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    Brits are facing a major mortgage crisis as lending rates soar

    The average two-year fixed rate mortgage on a residential property in Britain rose from 5.98% Friday to 6.01%, its highest level since Dec 1.
    “We are now in the unenviable position of staring over the abyss where the bodies of the over-leveraged, under-saved, landlords, renters and owners of discretionary spend businesses are beginning to pile up,” said Martin Stewart, director of mortgage advisory London Money.
    Short-term U.K. bond yields are at a 15-year high and markets are pricing in peak interest rates of close to 6%.

    Houses pictured on 8th June 2023 in Halifax, United Kingdom. U.K. borrowers are facing sharply higher mortgage costs.
    Mike Kemp | In Pictures | Getty Images

    LONDON — U.K. borrowers are facing a cliff edge that could damage the economy as rising mortgage costs hit deal renewals and the number of products available shrinks, experts warned Monday.
    New figures from financial information company Moneyfacts showed the average two-year fixed rate mortgage on a residential property in Britain rose from 5.98% Friday to 6.01%, its highest level since Dec 1.

    The spike in late 2022 came in the wake of the government’s market-rattling mini-budget. Prior to this, Moneyfacts said two-year fixed rates were last above 6% in November 2008.
    The number of residential mortgage products available has also fallen, from 5,264 on May 1 to 4,683.
    Martin Stewart, director of mortgage advisory London Money, said the last nine months had been “seismic” for the mortgage and housing sector, “on a par with the financial crisis,” although with different causes.
    “The market is dysfunctional and arguably broken. We have seen evidence where advisers are in queues alongside 2,000 others all trying to secure something that might not actually exist by the time they get to the front of the queue,” Stewart told CNBC.
    “Pretty much everything is starting with a 5 now … for context, two years ago everything started with a 1 or lower.”

    The average rate for a five-year mortgage is currently 5.67%, according to Moneyfacts.
    Asked about support for struggling households, Prime Minister Rishi Sunak on Monday told ITV’s Good Morning Britain program that the government’s priority was halving inflation and it needed to “stick to the plan.”

    Banks including HSBC and Santander have temporarily pulled mortgage products in recent weeks amid market uncertainty.
    It comes as short-term U.K. government bond yields climb, with the 2-year yield hitting a fresh 15-year high Monday.
    Markets are pricing in peak interest rates of almost 6%, up from the current 4.5%. A strong labor market report on June 13 sent rate expectations higher, with the Bank of England set to announce its latest interest rate decision on Thursday after enacting its 12th consecutive hike in May.

    U.K. inflation, meanwhile, remains among the highest of all developed economies at 8.7%, with central bank officials warning that second-round effects, including price setting and higher wages, could keep it higher for longer.
    “I think the worst of the mortgage crunch is ahead of us,” said Viraj Patel, senior strategist at Vanda Research. He noted that more than 50% of households are still to remortgage at higher rates and this will add stress to the housing market and wider economy.
    Patel said he expected the “bulk of the consumer slowdown coming from higher mortgage costs” to hit home in the second half of 2023.
    “The BoE, and markets, need to be aware of the long and variable lags of monetary policy – with the effects of past rate hikes still yet to fully work its way through,” he told CNBC.
    The U.K.’s Financial Conduct Authority in January warned more than 750,000 households were at risk of default as rates rise.
    Patel said he believed there was a “genuine risk of defaults.” “But it’s remembering the BoE have much better oversight. I’m worried more about the second-round effects, consumers spending less and perhaps over-extending in non-housing credit,” he added.
    London Money’s Martin Stewart said borrowers were approaching advisers up to a year earlier than they normally would, with attitudes ranging from “despair” to pragmatism.
    “We are now in the unenviable position of staring over the abyss where the bodies of the over-leveraged, under-saved, landlords, renters and owners of discretionary spend businesses are beginning to pile up,” he said.
    While forecasts for the U.K. economy have turned more positive in recent months, Stewart said he expected the personal finance decisions made by so many borrowers to have a macro impact.
    “Many borrowers are telling us that they will need to give something up in order to accommodate their new higher payment,” he said. “Unfortunately that is how recessions start.”
    — CNBC’s Ganesh Rao contributed to this report More

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    Why What We Thought About the Global Economy Is No Longer True

    While the world’s eyes were on the pandemic, the war in Ukraine and China, the paths to prosperity and shared interests have grown murkier.When the world’s business and political leaders gathered in 2018 at the annual economic forum in Davos, the mood was jubilant. Growth in every major country was on an upswing. The global economy, declared Christine Lagarde, then the managing director of the International Monetary Fund, “is in a very sweet spot.”Five years later, the outlook has decidedly soured.“Nearly all the economic forces that powered progress and prosperity over the last three decades are fading,” the World Bank warned in a recent analysis. “The result could be a lost decade in the making — not just for some countries or regions as has occurred in the past — but for the whole world.”A lot has happened between then and now: A global pandemic hit; war erupted in Europe; tensions between the United States and China boiled. And inflation, thought to be safely stored away with disco album collections, returned with a vengeance.But as the dust has settled, it has suddenly seemed as if almost everything we thought we knew about the world economy was wrong.The economic conventions that policymakers had relied on since the Berlin Wall fell more than 30 years ago — the unfailing superiority of open markets, liberalized trade and maximum efficiency — look to be running off the rails.During the Covid-19 pandemic, the ceaseless drive to integrate the global economy and reduce costs left health care workers without face masks and medical gloves, carmakers without semiconductors, sawmills without lumber and sneaker buyers without Nikes.Calverton National Cemetery in New York in early 2021, where daily burials more than doubled at the height of the pandemic.Johnny Milano for The New York TimesCaring for Covid patients in Bergamo, Italy, in 2020. Cost-cutting and economic integration around the globe left health care workers scrambling for masks and other supplies when the coronavirus hit.Fabio Bucciarelli for The New York TimesThe idea that trade and shared economic interests would prevent military conflicts was trampled last year under the boots of Russian soldiers in Ukraine.And increasing bouts of extreme weather that destroyed crops, forced migrations and halted power plants has illustrated that the market’s invisible hand was not protecting the planet.Now, as the second year of war in Ukraine grinds on and countries struggle with limp growth and persistent inflation, questions about the emerging economic playing field have taken center stage.Globalization, seen in recent decades as unstoppable a force as gravity, is clearly evolving in unpredictable ways. The move away from an integrated world economy is accelerating. And the best way to respond is a subject of fierce debate.Of course, challenges to the reigning economic consensus had been growing for a while.“We saw before the pandemic began that the wealthiest countries were getting frustrated by international trade, believing — whether correctly or not — that somehow this was hurting them, their jobs and standards of living,” said Betsey Stevenson, a member of the Council of Economic Advisers during the Obama administration.The financial meltdown in 2008 came close to tanking the global financial system. Britain pulled out of the European Union in 2016. President Donald Trump slapped tariffs on China in 2017, spurring a mini trade war.But starting with Covid-19, the rat-a-tat series of crises exposed with startling clarity vulnerabilities that demanded attention.As the consulting firm EY concluded in its 2023 Geostrategic Outlook, the trends behind the shift away from ever-increasing globalization “were accelerated by the Covid-19 pandemic — and then they have been supercharged by the war in Ukraine.”A view of the destruction in Bakhmut, Ukraine, in May.Tyler Hicks/The New York TimesUkrainians lined up to receive humanitarian aid in Kherson last year. Trade and shared economic interests weren’t enough to prevent wars, as once thought.Lynsey Addario for The New York TimesIt was the ‘end of history.’Today’s sense of unease is a stark contrast with the heady triumphalism that followed the collapse of the Soviet Union in December 1991. It was a period when a theorist could declare that the fall of communism marked “the end of history” — that liberal democratic ideas not only vanquished rivals, but represented “the end point of mankind’s ideological evolution.”Associated economic theories about the ineluctable rise of worldwide free market capitalism took on a similar sheen of invincibility and inevitability. Open markets, hands-off government and the relentless pursuit of efficiency would offer the best route to prosperity.It was believed that a new world where goods, money and information crisscrossed the globe would essentially sweep away the old order of Cold War conflicts and undemocratic regimes.There was reason for optimism. During the 1990s, inflation was low while employment, wages and productivity were up. Global trade nearly doubled. Investments in developing countries surged. The stock market rose.The World Trade Organization was established in 1995 to enforce the rules. China’s entry six years later was seen as transformative. And linking a huge market with 142 countries would irresistibly draw the Asian giant toward democracy.China, along with South Korea, Malaysia and others, turned struggling farmers into productive urban factory workers. The furniture, toys and electronics they sold around the world generated tremendous growth.China joined the World Trade Organization at a signing ceremony in 2001. ReutersThe favored economic road map helped produce fabulous wealth, lift hundreds of millions of people out of poverty and spur wondrous technological advances.But there were stunning failures as well. Globalization hastened climate change and deepened inequalities.In the United States and other advanced economies, many industrial jobs were exported to lower-wage countries, removing a springboard to the middle class.Policymakers always knew there would be winners and losers. Still, the market was left to decide how to deploy labor, technology and capital in the belief that efficiency and growth would automatically follow. Only afterward, the thinking went, should politicians step in to redistribute gains or help those left without jobs or prospects.Companies embarked on a worldwide scavenger hunt for low-wage workers, regardless of worker protections, environmental impact or democratic rights. They found many of them in places like Mexico, Vietnam and China.Television, T-shirts and tacos were cheaper than ever, but many essentials like health care, housing and higher education were increasingly out of reach.The job exodus pushed down wages at home and undercut workers’ bargaining power, spurring anti-immigrant sentiments and strengthening hard-right populist leaders like Donald Trump in the United States, Viktor Orban in Hungary and Marine Le Pen in France.In advanced industrial giants like the United States, Britain and several European countries, political leaders turned out to be unable or unwilling to more broadly reapportion rewards and burdens.Nor were they able to prevent damaging environmental fallout. Transporting goods around the globe increased greenhouse gas emissions. Producing for a world of consumers strained natural resources, encouraging overfishing in Southeast Asia and illegal deforestation in Brazil. And cheap production facilities polluted countries without adequate environmental standards.It turned out that markets on their own weren’t able to automatically distribute gains fairly or spur developing countries to grow or establish democratic institutions.Jake Sullivan, the U.S. national security adviser, said in a recent speech that a central fallacy in American economic policy had been to assume “that markets always allocate capital productively and efficiently — no matter what our competitors did, no matter how big our shared challenges grew, and no matter how many guardrails we took down.”The proliferation of economic exchanges between nations also failed to usher in a promised democratic renaissance.Communist-led China turned out to be the global economic system’s biggest beneficiary — and perhaps master gamesman — without embracing democratic values.“Capitalist tools in socialist hands,” the Chinese leader Deng Xiaoping said in 1992, when his country was developing into the world’s factory floor. China’s astonishing growth transformed it into the world’s second largest economy and a major engine of global growth. All along, though, Beijing maintained a tight grip on its raw materials, land, capital, energy, credit and labor, as well as the movements and speech of its people.Globalization has had enormous effects on the environment — including deforestation in Roraima State, in the Brazilian Amazon.Victor Moriyama for The New York TimesDistributing food in Johannesburg in 2020, where the pandemic caused a significant spike in the need for assistance.Joao Silva/The New York TimesMoney flowed in, and poor countries paid the price.In developing countries, the results could be dire.The economic havoc wreaked by the pandemic combined with soaring food and fuel prices caused by the war in Ukraine have created a spate of debt crises. Rising interest rates have made those crises worse. Debts, like energy and food, are often priced in dollars on the world market, so when U.S. rates go up, debt payments get more expensive.The cycle of loans and bailouts, though, has deeper roots.Poorer nations were pressured to lift all restrictions on capital moving in and out of the country. The argument was that money, like goods, should flow freely among nations. Allowing governments, businesses and individuals to borrow from foreign lenders would finance industrial development and key infrastructure.“Financial globalization was supposed to usher in an era of robust growth and fiscal stability in the developing world,” said Jayati Ghosh, an economist at the University of Massachusetts Amherst. But “it ended up doing the opposite.”Some loans — whether from private lenders or institutions like the World Bank — didn’t produce enough returns to pay off the debt. Others were poured into speculative schemes, half-baked proposals, vanity projects or corrupt officials’ bank accounts. And debtors remained at the mercy of rising interest rates that swelled the size of debt payments in a heartbeat.Over the years, reckless lending, asset bubbles, currency fluctuations and official mismanagement led to boom-and-bust cycles in Asia, Russia, Latin America and elsewhere. In Sri Lanka, extravagant projects undertaken by the government, from ports to cricket stadiums, helped drive the country into bankruptcy last year as citizens scavenged for food and the central bank, in a barter arrangement, paid for Iranian oil with tea leaves.It’s a “Ponzi scheme,” Ms. Ghosh said.Private lenders who got spooked that they would not be repaid abruptly cut off the flow of money, leaving countries in the lurch.And the mandated austerity that accompanied bailouts from the International Monetary Fund, which compelled overextended governments to slash spending, often brought widespread misery by cutting public assistance, pensions, education and health care.Even I.M.F. economists acknowledged in 2016 that instead of delivering growth, such policies “increased inequality, in turn jeopardizing durable expansion.”Disenchantment with the West’s style of lending gave China the opportunity to become an aggressive creditor in countries like Argentina, Mongolia, Egypt and Suriname.A market in Buenos Aires. China has become an aggressive creditor to countries like Argentina. Sarah Pabst for The New York TimesSelf-reliance replaces cheap imports.While the collapse of the Soviet Union cleared the way for the domination of free-market orthodoxy, the invasion of Ukraine by the Russian Federation has now decisively unmoored it.The story of the international economy today, said Henry Farrell, a professor at the Johns Hopkins School of Advanced International Studies, is about “how geopolitics is gobbling up hyperglobalization.”Old-world style great power politics accomplished what the threat of catastrophic climate collapse, seething social unrest and widening inequality could not: It upended assumptions about the global economic order.Josep Borrell, the European Union’s head of foreign affairs and security policy, put it bluntly in a speech 10 months after the invasion of Ukraine: “We have decoupled the sources of our prosperity from the sources of our security.” Europe got cheap energy from Russia and cheap manufactured goods from China. “This is a world that is no longer there,” he said.Supply-chain chokeholds stemming from the pandemic and subsequent recovery had already underscored the fragility of a globally sourced economy. As political tensions over the war grew, policymakers quickly added self-reliance and strength to the goals of growth and efficiency.“Our supply chains are not secure, and they’re not resilient,” Treasury Secretary Janet L. Yellen said last spring. Trade relationships should be built around “trusted partners,” she said, even if it means “a somewhat higher level of cost, a somewhat less efficient system.”“It was naïve to think that markets are just about efficiency and that they’re not also about power,” said Abraham Newman, a co-author with Mr. Farrell of “Underground Empire: How America Weaponized the World Economy.”Economic networks, by their very nature, create power imbalances and pressure points because countries have varying capabilities, resources and vulnerabilities.Russia, which had supplied 40 percent of the European Union’s natural gas, tried to use that dependency to pressure the bloc to withdraw its support of Ukraine.The United States and its allies used their domination of the global financial system to remove major Russian banks from the international payments system.The Port of Chornomorsk near Odesa, last year. In 2021, Ukraine was the largest wheat exporter in the world.Laetitia Vancon for The New York TimesHarvesting grapes at a vineyard in South Australia. China blocked Australian exports of wine and other goods after the country expressed support for Taiwan.Adam Ferguson for The New York TimesChina has retaliated against trading partners by restricting access to its enormous market.The extreme concentrations of critical suppliers and information technology networks has generated additional choke points.China manufactures 80 percent of the world’s solar panels. Taiwan produces 92 percent of tiny advanced semiconductors. Much of the world’s trade and transactions are figured in U.S. dollars.The new reality is reflected in American policy. The United States — the central architect of the liberalized economic order and the World Trade Organization — has turned away from more comprehensive free trade agreements and repeatedly refused to abide by W.T.O. decisions.Security concerns have led the Biden administration to block Chinese investment in American businesses and limit China’s access to private data on citizens and to new technologies.And it has embraced Chinese-style industrial policy, offering gargantuan subsidies for electric vehicles, batteries, wind farms, solar plants and more to secure supply chains and speed the transition to renewable energy.“Ignoring the economic dependencies that had built up over the decades of liberalization had become really perilous,” Mr. Sullivan, the U.S. national security adviser, said. Adherence to “oversimplified market efficiency,” he added, proved to be a mistake.While the previous economic orthodoxy has been partly abandoned, it is not clear what will replace it. Improvisation is the order of the day. Perhaps the only assumption that can be confidently relied on now is that the path to prosperity and policy trade-offs will become murkier.A solar farm in Yanqing district, in China. The country makes 80 percent of the world’s solar panels.Gilles Sabrié for The New York Times More

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    As U.S. and Chinese Officials Meet, Businesses Temper Their Hopes

    Chief executives in the U.S. have long pushed for closer ties between the two countries. Now they just hope a rocky situation won’t get worse.In a meeting in Beijing on Friday, China’s leader, Xi Jinping, traded warm smiles with Bill Gates and praised Mr. Gates as “the first American friend” he had met this year.The encounters in Beijing between Secretary of State Antony J. Blinken and his Chinese counterparts, starting on Sunday, are likely to feel noticeably chillier.The high-level meetings are aimed at getting the U.S.-China relationship back on track, and many American business leaders have been pushing the Biden administration to try to restore some stability in one of the world’s most important bilateral relationships.But for business leaders, and for officials on both sides, expectations for the meetings appear modest, with two main goals for the talks. One is to restore communication between the governments, which broke down this year after a Chinese surveillance balloon flew into U.S. airspace and Mr. Blinken canceled a visit scheduled for February. The other is to halt any further decline in the countries’ relationship.There is already evidence of the impact of the fraying ties. Foreign direct investment in China has fallen to an 18-year low. A 2023 survey by the American Chamber of Commerce in China showed that companies still see the Chinese market as a priority, but that their willingness to invest there is declining.“The economic relationship has become so dismal that any sign of progress is welcome, though expectations are low for any sort of a breakthrough,” said Jake Colvin, the president of the National Foreign Trade Council, which represents multinational businesses.“The hope is that high-level dialogues like this can start to inject some certainty for business into an increasingly fraught and unpredictable trade relationship,” he said.Still, as one of the world’s largest consumer markets and home to many factories that supply global businesses, China exerts a powerful pull. This year, as it eased its travel restrictions after three years of pandemic lockdowns, a parade of chief executives made trips to China, including Mary Barra of General Motors, Jamie Dimon of JPMorgan Chase and Stephen Schwarzman of Blackstone.On a visit to China this month, Elon Musk, the chief executive of Tesla and owner of Twitter, described the American and Chinese economies as “conjoined twins” and said he opposed to efforts to split them. Apple’s chief executive, Tim Cook, traveled to China in March and lauded the company’s “symbiotic” relationship with the nation.Sam Altman, the leader of OpenAI, which makes the ChatGPT chatbot, appeared virtually at a conference in Beijing this month, saying American and Chinese researchers should continue to work together to counter the risks of artificial intelligence.The tech industry, which has forged lucrative relationships with Chinese manufacturers and consumers, has warily watched Washington’s aggressive approach to China. While industry groups acknowledge the importance of moves to safeguard national security, they have urged the Biden administration to carefully calibrate its actions.Wendy Cutler, a former diplomat and trade negotiator who is now vice president at the Asia Society Policy Institute, said the United States and China might announce some small steps forward at the end of the meetings. The governments might agree, she said, to increase the paltry number of flights between their countries or the visas they are issuing to foreign visitors.But both sides will have plenty of grievances to air, Ms. Cutler said. Chinese officials are likely to complain about U.S. tariffs on goods made in China and restrictions on U.S. firms selling coveted chip technology to China. American officials may highlight China’s deteriorating business environment and its recent move to bar companies that handle critical information from buying microchips made by the U.S. company Micron.“I’m not expecting any breakthroughs, particularly on the economic front,” Ms. Cutler said, adding, “Neither side will want to be smiling.”American officials hope Mr. Blinken’s visit paves the way for more cooperation, including on issues like climate change and the restructuring the debt loads of developing countries. Other officials, including Treasury Secretary Janet L. Yellen, are considering visits to China this year, and Mr. Xi and President Biden may meet directly at either the Group of 20 meetings in Delhi in September or an Asia-Pacific economic meeting in San Francisco in November.In recent months, Biden officials have tried to mend the rift between the countries by arguing for a more “constructive” relationship. They have echoed European officials in saying their desire is for “de-risking and diversifying” their economic relationships with China, not “decoupling.”But trust between the governments has eroded, and Chinese officials appear to be skeptical of how much the Biden administration can do to restore ties.The extensive U.S. restrictions on the semiconductor technology that can be shared with China, which were issued in October, continue to rankle officials in Beijing. The United States has added dozens of Chinese companies to sanctions lists for aiding the Chinese military and surveillance state, or circumventing U.S. restrictions against trading with Iran and Russia.Biden administration officials are weighing further restrictions on China, including a long-delayed order covering certain U.S. venture capital investments. And the White House faces intense pressure from Congress to do more to crack down on national security threats emanating from Beijing.Not all companies are pushing for improved ties. Some with less exposure to China have tried to reap political benefits in Washington from the growing competition with the country. Meta, the parent company of Facebook and Instagram, has repeatedly raised concerns about TikTok, the Chinese-owned video app that has proved a formidable competitor to Instagram.“It’s really a dispute over the degree,” said James Lewis, a senior vice president at the Center for Strategic and International Studies. “How accommodating are you? How confrontational are you?”How aggressively companies are resisting the tensions with China, Mr. Lewis said, is linked to their exposure to the country’s market.“I think a lot of this has to do with your presence in China,” he said. More

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    U.S. National Debt Tops $32 Trillion for First Time

    The milestone follows a recent congressional showdown over lifting the debt ceiling. Another spending fight looms this year.The gross national debt exceeded $32 trillion for the first time on Friday, underscoring the country’s unsettling fiscal trajectory as Washington gears up for another fight over government spending.A Treasury Department report noted the milestone weeks after Congress agreed to suspend the nation’s statutory debt limit, ending a monthslong standoff.The $32 trillion mark arrived nine years sooner than prepandemic forecasts had projected, reflecting the trillions of dollars of emergency spending to address Covid-19’s impact along with a run of sluggish economic growth.Republicans and Democrats have expressed concern about the nation’s debt, but neither party has shown an appetite to tackle its biggest drivers, such as spending on Social Security and Medicare.The recent bipartisan agreement suspending the debt limit for two years cuts federal spending by $1.5 trillion over a decade, according to the Congressional Budget Office, by essentially freezing some funding that had been projected to increase next year and then limiting spending to 1 percent growth in 2025. But the debt is on track to top $50 trillion by the end of the decade even after newly passed spending cuts are taken into account.Mark Zandi, the chief economist of Moody’s Analytics, said during the standoff in May that spending cuts proposed by lawmakers failed to address the costs of social safety net programs. While avoiding a default would prevent an immediate crisis, he said, the ballooning debt is a persistent problem that needs to be addressed.“The nation’s daunting long-term fiscal challenges remain,” Mr. Zandi said.This week, the House Appropriations Committee began considering its next spending bills and, to appease the Republican majority’s ultraconservative wing, signaled that it would fund federal agencies at levels lower than President Biden and Speaker Kevin McCarthy had agreed to.A failure to pass and reconcile House and Senate bills by Oct. 1 could lead to a government shutdown. And if the individual bills are not approved by the end of the year, a 1 percent automatic cut will take effect.At the same time, House Republicans started considering a new round of tax cuts this week. The bill would expand the standard deduction for individual taxpayers and some business tax benefits that are intended to promote investment while curbing energy tax credits. The Committee for a Responsible Federal Budget, which advocates lower spending levels, estimates that the proposed legislation would cost $80 billion over a decade or $1.1 trillion if the measures were made permanent.Some have called on Congress to form a bipartisan fiscal commission to tackle the long-term drivers of the national debt.“As we race past $32 trillion with no end in sight, it’s well past time to address the fundamental drivers of our debt, which are mandatory spending growth and the lack of sufficient revenues to fund it,” said Michael A. Peterson, the chief executive of the Peter G. Peterson Foundation, which promotes deficit reduction.The Peterson Foundation expressed concern about projections that show the United States adding $127 trillion in debt over the next 30 years and interest costs consuming nearly 40 percent of all federal revenues by 2053.Treasury Secretary Janet L. Yellen defended the Biden administration’s handling of the nation’s finances at a House Financial Services Committee hearing this week, noting that the White House had released a budget this year reducing the deficit by $3 trillion. She also told the panel that interest rates were likely to decline over the medium term, making the debt burden more manageable.The Treasury secretary suggested that tax policies promoted by Republicans would worsen the fiscal situation.“They would benefit wealthy individuals and corporations and do nothing for working families,” Ms. Yellen said. “It’s not paid for, and it would exacerbate the debt.” More

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    UPS Workers Authorize Teamsters Union to Call Strike

    A walkout is possible after the contract for more than 325,000 workers expires this summer. Negotiations began in April but have yet to resolve pay.United Parcel Service workers have authorized their union, the International Brotherhood of Teamsters, to call a strike as soon as Aug. 1, after the current contract expires, the Teamsters announced Friday.The Teamsters represent more than 325,000 UPS employees in the United States, where the company has nearly 450,000 employees overall. The union said 97 percent had voted in favor of strike authorization.Many unions hold such votes to create leverage at the bargaining table, but a much smaller percentage end up following through. “The results do not mean a strike is imminent and do not impact our current business operations in any way,” UPS said in a statement, adding that it was “confident that we will reach an agreement.”A UPS strike could have significant economic fallout. The company handles about one-quarter of the tens of millions of parcels shipped each day in the United States, according to the Pitney Bowes Parcel Shipping Index. And while UPS’s competition has grown in recent years, rivals would be hard-pressed to replace that lost capacity quickly, leaving some customers in the lurch and others facing higher costs.“What happens when you try to stuff 25 percent more food into a stomach that’s 90 percent full?” said Alan Amling, a fellow at the University of Tennessee’s Global Supply Chain Institute and a former UPS executive.The two sides have reached tentative agreements on a number of issues since they began negotiating a national contract in April, most recently on heat safety, including a requirement for air conditioning in new trucks beginning in January and additional fans and venting for existing trucks.But the negotiators have yet to tackle pay increases, which the Teamsters say are overdue amid the company’s strong pandemic-era performance. The company’s adjusted net income increased by more than 70 percent from 2019 to last year.The union has also focused on revisiting pay disparities for a category of driver who typically works on weekends.The UPS chief executive, Carol Tomé, who started in that position in 2020, said on a recent earnings call that UPS was aligned with the union on “several key issues.” She added that outsiders should not put too much stock in the “great deal of noise” that was likely to arise during the negotiation.Looming over the talks is the political standing of the Teamsters’ leader, Sean O’Brien, who during his campaign for the union’s presidency in 2021 repeatedly accused his predecessor, James P. Hoffa, of being overly conciliatory toward employers.Mr. O’Brien complained that Mr. Hoffa had essentially forced a concessionary contract onto UPS workers in 2018 after union members voted down the deal. He criticized his opponent for the presidency, a Hoffa-aligned candidate, for being unlikely to strike.“You already conceded that in your 25-year career, you only struck six times, so UPS knows you’re not going to strike,” Mr. O’Brien said at a candidates’ debate.Mr. O’Brien has largely maintained his aggressive stance on UPS since taking over as president last year. Speaking in October to activists with Teamsters for a Democratic Union, a reformist group that backed his candidacy, Mr. O’Brien vowed that “this UPS agreement is going to be the defining moment in organized labor.”Compensation for UPS drivers is generally higher than pay at the company’s competitors. UPS said that the average full-time delivery driver with four years’ experience makes $42 an hour, and that part-time workers who sort packages make $20 an hour on average after 30 days.The groups receive the same benefits package, which includes health care and pension contributions and is worth about $50,000 a year for full-time drivers, the company says.Beyond overall pay levels, the union has said it wants to eliminate a category of driver created under the 2018 contract.The company said the category was intended for hybrid workers who performed jobs like sorting packages on some days while driving on other days, especially Saturdays, to address the growing demand for weekend delivery.But the Teamsters said these workers never followed the hybrid arrangement and simply drove full time from Tuesday to Saturday, for less pay than other full-time drivers. The company says that the weekend drivers make about 87 percent of the base pay of regular full-time drivers, and that some employees have worked under a hybrid arrangement.In the event of a strike, deliveries to consumers, such as e-commerce orders, would probably be among the first to be disrupted. But experts said the supply chain could suffer, too. Some suppliers would struggle to quickly ship goods like automotive parts to manufacturers, potentially causing production slowdowns.Even a short strike could take a toll on UPS. Many customers long relied exclusively on the company, but that started to change after the Teamsters last went on strike in 1997, Mr. Amling said. After that strike, which lasted just over two weeks, more customers began to work with multiple carriers. The consequences were masked by gains from the rise of e-commerce and fewer competitors to choose from, but the company may not be so fortunate today.Niraj Chokshi More

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    Is Beyoncé Linked to Sweden’s Inflation? An Economist Says So.

    As fans from around the world spent money to witness the kick off of the star’s tour in Sweden, they may have caused the country’s inflation rate to stay higher than expected.In Europe’s relentless battle against inflation, another culprit has apparently emerged: Beyoncé.Last month, as the star kicked off her world tour in Stockholm, fans flocked from around the world to witness the shows, pushing up prices for hotel rooms. This could explain some of the reason Sweden’s inflation rate was higher than expected in May.Consumer prices in Sweden rose 9.7 percent last month from a year earlier, the country’s statistics agency, Statistics Sweden, said on Wednesday. The rate fell from the previous month’s 10.5 percent, but was slightly higher than economists had forecast.Michael Grahn, an economist at Danske Bank, said that the start of Beyoncé’s tour might have “colored” the inflation data. “How much is uncertain,” he wrote on Twitter, but it could be responsible for most of the 0.3 percentage point that restaurant and hotel prices added to the monthly increase in inflation.Restaurant and hotel prices rose 3.3 percent in May from the previous month, while prices for recreation and cultural activities and clothing also increased.Fans came from around the world to attend Beyoncé‘s sold-out shows. Their spending could explain some of the reason Sweden’s inflation rate was higher than expected in May.Felix Odell for The New York TimesBeyoncé’s Renaissance World Tour, her first solo tour since 2016, started on May 10 in Stockholm, with two nights at a 50,000-capacity arena. Fans from around the world took advantage of favorable exchange rates and flew in to buy tickets that were cheaper than in the United States or Britain, for example.Mr. Grahn said in an email that he wouldn’t blame Beyoncé for the high inflation number but “her performance and global demand to see her perform in Sweden apparently added a little to it.”He added that the weakness of Sweden’s currency, the krona, would have added to demand as well as cheaper ticket prices. “The main impact on inflation, however, came from the fact that all fans needed somewhere to stay,” he said, adding that fans took up rooms as far as 40 miles away. But the impact will only be short-lived, as prices revert this month.While this is a “very rare” effect, he said that Sweden had seen this kind of inflationary effect on hotel prices before from a 2017 soccer cup final, when foreign teams played in the country.“So it is not unheard-of, albeit unusual,” Mr. Grahn said.Carl Martensson, a statistician at Statistics Sweden, said that “Beyoncé probably had an effect on hotel prices in Stockholm the week she performed here.” But he added, “it should not have had any significant impact of Sweden’s inflation in May.” More

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    in Economy

    West Coast Dockworkers Reach Contract Deal With Port Operators

    After a year of prolonged negotiations that have led to delays and declines in cargo, the two sides agreed to a new contract with help from the Biden administration.After a year of contract negotiations that resulted in numerous delays and a decline in the movement of cargo at ports along the West Coast, union dockworkers and port operators have reached a tentative deal set to last for six years.In a joint statement released late Wednesday, the International Longshore and Warehouse Union and the Pacific Maritime Association announced a tentative agreement on a new contract that covers 22,000 workers at 29 ports from San Diego to Seattle, some of the busiest in the world.Details about the agreement, which is expected to be formally ratified by both sides, were not immediately released.President Biden, who stepped in last year to urge a swift resolution, released a statement congratulating both parties for reaching an agreement “after a long and sometimes acrimonious negotiation.”“As I have always said, collective bargaining works,” Mr. Biden said. “Above all I congratulate the port workers, who have served heroically through the pandemic and the countless challenges it brought and will finally get the pay, benefits, and quality of life they deserve.”Mr. Biden also thanked Julie Su, the acting U.S. labor secretary, for assistance in finalizing the deal.The outcome on Wednesday somewhat mirrored past negotiations between the two sides. In 2015, as negotiations went on for nine months, officials in the Obama administration intervened amid work slowdowns and increased congestion at ports.The protracted negotiations between the union and the Pacific Maritime Association, which represents the shipping terminals, have focused on disagreements over wages and the expanding role of automation.In recent weeks the Longshore and Warehouse Union, or the I.L.W.U., has staged a series of work slowdowns at the ports of Los Angeles and Long Beach, which in recent months have lost sizable business to ports along the Gulf and East Coasts. Cargo processing at the Port of Los Angeles, a key entry point for shipments from Asia, was down roughly 40 percent in February, compared with the year before.Recently, the U.S. Chamber of Commerce wrote a letter to Mr. Biden urging the administration to intervene immediately in the negotiations and appoint an independent mediator to help the two parties reach an agreement.Matthew Shay, president of the National Retail Federation, said the ongoing delays and disruptions have had a negative impact on retailers and other stakeholders who rely on the West Coast ports for business operations.“As we enter the all-important peak shipping season for holiday merchandise, retailers need a seamless flow of containers through the ports and to their distribution centers,” Mr. Shay said.On Wednesday, Gene Seroka, head of the Port of Los Angeles, said in a statement that the tentative agreement between the I.L.W.U. and the Pacific Maritime “brings the stability and confidence that customers have been seeking.”Matt Schrap, chief executive of the Harbor Trucking Association, a trade group for transportation companies serving West Coast ports, said his organization is eager for cargo traffic to return to normal soon.“We need the certainty,” he said. “This has been a long, hard process.” More

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    in Economy

    Oregon Town’s Marijuana Boom Yields Envy in Idaho

    Tax revenue has surged since cannabis stores opened in Ontario, Ore., fueling a push in neighboring Idaho to legalize sales and get in on the action.For John Leeds, the hour-and-a-half commute to and from his job as assistant manager at Treasure Valley Cannabis Company is exhausting, but logistically unavoidable.Like nearly half of the other employees, Mr. Leeds, 39, lives in Idaho and travels along Interstate 84, past sprawling alfalfa and onion fields, to the marijuana shop just across the Oregon state line, where cannabis is legal.“It’s really two different worlds,” Mr. Leeds said. “A lot of whiplash on this issue just in a car ride up and down the highway.”Every day, hundreds of customers and workers like Mr. Leeds make the pilgrimage from Idaho to Ontario, Ore., a small city nestled along the Snake River that is home to 11 dispensaries — roughly one for every 1,000 residents. They can compare the aromas of various strains of marijuana and gather the staff’s insights on THC levels in edibles.The cannabis boom is helping to drive a thriving local economy — and tax revenues that have paid for new police positions, emergency response vehicles, and park and trail improvements.Missing out on the action has become increasingly frustrating to some politicians and longtime residents in Idaho, where the population and living costs have surged in recent years.Because the sale or possession of marijuana remains illegal at the federal level, many states — and in this case neighboring ones — have landed on drastically different approaches for whether and how to decriminalize, regulate and tax cannabis. Since 2012, 23 states have legalized it for recreational use, and more than three dozen allow medical marijuana.Eleven states, mostly conservative-leaning, have enacted extremely limited medical marijuana laws. Aside from cannabis-derived drugs approved by the U.S. Food and Drug Administration for limited medical use, Idaho has not legalized any cannabis sales — a prohibition that has helped its more progressive neighbors.“Our cannabis market caters almost exclusively to Idaho residents,” said Ontario’s mayor, Debbie Folden. “This has been an economic boom unlike any this city has seen.”The patchwork of laws, which vary by state and often by county, have created similar commuter-propelled booms in other parts of the country as well, said Mason Tvert, a partner at VS Strategies, a national cannabis policy and public affairs firm in Denver.Texans travel to Colorado to stock up on their favorite strains or edibles, and Indiana residents make the trek to Michigan, he said. “Demand will be met by either the illegal market or by a legal market in another state,” Mr. Tvert said.That proposition, and the larger economic equation, are not lost on officials in Idaho.Last year, the state approached two million residents, a swell attributed largely to people moving from California and looking for overall cheaper costs of living. Only Florida grew faster.At the same time, property taxes have increased 20 percent since 2018, according to a report from the Idaho Center for Fiscal Policy, a nonpartisan group. And the state’s budget — currently showing a surplus — is expected to come under strain, the group noted, citing legislation that cut income taxes by roughly $500 million over three years even as population growth put new demands on health care, education and transportation.Some longtime residents of the state are tired of seeing the marijuana tax dollars go elsewhere as prices increase from the newer residents arriving.Legalizing and taxing cannabis sales could bring in revenue and help offset any budgetary concerns, said Joe Evans, a lead organizer for Kind Idaho, a group pushing to legalize medical marijuana.“That money should not be leaving the state of Idaho,” said Joe Evans, who supports the legalization of medical marijuana in the state.Ellen Hansen for The New York Times“That money should not be leaving the state of Idaho,” said Mr. Evans, who noted the entrepreneurial spirit of the region, home to Joe Albertson, who started a local grocery store chain, Albertsons, and laid the foundation for a multibillion-dollar national business.But for Mr. Evans, who served with the Army in Iraq and Afghanistan and knows fellow veterans who use cannabis for pain relief, legalization is also about something bigger than money. It is long past time, he said, for his state to legalize a substance that can offer relief for some medical conditions.Patients who use marijuana, especially older or chronically ill Idahoans, shouldn’t have to drive an hour or more to Oregon, he said.“This is about patient advocacy,” said Mr. Evans, who hopes the state will next year consider a measure to legalize cannabis for medicinal use.It would not be the first try.Initiatives to legalize cannabis for medicinal use failed to qualify for the ballot in 2012, 2014 and 2016. In 2020, supporters of a ballot measure suspended efforts to gather signatures because of the onset of the Covid-19 pandemic, and the next year a bipartisan group of state lawmakers introduced a medical marijuana bill that failed to get out of committee.As those efforts foundered, customers in Idaho increasingly made the trek to Oregon, where voters legalized cannabis for medical use in 1998 and for recreational use in 2014.Ontario, Ore., is home to 11 dispensaries — roughly one for every 1,000 residents.Ellen Hansen for The New York TimesFew areas in the state have benefited as much as Malheur County, home to Ontario.The city, which voted to legalize local recreational sales of marijuana in 2018, is the only part of the county with dispensaries. Even so, Malheur County racked up roughly $104 million in total cannabis sales last year, outpacing each of the state’s 35 other counties except Multnomah, which includes Portland.In 2020, the first full year in which Ontario allowed cannabis sales, the city took in $1.8 million in resulting tax revenue. The next year, the revenue increased 65 percent.The area is a conservative pocket in a progressive state — a movement called “Greater Idaho” wants the region to secede from Oregon and become part of Idaho — and Mayor Folden, an Ontario native, calls herself a conservative Republican.That hasn’t blocked the city’s emergence as a cannabis capital. The tax revenues, the mayor said, have been a municipal lifeline. But the city is stockpiling its reserves, Ms. Folden said, because she expects that within five years, Idaho will move ahead with some form of legalization.Treasure Valley Cannabis is one of the businesses that have led to a surge in tax revenue for Malheur County.Ellen Hansen for The New York Times“We know that this will not last forever, so we’re being prudent,” Ms. Folden said. “We know the economic winds, as they say, might shift.”In the fall, a poll for The Idaho Statesman, a Boise newspaper, found that 68 percent of residents backed legalizing marijuana for medicinal purposes. For recreational use, 48 percent supported legalization, while 41 percent were opposed.Gov. Brad Little of Idaho, who is in his second term, staunchly opposes marijuana legalization. In an emailed statement, Mr. Little, a Republican, said that “legalization of marijuana triggers numerous unintended consequences.”But some local politicians in Idaho have begun to consider the economics of the issue.Patrick Bageant, a Boise councilman, said the need for alternative forms of tax revenue was increasingly urgent.“Legalizing marijuana can help bring in different forms of cash,” Mr. Bageant said. “Just look around the country — we as a state should be more forward-looking.”Adam Watkins, a software engineer and a constituent of Mr. Bageant’s, has lived in the city’s West End neighborhood for the past decade. His home value has doubled since 2018, when he paid $3,200 in property taxes; now he pays close to $4,200.“You look around at other states that have legalized marijuana decades ago, when it comes to medical marijuana, and you just cannot help but think, why are we so backward on this issue?” said Mr. Watkins, who supports legalization for philosophical and fiscal reasons.“This is a drug with proven health effects, and we are just leaving this issue to other states to solve,” he added. “We are turning blindly, like this is not an issue, when it clearly is.”Back in Ontario on a recent afternoon, red, white and blue license plates emblazoned with the phrase “Scenic Idaho” lined the parking lot of Treasure Valley Cannabis. (A federal law prohibits transporting marijuana between states.)John Leeds commutes an hour and a half to and from his job at Treasure Valley Cannabis, where he manages a staff of 45.Ellen Hansen for The New York TimesMr. Leeds manages a staff of 45 employees four days a week. He used to work five days, but made a deal with the owner, Jeremy Archie, to work four to cut back on his commute.That day, Mr. Leeds and Mr. Archie walked the floor past vape pens, various strains of cannabis, and sweatshirts acclaiming the company and the state.They greeted customers and shared stories of patients battling health issues like cancer, who use their products to ease pain. On one wall hung a poster board proclaiming a 25 percent discount for customers car-pooling with at least three people.A small gesture of thanks, Mr. Archie said, for their Idaho customers.“The Idaho market has made this a very successful business,” he said. More