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    Wholesale prices fell 0.5% in December, much more than expected; retail sales fall

    The producer price index declined 0.5% for the month, compared to the Dow Jones estimate for a 0.1% decrease.
    A sharp drop in energy prices helped bring the headline inflation reading down for the month. The PPI’s final demand energy index plunged 7.9%.
    Retail sales fell 1.1% in December, slightly more than the 1% forecast.

    Prices for wholesale goods and services fell sharply in December, providing another sign that inflation, while still high, is beginning to ease.
    The producer price index, which measures final demand prices across hundreds of categories, declined 0.5% for the month, the Labor Department reported Wednesday. Economists surveyed by Dow Jones had been looking for a 0.1% decline. The decline was the biggest on a monthly basis since April 2020.

    Excluding food and energy, the core PPI measure rose 0.1%, matching the estimate.
    For the year, headline PPI rose 6.2%, the lowest annual level since March 2021 and down considerably from the 10% annual increase in 2021.
    A sharp drop in energy prices helped bring the headline inflation reading down for the month. The PPI’s final demand energy index plunged 7.9% on the month. Within that category, wholesale gasoline prices fell 13.4%.
    The final demand food index also fell, declining 1.2%.
    Inflation readings ahead could be less certain, though, as the cost for a gallon of gas is up about 21 cents from this time last month, and crude oil prices have risen about 1.6% so far in January.

    Still, the general trend in inflation has been slightly lower. The consumer price index decreased 0.1% in December, though it was still up 6.5% from a year ago – 5.7% excluding food and energy. CPI gauges the prices that consumers pay at the marketplace, while PPI measures what business pay for goods and services.
    The declining prices were reflected in another economic report released Wednesday.
    Retail sales fell 1.1% in December, slightly more than the 1% forecast. Those numbers are not adjusted for inflation, so the latest reading reflects both receding inflation and tepid consumer demand during the holiday shopping season.
    Excluding autos, retail sales also fell 1.1%, below the estimate for a 0.5% decrease.
    The steep drop in sales suggest “that consumption growth is set to slow significantly in the first quarter,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
    Again, gas sales played a big role, with sales at service stations sliding 4.6%. Department stores also reported a 6.6% decline, part of a broader 0.8% loss at general merchandise stores.
    Most categories reported losses, with online sales down 1.1%, furniture and home furnishings off 2.5%, and motor vehicles and parts dealers decreasing 1.2%.
    On a year-over-year basis, retail sales were still up 6%. That, however, was 0.5 percentage point below the headline CPI inflation number.
    The lower inflation numbers are expected to impact Federal Reserve policy. Markets expect the central bank to raise its benchmark borrowing rate by 0.25 percentage point in February, representing another deceleration from what had been a blistering pace in 2022. The Fed hiked the rate 0.75 percentage point four straight times last year before approving a 0.5 percentage point move in December.

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    How ‘Extraordinary Measures’ Can Postpone a Debt Limit Disaster

    Treasury Secretary Janet L. Yellen will soon need to use accounting maneuvers to keep the United States from defaulting on its debt.WASHINGTON — The United States is expected to hit a cap on how much money it can borrow this week, a development that will result in the Treasury Department employing what are known as “extraordinary measures” to ensure that the federal government has enough money to pay its bills.The United States runs a budget deficit, which means it does not take in enough money through taxes and other revenue to fund its operations. As a result, the country sells Treasury debt to finance its operations — using borrowed money to fund military salaries, retiree benefits and interest payments to bondholders who own U.S. debt.But Congress limits the amount of money the federal government can borrow — what’s known as the “debt limit” — and the United States is expected to hit the current cap of $31.4 trillion on Thursday.As a result, Treasury Secretary Janet L. Yellen told Congress last week that the administration would try to keep the country under that debt cap and able to finance its operations as long as possible by using “extraordinary measures.”While the term suggests that such tools are intended to be used on rare occasions, Treasury secretaries from both parties have recently had to rely such accounting maneuvers to allow the government to continue its operations for limited periods.What are extraordinary measures?When the country comes close to — or hits — the statutory debt limit, the Treasury secretary can find ways to shift money around government accounts to remain under the borrowing cap, essentially buying time for Congress to raise the cap.That includes seeking out ways to reduce what counts against the debt limit, such as suspending certain types of investments in savings plans for government workers and health plans for retired postal workers. The Treasury can also temporarily move money between government agencies and departments to make payments as they come due. And it can suspend the daily reinvestment of securities held by the Treasury’s Exchange Stabilization Fund, a bucket of money that can buy and sell currencies and provide financing to foreign governments.After the debt limit impasse ends, programs whose investments were suspended are supposed to be “made whole.”In the event that the statutory debt limit is breached, the Treasury Department broadly looks for ways to reduce different types of debt that the government incurs so that it can continue to pay its obligations on time. This allows the Treasury Department to reinforce its cash reserves without having to issue new debt.Ms. Yellen said last week that she first plans to take two steps to buy lawmakers more time to reach a debt limit deal. She will redeem existing investments and suspend new investments in the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund. And she will suspend reinvestment of the Government Securities Investment Fund of the Federal Employees Retirement System Thrift Savings Plan.Treasury Secretary Janet L. Yellen says she expects to have to start deploying some of the tools as soon as Thursday, when the $31.4 trillion borrowing cap is expected to be technically breached.Adam Perez for The New York TimesWhat happens if a standoff persists?If the initial steps that Ms. Yellen has outlined are not enough, there are other tools at her disposal.A 2012 Government Accountability Office report said that to manage debt when the borrowing cap is in limbo, the Treasury secretary could suspend investments in the Exchange Stabilization Fund. Typically, funds that are not being used for those purposes are invested in Treasury securities that are subject to the debt limit, so halting these investments creates some additional wiggle room.The Treasury Department also oversees the Federal Financing Bank, which can issue up to $15 billion of its own debt that is not subject to the debt limit. In a debt ceiling emergency, Ms. Yellen could exchange that debt for other debt that does count against the limit.Another option would be for the Treasury Department to suspend new issuance of State and Local Government Series securities. The Government Accountability Office said such a move would reduce “uncertainty over future increases in debt subject to the limit.”Are there risks to using extraordinary measures?Delaying the debt limit does not come without costs.Suspending certain investments can cost the federal government money in the longer term, and running the country on fumes can lead to market volatility.“Debt limit impasses have also repeatedly disrupted implementation of Treasury’s cash management policy — with knock-on effects for money markets,” Joshua Frost, assistant Treasury secretary for financial markets, explained in a speech in December.Mr. Frost added that the Treasury Department usually has a daily cash balance of $600 billion to $700 billion, but that during the 2021 debt limit standoff, there were days when it grew painfully close to zero. Such situations can force the Treasury Department to undertake risky moves such as issuing same-day cash management bills or conducting buybacks.“There were several instances when we didn’t have sufficient cash on hand to meet even our next-day obligations,” Mr. Frost, who spoke at the Federal Reserve Bank of New York’s Annual Primary Dealers Meeting, said. “During the course of that impasse, Secretary Yellen wrote eight separate letters to Congress regarding the importance of acting to address the debt limit.”How long do extraordinary measures last?The timeline for using these measures is uncertain.Christopher Campbell, who served as assistant Treasury secretary for financial institutions from 2017 to 2018, said that because there so many variables in play, it is often difficult to give a precise estimate of the grace period between when the debt limit is breached and when the United States potentially defaults on its obligations.“It depends on receipts, it depends on how the economy is doing, it depends on how companies are doing,” Mr. Campbell said. “There are some shell games and accounting games that go into it.”The Bipartisan Policy Center said in a 2021 report that the timing of when the debt limit hits plays a role in how long extraordinary measures might last. Big government expenses in February could mean that X-date, when the government runs out of cash, comes sooner than anticipated, while robust April tax receipts could buy more time for extraordinary measures to keep the lights on.In her letter to Congress, Ms. Yellen said ominously that “Treasury is not currently able to provide an estimate of how long extraordinary measures will enable us to continue to pay the government’s obligations.” She then surmised that it is unlikely that cash and extraordinary measures will be exhausted before early June. More

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    As Debt Ceiling Threat Looms, Wall Street and Washington Have Only Rough Plans

    A default would most likely rattle markets and carry big risks, no matter how the Federal Reserve and Treasury try to curb the fallout.With days to go before the United States bumps up against a technical limit on how much debt it can issue, Wall Street analysts and political prognosticators are warning that a perennial source of partisan brinkmanship could finally tip into outright catastrophe in 2023.Big investors and bank economists are using financial models to predict when the United States, which borrows money to pay its existing bills, will run out of cash. They are assessing what it could mean if the government is unable to pay some of its bondholders and the country defaults on its debt. And they are gaming out how to both minimize risks and make the most of any opportunities to profit that might be hiding in the chaos.The need to start planning for a potential debt limit breach became more urgent last week, when Treasury Secretary Janet L. Yellen told Congress that the United States would hit its borrowing cap on Thursday. At that point, Treasury will begin using “extraordinary measures” to try to stay under the cap for as long as possible — but those options could be exhausted as soon as June.Congress places a limit on the amount of debt the country can issue, with a simple majority in the House and Senate required to lift it. That cap, currently $31.4 trillion, needs to be adjusted to allow the United States to borrow to pay for obligations it has already committed to, such as funding for social safety net programs, interest on the national debt and salaries for troops.Wrangling over lifting the borrowing cap has become a fixture, and this year is shaping up to be particularly complicated. Republicans hold the House by a slim majority, and a small but vocal faction of the party has won changes to the rules that govern legislative debate. They have made clear that they want deep spending cuts in exchange for raising the debt limit, and their empowerment could make this round of negotiations more likely to end in disaster.Bank of America analysts wrote in a note to clients this week that a default in late summer or early fall is “likely,” while Goldman Sachs called the possibility that the government would not be able to make good on its bills a “greater risk” than at any time since 2011. When the nation approached the brink in that episode, its credit rating was downgraded and wild market gyrations helped to force lawmakers to blink.A debt default would most likely rattle markets and carry big risks.Andrew Kelly/ReutersIn Washington, the Federal Reserve and Treasury are not publicly speaking about what they could do if an outright default were to happen this time, in part because the mere suggestion they will bail out warring politicians could leave lawmakers with less of an incentive to reach a deal. But they have a series of options — albeit bad ones — for mitigating the disaster if political impasse takes the nation up to or over the brink of default.It is tricky to guess exactly how financial markets will react, both because the timing of any default is uncertain and because many investors are waiting and watching to see what happens in Washington.But former government officials and cautious Wall Street observers warn that the effects could be significant. Markets have grown bigger and more complex since 2011, and an outright default could lead to mass selling, which would impair financial functioning. While the government has done contingency planning for a default, former officials say there is no foolproof option for staving off a disaster.Understand the U.S. Debt CeilingCard 1 of 4What is the debt ceiling? More

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    How Close Is the U.S. to Hitting the Debt Ceiling? How Bad Would That Be?

    The United States has a cap on the amount of money it can borrow. That means it can run out of cash if the limit isn’t lifted.Washington is gearing up for another big fight over whether to raise or suspend the nation’s debt limit, with Treasury Secretary Janet L. Yellen warning last week that the United States will reach its existing borrowing cap of $31.4 trillion on Thursday.The United States borrows huge sums of money by selling Treasury bonds to investors across the globe and uses those funds to pay existing financial obligations, including military salaries, safety net benefits and interest on the national debt. Once the United States hits the cap, Treasury can use “extraordinary measures” — suspending some investments and exchanging different types of debt — to try to stay beneath the cap for as long as possible. But eventually, the United States will need to either borrow more money to pay its bills or stop making good on its financial obligations, including possibly defaulting on its debt.Responsibility for lifting or suspending the borrowing cap falls to Congress, which must get a simple majority in both the House and Senate to vote for any change to the debt limit. Raising the debt limit has become a perennial fight, with Republican lawmakers using it as leverage to try to force spending cuts.This year is shaping up to be the messiest fight in at least a decade. Republicans now control the House and they have adopted new rules governing legislation that make it more difficult to raise the debt limit and strengthen Republicans’ ability to demand that any increase be accompanied by spending cuts. Senate Republicans have also insisted that increases to the debt limit should be tied to “structural spending reform.”President Biden has said he will oppose any attempt to tie spending cuts to raising the debt ceiling, raising the likelihood of a protracted standoff.All of this drama raises the question of what the debt limit really is, how it got here and why the United States does not do away with debt limit entirely and spare the nation from its periodic face-off with an economic time bomb.What is the debt limit?The debt limit is a cap on the total amount of money that the federal government is authorized to borrow to fulfill its financial obligations. Because the United States 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. That includes funding for social safety net programs, interest on the national debt and salaries for troops. The debt ceiling debate often elicits calls by lawmakers to cut back on government spending, but lifting the debt limit does not authorize any new spending and in fact simply allows the United States to finance existing obligations.Understand the U.S. Debt CeilingCard 1 of 4What is the debt ceiling? More

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    Apple Reaches Deal With Investors to Audit Its Labor Practices

    The tech giant will assess its compliance with its official human rights policy, according to a federal filing.Apple will conduct an assessment of its U.S. labor practices under an agreement with a coalition of investors that includes five New York City pension funds.The assessment will focus on whether Apple is complying with its official human rights policy as it relates to “workers’ freedom of association and collective bargaining rights in the United States,” the company said in a filing last week with the Securities and Exchange Commission.The audit comes amid complaints by federal regulators and employees that the company has repeatedly violated workers’ labor rights as they have sought to unionize over the past year. Apple has denied the accusations.“There’s a big apparent gap between Apple’s stated human rights policies regarding worker organizing, and its practices,” said Brad Lander, the New York City comptroller, who helped initiate the discussion with Apple on behalf of the city’s public worker pension funds.As part of its agreement with the coalition of investors, which also includes other pension funds for unionized workers, Apple agreed to hire a third-party firm to conduct the assessment, the coalition said in a letter to the company’s chairman on Tuesday.Labor Organizing and Union DrivesN.Y.C. Nurses’ Strike: Nurses at Montefiore Medical Center in the Bronx and Mount Sinai in Manhattan ended a three-day strike after the hospitals agreed to add staffing and improve working conditions.Amazon: A federal labor official rejected the company’s attempt to overturn a union victory at a warehouse on Staten Island, removing a key obstacle to contract negotiations between the union and the company.A Union Win: Organized labor claimed a big victory on Jan. 3, gaining a foothold among about 300 employees at a video game maker owned by Microsoft.Electric Vehicles: In a milestone for the sector, employees at an E.V. battery plant in Ohio voted to join the United Automobile Workers union, citing pay and safety issues as key reasons.The letter also laid out recommendations for the assessment, which include hiring a firm that has expertise in labor rights and that does not advise companies on how to avoid unionization. It recommended that the firm be “as independent as practicable.”Apple’s federal filing did not refer explicitly to a third party, and the company declined to comment further.Members of the investor coalition controlled about $7 billion worth of Apple stock as of last week, out of a market capitalization of more than $2 trillion. In its financial filing announcing the assessment, Apple offered few details, saying that it would conduct the assessment by the end of the year and that it would publish a report related to the assessment.Last year, workers voted to unionize at two Apple stores — in Townson, Md., and Oklahoma City — and workers at two other stores filed petitions to hold union election before withdrawing them.Many workers involved in union organizing at the company said they enjoyed their jobs and praised their employer, citing benefits like health care and stock grants and the satisfaction of working with Apple products. But they said they hoped that unionizing would help them win better pay, more input into scheduling and more transparency when it comes to obtaining job assignments and promotions.In May, Apple announced that it was raising its minimum hourly starting wage to $22 from $20, a step that some workers interpreted as an effort to undermine their organizing campaigns.Workers have also filed charges accusing Apple of labor law violations in at least six stores, including charges that the company illegally monitored them, prohibited union fliers in a break room, interrogated them about their organizing, threatened them for organizing and that it stated that unionizing would be futile.The Communications Workers of America, the union representing Apple workers in Oklahoma City, has also filed a charge accusing Apple of setting up an illegal company union at a store in Columbus, Ohio — one created and controlled by management with the aim of stifling support for an independent union.The National Labor Relations Board has issued formal complaints in two of the cases, involving stores in Atlanta and New York.Apple has said that “we strongly disagree” with the claims brought before the labor board and that it looks forward to defending itself. The company has emphasized that “regular, open, honest, and direct communication with our team members is a key part of Apple’s collaborative culture.”The investor coalition that pushed for the labor assessment argues that Apple’s response to the union campaigns is at odds with its human rights policy because that policy commits it to respect the International Labor Organization’s Declaration on Fundamental Principles and Rights at Work, which includes “freedom of association and the effective recognition of the right to collective bargaining.”Mr. Lander, the New York comptroller, said that the coalition initially reached out to Apple’s board last spring to discuss the company’s posture toward the union organizing, but that it did not get a substantive response.The coalition then filed a shareholder proposal in September urging Apple to hire an outside firm to assess whether the company was following through on its stated commitment to labor rights. The company responded late last year and the two sides worked out an agreement in return for the coalition withdrawing its proposal, according to Mr. Lander.A coalition of some of the same investors, including the New York pension funds, has filed a similar proposal at Starbucks, where workers have voted to unionize at more than 250 company-owned stores since late 2021. Like Apple, Starbucks has cited its commitment to the International Labor Organization standards like freedom of association and the right to take part in collective bargaining.But Starbucks has consistently opposed its employees’ attempts to unionize, and Starbucks has not engaged with the coalition of investors to work out an agreement. Jonas Kron, chief advocacy officer of Trillium Asset Management, one of the investors pushing proposals at both companies, said he expected the Starbucks proposal to go to a vote of the company’s shareholders. The company declined to comment.The federal labor board has issued a few dozen formal complaints against Starbucks for violations including retaliating against workers involved in organizing and discriminating against unionized workers when introducing new benefits; the company has denied breaking labor laws. More

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    As China reopens and data surprises, economists are starting to get less gloomy

    Barclays on Friday raised its global growth forecast to 2.2% in 2023, up 0.5 percentage points from its last estimate in mid-November.
    Berenberg also upgraded its euro zone forecast in light of recent news flow, particularly falling gas prices, a consumer confidence recovery and a modest improvement in business expectations.
    TS Lombard on Friday lifted its euro area growth forecast from -0.6% to -0.1% for 2023.

    The European Central Bank is expected to continue raising rates aggressively in the short-term as the euro zone economy proves more resilient than anticipated.
    Haussmann Visuals | Moment | Getty Images

    After China’s reopening and a deluge of positive data surprises in recent weeks, economists are upgrading their previously gloomy outlooks for the global economy.
    Data releases last week showed signs of inflation slowing and less severe downturns in activity, prompting Barclays on Friday to raise its global growth forecast to 2.2% in 2023, up 0.5 percentage points from its last estimate in mid-November.

    “This is largely driven by the 1.0pp increase in our China growth prediction to 4.8% from last week, but also reflects a 0.7pp increase for the euro area (to -0.1%, largely on a much better Germany) forecasts, and, to lesser extent, upgrades of 0.2pp for the US (to 0.6%), Japan (to 1.0%) and the UK (-0.7%),” said Barclays Head of Economic Research Christian Keller.
    “The U.S. would still experience a recession, as we predict slightly negative growth in three quarters (Q2 -Q4 2023), but it would be quite shallow, as annual 2023 GDP growth would now remain positive.”

    U.S. December CPI edged down 0.1% month-on-month to notch 6.5% annually, in line with expectations and mostly driven by falling energy prices and slowing food price increases.
    However, Keller suggested a more important gauge of how the U.S. economy is faring, and how the Federal Reserve’s monetary policy tightening might unfold, was the December Atlanta Fed Wage tracker. 
    The estimate last week supported the previous week’s average hourly earnings (AHE) data in indicating a sharp deceleration of wage pressures, declining by a full percentage point to 5.5% year-on-year.

    Philadelphia Fed President Patrick Harker, a new voting member of the Federal Open Market Committee, said last week that 25 basis point interest rate hikes would be appropriate moving forward. A similar tone was struck by Boston Fed President Susan Collins and San Francisco Fed President Mary Daly.
    The central bank has been raising rates aggressively to rein in inflation while hoping to engineer a soft landing for the U.S. economy. In line with market pricing, Barclays believes the balance on the FOMC has now shifted toward 25 basis point increments from February’s meeting onward.
    Where the British bank differs from market pricing is in its expectations for the terminal rate. Barclays projects the FOMC will lift the Fed funds rate to 5.25% at its May meeting before ending the hiking cycle, exceeding current market pricing for a peak of just below 5%, as policymakers wait to see more evidence of slowing labor demand and wage pressures.

    Barclays suggested that sticky core inflation in the euro area will keep the European Central Bank on track to deliver its two telegraphed 50 basis point hikes in February and March before ending its tightening cycle at a deposit rate of 3%, while continuing to tighten its balance sheet.
    Inflation has proven more persistent in the U.K., where the labor market also remains tight, energy bills are set to increase in April and widespread industrial action is exerting upward pressure on wage growth, prompting economists to warn of potential second round inflationary effects. 
    Barclays’ updated outlook pencils in a further 25 basis point hike from the Bank of England in May after 50 basis points in February and 25 in March, taking the terminal rate to 4.5%.
    Shallower recessions in Europe and the UK
    Surprisingly strong activity data in the euro zone and the U.K. last week may offer further headroom for central banks to raise rates and bring inflation back to Earth.
    “This week’s better-than-expected GDP data for Germany and the U.K. — the epicenters of growth pessimism — add further evidence that the economic fallout has been less severe than the much more uncertain energy situation suggested a few months ago,” Keller said.
    “Although varying by country, the generally large fiscal support packages in Europe and the UK to deal with elevated energy prices must also have contributed, as have healthy labour market conditions and, on average, robust household savings.”
    Berenberg also upgraded its euro zone forecast in light of recent news flow, particularly falling gas prices, a consumer confidence recovery and a modest improvement in business expectations.
    On Friday, the German federal statistics office showed that Europe’s largest economy stagnated in the fourth quarter of 2022 rather than contracting, and Berenberg Chief Economist Holger Schmieding said its apparent resilience has two major implications for the outlook across the 20-member common currency bloc.

    “As Germany is more exposed to gas risks than the euro zone as a whole, it suggests that the euro zone likely did not fare (much) worse than Germany late last year and may thus have avoided a significant contraction in Q4 GDP,” Schmieding said.
    “Judging by the ongoing recovery in business and consumer confidence, it seems unlikely that Q1 2023 will be much worse than Q4 2022.”
    Instead of a cumulative real GDP decline of 0.9% in the fourth quarter of 2022 and first quarter of 2023, Berenberg now forecasts only a 0.3% decline over the period.
    “With less lost ground to make up for, the pace of the rebound in 2H 2023 and early 2024 after a likely stabilisation in Q2 2023 will also be a bit less steep (0.3% qoq in Q4 2023, 0.4% qoq in Q1 and 0.5% qoq in Q2 2024 instead of 0.4%, 0.5% and 0.6% qoq, respectively),” Schmieding added.
    Berenberg therefore raised its calls for the annual average change to real GDP in 2023 from a 0.2% shrinkage to 0.3% growth.

    The German investment bank also upped its 2023 U.K. forecast from a 1% contraction for the year to a 0.8% contraction, citing Brexit, the legacy of former prime minister Liz Truss’ disastrous economic policy and a tighter fiscal policy for the U.K.’s continued underperformance versus the euro zone.
    Positive economic surprises — particularly the 1% monthly increase in euro area industrial production in November — along with unseasonably mild temperatures, which have eased energy demand, and a fast reopening in China also led TS Lombard on Friday to lift its euro area growth forecast from -0.6% to -0.1% for 2023.
    While consensus forecasts are moving toward outright positive growth as worst-case scenarios for the euro zone are priced out, TS Lombard Senior Economist Davide Oneglia said an “L-shaped recovery” is still the most likely scenario for 2023, rather than a full rebound.
    “This is the result of three major factors: 1) cumulated ECB tightening (and the spillovers from global monetary tightening) will start to show its full effect on the real economy in the coming quarters; 2) the US economy is poised to lose altitude further; and 3) China is reopening into a weak economy, in which pro-growth policy drivers will end up mostly favouring a revival in the domestic consumer services with limited benefits for EA capital goods exports,” Oneglia said.

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    After a Burst of New Businesses, a Cooling Economy Intrudes

    The pandemic has brought a boom in entrepreneurship, but higher interest rates, a chill in venture capital and fears of recession now pose obstacles.An unexpected result of the pandemic era has been a surge in entrepreneurial activity. Since 2020, applications to start new businesses have skyrocketed, reversing a decades-long slump.The reasons for the boom are manifold. Millions of people were suddenly laid off, giving them the time, and inclination, to start new businesses. Personal savings jumped, buoyed partly by a frothy stock market and government stimulus payments, providing would-be entrepreneurs with the means to fulfill their visions. Rock-bottom interest rates made money cheap and widely available.But the ebullient economic environment that helped foster this entrepreneurial spirit has given way to high inflation, rising interest rates and dwindling savings. That has left these nascent businesses to navigate challenging financial crosscurrents — and a possible recession — at a moment when they are at their most fragile. Even under normal conditions, roughly half of new businesses fail within five years.“Young businesses are inherently vulnerable,” said John Haltiwanger, an economist at the University of Maryland who studies entrepreneurship. “They’re likely to fail, and they are especially likely to fail in a recession.”In 2021, Americans filed applications to start 5.4 million new businesses, according to data from the Census Bureau. That was on top of the 4.4 million applications filed in 2020, which had been the highest by far in the more than 15 years the government had been keeping track. (Filings last year through November were running ahead of 2020 but behind 2021; figures for December will be released this week.)Data on actual business formation will not become available for several years, so it is not possible yet to measure the effects of the cooling economy on new ventures. Whether these new businesses pull through could have broad implications for the health and dynamism of the overall economy.“Innovation drives gains in productivity,” said John Dearie, president of the Center for American Entrepreneurship, an advocacy organization. “And innovation comes disproportionately from new businesses.”Jennifer Sutton started a juice and wellness bar in Park City, Utah. She is worried about the prospect of a recession and how it would affect the tourism that supports her business.Kim Raff for The New York TimesBut he cautioned that the Federal Reserve’s monetary policy — intended to tamp down the fastest price increases in decades — is “ramping up the headwinds facing entrepreneurs to gale force by crushing demand and by increasing the price of money.”In interviews, entrepreneurs expressed a mix of resolve and resignation about the months ahead. Some said they had learned lessons from the pandemic’s upheaval about how to endure financial adversity that they believed had recession-proofed their business models. Others were cleareyed about needing outside funding that they feared would no longer arrive.Inflation F.A.Q.Card 1 of 5What is inflation? More

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    U.S. Will Hit Debt Limit on Thursday, Yellen Tells Congress

    The Treasury Department expects to begin taking “extraordinary measures” to continue paying the government’s obligations before what is expected to be a big fight to raise the borrowing cap.WASHINGTON — Treasury Secretary Janet L. Yellen warned on Friday that she would have to begin employing “extraordinary measures” on Thursday to continue paying the nation’s bills if lawmakers did not act to raise the statutory debt limit and that her powers to delay a default could be exhausted by early June.Ms. Yellen’s letter to Congress was the first sign that resistance by House Republicans to lifting the borrowing cap could put the U.S. economy at risk and signals the beginning of an intense fight in Washington this year over spending and deficits.“Failure to meet the government’s obligations would cause irreparable harm to the U.S. economy, the livelihoods of all Americans and global financial stability,” Ms. Yellen wrote.Ms. Yellen said on Friday that considerable uncertainty surrounded how long she could use measures to delay a default. She said she would begin suspending new investments in the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund and suspending reinvestment of the Government Securities Investment Fund of the Federal Employees Retirement System Thrift Savings Plan this month to avoid breaching the debt limit.The letter is the beginning of what is expected to be a protracted and potentially damaging economic fight. Republicans, who assumed control of the House last week, have insisted that any increase to the debt limit be accompanied by significant spending curbs, most likely including cuts to both the military and domestic issues.Speaker Kevin McCarthy has cited reducing the national debt — which topped $31 trillion last year and has increased during both Republican and Democratic administrations, including about a 40 percent increase under former President Donald J. Trump — as a central focus of his party’s agenda.“The American people are the ones that’s demanding the cut in spending,” Representative Jason Smith, a Missouri Republican and the chairman of the powerful House Ways and Means Committee, said Friday on Fox News. “We have to have fiscal reforms moving forward. We cannot just give an unlimited credit card.”Understand the U.S. Debt CeilingCard 1 of 4What is the debt ceiling? More