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    Fed Expected to Raise Interest Rates: What to Know

    Federal Reserve officials will release a rate decision at 2 p.m. The key question is what will come next.Federal Reserve officials are set to release an interest rate decision on Wednesday afternoon, and while investors widely expect policymakers to lift borrowing costs by a quarter-point, they will be watching carefully for any hint at what might come next.This would be the central bank’s 10th consecutive interest rate increase — capping the fastest series of rate increases in four decades. But it could also be the central bank’s last one, for now.Fed officials signaled in their last set of economic projections that they might stop raising interest rates once they reached a range of 5 percent to 5.25 percent, the level they are expected to hit on Wednesday. Officials will not release fresh economic projections after this meeting, which will leave economists carefully parsing both the central bank’s 2 p.m. policy decision statement and a 2:30 p.m. news conference with Jerome H. Powell, the Fed chair, for hints at what comes next.Central bankers will be balancing conflicting signals. They have already done a lot to slow growth and wrestle rapid inflation under control, recent tumult in the banking industry could curb demand even more, and a looming fight over the debt ceiling poses a fresh source of risk to the economy. All of those are reasons for caution. But the economy has been fairly resilient and inflation is showing staying power, which could make some Fed officials feel that they still have work to do.Here’s what to know going into Fed day.Inflation has prompted the Fed to get aggressiveFed policymakers are raising interest rates for a simple reason: Inflation has been painfully high for two years, and making money more expensive to borrow is the main tool government officials have to get it down.When the Fed raises interest rates, it makes it more expensive and often more difficult for families to take out loans to buy houses or cars or for businesses to raise money for expansions. That slows both consumer spending and hiring. As wage growth sags and unemployment rises, people become more cautious and the economy slows further.If that chain reaction sounds unpleasant, it’s because it can be: When Paul Volcker’s Fed raised interest rates to nearly 20 percent in the early 1980s, it helped to push joblessness above 10 percent.But by cooling demand across the economy, a widespread slowdown can help to wrestle inflation under control. Companies find it harder to charge more without losing customers in a world where families are spending cautiously.And getting inflation under wraps is a big priority for the Fed: Price increases have been unusually rapid since early 2021, and while they have cooled off notably from a peak of about 9 percent last summer, they are increasingly driven by service industries like travel and child care. Such price increases could prove stubborn and difficult to fully stamp out.Higher Prices for Services Are Now Driving InflationBreakdown of the inflation rate, by category

    Note: The services category excludes energy services, and the goods category excludes food and energy goods.Sources: Bureau of Labor Statistics; New York Times analysisBy The New York TimesRates haven’t been this high in more than 15 yearsTo get price increases back in line, the Fed has raised rates to nearly 5 percent — and they are expected to cross that threshold on Wednesday. The last time rates eclipsed 5 percent was the summer of 2007, before the global financial crisis.What does it mean to have interest rates this high? More expensive mortgages have translated into a meaningful slowdown in the housing market, for one thing. There are also some signs that the labor market, while still very strong, is beginning to weaken — hiring is gradually slowing, and fewer jobs are going unfilled. But perhaps most visibly, the higher interest rates are starting to cause financial stress.Three big U.S. banks have failed — and required responses from the government — since early March, culminating in a government-enabled shotgun wedding between First Republic and JPMorgan Chase early Monday morning.Many of the banks under stress in recent weeks have suffered because they did not adequately protect themselves against rising interest rates, which have reduced the market value of their older mortgages and securities holdings.Fed officials will need to consider two issues related to the recent turmoil: Will there be further drama as other banks and financial companies struggle with higher rates, and will the bank trouble so far significantly slow the economy?Mr. Powell could give the world a sense of their thinking at his news conference.Economists are on pause patrolBetween the banking upheaval and how much the Fed has lifted interest rates already, investors expect policymakers to pause after this move. But don’t assume that means the slowdown is over.Higher Fed rates are like delayed reaction medicine: They start to kick in quickly, but their full effects take a while to play out. Last year’s moves are still trickling through the economy, and by leaving rates on hold at a high level, officials could continue to weigh down the economy for months to come.And it could be that central bankers will not actually pause: Some have suggested that if inflation remains rapid and growth keeps its momentum, they could raise interest rates more. But it seems possible — even likely — that the bar for future rate moves will be higher.America is on recession watchAs high rates and bank problems bite, many economists think the country could be in for an economic downturn. Economists on the Fed’s staff even said at the central bank’s March meeting that they thought a mild recession was likely later this year in the aftermath of the banking crisis, based on minutes from the Fed’s last meeting.Mr. Powell is sure to get asked about that at this news conference — and he may have to explain how the Fed hopes to keep a slight recession from turning into a big one.A gentle slowdown would probably feel a lot different for people on the ground than a major recession. One would involve slightly fewer job opportunities, milder wage growth and less boisterous business. The other could involve job loss and insecurity, slashed hours and earnings, and a pervading sense of glumness among American consumers.That’s why Wednesday’s Fed meeting matters: It’s not just technical policy tweaks Mr. Powell will be talking about, but decisions that will shape America’s economic future. More

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    The ‘Peace Dividend’ Is Over in Europe. Now Come the Hard Tradeoffs.

    Defending against an unpredictable Russia in years to come will mean bumping up against a strained social safety net and ambitious climate transition plans.In the 30 years since the Iron Curtain came crashing down, trillions of dollars that had been dedicated to Cold War armies and weapons systems were gradually diverted to health care, housing and schools.That era — when security took a back seat to trade and economic growth — abruptly ended with Russia’s invasion of Ukraine last year.“The peace dividend is gone,” Kristalina Georgieva, the head of the International Monetary Fund, recently declared, referring to the mountains of cash that were freed up when military budgets shrank. “Defense expenditures have to go up.”The urgent need to combat a brutal and unpredictable Russia has forced European leaders to make excruciating budgetary decisions that will enormously affect peoples’ everyday lives. Do they spend more on howitzers or hospitals, tanks or teachers, rockets or roadways? And how to pay for it: raise taxes or borrow more? Or both?The sudden security demands, which will last well beyond an end to the war in Ukraine, come at a moment when colossal outlays are also needed to care for rapidly aging populations, as well as to avoid potentially disastrous climate change. The European Union’s ambitious goal to be carbon neutral by 2050 alone is estimated to cost between $175 billion and $250 billion each year for the next 27 years.“The spending pressures on Europe will be huge, and that’s not even taking into account the green transition,” said Kenneth Rogoff, an economics professor at Harvard. “The whole European social safety net is very vulnerable to these big needs.” After the Berlin Wall fell, social spending shot up. Denmark doubled the money it funneled to health care between 1994 and 2022, according to the latest figures compiled by the Organization for Economic Cooperation and Development, while Britain increased its spending by more than 90 percent. Over the same period, Poland more than doubled funding for culture and recreation programs. Germany ramped up investments in the economy. The Czech Republic increased its education budget.President Biden with NATO allies in Warsaw in February. Military budgets started to rise after Russia annexed Crimea. Doug Mills/The New York TimesMilitary spending by European members of North Atlantic Treaty Organization and Canada reached a low point in 2014 as the demand for battle tanks, fighter jets and submarines plummeted. After Russia annexed Crimea that year, budgets started to rise again, but most countries still fell well below NATO’s target of 2 percent of national output.“The end of the peace dividend is a big rupture,” said Daniel Daianu, chairman of the Fiscal Council in Romania and a former finance minister.Before war broke out in Ukraine, military spending by the European members of NATO was expected to reach nearly $1.8 trillion by 2026, a 14 percent increase over five years, according to research by McKinsey & Company. Now, spending is estimated to rise between 53 and 65 percent.That means hundreds of billions of dollars that otherwise could have been used to, say, invest in bridge and highway repairs, child care, cancer research, refugee resettlement or public orchestras is expected to be redirected to the military.Last week, the Stockholm International Peace Research Institute reported that military spending in Europe last year had its biggest annual rise in three decades. And the spendathon is just beginning.The demand for military spending will be on display Wednesday when the European Union’s trade commissioner, Thierry Breton, is expected to discuss his fact-finding tour to determine whether European nations and weapons manufacturers can produce one million rounds of 155-millimeter shells for Ukraine this year, and how production can be increased. Poland has pledged to spend 4 percent of its national output on defense. The German defense minister has asked for an additional $11 billion next year, a 20 percent increase in military spending. President Emmanuel Macron of France has promised to lift military spending by more than a third through 2030 and to “transform” France’s nuclear-armed military.Some analysts argue that at times cuts in military budgets were so deep that they compromised basic readiness. And surveys have shown that there is public support for increased military spending, pointedly illustrated by Finland and Sweden’s about-face in wanting to join NATO.Polish military units train Ukrainian soldiers on the German-made Leopard tanks at a military base, in Poland in February.Maciek Nabrdalik for The New York TimesBut in most of Europe, the painful budgetary trade-offs or tax increases that will be required have not yet trickled down to daily life. Much of the belt-tightening last year that squeezed households was the result of skyrocketing energy prices and stinging inflation.Going forward, the game board has changed. “France has entered into a war economy that I believe we will be in for a long time,” Mr. Macron said in a speech shortly after announcing his spending blueprint.But the crucial question of how to pay for the momentous shift in national priorities remains. In France, for instance, government spending as a percentage of the economy, at 1.4 trillion euros ($1.54 trillion), is the highest in Europe. Of that, nearly half was spent on the nation’s generous social safety net, which includes unemployment benefits and pensions. Debt has also spiraled in the wake of the pandemic. Yet Mr. Macron has vowed not to increase what is already one of the highest tax levels in Europe for fear of scaring off investors.Debates over competing priorities are playing out in other capitals across the region — even if the trade-offs are not explicitly mentioned.In Britain, on the same day in March that the government unveiled a budget that included a $6.25 billion bump in military spending, teachers, doctors and transport workers joined strikes over pay and working conditions. It was just one in a series of walkouts by public workers who complained that underfunding, double-digit inflation and the pandemic’s aftermath have crippled essential services like health care, transportation and education. The budget included a $4.1 billion increase for the National Health Service over the same two-year period.Romania, which has been running up its public debt over the years, has pledged to lift military spending this year by 0.5 percent of national output. And this month it agreed to buy an undisclosed number of F-35 fighter jets, which have a list price of $80 million a piece. While the increase will enable the country to hit NATO’s budget target, it will undercut efforts to meet the debt limits set by the European Union.Romania has pledged to lift military spending this year by 0.5 percent of national output.Andreea Campeanu for The New York TimesThe shift in government spending is perhaps most striking in Germany, where defense outlays plunged after the reunification of the former East and West German nations in 1990.“Defense was always the place to save, because it was not very popular,” said Hubertus Bardt, the managing director of the Institute of the German Economy.Germany, the largest and most powerful economy in Europe, has consistently devoted less money to the military as a percentage of gross domestic output than either France or Britain.It’s a “historic turning point,” the German chancellor, Olaf Scholz, said when he announced a special $112 billion defense fund last year. Yet that pot of money did not include any spending for ammunition. And when the fund is depleted, Germany will need to find an additional $38 billion to level up with its NATO partners.Mr. Rogoff, the Harvard economist, said that most Europeans have not yet absorbed how big the long-term effects of a fading peace dividend will be. This is a new reality, he said, “and governments are going to have to figure out how to rebalance things.”Melissa Eddy More

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    House Democrats Move to Force a Debt-Limit Increase as Default Date Looms

    House Democratic leaders who have been quietly planning a strategy to force a debt ceiling increase to avert default began taking steps on Tuesday to deploy their secret weapon.The only clue to the gambit was in the title of the otherwise obscure hodgepodge of a bill: “The Breaking the Gridlock Act.”But the 45-page legislation, introduced without fanfare in January by a little-known Democrat, Representative Mark DeSaulnier of California, is part of a confidential, previously unreported, strategy Democrats have been plotting for months to quietly smooth the way for action by Congress to avert a devastating federal default if debt ceiling talks remain deadlocked.With a possible default now projected as soon as June 1, Democrats on Tuesday began taking steps to deploy the secret weapon they have been holding in reserve. They started the process of trying to force a debt-limit increase bill to the floor through a so-called discharge petition that could bypass Republican leaders who have refused to raise the ceiling unless President Biden agrees to spending cuts and policy changes.“House Democrats are working to make sure we have all options at our disposal to avoid a default,” Representative Hakeem Jeffries, Democrat of New York and the minority leader, wrote in a letter he sent to colleagues on Tuesday. “The filing of a debt ceiling measure to be brought up on the discharge calendar preserves an important option. It is now time for MAGA Republicans to act in a bipartisan manner to pay America’s bills without extreme conditions.”An emergency rule Democrats introduced on Tuesday, during a pro forma session held while the House is in recess, would start the clock on a process that would allow them to begin collecting signatures as soon as May 16 on such a petition, which can force action on a bill if a majority of members sign on. The open-ended rule would provide a vehicle to bring Mr. DeSaulnier’s bill to the floor and amend it with a Democratic proposal — which has yet to be written — to resolve the debt limit crisis.The strategy is no silver bullet, and Democrats concede it is a long shot. Gathering enough signatures to force a bill to the floor would take at least five Republicans willing to cross party lines if all Democrats signed on, a threshold that Democrats concede will be difficult to reach. They have yet to settle on the debt ceiling proposal itself, and for the strategy to succeed, Democrats would likely need to negotiate with a handful of mainstream Republicans to settle on a measure they could accept.A handful of hard-right Republicans explicitly warned their colleagues on Tuesday not to go down that path. “House Republicans: don’t defect!” Senator Mike Lee of Utah wrote on Twitter.Still, Democrats argue that the prospect of a successful effort could force House Republicans into a more acceptable deal. And Treasury Secretary Janet L. Yellen’s announcement on Monday that a potential default was only weeks away spurred Democratic leaders to act.House Democratic leaders have for months played down the possibility of initiating a discharge petition as a way out of the stalemate. They are hesitant to budge from the party position, which Mr. Biden has articulated repeatedly, that Republicans should agree to raise the debt limit with no conditions or concessions on spending cuts.But behind the scenes, they were simultaneously taking steps to make sure a vehicle was available if needed.There were no signs on Tuesday of any momentum toward even a temporary resolution. Senator Chuck Schumer, Democrat of New York and the majority leader, brushed aside the idea of putting off a confrontation by passing a short-term debt limit increase, telling reporters: “We should not kick the can down the road.”And Senator Mitch McConnell, Republican of Kentucky and the minority leader, reiterated that he intended to leave the negotiations to Mr. Biden and Speaker Kevin McCarthy, again dashing the private hopes of some Democrats that the veteran Republican would ultimately cut a deal with them to allow the debt ceiling to be lifted, as he has done in the past.“There is no solution in the Senate,” Mr. McConnell said.The White House had no public comment on the discharge effort, according to Karine Jean-Pierre, the press secretary. Mr. Biden is scheduled next week to host Mr. McCarthy and other congressional leaders at the White House to discuss raising the debt limit. His goal at that meeting, a senior administration official said, will be to stress the importance of averting default and creating a separate negotiation to address other budget issues.The discharge petition process can be time-consuming and complicated, so House Democrats who devised the strategy started early and carefully crafted their legislative vehicle. Insiders privately refer to the measure as a “Swiss Army knife” bill — one intended to be referred to every single House committee in order to keep open as many opportunities as possible for forcing it to the floor.It would create a task force to help grandparents raising grandchildren, create a federal strategy for reducing earthquake risks, change the name of a law that governs stock trading by members of Congress, extend small business loans, protect veterans from the I.R.S., authorize a new Pentagon grant program to protect nonprofit organizations against terrorist attacks and more. The legislation was so broad and eclectic that it was referred to 20 committees, where it has sat idle for months. That was the point.Mr. DeSaulnier’s intent was never to pass the elements of the bill, though he favors them all. It was to create what is known on Capitol Hill as a shell of a bill that would ultimately serve as the basis for a discharge petition — and a way out of the debt limit standoff.“I wrote it in a way to be prepared,” said Mr. DeSaulnier, a former member of the Rules Committee who worked with Democratic procedural experts to craft legislation that could provide a debt-limit escape hatch. “I anticipated there would be these problems with the Republican caucus, whether it was abortion or the debt limit. I think it was the responsible thing as a legislator to do.”Democrats say the beauty of Mr. DeSaulnier’s bill — which Republicans have ignored — is that it long ago passed the threshold of being held in committee for at least 30 days, the minimum length of time to initiate a discharge petition to force action on legislation. Even so, in a memo sent to members on Tuesday, a U.S. Chamber of Commerce analysis projected that even if Democrats were able to draw enough support for their plan and advance it without further delay, the measure could take until June 12 or 13 to clear Congress — many days beyond the earliest date Ms. Yellen has warned the debt limit could be reached.Democrats said the fact that their bill would fall under the jurisdiction of so many committees gave them several options for moving forward.Mr. DeSaulnier was picked to sponsor the measure because his low profile meant there was likely to be little attention to his bill. In contrast, any legislation introduced by Representative Jim McGovern of Massachusetts, the ranking Democrat on the Rules Committee, would have drawn attention immediately, and Republicans might have been able to take action to derail it.Discharge petitions have spurred action in the past by prompting House leaders to move on issues rather than lose control of the floor through a guerrilla legislative effort. But the procedure is rarely successful and has produced a law in only a handful of cases, including the approval of major bipartisan campaign finance legislation in 2002. Congressional leaders of both parties have been disdainful of such efforts, since they effectively wrest control of the House floor from the majority.Democrats say that the current situation, with a default looming, showed that they were taking prudent precautions with Mr. DeSaulnier’s bill. Besides thwarting gridlock, the legislation says its purpose is also “to advance common-sense policy priorities.”Catie Edmondson More

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    Is the Debt Limit Constitutional? Biden Aides Are Debating It.

    As the government heads toward a possible default on its debt as soon as next month, officials are entertaining a legal theory that previous administrations ruled out.A standoff between House Republicans and President Biden over raising the nation’s borrowing limit has administration officials debating what to do if the government runs out of cash to pay its bills, including one option that previous administrations had deemed unthinkable.That option is effectively a constitutional challenge to the debt limit. Under the theory, the government would be required by the 14th Amendment to continue issuing new debt to pay bondholders, Social Security recipients, government employees and others, even if Congress fails to lift the limit before the so-called X-date.That theory rests on the 14th Amendment clause stating that “the validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”Some legal scholars contend that language overrides the statutory borrowing limit, which currently caps federal debt at $31.4 trillion and requires congressional approval to raise or lift.Top economic and legal officials at the White House, the Treasury Department and the Justice Department have made that theory a subject of intense and unresolved debate in recent months, according to several people familiar with the discussions.It is unclear whether President Biden would support such a move, which would have serious ramifications for the economy and almost undoubtedly elicit legal challenges from Republicans. Continuing to issue debt in that situation would avoid an immediate disruption in consumer demand by maintaining government payments, but borrowing costs are likely to soar, at least temporarily.Still, the debate is taking on new urgency as the United States inches closer to default. Treasury Secretary Janet L. Yellen warned on Monday that the government could run out of cash as soon as June 1 if the borrowing cap is not lifted.Mr. Biden is set to meet with Speaker Kevin McCarthy of California at the White House on May 9 to discuss fiscal policy, along with other top congressional leaders from both parties. The president’s invitation was spurred by the accelerated warning of the arrival of the X-date.But it remains unclear what type of compromise may be reached in time to avoid a default. House Republicans have refused to raise or suspend the debt ceiling unless Mr. Biden accepts spending cuts, fossil fuel supports and a repeal of Democratic climate policies, contained in a bill that narrowly cleared the chamber last week.Mr. Biden has said Congress must raise the limit without conditions, though he has also said he is open to separate discussions about the nation’s fiscal path.A White House spokesman declined to comment on Tuesday.A group of legal scholars and some liberal activists have pushed the constitutional challenge to the borrowing limit for more than a decade. No previous administration has taken it up. Lawyers at the White House and the Justice and Treasury Departments have never issued formal opinions on the question. And legal scholars disagree about the constitutionality of such a move.“The Constitution’s text bars the federal government from defaulting on the debt — even a little, even for a short while,” Garrett Epps, a constitutional scholar at the University of Oregon’s law school, wrote in November. “There’s a case to be made that if Congress decides to default on the debt, the president has the power and the obligation to pay it without congressional permission, even if that requires borrowing more money to do so.”Other legal scholars say the limit is constitutional. “The statute is a necessary component of Congress’s power to borrow and has proved capable of serving as a useful catalyst for budgetary reform aimed at debt reduction,” Anita S. Krishnakumar, a Georgetown University law professor, wrote in a 2005 law review article.The president has repeatedly said it is the job of Congress to raise the limit to avoid an economically catastrophic default.Top officials, including Ms. Yellen and the White House press secretary, Karine Jean-Pierre, have sidestepped questions about whether they believe the Constitution would compel the government to continue borrowing to pay its bills after the X-date.ABC News asked Ms. Yellen amid a debt-ceiling standoff in 2021 if she would invoke the 14th Amendment to resolve it.“It’s Congress’s responsibility to show that they have the determination to pay the bills that the government amasses,” she said. “We shouldn’t be in a position where we need to consider whether or not the 14th Amendment applies. That’s a disastrous situation that the country shouldn’t be in.”The government reached the borrowing limit on Jan. 19, but Treasury officials deployed what are known as extraordinary measures to continue paying bills on time. The measures, which are essentially accounting maneuvers, are set to run out sometime in the next few months, possibly as soon as June 1. The government would default on its debt if Treasury stopped paying all bills. Economists have warned that could lead to financial crisis and recession.Progressive groups have encouraged Mr. Biden to take actions meant to circumvent Congress on the debt limit and continue uninterrupted spending, like minting a $1 trillion coin to deposit with the Federal Reserve. Internally, administration officials have rejected most of them. Publicly, Biden aides have said the only way to avert a crisis is for Congress to act.“I know you probably get tired of me saying this from here over and over again, but it is true,” Ms. Jean-Pierre said on Thursday, after referring a question about the 14th Amendment to the Treasury Department. “It is their constitutional duty to get this done.”But inside the administration, it remains an open question what Treasury would do if Congress does not raise the limit in time — because, many officials say, the law is unclear and so is the Constitution, which gives Congress the power to tax and spend.Officials who support invoking the 14th Amendment and continuing to issue new debt contend the government would be exposed to lawsuits either way. If it fails to continue paying its bills after the X-date, it could be sued by anyone who is not paid on time in the event of a default.Other officials have argued that the statutory borrowing limit is binding, and that an attempt to ignore it would draw an immediate legal challenge that would most likely rise quickly to the Supreme Court.There is a broad consensus on both sides of the debate that the move risks roiling financial markets. It is likely to cause a surge in short-term borrowing costs because investors would demand a premium to buy debt that could be invalidated by a court.The Moody’s Analytics economist Mark Zandi modeled such a situation this year and found it would create short-term economic damage but long-term gains if courts upheld the constitutional interpretation — by removing the threat of future brinkmanship over the limit.“The extraordinary uncertainty created by the constitutional crisis leads to a sell-off in financial markets until the Supreme Court rules,” Mr. Zandi wrote in March. Economic growth and job creation would be dampened briefly, he added, “but the economy avoids a recession and quickly rebounds.”Obama administration officials considered — and quickly discarded — the constitutional theory when Republicans refused to raise the limit in 2011 unless the president agreed to spending cuts. Treasury lawyers never issued a formal opinion on the question, and they have not yet this year, department officials said this week.But in a letter to the editor of The New York Times in 2011, George W. Madison, who was Treasury’s general counsel at the time, suggested that department officials did not subscribe to the theory. He was directly challenging an assertion by the constitutional law professor Laurence H. Tribe, who wrote in an opinion essay in The Times that Treasury Secretary Timothy F. Geithner had pushed to embrace the 14th Amendment interpretation, which Mr. Tribe opposed.“Like every previous secretary of the Treasury who has confronted the question,” Mr. Madison wrote, “Secretary Geithner has always viewed the debt limit as a binding legal constraint that can only be raised by Congress.” More

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    After Pandemic Rebound, U.S. Manufacturing Droops

    The pandemic had a bright silver lining for Elkhart, Ind.The city, renowned as the capital of recreational vehicle production, had a surge in demand as cooped-up families took to the highways and avoided hotels. The cluster of manufacturers enjoyed record profits, and workers benefited as well: The metropolitan area’s unemployment rate sank to 1 percent in late 2021, and average weekly wages jumped 35 percent from their level in early 2020.That frenzy, however, has turned to a chill. Dealers, who stocked up on as many trailers and vans as they could, have been discounting them to clear their lots — and new orders have dried up. The area has lost nearly 7,000 manufacturing jobs over the past year, and unemployment is now above the national average. Thor Industries, which owns a wide portfolio of RV brands, saw its sales tumble 39.4 percent from the quarter a year ago.“In 2022, manufacturers overproduced, and you’re seeing some of the impact of that from the staffing standpoint,” said Chris Stager, chief executive of the Economic Development Corporation of Elkhart County. He foresees new projects propelled by recent federal energy and infrastructure legislation, but rising interest rates are taking a toll in the meantime.“It’s not bad, but it’s not what it was,” Mr. Stager said.That’s manufacturing in America in 2023.Factory construction is proceeding more rapidly than at any time in recent memory, heralding what may be a resurgence in domestic production powered by a move away from long, fragile supply chains and by the infusion of billions of dollars in public investment.At the same time, after an extraordinary boom fed by cooped-up consumers, manufacturing is suffering something of a hangover as retailers burn through bloated inventories. Inflation-fighting efforts by the Federal Reserve, which is expected to announce another interest-rate increase on Wednesday, have squelched big-ticket purchases. New orders have been declining since last summer, and a widely followed index of purchasing activity has been downbeat for six months.Working on sponge rubber automotive HVAC drain seals at Colonial.Whitten Sabbatini for The New York TimesManufacturing employment bounced back quickly after the pandemic — which is unusual for recessions — but has contracted for two months. While layoffs in the industry remain low, job openings and hires have sunk from recent highs.“It’s not one of these really concerning plunges, where we’re shedding a bunch of manufacturing jobs, but it seems kind of stalled,” said Scott Paul, president of the Alliance for American Manufacturing. “And I think the longer that lasts, the harder it’s going to be to rev things up.”A bigger question for the American economy is whether this heralds a broader downturn, since cooling demand for goods usually signifies that consumers are feeling financially strained. “Manufacturing is always at the forefront of the recession,” notes Barbara Denham, a senior economist at Oxford Economics.To understand the current slump, it’s important to dissect the manufacturing moment from which America is emerging.For example: Those new manufacturing jobs weren’t all for people making steel coils and oak cabinets. The production of consumable items — including food, beverages, and pharmaceuticals — represented an outsize portion of the job growth from 2020 through 2022. But it tends to pay less well, requires less training and has fewer unions than heavy manufacturing in airplanes and automobiles. And it can disappear more quickly as demand returns to normal.Factory employment bounced back, but is now leveling off Number of manufacturing jobs as a percentage of the total in February 2020

    Source: Bureau of Labor StatisticsBy The New York TimesThe pandemic-era manufacturing boom also didn’t happen equally in all places. States like Nevada, Arizona, Florida and Texas surged far above their prepandemic baselines, while longtime manufacturing centers — Michigan, Illinois, New York and Ohio — have not fully bounced back. That imbalance reflects recent migration trends, as people have moved out of urban areas for more space, more sunshine and a lower cost of living.The factory construction underway is poised to further reshape the geography of American manufacturing, with the largest increases in investment happening in the Mountain West.LaDon Byars, who runs Colonial Diversified Polymer Products, said reinforcing domestic supply chains would be worth the effort.Whitten Sabbatini for The New York TimesAll that new building is propelled by several factors. Former President Donald J. Trump’s trade war raised the cost of importing from China and other countries, while the pandemic snarled ports and idled suppliers, hurting manufacturers who depended on far-flung sourcing networks.In recent months, the war in Ukraine — for which the United States has furnished more than $36 billion in weaponry — has generated more long-term contracts for defense manufacturers, mostly restricted to domestic production.Steve Macias, a co-owner of a small machine shop in Phoenix, said orders from the semiconductor industry have slowed as the demand for home electronics crested. But in the past few weeks, he has been busy serving military clients — because the Defense Department has been getting planes and ships back into fighting shape, as well as refilling empty stores of munitions.“There was a lot of deferred maintenance,” Mr. Macias said. “So you’ve got two things going on — this kind of catch-up, and this war that broke out that nobody was really anticipating.”Finally, over the last two years the passage of three major bills — the Infrastructure Investment and Jobs Act, the Bipartisan Infrastructure Law and the CHIPS and Science Act — made available hundreds of billions of dollars for the production of items like semiconductors, solar panels, wind turbines and bridge spans. Private funders have rushed to capitalize on the opportunity, even if much of it is still in the planning stages.“A lot of manufacturers are reacting to what they see as a lot of long-term structural factors in their industry,” said Adam Ozimek, chief economist at the Economic Innovation Group, an entrepreneurship-focused think tank. “They’re seeing more demand for domestic production long term. That’s a bet on the future. It’s going to take a while to really translate to employment.”Even when it does, however, that investment might not yield as many jobs as factories with similar levels of output did in the past.Freshly built production lines tend to be more automated and more efficient than those designed in the 1950s and ’60s — which they need to be, to compete with the lower cost of labor overseas. And some companies are adding robots to their plants, given the difficulty of attracting and retaining enough skilled workers to replace those retiring. The median age of workers in manufacturing is two years older than the national median.“These facilities are desperate to try to get the work force,” said Mark Farris, chief executive of the Greenville Area Development Corporation in Greenville, S.C. “And instead, I think they’re convincing the officers of the company, ‘Let’s think about robotics, let’s think about 3-D printing, the technology investment that would take the place of those workers we cannot find.’”Employers’ ferocious need for factory workers is easingManufacturing job openings surged in 2021, but have receded.

    Bureau of Labor StatisticsBy The New York TimesFor businesses that depend on industries related to fossil fuels, the ramp-up in federal investment may just be enough to keep them afloat even as demand shifts to clean energy.Automobile manufacturers are important clients, and Ms. Byars is encouraged as federally funded projects are required to find their parts and raw materials in the United States.Whitten Sabbatini for The New York TimesLaDon Byars runs Colonial Diversified Polymer Products, which employs about 75 people in western Tennessee. The company has survived many cycles of outsourcing and offshoring, making molded rubber products like gaskets and mats for a variety of customers. Automobile manufacturers are important clients, and Ms. Byars knows that demand for parts that go into cars with internal combustion engines will start to wane.She has been encouraged, however, by the number of solicitations she has received as a result of rules that require federally funded projects to find their parts and raw materials in the United States, rather than overseas. It may be difficult and impede progress at first, but she thinks reinforcing domestic supply chains will work out better in the end, just like building new roads.“It takes a while before they get that intersection through — it’s a mess and traffic is backed up,” Ms. Byars said. “And then when they finally open it up, everything works so much smoother and better, and you don’t have the long delays. We might not even see the impact of not being dependent on other countries, and not having the supply chain disruptions, but I do think that’s what the long-term best interest for the American people is.” More

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    Why the 14th Amendment Is Being Cited in the Debt Ceiling Debate

    Some Biden administration officials believe a constitutional clause prevents the United States from failing to make payments even if it means breaching the debt limit.WASHINGTON — Faced with an impasse over raising or suspending the nation’s debt limit, some White House officials are looking to a clause in the 14th Amendment to ensure the United States does not default on its debt.The amendment, adopted after the Civil War, conferred citizenship to former slaves — and contains a more obscure section on public debt. Here is a brief history of the 14th Amendment and an explanation of its provisions, including why it’s now being talked about in the White House.What does the 14th Amendment say?Considered by historians to be a milestone for civil rights, the 14th Amendment to the Constitution extended citizenship to former slaves. It also guaranteed that the right to due process and equal protection under the law applied to both federal and state governments.The expansive amendment is the most cited amendment in lawsuits, according to the Library of Congress.Section 1 of the amendment established that “all persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the state wherein they reside” and that “no state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States.”Another provision, known as the Disqualification Clause, was more obscure until the events of Jan. 6, 2021. Some have argued that the clause, outlined in Section 3 of the 14th Amendment, bars anyone who has “engaged in insurrection or rebellion” from holding public office.Now, the standoff over the national debt has renewed debate over Section 4 of the amendment, known as the public debt clause.What spurred its adoption?After the Civil War and the assassination of President Abraham Lincoln, lawmakers sought to set out the terms of the Confederacy’s surrender and the rebellious states’ re-entry into the Union.The 13th Amendment’s formal abolition of slavery also meant that the size of delegations from former Confederate states would increase, even as the states passed discriminatory “Black codes” and prevented former slaves from voting. Reconstructionist Republicans in Congress sought to address these issues by passing the Civil Rights Act of 1866, which guaranteed citizenship and equal protection for former slaves.Although Republicans had enough votes to override a veto by President Andrew Johnson, some remained concerned that the protections in the law were not strong or permanent enough, and began seeking a constitutional amendment.A joint committee on Reconstruction then drafted what would become the 14th Amendment, which was passed by Congress in 1866 and ratified two years later.Why does it contain a public debt clause?The 14th Amendment includes a provision that protected public debt held by the federal government, and prohibited payment of debt held by the Confederate states.“The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned,” the clause reads.That section, historians say, was added because of fears that if former Confederate states were to regain political power in Congress, lawmakers might repudiate federal debts and guarantee Confederate debt. Reconstructionist Republicans also thought that the clause would discourage loans to future insurrectionists.“Southerners were used to having their way in Congress — they had dominated the institution from 1787 until secession in 1861 — and many believed that when their representatives arrived in House and Senate, they would be able to tear up the nation’s i.o.u.s. Section 4 was the response,” Garrett Epps, a legal scholar, has previously written.Why is it being discussed today?Some legal scholars contend that the public debt clause overrides the statutory borrowing limit, which is set by Congress and can be lifted or suspended only with lawmaker approval.The United States hit that cap on Jan. 19 and on Monday, Treasury Secretary Janet L. Yellen warned that the federal government could run out of cash to pay its bills by June 1 unless it was able to borrow more money.The Biden administration is discussing whether the 14th Amendment compels the government to continue issuing new debt to pay bondholders, along with Social Security recipients, military personnel and others, even if Congress fails to lift the limit before the so-called X-date. More

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    Everything You Need to Know About the Debt Ceiling

    Congress controls how much money the United States can borrow. Here’s a look at why that is and what it means.Washington is heading for another big fight over whether to raise or suspend the nation’s debt limit, which caps the amount of money the federal government can borrow to pay its bills.This year is shaping up to be the messiest fight in at least a decade. Republicans are demanding that an increase in the borrowing limit be accompanied by spending cuts and other cost savings. President Biden has said he will oppose any attempt to tie spending cuts to raising the debt ceiling, increasing the likelihood of a protracted standoff.The president is set to meet with Republican and Democratic leaders at the White House on May 9 to discuss a path forward. But it is still unclear how quickly lawmakers will act to raise the nation’s borrowing cap.Here is what you need to know about the debt limit and what happens if no deal can be reached:What is the debt limit?The debt limit is a cap on the total amount of money that the United States is authorized to borrow to fund the government and meet its financial obligations.Because the federal government runs budget deficits — meaning it spends more than it brings in through taxes and other revenue — it must borrow huge sums of money to pay its bills. Those obligations include funding for social safety net programs, interest on the national debt and salaries for members of the armed forces.Approaching the debt ceiling often elicits calls by lawmakers to cut back on government spending. But lifting the debt limit does not actually authorize any new spending — in fact, it simply allows the United States to spend money on programs that have already been authorized by Congress.When was the debt limit reached?The United States officially hit its debt limit on Jan. 19, prompting the Treasury Department to use accounting maneuvers known as extraordinary measures to continue paying the government’s obligations and avoid a default. Those measures temporarily curb certain government investments so that the bills can continue to be paid.The ability to use those measures to delay a default could be exhausted by June. Treasury Secretary Janet L. Yellen on Monday warned lawmakers that the United States could run out of cash by June 1 if the borrowing cap isn’t raised or suspended.How much debt does the United States have?The national debt crossed $31 trillion for the first time last year. The borrowing cap is set at $31.381 trillion.Why does the United States have a debt limit?According to the Constitution, Congress must authorize government borrowing. In the early 20th century, the debt limit was instituted so that the Treasury would not need to ask Congress for permission each time it had to issue debt to pay bills.During World War I, Congress passed the Second Liberty Bond Act of 1917 to give the Treasury more flexibility to issue debt and manage federal finances. The debt limit started to take its current shape in 1939, when Congress consolidated different limits that had been set on different types of bonds into a single borrowing cap. At the time, the limit was set to $45 billion.While the debt limit was created to make government run more smoothly, many policymakers believe that it has become more trouble than it’s worth. In 2021, Ms. Yellen said she supported abolishing the debt limit.What happens if the debt limit is not raised or suspended?If the government exhausts its extraordinary measures and runs out of cash, it would be unable to issue new debt. That means it would not have enough money to pay its bills, including interest and other payments it owes to bondholders, military salaries and benefits to retirees.No one knows exactly what would happen if the United States gets to that point, but the government could default on its debt if it is unable to make required payments to its bondholders. Economists and Wall Street analysts warn that such a scenario would be economically devastating, and could plunge the entire world into a financial crisis.Will military salaries, Social Security benefits and bondholders be paid?Various ideas have been raised to ensure that critical payments are not missed — particularly payments to the investors who hold U.S. debt. But none of these ideas have ever been tried, and it remains unclear whether the government could actually continue paying any of its bills if it can’t borrow more money.One idea that has been proposed is that the Treasury Department would prioritize certain payments to avoid defaulting on U.S. debt. In that case, the Treasury would first pay the bondholders who own U.S. Treasury debt, even if it delayed other financial obligations like government salaries or retirement benefits.So far, the Treasury seems to have ruled that out as an option. Ms. Yellen has said that such an approach would not avoid a debt “default” in the eyes of markets.“Treasury systems have all been built to pay all of our bills when they’re due and on time, and not to prioritize one form of spending over another,” Ms. Yellen told reporters earlier this year. More

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    Job openings fell more than expected in March to lowest level in nearly two years

    Job vacancies totaled 9.59 million for the month, down from 9.97 million in February and below the FactSet estimate for 9.64 million.
    Layoffs and discharges jumped by 248,000, taking the rate as a share of the workforce up to 1.2% from 1%.
    Orders for manufactured goods increased 0.9% in March, less than the 1.3% estimate.

    An employee hiring sign with a QR code is seen in a window of a business in Arlington, Virginia, April 7, 2023.
    Elizabeth Frantz | Reuters

    Employment openings pulled back further in March, hitting a nearly two-year low in a sign that the ultra-tight U.S. job market is loosening and possibly putting less pressure on inflation, the Labor Department reported Tuesday.
    The department’s Job Openings and Labor Turnover Survey showed that job vacancies totaled 9.59 million for the month, down from 9.97 million in February and below the FactSet estimate for 9.64 million.

    At the same time, layoffs and discharges jumped by 248,000 to just over 1.8 million, taking the rate as a share of the workforce up to 1.2% from 1%.
    Though the data set runs a month behind the nonfarm payrolls number, the Federal Reserve watches the JOLTS report closely for signs of labor slack. A lower number is positive for inflation as it indicates less pressure on wages and could ease pressure on the Fed to continue raising interest rates.
    However, stocks fell following the release, with the Dow Jones Industrial Average down more than 500 points on the session as investors remained concerned over the state of the economy and news that the U.S. may hit its borrowing limit sooner than expected.
    A separate report from the Commerce Department at the same time showed orders for manufactured goods increased 0.9% in March, less than the 1.3% estimate.
    The level of job vacancies was the lowest total since April 2021 and cut the ratio of open jobs to available workers to 1.6 to 1 after being around 2 to 1 for most of the past two years or so.

    “The Fed should gain some comfort from the gradual decline in this ratio, but also is likely to see this data as reaffirming the need for another rate hike tomorrow,” said Ronald Temple, chief market strategist at Lazard.
    Quits, which are considered a measure of worker confidence in the ability to leave one’s job and find another, declined by 129,000 to 3.85 million, the lowest level since May 2021 amid what had been dubbed the Great Resignation.
    Hires for the month were unchanged at 6.15 million, while separations rose slightly.
    The release comes as the central bank began its two-day policy meeting Tuesday. Markets are assigning a nearly 100% probability that the central bank on Wednesday will announce a 0.25 percentage point rate increase. More