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    Ford Plans 6,000 New Union Jobs in Three Midwestern States

    Ford Motor said on Thursday that it was planning to invest $3.7 billion in facilities across the Midwest, much of it for the production of electric vehicles, which the company said would create more than 6,000 union jobs in the region.“We’re investing in American jobs and our employees to build a new generation of incredible Ford vehicles,” Jim Farley, the company’s president and chief executive, said in a statement. “Transforming our company for the next era of American manufacturing requires new ways of working.”The announcement, made jointly with the United Automobile Workers union, detailed investments in three states. Ford said it would invest $2 billion and create about 3,200 union jobs in Michigan, including many tied to production of the new F-150 Lightning pickup truck, the company’s highest-profile and most important bet on electric vehicles.In Ohio, Ford will spend over $1.5 billion and create nearly 2,000 union jobs, primarily to build commercial electric vehicles in the middle of this decade. The company also said it would add over 1,000 union jobs at an assembly plant in Kansas City, Mo., that will produce commercial vans, some gas-powered and some electric.The company had indicated that some of the investments would be coming, like the expansion of production capacity for the F-150 in Michigan, but had not detailed the magnitude.The moves follow Ford’s announcement last year that it would build four factories in Kentucky and Tennessee — three battery factories for electric vehicles and a truck assembly plant — irking union officials and elected leaders in Midwestern states, who worry about losing manufacturing jobs to the South.In addition to the new Midwestern jobs, Ford said it would convert nearly 3,000 temporary jobs into permanent full-time positions before the date that its contract with the U.A.W. calls for — which is after two years of employment.“We are always advocating to employers and legislators that union jobs are worth the investment,” the U.A.W. president, Ray Curry, said in a statement. “Ford stepped up to the plate by adding these jobs and converting 3,000 U.A.W. members to permanent, full-time status with benefits.”Assembling the F-150 Lightning at the Dearborn Truck Plant. Ford will add about 3,200 jobs in Michigan, many tied to the electric truck’s production.Brittany Greeson for The New York TimesSam Abuelsamid, an auto industry analyst at Guidehouse Insights, said the changes were important as a way to help Ford attract and retain labor in a tight job market, while potentially helping the company avoid costly labor unrest during negotiations over a contract that expires next year as it spends billions on the transition to electric vehicles. A six-week strike by workers at General Motors in 2019 cost that company billions of dollars.“I’m sure one thing Ford would absolutely love to avoid is the potential for a strike,” Mr. Abuelsamid said. “Keeping a positive relationship with the U.A.W. now is to their benefit.”But the investments appear unlikely to substantially diminish the broader threat that the shift toward electric vehicles poses to the autoworkers union and to employment in the U.S. vehicle manufacturing industry, which stands at around one million.“It’s about changing the perception of what’s happening,” Mr. Abuelsamid said. “It’s a balancing act between your work force and your investors,” who would prefer to see labor costs rise more slowly or decline at unionized automakers like Ford and General Motors.Because electric vehicles incorporate far fewer moving parts than gasoline-powered vehicles, they require significantly less labor — about 30 percent less, according to figures that Ford has generated.As a result, estimates suggest that the toll of electrification on auto industry jobs could be significant absent large new government subsidies. A report released in September by the liberal Economic Policy Institute, which has ties to organized labor, found that the auto industry could lose about 75,000 jobs by 2030 without substantial government investment.By contrast, the report found, if additional government subsidies encourage the domestic manufacturing of components and greater market share for vehicles assembled in the United States, the industry could add about 150,000 jobs over the same period.President Biden has backed substantial subsidies for electric vehicles, including vehicles made by unionized employees, but those measures have languished in the Senate and their prospects are uncertain.In the meantime, much of the job growth tied to electric vehicles has occurred at nonunion facilities owned by newer automakers like Tesla, Rivian and Lucid, or U.S.-based battery facilities owned wholly or in part by foreign companies like the South Korean manufacturers SK Innovation and LG Chem.In Thursday’s announcement, Ford noted that its new battery and vehicle production facilities in the South would create about 11,000 jobs. But those employees will not automatically become union members, and workers in those states tend to face an uphill battle in unionizing.For investors, however, Ford’s additional investments in electric vehicles appears to be welcome news as the company seeks to reinvent itself amid competition from the likes of Tesla and Rivian. Ford’s stock price, which had dropped substantially this year, rose more than 2 percent on Thursday.Ford also said Thursday that it sold 6,254 electric vehicles in May, a jump of more than 200 percent from a year earlier. That number included 201 F-150 Lightnings, which the company started producing in April.The company has about 200,000 reservations for the Lightning, which is central to its efforts to catch up to Tesla, and stopped accepting new ones because production will take months to meet demand.Ford indicated that sales of the truck would be much higher in the coming months as production increased and trucks in transit reached dealerships. Ford is aiming to produce 150,000 Lightning trucks a year by the end of 2023.Sales of electric vehicles — and conventional cars — have been limited by a shortage of computer chips. Ford’s overall sales of new vehicles in May fell 4.5 percent from a year earlier. Auto executives are also increasingly worried that the supply of lithium, nickel and other raw materials needed to make the batteries that power electric cars is not keeping up with the growing demand for those vehicles.Vikas Bajaj More

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    U.S. Technology, a Longtime Tool for Russia, Becomes a Vulnerability

    Global restrictions on sending advanced technology to Russia are hampering the country’s military capacity, U.S. officials say, though Russia has stockpiled American equipment for years.WASHINGTON — With magnifying glasses, screwdrivers and a delicate touch from a soldering gun, two men from an investigative group that tracks weapons pried open Russian munitions and equipment that had been captured across Ukraine.Over a week’s visit to Ukraine last month, the investigators pulled apart every piece of advanced Russian hardware they could get their hands on, such as small laser range finders and guidance sections of cruise missiles. The researchers, who were invited by the Ukrainian security service to independently analyze advanced Russian gear, found that almost all of it included parts from companies based in the United States and the European Union: microchips, circuit boards, engines, antenna and other equipment.“Advanced Russian weapons and communications systems have been built around Western chips,” said Damien Spleeters, one of the investigators with Conflict Armament Research, which identifies and tracks weapons and ammunition. He added that Russian companies had enjoyed access to an “unabated supply” of Western technology for decades.U.S. officials have long been proud of their country’s ability to supply technology and munitions to the rest of the world. But since Russia invaded Ukraine in late February, the United States has faced an unfortunate reality: The tools that Russian forces are using to wage war are often powered by American innovation.Still, while the technology made by American and European companies has been turned against Ukraine, the situation has also given the United States and its allies an important source of leverage against Russia. The United States and dozens of countries have used export bans to cut off shipments of advanced technology, hobbling Russia’s ability to produce weapons to replace those that have been destroyed in the war, according to American and European officials.On Thursday, the Biden administration announced further sanctions and restrictions on Russia and Belarus, adding 71 organizations to a government list that prevents them from buying advanced technology. The Treasury Department also announced sanctions against a yacht-management company that caters to Russian oligarchs.While some analysts have urged caution about drawing early conclusions, saying the measures will take time to have a full effect, the Biden administration has called them a success. Since Western allies announced extensive restrictions on exports of semiconductors, computers, lasers, telecommunications equipment and other goods in February, Russia has had difficulty obtaining microchips to replenish its supply of precision-guided munitions, according to one senior U.S. official, who, along with most other officials interviewed for this article, spoke on the condition of anonymity to discuss matters based on intelligence.On Tuesday, when asked if a chip shortage was crippling the Russian military, Commerce Secretary Gina Raimondo, who oversees export controls, said the answer was “an unqualified yes.”“U.S. exports to Russia in the categories where we have export controls, including semiconductors, are down by over 90 percent since Feb. 24,” she said. “So that is crippling.”The restrictions halt direct technological exports from the United States and dozens of partner nations to Russia. But they also go beyond traditional wartime sanctions issued by the U.S. government by placing limitations on certain high-tech goods that are manufactured anywhere in the world using American machinery, software or blueprints. That means countries that are not in the sanctions coalition with the United States and Europe must also follow the rules or potentially face their own sanctions.Russia has stopped publishing monthly trade data since the invasion, but customs data from its major trading partners show that shipments of essential parts and components have fallen sharply. According to data compiled by Matthew C. Klein, an economics researcher who tracks the effect of the export controls, Russian imports of manufactured goods from nine major economies for which data is available were down 51 percent in April compared with the average from September 2021 to February 2022.The restrictions have rendered the old-school bombing runs on tank factories and shipyards of past wars unnecessary, Mr. Klein wrote. “The democracies can replicate the effect of well-targeted bombing runs with the right set of sanctions precisely because the Russian military depends on imported equipment.”Russia is one of the world’s largest arms exporters, especially to India, but its industry relies heavily on imported inputs. In 2018, Russian sources satisfied only about half of the military-related equipment and services the country needed, such as transportation equipment, computers, optical equipment, machinery and fabricated metal, according to data from the Organization for Economic Cooperation and Development compiled by Mr. Klein.The remainder of equipment and services used by Russia were imported, with about a third coming from the United States, Europe, Japan, Taiwan, Australia and other partner governments that imposed sanctions together on Moscow.A printed circuit board from a cruise missile internal computer collected by Conflict Armament Research during its investigation.via Conflict Armament ResearchU.S. officials say that in concert with a wide variety of other sanctions that ban or discourage commercial relations, the export controls have been highly effective. They have pointed to Russian tank factories that have furloughed workers and struggled with shortages of parts. The U.S. government has also received reports that the Russian military is scrambling to find parts for satellites, avionics and night vision goggles, officials say.Technology restrictions have harmed other Russian industries as well, U.S. officials say. Equipment for the oil and gas industry has been degraded, maintenance for tractors and heavy equipment made by Caterpillar and John Deere has halted, and up to 70 percent of the commercial airplanes operated by Russian airlines, which no longer receive spare parts and maintenance from Airbus and Boeing, are grounded, officials say.But some experts have sounded notes of caution. Michael Kofman, the director of Russia studies at CNA, a research institute in Arlington, Va., voiced skepticism about some claims that the export controls were forcing some tank factories and other defense companies in Russia to shutter.“There’s not been much evidence to substantiate reports of problems in Russia’s defense sector,” he said. It was still too early in the war to expect meaningful supply chain problems in Russia’s defense industry, he said, and the sourcing for those early claims was unclear.Maria Snegovaya, a visiting scholar at George Washington University who has studied sanctions on Russia, said the lack of critical technologies and maintenance was likely to start being felt widely across Russian industry in the fall, as companies run out of parts and supplies or need upkeep on equipment. She and other analysts said even the production of daily goods such as printer paper would be affected; Russian companies had bought the dye to turn the paper white from Western companies.“We expect random disruptions in Russia’s production chains to manifest themselves more frequently,” Ms. Snegovaya said. “The question is: Are Russian companies able to find substitutes?”U.S. officials say the Russian government and companies there have been looking for ways to get around the controls but have so far been largely unsuccessful. The Biden administration has threatened to penalize any company that helps Russia evade sanctions by cutting it off from access to U.S. technology.The Russia-Ukraine War and the Global EconomyCard 1 of 7A far-reaching conflict. More

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    Fed Vice Chair Says Another Big Interest Rate Increase Could Come in September

    Lael Brainard, the Federal Reserve’s vice chair, suggested on Thursday that the central bank might make another large rate increase into September and threw cold water on the idea that policymakers might pause rate moves after the summer — signaling instead that they are intently focused on controlling too-high inflation.Ms. Brainard, in an interview on CNBC, said market expectations for half-percentage-point increases in June and July, increases that would be twice the size of the Fed’s typical ones, seemed “reasonable.” She does not know where the economy will be in September, she said, but explained that if inflation remained rapid, another big move “might well be appropriate.” If it slows, then a smaller pace of increase might make sense.She added, however, that it was “hard to see the case for a pause” at a time when the Fed had “a lot of work to do” to get inflation down to its goal, which is 2 percent on average over time. Prices picked up by 6.3 percent on a headline basis and 4.9 percent on a core basis over the year through April.Fed officials are fighting the fastest rate of inflation since the 1980s by lifting borrowing costs, which slows down consumer and business demand, helping to bring the economy back into balance. Central bankers began to shrink their balance sheet of bond holdings this week and have already lifted their main policy interest rate by 0.75 percentage points since March, efforts that are already making mortgages and other loans pricier.“We do expect to see some cooling of a very, very strong economy over time,” Ms. Brainard said, explaining that the Fed is looking for moderation and “better balance” in the labor market.Ms. Brainard said she was looking for “a string of decelerating inflation data” to feel more confident that inflation would get back no a more sustainable path.The Fed is operating against a fraught backdrop. Ms. Brainard said there was a “fair amount of uncertainty” about the economy, citing Russia’s war in Ukraine and lockdowns in China as factors clouding the outlook.Economists have warned that the Fed could struggle to slow down the economy without tipping it into an outright recession, especially as it withdraws support rapidly and in tandem with other central banks around the world. But Ms. Brainard said there was a path where demand could cool and inflation could come down while the labor market remained strong.“We are starting from a position of strength — the economy has a lot of momentum,” she said, also citing solid business and household balance sheets. More

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    Fed Vice Chair Lael Brainard says it's 'very hard to see the case' for the Fed pausing rate hikes

    Federal Reserve Vice Chair Lael Brainard told CNBC on Thursday that she doesn’t see the central bank taking a break anytime soon from its rate-hiking cycle.
    “We’ve still got a lot of work to do to get inflation down to our 2% target,” she said.
    Despite worries over inflation, Brainard expressed confidence otherwise in the economy.

    Federal Reserve Vice Chair Lael Brainard said Thursday that it’s unlikely the central bank will be taking a break from its current rate-hiking cycle anytime soon.
    Though she stressed that Fed policymakers will remain data-dependent, Brainard said the most likely path will be that the increases will continue until inflation is tamed.

    “Right now, it’s very hard to see the case for a pause,” she told CNBC’s Sara Eisen during a live “Squawk on the Street” interview that was her first since being confirmed to the vice chair position. “We’ve still got a lot of work to do to get inflation down to our 2% target.”
    The idea of implementing two more 50 basis point rate increases over the summer then taking a step back in September has been floated by a few officials, most notably Atlanta Fed President Raphael Bostic. Minutes from the May Federal Open Market Committee meeting indicated some support for the idea of evaluating where things stand in the fall, but there were no commitments.
    In recent days, however, policymakers including San Francisco Fed President Mary Daly and Governor Christopher Waller have stressed the importance of using the central bank’s policy tools aggressively to bring down inflation running around its fastest pace since the early 1980s.
    “We’re certainly going to do what is necessary to bring inflation back down,” Brainard said. “That’s our No. 1 challenge right now. We are starting from a position of strength. The economy has a lot of momentum.”
    Economic data lately, though, has been mixed.

    ADP reported Thursday that private payrolls increased by just 128,000 in May, the slowest month yet for a jobs recovery that started in May 2020. Labor productivity in the first quarter contracted at the fastest pace since 1947, and the Atlanta Fed is tracking an anemic 1.3% growth rate for second-quarter GDP, which contracted 1.5% in the first quarter.
    Brainard said, however, that bringing inflation down remains the top priority and shouldn’t significantly harm an economy where household and corporate balance sheets are strong.
    Markets already are pricing in two 50 basis point increases at the next meetings, which Brainard called “a reasonable kind of path.” Beyond that, though, “it’s a little hard to say,” she added, noting both upside and downside risks to growth.
    In separate remarks, Cleveland Fed President Loretta Mester also said she sees consecutive 50 basis point moves ahead. While she noted that the Fed then can evaluate the progress made towards bringing down inflation, she said additional rate increases probably will be needed.
    “In my view, with inflation as elevated as it is, the funds rate will probably need to go above its longer-run neutral level to rein in inflation,” Mester said in remarks to the Philadelphia Council for Business Economics. “But we cannot make that call today because it will depend on how much demand moderates and what happens on the supply side of the economy.”
    In addition to the rate increases, the Fed in June has begun reducing the asset holdings on its nearly $9 trillion balance sheet. The process will entail allowing a capped level of proceeds from maturing bonds to roll off each month and reinvesting the rest.
    By September, the balance sheet reduction will be as much as $95 billion a month, which Brainard said will equate to two or three more rate hikes by the time the process is finished.

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    Private payrolls increased by just 128,000 in May, the slowest growth of the recovery, ADP says

    Private payrolls increased by just 128,000 in May, the lowest gain of the pandemic-era recovery, according to ADP.
    Small business took the biggest hit during the month, as companies employing fewer than 50 workers reduced payrolls by 91,000.
    Leisure and hospitality, the sector most hit most by restrictions and which has been a leader throughout the recovery, saw new hires of just 17,000.
    Weekly jobless claims fell to 200,000, a sign that while hiring may be slowing, layoffs are not accelerating.

    Job creation at companies decelerated to the slowest pace of the pandemic-era recovery in May, payroll processing firm ADP reported Thursday.
    Private sector employment rose by just 128,000 for the month, falling well short of the 299,000 Dow Jones estimate and a decline from the downwardly revised 202,000 in April, initially reported as a gain of 247,000.

    The big drop-off marked the worst month since the massive layoffs in April 2020, when companies sent home more than 19 million workers as the Covid outbreak triggered a massive economic shutdown.
    By ADP’s count — which usually differs somewhat from government figures — payrolls had increased by nearly 500,000 a month over the past year.
    May’s slowdown in hiring comes amid fears of a broader economic pullback. Inflation running around its highest level in 40 years, the ongoing war in Ukraine and a Covid-induced shutdown in China, which since has been lifted though with conditions, have generated fears that the U.S. could be on the brink of recession.
    Small business took the biggest hit during the month, as companies employing fewer than 50 workers reduced payrolls by 91,000. Of that decline, 78,000 layoffs came from businesses with fewer than 20 employees.
    “Under a backdrop of a tight labor market and elevated inflation, monthly job gains are closer to pre-pandemic levels,” ADP’s chief economist, Nela Richardson, said. “The job growth rate of hiring has tempered across all industries, while small businesses remain a source of concern as they struggle to keep up with larger firms that have been booming as of late.”

    In other economic data Thursday, initial jobless claims for the week ended May 28 totaled 200,000, a decline of 11,000 from the previous week and below the 210,000 estimate, according to the Labor Department.
    Continuing claims fell to 1.31 million, the lowest total since Dec. 27, 1969, and indicative that while hiring may be slowing, the pace of layoffs looks muted.
    Also, first-quarter productivity was revised slightly higher but still reflected a decline of 7.3%, the biggest tumble since 1947. Unit labor costs jumped by 12.6%, the biggest increase since the third quarter of 1982, according to the Bureau of Labor Statistics.
    The biggest change in the ADP count came in leisure and hospitality, the sector most hit most by restrictions and which has been a leader throughout the recovery. May saw new hires of just 17,000, even as the summer tourism season gets set to hit full swing.
    Education and health services led sectors with growth of 46,000, while professional and business services was next with 23,000 and manufacturing added 22,000. Service-providing jobs grew by 104,000, while good producers added 24,000.
    Companies with 500 or more workers led with payroll gains of 122,000, while midsize firms contributed 97,000.
    The report comes the day before the BLS issues its more closely followed nonfarm payrolls count, which is expected to show a gain of 328,000 following April’s 428,000. The unemployment rate is forecast to edge down to 3.5%, which would tie for the lowest since December 1969.
    The BLS count includes government jobs, differing from ADP, which is a tally of private payrolls.

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    Economic Scorecard: Biggest Numbers May Not Be Best, for Now

    As the Federal Reserve tries to rein in inflation without causing a recession, slower job creation and wage growth could be a plus.When it comes to the economy, more is usually better.Bigger job gains, faster wage growth and more consumer spending are all, in normal times, signs of a healthy economy. Growth might not be sufficient to ensure widespread prosperity, but it is necessary — making any loss of momentum a worrying sign that the economy could be losing steam or, worse, headed into a recession.But these are not normal times. With nearly twice as many open jobs as available workers and companies struggling to meet record demand, many economists and policymakers argue that what the economy needs right now is not more, but less — less hiring, less wage growth and above all less inflation, which is running at its fastest pace in four decades.Jerome H. Powell, the Federal Reserve chair, has called the labor market “unsustainably hot,” and the central bank is raising interest rates to try to cool it. President Biden, who met with Mr. Powell on Tuesday, wrote in an opinion article this week in The Wall Street Journal that a slowdown in job creation “won’t be a cause for concern” but would rather be “a sign that we are successfully moving into the next phase of recovery.”“We want a full and sustainable recovery,” said Claudia Sahm, a former Fed economist who has studied the government’s economic policy response to the pandemic. “The reason that we can’t take the victory lap right now on the recovery — the reason it is incomplete — is because inflation is too high.”But a cooling economy carries its own risks. Despite inflation, the recovery from the pandemic recession has been among the strongest on record, with unemployment falling rapidly and incomes rebounding fastest for those at the bottom. If the recovery slows too much, it could undo much of that progress.“That’s the needle we’re trying to thread right now,” said Harry J. Holzer, a Georgetown University economist. “We want to give up as few of the gains that we’ve made as possible.”Economists disagree about the best way to strike that balance. Mr. Powell, after playing down inflation last year, now says reining it in is his top priority — and argues that the central bank can do so without cutting the recovery short. Some economists, particularly on the right, want the Fed to be more aggressive, even at the risk of causing a recession. Others, especially on the left, argue that inflation, while a problem, is a lesser evil than unemployment, and that the Fed should therefore pursue a more cautious approach.But where progressives and conservatives largely agree is that evaluating the economy will be particularly difficult over the next several months. Distinguishing a healthy cool-down from a worrying stall will require looking beyond the indicators that typically make headlines.“It’s a very difficult time to interpret economic data and to even understand what’s happening with the economy,” said Michael R. Strain, an economist with the American Enterprise Institute. “We’re entering a period where there’s going to be tons of debate over whether we are in a recession right now.”Slower job growth could be good (or bad).The jobs report for May, which the Labor Department will release on Friday, will provide a case study in the difficulty of interpreting economic data right now.Understand Inflation and How It Impacts YouInflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Measuring Inflation: Over the years economists have tweaked one of the government’s standard measures of inflation, the Consumer Price Index. What is behind the changes?Inflation Calculator: How you experience inflation can vary greatly depending on your spending habits. Answer these seven questions to estimate your personal inflation rate.Interest Rates: As it seeks to curb inflation, the Federal Reserve began raising interest rates for the first time since 2018. Here is what that means for inflation.Ordinarily, one number from the monthly report — the overall jobs added or lost — is enough to signal the labor market’s health. That is because most of the time, the driving force in the labor market is demand. If business is strong, employers will want more workers, and job growth will accelerate. When demand lags, then hiring slows, layoffs mount and job growth stalls.Right now, though, the limiting factor in the labor market is not demand but supply. Employers are eager to hire: There were 11.4 million job openings at the end of April, close to a record. But there are roughly half a million fewer people either working or actively looking for work than when the pandemic began, leaving employers scrambling to fill available jobs.The labor force has grown significantly this year, and forecasters expect more workers to return as the pandemic and the disruptions it caused continue to recede. But the pandemic may also have driven longer-lasting shifts in Americans’ work habits, and economists aren’t sure when or under what circumstances the labor force will make a complete rebound. Even then, there might not be enough workers to meet the extraordinarily high level of employer demand.A coffee shop advertised open positions in New York. The limiting factor in the labor market is not demand but supply.Amir Hamja for The New York TimesMost forecasters expect the report on Friday to show that job growth slowed in May. But that number alone won’t reveal whether the mismatch between supply and demand is easing. Slowing job growth coupled with a growing labor force could be a sign that the labor market is coming back into balance as demand cools and supply improves. But the same level of job growth without an increase in the supply of workers could indicate the opposite: that employers are having an even more difficult time finding the help they need.Many economists say they will be watching the labor force participation rate — the share of the population either working or looking for work — just as closely as the headline job growth figures in coming months.“One can unambiguously root for higher labor force participation,” said Jason Furman, a Harvard economist who was an adviser to President Barack Obama. “Beyond that, nothing else is unambiguous.”Wage growth may need to slow.Another number will be getting a lot of attention from economists, policymakers and investors: wage growth.Employers have responded to the hot competition for workers exactly the way Econ 101 says they should, by raising pay. Average hourly earnings were up 5.5 percent in April from a year earlier, more than twice the rate they were rising before the pandemic.Normally, faster wage growth would be good news. Persistently weak pay increases were a bleak hallmark of the long, slow recovery that followed the last recession. But even some economists who bemoaned those sluggish gains at the time say the current rate of wage growth is unsustainable.“That’s something that we’re used to saying pretty unequivocally is good, but in this case it just raises the risk that the economy is overheating further,” said Adam Ozimek, chief economist of the Economic Innovation Group, a Washington research organization. As long as wages are rising 5 or 6 percent per year, he said, it will be all but impossible to bring inflation down to the Fed’s 2 percent target.Inflation F.A.Q.Card 1 of 5What is inflation? More

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    Fed report sees 'slight or modest' economic growth as inflation surges

    Most of the U.S. has been seeing just “slight or modest” economic growth over the past two months or so, according to the Fed’s “Beige Book.”
    The report said most districts showed price increases rising at “strong or robust” pace.
    The Fed is beginning its “quantitative tightening” program, which technically started Wednesday.

    Most of the U.S. has been seeing just “slight or modest” economic growth over the past two months or so, according to a Federal Reserve report released Wednesday.
    While all 12 Fed districts reported continued growth, the central bank’s periodic “Beige Book” indicated that four of the regions showed “that the pace of growth had slowed” during the previous period.

    The report covers the period from mid-April through about May 22.
    In addition to broader views on the economy, the report said most districts showed price increases rising at a “strong or robust” pace. While two districts said “rapid inflation was the continuation of a trend,” three said prices had “moderated somewhat.”
    About half the districts reported that companies were still able to pass higher prices on to consumers, though some noted “customer pushback, such as smaller volume purchases or substitution of less expensive brands.”
    “Surveys in two Districts pegged year-ahead increases of their selling prices as ranging from 4 to 5 percent; moreover, one District noted that its firms’ price expectations have edged down for two consecutive quarters,” the report stated.

    Stock picks and investing trends from CNBC Pro:

    Also, the report noted some weakness in retail as rising prices bit into sales, as well as housing, which also is being affected by higher interest rates.

    “Contacts tended to cite labor market difficulties as their greatest challenge, followed by supply chain disruptions,” the report said. “Rising interest rates, general inflation, the Russian invasion of Ukraine, and disruptions from Covid-19 cases (especially in the Northeast) round out the key concerns impacting household and business plans.”
    The release comes as the U.S. faces a cloudy economic picture.
    First-quarter GDP contracted at a 1.5% annualized pace, and the Atlanta Fed is tracking a second quarter expansion at a 1.3% rate.
    And on Wednesday, JPMorgan Chase CEO Jamie Dimon warned of darker days ahead, advising analysts and investors to “brace yourself” against a confluence of factors.
    One of Dimon’s biggest concerns is the Fed beginning its “quantitative tightening” program, which technically started Wednesday. The central bank is beginning to reduce the $9 trillion in assets it is holding on its balance sheet, a process that disrupted markets and raised growth concerns during its last iteration from 2017 to 2019.
    This time around, the Fed is taking an even more aggressive approach, eventually allowing up to $95 billion a month in bond proceeds to roll off each month, starting in September. The initial phase of the program will see up to $47.5 billion roll off.
    The Fed also is raising interest rates to combat the highest inflation the U.S. has seen in more than 40 years.
    “Shrinking central bank balance sheets add another element of ambiguity to what is already a period of heightened uncertainty,” Jonas Goltermann, senior markets economist at Capital Economics, said in a note. “After all, QT is something of an experiment: it has only been tried once before in recent times. And central bankers generally seem a lot less sure about how their balance sheet policies affect the economy and financial markets than they are about the impact of raising or lowering interest rates.”
    One important element that has kept the economy afloat has been the rapid pace of job gains.
    The Beige Book noted that employment was up “modestly or moderately” across all districts, though there were some reports of a slowing or freeze in hiring.
    “However, worker shortages continued to force many firms to operate below capacity. In response, firms continued to deploy automation, offer greater job flexibility, and raise wages,” the report said.

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    Job openings show sharp decline, but still vastly outnumber available workers

    Job openings fell by 455,000 in April, from an upwardly revised 11.855 million the previous month.
    That helped close the gap between vacancies and available workers, which was 5.46 million.
    Hirings and quits were little changed for the month.

    A man walking a dog passes by a help wanted sign advertised along East Main Street in East Islip, New York on February 17, 2022.
    Newsday LLC | Newsday | Getty Images

    Job openings fell by nearly half a million in April, narrowing the historically large gap between vacant positions and available workers, the Bureau of Labor Statistics reported Wednesday.
    The openings total declined by 455,000 from the upwardly revised March number to 11.4 million in April, about in line with the FactSet estimate, according to the bureau’s Job Openings and Labor Turnover Survey.

    That left a gap of 5.46 million between openings and the available workers, still high by historical standards and reflective of a very tight labor market, but below the nearly 5.6 million difference from March. As a share of the labor force, the job openings rate fell 0.3 percentage point to 7%.
    Policymakers at the Federal Reserve watch the jobs numbers closely for signs of labor slack. The shortage of workers has pushed wages sharply higher and fed inflation pressures running at their highest levels since the early 1980s.
    “April’s JOLTS report shows the jobs market remains squeaky tight, with near-record job openings and layoffs hitting a record low,” said Robert Frick, corporate economist at Navy Federal Credit Union. “This almost guarantees another healthy employment report on Friday and means employers’ focus is on expansion despite high inflation and pending higher interest rates.”
    However, the JOLTS report combined with a closely watched manufacturing reading to show a potential shift in the employment picture.

    The ISM manufacturing index showed that firms on balance expect to cut back on the pace of hiring. Specifically, the employment component showed a reading of 49.6, the first sub-50 result since November 2020, according to Bespoke Investment Group.

    Anything below 50 represents a reduction as the survey gauges business expansion against contraction. The headline ISM number was 56.1 for May, which was higher than April’s 55.4.
    Despite the potential slowdown in manufacturing hires, worker mobility remains strong.
    The JOLTS report showed that 4.4 million workers left their positions in April, little changed from the March reading and reflective of the ongoing “Great Resignation” that has seen unprecedented market movement amid the high demand for labor.
    Hiring was little changed on the month, though there was a drop-off in the leisure and hospitality sector. The industry saw hiring decline by 77,000, or a half percentage point fall to 7.2%. A year ago, the hire rate was 9%.
    The numbers came two days ahead of the pivotal nonfarm payrolls report for May. The Dow Jones estimate is for 328,000 more jobs added, following a gain of 428,000 in April, and the unemployment rate to drop to 3.5%.

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