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    How Inflation Concerns May Affect Prices

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    Age, region, education and income all influence what people think consumer prices will be a few years from now. And that creates a policy puzzle.Who is worried about inflation? Older Americans, for sure; the young, not so much.

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    How different age groups think inflation will rise
    Data is monthly survey results, through Nov. 2021, of the median expected inflation rate for the next three years by demographic.Source: New York FedBy The New York TimesLow-income families are more concerned than richer ones.

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    How people at different income levels think inflation will rise
    Data is monthly survey results, through Nov. 2021, of the median expected inflation rate for the next three years by demographic.Source: New York FedBy The New York TimesPeople in the Midwest and the South foresee inflation’s impact hitting harder than residents of the West and the Northeast do.

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    How people in different regions think inflation will rise
    Data is monthly survey results, through Nov. 2021, of the median expected inflation rate for the next three years by demographic.Source: New York FedBy The New York TimesAnd those without a college degree are more apprehensive than college graduates.

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    How people with different education levels think inflation will rise
    Data is monthly survey results, through Nov. 2021, of the median expected inflation rate for the next three years by demographic.Source: New York FedBy The New York TimesThese idiosyncratic patterns could have an effect on how much inflation we get.The Federal Reserve’s approach to controlling inflation depends on ordinary Americans’ expectations. If people expect inflation to remain low into the future, the Fed may do nothing even if prices spike momentarily, because of supply chain constraints or other factors. If inflation expectations rise, though, the Fed will probably bring down the hammer, worried that they will get baked into everyday decisions.“If I were at the Fed right now, I would be concerned” about inflation readings above 6 percent, said Narayana Kocherlakota, a former president of the Federal Reserve Bank of Minneapolis who is now a professor of economics at the University of Rochester. “What will this do to the inflationary zeitgeist?”A tricky challenge for the Fed’s approach, though, is that people’s inflation expectations do not necessarily flow from an analytical reading of prices and wages. They are influenced by many things that often have little to do with the economy.It is natural for the poor to be more preoccupied by rising prices, because prices tend to hit the poor harder. Low-income families spend most of their earnings on necessities. They are immediately hit by rising prices of gas, food, rent and the like. The Consumer Price Index for November showed an overall increase in prices of 6.8 percent from a year earlier, the fastest pace since 1982. Energy prices — which are historically volatile — rose at nearly five times that rate.Moreover, the poor don’t have the financial tools that the rich can use to protect the value of their savings.What to Know About Inflation in the U.S.Fastest Inflation in Decades: The Consumer Price Index — a measure of the average change over time in prices — rose 6.8 percent in November from a year earlier, its sharpest increase since 1982.Why Washington Is Worried: Policymakers are starting to acknowledge that price increases have been proving more persistent than expected.Who’s to Blame for Rising Prices?: Here are the most obvious candidates — and where the evidence looks strongest.What the Experts Say: Most agree the spike in prices is linked to the economic recovery. When it will fade, and by how much, are less clear.The Psychology of Inflation: Americans are flush with cash and jobs, but they also think the economy is awful.But people’s attitudes about inflation are also shaped by other influences. For instance, in a Gallup poll in November, 53 percent of Republicans reported that recent price increases were causing personal hardship, but only 37 percent of Democrats did.That’s not because inflation necessarily hurts Republicans more than Democrats, or because the G.O.P. may have a stronger ideological aversion to rising prices. A recent study by economists in Germany and Switzerland found that when Barack Obama was in the White House, inflation expectations in Republican states ran almost half a percentage point higher than in Democratic states. But they dropped three-quarters of a point when Donald J. Trump became president.That is, as with impressions of the overall state of the economy, perceptions of inflation may be shaped by who’s in power. This could be part of the reason that the Federal Reserve Bank of New York finds that inflation expectations in the South and the Midwest — where the overwhelming majority of Republican voters live — have jumped far more than in the West and the Northeast, home to most Democrats. But the inflation rates in the South and the Midwest have, in fact, been somewhat higher than elsewhere.People’s expectations are also influenced by time.Older people have particular reasons to be concerned about rising prices. They often rely on fixed incomes, which are eroded by inflation. They are out of the labor market, so care less about unemployment. Given their high voter participation and outsized political power, it is hardly surprising that governments in countries with older populations tend to follow more strict monetary policies and deliver lower inflation.But time also has other, hard-to-measure influences on people’s attitudes. Many Americans have forgotten that inflation once got very high. Others might never have known this. People under 40 have no experience of the so-called Great Inflation from the mid-1960s to the early 1980s. They may have a harder time believing it matters.Research by Ulrike Malmendier from the University of California, Berkeley, and Stefan Nagel of the University of Chicago concluded that people’s beliefs about future inflation are shaped by their experience of it. This “explains the substantial disagreement between young and old individuals in periods of high inflation.”People who experienced the Great Inflation are more likely to fear high inflation around the corner than the young, who have lived mostly in an era in which inflation has rarely exceeded 2 percent. The young’s experience of economic stagnation during their formative years, after the housing bubble burst in 2008, is more likely to convince them that inflation can be too low, as it was back then, stymieing efforts by the Fed to reinvigorate the economy.Americans under 40 expect inflation to hit about 3.5 percent in three years, according to the most recent reading of the New York Fed’s survey. People over 60, by contrast, expect 4.7 percent. “Younger and older people tend to differ depending on the path inflation took in their past,” Mr. Nagel said.Even the experts — the members of the Federal Open Market Committee, the Fed’s policymaking group, who pore through sophisticated economic models fed with reams of data — are influenced by youthful memories. “Whether and at what age they experienced the Great Inflation or other inflation realizations affects their stated beliefs about future inflation, their monetary-policy decisions, and the tone of their speeches,” according to another paper by Ms. Malmendier, Mr. Nagel and Zhen Yan from Cornerstone Research in Boston.The researchers do not have insight into the current view of committee members. Individual forecasts from the semiannual Monetary Policy Report to Congress, on which they based their analysis, are made available to the public only with a 10-year lag, starting in 1992. But their research helps explain a longstanding puzzle.The puzzle came in a study by the economists David and Christina Romer of the University of California, Berkeley, in the middle of the last recession, in 2008. They found that over time, forecasts from the members of the Federal Open Market Committee were less accurate than the collective forecast of the staff economists at the Federal Reserve. The deviation, according to Ms. Malmendier, Mr. Nagel and Mr. Yan is “explained by reliance on personal inflation experiences.”People not schooled in economics may have little clue about how inflation and monetary policy work. One study by economists at the Federal Reserve Bank of Cleveland; the University of California, Berkeley; the University of Texas at Austin, and Brandeis University found that the Fed’s momentous switch announced in August of last year to a flexible inflation target, which would allow the Fed to let inflation rise above its long-term target of 2 percent, was greeted by a collective “huh?”Corporate executives do little better. “Like households, U.S. managers are largely uninformed about recent aggregate inflation dynamics or monetary policy,” wrote another group of economists in a separate study. “Inattention to inflation and monetary policy is pervasive among U.S. firms as well.”Fed officials acknowledge that their understanding of inflation psychology is, at best, imperfect. “We don’t know as a profession as much as we would like about how wage-price cycles get started,” Mr. Kocherlakota said. “How data on inflation translates into expectations is not well understood.”Given that knowledge gap, it is fair to ask whether the inflation expectations of ordinary Americans should play such a large role in shaping monetary policy.One study by economists at the International Monetary Fund, for instance, concluded that a tenet held dear by central bankers across the industrialized world since the 1980s — that moderating inflation expectations is central to taming inflation — was overstated. Rather, they suggested, inflation simply followed demography: Baby boomers contributed to inflation between 1955 and 1975, when they were young, consuming but not working. They reduced inflation between 1975 and 1990, when they joined the labor force. And they will drive it up again as they retire.Jeremy B. Rudd, an economist at the Federal Reserve Board, also worries that the proposition that managing expectations is critical to managing inflation is hogwash, with no solid theoretical or empirical underpinning.For instance, Mr. Rudd argues, the idea that workers who expect higher inflation in the future will try to stay ahead by negotiating higher wages with employers does not fit a country where only 6 percent of workers in the private sector are unionized and where there is little collective bargaining for wages.It would be foolhardy, for sure, to ignore people’s views on rising prices. Whatever the overall economic cost of higher inflation — and this is a contested question — people don’t like it.Lawrence H. Summers, who was an economic adviser to President Bill Clinton and to Mr. Obama, has been warning that a burst in inflation could help deliver the presidency to the Republican Party, as it did in 1968 and 1980.Richard Curtin, a professor of economics at the University of Michigan who runs its surveys of consumers, notes that three presidents in the 1960s and ’70s thought they had recipes to bring inflation down: Lyndon B. Johnson imposed a surtax on income, Richard Nixon resorted to wage and price controls, and Jimmy Carter went on TV to ask Americans to consume less. “Governments always think it is in their ability to quickly stop inflation and they never can,” Mr. Curtin said.Since then, central bankers became convinced that their job was first and foremost to anchor people’s expectations to the belief that inflation would remain low. They are unlikely to let go of the idea that they believe has served them so well for four decades.Mr. Kocherlakota has little personal experience of high inflation. He was a toddler when prices started coming unstuck in the 1960s. But he remembers an assignment in his first semester in college: “This is what Paul Volcker did. Comment.” The takeaway was that the pain inflicted on the economy by the central banker who finally crushed runaway inflation by cranking up interest rates in the late 1970s and early 1980s is to be avoided at all costs.“We let inflation expectations get unanchored,” Mr. Kocherlakota noted. As inflation hits 6 percent and people’s expectations of future inflation rise in tandem, he added, it would be foolhardy to let that happen again. “An honest way to play it now,” he said, “is that unanchoring is a risk we have to be cognizant of.” More

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    Inflation Surged Again in October, With P.C.E. Index Climbing 5 Percent

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    A key measure of inflation showed consumer prices rising at the fastest pace in three decades, as energy prices and demand for goods and services soared, posing a challenge to both the White House and the Federal Reserve.Prices climbed by 5 percent in the 12 months through October, according to Personal Consumption Expenditures price index data released Wednesday. That was the fastest pace of increase since 1990.The gauge was lifted by a 30.2 percent annual increase in the price of energy and a 4.8 percent increase in the price of food. Prices rose 0.6 percent from September to October, as supply chain disruptions continued to clamp down on the availability of certain products and components.Inflation is increasing at its fastest pace in three decades.Personal Consumption Expenditures index, percent change from a year prior

    The Federal Reserve wants inflation to average 2 percent annually over time.Source: U.S. Bureau of Economic AnalysisBy The New York TimesThe increases were in line with what analysts had expected, but the rise in the Federal Reserve’s preferred inflation gauge will only add pressure on the central bank to take quicker action to maintain stable prices.Price increases have shown few signs of fading, as some officials in the Biden administration and at the Fed argued they would earlier this year. The central bank is facing growing calls to hasten plans to end their stimulative bond-buying program and to begin to raise interest rates, a process that could risk slowing job gains and economic growth.While inflation has soured consumer sentiment and weighed on Mr. Biden’s approval ratings, those price increases have been spurred in part by a strong economic recovery. Separate data released by the Labor Department on Wednesday found that initial jobless claims dropped to their lowest point since 1969, falling by 71,000 to 199,000 last week.Mr. Biden hailed the drop in unemployment claims on Wednesday but conceded that the country was still far from a full recovery and that it had to address rising inflation.“We have more work to do before our economy is back to normal, including addressing prices increases that hurt Americans’ pocketbooks and undermine gains in wages and disposable income,” Mr. Biden said in a statement on Wednesday.In an attempt to drive down gas prices, the United States and five other world powers announced a coordinated effort on Tuesday to tap into their national oil stockpiles. Mr. Biden has ordered the Energy Department to release 50 million barrels of crude in the Strategic Petroleum Reserve, lower than what traders had expected from the emergency stockpile, which is the biggest in the world with 620 million barrels.Consumers have grown increasingly concerned about the spike in prices. A survey from the University of Michigan released on Wednesday found that consumers expressed less optimism in November than at any other time in the past decade about prospects for their finances and the overall growth of the economy. The decline in consumer sentiment was a result of the rapid increase in inflation and the lack of federal policies that would address the damage to household budgets, according to the report. More

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    Inflation Drives Sharp Downturn in Consumer Sentiment

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    Americans have turned decidedly gloomy about their financial outlook, and inflation is the main cause of the anxiety, according to a survey released Friday.The University of Michigan reported that its survey of consumer sentiment fell to its lowest level in a decade in early November. It attributed the decline to “the growing belief among consumers that no effective policies have yet been developed to reduce the damage from surging inflation.”Hampered by supply chain disruptions and labor shortages in some industries, the economy has been straining under rising prices. The government this week reported the steepest inflation in 31 years, with a 6.2 percent increase in prices in October from a year earlier.In the Michigan survey, “rising prices for homes, vehicles and durables were reported more frequently than any other time in more than half a century.” But inflation is hardly limited to big-ticket purchases — food items like meat are getting more expensive, driving up the cost of preparing Thanksgiving meals.Many policymakers have assumed that higher inflation would be transitory, a result of the uneven reopening of the economy after widespread shutdowns because of the coronavirus pandemic.Investors, too, have shrugged off the threat of inflation, even though it can erode the value of financial assets. Bond yields, which move higher in times of inflation, remain low by historical standards. And the stock market is near record highs, despite the uptick in prices lately.But the Michigan survey is a sign that consumers are beginning to feel pinched. The survey reflected a downturn in assessments of both current conditions and economic prospects.“Consumers are angry about inflation,” said Diane Swonk, chief economist at the accounting firm Grant Thornton in Chicago.“Inflation will get worse before it gets better,” Ms. Swonk said. “It could moderate by the spring of 2022, and it does affect how people feel about the economy.”But consumers in the United States continue to spend at robust levels, she said, and the odds look good for a robust holiday shopping season. More

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    Biden Says Spending Bill Will Slow Inflation. But When?

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    The Biden administration has argued that its infrastructure and broader economic package will slow rapid price increases. But that will take time.Rocketing inflation has become a headache for U.S. consumers, and President Biden has a go-to prescription. He says a key way to help relieve increasing prices is to pass a $1.85 trillion collection of spending programs and tax cuts that is currently languishing in the Senate.A wide range of economists agree with the president — but only in part. They generally accept his argument that in the long run, the bill and his infrastructure plan could make businesses and their workers more productive, which would help to ease inflation as more goods and services are produced across the economy.But many researchers, including a forecasting firm that Mr. Biden often cites to support the economic benefits of his proposals, say the bill is structured in a way that could add to inflation next year, before prices have had time to cool off.Some economists and lawmakers worry about the timing, arguing that the risk of fueling more inflation when it has reached record highs outweighs the potential benefits of passing a big spending bill that could help to keep prices in check while addressing other social goals. Prices have picked up by 6.2 percent over the past year, the fastest pace in 31 years and far above the Federal Reserve’s inflation target.Others say that any near-term effect on prices would be small and easy enough for the Fed to offset later with interest rate increases, which can temper demand and cool a hot economy. They argue that potential inflationary risks are not a good reason for the Biden administration to curb its ambitions on priorities like broadening access to child care and easing the transition to cleaner energy sources.“It’s more likely a small positive for inflation in 2022, because it’s preventing a big reduction in spending that would otherwise have happened that year,” said Jason Furman, an economist at Harvard and a former chairman of the White House Council of Economic Advisers during the Obama administration. “The pros and cons of Build Back Better with regard to improvements in climate change and opportunity vastly dwarf any pros or cons on inflation.”Republicans have criticized Mr. Biden on inflation for months, seeking to derail his sprawling proposal to fight climate change, guarantee universal prekindergarten, expand access to health insurance, cap child care costs for low earners and the middle class and extend a lucrative new tax break for parents. They have argued that the bill’s spending, much of which is spread over several years, will push prices higher.Some centrist Democrats have also voiced similar concerns. A key holdout, Senator Joe Manchin III of West Virginia, has questioned whether high and rising prices should persuade lawmakers to tone down their ambitions.“West Virginians are concerned about rising inflation,” he said on Twitter last week. “We cannot throw caution to the wind & continue to pile on debt that our country can’t afford.”The bill remains in legislative limbo, with Democrats preparing to push it to a House vote as early as next week. But timing is uncertain in the Senate, where a vote is likely to be changed or delayed in response to Mr. Manchin’s concerns.The extent to which Mr. Biden’s $1.85 trillion bill exacerbates inflation largely depends on how much it stimulates the economy and whether Americans increase their spending as a result of the legislation — and when all of that occurs.Many economists say it could create a short-term stimulus because the plan is structured to raise money gradually by taxing wealthier Americans, who are less likely to spend each additional dollar they have, and redistribute it quickly to people who earn less and are more likely to spend newfound cash.Because of the difference in timing between when the government spends money and when it starts to bring in more revenue, the bill is expected to pump money into the economy in its early years. Moody’s Analytics — the firm that the White House typically cites when arguing in favor of its legislation — estimates that the government will spend $163 billion more on the package than it takes in next year. And the redistribution could make the money more potent as economic stimulus.“The spending is designed to go to the people who are more likely to spend it than to save it,” said Ben Ritz, the director of the Progressive Policy Institute’s Center for Funding America’s Future. But more than any specific program, “the bigger inflationary issue is the math.”White House economists have countered those arguments. If the bill passes, they say, it would do relatively little to spur increased consumer spending next year and not nearly enough to fully offset the loss of government stimulus to the economy as pandemic aid expires. That the program spends more heavily next year is a feature, they say, because it will partly blunt the economic drag as fiscal help fades. They note that the bill is intended to be offset completely by tax increases and other revenue savings.And they argue that by increasing the economy’s capacity to churn out goods and services, the president’s infrastructure plan and his broader program could both help to moderate costs over time.“If anything, these measures push back on inflationary pressures,” said Jared Bernstein, a member of Mr. Biden’s Council of Economic Advisers.Shoppers in New York last month. White House officials say that by increasing the economy’s capacity to churn out goods and services, the president’s plans could help moderate costs over time.Jutharat Pinyodoonyachet for The New York TimesLawrence H. Summers, the Harvard economist who loudly criticized the $1.9 trillion economic aid legislation that Mr. Biden signed this year, has said that he does not see the current plans as an inflationary threat. The infrastructure and broader spending packages are both spread over time and paid for, Mr. Summers has argued.There is less economic or political debate about Mr. Biden’s $1 trillion infrastructure plan, which cleared Congress last week and which the president will sign on Monday. Economists — including conservative ones — largely agree that it is likely to eventually expand the capacity of the economy, and that it is small and spread out enough that it will not meaningfully fuel faster inflation in the near term.Among Democrats, there is widespread support for the economic ambitions contained in the administration’s broader spending bill, which aims to create more equity for low- and middle-class earners and a bigger safety net for working parents. But the measure is drawing more complicated reviews when it comes to its immediate effect on inflation.Economists at Moody’s found in a recent analysis that the administration’s full agenda would slightly increase inflation in 2022, though they did not expect the program to ultimately raise it because of benefits that would later ease supply constraints. It estimates that with the infrastructure bill alone, inflation will be running at a 2.1 percent annual rate by the final quarter of next year. If the larger spending bill also passes, that grows to 2.5 percent.Understand the Supply Chain CrisisCard 1 of 5Covid’s impact on the supply chain continues. More

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    Chip Shortage Makes Big Dent in Automakers’ U.S. Sales

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    General Motors, Toyota, Honda, Stellantis and Nissan reported recent declines as problems in the global supply chain held down output and inventories.Four of the biggest sellers of cars and trucks in the United States said Friday that their sales had plunged recently, reflecting the intense squeeze that a global semiconductor shortage has put on auto production.General Motors, Honda, Nissan and Stellantis reported significant declines in sales in the three months that ended in September — in G.M.’s case, a drop of one-third from a year earlier — as chip shortages forced them to idle plants, leaving dealers with few vehicles to offer customers.Toyota had a slight increase for the quarter, but its sales in September fell sharply after it was forced to slash global production because of the chip shortage and other disruptions to its parts supplies stemming from the coronavirus pandemic.“We are in uncharted waters,” said Alan Haig, president of Haig Partners, an automotive consultant. “We’ve never seen a vehicle shortage like this. There are just not enough cars to sell.”The shortage of semiconductors stems from the beginning of the pandemic, when automakers around the world closed factories for weeks and suddenly cut their orders for computer chips. At the same time, manufacturers of laptops, game consoles and other electronics were demanding more chips as sales of their products took off among homebound consumers.When automakers resumed production, chip makers had much less production capacity to allocate for automotive chips.Strong auto sales, spurred in part by government stimulus checks, helped prop up consumer spending during the first year of the pandemic. But now production delays and depleted inventories are hurting sales when waning government support and the rise of the Delta variant of the coronavirus are acting as a drag on consumer spending.The forecasting firm IHS Markit on Friday lowered its estimate of third-quarter consumer spending growth to an annual rate of just 0.4 percent, down from 12 percent in the second quarter, contributing to a sharp slowdown in overall economic growth.Automakers have tried to use the electronic components they have in stock for their most profitable vehicles, such as pickup trucks and large sport utility vehicles. But in recent months those models have been affected, too.With fewer vehicles rolling off assembly lines, dealers’ inventories have become skimpy. On Friday, Kenosha Toyota in Wisconsin had a single new vehicle for sale — a two-wheel-drive Tacoma pickup. Suburban Chevrolet of Ann Arbor in Michigan was displaying just 11 new models for sale on its website.Despite the shortage, automakers and dealers alike are reaping hefty profits because tight inventories have forced consumers to pay higher prices. J.D. Power estimated that the average selling price of a new vehicle in September was $42,802, up more than $12,000 from the same month in 2020.“It’s a bonanza for the dealers and the factories, despite the shortage of inventory,” Mr. Haig said.With new cars scarce, prices of used cars have also shot up. And the latest sales figures raise concerns that the inventory shortage is worsening and crimping sales.“There are simply not enough vehicles available to meet consumer demand,” said Thomas King, president of J.D. Power’s data and analytics division.At General Motors, sales were down 33 percent in the quarter. The automaker sold 446,997 vehicles, compared with 665,192 light trucks and cars a year earlier. In the same quarter of 2019, G.M. sold 738,638.Honda’s sales were down 11 percent in the quarter, to 354,914 cars and trucks. But a decline in September of nearly 25 percent from the prior year showed the increasing squeeze on production. Stellantis, which was formed by the merger of Fiat Chrysler and France’s Peugeot, reported a 19 percent drop in third-quarter sales. At Nissan, the decline was 10 percent.Toyota said its sales in the quarter were about 1 percent higher than a year earlier, at 566,005. But its sales for September were down 22 percent.General Motors does not report monthly sales figures. Ford is expected to report its third-quarter sales on Monday.The shortage of semiconductors has forced manufacturers to idle plants for weeks at a time. G.M. idled several pickup truck plants for parts of August and September. Toyota cut global production by 40 percent in September, and expects a similar cut in October.General Motors emphasized that a lack of potential buyers was not the problem. “Underlying demand conditions remain strong, thanks to ample job openings, growing pent-up vehicle demand and excess savings accumulated by many households during the pandemic,” Elaine Buckberg, G.M.’s chief economist, said in a company statement.And the company signaled that the chip supply was improving. “We look forward to a more stable operating environment through the fall,” said Steve Carlisle, the president of G.M. North America.At the end of September, G.M. had 128,757 vehicles in dealer inventories, down from 211,974 at the end of June and more than 334,000 at the end of the first quarter. In years past, the figure was often about 800,000.Toyota had 37,516 vehicles on dealer lots at the end of the quarter, and 61,208 at ports serving the U.S. market. At the current sales rate, that is enough to last about 18 days.Ben Casselman More

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    Could This Covid Wave Reverse the Recovery? Here’s What to Watch.

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    Some businesses are still hurting, and federal aid has wound down. But economists see sources of resilience and signs of strength.The spread of the Delta variant has delayed office reopenings, disrupted the start of school and generally dashed hopes for a return to normal after Labor Day. But it has not pushed the U.S. economic recovery into reverse.Now that recovery faces a new test: the removal of much of the aid that has helped keep households and businesses afloat for the past year and a half.The Paycheck Protection Program, which distributed hundreds of billions of dollars in grants and loans to thousands of small businesses, concluded last spring. A federal eviction moratorium ended last month after the Supreme Court blocked the Biden administration’s last-minute effort to extend it. Most recently, an estimated 7.5 million people lost unemployment benefits when programs that expanded the system during the pandemic were allowed to lapse.Next up: the Federal Reserve, which on Wednesday indicated it could start pulling back its stimulus efforts as early as November.The one-two punch of a resurgent pandemic and waning aid has led Wall Street forecasters, who were once rosy about the economy’s prospects this fall and winter, to turn increasingly glum. Goldman Sachs said this month that it expected third-quarter data to show a decline in consumer spending, the linchpin of the recovery for the past year. Many economists expect jobs numbers for September to show a second straight month of anemic growth.Yet economists also see important sources of strength that could help the recovery overcome the latest coronavirus wave and possibly fuel a strong rebound on the other side of it. Few believe the overall economy is headed for another recession, let alone a repeat of last year’s collapse.“There’s been a clear deceleration, but I would stress deceleration rather than retrenchment,” said Jay Bryson, chief economist for Wells Fargo. “We certainly think that the expansion will continue.”Rather than posing an immediate threat, what the withdrawal of aid does is leave the recovery with less of a safety net if economists are wrong or if the public health situation worsens — both scenarios that have recurred throughout the pandemic.“I think one should be concerned that we could see the recovery weaken further and that appetite for putting in place more fiscal stimulus has diminished,” said Karen Dynan, a Harvard professor who was a Treasury official under President Barack Obama.And even if the recovery stays on course, it will almost certainly leave out some individuals and businesses, who face an increasingly uncertain fall with little government help. Even under the most optimistic scenarios, it will take months for all the workers who lost benefits this month to find jobs.“Fall will be slower for all of us because we’ve withdrawn the support,” said William E. Spriggs, a Howard University professor and chief economist for the A.F.L.-C.I.O. “There will be a slowdown in the labor market, and it will be disproportionately Black and brown workers who will have to deal with it.”The pandemic isn’t holding back activity as it once did.The Delta variant has caused a clear slowdown in certain sectors, particularly dining and air travel. But so far the decline in activity is nothing like the economywide pullback that the United States experienced in previous Covid waves.State and local government officials have not reimposed the lockdown orders and business restrictions put in place in earlier waves of the pandemic, and they appear disinclined to do so. Consumers appear to have become more careful, but they haven’t abandoned in-person activities, and many businesses have found ways to adapt.Restaurant reservations on OpenTable, for example, have fallen less than 10 percent from their early-July peak. That is a far smaller decline than during the last Covid surge, last winter.“It has moved down, but it’s not the same sort of decline,” Mr. Bryson said of the OpenTable data. “We’re living with it.”One wild card is how the Delta variant could affect the supply of workers. If virus rates remain high, people may hesitate to take jobs requiring face-to-face interaction, particularly where vaccination rates are low. And if schools and day care centers can’t stay open consistently, parents may have difficulty returning to work.The government is still providing a boost.Government aid hasn’t dried up entirely. The Federal Reserve said Wednesday that it could soon begin to pare its $120 billion in monthly bond purchases — which have kept borrowing cheap and money flowing through the economy — but it will almost certainly keep interest rates near zero into next year. Millions of parents will continue to receive monthly checks through the end of the year because of the expanded child tax credit passed in March as part of President Biden’s $1.9 trillion aid package.That bill, known as the American Rescue Plan, also provided $350 billion to state and local governments, $21.6 billion in rental aid and $10 billion in mortgage assistance, among other programs. But much has not been spent, said Wendy Edelberg, director of the Hamilton Project, an economic-policy arm of the Brookings Institution.“Those delays are frustrating,” she said. “At the same time, what that also means is that support is going to continue having an effect over the next several quarters.”Household savings could provide a buffer — if they last.Economists, including officials in the Biden administration, say that as the economy heals, there will be a gradual “handoff” from government aid to the private sector. That transition could be eased by a record-setting pile of household savings, which could help prop up consumer spending as government aid wanes.A lot of that money is held by richer, white-collar workers who held on to their jobs and saw their stock portfolios swell even as the pandemic constrained their spending. But many lower-income households have built up at least a small savings cushion during the pandemic because of stimulus checks, enhanced unemployment benefits and other aid, according to researchers at the JPMorgan Chase Institute.“The good news is that people are going into the fall with some reserves, more reserves than normal,” said Fiona Greig, co-director of the institute. “That can give them some runway in which to look for a job.”The risk, for individual households and the broader economy, is that aid will run out before the private sector can take the baton.Michael Ernette, 48, lost his job assembling manufactured homes in January and despite applying to four to five jobs a day, he hasn’t found work. He used his last unemployment check to pay off as many outstanding bills as possible, and now he is on a countdown to when he can’t make rent.“I took the last payment that we had and I paid everything and I’m roughly good through the end of October,” said Mr. Ernette, who lives near Pittsburgh. “That gives me 60 more days to find employment.”Businesses are entering a critical period.Eighty percent of small businesses are worried about the impact of the Delta variant, according to a recent survey by Alignable, a social network for small business owners. Not all have had sales turn lower, said Eric Groves, the company’s chief executive. But the uncertainty is hitting at a crucial moment, heading into the holiday season.“This is a time of year when business owners in the consumer sector in particular are trying to pull out their crystal ball,” he said. “Now is when they have to be purchasing inventory and doing all that planning.”“We pride ourselves on taking hits and getting back up,” said Ken Giddon, co-owner of the men’s clothing store Rothmans.Mohamed Sadek for The New York TimesRothmans, a century-old men’s clothing retailer in New York, is in one of the hardest-hit sectors in one of the nation’s hardest-hit cities. Yet a co-owner, Ken Giddon, is betting on the future: Last week, the company announced it would open a new location as part of a development project on the West Side of Manhattan.“We pride ourselves on taking hits and getting back up,” he said.The pandemic has been hard, Mr. Giddon said, but it has also created opportunities by driving down commercial rents and leaving fewer competitors. The Delta variant has delayed the return-to-office boom that retailers had been hoping for, but Mr. Giddon expects workers to return eventually — and to need new clothes when they do.“We don’t really care if people go back to work in suits or jeans,” he said. “We just want men to think about buying new clothes again.”In Minneapolis, however, Nicole Pomije is still struggling to make payroll.Ms. Pomije opened her baking business, the Cookie Cups, in 2018 after several years of selling at farmers’ markets and other events in the area. Much of her revenue came from cooking classes and birthday parties — activities that were virtually impossible for much of the past year and a half.Ms. Pomije closed one of her two locations for good in June. The other is hanging on, but barely — the store restarted cooking classes this year, which brought in some money, but parents are nervous about signing up their unvaccinated children for indoor activities.“I can’t tell you how many payrolls I’ve pulled out of my savings account the past two years,” Ms. Pomije said.Last year, Nicole Pomije introduced a set of baking kits aimed at children, which she is selling online.Caroline Yang for The New York TimesMs. Pomije is trying to adapt. Last year, she created a set of baking kits aimed at children, which she is selling online. The product has been a success — she has sold nearly 3,500 kits, and is expanding her offerings — but she has been plagued by supply-chain issues. A crucial shipment from Asia, containing the boxes she uses to package her kits, was held up at the Los Angeles port complex for 60 days.Ms. Pomije said she would be out of business already if she hadn’t received help from the federal government. Now, with more help unlikely, she is hoping holiday sales will help save her business.“This fourth quarter is going to be really critical to our success,” she said. “If we do sell enough product online even to just pay our payroll, rent and critical bills to stay afloat, with enough inventory still to sell, I think we’ll be fine.”Supply issues are putting policymakers in a bind.Early in the pandemic, economists had a simple message for policymakers: Go big. If some aid ended up going to people or businesses that didn’t really need help, that was a reasonable trade-off for the benefit of getting money to the millions who did.Today, the calculus is different. The impact of the pandemic is more tightly focused on a few industries and groups. At the same time, many businesses are having trouble getting workers and materials to meet existing demand. Traditional forms of stimulus that seek to stoke demand won’t help them. If automakers can’t get needed parts, for example, giving money to households won’t lead to more car sales — but it might lead to higher prices.That puts policymakers in a tight spot. If they don’t get help to those who are struggling, it could cause individual hardship and weaken the recovery. But indiscriminate spending could worsen supply problems and lead to inflation. That calls for a more targeted approach, focusing on the specific groups and industries that need it most, said Nela Richardson, chief economist for ADP, the payroll processing firm.“There are a lot of arrows in the quiver still, but you need them to go into the bull’s-eye now rather than just going all over,” Ms. Richardson said. More

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    Retail Sales Rose in August, Highlighting Uneven Consumer Spending

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    Retail sales increased slightly in August, the Commerce Department reported Thursday, highlighting an uneven pace for the economic recovery as spending behavior swings month over month.The 0.7 percent climb in sales last month comes after a 1.8 percent decline in July and gains earlier in the summer. The gains in August, better than what economists expected, were prompted by a rise in spending on clothing, electronics and furniture and home goods.Sales at bars and restaurants fell, coming down after a steady rise in July.Prices of consumer goods continued to climb in August, albeit at a slower pace, according to data from the Labor Department released this week. The Consumer Price Index rose 5.3 percent in August from a year earlier, the data showed, suggesting inflationary pressures are starting to ease.The University of Michigan will publish its monthly consumer sentiment index on Friday, a key indicator regarding the economic recovery and consumer behavior. The index fell more than 13 percent in July because consumers expected price increases to continue.With more employers announcing mandates, the pace of coronavirus vaccinations had been trending steadily upward through the Labor Day holiday, giving economists reason for optimism if cases and hospitalizations level off or decline in September. More

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    Biden’s New Vaccine Push Is a Fight for the U.S. Economy

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    The effort reflects the continuing and evolving threat the coronavirus pandemic poses to the economic recovery.WASHINGTON — President Biden’s aggressive move to expand the number of vaccinated Americans and halt the spread of the Delta variant is not just an effort to save lives. It is also an attempt to counter the continuing and evolving threat that the virus poses to the economy.Delta’s rise has been fueled in part by the inability of Mr. Biden and his administration to persuade millions of vaccine-refusing Americans to inoculate themselves against the virus. That has created another problem: a drag on the economic recovery. Real-time gauges of restaurant visits, airline travel and other services show consumers pulled back on some face-to-face spending in recent weeks.After weeks of playing down the threat that a new wave of infections posed to the recovery, the president and his team blamed Delta for slowing job growth in August. “We’re in a tough stretch,” he conceded on Thursday, after heralding the economic progress made under his administration so far this year, “and it could last for a while.”The virus threatens the recovery even though consumers and business owners are not retrenching the way they did when the coronavirus began to spread in the United States in the spring of 2020. Far fewer states and cities have imposed restrictions on business activity than in previous waves, and administration officials vowed on Thursday that the nation would not return to “lockdowns or shutdowns.”But a surge in deaths crippled consumer confidence in August and portends a possible chill in fall spending as people again opt for limited in-person commerce. The unchecked spread of the virus has also contributed to a rapid drop in the president’s approval ratings — even among Democrats.The explosion of new cases and deaths also appears to have deterred many would-be workers from accepting open jobs in businesses across the country, economists say. That comes as businesses and consumers are complaining about a labor shortage and as administration officials pin their hopes on rising wages to power consumer spending in place of fading government support for distressed families.The plan Mr. Biden announced on Thursday would mandate vaccinations for federal employees and contractors and for millions of health care workers, along with new Labor Department rules requiring vaccines or weekly tests for employees at companies with more than 100 employees. It would push for more testing, offer more aid to small businesses, call on schools to adopt vaccine requirements and provide easy access to booster shots for eligible Americans. The president estimated the requirements would affect 100 million Americans, or about two-thirds of all workers.“We have the tools to combat the virus,” he said, “if we can come together and use those tools.”Mr. Biden faces political risks from his actions, which drew swift backlash from many conservative lawmakers who accused him of violating the Constitution and abusing his powers.But administration officials have always viewed vaccinating more Americans as the primary strategy for reviving the recovery.“This is an economic downturn that has been spawned from a public health crisis,” Cecilia Rouse, the chairwoman of the White House Council of Economic Advisers, said last month in an interview. “So we will get back to economic health when we get past the virus, when we return to public health as well.”That is likely true even in places that already have high inoculation rates. Mr. Biden’s inability thus far to break through vaccine hesitancy, particularly in conservative areas, has also become a psychological spending drag on those in highly vaccinated areas. That is because vaccinated Americans appear more likely to pull back on travel, dining out and other activity out of fear of the virus.“People who vaccinate themselves very early are people who are already very careful,” said Jesús Fernández-Villaverde, a University of Pennsylvania economist who has studied the interplay between the pandemic and the economy. “People who do not vaccinate themselves are less careful. So there is a multiplier effect” when it comes to those kinds of decisions.The economic effect from the virus varies by region, and it has changed in key ways over the course of the pandemic. In some heavily vaccinated parts of the country — including liberal states packed with Mr. Biden’s supporters — virus-wary Americans have pulled back on economic activity, even though infection rates in their areas are low. In some less-vaccinated states like Texas that have experienced a large Delta wave, data suggest rising hospitalization and death rates are not driving down activity as much as they did in previous waves.“It appears the latest Covid surge has been less impactful on the economy than previous surges in Texas,” said Laila Assanie, a senior business economist at the Federal Reserve Bank of Dallas, which surveys employers in the state each month about their activity during the pandemic.Business owners, Ms. Assanie said, “said they were better prepared this time around.”The threat of the Delta variant has caused consumers to pull back on some face-to-face spending.Brittainy Newman for The New York TimesRespondents to the survey said consumer spending had not fallen off as much this summer, compared with the initial spread of the coronavirus in March 2020 or a renewed spike last winter, even as case and hospitalization rates neared their previous peak from January. But many employers reported staffing pressures from workers falling ill with the virus. The share of businesses reporting that concerns about the pandemic were an impediment to hiring workers tripled from July to August.Data from Homebase, which provides time-management software to small businesses, show that employment in entertainment, dining and other coronavirus-sensitive sectors has fallen in recent weeks as the Delta variant has spread. But the decline is smaller than during the spike in cases last winter, suggesting that economic activity has become less sensitive to the pandemic over time. Other measures likewise show that economic activity has slowed but not collapsed as cases have risen..css-1xzcza9{list-style-type:disc;padding-inline-start:1em;}.css-3btd0c{font-family:nyt-franklin,helvetica,arial,sans-serif;font-size:1rem;line-height:1.375rem;color:#333;margin-bottom:0.78125rem;}@media (min-width:740px){.css-3btd0c{font-size:1.0625rem;line-height:1.5rem;margin-bottom:0.9375rem;}}.css-3btd0c strong{font-weight:600;}.css-3btd0c em{font-style:italic;}.css-w739ur{margin:0 auto 5px;font-family:nyt-franklin,helvetica,arial,sans-serif;font-weight:700;font-size:1.125rem;line-height:1.3125rem;color:#121212;}#NYT_BELOW_MAIN_CONTENT_REGION .css-w739ur{font-family:nyt-cheltenham,georgia,’times new roman’,times,serif;font-weight:700;font-size:1.375rem;line-height:1.625rem;}@media (min-width:740px){#NYT_BELOW_MAIN_CONTENT_REGION .css-w739ur{font-size:1.6875rem;line-height:1.875rem;}}@media (min-width:740px){.css-w739ur{font-size:1.25rem;line-height:1.4375rem;}}.css-9s9ecg{margin-bottom:15px;}.css-16ed7iq{width:100%;display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-align-items:center;-webkit-box-align:center;-ms-flex-align:center;align-items:center;-webkit-box-pack:center;-webkit-justify-content:center;-ms-flex-pack:center;justify-content:center;padding:10px 0;background-color:white;}.css-pmm6ed{display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-align-items:center;-webkit-box-align:center;-ms-flex-align:center;align-items:center;}.css-pmm6ed > :not(:first-child){margin-left:5px;}.css-5gimkt{font-family:nyt-franklin,helvetica,arial,sans-serif;font-size:0.8125rem;font-weight:700;-webkit-letter-spacing:0.03em;-moz-letter-spacing:0.03em;-ms-letter-spacing:0.03em;letter-spacing:0.03em;text-transform:uppercase;color:#333;}.css-5gimkt:after{content:’Collapse’;}.css-rdoyk0{-webkit-transition:all 0.5s ease;transition:all 0.5s ease;-webkit-transform:rotate(180deg);-ms-transform:rotate(180deg);transform:rotate(180deg);}.css-eb027h{max-height:5000px;-webkit-transition:max-height 0.5s ease;transition:max-height 0.5s ease;}.css-6mllg9{-webkit-transition:all 0.5s ease;transition:all 0.5s ease;position:relative;opacity:0;}.css-6mllg9:before{content:”;background-image:linear-gradient(180deg,transparent,#ffffff);background-image:-webkit-linear-gradient(270deg,rgba(255,255,255,0),#ffffff);height:80px;width:100%;position:absolute;bottom:0px;pointer-events:none;}.css-uf1ume{display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-box-pack:justify;-webkit-justify-content:space-between;-ms-flex-pack:justify;justify-content:space-between;}.css-wxi1cx{display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-flex-direction:column;-ms-flex-direction:column;flex-direction:column;-webkit-align-self:flex-end;-ms-flex-item-align:end;align-self:flex-end;}.css-12vbvwq{background-color:white;border:1px solid #e2e2e2;width:calc(100% – 40px);max-width:600px;margin:1.5rem auto 1.9rem;padding:15px;box-sizing:border-box;}@media (min-width:740px){.css-12vbvwq{padding:20px;width:100%;}}.css-12vbvwq:focus{outline:1px solid #e2e2e2;}#NYT_BELOW_MAIN_CONTENT_REGION .css-12vbvwq{border:none;padding:10px 0 0;border-top:2px solid #121212;}.css-12vbvwq[data-truncated] .css-rdoyk0{-webkit-transform:rotate(0deg);-ms-transform:rotate(0deg);transform:rotate(0deg);}.css-12vbvwq[data-truncated] .css-eb027h{max-height:300px;overflow:hidden;-webkit-transition:none;transition:none;}.css-12vbvwq[data-truncated] .css-5gimkt:after{content:’See more’;}.css-12vbvwq[data-truncated] .css-6mllg9{opacity:1;}.css-qjk116{margin:0 auto;overflow:hidden;}.css-qjk116 strong{font-weight:700;}.css-qjk116 em{font-style:italic;}.css-qjk116 a{color:#326891;-webkit-text-decoration:underline;text-decoration:underline;text-underline-offset:1px;-webkit-text-decoration-thickness:1px;text-decoration-thickness:1px;-webkit-text-decoration-color:#326891;text-decoration-color:#326891;}.css-qjk116 a:visited{color:#326891;-webkit-text-decoration-color:#326891;text-decoration-color:#326891;}.css-qjk116 a:hover{-webkit-text-decoration:none;text-decoration:none;}That trend has helped bolster overall consumer spending and hiring in the short term and helped keep the economy on track for its fastest annual growth in a quarter century. But there is a risk that it will be undercut by a continued pandemic dampening of labor force participation. Economists who have tracked the issue say that even if consumers have grown more accustomed to shopping or dining out as cases rise, there is little sign that would-be workers, even vaccinated ones, have become more accepting of the risks of returning to service jobs as the pandemic rages.“It’s becoming increasingly clear that employers are eager to hire,” said Andrew Atkeson, an economist at the University of California at Los Angeles who has released several papers on the economics of the pandemic. “The problem is not that people aren’t spending. It’s that people are still reluctant to go back to work”The Delta wave also appears to be sidelining some workers by disrupting child care and, in some cases, schools — forcing parents to take time off or to delay returning to jobs.Some forecasters believe the combination of rising vaccination rates and a growing share of Americans who have already contracted the virus will soon arrest the Delta wave and set the economy back on track for rapid growth, with small-business hiring and restaurant visits rebounding as soon as the end of this month. “Now is the time to start thinking about the post-Delta world,” Ian Shepherdson, the chief economist at Pantheon Macroeconomics, wrote in a research note this month.Other economists see the possibility that a continued Delta wave — or a surge from another variant in the months to come — will substantially slow the recovery, because potential workers in particular remain sensitive to the spread of the virus.“That’s a very real danger,” said Austan Goolsbee, a former head of the Council of Economic Advisers under President Barack Obama whose research earlier in the pandemic showed fear, not government restrictions, was the driving force behind lost economic activity from the virus.“At the same time,” Mr. Goolsbee said, “it also shows promise: the fact that when we get control of the spread of the virus, or even stabilize the spread of the virus, the economy wants to come back.”The greatest lift to the country, and likely to Mr. Biden’s popularity, from finally curbing the virus would not be regained business sales or jobs created. It would be stemming a death toll that has climbed to about 650,000 since the pandemic began.“I always tell undergraduates, when they take economics with me, that economics is not about optimizing output,” said Mr. Fernández-Villaverde, the University of Pennsylvania economist. “It’s about optimizing welfare. And if you’re dead, you’re not getting a lot of welfare.”Ben Casselman More