Economy

It was when we came to say goodbye that I realised I had turned from a valued customer into persona non grata. Wishing our waitress a good evening as we clutched our takeaway pizzas, we found her unwilling to meet our eyes, her electric American smile replaced by a sullen stare in the opposite direction. Our crime? To have left a tip of only 15 per cent.My friend — a fellow Brit — and I had ordered and sat down with two beers and a slice of bread, while waiting to collect our take-out at an Italian restaurant in Utah, where we were spending a few days of our holiday. We decided that 15 per cent would be a reasonable gratuity on our total bill for drinks and takeaway food. But what would be regarded as generous — or unnecessary — in European eyes was taken as an insult by our waitress. It was clear we had blundered.The tipping problem recurred again and again, easily the most stressful element in an otherwise wonderful holiday in the US. And it left me wondering why tipping is still so widespread — there and elsewhere. Even in America, there is no standard experience. Often a restaurant will include “tip suggestions” on bills, doing the sums for the customers on gratuities at rates of 20, 22 and 25 per cent. In other places these might start at 15 per cent. In some restaurants, such as those in US hotels, the bill might come with a service charge incorporated (as it often does in Europe) but then offer an “additional tip suggestion” to those wanting to pay more. Some simply leave it all to the judgment of the customer. Many service staff regard tips as a vital source of income. Others complain the system is exploited by managers to reduce their wage costs and would rather receive better pay.In the US, tips are seen as part of the server’s wages, since the law allows businesses to pay so-called “tipped workers” less than the minimum wage if the difference is made up by tips. But this varies between states, with some requiring all staff — in receipt of tips or not — to be paid the minimum wage. For the visitor, the rules are anything but clear. The confusion is greatest in coffee shops, where customers stand in a queue and pick up their own drinks, but baristas may often be low-paid “tipped workers” more likely to expect tips to make ends meet. After three weeks I was still unable to discern whether I had inadvertently humiliated my servers or made a mug of myself by overpaying, adding cost to an already expensive trip. But in many venues it was clear that the view of tipping as a reward for good service had long been superseded by an expectation that customers are obliged to bolster staff wages. International travellers have always had to judge when, where, to whom and how much to give. In Turkey, a modest tip in restaurants is appreciated, but is not customary for taxi drivers or in bars or cafés. In France, the law requires most restaurants to levy a 15 per cent service charge and waiting staff are entitled to pensions and other standard benefits, so any tip on top is seen as an “extra” reward, not an entitlement. In Britain a similar service charge is commonly applied, but the rate varies. Research by trade magazine The Caterer found hospitality workers who received tips in 2019 made £29 a day on average in tips; while those working in London took £75 a day in tips.What would a world without tipping look like? We don’t need to imagine this — we can travel to Japan, where tips are an exception and customers who try to offer a gratuity in a mainstream restaurant are more likely to cause offence. This global variance in attitudes weakens the case for tipping by underlining its status as a historical quirk dating back at least to feudal times. But the best argument against it is that other areas of life work perfectly well without it. Would we want our doctor to rely on tips based on the accuracy of their diagnosis? Or the pilot of our passenger jet for a successful landing? We don’t, because we understand that a transparent salary is the best way of paying somebody for doing a good job.The capacity of tipping to cause embarrassment for the visitor — or generate rancour between the server and the served — has been amplified by growing economic strains. The rising cost of living and the struggles faced by service industry companies and staff emerging from Covid lockdowns has added to the sense of jeopardy for customers and sharpened the potential for grievance among workers. Many people felt the need to support service industries that had been forced to shut down over lockdowns, but they themselves are now facing bigger bills, with inflation rising across the globe. Restaurant managers will no doubt regard a call to ban tipping as a bad joke at a time when they are already asking customers to absorb some of the pain of rising food and wage costs. Without tips or service charges, the amount printed on the bill would have to rise. But customers know that their tab is going up, whether via tips or higher prices. If companies choose to pass on more of them as service charges, they are likely to see fewer clients. Tipping is hardly a cost-free expense to businesses. It imposes an administrative burden, since gratuities are typically taxed and must be accounted for. In the UK, a so-called “troncmaster” — a manager, an outside specialist or one of the waiting staff — sets the distribution of the service charge between the front-of-house staff and the back-of-house chefs and kitchen workers (another source of friction) and ensures HM Revenue & Customs gets its take. The US government also levies a federal tax on tip income — hence one New Yorker friend insists on calculating her tips using the pre-tax total printed on the bill. “I’m not tipping the government,” she argues.Instead of fading away, though, tipping expectations are becoming more entrenched with the introduction of card and touchscreen payment technology. In the past, a customer might throw notes and coins on to the table after paying the bill, leaving staff to collect them later, or put cash into a tips box at the till. Now, customers in the US are frequently presented with a touchscreen offering alternatives — three “suggested tips” at different rates, a customised tip option or “no tip”. This may speed up the transaction but it also makes the tip an unavoidable hurdle for customers to negotiate at the point of purchase, their server poised in front of them. I am under no illusion: tipping is as likely to disappear in the short term as a New York steakhouse to go vegan. But we should be asking far more questions over its role as it creeps into tax policy and new payment technologies. In 100 years’ time, will we still be arguing over the tip? James Pickford is deputy editor of FT Money. [email protected] More

Retail sales for July were flat, compared with the estimate for a 0.1% gain.
Excluding autos, sales increased 0.4% against expectations for no gain.
Falling fuel prices held back receipts at gas stations, while consumers took those savings and spent at other retailers.

Retail activity was flat in July as falling fuel prices held back gas station sales and consumers turned more heavily to online shopping, the Census Bureau reported Wednesday.
While advance retail sales were unchanged, total receipts excluding autos rose 0.4%. Economists surveyed by Dow Jones had been looking for a 0.1% increase in the top-line number and a flat total ex-autos. June’s gain was revised down to 0.8% from 1%.

Retail and food sales excluding gasoline and autos rose 0.7% from a month ago.
The numbers are adjusted seasonally but not for inflation, and come during a month when the consumer price index also was flat.
A tumble in fuel prices off their record nominal highs pushed down sales at the pump, with gas station receipts off 1.8%. Motor vehicle and parts dealers sales also fell sharply, declining 1.6%.
Gas prices had eclipsed $5 a gallon in many locations earlier in the summer, but fell through July and most recently were at $3.94 a gallon for regular unleaded, according to AAA.
“People appear to have used some of the savings from lower gas prices to spend more on other items, both in nominal and — very likely — real terms,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics. “Auto sales have been severely constrained by the chip shortage, so pent-up demand likely is substantial. July’s other losers were department stores and clothing retailers, but all these components are noisy and subject to revisions.”

Those pullbacks in gas and auto sales were offset by a 2.7% increase in online sales and a 1.5% gain in miscellaneous stores.
Consumers have been fighting to keep up with an inflationary environment that has seen prices overall increase 8.5% from a year ago, close to the highest level in 40 years. Price rises have been especially pernicious in the food and energy category; even with the July slide in energy prices, gas station receipts climbed 39.9% from a year ago.
July provided some respite from inflation pressures, and the decline in fuel costs particularly allowed consumers to spend elsewhere.
Food sales rose just 0.2%, however, even as the food price index as measured by the Bureau of Labor Statistics increased 1.1% for the month. Sales at bars and restaurants also struggled, rising just 0.1%.
Some retailers also have struggled in the current environment.
Target on Wednesday said its earnings tumbled close to 90% from a year ago as it has had to mark down prices on unwanted inventory.
The Federal Reserve has been using interest rate increases to hold back inflation. The central bank enacted consecutive 0.75 percentage point hikes in June and July and is expected to keep moving rates higher until inflation comes down to the Fed’s 2% goal.
Correction: Target on Wednesday said its earnings tumbled close to 90% from a year ago. An earlier version misstated the metric.

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WASHINGTON (Reuters) – The White House is ramping up efforts to tout the $1 trillion bipartisan infrastructure bill and the effort to refurbish roads, bridges and airports and reduce emissions.U.S. Transportation Secretary Pete Buttigieg will go on a four-day, six-state tour starting Tuesday, visiting Florida, Oklahoma, Minnesota, Ohio, Nevada and New Hampshire to talk up the infrastructure law.Buttigieg will tout grants approved in the November 2021 infrastructure law including $12 million for the Port of Tampa, $20 million to help complete the Nevada Pacific Parkway connection and expand capacity for dual access to Union Pacific (NYSE:UNP) Railroad and Burlington Northern Santa Fe rail lines and $24.5 million reconstruct roadways and pathways connecting to a major amusement park in Ohio.”We are building a team, we’re getting the money out of the door and we’re telling the story,” said White House Infrastructure Coordinator Mitch Landrieu in a Reuters interview this week.”This is a transformational bill” Landrieu said, noting it also funds public lands, clean water and electric grid projects.The administration has funded more than 5,000 projects to date and released around $113 billion. The administration will award billions of dollars in additional grants through the end of 2022, including for electric vehicle charging stations.”Over the next year or so you will be able to see these things coming out of the ground,” Landrieu said.He said U.S. agencies are working closely with states and cities on many funding programs. If states are “slow coming in, we got on the phone and called them all. We want to tell you again, ‘We’re trying to get you this money. How can we help?”On Wednesday, the Commerce Department said all 50 states submitted applications for initial planning awards under the $42.45 billion fund to extend broadband internet to unserved areas. Earlier this month, the administration said all states submitted EV infrastructure deployment plans required under the $5 billion EV charging program.”We have gotten 100% participation” on these “major structural programs so that the next big thing can happen,” Landrieu said.This week, the Transportation Department announced $1.66 billion in grants for 1,800 new buses. The 150 awards includes $116 million for New York City to buy 230 battery-electric buses to replace older diesel buses and $280,000 for Fayetteville, North Carolina to buy three light transit vehicles.Last week, the Transportation Department awarded $2.2 billion in grants to modernize roads, bridges and other projects, including $25 million for California’s High-Speed Rail program. More

A customer shops for eggs in a Kroger grocery store on August 15, 2022 in Houston, Texas.
Brandon Bell | Getty Images

July’s consumer price index report finally showed a sign of potential relief – inflation ticked up less than expected from a year ago, and was flat on the month, meaning that a basket of items and services generally stayed the same price.
But some items have fallen, on a monthly and weekly basis, potentially signaling that inflation has passed its peak and may be cooling off.

This is welcome news to consumers who have been squeezed by higher prices and are looking for any sign of relief. Some of the top items whose prices have come down include eggs, milk and gasoline.

“Fuel inflation was really big and that’s going to have a pretty meaningful impact on consumers and their spending patterns,” said John Leer, chief economist at Morning Consult. “I think that’s actually a good thing for the economy.”

Grocery aisle prices down

Many of the items that have declined are tied to food and energy, often the most volatile costs that consumers deal with.
Grocery store staples have dipped. Large white eggs cost, on average, $2.14 for a dozen, during the week of Aug. 15-21, according to the USDA. That’s a whopping 60 cent drop from the prior week, when the average was $2.74 per dozen.

The average price for a gallon of milk slipped to $3.16 from $3.24 during the period of Aug. 8-12 from the previous month, and the average price of butter fell to $3.67 from $4.68 in the same timeframe, per USDA data.

Chicken breast prices also slipped on a weekly basis during the period of Aug. 8-12, but other parts of the chicken are declining as well – chicken wing prices have been trending down and are now cost less than they did pre-pandemic, according to data from the Department of Agriculture.

Oil pulled down fuel prices

Outside of food, declines can be seen in consumer goods and services related to energy.
This is because oil prices are often subject to big price swings as the balance between supply and demand shifts. This year, the war between Russia and Ukraine threw that balance off and the price of oil spiked when countries stopped buying from Russia, a major exporter.
However, oil prices have come back down, lowering the cost of energy and particularly gasoline. The national average for a gallon of regular gasoline is $3.918 as of Friday, according to AAA. While that’s higher than it was a year ago, it’s a solid decline from the $4.495 consumers were paying for gas a month ago, and a sharp drop from the recent high of $5.016 hit in June.

I think consumers increasingly believe that inflation is going to come down.

chief economist at Morning Consult

That also potentially affected another area of the economy that saw a price dip month over month – airfares. The average price of a domestic airline ticket has dropped to $295 in August from $332 in July, according to travel site Hopper. That’s also back in-line with the average price for a domestic ticket in the same month in 2019.
Outside of fuel costs, this dip in ticket prices could be because consumer demand is fading, according to according to Kevin Gordon, a senior investment research manager at Schwab.
“That could be demand destruction,” he said, adding that the reopening from pandemic lockdowns inflated the price of things as consumers rushed to take vacations again. Now, as vacation season is winding down, that demand has fallen off.

One month doesn’t make a trend

Of course, one month of prices falling in some categories isn’t a trend.
The slowdown in price increases – and dips of costs of some items and services – may mark the beginning of declines, but more months of data would be needed to know for sure.
“I think it’s way too early to start taking a victory lap,” said Leer, adding that consumers should expect to be living in a world with elevated inflation for the next year and a half to two years.
In addition, it’s important to remember that falling prices, or inflation cooling off, may ultimately signal that the U.S. economy is slowing down.  
“You want the price pressures relieved, but what the end goal with that is probably that we’re getting closer to a recession,” said Gordon. As the Federal Reserve continues to increase its benchmark interest rate, it wants the economy to slow down but will try not to tip the U.S. into a recession which would lead to job losses.
Further, prices of other common items have remained stubbornly high and are still climbing. The price of most fruit, for instance, continues to stay high and even increase week after week, according to USDA data. Swift changes are normal as well — even though dairy fell through Aug. 12, prices of milk and butter ticked back up through Aug. 19, USDA found.
Coffee prices were up 3.5% from June to July, according to the Bureau of Labor Statistics. Housing costs such as rent have also remained high and are some of the hardest to pull back down, Gordon noted.
Still, seeing the prices of common items trend back down is a good thing for consumers and sentiment.
“I think consumers increasingly believe that inflation is going to come down,” said Leer.

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Business activity indicators in the euro zone and an inflation gauge in the United States are also on tap, while rate cuts may be looming in China. Here is a look at the week ahead from Tommy Wilkes and Marc Jones in London, Kevin Buckland in Tokyo, Ira Iosebashvili and Lewis Krauskopf in New York, Riddhima Talwani in New Delhi, Sumanta Sen in Mumbai and Vineet Sachdev in Bengaluru.1/JACKSON HOLE JAMBOREEHow big will future rate hikes be? How strong is the economy? What about quantitative tightening?Investors hope the Federal Reserve may shed light on those questions when central banking heavyweights meet on Aug. 25-27 for their annual symposium in Jackson Hole, Wyoming.U.S. stocks have screamed higher this summer, despite Fed warnings that expectations of a peak in inflation and a so-called dovish pivot from the central bank may be premature.Some investors believe Chairman Jerome Powell will push back against the market’s optimism again, reminding investors that there is one more inflation report and another jobs number before the Fed’s September meeting.Also in demand are further details on the Fed’s reduction of its $9 trillion balance sheet, known as quantitative tightening, which some investors have flagged as a potential risk to market liquidity. Graphic: Tightening up – https://graphics.reuters.com/GLOBAL-MARKETS/THEMES/zdvxozgrjpx/chart.png 2/MORE PMI PAIN?    Concerns the euro zone economy is hurtling toward recession are building. Flash purchasing managers index survey data should shed some light on how soon that might happen.    The August numbers, due on Tuesday, may show another month of business activity contraction after S&P Global (NYSE:SPGI)’s final composite Purchasing Managers’ Index (PMI), seen as a good gauge of economic health, fell to a 17-month low of 49.9 in July.    Euro zone businesses are struggling from soaring energy prices and shortages, surging inflation and expectations of higher interest rates. An economic sentiment index for euro zone powerhouse Germany recently showed investor sentiment falling in August as fears grow that the rising cost of living will hit private consumption.     Tuesday will also include the release of flash PMI numbers for the United States and Britain. Graphic: Slowing business activity – https://graphics.reuters.com/GLOBAL-MARKETS/THEMES/lgpdwyglmvo/chart.png 3/CHINA’S LIQUIDITY TRAP        More rate cuts loom in China, but analysts and investors doubt they will give any support to an economy ravaged by a property crisis and strangling COVID-19 lockdowns.    The People’s Bank of China sets the so-called Loan Prime Rate for one-year and five-year borrowing on Monday – the basis for business loans and mortgages, respectively – after recently surprising markets by cutting key bank lending rates.    The move stoked slowdown fears that sent the yuan sliding to a two-month low.    The PBOC is prodding banks to lend more, and pouring money into the financial system. But demand to borrow simply is not there, with corporates fretting about the economic outlook and consumers wary with property prices plunging. Graphic: Demand slump – https://graphics.reuters.com/GLOBAL-MARKETS/THEMES/jnvwenrwovw/chart.png 4/PRICE POINTS    With markets twitching on any inkling that surging inflation has peaked or remains at four-decade highs, the U.S. Federal Reserve’s preferred measure of prices is due on Aug. 26.    The release of the personal consumption expenditures price index for July comes after another key inflation measure, the consumer price index, was flat on a monthly basis in July, the largest month-on-month deceleration of price increases since 1973, a result that heartened stock investors.    In the 12 months through June, the PCE price index advanced 6.8%, the largest increase since January 1982.    With recession fears lingering and investors eager for any clues about the economy’s strength, data on new home sales hits on Tuesday and durable goods on Wednesday. Has U.S. inflation peaked? – https://graphics.reuters.com/GLOBAL-MARKETS/THEMES/klpykwldgpg/chart.png 5/SIX MONTHS OF WAR Wednesday marks the six-month anniversary of Russia’s invasion of Ukraine, or special military operation as Moscow called it. Not only has it been a humanitarian tragedy and plunged the world into a new Cold War, it has also been a key driver of mounting recession worries, especially in Europe where a gas crisis looms large.The region’s gas prices have nearly tripled since June alone. Rationing in powerhouse economies like Germany may well be needed, but the ECB, Bank of England and others are adamant they simply must crush the inflation it is fuelling.Other highly sensitive markets have proved remarkably elastic. Wheat and corn – of which Ukraine and Russia are both huge suppliers – have swooped right back down, while Moscow’s main source of income, oil, is now selling for less than when the invasion started. Graphic: Six months of the Ukraine war – https://fingfx.thomsonreuters.com/gfx/mkt/mypmneyobvr/Pasted%20image%201660815413565.png More

The ECB raised interest rates by an unexpectedly large 50 basis points to zero percent last month and promised more rate hikes to come, arguing that fears over excessive inflation now trump growth concerns. The inflation outlook has deteriorated further, however and price growth in Germany, the euro zone’s biggest economy, could even exceed 10% in the coming months, Rheinischen Post quoted Nagel as saying on Saturday. “The probability is rising that inflation will be higher than previously forecast and will average six point something next year,” Nagel said, indicating a big upside risk to the Bundesbank’s previous, 4.5% projection for 2023.The ECB is forecasting a rapid decline in price growth next year but its projections have been notoriously inaccurate in recent quarters, leading policymakers to question the bank’s models, which are not well equipped to factor in dramatic shifts in the economy.Nagel also acknowledged that the German economy, among the most exposed to disruptions in Russian gas supply, is “likely” to suffer a recession over the winter if the energy crisis continues to deepen.Still, the ECB should not hesitate to raise rates, Nagel said, adding that he fully supported the July move.”With the high inflation rates, further interest rate hikes must follow,” Nagel said, though he declined to discuss the size of the September move. Markets currently price in a 60 basis point hike for September and a combined 130 basis points of moves for the remainder of the year. More

WASHINGTON (Reuters) – As a political messaging war rages over $80 billion in new Internal Revenue Service funding, a U.S. Treasury official is pushing back on an informal estimate that the money could cause Americans earning less than $400,000 to pay as much as $20 billion more in taxes over a decade.Republicans have seized on the Congressional Budget Office (CBO) estimate, claiming Democratic President Joe Biden’s recently enacted, sweeping tax, drugs and climate law would break his pledge not to increase taxes on middle-class Americans. Republicans are also claiming the funding will unleash an 87,000-strong “army” of new IRS agents on American households, despite the Treasury’s plans to focus the bulk of IRS hiring on offsetting a wave of retirements and improving customer service and information technology. When the bill, formally known as the Inflation Reduction Act, was being debated in the Senate, Republican Senator Mike Crapo introduced an amendment to prohibit any use of funds to audit Americans with taxable incomes below $400,000. Responding to a request from Crapo, the CBO found that the proposed amendment would reduce revenues by $20 billion over a decade if it was enacted, his office said. A spokesperson for the CBO confirmed the figure.The amendment was rejected on a party-line vote.Asked about the claims about middle-class taxes, Natasha Sarin, Treasury Department counselor for tax policy and administration, told Reuters this week that the CBO estimate assumed a threshold of $400,000 in reported taxable income before any audits, which would exclude the middle class.Sarin said those making $400,000 and up include far wealthier people who have hidden their incomes to lower taxable incomes below $400,000, sometimes even to zero — the very people the Treasury is seeking to target for audits.A significant portion of the $20 billion estimated by CBO would be recouped from wealthier people who are under-reporting their income, she said.”People are trying to look like they are under $400,000 when actually they are well above it,” said Sarin, who as a University of Pennsylvania law professor did influential research https://www.nber.org/system/files/working_papers/w26475/w26475.pdf on policing tax evasion with former Treasury Secretary Larry Summers.The CBO has not issued a final cost estimate for the Inflation Reduction Act, which includes the IRS funds along with massive new spending on clean energy and healthcare. Sarin said the $80 billion in funding to improve enforcement, information technology and taxpayer services would actually spare more middle-class taxpayers reliant on wage income from being targeted with audits. New, modern computer systems would be better able to use data analytics and other tools to more precisely target wealthier Americans for audits, she said. More

The goal of the visit is to make progress on a staff-level agreement for an aid package “in the near term,” to help the island nation weather a severe economic crisis, the IMF said on Friday.Staff from the global lender will be in Colombo from August 24 to 31, the IMF said.”Because Sri Lanka’s public debt is assessed as unsustainable, approval by the IMF Executive Board of the Extended Fund Facility program would require adequate assurances by Sri Lanka’s creditors that debt sustainability will be restored,” the IMF said.Reuters reported on Thursday that Sri Lanka will ask Japan to invite the Indian Ocean island’s main creditor nations, including China and India, to talks on bilateral debt restructuring.The loan package being negotiated with the IMF is for between $2 billion and $3 billion according to President Ranil Wickremesinghe, who said he would present an interim budget in September focusing on fiscal consolidation measures agreed with the IMF.The country of 22 million people is facing its most severe financial crisis since independence from Britain in 1948, resulting from the combined impact of the COVID-19 pandemic and economic mismanagement.Ordinary Sri Lankans have been battling shortages for months amid crippling inflation and a devalued currency, stoking unprecedented mass protests. Thousands of people stormed the colonial-era presidential residence in Colombo, the commercial capital, in early July.Sri Lanka’s total bilateral debt earlier this year was estimated at $6.2 billion as of the end of 2020 by the IMF. It also has $14 billion of international sovereign bond debt. More