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    Fitch’s Debt Downgrade Is Unlikely to Deter Borrowing, Investors Say

    Fitch’s credit-rating decision stemmed from concerns about America’s ability to govern itself, along with the nation’s growing debt load.The downgrade of the United States’ debt by a major ratings firm is a damning indictment of the country’s fractious politics and a blot on its financial record that is unlikely to be quickly erased. But many investors and analysts say it won’t affect the government’s ability to keep borrowing money.On Tuesday, Fitch Ratings lowered the credit rating of the United States one notch to AA+ from a pristine AAA. The firm, citing a “deterioration in governance” along with America’s mounting debt load, suggested that it could be a long time before that decision was reversed.“Our base case is that deficits will remain high and the debt burden will continue to rise,” said Richard Francis, co-head of the Americas sovereign group at Fitch and its primary analyst for the United States, in an interview on Wednesday. “I think it is unlikely that there will be any meaningful changes.”The move — like the drop to AA+ in 2011 by S&P Global, which has kept its U.S. rating there — followed partisan brinkmanship over America’s debt ceiling, which caps how much money the government can borrow. The United States came within days of defaulting on its debt this spring as Republican lawmakers refused to lift the cap unless President Biden made concessions on spending. The two sides ultimately reached an agreement on May 27, just days before the Treasury Department projected that the government could run out of cash.With both Fitch and S&P now carrying a lower assessment, the United States’ credit rating, at least for most investors, will no longer be considered among the top tier, which includes Germany, Australia and Singapore.While the move is something of a black eye, market watchers expect the practical impact to be small. Analysts at Wells Fargo noted that the early feedback from their clients was that their appetite to keep lending to the government wasn’t likely to change much.That’s because the U.S. Treasury market is the largest sovereign debt market in the world, underpinning borrowing costs across the globe, with Treasuries owned by investors of all stripes. The U.S. rating remains among the highest in the world, backed by a strong and diverse economy and aided by the central global role of the country’s currency.“This is largely a symbolic move,” said Peter Tchir, head of macro strategy at Academy Securities.Stock markets slumped on Wednesday, and the yield on Treasuries — which indicates how much investors are demanding to be paid in exchange for lending to the government — rose. But analysts suggested that had more to do with rising government borrowing forecasts, resulting in higher interest rates and pointing to increased costs for companies, too.Fitch downgraded America’s debt on the day that former President Donald J. Trump was indicted on charges related to his efforts to overturn the 2020 election, which culminated in an attack on the Capitol on Jan. 6, 2021. The attack showcased deep distrust in the government and the rule of law.Despite the suspension of the debt limit in June, future fiscal fights — including a possible government shutdown this fall — are looming. The lack of comity between the political parties means the cap is likely to remain a political tool, with no guarantee that a compromise will always be reached.That increased polarization was central to Fitch’s decision. Mr. Francis said intense partisanship had inhibited decisions on better budgeting and the debt ceiling, with both Democrats and Republicans unmovable on policies that could improve the country’s fiscal position. These include, he added, changes to taxes, military spending, and Social Security and Medicare, which are expected to face ballooning costs as more baby boomers retire.“There is no willingness on any side to really tackle the underlying challenges,” Mr. Francis said.The ratings agency also cited the Jan. 6 attack as a concern that fed into the downgrade.“There’s the debt ceiling standoff, there is this painful budgeting process, there is political polarization that is ongoing and probably deteriorating — and then there is the Jan. 6 insurrection, but that is one factor among many,” Mr. Francis said.The Federal Reserve’s rapid interest rate increases have compounded some of those factors by raising borrowing costs, forcing the government to borrow even more money to account for higher interest and other payments to bondholders.On Wednesday, the Treasury Department detailed its plans to borrow over $1 trillion for the third quarter, which runs from July through September. The estimate, announced on Monday, is $274 billion more than the Treasury had forecast in May. The United States current debt is $32.5 trillion.More borrowing means more debt for investors to digest. A larger supply of Treasuries while investor demand stays the same, or even shrinks, means higher borrowing costs for the government. The 10-year Treasury yield rose 0.07 percentage points on Wednesday to 4.09 percent, its highest level since November.Treasury Secretary Janet L. Yellen continued to criticize the Fitch decision on Wednesday, describing it as “puzzling” and “entirely unwarranted.”“Its flawed assessment is based on outdated data and fails to reflect improvements across a range of indicators, including those related to governance, that we’ve seen over the past two and a half years,” Ms. Yellen said during an event in Virginia.Still, there does not seem to be any movement toward one solution that Fitch and many analysts have said would help the United States return to its higher rating: getting rid of the debt ceiling.Mr. Francis said it would “probably be helpful” to get rid of the debt limit if the United States ever wanted to regain a higher rating. Despite Mr. Biden’s desire to alter the process, there has been no indication that any changes are coming soon.Instead, Republicans and Democrats returned to the kind of partisan bickering that helped fuel the downgrade, with each side blaming the other for it.“The downgrade comes just months after Biden and congressional Democrats took the country to the brink of default and amid an increasingly unsteady economic path,” said Jake Schneider, director of rapid response for the Republican National Committee.The Democratic National Committee blamed the tax cuts and spending policies that were initiated by Republicans and Mr. Trump when he was president, saying the downgrade was “a direct result of Donald Trump and MAGA Republicans’ extreme and reckless agenda.” More

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    The Fitch analyst behind the U.S. downgrade breaks down the decision—and how the country can regain the top rating

    The Fitch Ratings logo is seen at their offices at Canary Wharf financial district in London, Britain.
    Reinhard Krause | Reuters

    It’s not a growing jobs market, strong U.S. dollar or a resilient economy that will help the U.S. regain the top rating from Fitch. According to the firm, it’s going to take a major step up in governance.
    Fitch Ratings cut the United States’ long-term foreign currency issuer default rating to AA+ from AAA on Tuesday, sending global stock markets down on Wednesday. The agency had placed the country’s rating on negative watch in May, citing the debt ceiling issue. 

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    “This is a steady deterioration we’ve seen in the key metrics for the United States for a number of years. In 2007, general government debt was less than 60% and now it’s 113%, so there has been a clear deterioration,” Richard Francis, Fitch’s co-head of the Americas sovereign ratings, said Wednesday on CNBC’s “Squawk on the Street.” “Furthermore, we’re expecting fiscal deficits to rise over the next three years and we expect debt to continue to rise over the next three years.”
    Francis said that, in addition to the Jan. 6, 2021 insurrection, the rating agency has noted a “constant brinkmanship” surrounding the debt ceiling among both Republicans and Democrats. That has hindered the U.S. government from coming up with meaningful solutions to deal with growing fiscal issues, particularly around entitlement programs such as Social Security and Medicare, he said.

    To regain the top rating, Francis said the rating agency would watch for a long-term fiscal solution that addresses entitlement programs and for a willingness to look at the revenue, as well as the spending side, of such programs. He also said Fitch would look for a reduction of the deficit, and for the government to tackle the debt ceiling issue by suspending or getting rid of it.
    “Given the high level of the debt, given the increasing deficits that we’re expecting, and given the kind of deterioration in governance and unwillingness to really tackle these issues, we don’t think that’s consistent with the AAA anymore,” Francis said.
    Many reactions, from high-profile economists to the White House, have been critical or dismissive of the downgrade given the resilience of the nation’s economy. 

    In response to pushback, Francis said that although the economy is very important and could have an impact on the overall fiscal picture of the U.S., it will not be enough to tackle the governance issues.
    “This idea that the economy somehow, we skirt a recession and there should not be a downgrade, that’s just not really what we’re looking at,” he said. “We’re looking at a more fundamental picture of the United States, creditworthiness and also kind of what we expect to happen over the next few years.” More

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    Frontline Workers: How Has Your Commute Changed During the Pandemic?

    If you have never had the option to work from home because your job must be done in person, tell us how your commute has shifted over the past three years.Cities and workplaces have been upended since the pandemic began. Some people moved from cities to suburbs. Stores and restaurants moved out of busy downtown areas. Train and bus schedules shifted.The New York Times is reporting on how commuting has changed over the last three years for people who have never had the option to work from home because their jobs must be done in person — in health care, hospitality, food service, manufacturing, building maintenance, sanitation, public safety, you name it. We’d like to hear about your experiences. We may use your contact information to get in touch with you, and we won’t use your submission without first confirming with you that it’s OK.Tell us about your commute. More

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    Private sector added 324,000 jobs in July, well above expectations, ADP says

    Private sector job gains in July totaled 324,000, driven by a 201,000 jump in hotels, restaurants, bars and affiliated businesses, payroll processing firm ADP reported.
    That total was well above the Dow Jones estimate for 175,000, though it marked a decrease from the downwardly revised 455,000 in June.
    The services sector was responsible for 303,000 jobs on the month.

    Sinking Spring, PA – April 19: The sign at the McDonald’s restaurant on Penn Ave in Sinking Spring, PA April 19, 2021 with a message on a board below it that reads “Work Here $15 $15 $15”. (Photo by Ben Hasty/MediaNews Group/Reading Eagle via Getty Images)
    Medianews Group/reading Eagle Via Getty Images | Medianews Group | Getty Images

    Private sector companies added far more jobs than expected in July, pushed higher by a boom in leisure and hospitality jobs, payroll processing firm ADP reported Wednesday.
    Job gains for the month came to 324,000, driven by a 201,000 jump in hotels, restaurants, bars and affiliated businesses. That total was well above the Dow Jones consensus estimate for 175,000, though it marked a decrease from the downwardly revised 455,000 in June.

    The report provides another indication that the U.S. jobs market has retained its strength despite an extended Federal Reserve campaign to slow the economy and bring down inflation.
    “The economy is doing better than expected and a healthy labor market continues to support household spending,” said Nela Richardson, ADP’s chief economist. “We continue to see a slowdown in pay growth without broad-based job loss.”
    Services-related industries dominated job creation during the month as the economy continues its transition back from being goods-oriented in the early days of the Covid pandemic. The sector was responsible for 303,000 jobs on the month.
    Along with the big move in leisure and hospitality, information services added 36,000 positions; trade, transportation and utilities grew by 30,000; and the other services category, which encompasses things such as dry cleaning, housekeeping and the like, contributed 24,000.
    Goods producers added just 21,000, as natural resources and mining increased by 48,000 but manufacturing lost 36,000. Construction was responsible for the other 9,000.

    ADP also noted that wages increased by 6.2% from a year ago, well above the long-term pace but the lowest growth since November 2021.
    The ADP report serves as a precursor for Friday’s more widely followed nonfarm payrolls count from the Labor Department’s Bureau of Labor Statistics. The numbers can differ widely, as they did in June when ADP’s 455,000 total was well above the 209,000 from the BLS.
    Through the first six months of the year, ADP had averaged 256,000 a month while the BLS was at 278,000. The Dow Jones estimate for the official July government report is 200,000.
    Also of note from the ADP report was that the job gains were concentrated in firms with fewer than 50 employees, which were responsible for 237,000 positions. Companies with between 50 and 499 employees added 138,000, while big firms lost 67,000. More

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    U.S. debt downgrade sinks global markets — but economists are not concerned

    Fitch announced late on Tuesday that it had cut the U.S. long-term foreign currency issuer default rating to AA+ from AAA.
    U.S. stock futures were sharply lower after the downgrade, while markets in Europe and Asia also sank.

    Traders work on the floor of the New York Stock Exchange, June 29, 2023.
    Brendan McDermid | Reuters

    Global stock markets tumbled on Wednesday after ratings agency Fitch downgraded the United States’ long-term credit rating — but top economists say there is nothing to worry about.
    Fitch announced late on Tuesday that it had cut the U.S. long-term foreign currency issuer default rating to AA+ from AAA, citing “expected fiscal deterioration over the next three years,” an erosion of governance in light of “repeated debt-limit political standoffs” and a generally growing debt burden.

    U.S. stock futures were sharply lower after the downgrade, pointing to a fall of almost 300 points for the Dow Jones Industrial Average at the Wednesday open on Wall Street.
    The pan-European Stoxx 600 index dropped 1.6% by mid-morning in London, with all sectors and major bourses trading deep into the red, while stocks in Asia-Pacific also plunged across the board overnight.
    High-profile economists including former U.S. Treasury Secretary Larry Summers and Allianz Chief Economic Advisor Mohamed El-Erian lambasted the Fitch decision, with Summers calling it “bizarre and inept” and El-Erian “perplexed” by the timing and reasoning. Current Treasury Secretary Janet Yellen described the downgrade as “outdated.”
    Goldman Sachs Chief Political Economist Alec Phillips was also quick to point out that the decision did not rely on new fiscal information and is therefore not expected to have a lasting impact on market sentiment beyond immediate shock selling on Wednesday.
    Phillips said the downgrade “should have little direct impact on financial markets as it is unlikely there are major holders of Treasury securities who would be forced to sell based on the ratings change.”

    “Fitch’s projections are similar to our own — they imply a federal deficit of around 6% of GDP over the next few years — and Fitch cites CBO (collateralized bond obligation) projections in its medium-term outlook, so the downgrade does not reflect new information or a major difference of opinion about the fiscal outlook,” he said in a note Tuesday.
    Though this was the first downgrade of its kind since 1994, Fitch’s fellow ratings agency S&P downgraded the U.S. sovereign rating in 2011 and although it had a “meaningfully negative impact” on market sentiment, Phillips noted that there was “no apparent forced selling at that time.” The S&P 500 index recovered 15% over the following 12 months.
    “Because Treasury securities are such an important asset class, most investment mandates and regulatory regimes refer to them specifically, rather than AAA-rated government debt,” he said, while also noting that Fitch did not adjust its “country ceiling,” which remained at AAA.
    “If Fitch had also lowered the country ceiling, it could have had negative implications for other AAA-rated securities issued by U.S. entities,” Phillips added.
    This view was echoed by Wells Fargo Securities Head of Equity Strategy, Chris Harvey, who said the Fitch downgrade “should not have a similar impact to S&P’s 2011 downgrade (SPX 1-day: -6.7%), given the starkly different macro environments and other reasons.
    “Wells Fargo believes any pullback in stocks would be “relatively short and shallow.”
    Harvey noted that, ahead of the 2011 S&P downgrade, stocks were in correction territory, credit spreads were widening, rates were falling, and the global financial crisis “was still in the market’s collective conscience” — whereas the conditions today are “almost the opposite.”
    Other triggers for consolidation
    Though the prevailing macro message was one of looking past the Tuesday downgrade, veteran investor Mark Mobius told CNBC on Wednesday that the move may cause investors to rethink their strategies on U.S. debt and currency markets.
    “I think from a longer term perspective people are going to begin to think that they’ve got to diversify their holdings, first away from the U.S. and also into equities because that’s a way to protect them from any deterioration of the currency — the U.S. dollar or for that matter any other currency,” Mobius, founding partner of Mobius Capital Partners, told CNBC’s “Squawk Box Europe.”

    Though he still anticipates U.S. stock markets will continue rising alongside global peers, he suggested that stateside allocations within investment portfolios may come down slightly and redirect toward international and emerging markets.
    Virginie Maisonneuve, global CIO of equity at Allianz Global Investors, meanwhile told CNBC on Wednesday that the market should be looking at other potential triggers for a more prolonged downturn.

    “The markets clearly have to pay attention, but we have to remember it’s still investment grade and it’s reflecting the past,” she said of the Fitch call.
    “There are other potential triggers for consolidation. We have to remember we’ve had very strong markets, we have the macro peaks — so we have inflation peak, we have growth slowing down, but we still have core inflation.”
    She noted that core inflation in Europe has proven stickier than expected, while wheat and grain prices continue to react to developments in Ukraine and could exert further stoke food inflation. More

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    U.S. Credit Rating Is Downgraded by Fitch

    The ratings agency, which lowered the U.S. long-term rating from its top mark, said debt-limit standoffs had eroded confidence in the nation’s fiscal management.The long-term credit rating of the United States was downgraded on Tuesday by the Fitch Ratings agency, which said the nation’s high and growing debt burden and penchant for brinkmanship over America’s authority to borrow money had eroded confidence in its fiscal management.Fitch lowered the U.S. long-term rating to AA+ from its top mark of AAA. The downgrade — the second in America’s history — came two months after the United States narrowly avoided defaulting on its debt. Lawmakers spent weeks negotiating over whether the United States, which ran up against a cap on its ability to borrow money on Jan. 19, should be allowed to take on more debt to pay its bills. The standoff threatened to tip the United States into default until Congress reached a last-minute agreement in May to suspend the nation’s debt ceiling, which allowed the United States to keep borrowing money.Despite that agreement, the federal government now faces the prospect of a shutdown this fall, as lawmakers spar over how, where and what level of federal funds should be spent. The nonstop dueling over federal spending was a major factor in Fitch’s decision to downgrade America’s debt.“The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management,” Fitch said in a statement. “In addition, the government lacks a medium-term fiscal framework, unlike most peers, and has a complex budgeting process.”Fitch pointed to the growing levels of U.S. debt in recent years as lawmakers passed new tax cuts and spending initiatives. The firm noted that the U.S. had made only “limited progress” in tackling challenges related to the rising costs of programs such as Social Security and Medicare, whose costs are expected to soar as the U.S. population ages.Fitch is one of the three major credit ratings firms, along with Moody’s and S&P Global Ratings. In 2011, S&P downgraded the U.S. credit rating amid a debt-limit standoff — the first time the United States was removed from a list of risk-free borrowers.By one common measure, Fitch’s move downgrades America’s credit rating not only under the rating agency’s own assessment, but also for the blended rating of the three largest agencies.At the margin, the move by Fitch could limit the number of investors able to buy U.S. government debt, analysts have warned. Some investors are bound by constraints on the quality of the debt they can buy, and those that require a pristine credit rating across the three major agencies will now need to look elsewhere to fulfill investment mandates.That could nudge up the cost of the government’s borrowing at a time when interest rates are already at a 22-year high. Most analysts, however, doubt that the impact will be severe given the sheer size of the Treasury market and the ongoing demand from investors for U.S. Treasury securities.Still, the downgrade is a blemish on the nation’s record of fiscal management. The Biden administration on Tuesday offered a forceful rebuttal of the Fitch decision — criticizing its methodology and arguing that the downgrade did not reflect the health of the U.S. economy.“Fitch’s decision does not change what Americans, investors, and people all around the world already know: that Treasury securities remain the world’s pre-eminent safe and liquid asset, and that the American economy is fundamentally strong,” Treasury Secretary Janet L. Yellen said in a statement.Ms. Yellen described the change as “arbitrary” and noted that Fitch’s ratings model showed U.S. governance deteriorating from 2018 to 2020 but that it did not make changes to the U.S. rating until now.Biden administration officials, speaking on the condition of anonymity, said that they had been briefed by Fitch ahead of the downgrade and made their disagreements known. They noted that Fitch representatives repeatedly brought up the Jan. 6, 2021, insurrection as an area of concern about U.S. governance.The downgrade came on the same day that former President Donald J. Trump was indicted in connection with his widespread efforts to overturn the 2020 election, which fueled the Jan. 6 riot.Senator Chuck Schumer of New York, the majority leader, said the Fitch downgrade was the fault of Republicans, who refused to raise America’s borrowing cap without steep concessions. He urged them to stop using the debt limit for political leverage.“The downgrade by Fitch shows that House Republicans’ reckless brinkmanship and flirtation with default has negative consequences for the country,” Mr. Schumer said.The debt limit agreement reached in June cuts federal spending by $1.5 trillion over a decade, in part by freezing some funding that was projected to increase next year and capping spending to 1 percent growth in 2025.Lawmakers and the White House avoided making big cuts to politically sensitive — and expensive — initiatives, including retirement programs. Even with the spending curbs the national debt — which is over $32 trillion — is poised to top $50 trillion by the end of the decade.It is unlikely that the downgrade by Fitch will convince lawmakers to drastically change the fiscal trajectory of the United States.“Instead of effectuating change, or fiscal discipline, our base case expectation is that Fitch will be pilloried by most members of Congress,” said Henrietta Treyz, director of macroeconomic policy research at Veda Partners. “It will not yield either deficit reduction, tax increases, reductions in military spending, entitlement reform or a change to the 12 appropriations bills that have already moved with substantial bipartisan support in the U.S. Senate.” More

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    Strong Economic Data Buoys Biden, but Many Voters Are Still Sour

    Voters continue to rate the president poorly on economic issues, but there are signs the national mood is beginning to improve.President Biden and his aides are basking in what is arguably the best run of economic data to date in his presidency. Inflation is cooling, business investment is rising, job growth is powering on and surveys suggest rising economic optimism among consumers and voters.Polls still show Mr. Biden remains underwater on his handling of the economy, with voters more likely to disapprove of his performance than approve of it. Yet there are signs that voters may be brightening their assessment of the economy under Mr. Biden, in part thanks to the mounting effects of the infrastructure, manufacturing and climate bills he has signed into law.The run of positive economic news comes as his administration looks to credit “Bidenomics” for a sustained run of positive data.The economy grew at a 2.4 percent annual rate in the second quarter of the year, handily beating economists’ expectations, the Commerce Department reported last week. Price growth slowed in June even as consumer spending picked up. The Federal Reserve’s preferred measure of year-over-year inflation, the Personal Consumption Expenditures Index, has now fallen to 3 percent this year from about 7 percent last June — easing the pressure on Mr. Biden from the economic problem that has bedeviled his presidency thus far.And in less visible but significant ways, there are signs that Mr. Biden’s signature economic policies may be starting to bear fruit, most notably in a steep rise in factory construction. Government data released Tuesday showed that boom continued in June, with spending on manufacturing facilities up nearly 80 percent over the previous year. The manufacturing sector as a whole has added nearly 800,000 jobs since Mr. Biden took office and now employs the most people since 2008.“The public policy changes that have been put in place over the past two years are now starting to show up in the data,” said Joseph Brusuelas, chief economist at RSM. He said the increased investment was “undoubtedly linked” to government policies, in particular the CHIPS Act, which aimed to promote domestic manufacturing, and the Inflation Reduction Act, which targeted low-emission energy technologies to combat climate change.As Mr. Biden gears up for his re-election campaign, perhaps what is most encouraging to him is that consumer confidence is rising to levels not seen since the early months of his tenure in the White House, before inflation surged. Measures by the University of Michigan and the Conference Board suggest consumers have grown happier with the current state of the economy and more hopeful about the year ahead.That change in attitude may reflect an underlying economic reality: The combination of cooling inflation, low unemployment and rising pay means that American workers are seeing their standard of living improve. Hourly wages outpaced price gains in the spring for the first time in two years, giving consumers more purchasing power.National opinion polls still show a sour economic mood — but it appears to be improving slightly.In a new New York Times/Siena College poll, 49 percent of respondents rated the economy as “poor,” compared with 20 percent who called it “excellent” or “good.” That’s an improvement from last summer, when 58 percent of Americans in another Times/Siena poll called the economy “poor” and just 10 percent rated it “excellent” or “good.”Administration officials attribute the economy’s strength, particularly in the labor market, to the direct aid to individuals, businesses and state and local governments that was included in the $1.9 trillion stimulus package that Mr. Biden signed into law in 2021.Economists generally blame that same stimulus package for some of the rapid spike in inflation that ensued largely after its passage. But the recent moderation in price growth is emboldening officials to cite the bill as more of a positive factor, saying it helped keep consumers spending and businesses operating, speeding the return to a low unemployment rate.“The American Rescue Plan was designed for both getting the economy back up and running but making sure there was enough wiggle room to deal with challenges that could come down the pipeline,” Heather Boushey, a member of Mr. Biden’s Council of Economic Advisers, said in an interview. “And that has been, I think, very, very successful in getting people back to work. This has been the sharpest recovery in decades, in terms of job creation. We have outperformed our economic competitors.”Economic officials inside and outside the administration warn that risks remain as policymakers seek to achieve a so-called soft landing, bringing down sky-high inflation without triggering a recession. And many Republicans dispute the president’s claims that his policies have bolstered the economy. They note that inflation remains well above historical averages and that for many American workers, wage gains under Mr. Biden have failed to keep pace with rising prices.“Even if inflation ‘is less,’ those prices are not going down,” Gov. Ron DeSantis of Florida, a Republican presidential candidate, told Fox News this week. For a middle-class family, “affording a home is prohibitive,” he said. “If you look at the median income compared to the median home price, there’s a bigger gap than there was when the financial crisis hit after the big housing increase in 2006 and 2007. Cars are becoming less affordable; people feel that squeeze.”Some forecasters, including at the Conference Board, continue to predict the economy will fall into recession by the end of the year. They cite indicators that have frequently signaled downturns in the past, most notably the rapid decline in lending from both small and large banks.Tightening credit conditions, as reported this week by the Fed, “are consistent with G.D.P. growth slowing to recession territory in coming quarters,” researchers at BNP Paribas wrote this week.Yet most independent economists agree that the U.S. recovery has been stronger than expected. They are less united on how much credit Mr. Biden’s policies deserve for it. The decline in inflation, they say, is mostly the result of the Fed’s aggressive efforts to combat it, helped along by some good luck as oil prices have fallen and the pandemic’s disruptions have faded.Consumer confidence is rising to levels not seen since the early months of Mr. Biden’s presidency.Amir Hamja/The New York TimesThe resilience of the labor market — and the strength of the broader economy — is almost certainly the result, at least in part, of the trillions of dollars of aid that the federal government pumped into the economy in 2020 and 2021, which helped prevent the widespread bankruptcies, foreclosures and business failures that stymied the recovery from the Great Recession a decade and a half ago. But much of that came under President Donald J. Trump, and economists disagree about how much Mr. Biden’s stimulus package specifically helped the recovery.Still, recent economic developments have seemed to bear out one of the arguments that Democrats made early in Mr. Biden’s term: that the risks of doing too little to help the economy outweighed the risks of doing too much. Too little aid could leave the U.S. economy facing another “lost decade” of slow growth similar to the one that followed the last recession. Too much aid might cause inflation — but that, unlike slow growth, is a problem the Fed knows how to solve.Risks remain in the months to come. Inflation could pick back up, particularly if oil prices continue to rise, as they have in recent weeks. The job market could deteriorate, leading to a sharp rise in unemployment. Many forecasters still expect a recession to begin this year or early next.Drawing a straight line from government policies to economic outcomes is always difficult, especially in real time. But recent economic data has, at the very least, looked consistent with the Biden administration’s theory of how its policies would affect the economy.Administration officials point in particular at what they have begun referring to as the “hockey-stick graph”: a steep upward climb in investment in factory construction over the past two years, which they attribute to spending and tax incentives in several bills that Mr. Biden championed and signed into law. Those include bipartisan measures to boost infrastructure and advanced manufacturing, and a bill passed last year by Democrats when they controlled Congress that focused heavily on spurring new development in low-emission energy technologies to combat climate change.Private-sector analysts have largely agreed that policies have played a significant — though hard to quantify — role in the manufacturing construction boom in recent months. That, in turn, has helped to fuel a surprising increase in business investment more broadly, which helped lift economic growth in the spring even as consumer spending slowed.Even Treasury officials acknowledge significant risks to the economy in the months to come. Privately, many of Mr. Biden’s aides express at least some uncertainty about whether a soft landing is now assured.But the combination of solid growth, low unemployment and cooling inflation has made forecasters increasingly optimistic that the United States can avoid a recession that many of them once thought was inevitable.“You’ve got to look at that and say the probability of a soft landing has gone up,” said Jay Bryson, chief economist at Wells Fargo. More

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    Job openings, layoffs declined in June in a positive sign for the labor market

    Employment openings totaled 9.58 million for June, edging lower from the downwardly revised 9.62 million in May, according to the Labor Department’s JOLTS report.
    Layoffs nudged down to 1.53 million, after totaling 1.55 million in May.
    Quits also fell noticeably, falling by nearly 300,000 or 0.2 percentage point.
    A separate report showed that the manufacturing sector was still in contraction during July. The ISM Manufacturing Index registered a reading of 46.4, below the 50 level representing expansion.

    Job vacancies and layoffs edged lower in June, according to a report Tuesday that points to a stable labor market.
    Employment openings totaled 9.58 million for the month, edging lower from the downwardly revised 9.62 million in May, the Labor Department said in its monthly Job Openings and Labor Turnover Survey. That was the lowest level of openings since April 2021 and below the 9.7 million estimate from FactSet.

    Along with that, the JOLTS report said layoffs nudged down to 1.53 million, after totaling 1.55 million in May.
    Economists were watching the two data points closely for clues about the direction of a labor market that has proven surprisingly resilient despite a series of Federal Reserve interest rate hikes aimed at slowing the economy and inflation.
    “This is definitely heading in the Goldilocks direction,” said Rachel Sederberg, senior economist at labor analytics firm Lightcast. “We still have a long way to go, and we still have a very high number of openings, especially as compared to where we were pre-pandemic. But we’re heading in the right direction and we’re doing so in a calm manner, which is what we want to see.”
    Declines in both job openings and layoffs indicate that demand for labor is slowing gradually, as the Fed hopes, while companies are still retaining workers, indicating that the unemployment rate is unlikely to spike anytime soon.
    The JOLTS report is a key indicator for the Fed, as it ponders what to do next after having raised interest rates a total of 5.25 percentage points since March 2022.

    “A variety of economic data show the U.S. economy was cruising in the second quarter. The June JOLTS data is no exception,” said Nick Bunker, head of economic research for the Indeed Hiring Lab. “The pace of the current slowdown may be too gradual for many policymakers at the Federal Reserve, as job openings are only gradually declining. But workers have much to celebrate and still possess substantial leverage.”
    The June total for job openings represents a decline of nearly 1.4 million, or 12.6%, from the same period a year ago. There are now about 1.6 job openings per every available worker, according to Labor Department data.
    Openings grew in health care and social assistance as well as state and local government excluding education, and declined in transportation, warehousing and utilities and state and local government education.
    Along with the drop in openings and layoffs came a decline in hiring to 5.9 million, a fall of 0.2 percentage point as a share of total employment. Quits also slipped noticeably, dropping by nearly 300,000 or 0.2 percentage point.

    Manufacturing still in contraction

    A separate report Tuesday showed that the manufacturing sector, which reported declines in both job openings and hires for June, was still in contraction during July. The ISM Manufacturing Index registered a reading of 46.4, representing the percentage level of companies reporting expansion against contraction. A level below 50 indicates contraction.
    The index moved up for the month but was slightly below the 46.8 Dow Jones estimate. A 3.7-point decline in employment was the main factor holding back the index, as new orders, production and inventories all saw gains from June.
    “The widely anticipated boost from China’s re-opening has amounted very little, and more generally, we see few signs of any near-term improvement in the outlook,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics.
    While the drop in manufacturing employment is unlikely to have a major impact on the headline payrolls number, the ISM report reflects an ongoing shift from goods to services consumption in the Covid-era recovery.
    For a fuller economic picture, economists will turn their attention to a buffet of reports through the rest of the week — the ADP private sector hiring release due Wednesday, weekly jobless claims on Thursday and the pivotal nonfarm payrolls report Friday. The July jobs report is expected to show growth of 200,000, down from 209,000 in June, with the unemployment rate holding steady at 3.6%. More