in Economy
Watch Treasury Secretary Janet Yellen talk live about the state of the U.S. economy
WATCH LIVEWATCH IN THE APP More
Evelyn Reynolds
More stories
- in Economy
Highlights From Today’s G.D.P. Report
The top-line number for U.S. gross domestic product is a composite of positive and negative forces, and the details matter: Consumer spending, which powers the majority of the economy, rose 1 percent on an annualized basis, a marked slowdown from previous months as purchases of goods declined and spending on services grew only moderately.Home construction, also referred to as residential fixed investment, sagged 14 percent at an annual rate under the weight of rising interest rates, which have put mortgages beyond the reach of more would-be home buyers.Inventories, which measure the amount of stuff that’s been produced or imported but not yet sold, depressed the overall number by more than two percentage points on an annual basis. Companies still added to their inventories in the second quarter, but more slowly than in the first, which dragged down overall growth.Business construction, known as fixed investment in nonresidential structures, dove by 11.7 percent on an annual basis, as construction of factories and warehouses — also an interest rate-sensitive sector — slowed. Federal government spending shrank 3.2 percent on an annual basis, as stimulus money continues to fade out and oil was released from the Strategic Petroleum Reserve, although defense spending grew 2.5 percent as military aid flowed to Ukraine.Final sales to domestic purchasers, which some economists favor as a metric that cuts out volatile inventories and government spending, sank 0.3 percent.(All the figures are reported on a seasonally adjusted basis.) More
- in Economy
GDP fell 0.9% in the second quarter, the second straight decline and a strong recession signal
The U.S. economy contracted for the second straight quarter from April to June, hitting a widely accepted rule of thumb for a recession, the Bureau of Economic Analysis reported Thursday.
Gross domestic product fell 0.9% at an annualized pace for the period, according to the advance estimate. That follows a 1.6% decline in the first quarter and was worse than the Dow Jones estimate for a gain of 0.3%.Officially, the National Bureau of Economic Research declares recessions and expansions, and likely won’t make a judgment on the period in question for months if not longer.
But a second straight negative GDP reading meets a long-held basic view of recession, despite the unusual circumstances of the decline and regardless of what the NBER decides. GDP is the broadest measure of the economy and encompasses the total level of goods and services produced during the period.
“We’re not in recession, but it’s clear the economy’s growth is slowing,” said Mark Zandi, chief economist at Moody’s Analytics. “The economy is close to stall speed, moving forward but barely.”
Markets reacted little to the news, with stock market futures flat. Government bond yields mostly declined, with the biggest drops at the shorter-duration end of the curve.
The decline came from a broad swath of factors, including decreases in inventories, residential and nonresidential investment, and government spending at the federal, state and local levels. Gross private domestic investment tumbled 13.5% for the three-month periodConsumer spending, as measured through personal consumption expenditures, increased just 1% for the period as inflation accelerated. Spending on services accelerated during the period by 4.1%, but that was offset by declines in nondurable goods of 5.5% and durable goods of 2.6%.
Inventories, which helped boost GDP in 2021, were a drag on growth in the second quarter, subtracting 2 percentage points from the total.
Inflation was at the root of much of the economy’s troubles. The consumer price index rose 8.6% in the quarter, the fastest pace since Q4 of 1981. That resulted in a decline of inflation-adjusted after-tax personal income of 0.5%, while the personal saving rate was 5.2%, down from 5.6% in the first quarter.
“It really was to script,” Zandi said of the report. “The only encouraging thing was that inventories played such a large role. They won’t play the same role in the coming quarter. Hopefully, consumers keep spending and businesses keep investing and if they do we’ll avoid a recession.”
After posting its strongest gain since 1984 last year, the U.S. economy began to slow earlier this year due to a confluence of factors.
Supply chain issues, brought about initially by outsized demand for goods over services during the Covid pandemic, were at the core of the problem. That only intensified when Russia invaded Ukraine in February and, more recently, when China enacted strict shutdown measures to battle a burst of Covid cases.
The first-quarter numbers also were brought down by a swelling trade imbalance and a slowdown in inventories, which were responsible for much of the GDP gains in the second half of 2021.
Now, the economy faces more fundamental problems.
Inflation began swelling a year ago and then exploded in 2022, hitting its highest 12-month increase since 1981 in June. A slow-footed response by policymakers initially has resulted in some of the biggest interest rate increases the U.S. has ever seen.
The Federal Reserve over the past four months has raised benchmark borrowing rates by 2.25 percentage points. Back-to-back 0.75 percentage point increases in June and July mark the most aggressive two-month hikes since the Fed began using overnight rates as the primary policy tool in the early 1990s.
Still, Fed Chairman Jerome Powell on Wednesday said he expects the increases to tamp down inflation and he does not see the economy in recession.
Indeed, most economists don’t expect the NBER to declare an official recession, despite the consecutive quarters of negative growth. Rather, the feeling on Wall Street is that the economy could well hit recession later this year or in 2023 but is not in one now.
That may not be enough to change public perception, however. A Morning Consult/Politico poll earlier this month indicated that 65% of registered voters, including 78% of Republicans, think the economy already is in a recession.
This is breaking news. Please check back here for updates.WATCH LIVEWATCH IN THE APP More
- in Economy
Climate Change Is Probably a Drag on Growth, but It’s Unclear How Much
It’s been hot out there. Like water-main-breaking, train-slowing, corn-scorching, road-buckling hot — not to mention heat’s effects on human bodies, making it harder to work in construction and harvest crops.All of that must be playing into the gross domestic product reading for the second quarter, right?The short answer is yes. The longer answer is that it’s very hard to track that impact in real time, but economists are working on doing it better.For more than a decade, researchers have constructed forecasts of climate change’s likely economic impact. A 2018 paper found, for example, that the annual growth rate of state-level economic output declined 0.15 to 0.25 percentage points for every degree the average temperature crept higher in the summer — which could take up to a third off economic growth over the next century. And that’s just in the United States.Those estimates, however, benefit from long-term data sets that allow analysts to compare the effects of temperature and extreme weather events over time. They also tend to project further into the future, which generally yields more eye-popping outcomes, and is more relevant for evaluating the effects of policy interventions meant to curb emissions.“As a profession, we’ve been really focused on future economic impacts from climate change, because we’ve been focused on how you should be taxing carbon emissions,” said Derek Lemoine, an associate professor of economics at the University of Arizona. “We’ve been less focused on what climate change is doing already, partly because we didn’t realize it would happen this quickly.”But Dr. Lemoine is working on doing exactly that, with the goal of estimating how climate change is affecting the economy at nearly the same time that statistics like G.D.P. are being compiled.Other researchers are working on developing measures of economic growth that integrate not just production of goods and services — which themselves can accelerate climate change — but environmental and social elements as well. More
- in Economy
Tell us how the economy is affecting you.
Sharing your experience will help inform our coverage of inflation, jobs, interest rates and more.How are you coping with your household expenses and your financial planning? How has the economic volatility in recent months affected you as a worker or a business owner?Economics reporters at The New York Times would like to know.Sharing your perspective will inform our coverage of inflation, jobs, interest rates and other topics, or give us story ideas. We may feature your comments or experiences, if you’re OK with it.Here’s a form for your responses. We will read every one. More
- in Economy
They Flocked to China for Boom Times. Now They’re Thinking Twice.
A.H. Beard, a 123-year-old luxury mattress manufacturer based in Australia, started eyeing China around 2010. At the time, the family-owned company faced looming competition from low-cost, foreign-made mattresses in its home market. China, with its 1.4 billion consumers and a growing middle class with a taste for premium brands, seemed like a good place to expand.The choice paid off.A.H. Beard opened its first store there in 2013. Before the coronavirus pandemic, sales in the country were growing more than 30 percent a year. There are now 50 A.H. Beard stores across China, with plans to open 50 more. But like most foreign companies operating in China nowadays, A.H. Beard has started to think more carefully about its strategy.Beijing’s strict Covid-19 policy has exacted a heavy toll on business. The company’s exports into China are no longer on the rise.This month, Chinese officials announced that the economy grew at its slowest pace since the early days of the pandemic. Unemployment is high, the housing market is in crisis and nervous consumers — living under the constant threat of lockdowns and mass testing — are not spending.Now, the once resilient Chinese economy is looking shaky, and the companies that flocked to the country to partake in boom times are being confronted by a sobering reality: flat growth in what was once seen as a reliable economic opportunity.“I certainly don’t see China returning to the rates of growth that we had seen previously,” said Tony Pearson, chief executive of A.H. Beard.“I certainly don’t see China returning to the rates of growth that we had seen previously,” said Tony Pearson, chief executive of A.H. Beard.Matthew Abbott for The New York TimesA.H. Beard opened a flagship store in Shanghai in 2013.Matthew Abbott for The New York TimesThe cost of mattress materials and components, such as latex and natural fibers, has increased significantly.Matthew Abbott for The New York TimesSo far, most companies are staying the course, but there is a steady whiff of caution that did not exist just a few years ago.Geopolitical tensions and a U.S.-China trade war have unleashed punishing tariffs for some industries. Covid-19 has snarled the flow of goods, lifting the prices of almost everything and delaying shipments by months. China’s pandemic response of quarantines and lockdowns has kept customers at home and out of stores.A.H. Beard opened its flagship store with a local partner in Shanghai almost 10 years ago. And like any high-end brand, it rolled out products with prices that defy belief. China became the best-selling market for its top-of-the-line $75,000 mattress.Since then, the cost of shipping a container has jumped sixfold. The cost of mattress materials and components, such as latex and natural fibers, have increased significantly. Other worrying signs have emerged, including a housing slump. (New homes often mean new mattresses.)Mr. Pearson said he is hoping that the Chinese Communist Party congress later this year will clarify “the trajectory for China” and imbue consumers with more confidence. “The economy still has growth potential,” he said. “But there’s always a degree of risk.”After the 2008 financial crisis when the rest of the world retrenched, China emerged as an outlier and international businesses rushed in.European luxury brands erected gleaming stores in China’s biggest cities, while U.S. food and consumer goods companies jostled for supermarket shelf space. German car manufacturers opened dealerships, and South Korean and Japanese chip firms courted Chinese electronics makers. A booming construction market fueled demand for iron ore from Australia and Brazil.Chinese consumers rewarded those investments by opening their wallets. But the pandemic has rattled the confidence of many shoppers who now see rainy days ahead.Fang Wei, 34, said she has scaled back her spending since she left a job in 2020. In the past, she spent most of her salary on brands like Michael Kors, Coach and Valentino during frequent shopping trips.Even though she is employed again, working in advertising in Beijing, she now allocates a quarter of her salary on food, transportation and other living costs. She hands the rest to her mother, who puts the money in the bank.“Because I’m worried about being laid off, I transfer everything to my mother every month,” Ms. Fang said. “It’s very depressing to go from enjoying life to subsistence.”A more frugal Chinese consumer is a worry for foreign businesses, many of which offer products that are not the low-cost option but a premium alternative. An Jun-Min, chief executive of Ginseng by Pharm, a South Korean producer of ginseng products, said he, too, has noticed Chinese “wallets have gotten thinner.”Mr. An said sales for the company’s main product, a 2 ounce bottle of a ginseng drink that sells for $18, peaked before the pandemic. The company shipped 600,000 bottles into China and Hong Kong in 2019.There are 12,000 Adidas stores in China, up from 9,000 in 2015, but the company said it expects China revenue to “decline significantly” this year.Giulia Marchi for The New York TimesSales plunged in 2020 because it was hard to get products into the country during Covid lockdowns. Business has mostly bounced back, although it is still down 10 to 20 percent from the peak.While Mr. An said he is concerned about the economic slowdown, he remains optimistic that the market for health products in China, and a familiarity with ginseng — an aromatic root said to have health benefits — will continue to benefit sales. To hedge his bets, though, he is also seeking regulatory approval to sell in Europe.That is a far cry from the unbridled optimism of the past.In 2016, when China was its fastest growing and most profitable market, Kasper Rorsted, the chief executive at Adidas, declared that the country was “the star of the company.” Adidas invested aggressively to expand its foothold. It went from 9,000 stores in China in 2015 to its current 12,000, though only 500 are operated by Adidas. Then the music stopped.After initially projecting that sales in China would accelerate this year, Adidas ratcheted down expectations in May as Covid lockdowns continued to spread. The company said it now expects China revenue to “decline significantly” and that a sudden rebound is unlikely.For now, Adidas remains undeterred. Mr. Rorsted said on a call with analysts that the company is not planning to slash costs or pull back from the country. Instead, it will “do whatever we can to double down and accelerate the growth.”Many foreign companies had bet on the rise of a Chinese middle class as a dependable source of that growth. Bain & Company, a consulting firm, said it expects China to be the world’s largest luxury market by 2025, fueled in part by what Federica Levato, a senior partner, said is still “a big wave” of a rising middle class.Kamps Hardwoods, a Michigan-based manufacturer of lumber used in homes and furniture, said China provided an opportunity to expand — at first.Sarah Rice for The New York TimesRob Kukowski, the general manager of Kamps, said China is such a big buyer of U.S. lumber that the pain is felt by the entire industry when it stops spending.Sarah Rice for The New York TimesBy 2016, China accounted for 80 percent of Kamps’s sales.Sarah Rice for The New York TimesBut those kinds of predictions look less enticing for some foreign companies that once relied heavily on the Chinese market.Kamps Hardwoods, a Michigan-based manufacturer of kiln-treated lumber used for homes and furniture, seized on the opportunity to expand in China — at first. At a Chinese trade show in 2015, Rob Kukowski, the company’s general manager, said a Chinese buyer stunned him with a huge offer to buy enough stock to fill 99 shipping containers. The $2 million order of lumber accounted for four months’ worth of business for Kamps.Chinese buyers were so desperate for lumber back then that they would visit the company’s booth and refuse to leave until Mr. Kukowski accepted a million-dollar deal on the spot. By 2016, China accounted for 80 percent of the company’s sales.Kamps soon realized that it was hard to make a profit from the large Chinese orders because many buyers were not interested in quality and only wanted the cheapest possible price. The company started to focus its effort on finding customers in the United States and other overseas markets who were willing to pay more for a better product.It was fortuitous timing. When China raised tariffs on U.S. lumber in 2018 as part of a trade war, Kamps was better positioned to weather the downturn. Today, China accounts for only 10 percent of Kamps’s sales, but it still has a large indirect impact on the company. Mr. Kukowski said China is such a big buyer of U.S. lumber that a downward price war ensues throughout the industry when it stops spending.“With their purchasing power being so strong and so much of our product going into that market,” Mr. Kukowski said. “Our industry is going to run into significant problems if their economy slows.”Jin Yu Young More
- in Economy
The economy is expected to have barely grown last quarter and it may have contracted
Economists expect the economy grew just slightly in the second quarter, and some expect that it actually contracted.
Temporary trade disruptions and the impact of Covid-19 on the supply chain are believed to be behind some of the decline.
Economists are quick to point out that even if there are back-to-back quarters of negative growth, it does not necessarily signal a recession, as it often does.Shipping containers are seen at a terminal inside the Port of Oakland as independent truck driver continue protesting against California’s new law known as AB5, in Oakland, California, July 21, 2022.
Carlos Barria | ReutersEconomists are forecasting the economy barely grew in the second quarter, and some expect that it actually contracted.
The estimates show the economy may have grown by several tenths of a percent. Goldman Sachs expects a 1% increase, while Moody’s Analytics sees a 1% decline. The GDP report will be released at 8:30 a.m. ET Thursday.The sluggish growth forecasts follow the 1.6% decline in the first quarter. But there are plenty of forecasts for a shrinking economy, including the Atlanta Fed’s GDP Now tracker, which has negative 1.2% for the second quarter.
That would make it the second negative GDP report in a row, one of the signals that the economy is in recession. However, economists are careful to point out that the strong labor market and other factors make a recession unlikely for now. They also note the National Bureau of Economic Research, the official arbiter of recession calls, also is not expected to declare one now.Fed Chairman Jerome Powell Wednesday said he does not believe the economy is in a recession.
“Let’s say it’s negative. The headline everywhere is going to be ‘recession.’ That’s not how the markets think about it, but you’ll see people screaming ‘recession,'” said Michael Schumacher, head of macro strategy at Wells Fargo. “Then there will be a debate about it. … It will matter more to the political types than the market.”
Some economists raised their forecasts Wednesday, ahead of the second-quarter report, after the monthly durable goods report came in better tha expected, and advance trade data showed the trade gap narrowed significantly. Durable goods rose by 1.9% in June after a smaller 0.8% advance in May.Goldman Sachs economists boosted their gross domestic product forecast to 1% from 0.4% after the data.
Mark Zandi, chief economist at Moody’s Analytics, said he now has a forecast of negative 1%; before the data it was at negative 1.3%. But he, too, does not believe the negative number, when combined with the first quarter’s contraction, would signal a recession.
“I think it’s hard to see a recession when we created so many jobs. There are record unfilled positions,” he said, noting job growth has been averaging about 500,000 a month. “It’s not consistent with the idea the economy is in a recession. It’s every single industry and in every corner of the country that is experiencing robust jobs growth. It’s just not a recession.”The economy added 372,000 jobs added in June.
Zandi noted the negative growth numbers are likely to be revised higher, and the causes of the contraction are not lasting. The slowdown can be partly linked to the impact of Covid on the economy, which resulted in snarled supply chains and inventory issues.
“The weakness in Q1, Q2 GDP goes to trade and inventories primarily, and those are temporary factors in GDP,” he said. “They swing the GDP number around quarter to quarter, but they’re not persistent sources of growth or weights on growth.”
Trade subtracted 3.2 percentage points from GDP in the first quarter, but it should be a positive factor in the second quarter, Zandi added.
“We had a pretty large inventory gain in Q1. … I think this goes to disruptions in trade related to the pandemic and the timing of things,” he said. “Inventories were up significantly in Q1. … We’re going to see some inventory accumulation in Q2 but not as large an inventory gain. Therefore, that’s a drag on GDP.”
JP Morgan economists raised their growth forecast from 0.7% to 1.4% following Wednesday’s economic releases.
“The most significant surprises were tied to trade and inventories, as the June trade deficit came in narrower than we had anticipated and the June nominal inventory changes were above expectations,” the JP Morgan economists wrote in a note.
The nominal goods trade deficit narrowed to $98.2 billion in June from $104 billion in May, and exports rose 2.5% as imports fell 0.5%. The trade data is not complete, as it does not include services, but the JP Morgan economists said they now expect an improving trade deficit means more growth.
“We think the data in hand are strongly suggestive that the real trade deficit narrowed noticeably in 2Q [which we now think added 1.6%-pts to 2Q real GDP growth],” they noted.
Kevin Cummins, chief U.S. economist at NatWest Markets, said the trade data supports his view that the economy grew at a 1.5% pace in the quarter.
“It’s not to say you can’t get a negative print but it’s less likely,” he said. Cummins also stressed two negative quarters back to back do not mean the economy is actually in a recession.
“If we get another negative quarter for Q2 they call it a technical recession,” said Cummins. “The problem with that is it’s not how the NBER looks at things. … They look at monthly data. They’ll look at employment. They’ll look at personal income, consumption, industrial production, all the monthly data and decide whether the economy is in contraction or expansion.”WATCH LIVEWATCH IN THE APP More
- in Economy
Federal Reserve Makes Another Supersized Rate Increase to Tame Inflation
The central bank raised rates by three-quarters of a percentage point and suggested additional large increases could be warranted.The Federal Reserve chair, Jerome H. Powell, spoke to reporters after officials met to raise rates.Jim Lo Scalzo/EPA, via ShutterstockWASHINGTON — The Federal Reserve continued its campaign of rapid interest rate increases on Wednesday, pushing up borrowing costs at the fastest pace in decades in an effort to wrestle inflation under control.Fed officials voted unanimously at their July meeting for the second supersized rate increase in a row — a three-quarter-point move — and signaled that another large adjustment could be coming at their next meeting in September, though that remains to be decided. The decision on Wednesday puts the Fed’s policy rate in a range of 2.25 to 2.5 percent.The central bank’s brisk moves are intended to slow the economy by making it more expensive to borrow money to buy a house or expand a business, weighing on the housing market and economic activity more broadly. Jerome H. Powell, the Fed chair, said during a news conference after the meeting that such a cool-down was needed to allow supply to catch up with demand so that inflation could moderate.Mr. Powell acknowledged that the Fed’s policy changes were likely to inflict some economic pain — in particular, weakening the labor market. That has made the central bank’s rate increases unwelcome among some Democrats, who argue that crushing the economy is a crude way to lower today’s inflation rate. But the Fed chair stressed that the economic sacrifice today was necessary to put America back on a sustainable longer-term path with slow and predictable price increases.“We need growth to slow,” Mr. Powell said. “We don’t want this to be bigger than it needs to be, but ultimately, if you think about the medium- to longer term, price stability is what makes the whole economy work.”Stocks surged after the Fed’s decision and Mr. Powell’s news conference. Some rates strategists asked why, because Mr. Powell’s comments aligned with the message Fed officials have consistently sent: Inflation is too high, the central bank is determined to crush it, and interest rates are likely to further increase this year.“There’s a lot of information between now and the September meeting, and I think markets will reassess,” said Priya Misra, head of Global Rates Strategy at TD Securities. “This is an even more data-dependent Fed — and it is going to come down to whether inflation gives them the space to slow down.”The Fed began raising interest rates from near-zero in March, and policymakers have picked up the pace sharply since in reaction to incoming economic data, as price increases have continued to accelerate at an alarming rate.After making a quarter-point move to start, the central bank raised rates by half a point in May and by three-quarters of a point in June, which was the largest single step since 1994. Officials could keep raising rates briskly in September, or they could ease off the pace, depending on how the economy evolves.“We might do another unusually large rate increase,” Mr. Powell said on Wednesday. “But that is not a decision we have made at all.”What the Fed’s Rate Increases Mean for YouCard 1 of 4A toll on borrowers. More
