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    Economy Contracted in the First Quarter, but Underlying Measures Were Solid

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    The U.S. economy contracted in the first three months of the year, but strong consumer spending and continued business investment suggested that the recovery remained resilient.Gross domestic product, adjusted for inflation, declined 0.4 percent in the first quarter, or 1.4 percent on an annualized basis, the Commerce Department said Thursday. That was down sharply from the 1.7 percent growth (6.9 percent annualized) in the final three months of 2021, and was the weakest quarter since the early days of the pandemic.The decline was mostly a result of the two most volatile components of the quarterly reports: inventories and international trade. Lower government spending was also a drag on growth. Measures of underlying demand showed solid growth.Most important, consumer spending, the engine of the U.S. economy, grew 0.7 percent in the first quarter despite the Omicron wave of the coronavirus, which restrained spending on restaurants, travel and similar services in January.“Consumer spending is the aircraft carrier in the middle of the ocean — it just keeps plowing ahead,” said Jay Bryson, chief economist for Wells Fargo.But choppy waters may lie ahead. The first-quarter data mostly predates the spike in gas prices that has accompanied Russia’s invasion of Ukraine and the lockdowns in China that have threatened to further disrupt global supply chains. The Federal Reserve in March raised interest rates for the first time since the pandemic began, and several more rate increases are expected this year as policymakers seek to tame the fastest inflation in four decades.“We are watching a bunch of seismic changes in real time,” said Wendy Edelberg, director of the Hamilton Project, an economic policy arm of the Brookings Institution.The biggest challenge facing the economy is inflation. Consumer prices rose at a 7 percent annual rate in the first quarter, and Americans’ after-tax incomes, adjusted for inflation, fell for the fourth quarter in a row. So far, higher prices have done little to dampen consumers’ willingness to spend, but that will change if inflation keeps outpacing income gains, said Beth Ann Bovino, chief U.S. economist for S&P Global.“There’s a tipping point,” she said. Sometime this year, she added, “I’m expecting to see households starting to respond either by trading down, looking for deals, being less willing to pay higher prices.” More

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    U.S. warns servicing or refueling some Russian-owned planes may violate trade restrictions.

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    The Commerce Department said on Friday that it had identified 100 commercial and private aircraft that violated U.S. export controls by flying into Russia and that their owners, operators and servicers were at risk of substantial jail time, fines, loss of export privileges or other restrictions.The announcement said it was putting the world “on notice” not to repair or refuel the planes, highlighting the scope of the new limitations.Since March 2, the department identified a number of commercial and private flights to Russia that most likely violated the restrictions, including on aircraft owned or operated by Aeroflot, AirBridgeCargo, Aviastar-TU, Azur Air, Nordwind, Utair and Roman Abramovich, a Russian billionaire with ties to President Vladimir V. Putin, according to the announcement. Most of the planes were made by Boeing.On Feb. 24, the department imposed broad restrictions on technology that could be exported to Russia, part of an effort to cripple the country’s military and strategic industries. In addition to semiconductors, telecommunications equipment and sensors, the restrictions bar aircraft and some aircraft parts that are made in the United States from being sent to Russia.As a result of the rules, any aircraft manufactured in the United States, or manufactured in a foreign country that used certain American parts or technology, must receive a license to travel to Russia.And any entity providing services to those aircraft, including maintenance, repair and refueling, would also be in violation of the rules, the Commerce Department said.Because the aircraft are prevented from receiving any service, flights to and from Russia on these aircraft are effectively grounded, the department said.“We will not allow Russian and Belarusian companies and oligarchs to travel with impunity in violation of our laws,” Commerce Secretary Gina M. Raimondo said in a statement. More

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    Exports to Russia Blocked by U.S. and Its Allies

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    To try to halt the war in Ukraine, the U.S. and its allies have imposed the most sweeping export controls seen in decades on Russia. Now they have to enforce them.WASHINGTON — The United States, in partnership with its allies, has hit Russia with some of the most sweeping export restrictions ever imposed, barring companies across the world from sending advanced technology in order to penalize President Vladimir V. Putin for his invasion of Ukraine.The restrictions are aimed at cutting off the flow of semiconductors, aircraft components and other technologies that are crucial to Russia’s defense, maritime and aerospace industries, in a bid to cripple Mr. Putin’s ability to wage war. But the extent to which the measures hinder Russia’s abilities will depend on whether companies around the globe follow the rules.Enforcing the new restrictions poses a significant challenge as governments try to police thousands of companies. But the task could be made easier because the United States is acting in concert with so many other countries.The European Union, Japan, Australia, Canada, New Zealand, Britain and South Korea have joined the United States in imposing their own restrictions. And governments including Singapore and Taiwan, a major global producer of semiconductors, have indicated they will support the rules.“Because we have the full cooperation and alignment with so many countries, it makes enforcement a lot easier,” Gina Raimondo, the U.S. secretary of commerce, said in an interview. “Every country is going to be doing enforcement.”“That’s part of the power, if you will, of having so much collaboration,” she added.Officials from the Commerce Department, which is in charge of enforcing the U.S. rules, have already begun digging through shipping containers and detaining electronics, aircraft parts and other goods that are destined for Russia. On March 2, federal agents detained two speedboats at the Port of Charleston valued at $150,000 that were being exported to Russia, according to senior U.S. officials.To look for any potential violators, federal agents will be combing through tips from industry sources and working with Customs and Border Protection to find anomalies in export data that might point to shipments to Russia. They are also reaching out to known exporters to Russia to get them on board with the new restrictions, speaking to about 20 or 30 companies a day, U.S. officials said.Their efforts extend beyond U.S. borders. On March 3, Commerce Department officials spoke to a gathering of 300 businesspeople in Beijing about how to comply with the new restrictions. U.S. officials have also been coordinating with other governments to ensure that they are taking a tough stance on enforcement, senior U.S. officials said.Emily Kilcrease, director of the Energy, Economics and Security Program at the Center for a New American Security, said that the level of allied cooperation in forging the export controls was “completely unprecedented,” and that international coordination would have an important upside.“The allied countries will be active partners in enforcement efforts, rather than the United States attempting to enforce its own unilateral rules extraterritorially,” she said.It remains to be seen how effective the rules are in degrading Russia’s military capability or dissuading its aggression against Ukraine. But in their initial form, the broad scope of the measures looks like a victory for the multilateralism that President Biden promised to restore.Mr. Biden entered office pledging to mend ties with Europe and other allies that had been alienated by former President Donald J. Trump’s “America first” approach. A key part of the argument was that the United States could exert more pressure on countries like China when it was not acting alone.That approach has been particularly important for export controls, which experts argue can do more harm than good when imposed by only one country — a criticism that was sometimes leveled at the export controls the Trump administration issued on China.“Because we have the full cooperation and alignment with so many countries, it makes enforcement a lot easier,” Commerce Secretary Gina Raimondo said.Doug Mills/The New York TimesThe Russian invasion of Ukraine has unified Western governments like few issues before. But even with countries eager to penalize Russia, coordinating restrictions on a vast array of complex technologies among more than 30 governments was not simple. The Commerce Department held more than 50 discussions with officials from other countries between the end of January and Feb. 24, when the controls were announced, as they hashed out the details, senior U.S. officials said.Much of that effort fell to Matthew S. Borman, a three-decade employee of the Commerce Department, who in late January began near-daily conversations with the European Commission and other countries.In mid-February, Mr. Borman and a senior aerospace engineer flew to Brussels for meetings with Peter Sandler, the European director general of trade, and other staff. As a “freedom convoy” protesting coronavirus restrictions attempted to roll into Brussels, they worked from early in the morning until late in the night amid reams of paper and spreadsheets of complex technological descriptions.Each country had its own byzantine regulations, and its own interests, to consider. The European Commission had to consult the European Union’s 27 member countries, especially tech powers like Germany, France, the Netherlands and Finland, on which products could be cut off. Officials debated whether to crack down on the Russian oil industry, at a time of soaring gas prices and inflation.As Russia’s neighbors, the Europeans wanted to ensure that Russia still had access to certain goods for public safety, like nuclear reactor components to avoid a Chernobyl-style meltdown. At least one country insisted that auto exports to Russia should continue, a senior administration official said.The breakthrough came when American officials offered a compromise. The Biden administration planned to issue a rule that would bar companies anywhere around the world from exporting certain products to Russia if they were made using American technology. But those measures would not apply in countries that joined the United States and Europe in issuing their own technological restrictions on Russia.In an interview, Mr. Borman said that American allies had historically been concerned with the extraterritorial reach of U.S. export controls, and that the exclusions for countries that imposed their own rules “was really the key piece.”The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    Covid, inflation and a loss of aid crimped American incomes in January.

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    Soaring coronavirus caseloads, rising prices and a falloff in government aid combined to take a bite out of Americans’ incomes in January.After-tax income rose just 0.1 percent last month, the Commerce Department said Friday. That was the slowest growth since June. Adjusted for inflation, after-tax income fell 0.5 percent, the sixth consecutive monthly decline.Incomes were affected by the spike in coronavirus cases associated with the Omicron variant, which kept millions of employees home from work in January. Earlier data from the Labor Department showed that total hours worked fell early in the month, despite continued job growth.January was also the first month since mid-2021 in which parents did not receive payments under the expanded child tax credit, which expired at the end of last year. Income from government programs fell 1.3 percent last month.Yet despite the crimp in incomes, Americans continued to spend. Consumer spending rose 2.1 percent in January. Even after adjusting for inflation, spending was up 1.5 percent.Spending on goods was particularly strong, continuing the pandemic-era pattern that has put pressure on global supply chains. But spending on services also rose modestly, suggesting that the Omicron wave did not derail the recovery on the services side of the economy. More

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    A Key Inflation Gauge Is Still Rising, and War Could Make It Worse

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    A measure of inflation closely watched by the Federal Reserve is expected to show that prices continued to rise in January, accelerating on a monthly basis and increasing from a year earlier at the fastest pace since 1982.Economists expect that the Personal Consumption Expenditures index, which the Fed targets as it aims for 2 percent annual inflation on average over time, rose 6 percent from the previous January. Prices probably climbed 0.6 percent from December, up from 0.4 percent the prior month, based on the central estimate in a Bloomberg survey.The Commerce Department will release the data at 8:30 a.m. on Friday.High inflation remains stubborn at a tense moment. With consumers already struggling with rising costs, Russia’s invasion of Ukraine this week promises to push inflation even higher as prices for oil and other commodities increase.The Fed has been preparing to steadily pull back its pandemic-era economic support in an effort to cool off consumer demand and tame prices. The White House is monitoring inflation closely as rising prices for food, rent and gas shake consumer confidence and dent President Biden’s approval ratings ahead of midterm elections in November.The fresh inflation reading won’t surprise economists or policymakers — the Personal Consumption Expenditures number is fairly predictable because it is based on Consumer Price Index figures that come out more quickly, along with other already available data. But it will reaffirm that price increases, which were expected to prove temporary as the pandemic economy reopened, have instead lasted almost an entire year and seeped into areas not affected by the coronavirus.Price increases have hit a wide array of products and services, including used cars, beef, chicken, restaurant meals and home furnishings, and several trends risk keeping inflation elevated. Notably, wages are rising rapidly, and employers are finding that they can pass their climbing labor costs along to shoppers.Grocery shopping in Queens this month. Price increases are sweeping a growing array of products and services, and several trends could keep them elevated.Amir Hamja for The New York TimesEconomists are also warily eyeing the conflict in Ukraine, which has already caused oil and gas prices to rise and is likely to push commodity costs higher still.Researchers at Goldman Sachs estimate that an increase of $10 per barrel of oil would increase headline inflation in the United States by a fifth of a percentage point while lowering economic output by just under a tenth of a percentage point.Brent crude oil, the global benchmark, rose as much as 6 percent to more than $100 per barrel after Russia invaded Ukraine and could climb further as Russia reacts to sanctions from the United States and Europe. Russia is a major exporter of energy to Europe.“Potentially, Russia could retaliate by limiting oil exports,” Patrick De Haan, head of petroleum analysis at GasBuddy, said on Thursday. Prices at the pump are likely to reflect repercussions from the conflict almost immediately, he said.Russia’s Attack on Ukraine and the Global EconomyCard 1 of 6A rising concern. More

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    Retail Sales Rebounded in January 2022, Jumping 3.8%

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    Prices were rising fast, products were in short supply and the Omicron variant put a chill on the country at the start of the year. Through it all, American consumers kept spending.Retail sales rose 3.8 percent in January from the prior month, the Commerce Department reported on Wednesday, a faster-than-expected rebound from a sharp decline in December and another sign of the economy’s resilience, even as stores shortened their hours or closed as a surge in Covid-19 infections led to widespread staffing shortages. Wednesday’s sales data echoed a report that showed hiring was stronger than anticipated last month, with employers adding 467,000 jobs.Other factors were at play, too, most notably fast-rising prices. The retail sales data wasn’t adjusted to account for inflation, and that could continue to boost the sales figures for months to come, economists said. But the overall takeaway was still that consumer spending held up last month.“We are seeing a strong bounce to start the year, suggesting positive momentum for now, in spite of elevated prices,” said Rubeela Farooqi, the chief U.S. economist at High Frequency Economics.Consumer spending accounts for the bulk of economic activity in the United States, and the report arrived at a critical time for the economy, as the Federal Reserve shifts its focus to battling inflation from supporting growth. The central bank is expected to raise interest rates as soon as next month, and rising borrowing costs could dampen spending by consumers and businesses.Understand Inflation in the U.S.Inflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Your Questions, Answered: We asked readers to send questions about inflation. Top experts and economists weighed in.What’s to Blame: Did the stimulus cause prices to rise? Or did pandemic lockdowns and shortages lead to inflation? A debate is heating up in Washington.Supply Chain’s Role: A key factor in rising inflation is the continuing turmoil in the global supply chain. Here’s how the crisis unfolded.Other factors could also curb spending. An expansion of the child tax credit — through which the government deposited as much as $300 per child into qualifying Americans’ bank accounts each month — ended at the start of the year, and although consumers haven’t been deterred by inflation yet, there have been signs it is beginning to wear them down. One measure of consumer sentiment released this month — the University of Michigan’s Index of Consumer Sentiment — showed the least favorable long-term economic outlook in a decade.“I think it’s a matter of time before there is pushback in terms of consumers stepping back, and that’s something we need to figure into our estimates,” Ms. Farooqi said.Some of January’s jump in sales probably had to do with one-off factors like a restocking of shelves that had emptied out last year, said Beth Ann Bovino, the chief U.S. economist at S&P Global. With more available to buy, spending increased, she said.Another was that people use gift cards in January after receiving them as Christmas presents. Sales of gift cards don’t show up in the data until they have been used, she said.“If they get it on Dec. 25, they probably take it out in January when they’re done with their festivities,” Ms. Bovino said, noting that shoppers may be more forgiving of higher prices when “they are buying with other people’s money.”Plus, spending patterns have become less predictable during the pandemic, complicating efforts to predict what will happen next. Before the pandemic, holiday shopping would push retail sales higher in December, and a slowdown in spending would be reflected in January. This year’s gain followed a drop in December that on Wednesday was revised to 2.5 percent.Still, Ms. Bovino noted that “people were still spending” in January, and the purchasing was broad-based: Sales at car dealers rose 5.7 percent over the previous month, while e-commerce sales rose 14.5 percent. Spending at electronics and appliances stores rose 1.9 percent, and sales at clothing and general merchandise stores, such as department stores, were higher as well.The effect of the latest coronavirus wave was evident in some sectors. Spending at restaurants, bars and gas stations fell about 1 percent as people stayed home. But overall, sales in January rose far faster than the 2 percent gain economists had expected.Inflation F.A.Q.Card 1 of 6What is inflation? More

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    Commerce Dept. Survey Uncovers ‘Alarming’ Chip Shortages

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    Increased demand for the semiconductors that power cars, electronics and electrical grids have stoked inflation and could cause more factory shutdowns in the United States.WASHINGTON — The United States is facing an “alarming” shortage of semiconductors, a government survey of more than 150 companies that make and buy chips found; the situation is threatening American factory production and helping to fuel inflation, Gina M. Raimondo, the commerce secretary, said in an interview on Monday.She said the findings showed a critical need to support domestic manufacturing and called on Congress to pass legislation aimed at bolstering U.S. competitiveness with China by enabling more American production.“It’s alarming, really, the situation we’re in as a country, and how urgently we need to move to increase our domestic capacity,” Ms. Raimondo said.The findings show demand for the chips that power cars, electronics, medical devices and other products far outstripping supply, even as global chip makers approach their maximum production capacity.While demand for semiconductors increased 17 percent from 2019 to 2021, there was no commensurate increase in supply. A vast majority of semiconductor fabrication plants are using about 90 percent of their capacity to manufacture chips, meaning they have little immediate ability to increase their output, according to the data that the Commerce Department compiled.The need for chips is expected to increase, as technologies that use vast amounts of semiconductors, like 5G and electric vehicles, become more widespread.The combination of surging demand for consumer products that contain chips and pandemic-related disruptions in production has led to shortages and skyrocketing prices for semiconductors over the past two years.Chip shortages have forced some factories that rely on the components to make their products, like those of American carmakers, to slow or suspend production. That has dented U.S. economic growth and led to higher car prices, a big factor in the soaring inflation in the United States. The price of a used car grew 37 percent last year, helping to push inflation to a 40-year high in December.The Commerce Department sent out a request for information in September to global chip makers and consumers to gather information about inventories, production capacity and backlogs in an effort to understand where bottlenecks exist in the industry and how to alleviate them.The results of that survey, which the Commerce Department published Tuesday morning, reveal how scarce global supplies of chips have become.The median inventory among buyers had fallen to fewer than five days from 40 days before the pandemic, meaning that any hiccup in chip production — because of a winter storm, for example, or another coronavirus outbreak — could cause shortages that would shut down U.S. factories and again destabilize supply chains, Ms. Raimondo said.“We have no room for error,” she added.To help address the issue, Biden administration officials have coalesced behind a bill that the Senate passed in June as an answer to some of the nation’s supply chain woes.The bill, known in the Senate as the U.S. Innovation and Competition Act, would pour nearly a quarter-trillion dollars into scientific research and development to bolster competitiveness against China and prop up semiconductor makers by providing $52 billion in emergency subsidies.Momentum on the legislation stalled amid ideological disputes between the House and Senate over how to direct the funding. In June, House lawmakers passed a narrower bill, eschewing the Senate’s focus on technology development in favor of financing fundamental research.But administration officials, led by Ms. Raimondo, have begun prodding lawmakers behind the scenes in an effort to help bridge their differences to swiftly pass the bill, emphasizing the urgency of quickly signing solutions into law.“There’s no getting around this. There is no other solution,” Ms. Raimondo said. “We need more facilities.”On Tuesday evening, House Democrats unveiled a sweeping, 2,900-page bill that lawmakers said they hoped would be a starting point for negotiations with the Senate, in an effort to ultimately pass a manufacturing and supply chain bill into law. In a statement minutes after the bill text was made public, President Biden hailed both proposals and encouraged “quick action to get this to my desk as soon as possible.”Understand the Global Chip ShortageCard 1 of 7In short supply. More

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    Retail Sales Fell in December, a Slowdown in a Robust Holiday Shopping Season

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    Retail sales fell 1.9 percent in December, the Commerce Department reported on Friday, reflecting a slowdown during an otherwise robust holiday shopping season that started earlier in the year for many consumers.It was the first drop after four straight months of sales increases, though the gain in November slowed from October because of the lengthened holiday shopping season brought on by fears of product shortages and price increases. Total sales for October through December were up 17.1 percent from a year earlier, according to the report. December sales rose 16.9 percent from 2020.Beth Ann Bovino, chief U.S. economist at S&P Global, said that although there was bound to be “headline shock” over a weaker number, the broader picture for retail sales had been strong over the past few months.“This is not a sign of consumer weakness,” said Ms. Bovino, who had forecast a decline. “Given that households have relatively strong balance sheets with high savings levels and a strong job market with wages climbing higher, it seems that consumers are not necessarily closing their pocketbooks. They’re taking a brief pause.”

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    Monthly retail sales
    Note: Advance monthly sales estimates for retail and food services, seasonally adjustedSource: Commerce DepartmentThe New York TimesThe retail sales report provides a data point on the mind-set of consumers after a report this week showed that inflation at the end of 2021 climbed to its highest level in 40 years. Prices have increased as new variants of the coronavirus have exacerbated supply chain issues and robust consumer demand for goods. At the same time, the Omicron wave has caused widespread staffing shortages and may have played a role in diverting some consumers from stores and holiday gatherings.Ms. Bovino said that she did not believe inflation played a role in the overall sales decline but that concerns around higher prices were likely to show up in the first quarter of this year.Understand the Supply Chain CrisisThe Origins of the Crisis: The pandemic created worldwide economic turmoil. We broke down how it happened.Explaining the Shortages: Why is this happening? When will it end? Here are some answers to your questions.Gifts Arrive on Time: Fears that a disrupted supply chain could wreak havoc on the holidays turned out to be wrong. Here’s why.Car Shortages: The limited supply of vehicles is forcing some to go to great lengths to find them, including traveling hundreds of miles.A Key Factor in Inflation: In the U.S., inflation is hitting its highest level in decades. Supply chain issues play a big role.Economists at Morgan Stanley had forecast retail sales to rise 0.4 percent in December. Even though inflation topped the coronavirus as the No. 1 concern for consumers whom Morgan Stanley surveyed in November, that “came with no dent to spending plans,” the economists said in a note last week.Instead, the holiday shopping season appeared to break records and lower-income consumers seemed to be operating with relatively better buying power, the economists wrote. At the same time, they anticipated that the Omicron wave drove more spending to goods rather than services.The pandemic has continued to shape consumer habits in the United States.Fewer people shopped in stores this holiday season, even though the Omicron variant did not become a prominent threat until December. Retail foot traffic in the United States between Nov. 21 and Jan. 1 was down 19.5 percent compared with 2019, according to Sensormatic Solutions. That was a slight improvement from the depths of the pandemic in 2020, when foot traffic in the same period was down 33.1 percent from 2019, but still a significant change.Fewer people shopped in stores this holiday season, with more consumers relying on e-commerce.Justin Sullivan/Getty ImagesAs retailers grapple with inflation and supply chain issues, it has given an additional advantage to the biggest U.S. retailers. They had already benefited during the pandemic by being able to remain open while others closed, from the variety of goods that they carry and through initiatives like curbside delivery.“We’re talking about the Walmarts and Targets and Costcos, the big players,” said Mickey Chadha, a retail analyst at Moody’s Investors Service. “They’ve leased their own ships, and they’re bringing in product. They have a lot more power with vendors to get priority. And they actually planned ahead as well.”At the same time, Mr. Chadha said, they have not had to raise their prices as much as smaller retailers, and are likely to benefit as lower-income consumers search for value to stretch their dollars.“They are taking market share because they have the ability to price lower and absorb that hit to the margin a lot better than some of the smaller, weaker retailers,” he said.Costco, for example, said on a December earnings call that it believed it was successfully managing the effects of inflation through its relative purchasing power and its relationships with vendors. That often meant that Costco and its suppliers were each taking less in the way of price markups, Richard Galanti, the company’s chief financial officer, said on the call.“We’ve always said we want to be the last to raise the price and the first to lower the price, recognizing there’s a limit to what you can do based on these cost increases,” Mr. Galanti said.How the Supply Chain Crisis UnfoldedCard 1 of 9The pandemic sparked the problem. More