Economy

Economic despair dominates social media as young people fret about the cost of living. It offers a snapshot of the challenges facing Democrats ahead of the 2024 election.Look at economic data, and you’d think that young voters would be riding high right now. Unemployment remains low. Job opportunities are plentiful. Inequality is down, wage growth is finally beating inflation, and the economy has expanded rapidly this year.Look at TikTok, and you get a very different impression — one that seems more in line with both consumer confidence data and President Biden’s performance in political polls.Several of the economy-related trends getting traction on TikTok are downright dire. The term “Silent Depression” recently spawned a spate of viral videos. Clips critical of capitalism are common. On Instagram, jokes about poor housing affordability are a genre unto themselves.Social media reflects — and is potentially fueling — a deep-seated angst about the economy that is showing up in surveys of younger consumers and political polls alike. It suggests that even as the job market booms, people are focusing on long-running issues like housing affordability as they assess the economy.The economic conversation taking place virtually may offer insight into the stark disconnect between optimistic economic data and pessimistic feelings, one that has puzzled political strategists and economists.Never before was consumer sentiment this consistently depressed when joblessness was so consistently low. And voters rate Mr. Biden badly on economic matters despite rapid growth and a strong job market. Young people are especially glum: A recent poll by The New York Times and Siena College found that 59 percent of voters under 30 rated the economy as “poor.”President Biden’s campaign is working with content creators on TikTok to “amplify a positive, affirmative message” on the economy, a deputy campaign manager said.Desiree Rios for The New York TimesThat’s where social media could offer insight. Popular interest drives what content plays well — especially on TikTok, where going viral is often the goal. The platforms are also an important disseminator of information and sentiment.“A lot of people get their information from TikTok, but even if you don’t, your friends do, so you still get looped into the echo chamber,” said Kyla Scanlon, a content creator focused on economic issues who posts carefully researched explainers across TikTok, Instagram and X.Ms. Scanlon rose to prominence in the traditional news media in part for coining and popularizing the term “vibecession” for how bad consumers felt in 2022 — but she thinks 2023 has seen further souring.“I think people have gotten angrier,” she said. “I think we’re actually in a worse vibecession now.”Surveys suggest that people in Generation Z, born after 1996, heavily get their news from social media and messaging apps. And the share of U.S. adults who turn to TikTok in particular for information has been steadily climbing. Facebook is still a bigger news source because it has more users, but about 43 percent of adults who use TikTok get news from it regularly, according to a new survey by the Pew Research Center.It is difficult to say for certain whether negative news on social media is driving bad feelings about the economy, or about the Biden administration. Data and surveys struggle to capture exactly what effect specific news delivery channels — particularly newer ones — have on people’s perceptions, said Katerina Eva Matsa, director of news and information research at the Pew Research Center.“Is the news — the way it has evolved — making people view things negatively?” she asked. It’s hard to tell, she explained, but “how you’re being bombarded, entangled in all of this information might have contributed.”More Americans on TikTok Are Going There for NewsShare of each social media site’s users who regularly get news there, 2020 vs. 2023

Source: Pew Research Center surveys of U.S. adultsBy The New York TimesMr. Biden’s re-election campaign team is cognizant that TikTok has supplanted X, formerly known as Twitter, for many young voters as a crucial information source this election cycle — and conscious of how negative it tends to be. White House officials say that some of those messages accurately reflect the messengers’ economic experiences, but that others border on misinformation that social media platforms should be policing.Rob Flaherty, a deputy campaign manager for Mr. Biden, said the campaign was working with content creators on TikTok in an effort to “amplify a positive, affirmative message” about the economy.A few political campaign posts promoting Mr. Biden’s jobs record have managed to rack up thousands of likes. But the “Silent Depression” posts have garnered hundreds of thousands — a sign of how much negativity is winning out.In those videos, influencers compare how easy it was to get by economically in 1930 versus 2023. The videos are misleading, skimming over the crucial fact that roughly one in four adults was unemployed in 1933, compared with four in 100 today. And the data they cite are often pulled from unreliable sources.But the housing affordability trend that the videos spotlight is grounded in reality. It has gotten tougher for young people to afford a property over time. The cost of a typical house was 2.4 times the typical household income around 1940, when government data start. Today, it’s 5.8 times.Nor is it just housing that’s making young people feel they’re falling behind, if you ask Freddie Smith, a 35-year-old real estate agent in Orlando, Fla., who created one especially popular “Silent Depression” video. Recently, it is also the costs of gas, groceries, cars and rent.“I think it’s the perfect storm,” Mr. Smith said. “It’s this tug of war that millennials and Gen Z are facing right now.”Inflation has cooled notably since peaking in the summer of 2022, which the Biden administration has greeted as a victory. Still, that just means that prices are no longer climbing as rapidly. Key costs remain noticeably higher than they were just a few years ago. Groceries are far more expensive than in 2019. Gas was hovering around $2.60 a gallon at the start of 2020, for instance, but is around $3.40 now.Young Americans Are Spending More and Earning MoreIncome after taxes and expenditures for householders under 25

Source: Bureau of Labor Statistics Consumer Expenditure Survey By The New York TimesThose higher prices do not necessarily mean people are worse off: Household incomes have also gone up, so people have more money to cover the higher costs. Consumer expenditure data suggests that people under 25 — and even 35 — have been spending a roughly equivalent or smaller share of their annual budgets on groceries and gas compared with before the pandemic, at least on average.“I think things just feel harder,” said Betsey Stevenson, a professor of public policy and economics at the University of Michigan, explaining that people have what economists call a “money illusion” and think of the value of a dollar in fixed terms.And housing has genuinely been taking up a bigger chunk of the young consumer’s budget than in the years before the pandemic, as rents, home prices and mortgage costs have all increased.Housing Is Eating Up Young People’s BudgetsShare of spending devoted to each category for people under 25

Source: Bureau of Labor Statistics Consumer Expenditure SurveyBy The New York TimesIn addition to prices, content about student loans has taken off in TikTok conversations (#studentloans has 1.3 billion views), and many of the posts are unhappy.Mr. Biden’s student-loan initiatives have been a roller coaster for millions of young Americans. He proposed last year to cancel as much as $20,000 in debt for borrowers who earn less than $125,000 a year, a plan that was estimated to cost $400 billion over several decades, only to see the Supreme Court strike down the initiative this summer.Mr. Biden has continued to push more tailored efforts, including $127 billion in total loan forgiveness for 3.6 million borrowers. But last month, his administration also ended a pandemic freeze on loan payments that applied to all borrowers — some 40 million people.The administration has tried to inject more positive programming into the social media discussion. Mr. Biden met with about 60 TikTok creators to explain his initial student loan forgiveness plan shortly after announcing it. The campaign team also sent videos to key creators, for possible sharing, of young people crying when they learned their loans had been forgiven.The Biden campaign does not pay those creators or try to dictate what they are saying, though it does advertise on digital platforms aggressively, Mr. Flaherty said.“It needs to sound authentic,” he said. More

Soaring U.S. government debt is reaching a point where it will begin creating larger problems, Bridgewater Associates founder Ray Dalio said Friday.
“Economically strong means financially strong,” Dalio said on CNBC’s “Squawk Box.”
The government spent $659 billion on net interest costs in fiscal 2023 to finance the debt. Dalio said that is a recipe for trouble.

Soaring U.S. government debt is reaching a point where it will begin creating larger problems, Bridgewater Associates founder Ray Dalio said Friday.
The hedge fund titan warned during a CNBC appearance that the need to borrow more and more to cover deficits will exacerbate the political and social problems the country is facing.

“Economically strong means financially strong,” Dalio said on “Squawk Box.” “Financially strong means: do you earn more than you spend? Do you have a good income statement as a country? And do we have a good balance sheet?”
The U.S. is $33.7 trillion in debt, a total that exploded by 45% since the Covid pandemic in early 2020, according to Treasury Department data. Of that total, $26.7 trillion is owed by the public. Last year, the government rang up a $1.7 trillion deficit as it sought to keep up the pace of spending.
As the debt built up and the Federal Reserve raised interest rates to try to tamp down inflation, the government spent $659 billion on net interest costs in fiscal 2023 to finance the debt.
Dalio said that is a recipe for trouble.
“The worse that gets, the more we are going to have that long-term problem,” he said. “You can see it in the numbers. It’s just a matter of numbers. We are near that inflection point.”

Along with the basic budget issues, Dalio also cautioned that foreign buyers, who make up about 40% of demand for U.S. Treasurys, have been backing off, creating a supply-demand problem.
Data through January indicates that foreign holdings of U.S. government debt total $7.4 trillion, down $253 billion, or 3.3% over the past year. China in particular has cut its holdings strongly, pulling back 17% during the period.
“You want to keep spending at the same level, there is the need to get more and more into debt. The way that works, it accelerates,” Dalio said. “We are at the point of that acceleration, which creates the supply-demand problem. It’s made worse by the other issues that we’re talking about, the internal political issue, the internal social conflict issue.”
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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The billions of euros being earned by Europe’s commercial lenders in interest on their vast deposits at central banks is penalising savers, the head of the Bundesbank has said.Joachim Nagel told an audience of mostly bankers in Frankfurt that the region’s lenders had become “less reliant on customer deposits than they used to be”. The reason for that was the “significant” excess of reserves they still held at central banks across the region — a side-effect of years of aggressive monetary easing by the European Central Bank. Those excess reserves, which amount to almost €4tn, accrue interest at the ECB’s deposit rate of 4 per cent, reducing the pressure to compete for savers’ cash by raising rates on deposits.Nagel said the policy was impeding the “transmission” of higher policy rates to the real economy by removing incentives for banks to change their lending behaviour. The comments put the Bundesbank president at odds with other rate-setters. While he is backed by some national central bank bosses, such as Austria’s Robert Holzmann, the idea has not gained enough support at the ECB.Some policymakers view the calls as a thinly veiled attempt to reduce the big losses being recorded by national central banks due to the large amounts of interest they have to pay commercial lenders. The Bundesbank warned this year that its expected losses would “probably” wipe out its €19.2bn of provisions and €2.5bn of capital.ECB president Christine Lagarde said at a press conference after its policy meeting last month in Athens that ways to tackle the issue had not been discussed. She added: “It would be actually wrong if our decisions were guided by our profit and loss accounts rather than for pure monetary policy purposes.”Commercial banks have parked €3.7tn at eurozone central banks in excess of the sums required by regulators. “Interest rates on overnight deposits have barely increased since monetary policy tightening began,” Nagel told the European Banking Congress. “Since July 2022, banks have raised these rates, on average, by a meagre 30 basis points or so. This is less than what historical patterns would suggest. I know a lot of bank customers who are disappointed by this.”Nagel called for the ECB to increase banks’ minimum reserve requirement, the amount of money they are required to hold at central banks, on which they receive zero interest.“The minimum reserve requirement is a tried and tested monetary policy instrument that could help to counteract this effect,” he said. “At this point, I see no reason to rule out a moderate increase to improve the efficiency of monetary policy.”The minimum reserve requirement is set at 1 per cent of banks’ liabilities, but Nagel pointed out that for the first 13 years after the euro’s launch in 1999, it had been 2 per cent.The Bundesbank boss said its research found that banks with large amounts of excess reserves “saw a far stronger rise” in their net interest income, which is the difference between what they earn on loans and pay on deposits. He also said it would be “unwise” for the ECB to start cutting rates “too soon”, adding that it was “highly improbable” that this would happen “anytime soon”.Eric Dor, an economics professor at the IESEG School of Management in Paris, has calculated that the annual interest on commercial lenders’ eurozone central bank deposits is €48bn in Germany, €35bn in France, €13.4bn in the Netherlands, €9.2bn in Belgium, €8.6bn in Spain and €7.9bn in Italy. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.With wars, climate change, and political disarray across the headlines, good news is hard to come by. But this week on both sides of the Atlantic there was, for once, a welcome surprise on inflation. America’s annual price growth for October dropped to 3.2 per cent — just over a percentage point above its target. In Britain, it fell by the most since 1992 to 4.6 per cent. Both were lower than expected. The sky-high price growth of the past 18 months now feels like it is in the rear-view mirror.This should be welcome news for Joe Biden and Rishi Sunak. Both the US and UK leaders face testing elections next year. Financial markets are now getting giddy over the prospect of a “soft landing” where inflation returns to more normal levels without a significant plunge in economic activity. Falling price growth, a sturdy jobs market and the possibility that interest rate cuts may come sooner than initially thought, ought to be a boon for the broader electorate. But the optimism is yet to reach consumers. The US’s Michigan Consumer Sentiment Index recently fell to a six-month low. In Britain, confidence in October dropped by the most since the pandemic started — and it remains dim in the eurozone even though inflation has fallen to a two-year low. What explains the lack of a feelgood factor?First, while inflation is falling, the overall price level is now considerably higher. In Britain, it has risen 21 per cent since January 2021. Real wage growth may be returning, but it has been negative for most of the past two years. Households still feel poorer. Indeed, in the eurozone perceived inflation is well above the actual rate.In Europe, easing food and energy costs have been the main driver behind falling inflation — but both are still elevated. In the UK, gas and electricity prices remain higher than two years ago — milk and bread are about 30p dearer. Given the prominence of these items in household budgets, pessimism seems reasonable.Second, interest rates are increasingly replacing inflation as public enemy number one. Jumps in monthly mortgage bills, for those remortgaging, and heftier credit card interest payments are eating into take-home earnings. Younger generations in particular have little experience of such high rates.Third, perceptions are shaped by more than jobs, prices and rates. Indeed, Biden is currently performing respectably in the Misery Index — the sum of inflation and unemployment — relative to previous presidents. But indicators of economic uncertainty have also remained elevated since the pandemic, and the challenges households and businesses face in planning ahead has a significant bearing on their mood.Other factors could be at play. A US study suggests 30 per cent of the gap between economic sentiment and the fundamentals could be down to partisan views. This implies that differences in politics and how people consume news can also affect outlook. What sentiment surveys actually measure is another issue. Judging by what consumers are doing — rather than what they are saying — it appears they are upbeat. Spending, particularly on travel, leisure, and entertainment across the US and Europe has been resilient — as reflected in still high services inflation. Of course, the demand for ephemeral consumption leaves households more stretched on essentials — which may explain their overall negativity. Others may be genuinely optimistic but respond negatively based on how they think the wider population is faring.Above all, consumer confidence tends to reflect collective experiences. Americans’ mood took a while to rebound after previous shocks, including the global financial crisis, even as the broader economy improved. Shaking off the gloom of the pandemic is not going to be easy. That means politicians will need more than just falling inflation to boost national vibes. More

BERLIN (Reuters) -A German court ruling that wiped billions from the federal budget could drag down growth by as much as half a percentage point next year in Europe’s biggest economy, an economy ministry source told Reuters on Friday.The coalition is scrambling to fix a large hole in its finances after a court ruling blocked the government from transferring 60 billion euros ($65 billion) in unused funds from the pandemic towards green initiatives and industry support.The assessment of the ruling is an early indication of just how damaging some in Chancellor Olaf Scholz’s coalition see it, though Finance Minister Christian Lindner on Thursday had said it was too early to assess the extent of the issue.The economy and finance ministry declined immediate comment.”According to initial rough estimates, a loss of investment funds could cause growth in 2024 to be about half a percentage point lower,” the source, who is familiar with the economy ministry’s forecasts, said.”So the ruling could have a negative impact on economic growth,” the source added.Last month, the economy ministry predicted 1.3% growth for next year.The court ruling has increased tensions in Chancellor Olaf Scholz’s already fractious government, which has seen support slump as it tackles a series of crises and the economy teeters on the brink of recession.Although the Greens want additional spending, the Free Democrats (FDP), which heads the finance ministry, reject additional debt and higher taxes.”Some of the expenditure planned for the coming year will now have to be cut, which the governing parties are likely to find difficult to agree on,” said Commerzbank (ETR:CBKG) chief economist Joerg Kraemer.The political fallout saw Economy Minister Robert Habeck from the Greens party double down on warnings that the ruling could damage German industry, disrupt climate change goals and see jobs move abroad.The Climate and Transformation Fund was designed to ensure value creation and jobs, Habeck said. “It will be used to finance the production of green steel, green chemicals, the ramp-up of hydrogen, battery cell production, and also semiconductor production to strengthen economic security,” he said.”If this is at risk, jobs and value creation are at risk. The exodus of industry is damaging our country and society.” As the upheaval continued on Friday, a parliamentary committee paused deliberations on the 2024 draft budget and saw some decisions postponed until after an extraordinary meeting next week.Some measures were agreed however, and parliament passed a multibillion-dollar tax relief package for small and medium-sized companies, aimed at unleashing new investment at a time of weak foreign demand and high interest rates.State gas and electricity price brakes, which were due to expire at the end of the year, have been extended until March 31, 2024, the German news agency dpa reported on Friday.Some specific expenditure allocations, however, will be discussed next Thursday in detail, after a special meeting on Tuesday to discuss the impact of the constitutional court ruling.Final key budget figures and new debt figures will be made public after the meeting next Thursday, instead of this week as previously expected. One of the two sections of the budget that could not be finalised contains key projects such as doubling military aid to Ukraine to 8 billion euros in the coming year.MORE LEGAL CHALLENGES THREATENED The court ruling is a boost for a resurgent main opposition Christian Democratic Union party (CDU) which had brought the suit against the government. Its leader Friedrich Merz said the CDU was considering further legal action against the 200 billion euro Economic Stabilisation Fund (ESF). The ESF was created in 2020 with the objective of supporting companies amid the coronavirus pandemic but since last year it has focused on the energy crisis, and a successful court challenge could threaten fresh turmoil.CDU lawmaker Christian Haase warned that budget proceedings should be delayed and said the 2024 budget could be deemed unconstitutional, comparing the coalition’s troubles to the sinking of the Titanic. “Now the band is playing and we are waiting for the last piece to be played next Thursday.”The chief budget officers of the coalition government accused the opposition of refusing to cooperate in budget deliberations.There are 29 special funds at the federal level, with a total volume of 869 billion euros. It is not clear which of these funds are at risk. “These fears seem overblown,” Commerzbank’s Kraemer said. “However, there are considerable risks associated with the Economic and Stabilization Fund.”For an EXPLAINER on the impact of the budget ruling, see Full Story More

With lenders earning generous profits at the expense of the central bank, some policymakers have called on the ECB to cut the interest it pays on the funds banks park with it overnight.Such a move, they say, would dampen banks’ appetite for lending and save on taxpayer funds.The ECB has so far pushed back on those calls, arguing that a framework review next spring is a more appropriate occasion for such a discussion and the benefit of forcing banks to hold more unremunerated reserves was not obvious.Nagel, a powerful voice in the 26-member Governing Council, argued that banks enjoying generous interest on their excess reserves tend to lend more, impeding the ECB’s efforts to curb inflation via tighter monetary policy. “The minimum reserve requirement is a tried and tested monetary policy instrument that could help to counteract this effect,” Nagel said. “At this point, I see no reason to rule out a moderate increase to improve the efficiency of monetary policy,” he said. “Just to remind you, over the first 13 years of the euro, the minimum reserve ratio stood at 2%.”Banks are now required to keep just 1% of certain customer deposits at the ECB, earning no interest, while the rest of their reserves earn the ECB’s record high deposit rate of 4%.An increase in the minimum reserve requirement back to 2% would be a modest change at the lower end of numbers discussed by ECB policymakers and far below the 10% rate advocated by Austrian central bank Governor Robert Holzmann. The ECB’s problem is that inflation, though down to 2.9%, could yet rise again and is forecast to take until late 2025 to fall back to the central bank’s target of around 2%. That is despite ten back-to-back rate hikes that lifted the deposit rate from negative territory to 4% by September. Such a drawn out disinflation process raises the risk that price growth gets stuck above the ECB’s target, prolonging the period of tight monetary policy. “Are we there yet? Have we seen the peak in interest rates? That is not clear yet,” Nagel said. He also pushed back against ECB critics who say the bank has overdone rate hikes, arguing there was no evidence of overtightening.”Dampening aggregate demand does not necessarily mean inducing a recession,” Nagel said. “I am optimistic that we can avoid a hard landing of the economy.” More

The PBF’s initiative comes at a critical time when the country’s central bank reserves are dwindling, currently providing an import cover for merely two to three months. This situation underscores the urgent need for external funding to maintain economic stability.Chaudhry Ahmad Jawad, the Vice President of PBF, emphasized that a clear policy on the rupee is necessary to support traders and industries during this period of economic instability that has persisted since January 2023. Jawad drew attention to the stark contrast between Pakistan’s faltering export figures and Bangladesh’s flourishing Ready-Made Garment (RMG) sector, which saw a significant 16 percent growth in exports, amounting to $18.33 billion as opposed to Pakistan’s $15.86 billion in the previous year.The devaluation of the rupee has been attributed by PBF officials to speculative trading and insufficient regulatory oversight, compounded by mismanagement in the forex market. The Real Effective Exchange Rate (REER) of the dollar against the rupee is deemed to be less than Rs250, a value influenced by these market issues.Muhammad Naseer Malik, Chairman of PBF Punjab, pointed out the difficulties in securing external funds given the limited central bank reserves and high yields in international Sukuk and Eurobond markets. His concerns were mirrored by PBF Balochistan Chairman Engr Daroo Khan Achakzai who stressed on increasing dollar inflows through exports and remittances to mitigate the current account deficit.Additionally, PBF Secretary General Punjab, Arif Ehsan Malik, highlighted growing taxation pressures and rising input costs as further obstacles to economic growth. He proposed measures to curb dollar smuggling into Afghanistan and suggested incentivizing expatriates for conducting banking transactions.The pending review of Pakistan’s program with the International Monetary Fund (IMF) was also underscored as a pivotal step for disbursing an anticipated $1 billion and for securing additional support from other financial institutions. These concerted efforts outlined by the PBF aim to navigate Pakistan through its ongoing currency crisis and restore economic equilibrium.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

The report also highlighted that reaching the Kenyan government’s ambitious growth target of a 7.5% annual expansion through structural transformation could alleviate some of the predicted climate change-induced economic damages. This could potentially decrease the projected losses to between 2.78% and 5.3%. To accomplish this, the World Bank recommends that Kenya amplify investments in critical sectors such as agriculture, digital infrastructure, energy, transportation, water resource management, livestock feed, tourism, green energy, and e-mobility.Kenya’s susceptibility to climate change is not solely an economic issue but also poses a significant threat to public health and food security. The country is predicted to see a surge in diseases, with malaria cases projected to increase by 56% and waterborne diseases by 10% by 2050. Additionally, without adaptation measures, an estimated increase in poverty could affect 1.1 million more people by mid-century.Despite contributing minimally to global emissions, Kenya’s economy is heavily dependent on sectors vulnerable to climate change. The agriculture sector, which made up about 21% of its GDP in 2022, is already grappling with challenges from extreme weather events. With public debt exceeding 10.1 trillion shillings ($66 billion) as of June and a $2-billion eurobond repayment due next year amidst skyrocketing inflation and a plunging currency, Kenya’s financial capacity for addressing these issues is strained.The World Bank’s report also underscores Kenya’s potential contribution to global emission reduction solutions, noting that over 90% of its power is generated from renewable sources like geothermal wells and hydro-generation. Expanding financial support for a wider range of climate projects could help make these initiatives more bankable and inclusive at the national level.To tackle the multifaceted threats posed by climate change, the World Bank estimates that Kenya will need approximately $62 billion by 2030 for essential adaptation measures. This highlights the urgent need for comprehensive strategies to safeguard the nation’s economic stability and the well-being of its population against the backdrop of an ever-warming planet. The World Bank advocates for enhancing resilience through domestic resources and expanding private investment in areas like livestock feed, tourism, green energy, e-mobility.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More