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    Congress Is Giving Billions to the Chip Industry. Strings Are Attached.

    Industrial policy is back in Washington, as a vast semiconductor and science bill gives the government new sway over a strategic industry.WASHINGTON — Amid a global semiconductor shortage, and as lawmakers dithered over a bill to boost U.S.-based chip manufacturing, Intel went to the Biden administration with a proposal that some officials found deeply alarming.Intel told Commerce Department officials that it was considering expanding its manufacturing capacity for chips by taking over an abandoned factory in Chengdu, China. The new facility, the company said, could help ease a global chip crunch that was shuttering car and electronics factories and beginning to fuel inflation.Intel ultimately shelved the plan. But for lawmakers and the administration it became a vivid example of the need to pass legislation aimed at luring the global chip industry back to the United States. It was also an argument for giving the federal government significant influence over the industry, according to lawmakers, congressional aides and administration officials, many of whom requested anonymity to discuss private deliberations.The sprawling bill that Congress finally passed last week, the CHIPS and Science Act, gives the federal government a primary role in deciding which chip makers will benefit from the legislation’s funding. The bill contains $52 billion in subsidies and tax credits for any global chip manufacturer that chooses to set up new or expand existing operations in the United States, along with more than $200 billion toward scientific research in areas like artificial intelligence, robotics and quantum computing.With concerns growing about China’s economic and technological ambitions, the bill includes strict new guardrails for firms considering expanding into China. Chip manufacturers that want to take U.S. funding cannot make new, high-tech investments in China or other “countries of concern” for at least a decade — unless they are producing lower-tech “legacy chips” destined only to serve the local market.The legislation will hand significant power over the private sector to the Commerce Department, which will choose which companies qualify for the money. Already the department has said it will give preference to companies that invest in research, new facilities and work force training, rather than those that engage in the kind of share buybacks that have been prevalent in recent years.“This is not a blank check to these companies,” Gina Raimondo, the secretary of commerce, said in an interview. “There are a lot of strings attached and a lot of taxpayer protections.”Ms. Raimondo’s department also has the authority to review future company investments in China and to claw back funds from any firm that it deems to have broken its rules, as well as the ability to make certain updates to the rules for foreign investment as time goes by.To the bill’s supporters, these provisions represent the benefits of big government spending. The new legislation will not only subsidize advanced research and manufacturing that has withered in the United States in recent decades but also give Washington a bigger role in writing the rules that shape cutting-edge industries globally.It’s an embrace of industrial policy not seen in Washington for decades. Gary Hufbauer, a nonresident senior fellow at the Peterson Institute for International Economics who has surveyed U.S. industrial policy, said the bill was the most significant investment in industrial policy that the United States had made in at least 50 years.8 Signs That the Economy Is Losing SteamCard 1 of 9Worrying outlook. More

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    Household debt tops $16 trillion for the first time, fueled by higher inflation and interest rates

    Household debt climbed past $16 trillion in the second quarter, as soaring inflation pushed up housing and auto balances.
    Mortgage balances rose 1.9% for the quarter, or $207 billion, to about $11.4 trillion.
    Credit card balances surged 13% over the past year, the largest gain in more than 20 years.

    A “For Sale” sign outside a house in Albany, California, US, on Tuesday, May 31, 2022. Homebuyers are facing a worsening affordability situation with mortgage rates hovering around the highest levels in more than a decade.
    Joe Raedle | Bloomberg | Getty Images

    Household debt climbed past $16 trillion in the second quarter for the first time, as soaring inflation pushed up housing and auto balances, the New York Federal Reserve reported Tuesday.
    The collective American IOU totaled $16.15 trillion through the end of June, good for a $312 billion — or 2% — increase from the previous quarter. Debt gains were widespread but particularly focused on mortgages and vehicle purchases.

    “Americans are borrowing more, but a big part of the increased borrowing is attributable to higher prices,” the New York Fed said in a blog post accompanying the release.
    Mortgage balances rose 1.9% for the quarter, or $207 billion, to about $11.4 trillion, even though the pace of originations moved lower. That annual increase marked a 9.1% gain from a year ago as home prices exploded during the pandemic era.

    Credit card balances surged $46 billion in the three-month period and 13% over the past year, which Fed researchers said was the largest gain in more than 20 years. Non-housing credit balances increased 2.4% from the first quarter, the biggest gain since 2016.
    Student loan debt was little changed at $1.59 trillion.
    The increase in borrowing comes with inflation running at an 8.6% annual rate in the second quarter that included a 9.1% increase in June — the biggest move since November 1981 — according to the Bureau of Labor Statistics. Shelter inflation rose at a 5.5% annual rate in June and new and used vehicle prices were up 11.4% and 7.1% respectively.

    In response to the elevated inflation levels, the Fed has raised interest rates four times in 2022, with the increases totaling 2.25 percentage points. Those moves in turn have pushed up 30-year mortgage rates to 5.41%, up more than 2 percentage points from the beginning of the year, according to Freddie Mac.
    Despite the rising debt and inflation levels and higher interest rates, delinquency rates remained relatively benign.
    “Although debt balances are growing rapidly, households in general have weathered the pandemic remarkably well, due in no small part to the expansive programs put in place to support them,” the Fed blog post said. “Further, household debt is held overwhelmingly by higher-score borrowers, even more so now than it has been in the history of our data.”
    Through June, some 2.7% of outstanding debt was in delinquency, nearly 2 percentage points lower than the first quarter of 2020 as the nation was entering the Covid pandemic.
    Fed economists noted that delinquency rates were nudging higher for subprime borrowers at the lower end of the credit scale.

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    A Fed Pivot? Not Yet, Policymakers Suggest, as Rapid Inflation Lingers.

    Federal Reserve officials on Tuesday made clear that they expected to continue raising rates to try to choke off the most rapid inflation in decades, putting them at odds with investors who had become more sanguine about the outlook for interest rate moves.Stocks prices rose following the Fed’s meeting last week, as investors celebrated what some interpreted as a pivot: Jerome H. Powell, the Fed chair, said the central bank would begin making rate decisions on a meeting-by-meeting basis, which Wall Street took as a signal that its rate moves might soon slow down.But a chorus of Fed officials has since made clear that a lurch away from rate increases is not yet in the cards.Mary C. Daly, the president of the Federal Reserve Bank of San Francisco, said in an interview on LinkedIn on Tuesday that the Fed was “nowhere near” done raising interest rates. Charles L. Evans, the president of the Federal Reserve Bank of Chicago, told reporters that he would favor a half- or even a three-quarter-point rate increase in September.Neel Kashkari, the president of the Federal Reserve Bank of Minneapolis, said in an interview late last week that he did not understand why markets were dialing back their expectations for Fed rate increases.8 Signs That the Economy Is Losing SteamCard 1 of 9Worrying outlook. More

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    4.2 million people quit in June despite recession worries: 'A paradox in our economy'

    A cooldown in the job market is underway: The number of job openings dropped in June while near-record numbers of people continued to quit and get hired into new roles, according to the Labor Department’s latest Job Openings and Labor Turnover Summary.
    The labor market posted 10.7 million new job openings in June, which is down from 11.3 million in May but also much higher than a year ago and a more than 50% increase from before the pandemic. Despite the drop, there are still roughly 1.8 open jobs for every person who is unemployed.

    Meanwhile, workers are continuing to leverage the market and make moves: 6.4 million people were hired into new jobs, and 4.2 million voluntarily quit — leveling off from record highs but still extremely elevated.
    The job market cooldown is “far from a plunge,” says Nick Bunker, director of economic research at Indeed Hiring Lab.
    “The labor market is loosening a bit, but by any standard it is still quite tight,” Bunker adds. “The outlook for economic growth may not be as rosy as it was a few months ago, but there’s no sign of imminent danger in the labor market.”

    People are concerned about the future of jobs but are still quitting now

    Workers are growing more concerned about having their pick of jobs in the months to come, but it’s not stopping many of them from calling it quits right now. The share of people who left their jobs voluntarily in June make up 2.8% of the workforce.
    Workers’ confidence in the job market decreased slightly in June and July compared with May, according to a ZipRecruiter index measuring sentiment across 1,500 people. The index also showed an uptick in job-seekers who believe there will be fewer jobs six months from now, a decrease in people who say their job search is going well and a slight increase in people who feel financial pressure to accept the first job offer they receive.

    People may also be spooked by headlines of big-name companies, especially ones across tech and housing sectors that saw Covid-era growth, announcing layoffs, hiring freezes and rescinded job offers in recent months.
    Bunker recognizes “there are pockets of the economy and labor market going through turbulence,” he says, “but they’re for the most part concentrated pockets.”
    These workers may also be getting hired into new jobs pretty quickly. The national unemployment rate held steady at 3.6% in June.
    Looking ahead, Bunker expects to see payroll growth and expanding employment in the jobs report out Friday. “If you’re thinking of switching jobs, it’s still a good time,” he says, adding that job-seekers may focus more on going to an industry, sector or employer with a “strong economic outlook.”

    A hiring slowdown doesn’t indicate an inevitable recession

    In contrast with strong job numbers, economists and consumers alike are worried about a potential recession.
    “We have a paradox in our economy because of conflicting signals,” says Andrew Flowers, a labor economist at Appcast and research director at Recruitonomics.
    For example, the share of people filing for unemployment insurance has ticked up in recent weeks. But according to the Labor Department’s report, layoffs stayed just under 1% in June, near record-lows.
    Bunker says inflation concerns are likely to blame, but reasons for “heightened concern about a recession have not fully materialized yet.”
    Flowers says the latest jobs numbers signal more of an economic slowdown than a recession. And even so, lower hiring demand might not result in mass layoffs.
    “Should people be worried? Right now, it’s unclear,” Flowers says. “My message to job-seekers and workers is that it’s not clear this economic slowdown will result in a material increase in unemployment.”
    He adds: “As the economy shifts to a lower gear of growth, which is the Fed’s intention, that doesn’t mean we’ll suddenly have 10% unemployment.”
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    Job Openings Fell in June, Suggesting That the Labor Market Is Cooling

    The number of job openings fell for the third consecutive month in June, a sign that the red-hot U.S. labor market may be starting to cool off.Employers posted 10.7 million vacant positions on the last day of June, the Labor Department said Tuesday. That is high by historical standards but a sharp drop from the 11.3 million openings in May and the record 11.9 million in March. It was the largest one-month decline in the two decades that the government has kept track of this data, other than the two months at the beginning of the coronavirus pandemic in 2020.Job openings are falling, but remain highMonthly U.S. job openings, seasonally adjusted

    Source: Bureau of Labor StatisticsBy The New York TimesThe drop was concentrated in retail, the latest sign that the sector is struggling as consumers shift their spending from goods back to services as the pandemic ebbs. But job postings have also fallen in leisure and hospitality, the sector that was the most strained by labor shortages last year.The job market remains strong by most measures. There were still nearly twice as many job openings as unemployed workers in June, and employers are raising pay and offering other incentives to attract and retain staff. Layoffs remained near a record low in June, suggesting that employers were reluctant to part with staff they worked so hard to hire. And the number of workers voluntarily quitting their jobs remains high, although it has fallen from last year’s peak.The recent decline in openings is likely to be encouraging news for policymakers at the Federal Reserve, who have been trying to slow down the economy in an effort to tame inflation. Jerome H. Powell, the Fed chair, and other officials have pointed to the number of vacant jobs as evidence that the labor market is too hot. They are hoping that employers will start posting fewer jobs and hiring fewer workers before they begin laying people off, allowing the job market to cool down without causing a spike in unemployment.Still, any slowdown in the job market will mean that workers have less leverage to demand raises when pay is already failing to keep up with inflation. Slower wage growth, in turn, could lead consumers to spend less, increasing the risk that the United States could slip into a recession.The labor market “is definitely losing momentum, and that’s what is chipping away at people’s ability to spend,” said Tim Quinlan, a senior economist for Wells Fargo.Economists and policymakers will get a more up-to-date picture of the job market on Friday, when the Labor Department releases data on hiring and unemployment in July. Forecasters surveyed by FactSet expect the report to show that employers added about 250,000 jobs last month, down from 372,000 in June. More

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    Fed's Daly says 'our work is far from done' on inflation; Evans sees 'reasonable' chance for smaller hike

    The Federal Reserve still has a lot of work to do before it gets inflation under control, San Francisco Fed President Mary Daly said.
    Daly said no one should read recent big rate increases as an indication that the central bank is winding down its rate hikes.
    Chicago Fed President Charles Evans said raising another half point in September is “reasonable” but another three-quarter point hike “could also be OK.”

    Mary Daly, President of the Federal Reserve Bank of San Francisco, poses after giving a speech on the U.S. economic outlook, in Idaho Falls, Idaho, U.S., November 12 2018.
    Ann Saphir | Reuters

    The Federal Reserve still has a lot of work to do before it gets inflation under control, and that means higher interest rates, San Francisco Fed President Mary Daly said Tuesday.
    “People are still struggling with the higher prices they’re paying and the rising prices,” Daly said during a live LinkedIn interview with CNBC’s Jon Fortt. “The number of people who can’t afford this week what they paid for with ease six months ago just means our work is far from done.”

    Separately, Chicago Fed President Charles Evans opened up the possibility of another large rate hike ahead, but said he hopes that can be avoided, with the Fed being able to bring down inflation without having to use harsh policy tightening.
    So far this year, the central bank has raised its benchmark interest rate four times, totaling 2.25 percentage points. That has come in response to inflation running at a 9.1% annual rate, the highest level since November 1981.
    The Fed in July raised its funds rate 0.75 percentage point, the same as it hiked in June. Those were the largest back-to-back increases since the central bank started using the funds rate as its chief monetary policy tool in the early 1990s.
    But Daly cautioned that no one should take those big moves as an indication that the Fed is winding down its rate hikes.
    “Nowhere near almost done,” she said in assessing the progress. “We have made a good start and I feel really pleased with where we’ve gotten to at this point.”

    Futures pricing indicates the markets see the Fed raising rates by 0.5 percentage point in September and another half percentage point through the end of the year, taking the funds rate to a range of 3.25%-3.5%, according to CME Group data. That scenario holds that the economy would slow due to the policy tightening, and the Fed would start cutting rates by next summer.
    But Daly pushed back on that notion.
    “That’s a puzzle to me,” she said. “I don’t know where they find that in the data. To me, that would not be my modal outlook.”
    Evans, her Fed colleague, also spoke Tuesday morning, saying the central bank is likely to keep its foot on the brake until it sees inflation coming down. He expects policymakers to raise rates by half a percentage point at their next meeting in September, but left the door open to a bigger move.
    “Fifty [basis points] is a reasonable assessment, but 75 could also be OK,” he told reporters. “I doubt that more would be called for.” A basis point is 0.01 percentage point.
    “We wanted to get to neutral expeditiously. We want to get a little restrictive expeditiously,” Evans added. “We want to see if the real side effects are going to start coming back in line … or if we have a lot more ahead of us.”
    However, he also said he’s hopeful that policymakers could soon pause the rate hikes as inflation comes down.
    Neither Evans nor Daly are voting members this year on the rate-setting Federal Open Market Committee, though they do participate in policy sessions.
    The FOMC does not meet in August, when it will hold its annual symposium in Jackson Hole, Wyoming. Its next two-day meeting is next month, Sept. 20-21.

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    Job openings fell sharply in June as labor market shows signs of slowing

    The total of employment vacancies fell to about 10.7 million through the last day of June.
    Even with the sharp decline, there were still 1.8 open jobs per available worker

    A man walks past a “We Are Hiring” sign in New York City on July 8, 2022.
    Angela Weiss | AFP | Getty Images

    Job openings plunged in June to their lowest level since September 2021 in a potential sign that a historically tight labor market is starting to slow.
    The total of employment vacancies fell to about 10.7 million through the last day of June, a decline of 605,000 or 5.4%, according to the Job Openings and Labor Turnover Survey released Tuesday by the Bureau of Labor Statistics.

    Markets had been looking for openings of 11.14 million, according to FactSet.
    Even with the sharp decline, there were still 1.8 open jobs per available worker, with the total difference at nearly 4.8 million.
    Hiring also slowed during the month, dropping 2% to 6.37 million, while the level of quits, an indicator of worker mobility and confidence, was little changed but well off record levels seen earlier this year. Separations also edged lower, falling by 1.4% to 5.93 million.
    Federal Reserve officials watch the JOLTS numbers closely as they assess the future path of the labor market and how that might influence interest rates. The Fed has enacted four interest rate increases this year totaling 2.25 percentage points in an effort to control inflation that has run at its fastest rate since November 1981.
    Nonfarm payrolls rose by 372,000 in June and the unemployment rate held at 3.6%. July’s numbers will be out Friday, with economists surveyed by Dow Jones are looking for an increase of 258,000.

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    Analysis Deems Biden’s Climate and Tax Bill Fiscally Responsible

    Despite Republican claims, the new legislation would be only a modest corporate tax increase, Congress’s Joint Committee on Taxation found.After more than a year of trying — and failing — to pack much of President Biden’s domestic agenda into a single tax-and-spend bill, Democrats appear to have finally found a winning combination. They’ve scrapped most of the president’s plans, dialed down the cost and focused on climate change, health care and a lower budget deficit.As soon as party leaders announced that new bill last week, Republicans began attacking it in familiar terms. They called it a giant tax increase and a foolish expansion of government spending, which they alleged would hurt an economy reeling from rapid inflation.But outside estimates suggest the bill would not cement a giant tax increase or result in profligate federal spending.An analysis by the Joint Committee on Taxation, a congressional nonpartisan scorekeeper for tax legislation, suggests that the bill would raise about $70 billion over 10 years. But the increase would be front-loaded: By 2027, the bill would actually amount to a net tax cut each year, as new credits and other incentives for low-emission energy sources outweighed a new minimum tax on some large corporations.That analysis, along with a broader estimate of the bill’s provisions from the nonpartisan Committee for a Responsible Federal Budget, suggests that the legislation, if passed, would only modestly add to federal spending over the next 10 years. By the end of the decade, the bill would be reducing federal spending, compared with what is scheduled to happen if it does not become law.And because the bill also includes measures to empower the Internal Revenue Service to crack down on corporations and high-earning individuals who evade taxes, it is projected to reduce the federal budget deficit over a decade by about $300 billion.Adding up the headline cost for what Democrats are calling the Inflation Reduction Act is more complicated than it was for many previous tax or spending measures that lawmakers approved. The bill blends tax increases and tax credits, just as Republicans did when they passed President Donald J. Trump’s signature tax package in 2017. But it also includes a spending increase meant to boost tax revenues and a spending cut meant to put more money in consumers’ pockets.Maya MacGuineas, the president of the Committee for a Responsible Federal Budget, said the composition of the deal was vastly different from a larger bill that Democrats failed to push through the Senate in the fall. It included several spending programs that were set to expire after a few years, and budget hawks warned that the overall package would add heavily to federal debt if those programs were eventually made permanent, as Washington has been known to do, without offsetting tax increases.Ms. MacGuineas called the original idea, known as Build Back Better, “a massive gimmicky budget buster.” She had kinder words for the new package, saying it “manages to push against inflation, reduce the deficit, and, once fully phased in, it would actually cut net spending, without raising net taxes.”“That is a pretty monumental improvement,” she added.The bill springs from an agreement between Senator Chuck Schumer of New York, the majority leader, and Senator Joe Manchin III of West Virginia, a key centrist Democrat. President Biden blessed it last week, and it carries what remains of what was once his $4 trillion domestic agenda.Understand What Happened to Biden’s Domestic AgendaCard 1 of 7‘Build Back Better.’ More