy Market Commission and the Climate Change Authority recommended better integration of energy and emissions reduction policies.

Doing so would help keep electricity prices as low as possible while improving power system security, they said in a report released on Friday.

It’s the second report in six months to endorse an EIS, following a draft report by Chief Scientist Alan Finkel who described the scheme as having “the lowest economic costs and the lowest impact on electricity prices” of all options.

Dr Finkel’s final report will be released next week.

Energy Minister Josh Frydenberg has ruled out an EIS, saying it would “push out” coal-fired power generators and destabilise the electricity grid.

Crossbench senator Nick Xenophon – who convinced the government to commission the AEMC-CCA report – said the Liberal-Nationals coalition would be “toast” at the next election unless it took action to bring down power prices and improve electricity reliability.

“This would mean cheaper prices and it would mean more energy security,” Senator Xenophon told reporters in Canberra on Friday.

“Unless we solve the energy crisis in this country, expect to see tens of thousands of jobs being lost, expect to see industries leaving our shores because energy-intensive industries cannot afford gas prices doubling and tripling.”

He said bipartisan support for such a policy would unlock billions of dollars in investment.

Senator Xenophon will meet with government figures next week to discuss the issue.

However, he ruled out using support for an EIS as leverage for passing budget measures through the Senate such as the schools funding plan.

Labor energy spokesman Mark Butler said it was unfortunate the government had rejected an EIS.

“It is endorsed by industry, the energy market, and experts as the way to deliver clear energy policy to stop the investment strike in new generation, cut pollution and transition to modern, clean energy,” he said.

Australia is committed to a 26 to 28 per cent reduction by 2030 of emissions on a 2005 baseline.

The CCA said in the report that in the absence of government support for an EIS, a low emissions target for the electricity sector should be considered.

The target could be expressed in terms of low emissions generation or it could be set in line with a desired level of emissions intensity per unit of electricity generated.

However, the AEMC said such a target was unlikely to be as effective as an EIS.