Evelyn Reynolds

Treasury Secretary Janet Yellen told CNBC on Friday that the administration’s infrastructure spending proposal will lower inflation at a time when it is increasing rapidly.
Speaking from Rome, she insisted that “what this package will do is lower some of the most important costs, what they pay for health care, for child care. It’s anti-inflationary in that sense as well.”
Her remarks come with growth slowing and inflation rising, both due in large part to major supply chain issues that she expects to be resolved.

Treasury Secretary Janet Yellen asserted Friday that the administration’s infrastructure spending proposal will lower inflation by reducing costs vital to households.
Speaking to CNBC from Rome where she is attending the G-20 conference of global leaders, Yellen renewed her push for White House spending plans that are unpopular with several factions of Congress and have yet to be approved.

“I don’t think that these investments will drive up inflation at all,” she told CNBC’s Sara Eisen during a live “Worldwide Exchange” interview.
The $1 trillion infrastructure and companion $1.8 trillion climate and social spending spending plans have been pared back considerably during negotiations with Congress. At their core is an effort to improve the nation’s infrastructure, over which the Biden administration has cast a wide umbrella of not only the traditional investments in roads and bridges, but also across a wide swath of social programs like early child care.
Additional spending has drawn fears of inflation at a time when prices are rising close to their fastest pace in 30 years, but Yellen said the package will not exacerbate the pressures.

“It will boost the economy’s potential to grow, the economy’s supply potential, which tends to push inflation down, not up,” she said. “For many American families experiencing inflation, seeing the prices of gas and other things that they buy rise, what this package will do is lower some of the most important costs, what they pay for health care, for child care. It’s anti-inflationary in that sense as well.”
Yellen’s remarks come at a tenuous time for the U.S. economy.

Not only has inflation risen, but growth also has decelerated. Due in large part to supply chain issues that have left dozens of ships stranded at U.S. ports, the pace of gross domestic product growth slowed to 2% in the third quarter, the slowest rate since the pandemic-induced recession ended in April 2020.
Part of the administration’s G-20 agenda will be addressing its pet economic concerns, including the implementation of a global minimum for corporate taxes, as well as climate change and the supply chain issues that have hampered growth and threaten to cut into holiday spending patterns. Yellen said she expects the supply chain situation “will be addressed over the medium term.”
She called the White House’s Build Back Better program “transformational” in addressing the economy’s needs as the nation seeks to emerge from the Covid-19 pandemic. She insisted the spending plans are “fully paid for” through tax proposals primarily aimed at higher earners and corporations.
“I think it really helps us invest in physical capital. That’s public infrastructure that’s important to productivity growth,” she said. “There’s investment in human capital, there’s investment in research and development, the support that families will receive that will help them participate in the labor market.”
Yellen added that she’s hopeful economic growth will accelerate and inflation will recede.
Economic officials, including Federal Reserve Chairman Jerome Powell, have become less willing to use the word “transitory” to describe inflation as price pressures already have lasted longer than anticipated.
Yellen said she still expects inflation to ebb over time and return to its longer-run average around 2%, which is the Fed’s goal.
“I think it’s still fair to use [‘transitory’] in the sense that even if it doesn’t mean a month or two, it means a little bit longer than that. I think it conveys that the pressures that we’re seeing are related to a unique shock to the economy,” she said. “As the United States recovers and as vaccinations proceed globally, and the global economic activity revives, that pricing pressure will ease.”

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Annual inflation is climbing at the fastest pace in three decades in the United States, according to data released Friday, keeping pressure on the Federal Reserve and White House as they try to calibrate policy during a tumultuous period marked by strong consumer demand and quickly rising prices for couches, cars and housing.Jerome H. Powell, the Fed chair, has increasingly acknowledged that inflation is lasting longer than central bankers had expected. While Fed officials believe inflation will fade as supply chain snarls unravel and consumer demand for goods cools, it remains unclear when that will happen. Janet L. Yellen, the Treasury secretary, has predicted that rapid price jumps will cool by later next year.Still, the current pace of inflation has become an uncomfortable political problem for President Biden and has created a delicate balancing act for the Fed, which is still trying to get the labor market back to full strength. Prices climbed by 4.4 percent in the year through September, according to the Personal Consumption Expenditures price index, which is the central bank’s preferred inflation gauge. That beats out recent months to become the fastest pace of increase since 1991.Between August and September, prices climbed by 0.3 percent. That is in line with what economists expected and slower than rapid numbers posted earlier in the summer. Policymakers may take that as a sign that inflation was moderating, if still rapid on an annual basis, coming into the fall.Friday’s data reconfirms what more timely inflation measures like the Consumer Price Index had already shown: Inflation continues to run at a rapid pace in the United States. That is happening in large part because supply chains are struggling to keep up with strong demand, thanks to virus-tied factory shutdowns, clogged ports and a shortage of transit workers, among other factors. The combination has made it hard to buy a kitchen table or a used car, and has caused the prices of many goods to jump sharply.As prices climb, the Fed is preparing to slow down the large-scale bond purchases it had been using to lower long-term borrowing costs and support the economy. The central bank has been buying $120 billion in Treasury and mortgage-backed securities, but it is poised to announce its plan to slow that program as soon as next week. Mr. Powell has said buying could stop altogether by mid-2022.That would leave the Fed in a position to raise its policy interest rate, its more traditional and arguably more powerful tool, should it need to do so to tamp down price increases. That rate has been set near zero since March 2020.When the Fed raises interest rates, it makes it more expensive to borrow to buy houses, cars and washing machines. As demand cools, supply catches up and price gains moderate or even reverse, reducing inflation.But the downside is that slower consumption and economic growth also lead to less business expansion and hiring. Slowing the job market is an unattractive prospect at a moment when millions of people remain out of work following lockdowns early in the pandemic and with concerns lingering about health and child care.The Fed is closely watching measures of inflation expectations, which have risen in recent weeks, as it tries to assess whether price gains might jump out of control.Understand the Supply Chain CrisisCard 1 of 5Covid’s impact on the supply chain continues. More

Traders are expecting a more aggressive response from the Federal Reserve than policymakers are currently indicating.
The market is anticipating at least two and possibly three hikes in 2022, compared to maybe one in the latest Fed forecast.

People walk past the Federal Reserve building on March 19, 2021 in Washington, DC.
Olivier Douliery | AFP | Getty Images

As inflation escalates, traders are expecting a more aggressive response from the Federal Reserve than policymakers are currently indicating.
The market Thursday morning briefly priced in a slightly better-than-even chance that the Fed hikes interest rates three times in 2022 as price pressures increase. In their most recent economic projections, Fed officials indicated a slight tilt to a hike next year, but only one.

Traders see a 65% chance of the first hike coming in June, the second as soon as September (51%) and a 51% likelihood of a third move in February 2023, according to the CME’s FedWatch tool. The most recent probability for December 2022 was 45.8%, but it had been above 50% earlier in the morning.
The switch comes with inflation as measured by the consumer price index excluding food and energy increasing 4% year over year, and up 3.6% as measured by personal consumption expenditures prices.
That 0.4 percentage point gap between “core” CPI and PCE, the latter being the Fed’s preferred measure, is likely to expand in the coming year due to rising shelter prices, according to Goldman Sachs.
A gauge of shelter costs which measures the level of rents property owners could get for their dwellings makes up 23.6% of PCE, part of the overall shelter category that comprises about one-third of the popular inflation gauge.

While owners’ equivalent rent increased just 2.9% on a year-over-year basis in September, it is expected to accelerate into next year and broaden the gap between CPI and PCE.

Goldman said the spread also will expand because of rising auto prices that could take awhile to fall, and a “spike” in health insurance costs as calculated in the Labor Department’s CPI. The Commerce Department measures PCE prices.
In all, the firm forecasts CPI inflation to register in the mid-5% range to start 2022 before drifting down to 4% by midyear and 3.1% by the end – still about a full percentage point above the Fed’s favored measure.
“While the PCE index is the Fed’s preferred inflation measure, Fed officials look at many measures, and it increasingly appears that the full set of inflation data will look quite hot on a year-on-year basis around the middle of next year when tapering ends,” Goldman economists David Mericle and Spencer Hill said in a note. “As we noted recently, this increases the risk of an earlier hike in 2022.”
The majority of Fed officials who have spoken on inflation say they think it’s temporary – “transitory” is the preferred term – and likely to clear up once supply chain issues have dissipated and along with demand for goods over services.
Markets will get another look at the Fed’s primary inflation gauge Friday, with the Dow Jones estimate for a 3.7% year-over-year core PCE increase in September.

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The Transportation Department and the state are teaming up on the program, which aims to prevent a repeat of the supply-chain crisis by bolstering ports and other sources of bottlenecks.WASHINGTON — The Transportation Department will team up with California to provide billions in loans to strengthen the state’s overwhelmed ports and supply-chain infrastructure, in an effort to prevent a repeat of the bottlenecks that have crippled the flow of goods into and out of the United States, officials announced on Thursday.Most of the projects will probably take years to fund and complete, a department spokesman said, so the initiative will offer little relief for the supply-chain crisis now gripping the globe. But with potentially more than $5 billion in loan money on offer, officials say the investment is a necessary step to bolster the state’s aging infrastructure.The loans could be used to upgrade ports, expand capacity for freight rail, increase warehouse storage and improve highways to reduce truck travel times. The Transportation Department will provide some of the loan money through its own programs, while also working with the California State Transportation Agency to identify other financing opportunities.Backlogs of ships at ports and shortages of shipping containers, truck drivers and warehouse workers have aggravated the delivery delays and rising prices that began when coronavirus outbreaks shut down factories around the world even as demand for goods spiked. The Biden administration moved this month to nearly double the hours that the Port of Los Angeles is open, shifting to a 24/7 operation.“Our supply chains are being put to the test, with unprecedented consumer demand and pandemic-driven disruptions combining with the results of decades-long underinvestment in our infrastructure,” Pete Buttigieg, the transportation secretary, said in a statement. “Today’s announcement marks an innovative partnership with California that will help modernize our infrastructure, confront climate change, speed the movement of goods and grow our economy.”The announcement comes as President Biden and lawmakers try to push through Congress their own major infrastructure plan, which includes money for ports and other transportation initiatives. Progressive lawmakers in the House have resisted throwing their support behind the bipartisan infrastructure bill as leverage while negotiations continue over a separate $1.85 trillion economic and environmental bill.David S. Kim, the secretary of the California State Transportation Agency, said it was the first time California had worked with the federal government to issue loans for infrastructure projects on such a broad scale.“Our supply-chain infrastructure is outdated,” Mr. Kim said. “Now’s the time to modernize it and prepare our system for what will be huge growth and huge demand for years to come.”The partnership comes after Gov. Gavin Newsom of California signed an executive order last week directing state agencies to identify longer-term solutions to alleviate congestion at California ports, which he said were “key” to the country’s supply chain. Mr. Newsom said the new agreement would help accelerate upgrades to the state’s infrastructure system.“This innovative federal-state partnership will help us fast-track those projects that will make our ports and infrastructure even more efficient,” Mr. Newsom said in a statement.California’s budget this year includes $250 million for ports, $280 million for infrastructure projects at and around the Port of Oakland, and $1.3 billion over three years for zero-emission trucks, transit buses and school buses, including the deployment of more than 1,000 zero-emission port drayage trucks. More

The proposal to fund the president’s sprawling spending plan mostly turns up the dial on more conventional tax policies, while trying to curb maneuvers that allow tax avoidance.WASHINGTON — President Biden’s new plan to pay for his climate change and social policy package includes nearly $2 trillion in tax increases on corporations and the rich. But many of the more contentious and untested proposals that Democrats have been considering in recent weeks were left on the cutting-room floor.The latest proposal reflects the reality that moderate Democrats are unwilling to back certain ideas aimed at raising money, including taxing the unrealized capital gains of billionaires and giving the Internal Revenue Service more insight into the finances of taxpayers. Ultimately, the package of tax increases mostly turns up the dial on more conventional tax policies, while adding some new wrinkles to curb maneuvers that allow tax avoidance.“I think in terms of who they’re targeting, they did decide to target the larger population of very rich people and not just get the money from a very small group of superrich people,” said Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center.Here’s a look at what’s in the new tax plan:Taxing the rich.Instead of a wealth tax or a special tax on billionaires, Mr. Biden rolled out a new “surtax” on income for multimillionaires and billionaires. It would effectively raise the top tax rate on ordinary income to 45 percent for the highest earners.Those with adjusted gross income of more than $10 million would face an additional 5 percent tax on top of the 37 percent marginal tax rate they already pay. Those making more than $25 million would face an extra 3 percent surtax.The Biden administration estimates that these tax increases would hit the top .02 percent of taxpayers and raise $230 billion of tax revenue over a decade.The plan also aims to ensure that people making more than $400,000 are not able to use loopholes to avoid paying a 3.8 percent Medicare tax. The White House estimates that provision alone will generate $250 billion in tax revenue over the next 10 years.Making corporations pay more.Borrowing a page from his campaign playbook, Mr. Biden wants to impose a 15 percent minimum tax on profitable companies that have little to no federal tax liability. Many profitable companies are able to reduce or eliminate their tax liability through the use of tax credits, deductions and previous losses that can carry over. The new tax would apply to companies with more than $1 billion in so-called book income — profits that firms report to their shareholders but not to the I.R.S.The plan is meant to ensure that the approximately 200 companies that pay no corporate income tax will have to pay some money to the federal government.The White House estimates the provision, which was also included in a plan presented by Senate Democrats, will raise an additional $325 billion in tax revenue over a decade.Chye-Ching Huang, the executive director of the Tax Law Center at New York University, said on Thursday that the proposal could mean that financial statements where book income is reported could become the new “locus for tax avoidance.”A separate proposal would also enact a 1 percent surcharge on corporate stock buybacks. Buybacks have surged along with the stock market, with cash-rich firms like Apple, JPMorgan Chase and Exxon spending billions of dollars each year to buy back, then retire, shares in their own companies. That can help drive up the company’s stock price, enriching both shareholders and corporate executives whose compensation is often tied to their firm’s stock performance.The provision is projected to raise $125 billion over 10 years.Ending the tax race to the bottom.Mr. Biden’s framework would raise the tax that companies pay on foreign earnings to 15 percent, putting the United States in line with a global minimum tax that is being completed at the Group of 20 summit in Rome this week.The Biden administration initially wanted to double the current rate to 21 percent from 10.5 percent. In settling on 15 percent, the U.S. rate would match what was agreed to by the 136 countries participating in the global deal and could blunt criticism that American companies will face a competitive disadvantage.The global agreement is meant to end corporate tax havens and stop what Treasury Secretary Janet L. Yellen describes as the “race to the bottom” of declining corporate tax rates around the world.To deter companies from finding ways to avoid the tax, the plan would impose a penalty rate on foreign corporations based in countries that are not part of the agreement.The Biden administration projects the international plans would raise $350 billion over a decade.Narrowing the tax gap.White House and Treasury Department officials have spent months pushing a proposal to narrow the $7 trillion gap in taxes that are owed by individuals and businesses but not collected. The administration initially wanted to invest $80 billion in additional enforcement staffing at the I.R.S. and require banks to hand over more information about the finances of their customers.Under the new proposal, the I.R.S. would get more money to ramp up audits of people making more than $400,000. However, the new bank reporting proposal — which the Treasury has called critical to its ability to hunt down hidden revenue — was conspicuously absent. A lobbying campaign from banks prompted huge blowback from lawmakers, including Senator Joe Manchin III, a West Virginia Democrat whose vote is critical to passing the overall package.Treasury officials and a group of Senate Democrats are continuing to negotiate with Mr. Manchin on narrowing the proposal in a way that he could support.As it stands, the plan to bolster I.R.S. enforcement is projected to raise $400 billion over a decade, down from the $700 billion in the original proposal.Reducing the deficit, maybe.Mr. Biden said on Thursday that his plans were “fiscally responsible” and claimed that the proposals, if enacted, would reduce the country’s budget deficit.The $2 trillion of proposed tax increases would more than offset the $1.85 trillion in spending on housing, child care and climate initiatives. However, nonpartisan scorekeepers such as the Congressional Budget Office have in the past offered less rosy projections of what Biden administration proposals might actually raise in revenue.Additional I.R.S. enforcement personnel will take years to get up to speed, and audits could be less effective without the additional bank information the Treasury Department is seeking.Some Democratic lawmakers are also still fighting for the inclusion of provisions that could actually cost money, including a partial or temporary restoration of SALT, the state and local tax deduction that Republicans capped in 2017. Last-minute additions such as that could add to the cost of the overall package. More

Pending home sales fell an unexpected 2.3% in September compared with August, according to the National Association of Realtors.
Analysts had predicted a slight monthly gain. Sales were 8% lower compared with September 2020.
Mortgage rates rose sharply in the middle of September.

A pending sale sign in front of a home in Miami.
Getty Images

Pending home sales, which are a measure of signed contracts to buy existing homes, fell an unexpected 2.3% in September compared with August, according to the National Association of Realtors.
Analysts were predicting a slight monthly gain. Sales were 8% lower compared with September 2020.

Pending sales are a forward-looking indicator of closed sales in one to two months.
Sales may have dropped due to higher mortgage rates. The average rate on 30-year fixed-rate mortgages fell below 3% in July and stayed there until the first week of September, according to Mortgage News Daily. Then it began rising and crossed over 3%, ending the month at 3.15%.
Buyers are also still contending with very high home prices. Price gains have been close to 20% year over year. There was a sign, however, in August that the market was cooling, with fewer bidding wars and slightly more supply coming up for sale.
“Contract transactions slowed a bit in September and are showing signs of a calmer home price trend, as the market is running comfortably ahead of pre-pandemic activity,” said Lawrence Yun, NAR’s chief economist. “It’s worth noting that there will be less inventory until the end of the year compared to the summer months, which happens nearly every year.”
Regionally, pending sales in the Northeast fell 3.2% month over month and were down 18.5% from a year ago. In the Midwest, sales dropped 3.5% for the month and 5.8% annually.
Sales transactions in the South decreased 1.8% for the month and 5.8% from September 2020. In the West sales fell 1.4% monthly and 7.2% from a year ago.

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Twitter and Square CEO Jack Dorsey recently issued a dire economic prediction, complete with a frightening phrase: hyperinflation.
“Hyperinflation is going to change everything. It’s happening,” Dorsey tweeted on Oct. 22. Later, in response to a follower’s follow-up question, Dorsey added that “[hyperinflation] will happen in the U.S. soon, and so the world.”

Such an ominous proclamation begs questions like: “What is hyperinflation?” and “Could it really happen in the U.S. ‘soon’ or at all?”

The extreme rarity of hyperinflation

Hyperinflation is a term economists use to describe a period of extremely high inflation, which measures the rate of rising prices for goods and services. Typically, an economy has to see an inflation rate of greater than 50% for at least a month before economists use the hyperinflation label.
Periods of hyperinflation are actually extremely uncommon, according to Steve H. Hanke, a professor of applied economics at Johns Hopkins University and an expert in the area of hyperinflation. 
“Hyperinflations are rare birds. By my count, there have only been 62 episodes of hyperinflation in world history, and none have occurred in the United States,” Hanke tells CNBC Make It. 
Hanke — who closely studied previous cases of hyperinflation, including a case in Zimbabwe more than a decade ago that was caused by excessive government spending and a failing economy — has called Dorsey’s hyperinflation predictions “unfounded.”

For context, the Labor Department’s consumer price index (CPI), which is a commonly used measure for inflation, has increased by 5.4% over the past 12 months. That’s the highest annual rate increase in the U.S. since 2008, but it’s still far below the threshold for hyperinflation.
“Words and their definitions are very important, and the word ‘hyperinflation’ comes with a very precise definition,” Hanke says. 
The highest U.S. inflation rate of the past century came in the period just after World War II, when inflation jumped by nearly 20% in 1947 amid post-war supply shortages.

How cryptocurrency could play into Dorsey’s warning

As CNBC previously noted, Dorsey is a well-known advocate for cryptocurrency, namely bitcoin. Square also owns some bitcoin, and has tentative plans to mine the cryptocurrency.
Extended periods of hyperinflation can cause entire currencies to collapse, which suggests that Dorsey’s prediction could be a subtle plug for investing in cryptocurrencies as a hedge against massive inflation. Investors like billionaire Paul Tudor Jones have also touted cryptocurrency for the same reason.
“I think people who are worried about inflation use that as a reason to justify going into bitcoin,” Atay Goldstein, a professor of economics and finance at the University of Pennsylvania’s Wharton School, tells CNBC Make It. 

Advocates for cryptocurrencies like bitcoin say that they are less subject to devaluation from inflation because of their limited supply, Goldstein notes, though skeptics suggest bitcoin could still be vulnerable in a period of high inflation.
Whatever his motivation, Dorsey isn’t the only one making dire hyperinflation predictions. Some of that speculation has come in the form of rampant internet rumors that the U.S. Federal Reserve is printing too much money through the central bank’s monetary policies, which could lead to devalued U.S. currency and price hikes for consumers.
Last year, billionaire Paul Singer, the founder of hedge fund Elliott Management, wrote in a letter to investors that the monetary policies the Fed adopted during the Covid-19 pandemic could lead to a period of hyperinflation “lurking just out of sight.”

Why experts say Dorsey’s claims are ‘totally ridiculous’

Most economists, however, have dismissed this talk as overly dramatic. David Rosenberg, an economist and president of Rosenberg Research, told CNBC’s “Trading Nation” this week that the trend of rising prices in the U.S. is simply due to supply chain issues brought on by the ongoing pandemic. The idea that the current rate of inflation could grow to the point of hyperinflation, bringing down the U.S. economy, is “totally ridiculous,” he said.
Similarly, tech investor Cathie Wood, founder and CEO of investment management firm Ark Invest, also rebutted Dorsey’s hyperinflation fears this week. In a tweet on Monday, Wood wrote that she wrongly predicted runaway inflation in 2008, as a result of the Fed’s monetary policies aimed at overcoming the financial crisis.
Now, Wood is predicting a period of deflation in the near future, as a result of tech innovation and prices falling once wrinkles in the supply chain are ironed out.
Over the summer, Federal Reserve chairman Jerome Powell said that the period of elevated inflation in the U.S. would be “transitory,” or short-lived. However, Powell said last week that “supply constraints and elevated inflation are likely to last longer than previously expected and well into next year.”
Goldstein admits there’s at least some possibility that higher inflation could last longer than 2022. But he still counts himself among the economists who are optimistic that the inflationary period we’re experiencing is “more likely to be transitory than persistent.”
That’s especially because the economy is still recovering from “an unusual period,” he says, referring to the pandemic and supply chain issues. He’s confident, he says, that lawmakers and monetary policymakers at the Fed will take the appropriate steps to rein in inflation, including tapering asset purchases and raising interest rates.
Hanke is less optimistic. He recently wrote in The Wall Street Journal that he expects U.S. inflation between 5% and 6% in 2022, and that the elevated inflation rate will persist for two to three years. 
But in a further rebuttal of Dorsey’s prediction, Hanke also wrote on Twitter on Tuesday that his prediction for inflation is still “nowhere near the annual rate required to qualify for hyperinflation.”
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The U.S. economy grew at a 2% annualized pace in the third quarter, its slowest increase since the end of the 2020 recession.
Decelerations in consumer spending and residential investment helped keep the number lower.
Weekly jobless claims fell more than expected last week to a fresh pandemic-era low of 281,000, below the 289,000 estimate.

The U.S. economy grew at a 2% rate in the third quarter, its slowest gain of the pandemic-era recovery, as supply chain issues and a marked deceleration in consumer spending stunted the expansion, the Commerce Department reported Thursday.
Gross domestic product, a sum of all the goods and services produced, grew at a 2.0% annualized pace in the third quarter, according to the department’s first estimate released Thursday. Economists surveyed by Dow Jones had been looking for a 2.8% reading.

That marked the slowest GDP gain since the 31.2% plunge in the second quarter of 2020, which encompassed the period during which Covid-19 morphed into a global pandemic that resulted in a severe economic shutdown that sent tens of millions to the unemployment lines and put a chokehold on activity across the country.

Declines in residential fixed investment and federal government spending helped hold back gains, as did a surge in the U.S. trade deficit, which widened to a near-record $73.3 billion in August.
The drops mostly offset increases in private inventory investment, a meager gain in personal consumption, state and local government spending and nonresidential fixed investment.
Consumer spending, which makes up 69% of the $23.2 trillion U.S. economy, increased at just a 1.6% pace for the most recent period, after rising 12% in the second quarter.
Spending for goods tumbled 9.2%, spurred by a 26.2% plunge in expenditures on longer-last goods like appliances and autos, while services spending increased 7.9%, a reduction from the 11.5% pace in Q2.

The downshift came amid a 0.7% decline in disposable personal income, which fell 25.7% in Q2 amid the end of government stimulus payments. The personal saving rate declined 8.9% from 10.5%.
Federal government spending fell by 4.7%, which the Commerce Department said was due to a halt in services and processing for the Paycheck Protection Program, a pandemic-era initiative aimed at providing bridge funding to businesses impacted by the shutdown.
In a separate economic report, jobless claims totaled 281,000 for the week ended Oct. 23, another pandemic-era low and better than the 289,000 estimate. The total marked a decrease from the previous week’s 291,000. Continuing claims fell by 237,000 to 2.24 million, and those receiving benefits under all programs dropped by 448,386 to 2.83 million.

Stock market futures remained higher after the report while government bond yields also climbed.
The July-to-September period saw a major clogging of the nation’s supply chain, which in turn dampened a recovery that began in April 2020 following the shortest but steepest recession in U.S. history.
Shortages in labor and soaring demand for goods over services contributed to the bottleneck, which is not expected to ease until after the holiday season.
Despite the Q3 weakness, economists largely expect the U.S. to bounce back in the fourth quarter and continue growth into 2022.
Another significant factor for the Q3 number was the summertime rise of the Covid delta variant, a situation that has reversed itself in much of the country. Consumer activity, particularly in the vital services part of the economy, appears to have picked up and could fuel a late-year growth burst.
“As Delta cases continue to subside, there may be more growth in the fourth-quarter as consumers will be more willing to spend on services involving in-person interactions,” said Dawit Kebede, senior economist at the Credit Union National Association. “The supply chain challenges, however, will likely continue until next year making it difficult to satisfy increased consumer demand.”
Companies during the current earnings season have noted the issues with supply chains, but many say customers are willing to pay higher prices. That in turn has helped fuel inflation, which is running close to its 30-year high and also is expected by most economists and Federal Reserve policymakers to cool next year.
Thursday’s data indicated that at least the pace of the inflation rise had taken a step back.
Core personal consumption expenditures, which exclude food and energy and are the preferred gauge by which the Fed measures inflation, rose 4.5%, a deceleration from the second quarter’s 6.1% increase but still well above the pre-Covid pace. The headline PCE price index increased 5.3% in Q3, down from 6.5% in the previous period.
This is breaking news. Please check back here for updates.

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