Evelyn Reynolds

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    The economy probably showed gangbuster growth in the third quarter. But will it last?

    Thursday morning will see the release of the first estimate for third-quarter gross domestic product, which is expected to post a 4.7% annualized gain.
    Policymakers, economists and markets will be focused more on forward-looking signals from an economy that repeatedly has defied expectations.
    Since last year, the bond market has been sending a strong signal it thinks a recession is coming.

    People shop along Broadway in Manhattan on July 27, 2023 in New York City.
    Spencer Platt | Getty Images

    The U.S. economy likely turned in another strong performance heading into the final part of the year, though what’s ahead could be significantly different.
    Gross domestic product, or the sum of all goods and services produced in the U.S. economy, is expected to post a 4.7% annualized gain for the third quarter, according to a Dow Jones consensus estimate. The Commerce Department will release its first estimate of GDP at 8:30 a.m. ET.

    If the projection is correct, it will be the strongest output since the fourth quarter of 2021, when growth was just shy of 7%.
    However, policymakers, economists and markets will be focused more on forward-looking signals from an economy that repeatedly has defied expectations.
    “We ought to look at whatever we print in the third quarter with a large degree of suspicion,” said Joseph LaVorgna, chief economist at SMBC Nikko Securities America. “GDP doesn’t tell us where we’re going. We can feel all warm and fuzzy about a good number. But the real problem is what’s next.”
    For much of the past two years, economists have been waiting for the economy to slow down and possibly enter a recession. In fact, the the Federal Reserve itself had been forecasting a mild contraction, but retracted that recently in the wake of resilient consumer that has kept growth afloat.
    That’s expected to be the case again in the July-through-September period.

    The consumer keeps consuming

    The Atlanta Fed employs a growth tracker it calls GDPNow, which takes in data on a real-time basis and adjusts its projections accordingly. Over the past two years or so, the gauge has had a good track record, outperforming consensus nine of the past 10 quarters, according to recent research from Goldman Sachs.
    For Q3, GDPNow is projecting growth of 5.4%, with more than half — 2.77 percentage points — to come from consumer spending. Exports are expected to contribute about 1 percentage point, while inventories are projected to add 0.7 point.
    LaVorgna, a top White House economist under former President Donald Trump, thinks the consumer will be responsible for more than three-fourths of what he expects to be a 4.1% GDP gain. However, he thinks higher borrowing costs and a general expected pullback in demand for big-ticket items ahead finally could start putting a hit on demand metrics.

    “The income side of the data shows the economy is much softer,” LaVorgna said. “To me, there’s a lot on the docket that suggests, as excited as we want to get for Q3, that definitely might be the last pop in growth that we see for a while.”
    To be sure, the economy and its pivotal consumer component have been written off before.
    Starting in early 2022, there had been a strong Wall Street consensus call that a recession was almost inevitable because of the lagged impact of higher interest rates. That expectation intensified during a brief banking industry crisis in March 2023 that the Fed expected would constrain credit enough to bring about a downturn.
    But the Fed’s move to keep liquidity flowing in the sector, along with ambitious lending efforts from “shadow” nonbanks, helped get the economy through the crisis and keep growth afoot.
    “This consumer feels comfortable spending money, they feel comfortable borrowing money,” said Steven Ricchiuto, U.S. chief economist at Mizuho Securities USA. “There is a lot of spending that is being done despite the interest rate environment. That comes from the fact that there is a tight labor market and people feel comfortable in their jobs.”

    The economic ‘Energizer bunny’

    Indeed, companies and the government continue to hire, putting upward pressure on growth and keeping the heat on the Fed to maintain higher rates to fight inflation. Central bank officials have raised rates aggressively while professing to not want to drag the economy into recession.
    “The economy is like an Energizer bunny,” Ricchiuto said. “You have to find a way to stop it, and the Fed keeps on telling everybody they don’t really want to stop it.”
    Markets, then, could interpret a strong GDP in a variety of ways.
    They could see a beat as a sign that the Fed still has more work to do on inflation. Or they could view it as a sign that the economy can withstand higher rates and still grow. Or they could deem Thursday’s Commerce Department report as backward-looking and await more data for clues on the Fed’s next move.
    Since mid-July 2022, the bond market has been sending a strong signal it thinks a recession is coming. Since that point, the yield on the two-year Treasury has eclipsed that of the 10-year note, a phenomenon called an inverted yield curve that has never failed to forecast a looming recession.

    Now, the inversion has lessened sharply to the point where the curve is almost flat again — also a textbook sign that a recession is around the corner. That’s because after inverting, markets ultimately will start pricing in the slower or negative growth ahead through lower yields.
    “The market is sending a message that a recession is coming and the Fed will have to lower rates,” said Quincy Krosby, chief global strategist at LPL Financial.
    “What they’re trying to do is engineer a slowdown but keep the labor market intact,” she added. “Historically, that’s been difficult.”

    Krosby expects markets to pay some attention to the GDP report but also focus on data Friday on consumer spending, sentiment and inflation, with the release of the Fed’s favorite gauge of price increases coming from the Commerce Department.
    “Is the economy going to continue to defy historical trends, such as the unwinding of the inverted yield curve?” she said. “That’s the dilemma in this market.” More

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    Biden Seeks to Tame Oil Prices if Mideast Conflict Sends Them Soaring

    The president has previously drawn down the Strategic Petroleum Reserve to ease price pressures, but that could be more difficult nowBiden administration officials, worried that a growing conflict in the Middle East could send global oil prices soaring, are looking for ways to hold down American gasoline prices if such a jump occurs.Those efforts include discussions with large oil-producing nations like Saudi Arabia that are holding back supply and with American oil producers that have the ability to pump more than they already are producing, administration officials say.A senior administration official said in an interview that it was also possible that President Biden could authorize a new round of releases from the nation’s Strategic Petroleum Reserve, an emergency stockpile of crude oil that is stored in underground salt caverns near the Gulf of Mexico. Mr. Biden tapped the reserve aggressively last year after Russia’s invasion of Ukraine sent oil prices skyrocketing, leaving the amount of oil in those reserves at historically low levels.The conflict in the Middle East has not yet sent oil prices surging. A barrel of Brent crude oil was trading for about $88 on global markets on Wednesday. That was up from about $84 earlier this month, shortly before Hamas attacked Israel and rattled markets. But analysts and administration officials fear prices could rise significantly more if the conflict in Israel spreads, restricting the flow of oil out of Iran or other major producers in the region.So far, American drivers have not felt a pinch. The average price of gasoline nationally was $3.54 a gallon on Wednesday, according to AAA. That was down about 30 cents from a month ago and 25 cents from the same day last year.Administration officials are wary of the possibility that prices could again jump above $5 a gallon, a level they briefly touched in the spring of 2022. Mr. Biden took extraordinary efforts then to help bring prices down — but those steps are likely to be far less effective in the event of a new oil shock.“They succeeded last year in the second half, but this year I think they’ve kind of run out of bullets,” said Amrita Sen, director of research at Energy Aspects.In part that’s because the administration did not refill the strategic reserve more aggressively when prices were lower, Ms. Sen said. That could undercut its ability to counteract rising prices now.“They got a little overconfident that prices would stay low,” she said. “In some ways, they’ve missed the boat.”

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    Crude oil in the strategic petroleum reserve
    Note: Levels are as of end of each week.Source: Energy Information AdministrationBy The New York TimesMr. Biden released a record 180 million barrels of oil from the strategic reserve, flooding the market with additional supply. His administration replenished just six million barrels when prices dipped this year, leaving the reserve at its lowest level since the 1980s. The Energy Department announced plans last week to continue refilling in the months ahead, but only if prices drop below $79 a barrel.Administration officials insist that tapping the reserve again remains an option. It still holds more than 350 million barrels of oil. That’s more than enough to counteract a disruption in oil markets if one occurs, energy analysts say.The U.S. economy is also less vulnerable to a price spike than in previous decades because the country has become less dependent on foreign oil. The United States produced more than 400 million barrels of oil in July, a record.

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    Monthly U.S. crude oil production
    Source: Energy Information AdministrationBy The New York Times“There’s still a lot of oil in the U.S. strategic reserve, and the U.S. is not in this alone,” said Richard Newell, president and chief executive of Resources for the Future, an energy-focused think tank. He noted that other countries had their own strategic reserves.Still, with Mr. Biden already taking criticism from Republicans for depleting the stockpile, he may be reluctant to tap it again now. “There’s another arrow in the quiver, but there’s only so many arrows right now,” said Jim Burkhard, head of energy markets research for S&P Global Commodity Insights. “Could they repeat it? Yes, but then you’re left with much, much less oil.”The stakes for Mr. Biden are high. Voters often punish presidents for high gasoline prices, and the challenge is amplified for Mr. Biden because, unlike most presidents, he has leaned into his role — intervening aggressively when prices soared early last year, and then claiming credit when prices fell.Independent experts say Mr. Biden is justified in claiming some credit for the moderation in prices last year, though they say other factors — including weaker-than-expected Chinese oil demand — also played a major role.The initial jump in oil prices was driven not by an actual shortage of oil but by a fear of one: Investors worried that millions of barrels of Russian oil would be blocked from the international market, either as a result of Western sanctions or Russian retaliation.Worried that the growing conflict in the Middle East could send oil prices soaring, Biden officials are looking for ways to hold down gasoline prices.Mark Abramson for The New York TimesMr. Biden’s decision to release oil from the strategic reserve provided additional supply at a crucial moment, helping to calm markets and push prices down.Analysts worried that additional sanctions from Europe, which were set to take effect near the end of 2022, would cause a second surge in prices by knocking more Russian supply offline. The Biden administration worked to prevent that by leading an international effort to impose a price cap on Russia that allowed the country to keep exporting oil — but only at reduced prices.That effort has worked to keep Russian oil flowing to markets and avoid a supply shock. In the first half of this year, it also appeared to be denting Moscow’s oil revenues. Increasingly, Russia has found ways around the price cap, forcing administration officials to take steps this month to crack down on enforcement of the cap in hopes of reducing the price at which Russian oil is sold.There is some risk that those enforcement efforts could at least temporarily knock Russian supply off the market at a tenuous time for global oil supply. But more important for the administration, there is little chance that a similar sort of price cap could help keep supply flowing from a large oil producer that could be involved in a widening war in the Middle East — most notably, Iran.Last October, the White House announced that it would enter into contracts to buy oil for the strategic reserve when prices fell below $72 a barrel. Doing so, the administration argued, would not just replenish the reserve but encourage domestic production by guaranteeing demand for oil at a reasonable price. But the effort has gotten off to a fitful start.Rory Johnston, an oil market analyst, said that the administration had been admirably creative in its energy policy, but that its execution had been flawed. Investors, he said, have been left skeptical about the administration’s ability to execute its strategy on refiling the reserve. They are also wondering if Mr. Biden will ever be willing to risk the political hit from driving up oil prices, by buying supply and pulling it off the market to refill the reserve.“If you want to be cynical, they’re very keen to do the price downside stuff and understandably not as keen to do the things that could seen as lifting prices,” Mr. Johnston said. More

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    IMF chief says Israel-Hamas war is a new cloud on the world’s economic horizon

    The head of the IMF on Wednesday dubbed the worsening Israel-Hamas conflict as another cloud on the horizon of an already gloomy economic outlook.
    “What we see is more jitters in what has already been an anxious world,” IMF Managing Director Kristalina Georgieva told a panel hosted by CNBC’s Dan Murphy.
    Georgieva’s assessment that the conflict was adding to “more anxiety in the world” was felt by other senior business figures at the Future Investment Initiative Institute conference.

    Kristalina Georgieva, managing director of the International Monetary Fund, at a press conference at the IMF Headquarters on April 14, 2023.
    Kevin Dietsch | Getty Images News | Getty Images

    The head of the International Monetary Fund on Wednesday dubbed the worsening Israel-Hamas conflict as another cloud on the horizon of an already gloomy economic outlook.
    “What we see is more jitters in what has already been an anxious world,” Managing Director Kristalina Georgieva told a panel hosted by CNBC’s Dan Murphy at the Future Investment Initiative Institute conference in Riyadh.

    “And on a horizon that had plenty of clouds, one more — and it can get deeper.”  
    Georgieva said that the economic fallout from the war, now in its third week, would be “terrible” for the sides involved, as well as have significant repercussions for the region. Those include negative impacts on trade and tourism.

    “It is terrible in terms of economic prospects for the epicenter for the war,” she said. “[There will be] negative impact on the neighbors: on trade channels, on tourism channels, cost of insurance.”
    Georgieva noted that countries including Egypt, Lebanon and Jordan were already feeling the ramifications.
    “Uncertainty is a killer for tourists inflows. Investors are going to be shy to go to that place,” she said.

    She did not reference the economic implications of the conflict for the wider global economy, but noted that the outlook was already stagnant.
    Georgieva’s assessment that the war is adding to a sense of “a more jittery world, more anxiety in the world” was felt by other senior business figures at the FII conference.
    Dubbed “Davos in the desert,” the event typically focuses on economic and investment prospects around the Middle East region. This year, it has been overshadowed by Israel’s ongoing offensive against the Gaza Strip, following the Oct. 7 terror attacks carried out by Palestinian militant group Hamas against Israel.
    The hostilities came as Israel had been making moves to normalize diplomatic ties with its neighbors, including Saudi Arabia.
    Georgieva said the IMF’s first priority was “the tragic lost of life” caused by the offensive and called for a resolution as soon as possible.
    “The sooner there is a resolution, the better,” she said. More

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    Peace talks in the Middle East will take time to resume, World Bank chief says

    The president of the World Bank said Tuesday that it will be some time before progress toward a more peaceful Middle East can resume in earnest.
    Ajay Banga told CNBC that the onset of the Israel-Hamas war has thrown nascent normalization talks off course.
    “I think it’s clearly going to be a little while until this sort of works out one way or the other,” Banga told Dan Murphy.

    MARRAKESH, MOROCCO – OCTOBER 13: Ajay Banga, President of the World Bank Group, speaks during the International Monetary Fund (IMF) meeting in Marrakesh, Morocco on October 13, 2023. (Photo by Abu Adem Muhammed/Anadolu via Getty Images)
    Anadolu Agency | Anadolu Agency | Getty Images

    The president of the World Bank on Tuesday said that it will be some time before progress toward a more peaceful Middle East can resume in earnest.
    Ajay Banga told CNBC that the onset of the Israel-Hamas war has thrown nascent normalization talks off course, making regional cooperation much more difficult.

    “We were working towards a more peaceful Middle East and many countries in this region have begun to speak to each other about the opportunity of moving forward with a new platform of being together,” Banga told CNBC’s Dan Murphy.
    “I think it’s clearly going to be a little while until this sort of works out one way or the other,” he added.

    Banga was speaking at the Future Investment Initiative Institute conference in Riyadh, where business leaders are gathered to discuss economic and investment prospects of the Middle East region.
    This year, the event has been overshadowed by Israel’s ongoing offensive against the Gaza Strip, following the Oct. 7 terror attacks carried out by Palestinian militant group Hamas against Israel. The hostilities came as Israel had been making moves to normalize diplomatic ties with its neighbors, including Saudi Arabia.
    The World Bank chief said that the conflict could have ramifications not only for the region, but also for the wider global economy — most notably for energy markets.

    Oil prices have climbed in the more than two weeks since the onset of the violence amid concerns over supply constraints within the energy-rich region.
    Banga also spoke of the potential impact on food and fertilizer prices, which similarly spiked in the wake of the Russia-Ukraine war.
    “Other such things we saw when Russia came into Ukraine — that food and fertilizer and oil spiked,” he said.
    “The world took a little while to come back from that, I’m worried that that will be another piece of danger,” Banga added.
    It comes as the world economy confronts a new era of higher interest rates and slower growth, “something we’ve not been used to,” he said.
    Banga’s comments were echoed on Wednesday by the head of the International Monetary Fund, who dubbed the Israel-Hamas conflict as another cloud on the horizon of an already gloomy economic outlook.
    “What we see is more jitters in what has already been an anxious world,” Managing Director Kristalina Georgieva told a panel at the FII conference.
    “And on a horizon that had plenty of clouds, one more — and it can get deeper.”   More

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    U.A.W.’s Expanding Strikes Could Signal an Endgame or a Long Struggle

    The United Automobile Workers on Tuesday expanded its strike to General Motors’ largest U.S. plant a day after striking at a Ram truck plant.The United Automobile Workers union shut down production at General Motors’ largest U.S. factory on Tuesday, significantly stepping up pressure on the large U.S. automakers as signs multiplied that the six-week strike is taking a toll on profits.The union told 5,000 workers at G.M.’s plant in Arlington, Texas, to stop working on the same day that the automaker announced a drop in its third-quarter profit and said U.A.W. work stoppages, which have also hit Ford Motor and Stellantis, had cost it $800 million so far.The strike in Arlington continued the union’s strategy of targeting some of the carmaker’s most profitable vehicles. The Texas factory makes large sport utility vehicles including the Chevrolet Tahoe, GMC Yukon and Cadillac Escalade.Before the Tuesday expansion, there had been signs that the union and G.M. were close to an agreement. Some analysts said the union’s decision to raise the stakes was part of an endgame strategy to squeeze the last dollar from the company.The U.A.W. president, Shawn Fain, “has been saying he still had some levers to pull to push the companies, and now he’s pulling them,” said Arthur Wheaton, director of labor studies at Cornell’s School of Industrial and Labor Relations. “So I think this is the union’s final push to the companies, saying, ‘Let’s get this deal done.’”But it is also possible the companies and the union are still far from striking deals and the U.A.W. is demonstrating that it still has plenty of cards to play.“My gut feeling is that they’re not close and this is trying to impose more cost and say, ‘Look, you guys have to get closer to what we want or we’ll keeping doing this,’” said Patricia Anderson, a professor of economics at Dartmouth College.On Monday, the union struck a Ram pickup truck plant, the largest U.S. factory operated by Stellantis, which also owns Jeep and Chrysler. The U.A.W. has also struck Ford Motor’s largest plant, in Louisville, Ky., which produces large pickup trucks and the Lincoln Navigator S.U.V.“Another record quarter, another record year; as we’ve said for months: record profits equal record contracts,” Mr. Fain said in a statement. “It’s time G.M. workers, and the whole working class, get their fair share.”G.M. executives had said earlier on Tuesday that they hoped to reach a tentative agreement with the union soon. The Texas walkout dimmed those hopes.The longer the strike lasts, the greater the risk it will become a drag on the U.S. economy, or make it harder for consumers to find the vehicles they want.The automakers have been keen to point out the ripple effects that the strikes are having on other workers. Stellantis, the maker of Chrysler and Jeep, said on Tuesday that it laid off 525 workers at two Michigan factories, in Sterling and Warren, that make parts for Ram pickup trucks that are not needed while the assembly line is shut down by the strike.All told, Stellantis has temporarily laid off more than 2,000 workers because of the strikes. Ford has laid off more than 3,000 workers because of the strike, according to the company. G.M. has laid off about 2,500, including about 140 at a factory in Ohio who made parts for the factory in Arlington and were let go on Tuesday. Another 3,000 workers at G.M. suppliers are temporarily out of work because of the strike, according to the company.“We are disappointed by the escalation of this unnecessary and irresponsible strike,” G.M. said in a statement. “It is harming our team members who are sacrificing their livelihoods and having negative ripple effects on our dealers, suppliers and the communities that rely on us.”Where Autoworkers Are Walking Out More

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    G.M. Profit Down 7% in Strike-Affected Quarter

    The carmaker reported $3.1 billion in profit from July through September, which included two weeks of walkouts by the United Automobile Workers.General Motors said on Tuesday that it made $3.1 billion in profit from July through September, a year-over-year decline of more than 7 percent that was due partly to the six-week strike by the United Automobile Workers, which has idled two of the company’s vehicle plants and 18 of its parts distribution centers.G.M. said the strike had lowered its earnings before interest and taxes by about $200 million in the final weeks of the third quarter, and by about $600 million since the fourth quarter started on Oct. 1. The automaker also estimated that the strike could cost it $200 million a week going forward.“We continue to be optimistic we will be able to reach an agreement as soon as possible,” G.M.’s chief financial officer, Paul Jacobson, said in a conference call with reporters, but he declined to say if the company believed it was near a deal on a new contract with the U.A.W.On Friday, G.M. gave the union a contract offer that included a 23 percent increase in wages over four years. That would lift the standard U.A.W. wage from $32 an hour to more than $40. At that wage, an employee working 40 hours a week would earn about $84,000 a year, not including extra pay for overtime or profit-sharing bonuses, which have topped $10,000 in the past two years.Mr. Jacobson said negotiations with the union were continuing. The union’s strike, which has targeted specific sites owned by Detroit’s Big Three automakers, has idled a G.M. pickup truck plant in Missouri and another in Michigan that makes large sport utility vehicles.In the third quarter, G.M. earned almost all of its profit in North America, which is largely driven by factories in the United States staffed by U.A.W. members. Its bottom line was hurt by a 42 percent drop in profits from its joint ventures in China, a small profit decline in its financial arm and a loss from its Cruise division, which is working to develop self-driving cars.Despite the strike, G.M. reported that its revenue rose about 5 percent in the third quarter, to $44.1 billion. It sold 981,000 vehicles globally in the quarter, about 15,000 more than a year earlier.The company’s quarterly results were better than analysts expected, and G.M.’s stock rose in premarket trading on Tuesday.Mr. Jacobson said that G.M. hoped to introduce redesigned S.U.V. models that would be more profitable than those they were replacing, and that the company would save money by slowing its planned rollout of electric vehicles. G.M. recently said it was pushing back the start of production of electric pickups at a plant in Orion, Mich., from 2024 to late 2025, in response to slower-than-expected growth in sales of E.V.s.While G.M. is now planning a slower ramp-up of E.V. production in 2025, it still aims to be able to produce one million electric vehicles a year in North America by the end of 2025, Mr. Jacobson said.“Our commitment to an all-E.V. future is as strong as ever,” he said. More

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    New Normal or No Normal? How Economists Got It Wrong for 3 Years.

    Economists first underestimated inflation, then underestimated consumers and the labor market. The key question is why.Economists spent 2021 expecting inflation to prove “transitory.” They spent much of 2022 underestimating its staying power. And they spent early 2023 predicting that the Federal Reserve’s rate increases, meant to cure the inflation, would plunge the economy into a recession.None of those forecasts have panned out.Rapid inflation has now been a fact of life for 30 consecutive months. The Fed has lifted rates above 5.25 percent to hit the brakes on price increases, but the economy has remained surprisingly strong in the face of those moves. Americans are working in greater numbers than predicted, and recent retail sales data showed that consumers are still spending at a faster clip than just about anyone expected. For now, there is no economic downturn in sight.The question is why experts so severely misjudged the pandemic and postpandemic economy — and what it means for policy and the outlook going forward.Economists generally expect growth to slow late this year and into early next, nudging unemployment higher and gradually weighing inflation down. But several said the economy had been so hard to predict since the pandemic that they had low confidence about future projections.“The forecasts have been embarrassingly wrong, in the entire forecasting community,” said Torsten Slok at the asset manager Apollo Global Management. “We are still trying to figure out how this new economy works.”Economists were too optimistic on inflation.Two big issues have made it difficult to forecast since 2020. The first was the coronavirus pandemic. The world had not experienced such a sweeping disease since the Spanish flu in 1918, and it was hard to anticipate how it would roil commerce and consumer behavior.The second complication came from fiscal policy. The Trump and Biden administrations poured $4.6 trillion of recovery money and stimulus into the economy in response to the pandemic. President Biden then pushed Congress to approve several laws that provided funding to encourage infrastructure investment and clean energy development.Between coronavirus lockdowns and the government’s enormous response, standard economic relationships stopped serving as good guides to the future.Take inflation. Economic models suggested that it would not take off in a lasting way as long as unemployment was high. It made sense: If a bunch of consumers were out of work or earning tepid pay gains, they would pull back if companies charged more.But those models did not count on the savings that Americans had amassed from pandemic aid and months at home. Price increases began to take off in March 2021 as ravenous demand for products like used cars and at-home exercise equipment collided with global supply shortages. Unemployment was above 6 percent, but that did not stop shoppers.Russia’s invasion of Ukraine in February 2022 exacerbated the situation, pushing up oil prices. And before long, the labor market had healed and wages were growing rapidly.Economic models did not take in to account that people were saving money during the pandemic that enabled them to buy goods even when unemployed.Jim Wilson/The New York TimesThey were too pessimistic on growth.As inflation showed staying power, officials at the Fed started to raise interest rates to cool demand — and economists began to predict that the moves would plunge the economy into recession.Central bankers were lifting rates at a speed not seen since the 1980s, making it sharply more expensive to take out a mortgage or car loan. The Fed had never changed rates so abruptly without spurring a downturn, many forecasters pointed out.“I think it’s been very seductive to make forecasts that are based on these types of observations,” said Jan Hatzius, Goldman Sachs’s chief economist, who has been predicting a gentler cool-down. “I think that understates how much this cycle has been different.”Not only has the recession failed to materialize so far, but growth has been surprisingly fast. Consumers have continued shelling out money for everything from Taylor Swift tickets to dog day care. Economists have regularly predicted that America’s shoppers are near a breaking point, only to be proved wrong.Part of the issue is a lack of good real-time data on consumer savings, said Karen Dynan, an economist at Harvard.“It’s been months now that we’ve been telling ourselves that people at the bottom of the income distribution have spent down their savings piles,” she said. “But we don’t really know.”At the same time, fiscal stimulus has had more staying power than expected: State and local governments continue to divvy out money they were allocated months or years ago.And consumers are getting more and better jobs, so incomes are fueling demand.Economists are now asking whether inflation can slow sufficiently without a pullback in growth. A landing so painless would be historically abnormal, but inflation has already cooled to 3.7 percent in September, down from a peak of about 9 percent.Normal may still be far away.Still, that is too quick for comfort: Inflation was about 2 percent before the pandemic. Given inflation’s stubbornness and the economy’s staying power, interest rates may need to stay elevated to bring it fully under control. On Wall Street, that even has a tagline: “Higher for longer.” Some economists even think that the low-rate, low-inflation world that prevailed from about 2009 to 2020 may never return. Donald Kohn, a former vice chair of the Fed, said big government deficits and the transition to green energy could keep growth and rates higher by propping up demand for borrowed cash.“My guess is that things aren’t going to go back,” Mr. Kohn said. “But my goodness, this is a distribution of outcomes.”Neil Dutta, an economist at Renaissance Macro, pointed out that America had a baby boom in the 1980s and early 1990s. Those people are now getting married, buying houses and having children. Their consumption could prop up growth and borrowing costs.“To me, it’s like the old normal — what was abnormal was that period,” Mr. Dutta said.Fed officials, for their part, are still predicting a return to an economy that looks like 2019. They expect rates to return to 2.5 percent over the longer term. They think that inflation will fade and growth will cool next year.The question is, what happens if they are wrong? The economy could slow more sharply than expected as the accumulated rate moves finally bite. Or inflation could get stuck, forcing the Fed to contemplate heftier interest rates than anyone has gambled on. Not a single person in a Bloomberg survey of nearly 60 economists expects interest rates to be higher at the end of 2024 than at the end of this year.Mr. Slok said it was a moment for modesty.“I think we have not figured it out,” he said. More

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    A Push for Tech Hubs in Overlooked Places Picks 31 to Vie for Money

    A new federal program will be a test of whether spreading funds outside of big cities will result in economic gains, or in inefficiencies.The Biden administration said on Monday that it had chosen 31 regions as potential recipients of federal money that would seek to fund innovation in parts of the country that government investment overlooked in the past.The announcement was the first phase of a program that aims to establish so-called tech hubs around the country across a variety of cutting-edge industries, like quantum computing, precision medicine and clean energy. In the coming months, the regions will compete for a share of $500 million, with roughly five to 10 of the projects receiving up to about $75 million each, the administration said.The program will test a central idea of a bipartisan bill that lawmakers passed last year: that science and technology funding should not just be concentrated in Silicon Valley and a few thriving coastal regions but flow to parts of the country that are less populated or have historically received less government funding.Proponents of the program say these investments can tap into pools of workers and economic resources that are not reaching their full potential, and improve the American economy as well as its technological abilities.But it remains to be seen if dispatching money to more remote places, which struggle with issues like an outflow of young workers, will ultimately be the most efficient way to use government funding to promote technological gains.The 31 finalists were chosen from nearly 400 applicants, the Commerce Department said. They include proposals to manufacture semiconductors in New York and Oregon, design autonomous systems for transportation and agriculture in Oklahoma, research biotechnology in Indiana and process critical minerals in Missouri.In Washington on Monday, President Biden said these tech hubs would bring together private industry, educational institutions, state and local governments, tribes, and organized labor to produce “transformational” research.“We’re doing this from coast to coast, and in the heartland and red states and blue states, small towns, cities of all sizes,” Mr. Biden added. “All this is part of my strategy to invest in America and invest in Americans.”Senator Chuck Schumer of New York, the majority leader, said in an interview on Monday that the tech hub program, which he had devised with Senator Todd Young, an Indiana Republican, had helped to secure bipartisan support for the CHIPS and Science Act last year.The legislation included $200 billion for basic scientific research, and more than $75 billion in grants and tax credits for semiconductor companies. It aimed to lower the country’s dependence on foreign manufacturers of computer chips and other critical technology.Mr. Schumer said “it was a very big selling point” for the overall bill that the funding was not just going to “three or four cities in blue states.”“There was such divisiveness in the country, the coasts and non-coasts, and a lot of it was because all these new tech and high-end industries were locating on the coasts,” he said. “And so we crafted the tech hub program to be spread throughout the middle of America.”Mr. Schumer was touring Buffalo, Rochester and Syracuse on Monday to celebrate the inclusion of two New York proposals, one focused on semiconductor manufacturing and the other on battery technology.“There’s a lot of talent here that’s not used,” he added.Mark Muro, a senior fellow at the Brookings Institution’s Metropolitan Policy Program, described the tech hub program as “a grand experiment” in industrial policy.Mr. Muro said the United States had seen the incredible strength of concentrating technology investments in a few key places like Silicon Valley, where companies in related businesses can benefit by clustering together. But those investment patterns have also resulted in tremendous imbalances in the country’s economy, where “only a few places are truly prospering and much talent and much innovation is left on the table,” he said.“This is a whole different map,” Mr. Muro said, adding, “I think we need to make some experiments and some of them will probably be great investments.”The announcements tried to balance several competing goals of the tech hubs, including whether to invest in as many regions as possible — or whether to concentrate spending in a few areas in hopes of engineering radical economic improvement in those areas. They also reflected the high interest in the program from regional officials and their representatives in Congress.The administration is also trying to do as much as possible with initial funding for the program that remains well below the maximum levels lawmakers set in the CHIPS bill. While that bill authorized Congress to fund a variety of programs, lawmakers still need to greenlight actual money for many of the tech hub investments, as well as other programs.Given those financial constraints, some supporters of the program said on Monday that they hoped administration officials would ultimately focus most of the money on a small set of the announced hubs. Ideally, “you’d be extremely narrow about who gets funding,” said John Lettieri, president and chief executive of the Economic Innovation Group, a Washington think tank. “The more narrow the better.”The later round of funding announcements, he added, “is where we have to be pretty ruthless about shielding the process from politics as much as possible.”Madeleine Ngo More