Economy

Walking into the baby aisle of my local New York pharmacy these days feels like entering a Soviet supermarket in the 1970s. Shelves usually jammed with cans of powdered baby formula are empty save for a notice warning customers they can buy a maximum of three tins each.This shortage has fuelled such a national crisis that the White House is scrambling for a response. Formula is out of stock in 43 per cent of US stores and rising. Medical professionals are having to warn desperate mothers not to risk their children’s health by diluting or making their own formula.The troubles are rooted in a highly concentrated domestic market that was distorted by government intervention and disrupted by pandemic-related hoarding, supply chain issues and safety concerns. This tangled tale holds important lessons for policymakers everywhere as they look to bring production of essential goods closer to home.The US formula market has long been dominated by just three players: Abbott, Gerber and Mead Johnson, who account for the lion’s share of sales in what had been a sluggish market. The trio owes its strength to the US government. An estimated two-thirds of all formula is purchased through the Women, Infants and Children nutrition programme, a federal funding scheme for low-income families which contracts solely with these three domestic makers. Tight safety restrictions and import duties have squashed competition from Europe and Canada. Fully 98 per cent of US formula is made domestically.The combination encouraged steady production but left the industry with little reason to invest in additional capacity. Then came Covid and an unexpected dip in the birth rate. The number of daily births had been falling by an average of 0.39 per cent annually from 2000 to 2019, before dropping precipitously in the winter of 2020-21. In the early months of the pandemic, Americans hoarded baby formula along with toilet paper and pasta, but then store orders fell as the birth rate dropped and parents started using up their stockpiles.Since then, formula makers, like almost everyone else, have struggled to find workers and trucks to make and transport their product. So they were ill-equipped to ramp up when the birth rate recovered and demand surged. The pressure was felt everywhere, but especially at a Michigan plant belonging to Abbott, the largest supplier. A Food and Drug Administration inspection last year revealed poor practices that failed to control microbial growth, and a whistleblower alleged shoddy record keeping and lax cleaning. Abbott failed to make changes, and tragedy struck. Several babies fell ill, at least four were hospitalised and two died. The plant was shut down in February and Abbott recalled several brands of formula. Price gouging and shortages followed.On Monday, the FDA and Abbott reached an agreement that could lead to the plant’s reopening. The federal government said in court documents that both the FDA and Abbott’s own sampling found potentially deadly cronobacter bacteria at the plant, although no links were established between the formula and the actual illnesses.Once the FDA agrees the plant is clean, the company forecasts it will take at least two weeks to restart production and eight weeks for formula to reach supermarket shelves. Danone, which makes a rival formula, has predicted that supplies will remain tight until at least August.There is a warning in this. US authorities were simply trying to ensure that American babies were fed safe, locally produced formula from reliable sources when they put up trade barriers and limited purchasing contracts. But their interventions left the country dangerously dependent on a small number of suppliers who in turn relied on very few manufacturing plants.In a positive step, the FDA this week announced plans to loosen the rules on imported formula, and Abbott has been flying in supplies from Ireland. Permanent changes that drop barriers while still protecting babies are needed to give families more options and bring flexibility to the US supply.The formula debacle could easily be repeated as authorities bring back local production of critical, highly regulated supplies, such as vaccines and personal protective equipment. Government contracts and protectionism can help jump-start production and provide a necessary base, but left unchecked they can lead to complacency and under-investment.Stimulating a lively market with lots of credible competitors must be the long-term goal, for baby formula and everything else too. [email protected] Brooke Masters with myFT and on Twitter More

UK house price growth slowed in March, prompting warnings that the squeeze on household incomes and rising interest rates could push the cost of homes down despite demand for property outstripping supply.Property prices increased by 9.8 per cent over the year to March, down from 11.3 per cent in February, according to Land Registry figures released on Wednesday. The average cost of a home was £278,000, up £24,000 from the same time last year. The data, which reflected purchases completed months before inflation reached its current 40-year high, showed house prices growth was resilient in the first quarter but may not be sustainable as the cost of living crisis bites.“While the housing market is certainly defying the wider economic climate, this will not continue forever,” said Amanda Aumonier, head of mortgage operations at online broker Trussle. She added that indications house prices would fall “could be on the horizon”.Aumonier noted the growing gap between pay and house prices. According to the Office for National Statistics, the average house price-to-earnings ratio in England was 9.05 last year, compared with 7.15 recorded in 2007 before the financial crash.Home costs have surged in the past two years after the government introduced a temporary cut to stamp duty, which ended in March 2021, and people made lifestyle changes during Covid-19 lockdowns, fuelling a house-buying frenzy.But with UK inflation reaching 9 per cent in April and economic growth slowing, while spending power is squeezed and mortgage rates rise, the housing market could cool.Average house prices fell in 15 London boroughs between February and March, including in Hackney, where the cost of homes declined 2.8 per cent. In the City of London they slipped 3.5 per cent, but prices edged up 0.3 per cent nationwide.Estate agents said an ongoing shortage of homes and high demand would continue to buoy property prices. Jason Tebb, chief executive of website OnTheMarket.com, said the housing market continued to “defy expectations” with prices increasing across the country.“The number of properties newly listed for sale is slowly increasing and, if this continues, supply-demand economics suggests price growth will moderate,” he said. “But as yet, the fundamental lack of stock is not able to satisfy strong demand from serious buyers.” More

The writer is a climate justice activist from Uganda and author of ‘A Bigger Picture’As corporate leaders and government officials fly into Davos for the World Economic Forum next week, climate will be one of the issues near the top of the agenda. Its recent survey of global leaders ranked failure in this area as the top global risk for the next decade. Among the executives concerned with this pressing challenge is BlackRock’s Larry Fink, who has worked hard in recent years to signal his company’s support for climate-aligned investing. Although the world’s largest money manager announced last week that it would vote against more shareholder climate resolutions this year, the group insists that its position has not changed. It says that its latest announcement focuses on proposals it regards as micromanagement or damaging to the financial interests of shareholders. But behind Fink’s careful positioning is the story of BlackRock and Zambia, and how debt is preventing lower-income countries from protecting themselves against the worst effects of climate change.Most of the climate finance the world’s richest countries have provided to the global south is in the form of loans that pile on more debt. Half of external debt payments by lower income countries are to banks, hedge funds and asset managers that have also profited from funding fossil fuels on a massive scale. They have profited while contributing to the climate crisis. They are now preventing the most climate-vulnerable countries from limiting the damage they suffer.Funds managed by BlackRock are the largest owners of Zambian and lower-income country bonds. Zambia’s borrowing costs are far higher than those faced by wealthy countries. In September 2020, in the middle of the pandemic, it asked to suspend payments. BlackRock and other corporate lenders refused. With almost $13bn owed, Zambia began defaulting on repayments later that year.Zambia’s debt repayment schedule amounted to four times what it had hoped to spend on protecting its people from the extreme weather being driven by the climate crisis. That means less money to spend improving irrigation systems to cope with intense droughts, on early warning systems for flash floods and for sensor technology to predict drought and floods. According to the principle of “polluter pays”, countries and corporations that have generated the most historic emissions should pay the costs of the climate crisis, in line with the amount of harm they have caused. But while Africa is responsible for less than 4 per cent of global emissions, the global north — responsible for the vast majority of historic emissions — refuses to pay.Last month, climate scientists from the Intergovernmental Panel on Climate Change warned that the world cannot afford new fossil fuel infrastructure, and that we must rapidly phase out our existing use of fossil fuels if we are to meet our temperature goals. BlackRock has invested $85bn in coal companies, $24bn of which is in companies planning to expand their coal business.The G20 approved a “Common Framework” in late 2020, which should have enabled countries with unsustainable debts to restructure them — but 18 months later, no debts have been restructured. The IMF calls on all creditors to help increasingly debt-distressed countries, but the institution has done little to bring bondholders to the table.Debts like these are only exacerbating the injustice of the climate crisis. If countries such as Zambia can’t afford to invest in adapting to extreme weather, the suffering that their population is already experiencing will increase dramatically. Political leaders and chief executives at Davos cannot address climate change without talking about debt. If BlackRock and other bond owners really want to show themselves as climate leaders, they should cancel the debts. Only debt justice can rebuild trust and allow the world to confront the climate emergency.An earlier version of this article incorrectly stated that Larry Fink will be attending next week’s World Economic Forum in Davos More

Well, that was an abrupt and unwelcome U-turn. A month ago India was boasting it would combat the gathering international food crisis by releasing some of its bounteous wheat stocks on world markets. Last Saturday Narendra Modi’s government downgraded its ambitions from feeding the world to just feeding India, announcing an export ban on wheat after sudden heatwaves pushed down forecast domestic production and drove up prices. With Ukrainian wheat production expected to fall by a third this year and Russia seizing Ukrainian grain and destroying its farms, the risk of the food crisis spiralling out of control just went up another notch.There’s a pretty clear parallel between India’s volte-face on wheat and the Covid vaccine shortages last year. Its super-competitive pharma industry boasted of inoculating the world, and the government initially enjoyed the reflected soft-power glory, but New Delhi cut off exports when its own country’s needs called louder.You see here the dangerous gap where a system of global governance ought to exist but doesn’t. When an international food or vaccine crisis hits, budding claims of abundant supply and international solidarity shrivel pretty quickly in the heat of domestic expedience. There are lots of conversations among governments about global food security — the G7 group of rich countries sprang into rhetorical action to criticise India’s export ban this week — but nothing like enough co-ordination to make it happen.Although India’s export restrictions are more likely to be used as a calibrated management tool than outright prohibition, commodity markets weren’t happy, global wheat futures shooting higher on Monday. The situation is particularly worrying for importing nations in the Middle East and north Africa, which consume wheat in vast quantities and tend not to substitute with other grains. Egypt, the world’s biggest wheat importer, approved India as a vendor in April: it has had to seek assurances that its recent order for half a million tonnes of grain will be fulfilled.Saleable stocks are the relevant issue here. Overall global grains production has generally been satisfactory in the past few years, according to US Department of Agriculture data. If trading were instant and costless and all food were substitutable and tradable, there wouldn’t be so much of an issue. But strong demand, and latterly some bad harvests, including in the southern US states, mean that the wheat stocks held by the biggest global exporters are at their lowest in a decade.In India’s case, it wasn’t just bad luck with the harvest. The problem has arisen from a complex and inefficient way of distributing wheat, which is bought by a government agency, the Food Corporation of India, and sold on at subsidised rates or added to public stocks. There’s actually been plenty of wheat in the country, but mismanagement of procurement has left the FCI suddenly scrambling to meet its needs.As ever, global problems stem from domestic ones, and frequently from political choice rather than economic inevitability. Food crises aren’t usually about an overall lack of food. They’re about the inability of the authorities to get it to where it’s needed, usually through some combination of lack of data, poor policy and neglect.A while back I wrote about Modi saying India wasn’t allowed to export wheat to resolve the crisis because the World Trade Organization told it not to. This was a slight exaggeration on his part, but it’s true there are WTO rules against countries inefficiently subsidising farmers with high fixed prices and dumping the food cheaply abroad. Rules stopping cheap food reaching world markets may look odd, but this weekend’s news from India shows their long-term benefits. It’s not sensible to let food-importing countries become dependent on subsidised and dumped exports that can suddenly be turned off at source.The world needs some more efficient large-scale food producers who systematically and reliably prioritise exports, and so far it doesn’t have enough. There is still distressingly little sense of a well-planned response to the food crisis, either internationally or through the actions of individual countries. There’s lots of talk about co-ordinated action, but India’s sudden change of tack shows how hard it is to make plans [email protected] More

U.S. households are spending the equivalent of $5,000 a year on gasoline, according to Yardeni Research.
That is up from about $2,800 a year ago, and $3,800 as recently as March.
Yardeni said consumers’ inflation-adjusted incomes are barely growing, but they have accumulated a lot of savings, and they are charging more on credit cards.

A woman rides an electric bike past a gas station as current gasoline prices continues to climb close to record setting territory in Encinitas, California, May 9, 2022.
Mike Blake | Reuters

U.S. households are now spending the equivalent of $5,000 a year on gasoline, up from $2,800 a year ago, according to Yardeni Research.
In March, the annual rate of gasoline spending was at $3,800, Yardeni noted. During the week of May 16, the national retail price for gasoline reached a record $4.59 per gallon, the firm noted.

“No wonder that the Consumer Sentiment Index is so depressed. The wonder is that retail sales have been so surprisingly strong during April and May,” Yardeni said in a note.
Yardeni said consumers’ inflation-adjusted incomes are barely growing, but they have accumulated a lot of savings, and they are charging more on credit cards.
But Yardeni said don’t bet against the U.S. consumer. “When we are happy, we spend money. When we are depressed, we spend even more money!,” it said.
Retail sales data for April, released on Tuesday was surprisingly strong. On a year-over-year basis, retail sales rose 8.2% in April.
Gasoline sales actually declined in April from March, as prices temporarily fell before ramping up to record levels in May. Spending on gasoline in April surged almost 37% from a year ago, according to Commerce Department data.

The price of gasoline was $3.04 per gallon a year ago, according to AAA. This week, the average price rose above $4 a gallon in all 50 states, according to AAA data.
The national average Wednesday was $4.57 per gallon, according to the AAA website.

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A Conference Board measure of CEO sentiment showed that 57% expect the economy to sustain a “very short, mild recession.”
Just 14% of CEOs reported that business conditions had improved in Q2, down from 34% in the first quarter. Similarly, 61% said conditions were worse.

Corporate executives are taking a dim view of their prospects, with a majority now expecting a recession ahead, according to a closely watched business survey released Wednesday.
The Conference Board measure of CEO sentiment showed that 57% of respondents expect inflation to come down “over the next few years” but the economy to sustain a “very short, mild recession.”

Those results reflect an overall pessimistic tone from the quarterly gauge, as the board’s Measure of CEO Confidence fell to 42, a steep drop from the first quarter’s 57 and the lowest since the early days of the Covid pandemic. Anything below 50 represents a negative outlook as the number measures the level of respondents expecting expansion over those seeing contraction.
That reading “is consistent with slowing for sure,” Roger Ferguson, vice chairman of the Business Council and a trustee of The Conference Board, told CNBC’s “Squawk Box” in an interview following the report’s release.
“All of this is telling us that the combination of inflation that is much too high to quote [Federal Reserve Chairman] Jay Powell, wages that are increasing but not keeping up with inflation, and then the inability to pass all this along is creating a very challenging dynamic,” said Ferguson, a former Fed vice chair.
The recession expectation reading wasn’t the only bad news out of the report.
Just 14% of CEOs reported that business conditions had improved in Q2, down from 34% in the first quarter. Similarly, 61% said conditions were worse, compared to 35% in the prior reading. Only 19% see improvement ahead, down from 50%, while 60% expect things to worsen, up from 23%.

One piece of good news was that 63% expect to hire in the next quarter, down only slightly from 66% in Q1. However, some 80% said they were having problems getting qualified workers, down just slightly, while 91% see wages rising by more than 3% over the next year, up from 85% in the first three months of the year.
Also, just 38% expect to increase capital spending, a sharp decline from 48% previously. Some 20% see stagflation conditions of low growth and high inflation.
Powell said in an interview Tuesday with the Wall Street Journal that he remains determined to tamp down inflation, insisting that he will need to see conditions change “in a clear and convincing way” before the Fed stops raising rates and tightening monetary policy.
Ferguson said the survey “suggests that this set of circumstances is not likely to get better anytime soon and consequently pressures on the middle and bottom line for businesses, pressure on the household sector, pressure at the CEO level, and, quite frankly, pressures on the Federal Reserve.”

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BONN (Reuters) – The World Bank will make $30 billion available to help stem a food security crisis threatened by Russia’s war in Ukraine, which has cut off most grain exports from the two countries, the U.S. Treasury said in a report on food security plans from international financial institutions on Wednesday.The total will include $12 billion in new projects and $18 billion funds from existing food and nutrition-related projects that have been approved but have not yet been disbursed, the Treasury report said. More

“There’s a chance of recession,” he said in a telephone interview. While he added that he’s not overly concerned about that risk, Solomon cited at least a 30% chance of such an event in the next 12 to 24 months as calculated by his firm’s economists, led by Jan Hatzius. He’s watching closely for whether credit spreads begin to widen out more materially. Solomon’s comments come months after his top deputy, John Waldron, told a large investment client that the Federal Reserve hadn’t been acting swiftly enough to control inflation. This week, former Goldman Sachs CEO Lloyd Blankfein expressed similar unease about soaring prices.“We have to get rid of inflation,” Solomon said Tuesday on the phone call. “Inflation is extremely punitive, especially on those that are living week to week, paycheck to paycheck. It’s a big, big tax on that part of society. I think it’s very, very important that we get it under control.” Clients of the Wall Street giant are recognizing that economic conditions are tightening, in a process that’s still quite orderly, he said. While declining stock prices are predictable, if the tumult spilled over into credit spreads it would be “concerning.” “We are seeing a tightening of monetary conditions,” he said. “What’s happening with asset prices given we’re entering an environment with much more restrictive monetary policy is not surprising.”©2022 Bloomberg L.P. More