Evelyn Reynolds

More stories

  • 113 Shares189 Views

    in Economy

    New Mexico’s Spaceport America Is an Economic Dream Deferred

    From his tiny gem store in southern New Mexico, Robert Hanseck spends his days untangling chakra beads and answering questions about the healing properties of amethyst crystals. After four decades behind the register, he has met thousands of wellness-minded tourists eager to explore the hot springs that span the region.But he almost never sees the type of traveler he was promised would transform his small town of Truth or Consequences: space enthusiasts.“It’s been a flop,” he said of Spaceport America, a project that was conceived as the vanguard of commercial space travel — and that has been promoted by state officials for more than two decades as a launchpad for the local economy.Less than a mile up the road, Arthur Burger, who owns an art gallery, recounted the moment in 2021, not long after he moved to town, when he watched in awe as a rocket plane soared into the sky beyond the nearby mountain range. He remembers the resounding boom.After years of delays, Virgin Galactic, the anchor tenant at Spaceport America, had sent its founder, Richard Branson, and a team to the edge of space — evidence at last, many in the area thought, that New Mexico was a front-runner in the commercial space race.“That week, people came in from London, from Taipei,” Mr. Burger said. “It was surreal.”In this stretch of rural New Mexico, there are plenty of opinions about Spaceport, a futuristic structure on a desolate stretch of desert that has cost more than $200 million in state and local funds.Residents in and around Truth or Consequences have waited for Spaceport to produce a payoff in aerospace-related jobs and tourism.Robert Hanseck at his gem store. He says he almost never sees the type of traveler he was promised would transform the town.Residents of Sierra County, which includes Truth or Consequences, and neighboring Doña Ana County have contributed millions from sales taxes to help subsidize the venture.Many say they are tired of waiting for the payoff that was supposed to come from aerospace-related jobs and from tourists drawn like storm chasers to the scene of the action. But others see it as an ambitious bet on the future that has finally begun to produce results.This year, Virgin Galactic has conducted six Spaceport launches, the most in any year so far, blasting researchers and space tourists who can afford the $450,000 ticket toward the edge of space.Virgin Galactic uses a carrier aircraft to take a rocket plane about 45,000 feet above Earth, and from there it disconnects and propels passengers to an altitude of more than 50 miles.Despite the recent momentum, another setback came in November when Virgin Galactic laid off 185 employees — 73 in New Mexico — reducing the company to around 800, and said it would suspend flights in mid-2024. The layoffs, according to the company, are meant to allow Virgin Galactic to focus resources on a new class of suborbital space planes. And this month, Mr. Branson told The Financial Times that he would no longer invest in Virgin Galactic, noting that the company “does not have the deepest pockets.”For Amanda Forrister, the mayor of Truth or Consequences, the idea that Spaceport will one day reshape her community still feels possible, but far from a guarantee.“It is a bit of a question mark,” she said.Getting In on the Ground FloorSpectators watched Virgin Galactic’s sixth and final launch of the year last month.The allure of rockets, space and what exists beyond us has deep roots in New Mexico.After a military balloon crashed near Roswell in 1947, that southeastern New Mexico town became part of the zeitgeist, driving decades of conspiracy theories from people who believe it was the crash site of an unidentified flying object used by aliens. The world’s first atomic bomb, developed at Los Alamos National Laboratory in the northern part of the state, was detonated at what is now the White Sands Missile Range, where the U.S. military still tests rockets.So in late 2005, when Gov. Bill Richardson announced a plan to collaborate with Virgin Galactic on a commercial spaceport in the state, it sounded to many like a natural fit — and a potential boon.“This is a unique opportunity for New Mexico to be on the ground floor of a new industry that will bring new companies, more high-wage jobs and opportunities that will move our state’s economy forward,” Mr. Richardson, who died in September, said when signing enabling legislation three months later.The reality of commercial space travel felt firmly within reach, and almost immediately Mr. Branson’s company began taking spaceflight reservations at $200,000 apiece.In 2006, construction began about 30 miles east of Truth or Consequences and ultimately used $218.5 million in public funds. From a distance, the circular structure, on 18,000 acres of sagebrush and yucca, looks almost like something from a sci-fi film. Cattle guards line the two-lane road that leads to its entrance. More than half the money to build it was allocated by the state, and the rest — $76.4 million — was generated from taxes in the local counties.Virgin Galactic’s rocket-powered plane, left, flew above its mother ship after its release on its way to the edge of space in August.Andres Leighton/Associated PressVoters in Doña Ana County approved a 0.25 percent gross receipts tax to support Spaceport in 2007, and Sierra County voters followed a year later. A state report released in 2005 estimated that by 2020, Spaceport could result in $550 million of additional annual economic activity and bring roughly 4,300 jobs to the area.“The economic impact of this new spaceport is potentially quite large, reflecting the strong upscale potential of the nascent space tourism industry,” the report said.The report also forecast 376 suborbital launches in 2019.In reality, it has created only a small fraction of that — $138 million in economic output in 2022 and about 800 jobs generated, according to a recent report from Spaceport. The first human spaceflight was in May 2021.“Looking at the numbers and what has taken place over the years, it’s been a bad investment,” said Shannon Reynolds, a Doña Ana County commissioner.Mr. Reynolds said Mr. Branson’s recent comments were dismaying.“If he will not invest in his own operation at Virgin Galactic, what are others supposed to deduce from this?” he asked. “I believe we bet on the wrong anchor tenant at the Spaceport.”‘This Has Been a Long Road’Allan Turk, director of aerospace operations for Spaceport America, giving a talk. In recent years, Spaceport and Mr. Branson found themselves up against an increasingly crowded field of billionaire competitors.Nine days after Mr. Branson’s 2021 suborbital spaceflight — the one Mr. Burger watched from his art gallery — Jeff Bezos took a similar voyage with his aerospace company, Blue Origin, which launched from rural West Texas. Elon Musk’s SpaceX, which was briefly a tenant at Spaceport, now has launch sites in Florida, Texas and California.For many local residents, their deep frustration has been caused not only by the delays but also by concerns about the use of public funds.In 2020, Dan Hicks, the executive director of Spaceport America, was fired after a whistle-blower came forward with allegations of financial mismanagement and abuse of authority.The state hired a firm to investigate, and the state auditor said it had found “a severe breakdown of internal controls that resulted in possible waste and abuse of taxpayer funds.”In an interview, Scott McLaughlin, who succeeded Mr. Hicks as Spaceport’s executive director, said the recently released economic impact report by his team pointed to encouraging signs on the horizon.“This has been a long road requiring patience by the citizens and policymakers,” Mr. McLaughlin said. He noted that aside from Virgin Galactic, another key tenant is SpinLaunch, a company building technology aimed at providing rapid, low-cost access to space. The company had its first test flight in 2021.“A main priority of mine,” said Scott McLaughlin, the executive director of Spaceport, “is to find new tenants.”“A main priority of mine,” Mr. McLaughlin said, “is to find new tenants.”He said a large part of his job involved talking to companies almost weekly about Spaceport and giving tours to prospective tenants a couple of times a month.“Many of the companies we are talking to, though, are very early stage in their technology development, so our recruitment might go over two or more years,” Mr. McLaughlin said. “With young companies, it is hard to know who will eventually succeed or fail.”Before dawn on a recent morning — days before Virgin Galactic announced its plan to halt launches in the middle of next year — more than a dozen STEM educators and students arrived at Spaceport America for what would be Virgin Galactic’s sixth and final launch of the year.The air was frigid, and the group huddled on a concrete slab a short distance from the runway. At 9 a.m., the Virgin Galactic aircraft, known as V.M.S. Eve, lifted off, carrying two researchers and a space tourist who had paid $450,000.The aircraft circled high above in the sky before the rocket plane, known as V.S.S. Unity, separated and hurled the crew toward the edge of space for several minutes, reaching nearly three times the speed of sound. From liftoff to touchdown back at Spaceport, the mission lasted about an hour. It then takes Virgin officials weeks to prepare Unity for another launch.“It’s quite something to see,” Mr. McLaughlin said in a parking lot where about a dozen onlookers had traveled to watch the flight.“Sometimes this lot is full,” he said. “Sometimes it is not.”Earthbound AttractionsThe game show “Truth or Consequences” pledged to do a broadcast from the first place to rename itself after the program. Hence the town’s name, since 1950.While Spaceport America’s launch site address is given as Truth or Consequences, the heart of the town of 6,000 people is a 40-minute drive away on the Rio Grande.The town, once called Hot Springs, got its name in 1950 after the host of the game show “Truth or Consequences” pledged to air the program on its 10th anniversary from the first place to rename itself after the show.This time of year, as winter transplants arrive to escape the cold, cars with license plates from Minnesota and Montana line the main road. On a recent afternoon, hours after the launch, the Spaceport America visitor center in town, inside an old adobe-style building, was empty.Kathleen Sloan, a local journalist and longtime resident, said she was tired of promises about Spaceport and found the whole situation to be a bit of a farce since Virgin Galactic aircraft could theoretically take off from some airports.Local residents, she said, “have paid enough.”And yet the town’s growth is undeniable.In a little over a year, PreReal Investments, based in New York City, has bought more than 100 properties in Sierra County at a cost of roughly $40 million. The company plans to resell the mixture of homes and commercial spaces.But while the company promotes the property’s proximity to Spaceport America, “our choice was driven by the county’s natural resources,” said James Prendamano, PreReal’s chief executive.The “hot springs, a wide array of world-class outdoor activities” were critical to his investments, he said.“There will always be an interest in space,” said Marianne Blaue, center, of the Truth or Consequences Brewing Company, “and I think that is beneficial for the community.”That type of investment is reassuring, said Marianne Blaue, who moved to town with her husband, John Masterson, in 2016 after they left tech jobs in Seattle.Eager to help build a sense of community in their new home, they soon opened Truth or Consequences Brewing Company, the first brewery in town, and have noticed a steady stream of fellow transplants arriving, especially since the pandemic began.While Ms. Blaue knew a bit about Spaceport before moving, she hadn’t realized just how close it was to her new home. They’ve had Spaceport and Virgin employees and a handful of customers on space missions stop in for a beer, said Ms. Blaue, whose selection includes space-named brews such as Star Eater Black I.P.A. and Cosmic Blonde.“There will always be an interest in space,” she said, “and I think that is beneficial for the community.”On the afternoon of the recent launch, Mr. Hanseck, who owns the gem store, watched as cars trickled past his shop. This time of year, he said, most of his clients are snowbirds in town for the winter.Arthur Burger at his art gallery. He recalls the moment in 2021, soon after his arrival, when he watched a rocket plane soaring into the sky and heard a resounding boom.While Mr. Hanseck unpacked cardboard boxes of merchandise, he considered the longstanding promise of space tourists descending on his community. He chuckled to himself.“I know what people come here for, and it’s not to go to space,” he said. “It is wishful thinking at best.”On the same afternoon, Mr. Burger was at his gallery, working with a local artist to put up a new painting.He has enjoyed escaping the saturated art scene of Santa Fe, he said. These days, he spends much of his time showcasing the work of Sierra County artists, including high school students.“Did you hear the boom?” he said with excitement to a patron who lives in town, referring to the sound when the V.S.S. Unity re-entered the atmosphere. “There are few places in the world where you can see and hear something like that.” More

  • 100 Shares199 Views

    in Economy

    My Not-So-Perfect Holiday Shopping Excursion With A.I. Chatbots

    With Shopify, Mercari and other retailers rolling out chatbots to help buyers, this holiday shopping season is the first to be powered by A.I.To help with my holiday shopping this year, I recently turned to a new personal assistant online. “I’m looking for a Christmas present for my mother, who spends long hours working,” I typed. “Is there something she can use in her office every day?”“Of course!” came the instant reply. “Does your mother have any specific preferences or needs for her office? For example, does she need organization tools, desk accessories, or something to help her relax during breaks?”So began my conversation with Shop A.I., a new chatbot from Shopify, an e-commerce marketplace. Over 10 minutes, Shop A.I. and I engaged in a question-and-answer session. I told the chatbot my budget and more about my mother, such as her need to alleviate back pain. Shop A.I. also asked me about my mother’s preferred design and color for an office chair.More people may eventually replicate this kind of shopping experience. A year after ChatGPT debuted, retailers around the world have started rolling out chatbots that are powered by generative artificial intelligence. That makes this holiday season the first when a slew of A.I. chatbots can help shoppers brainstorm and find presents for their friends and loved ones.In addition to Shopify, chatbots have come out over the past 12 months from Instacart, the delivery company; Mercari, a resale platform; Carrefour, a retailer; and Kering, which owns Gucci and Balenciaga. Walmart, Mastercard and Signet Jewelers are also testing chatbots, which may become publicly available as soon as next year.“In a way, it’s recreating an in-store environment, but online,” said Carl Rivera, a vice president at Shopify who oversees its Shop app, which hosts Shop A.I. He said the chatbot broke down people’s questions into key terms and searched relevant products from Shopify’s millions of sellers. It then recommends products based on reviews and a shopper’s purchase history.Retailers have long used chatbots, but previous versions lacked conversational power and typically answered just a few preset questions, such as the status of an order. The newest chatbots, by contrast, can process prompts and generate tailored answers, both of which create a more “personalized and authentic interaction,” said Jen Jones, the chief marketing officer of the platform Commercetools.Whether shoppers want this technology remains a question. “Consumers like simplicity, so they don’t necessarily want to have five different generative A.I. tools that they would use for different purposes,” said Olivier Toubia, a marketing professor at Columbia Business School.Nicola Conway, a lawyer in London, tried Kering’s luxury personal shopper, Madeline, in August to search for a pink bridesmaid dress for a spring wedding. Madeline was “intuitive and novel,” she said, but it gave only one recommendation, an Alexander McQueen corset dress. Ms. Conway did not end up buying it.Kering did not respond to requests for comment.Maggie Weber, a shopping influencer who uses the social media handle @refashionedhippie, said she tried Mercari’s chatbot, Merchat A.I., in May. She asked the chatbot to show her baseball cards, but she was instead offered baseballs — and then hats, bats and jerseys.“Merchat is still in its infancy,” Ms. Weber, 34, said. She added that she worried that if she gave the chatbot too much information, it would start directing personalized ads to her.A Mercari spokeswoman said Merchat used chat history only to recommend products and did not use personally identifiable information. She added that the search bar could be faster for customers who want a specific item, while the chatbot helped those who want “inspiration for gifts.”Such inspiration was exactly what I needed this season as I had only vague ideas for what to buy my 53-year-old mother and my 17-year-old cousin, Jenny.A screenshot of our reporter’s conversation with Merchat A.I., a chatbot that helps shoppers.So I tried Shop A.I. After telling the chatbot about my mother’s back pain and asking what I could buy to help her relax, Shop A.I. offered to find an ergonomic chair and asked my budget. When I said $100, it came back with a few pages of product results.“Can you help me to narrow it down?” I typed. Shop A.I. then asked about my preferred color for a chair. I said black.Shop A.I. returned more than 300 results, including a $159 camp chair from ROAM Adventure, a $179.99 reclining massage office chair from homrest and a $269.99 CosyGaming executive chair.“These don’t seem to be under $100,” I wrote, annoyed.“As a new chatbot, I’m still learning and sometimes the search results may not be accurate,” Shop A.I. replied. “Let me try again and find some black ergonomic chairs within your budget.”Shop A.I. returned more than 300 results for black ergonomic chairs, though few were under $100.Then, it added, “It seems that I’m having trouble finding black ergonomic chairs within your budget at the moment.”I ended up typing “black ergonomic chair” into the search bar myself and set a $100 price range. A $66.81 Victory Furniture gaming chair and a $47.96 massage office chair popped up, though they were too big and heavy to be gifts.Eventually, I asked Shop A.I. for alternative ideas and received five options, including seat cushions and standing desk converters.I chose the standing desk converter and gave Shop A.I. my $100 budget. This time, the chatbot showed options within my price range, including a $99 Risedesk standing desk converter. But most of the products did not have reviews, which I rely on while shopping online. I didn’t buy anything.Shop A.I. provided alternative gift recommendations, including standing desk converters.Shop A.I. was not great at finding a gift for my cousin, either. I wanted to buy Jenny some college dorm decorations featuring her favorite anime series, Violet Evergarden, which follows a character named Violet as she recovers from an unidentified war.But Shop A.I. appeared to decide that anything the color violet was connected to my query. It showed me wall art of purple mountains and posters of purple BMW cars.So I turned to Mercari’s Merchat. After asking for my cousin’s hobby (anime), age (17) and what she might prefer for college (dorm decorations), Merchat offered three gift ideas: wall tapestries, string lights and desk accessories in the theme of Violet Evergarden.Merchat showed me four products under each category, all of which were under my budget of $50. I ended up buying an $18 Violet Evergarden poster scroll for Jenny. (She later told me she wished I had gotten her something quirkier.)Emboldened by the experience, I asked Merchat to help find a present for my mother. “Would she benefit from a back support cushion, a heating pad or maybe a massage chair pad?” it asked.“What are the pros and cons of each?” I typed.Merchat said it couldn’t provide specific pros and cons for individual items. I changed my question to: “Which one is the easiest to use?”This time, Merchat was definitive: the back support cushion, which was portable. Merchat detailed the differences between a memory-foam cushion and a firmer one, then further grouped memory-foam cushions into three categories and displayed the top four results for each, all under $100.While I didn’t buy any because the styles were limited, it was a great starting point.“Thank you,” I wrote.“You’re welcome!” Merchat replied. “Happy shopping and have a wonderful time with your family!” More

  • 125 Shares179 Views

    in Economy

    European Central Bank holds rates and trims its inflation forecast

    The European Central Bank held interest rates steady for the second meeting in a row, as it revised its growth forecasts lower and announced plans to shrink its balance sheet.
    “The Governing Council’s future decisions will ensure that its policy rates will be set at sufficiently restrictive levels for as long as necessary,” it said in a statement.

    BRUSSELS, BELGIUM – NOVEMBER 27: Christine Lagarde, President of the European Central Bank speaks during the European Parliament’s Committee on Economic and Monetary Affairs (ECON) meeting in Brussels, Belgium on Nevember 27, 2023. (Photo by Dursun Aydemir/Anadolu via Getty Images)
    Anadolu | Anadolu | Getty Images

    The European Central Bank on Thursday held interest rates steady for the second meeting in a row, as it revised its growth forecasts lower and announced plans to speed up the shrinking of its balance sheet.
    The bank was widely expected to leave policy unchanged in light of the sharp fall in euro zone inflation, as investors instead chase signals on when the first rate cut may come and assess the ECB’s plans to shrink its balance sheet.

    “The Governing Council’s future decisions will ensure that its policy rates will be set at sufficiently restrictive levels for as long as necessary,” it said in a statement. However, the ECB switched language around inflation from describing it as “expected to remain too high for too long,” saying instead that it will “decline gradually over the course of next year.”
    The latest staff macroeconomic projections see average real GDP expanding 0.6% in 2023, from a prior forecast of 0.7%. They estimate GDP will expand by 0.8% in 2024, from 1%, previously. The forecast for 2025 was unchanged, at 1.5%.
    Headline inflation is meanwhile seen averaging 5.4% in 2023, 2.7% in 2024 and 2.1% in 2025. It had previously forecast readings of 5.6% this year, 3.2% in 2024 and 2.1% in 2025. The ECB now also released a new estimate for 2026, at 1.9%.
    The ECB cautioned that domestic price pressures remain elevated, primarily because of growth in the cost of labor. Members see core inflation, excluding energy and food, averaging 5% this year and 2.7% in 2024, 2.3% in 2025, and 2.1% in 2026.
    It said that tighter financing conditions were dampening demand and helping control inflation, adding that growth would be subdued in the short term before recovering due to the rise in real incomes and improved foreign demand.

    The decision keeps the central bank’s key rate at a record high of 4%.
    The ECB also announced that reinvestments under its pandemic emergency purchase programme (PEPP), a temporary asset purchase scheme, would complete at the end of 2024.
    The transition will be gradual, with a reduction in the PEPP portfolio by 7.5 billion euros ($8.19 billion) per month on average over the second half of 2024, it said, after the Governing Council agreed to “advance the normalisation of the Eurosystem’s balance sheet.” It means all the tools the central bank uses to determine monetary policy are now in tightening mode, after it stopped reinvestments this summer under its Asset Purchase Program, a bond-buying stimulus package started in mid-2014 to tackle low inflation.
    “I think most people thought [the announcement on PEPP] would come a little bit later, might come in the rate cut debate and was the sort of price that the doves would have to pay,” James Smith, developed market economist at ING, told CNBC’s Joumanna Bercetche after the announcement.

    Fall in inflation

    Euro zone year-on-year inflation has moderated from 10.6% in October 2022 to 2.4% in the most recent reading in November. That has put the ECB’s 2% target within grasp, even as officials note the threat that wage pressures and energy market volatility will cause a potential resurgence.
    It has also fueled bets on cuts next year, with some analysts and market pricing both suggesting trims could come before the summer.
    Asked about the timing of cuts at a news conference following the announcement, ECB President Christine Lagarde told CNBC’s Annette Weisbach that the central bank was “data dependent, not time dependent.”
    “Clearly when we look at our inflation outlook, look at the projections, we see inflation at 2.1% in 2025 … and the path to get there is flatter than it was before, which lowers the risk of inflation expectations deanchoring,” Lagarde said.
    “A lot of indicators are showing that underlying inflation comes below expectations, with a decline across all components.”
    She continued, “So, should we lower our guard? We ask ourselves that question. No, we should absolutely not lower our guard.”
    A major reason for that is the continued risk from domestic inflation, Lagarde said, adding that there is a need to assess fresh wage data in the spring.

    Market reaction

    European exchanges gained ground through Thursday, with the regional Stoxx 600 index reaching its highest level since January 2022, while European bonds rallied.
    After the ECB news, the euro extended gains to trade 0.8% higher against the dollar at $1.095. It also moved from a slight loss to trade flat against the British pound.
    The moves partly reflected the U.S. Federal Reserve’s Wednesday decision to hold rates steady and release the latest “dot plot” rate trajectory from its members, triggering expectations of a dovish pivot from major central banks.
    Gains held after the Bank of England also announced a rate hold at midday U.K. time, even as its committee said monetary policy was “likely to need to be restrictive for an extended period of time.” More

  • 138 Shares139 Views

    in Economy

    Retail sales rose 0.3% in November vs. expectations for a decline

    Retail sales rose 0.3% in November, stronger than the 0.2% decline in October and better than the Dow Jones estimate for a decrease of 0.1%.
    Sales held up despite a 2.9% slide in receipts at gas stations, as energy prices broadly slumped during the month.
    Initial claims for unemployment insurance totaled a seasonally adjusted 202,000, lower than the 220,000 estimate.

    Consumers showed unexpected strength in November, giving a solid start to the holiday season as inflation showed signs of continued easing.
    Retail sales rose 0.3% in November, stronger than the 0.2% decline in October and better than the Dow Jones estimate for a decrease of 0.1%, the Commerce Department reported Thursday. The total is adjusted for seasonal factors but not inflation.

    Excluding autos, sales rose 0.2%, also better than the forecast for no change. Stripping out autos and gas, sales rose 0.6%.
    With the consumer price index up 0.1% on a monthly basis in November, the retail sales number shows consumers more than keeping up with the pace of price increases.
    On a year-over-year basis, sales accelerated 4.1%, compared with a headline CPI rate of 3.1%. The inflation rate is still above the Federal Reserve’s 2% target but is well below its peak above 9% in mid-2022.
    “The rebound in retail sales in November provides further illustration that the continued rapid decline in inflation is not coming at the cost of significantly weaker economic growth,” said Andrew Hunter, deputy chief U.S. economist at Capital Economics.
    Sales held up despite a 2.9% slide in receipts at gas stations, as energy prices broadly slumped during the month. Gas station sales were off 9.4% on a 12-month basis.

    That weakness was offset by an increase of 1.6% at bars and restaurants, a 1.3% gain at sporting goods, hobby, book and music stores, and a 1% increase at online retailers.
    The so-called control group of sales, which excludes auto dealers, building materials retailers, gas stations, office supply stores, mobile homes and tobacco stores and feeds into calculations for gross domestic product, increased 0.4%.
    In other economic news Thursday, the pace of layoffs slowed sharply last week.
    Initial claims for unemployment insurance totaled a seasonally adjusted 202,000 for the week ended Dec. 9, a decline of 19,000 from the previous week and the lowest total since mid-October, according to the Labor Department. Economists had been looking for 220,000.
    Both reports come the day after the Federal Reserve indicated that enough progress has been made in the inflation fight to start lowering interest rates next year. According to projections following the policy meeting of the Federal Open Market Committee, central bank officials expect to cut about 0.75 percentage point off short-term borrowing rates in 2024.
    Though Fed officials expect economic growth to slow considerably in the year ahead, they do not foresee a recession.
    Don’t miss these stories from CNBC PRO: More

  • 138 Shares119 Views

    in Economy

    The Stock and Bond Markets Are Getting Ahead of the Fed.

    Stock and bond markets have been rallying in anticipation of Federal Reserve rate cuts. But don’t get swept away just yet, our columnist says.It’s too early to start celebrating. That’s the Federal Reserve’s sober message — though given half a chance, the markets won’t heed it.In a news conference on Wednesday, and in written statements after its latest policymaking meeting, the Fed did what it could to restrain Wall Street’s enthusiasm.“It’s far too early to declare victory and there are certainly risks” still facing the economy, Jerome H. Powell, the Fed chair, said. But stocks shot higher anyway, with the S&P 500 on the verge of a new record.The Fed indicated that it was too early to count on a “soft landing” for the economy — a reduction in inflation without a recession — though that is increasingly the Wall Street consensus. An early decline in the federal funds rate, the benchmark short-term rate that the Fed controls directly, isn’t a sure thing, either, though Mr. Powell said the Fed has begun discussing rate cuts, and the markets are, increasingly, counting on them.The markets have been climbing since July — and have been positively buoyant since late October — on the assumption that truly good times are in the offing. That may turn out to be a correct assumption — one that could be helpful to President Biden and the rest of the Democratic Party in the 2024 elections.But if you were looking for certainty about a joyful 2024, the Fed didn’t provide it in this week’s meeting. Instead, it went out of its way to say that it is positioning itself for maximum flexibility. Prudent investors may want to do the same.Reasons for OptimismOn Wednesday, the Fed said it would leave the federal funds rate where it stands now, at about 5.3 percent. That’s roughly 5 full percentage points higher than it was in early in 2022. Inflation, the glaring economic problem at the start of the year, has dropped sharply thanks, in part, to those steep interest rate increases. The Consumer Price Index rose 3.1 percent in the year through November. That was still substantially above the Fed’s target of 2 percent, but way below the inflation peak of 9.1 percent in June 2022. And because inflation has been dropping, a virtuous cycle has developed, from the Fed’s standpoint. With the federal funds rate substantially above the inflation rate, the real interest rate has been rising since July, without the Fed needing to take direct action.But Mr. Powell says rates need to be “sufficiently restrictive” to ensure that inflation doesn’t surge again. And, he cautioned, “We will need to see further evidence to have confidence that inflation is moving toward our goal.”The wonderful thing about the Fed’s interest rate tightening so far is that it has not set off a sharp increase in unemployment. The latest figures show the unemployment rate was a mere 3.7 percent in November. On a historical basis, that’s an extraordinarily low rate, and one that has been associated with a robust economy, not a weak one. Economic growth accelerated in the three months through September (the third quarter), with gross domestic product climbing at a 4.9 percent annual rate. That doesn’t look at all like the recession that had been widely anticipated a year ago.To the contrary, with indicators of robust economic growth like these, it’s no wonder that longer-term interest rates in the bond market have been dropping in anticipation of Fed rate cuts. The federal funds futures market on Wednesday forecast federal funds cuts beginning in March. By the end of 2024, the futures market expected the federal funds rate to fall to below 4 percent.But on Wednesday, the Fed forecast a slower and more modest decline, bringing the rate to about 4.6 percent.Too Soon to RelaxSeveral other indicators are less positive than the markets have been. The pattern of Treasury rates known as the yield curve has been predicting a recession since Nov. 8, 2022. Short-term rates — specifically, for three-month Treasuries — are higher than those of longer duration — particularly, for 10-year Treasuries. In financial jargon, this is an “inverted yield curve,” and it often forecasts a recession.Another well-tested economic indicator has been flashing recession warnings, too. The Leading Economic Indicators, an index formulated by the Conference Board, an independent business think tank, is “signaling recession in the near term,” Justyna Zabinska-La Monica, a senior manager at the Conference Board, said in a statement.The consensus of economists measured in independent surveys by Bloomberg and Blue Chip Economic Indicators no longer forecasts a recession in the next 12 months — reversing the view that prevailed earlier this year. But more than 30 percent of economists in the Bloomberg survey and fully 47 percent of those in the Blue Chip Economic Indicators disagree, and take the view that a recession in the next year will, in fact, happen.While economic growth, as measured by gross domestic product, has been surging, early data show that it is slowing markedly, as the bite of high interest rates gradually does its damage to consumers, small businesses, the housing market and more.Over the last two years, fiscal stimulus from residual pandemic aid and from deficit spending has countered the restrictive efforts of monetary policy. Consumers have been spending resolutely at stores and restaurants, helping to stave off an economic slowdown.Even so, a parallel measurement of economic growth — gross domestic income — has been running at a much lower rate than G.D.P. over the last year. Gross domestic income has sometimes been more reliable over the short term in measuring slowdowns. Ultimately, the two measures will be reconciled, but in which direction won’t be known for months.The MarketsThe stock and bond markets are more than eager for an end to monetary belt-tightening.Already, the U.S. stock market has fought its way upward this year and is nearly back to its peak of January 2022. And after the worst year in modern times for bonds in 2022, market returns for the year are now positive for the investment-grade bond funds — tracking the benchmark Bloomberg U.S. Aggregate Bond Index — that are part of core investment portfolios.But based on corporate profits and revenues, prices are stretched for U.S. stocks, and bond market yields reflect a consensus view that a soft landing for the economy is a near-certain thing.Those market movements may be fully justified. But they imply a near-perfect, Goldilocks economy: Inflation will keep declining, enabling the Fed to cut interest rates early enough to prevent an economic calamity.But excessive market exuberance itself could upend this outcome. Mr. Powell has spoken frequently of the tightening and loosening of financial conditions in the economy, which are partly determined by the level and direction of the stock and bond markets. Too big a rally, taking place too early, could induce the Fed to delay rate cuts.All of this will have a bearing on the elections of 2024. Prosperity tends to favor incumbents. Recessions tend to favor challengers. It’s too early to make a sure bet.Without certain knowledge, the best most investors can do is to be positioned for all eventualities. That means staying diversified, with broad holdings of stocks and bonds. Hang in, and hope for the best. More

  • 113 Shares129 Views

    in Economy

    Is Jerome Powell’s Fed Pulling Off a Soft Landing?

    It’s too soon to declare victory, but the economic outlook seems sunnier than it did a year ago, and many economists are predicting a surprising win.The Federal Reserve appears to be creeping closer to an outcome that its own staff economists viewed as unlikely just six months ago: lowering inflation back to a normal range without plunging the economy into a recession.Plenty could still go wrong. But inflation has come down notably in recent months — it is running at 3.1 percent on a yearly basis, down from a 9.1 percent peak in 2022. At the same time, growth is solid, consumers are spending, and employers continue to hire.That combination has come as a surprise to economists. Many had predicted that cooling a red-hot job market with far more job openings than available workers would be a painful process. Instead, workers returned from the labor market sidelines to fill open spots, helping along a relatively painless rebalancing. At the same time, healing supply chains have helped to boost inventories and ease shortages. Goods prices have stopped pushing inflation higher, and have even begun to pull it down.The Fed is hoping for “a continuation of what we have seen, which is the labor market coming into better balance without a significant increase in unemployment, inflation coming down without a significant increase in unemployment, and growth moderating without a significant increase in unemployment,” Jerome H. Powell, the Fed chair, said Wednesday.As Fed policymakers look ahead to 2024, they are aiming squarely for a soft landing: Officials are trying to assess how long they need to keep interest rates high to ensure that inflation is fully under control without grinding economic growth to an unnecessarily painful halt. That maneuver is likely to be a delicate one, which is why Mr. Powell has been careful to avoid declaring victory prematurely.But policymakers clearly see it coming into view, based on their economic projections. The Fed chair signaled on Wednesday that rates were unlikely to rise from their 5.25 to 5.5 percent setting unless inflation stages a surprising resurgence, and central bankers predicted three rate cuts by the end of 2024 as inflation continues to cool and joblessness rises only slightly.Consumers continue to spend, and growth in the third quarter was unexpectedly hot.Tony Cenicola/The New York TimesIf they can nail that landing, Mr. Powell and his colleagues will have accomplished an enormous feat in American central banking. Fed officials have historically tipped the economy into a recession when trying to cool inflation from heights like those it reached in 2022. And after several years during which Mr. Powell has faced criticism for failing to anticipate how lasting and serious inflation would become, such a success would be likely to shape his legacy.“The Fed right now looks pretty dang good, in terms of how things are turning out,” said Michael Gapen, head of U.S. Economics at Bank of America.Respondents in a survey of market participants carried out regularly by the research firm MacroPolicy Perspectives are more optimistic about the odds of a soft landing than ever before: 74 percent said that no recession was needed to lower inflation back to the Fed’s target in a Dec. 1-7 survey, up from a low of 41 percent in September 2022.Fed staff members began to anticipate a recession after several banks blew up early this year, but stopped forecasting one in July.People were glum about the prospects for a gentle landing partly because they thought the Fed had been late to react to rapid inflation. Mr. Powell and his colleagues argued throughout 2021 that higher prices were likely to be “transitory,” even as some prominent macroeconomists warned that it might last.The Fed was forced to change course drastically as those warnings proved prescient: Inflation has now been above 2 percent for 33 straight months.Once central bankers started raising interest rates in response, they did so rapidly, pushing them from near-zero at the start of 2022 to their current range of 5.25 to 5.5 percent by July of this year. Many economists worried that slamming the brakes on the economy so abruptly would cause whiplash in the form of a recession.But the transitory call is looking somewhat better now — “transitory” just took a long time to play out.Much of the reason inflation has moderated comes down to the healing of supply chains, easing of shortages in key goods like cars, and a return to something that looks more like prepandemic spending trends in which households are buying a range of goods and services instead of just stay-at-home splurges like couches and exercise equipment.In short, the pandemic problems that the Fed had expected to prove temporary did fade. It just took years rather than months.“As a charter member of team transitory, it took a lot longer than many of us thought,” said Richard Clarida, the former Fed vice chair who served until early 2022. But, he noted, things have adjusted.Fed policies have played a role in cooling demand and keeping consumers from adjusting their expectations for future inflation, so “the Fed does deserves some credit” for that slowdown.While higher interest rates didn’t heal supply chains or convince consumers to stop buying so many sweatpants, they have helped to cool the market for key purchases like housing and cars somewhat. Without those higher borrowing costs, the economy might have grown even more strongly — giving companies the wherewithal to raise prices more drastically.Now, the question is whether inflation will continue to cool even as the economy hums along at a solid clip, or whether it will take a more marked economic slowdown to drive it down the rest of the way. The Fed itself expects growth to slow substantially next year, to 1.4 percent from 2.6 percent this year, based on fresh projections.“Certainly they’ve done very well, and better than I had anticipated,” said William English, a former senior Fed economist who is now a professor at Yale. “The question remains: Will inflation come all the way back to 2 percent without more slack in the labor and goods markets than we’ve seen so far?”To date, the job market has shown little sign of cracking. Hiring and wage growth have slowed, but unemployment stood at a historically low 3.7 percent in November. Consumers continue to spend, and growth in the third quarter was unexpectedly hot.While those are positive developments, they keep alive the possibility that the economy will have a little too much vim for inflation to cool completely, especially in key services categories.“We don’t know how long it will take to go the last mile with inflation,” said Karen Dynan, a former Treasury chief economist who teaches at Harvard. Given that, setting policy next year could prove to be more of an art than a science: If growth is cooling and inflation is coming down, cutting rates will be a fairly obvious choice. But what if growth is strong? What if inflation progress stalls but growth collapses?Mr. Powell acknowledged some of that uncertainty this week.“Inflation keeps coming down, the labor market keeps getting back into balance,” he said. “It’s so far, so good, although we kind of assume that it will get harder from here, but so far, it hasn’t.”Mr. Powell, a lawyer by training who spent a chunk of his career in private equity, is not an economist and has at times expressed caution about using key economic models and guides too religiously. That lack of devotion to the models may come in handy over the next year, Mr. Gapen of Bank of America said.It may leave the Fed chief — and the institution he leads — more flexible as they react to an economy that has been devilishly tricky to predict because, in the wake of the pandemic, past experience is proving to be a poor precedent.“Maybe it was right to have a guy who was skeptical of frameworks manage the ship during the Covid period,” Mr. Gapen said. More

  • 125 Shares189 Views

    in Economy

    Federal Regulators Seek to Force Starbucks to Reopen 23 Stores

    The National Labor Relations Board says the locations were closed because of union organizing, violating federal law.Federal labor regulators accused Starbucks on Wednesday of illegally closing 23 stores to suppress organizing activity and sought to force the company to reopen them.A complaint issued by a regional office of the National Labor Relations Board argued that Starbucks had closed the stores because its employees engaged in union activities or to discourage employees from doing so. At least seven of the 23 stores identified had unionized.The agency’s move is the latest in a series of accusations by federal officials that Starbucks has broken the law during a two-year labor campaign.The case is scheduled to go before an administrative judge next summer unless Starbucks settles it earlier. In addition to asking the judge to order the stores reopened, the complaint wants employees to be compensated for the loss of earnings or benefits and for other costs they incurred as a result of the closures.“This complaint is the latest confirmation of Starbucks’ determination to illegally oppose workers’ organizing,” Mari Cosgrove, a Starbucks employee, said in a statement issued through a spokesperson for the union, Workers United.A Starbucks spokesman said, “Each year as a standard course of business, we evaluate the store portfolio” and typically open, close or alter stores. The company said it opened hundreds of new stores last year and closed more than 100, of which about 3 percent were unionized.The union campaign began in 2021 in the Buffalo, N.Y., area, where two stores unionized that December, before spreading across the country. More than 350 of the company’s roughly 9,300 corporate-owned locations have unionized.The labor board has issued more than 100 complaints covering hundreds of accusations of illegal behavior by Starbucks, including threats or retaliation against workers involved in union activity and a failure to bargain in good faith. Administrative judges have ruled against the company on more than 30 occasions, though the company has appealed those decisions to the full labor board in Washington. Judges have dismissed fewer than five of the complaints.None of the unionized stores have negotiated a labor contract with the company, and bargaining has largely stalled. Last week, Starbucks wrote to Workers United saying it wanted to resume negotiations.According to Wednesday’s complaint, Starbucks managers announced the closing of 16 stores in July 2022, then announced several more closures over the next few months.An administrative judge previously ruled that Starbucks had illegally closed a unionized store in Ithaca, N.Y., and ordered workers reinstated with back pay, but the company has appealed that decision.The new complaint was issued on the same day that Starbucks released a nonconfidential version of an outside assessment of whether its practices align with its stated commitment to labor rights. The company’s shareholders had voted to back the assessment in a nonbinding vote whose results were announced in March.The author of the report, Thomas M. Mackall, a former management-side lawyer and labor relations official at the food and facilities management company Sodexo, wrote that he “found no evidence of an ‘anti-union playbook’ or instructions or training about how to violate U.S. laws.”But Mr. Mackall concluded that Starbucks officials involved in responding to the union campaign did not appear to understand how the company’s Global Human Rights Statement might constrain their response. The rights statement commits Starbucks to respecting employees’ freedom of association and participation in collective bargaining.Mr. Mackall cited managers’ “allegedly unlawful promises and threats” and “allegedly discriminatory or retaliatory discipline and discharge” as areas where Starbucks could improve.In a letter tied to the report’s release, the chair of the company’s board and an independent director said the assessment was clear that “Starbucks has had no intention to deviate from the principles of freedom of association and the right to collective bargaining.” At the same time, the letter added, “there are things the company can, and should, do to improve its stated commitments and its adherence to these important principles.” More

  • 138 Shares159 Views

    in Economy

    Wholesale prices held flat in November, providing another encouraging inflation signal

    Wholesale prices were flat in November, providing a leading indicator that inflation is easing, the Labor Department reported Wednesday.
    The producer price index, which measures a broad range of prices on final demand items, was unchanged for the month, following a 0.4% decrease in October but less than the Dow Jones estimate for a 0.1% gain. On a year-over-year basis, headline PPI accelerated just 0.9%, after peaking above 11.5% in March 2022.

    Excluding food and energy, the index also was unchanged against an estimate for a 0.2% increase. Excluding food, energy and trade services, PPI increased 0.1%, posting a sixth straight increase and good for a 12-month gain of 2.5%.
    The release comes a day after the Labor Department said its consumer price index rose just 0.1% in November and 3.1% from a year ago. The PPI gauges the prices producers receive for what they produce while CPI measures what consumers pay and is considered a leading signal for prices in the pipeline.
    Together, the easing inflation data, along with other economic signals, likely will give the Federal Reserve enough room to hold benchmark interest rates steady when its policy meeting concludes Wednesday.
    At the wholesale level, indexes for both goods and services were unchanged, though there were some big swings within components.
    Gasoline, for instance, fell 4.1% while chicken eggs soared 58.8%. The index for final demand energy fell 1.2%, offsetting increases of 0.6% for foods and 0.2% for goods less food and energy.

    Don’t miss these stories from CNBC PRO: More