Evelyn Reynolds

The impact on global growth of the Middle East violence has so far been contained. That’s not the case for Egypt, Lebanon and Jordan, which were already struggling.In the Red Sea, attacks by Iranian-backed Houthi militants on commercial ships continue to disrupt a crucial trade route and raise shipping costs. The threat of escalation there and around flash points in Lebanon, Iraq, Syria, Yemen and now Iran and Pakistan ratchets up every day.Despite the staggering death toll and wrenching misery of the violence in the Middle East, the broader economic impact so far has been mostly contained. Oil production and prices, a critical driver of worldwide economic activity and inflation, have returned to pre-crisis levels. International tourists are still flying into other countries in the Middle East like Saudi Arabia, the United Arab Emirates and Qatar.Yet for Israel’s next-door neighbors — Egypt, Lebanon and Jordan — the economic damage is already severe.An assessment by the United Nations Development Program estimated that in just three months, the Israel-Gaza war has cost the three countries $10.3 billion, or 2.3 percent of their combined gross domestic product. An additional 230,000 people in these countries are also expected to fall into poverty.Iranian-backed Houthi militants have been attacking commercial ships in the Red Sea.Sayed Hassan/Getty Images“Human development could regress by at least two to three years in Egypt, Jordan, and Lebanon,” the analysis warned, citing refugee flows, soaring public debt and declines in trade and tourism — a vital source of revenue, foreign currency and employment.That conclusion echoed an update last month by the International Monetary Fund, which said that it was certain to lower its forecast for the most exposed countries when it publishes its World Economic Outlook at the end of this month.The latest economic gut punches could not come at a worse time for these countries, said Joshua Landis, director of the Center for Middle East Studies at the University of Oklahoma.Economic activity across the Middle East and North Africa was already on a down slide, slipping to 2 percent growth in 2023 from 5.6 percent the previous year. Lebanon has been enmeshed in what the World Bank calls one of the world’s worst economic and financial crises in more than a century and half. And Egypt has been on the brink of insolvency.Since Hamas fighters attacked Israel from Gaza on Oct. 7, about 25,000 Palestinians have been killed by Israel, according to the Gazan health ministry. The strip has suffered widespread destruction and devastation. In Israel, where the Hamas attacks killed about 1,200 people, according to officials, and resulted in 240 being taken hostage, life has been upended, with hundreds of thousands of citizens called into military service and 200,000 displaced from border areas.In Jordan, Lebanon and Egypt, uncertainty about the war’s course is eating away at consumer and business confidence, which is likely to drive down spending and investment, I.M.F. analysts wrote.Rising prices in Egypt continue to gnaw at households’ buying power.Mauricio Lima for The New York TimesEgypt, the Arab world’s most populous country, has still not recovered from the rise in the cost of essential imports like wheat and fuel, a plunge in tourist revenue, and a drop in foreign investment caused by the coronavirus pandemic and the war in Ukraine.Lavish government spending on showy megaprojects and weapons caused Egypt’s debt to soar. When central banks around the world raised interest rates to curb inflation, those debt payments ballooned. Rising prices within Egypt continue to gnaw away households’ buying power and business’s plans for expansion.“No one wants to invest, but Egypt is too big to fail,” Mr. Landis said, explaining that the United States and I.M.F. are unlikely to let the country default on its $165 billion of foreign loans given its strategic and political importance.The drop in shipping traffic crossing into the Red Sea from the Suez Canal is the latest blow. Between January and August, Egypt brought in an average of $862 million per month in revenue from the canal, which carries 11 percent of global maritime trade.James Swanston, an emerging-markets economist at Capital Economics, said that according to the head of the Suez Canal Authority, traffic is down 30 percent this month from December and revenues are 40 percent weaker compared to 2023 levels.“That’s the biggest spillover effect,” he said.For these three struggling economies, the drop in tourism is particularly alarming. In 2019 tourism in Egypt, Lebanon and Jordan accounted for 35 percent to nearly 50 percent of their combined goods and services exports, according to the I.M.F.Displaced Palestinians on their way from the north of the Gaza Strip to its south last year.Samar Abu Elouf for The New York TimesIn early January, confirmed tickets for international arrivals to the wider Middle East region for the first half of this year were 20 percent higher than they were last year, according to ForwardKeys, a data-analysis firm that tracks global air travel reservations.But the closer the fighting, the bigger the decline in travelers. Tourism to Israel has mostly evaporated, further hammering an economy upended by full-scale war.In Jordan, airline bookings were down 18 percent. In Lebanon, where Israeli troops are fighting Hezbollah militants along the border, bookings were down 25 percent.“Fears of further regional escalation are casting a shadow over travel prospects in the region,” Olivier Ponti, vice president of insights at ForwardKeys.In Lebanon, travel and tourism has previously contributed a fifth of the country’s yearly gross domestic product.“The number one site in Lebanon is Baalbek,” said Hussein Abdallah, general manager of Lebanon Tours and Travels in Beirut. The sprawling 2,000-year-old Roman ruins are so spectacular that visitors have suggested that djinns built a palace there for the Queen of Sheba or that aliens constructed it as an intergalactic landing pad.Now, Mr. Abdallah said, “it is totally empty.” Mr. Abdallah said that since Oct. 7, his bookings have dropped 90 percent from last year. “If the situation continues like that,” he said, “many tour operators in Beirut will go out of business.”Travel to Egypt also dropped in October, November and December. Mr. Landis at the Middle East Center in Oklahoma mentioned that even his brother canceled a planned trip down the Nile, choosing to vacation in India instead.The top tourist site in Lebanon is the 2,000-year-old Roman ruins of Baalbek, said Hussein Abdallah, general manager of Lebanon Tours and Travels in Beirut. Now, he said, “it is totally empty.”Mohamed Azakir/ReutersKhaled Ibrahim, a consultant for Amisol Travel Egypt and a member of the Middle East Travel Alliance, said cancellations started to pour in after the attacks began. Like other tour operators he offered discounts to popular destinations like Sharm el-Sheik at the southern tip of the Sinai Peninsula, and occupancy hit about 80 percent of normal.He is less sanguine about salvaging the rest of what is considered the prime tourist season. “I can say this winter, January to April, will be quite challenging,” Mr. Ibrahim said from Medina in Saudi Arabia, where he was leading a tour. “Maybe business drops down to 50 percent.”Jim Tankersley More

In his 40-year career, William Lucas has seen nearly every step in the erosion of the American garment industry. As general manager of Eagle Sportswear, a company in Middlesex, N.C., that cuts, sews and assembles apparel, he hopes to keep what’s left of that industry intact.Mr. Lucas, 59, has invested hundreds of thousands of dollars training his workers to use more efficient techniques that come with financial bonuses to get employees to work faster.But he fears that his investments may be undermined by a U.S. trade rule.William Lucas has invested hundreds of thousands of dollars training his workers at Eagle Sportswear to use more efficient techniques.The rule, known as de minimis, allows foreign companies to ship goods worth less than $800 directly to U.S. customers while avoiding tariffs. Mr. Lucas and other textile makers in the Carolinas, once a textile hub, contend that the provision — nearly a century old, but exploding in use — motivates retailers to rely even more on foreign producers to keep prices low.Defenders of the rule say it is not to blame for a lack of U.S. competitiveness. But domestic manufacturers say it benefits China in particular at the expense of American manufacturers and workers.Irma Salazar working on an order of shorts at Eagle Sportswear. The company pays bonuses for meeting production goals.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber?  More

Economists have become increasingly optimistic about the odds of a soft landing. But as 2024 begins to unfold, risks remain.With inflation falling, unemployment low and the Federal Reserve signaling it could soon begin cutting interest rates, forecasters are becoming increasingly optimistic that the U.S. economy could avoid a recession.Listen to This ArticleOpen this article in the New York Times Audio app on iOS.Wells Fargo last week became the latest big bank to predict that the economy will achieve a soft landing, gently slowing rather than screeching to a halt. The bank’s economists had been forecasting a recession since the middle of 2022.Yet if forecasters were wrong when they predicted a recession last year, they could be wrong again, this time in the opposite direction. The risks that economists highlighted in 2023 haven’t gone away, and recent economic data, though still mostly positive, has suggested some cracks beneath the surface.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber?  More

American Express CEO Stephen Squeri on Friday said the credit card company saw “good consumer spending” during the holidays and signs of strong overall health for U.S. spending.
In particular, delinquency rates were “lower than they were in 2019,” Squeri told CNBC’s Scott Wapner.
The signs of resilient consumer spending run somewhat counter to persistent inflation.

Stephen Squeri, chair and CEO of American Express, speaks during an Economic Club of New York event in New York on Nov. 10, 2022.
Stephanie Keith | Bloomberg | Getty Images

American Express CEO Stephen Squeri on Friday said the credit card company saw “good consumer spending” during the holidays and signs of strong overall health for U.S. spending.
In particular, delinquency rates were “lower than they were in 2019,” Squeri told CNBC’s Scott Wapner in an interview at the American Express PGA Tour event in La Quinta, California.

“Our customers are high-spending premium customers, and they are continuing to spend,” he said.
The signs of resilient consumer spending run somewhat counter to persistent inflation. December’s consumer price index increased 0.3%, hotter than the 0.2% expected by economists.
But Squeri said he’s not surprised, adding he’s of the opinion that the U.S. is in the middle of a “soft landing,” slowing spending and bringing inflation down — without spurring a recession.
JPMorgan Chase CEO Jamie Dimon said earlier this week that he remains cautious on the U.S. economy, along with Goldman Sachs CEO David Solomon, who said it’s hard to imagine the number of Federal Reserve rate cuts that the market seems to be calling for in 2024.
“I mean look, recessions do happen,” Squeri said Friday. “The nice part about recessions is there’s always a recovery. … We’ll get through whatever we need to get through, and part of that is because of our customer base, and our colleagues that are supporting our customers.”

American Express reports its fourth-quarter earnings Jan 26.

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The University of Michigan’s Survey of Consumers showed a reading of 78.8 for January, its highest level since July 2021.
On a two-month basis, sentiment showed its largest increase since 1991, said Joanne Hsu, the survey’s director.
Consumer sentiment has improved amid a drop in gasoline prices and solid stock market gains.

An employer representative at a Veteran Employment and Resource Fair in Long Beach, California, on Jan. 9, 2024.
Eric Thayer | Bloomberg | Getty Images

Consumers have grown more confident about the direction of the economy and inflation at the onset of 2024, despite persistent worries about a looming slowdown, a survey released on Friday showed.
The University of Michigan’s Survey of Consumers showed a reading of 78.8 for January, its highest level since July 2021 and up 21.4% from a year ago. That followed a big jump in December and comes despite public opinion surveys showing concern about the nation’s direction.

On a two-month basis, sentiment showed its largest increase since 1991, said Joanne Hsu, the survey’s director.
“Consumer views were supported by confidence that inflation has turned a corner and strengthening income expectations,” Hsu said. “Democrats and Republicans alike showed their most favorable readings since summer of 2021. Sentiment has now risen nearly 60% above the all-time low measured in June of 2022 and is likely to provide some positive momentum for the economy.”
Along with the improved outlook on general conditions, survey respondents displayed more confidence that inflation is coming down.
The outlook for the inflation rate a year from now declined to 2.9%, down from 3.1% in December for the lowest reading since December 2020. The Federal Reserve has boosted short-term interest rates to their highest level in more than 22 years and inflation has followed suit lower, though it remains above the central bank’s 2% target.
At the same time, the survey’s index of current conditions also leaped higher, rising to 83.3, or 21.6% higher than a year ago.

Consumer sentiment has improved amid a drop in gasoline prices and solid stock market gains. The price at the pump for a gallon of regular gas is about 30 cents lower than it was a year ago, according to AAA, and the S&P 500 is near a record high.
The survey is “another sign that the economy is on track for a soft landing,” said Andrew Hunter, deputy chief economist at Capital Economics. However, he noted that such surveys don’t always feed through to consumer behavior.
Stocks rose slightly following the release while Treasury yields also were higher.
Markets have been tethered to expectations for where the Fed will take interest rates this year. The prevailing outlook is for a series of up to six quarter-percentage-point cuts this year. But the timing of those cuts is unclear, with market pricing now pointing to a toss-up as to whether the Fed eases in March or waits until May.Don’t miss these stories from CNBC PRO: More

In Solano County, Calif., a who’s who of tech money is trying to build a city from the ground up. But some of the locals whose families have been there for generations don’t want to sell the land.When Jan Sramek walked into the American Legion post in Rio Vista, Calif., for a town-hall meeting last month, everyone in the room knew that he was really just there to get yelled at.For six years a mysterious company called Flannery Associates, which Mr. Sramek controlled, had upended the town of 10,000 by spending hundreds of millions of dollars trying to buy every farm in the area. Flannery made multimillionaires out of some owners and sparked feuds among others. It sued a group of holdouts who had refused its above-market offers, on the grounds that they were colluding for more.The company was Rio Vista’s main source of gossip, yet until a few weeks before the meeting no one in the room had heard of Mr. Sramek or knew what Flannery was up to. Residents worried it could be a front for foreign spies looking to surveil a nearby Air Force base. One theory held the company was acquiring land for a new Disneyland.Now the truth was standing in front of them. And somehow it was weirder than the rumors.The truth was that Mr. Sramek wanted to build a city from the ground up, in an agricultural region whose defining feature was how little it had changed. The idea would have been treated as a joke if it weren’t backed by a group of Silicon Valley billionaires who included Michael Moritz, the venture capitalist; Reid Hoffman, the investor and co-founder of LinkedIn; and Laurene Powell Jobs, the founder of the Emerson Collective and the widow of the Apple co-founder Steve Jobs. They and others from the technology world had spent some $900 million on farmland in a demonstration of their dead seriousness about Mr. Sramek’s vision.Rio Vista, part of Solano County, is technically within the San Francisco Bay Area, but its bait shops and tractor suppliers and Main Street lined with American flags can feel a state away. Mr. Sramek’s plan was billed as a salve for San Francisco’s urban housing problems. But paving over ranches to build a city of 400,000 wasn’t the sort of idea you’d expect a group of farmers to be enthused about.As the TV cameras anticipated, a group of protesters had gathered in the parking lot to shake signs near pickup trucks. Inside, a crowd in jeans and boots sat in chairs, looking skeptical.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber?  More

U.K. retail sales volumes fell by 3.2% in December, after a poll by Reuters suggested an expected drop of just 0.5%.
The reading “increases the chances the economy may have ended 2023 in the mildest of mild recessions,” said Alex Kerr, assistant economist at Capital Economics.

Shoppers walk past shops on Regent Street on the final weekday before Christmas in London on December 22, 2023.
Henry Nicholls | Afp | Getty Images

U.K. retail sales dropped significantly more than expected in December, in a sign that the economy may have entered a shallow recession in the second half of 2023.
The Office for National Statistics said sales volumes fell by 3.2% during the key trading month, after a 1.4% rise in November. Economists polled by Reuters had expected a fall of just 0.5%.

December marked the largest monthly decline since January 2021, when strict pandemic lockdown measures dampened demand. The ONS said people appeared to have done their Christmas shopping earlier than in previous years.
Volumes were 0.9% lower in the three months to December 2023, compared with the previous quarter.
It comes after U.K. gross domestic product for the third quarter was revised down to a 0.1% contraction, from a prior reading of no growth.
“Today’s release would subtract around 0.15 percentage points from real GDP growth in December, which increases the chances the economy may have ended 2023 in the mildest of mild recessions,” said Alex Kerr, assistant economist at Capital Economics.
Looking to the year ahead, Kerr said that the impact of higher interest rates on mortgage holders may lead to a further “modest decline” in real consumer spending in the first quarter. He added that the expected interest rate cuts from June and a fall in inflation would support a recovery in the second half of the year.

Trade body British Retail Consortium said that the figures “capped a difficult year for retailers” and showed that Black Friday sales ate into Christmas spending.

The December decline was sharpest in the retail of non-food items, which was down 3.9% after recording 2.7% growth in November. Food store sales were lower by 3.1%, following a 1.1% increase in the previous month.
Online sales showed slightly more resilience, dropping by 1.7% in December — bringing the share of online vs bricks and mortar sales rose from 26.6% to 27.1%.
A combination of poor December weather and Black Friday events likely contributed to the “torrid end” of the retail year, said James Smith, developed markets economist at ING, in a note.
He added, “In reality, the consumer backdrop is starting to improve and that’s hard to square with the scale of December’s decline. We suspect much of the loss will be recovered in January/February.”
A solid outlook for real wage growth, inflation declines and slightly higher consumer confidence will all support the recovery, he said. More

Raphael Bostic at Jackson Hole, Wyoming
David A. Grogan | CNBC

Atlanta Federal Reserve President Raphael Bostic expects policymakers to start cutting rates in the third quarter of this year, saying Thursday that inflation is well on its way back to the central bank’s goal.
Bostic, a voting member this year on the rate-setting Federal Open Market Committee, asserted that the goal ahead is to calibrate policy to be not so restrictive as to choke off growth while still acting as a bulwark against persistently elevated prices.

However, he said a “golden path” scenario of tamping down inflation while promoting solid growth and healthy employment is getting closer than many Fed officials had expected.
“Because I’m data dependent, I have incorporated the unexpected progress on inflation and economic activity into my outlook, and thus moved up my projected time to begin normalizing the federal funds rate to the third quarter of this year from the fourth quarter,” Bostic said in prepared remarks for a speech to business leaders in Atlanta.
While the remarks help illuminate a timeline for rate cuts, they also serve as a reminder that Fed officials and market participants have different expectations about policy easing.
Current pricing in the fed funds futures market points to the first cut coming as soon as March, according to the CME Group’s FedWatch measure. The implied probability for a quarter percentage point reduction has decreased in recent days but still stood around 57% on Thursday morning. Pricing further indicates a total of six cuts this year, or one at every FOMC meeting but one from March forward.
Bostic said he’s not dead set against cutting earlier than the third quarter, implying a move in July at the earliest, but said the bar will be high.

“If we continue to see a further accumulation of downside surprises in the data, it’s possible for me to get comfortable enough to advocate normalization sooner than the third quarter,” he said. “But the evidence would need to be convincing.”
A number of factors could change the calculus, such as geopolitical conflicts, the ongoing budget battle in Washington and looming presidential election, to name a few that Bostic cited.
Consequently, he advocated caution and said his approach will be “grateful and vigilant.”
“In such an unpredictable environment, it would be unwise to lock in an emphatic approach to monetary policy,” Bostic said. “That is why I believe we should allow events to continue to unfold before beginning the process of normalizing policy.”
Some of the data points Bostic said he will be watching include overall economic growth, inflation readings such as the Commerce Department’s personal consumption expenditures price index, and data on job growth and losses.
The Labor Department reported Thursday that initial jobless claims hit their lowest level since September 2022, a sign that the labor market remains tight.
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