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    For Many Small-Business Owners, a Necessary Shift to Digital Payments

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    The pandemic accelerated a transition to cashless payments, forcing a reckoning among small-business owners. But there are benefits: One owner said the switch saved her $3,000 a month.“Making It Work” is a series about small-business owners striving to endure hard times.When Egypt Otis opened her business, Comma Bookstore and Social Hub, three years ago in Flint, Mich., the pandemic was full blown. But her neighbors welcomed the literature and art she sold in her store that celebrated people of color, as well as the community programs she hosted.Despite the warm reception, Ms. Otis quickly found that she had a sales problem: Her customers wanted to pay with their cellphones.“I realized that people were hardly keeping a wallet or a physical card, which limited my ability to sell and make money,” Ms. Otis said. So she upgraded her transactions platform to include tap-and-go purchases on mobile devices. “People are not carrying cash,” she said. “It’s becoming obsolete.”The number of Americans who say they are “cashless” has jumped in the last five years. Forty-one percent of Americans said they did not use cash for their purchases in a typical week in 2022, up from 29 percent in 2018, according to a Pew Research Center survey released last October.Small-business owners increasingly are making the switch to cashless payments for several reasons, including rising consumer demand, faster checkout, lower labor costs and increased security. Those who wait risk losing revenue, experts say.But there are drawbacks to going cash-free, including a learning curve for entrepreneurs who may not understand how to set up digital payments, a lack of accessibility to credit cards for low-income consumers, and privacy concerns.Signs at a pizza joint in New York indicating it takes multiple forms of cashless payments, a switch that accelerated in the pandemic.Karsten Moran for The New York TimesJuanny Romero was an early adopter of digital payments for her small business. Fifteen years ago, when she founded Mothership Coffee Roasters, a chain of coffee shops in Las Vegas, she began using Square, a low-cost digital payments system for small businesses.“​​I was a young businesswoman and not astute,” she said. But Square saved her $3,000 a month in merchant fees for credit card processing.As Ms. Romero expanded her businesses (to four locations in Las Vegas, with two more on the way), she added more payment options, including Apple Pay and Google Pay.But she noticed a shift during the pandemic: Her customers no longer wanted to use cash, and her employees did not want to handle it. “We didn’t know where Covid was coming from,” she said. “There were still people bringing in cash, but it was scary and dangerous.”When the coin shortage hit in 2020, she ran out of cash altogether, but Ms. Romero found it saved on labor costs. “My managers were standing in line for two hours to deposit the cash,” she said. “I can’t get an armored car service to pick up $100 in cash.”Even so, customer demand prompted her to return to cash sales, which Ms. Romero said are holding steady at about 11 percent of her overall revenue. She said she would go cashless if the share dipped below 10 percent.A digital transaction at Mothership Coffee Roasters in Las Vegas.Bridget Bennett for The New York TimesThe pressure to adapt is growing. More that 2.8 billion mobile wallets were in use at the end of 2020, and that is projected to increase nearly 74 percent to 4.8 billion — nearly 60 percent of the world’s population — by the end of 2025, according to a study released in 2021 by Boku, a fintech companyThe United States lags other countries in adopting cashless payments. Among the most cashless countries in the world is Britain, where the pound makes up only 1 percent of all transactions, according to a report from Merchant Machine, a payment research firm based in London. But in the United States, some small-business owners do not understand the complexities of digital payments.“Smaller merchants, they don’t always have the knowledge and resources to know what to do,” said Ginger Siegel, who leads the North America small-business segment at Mastercard, which offers training to business owners like Ms. Otis of Comma Bookstore.Ms. Otis said she noticed an increase in sales when she began offering mobile payments, which made the checkout process faster. “As a retailer, you want to make the experience as efficient as possible,” she said. “It is a matter of survival.”A veteran using a tap-and-go device to collect donations for the Royal British Legion in London in 2020.Guy Bell/AlamyBenefits include immediate payment, increased sales and the ability to sell to customers who might use other currencies. “You have to set it up, but it’s worth it,” said Kimberley A. Eddleston, a professor of entrepreneurship at Northeastern University.But some business owners say they are hesitant to move too quickly, worried that today’s technology could become obsolete tomorrow. And there are compatibility and cost issues to consider, said Wayne Read, the chief executive of Forged & Formed, an online jeweler with a physical store, Studio D Jewelers, in Woodstock, Ill. In his jewelry sales, where items can be pricey, he said a speedy transaction might not be suitable. “We don’t want people to feel they have rushed their decision,” he said.Despite advances in technology, many Americans still have little or no access to financial services like credit cards and mobile wallets, although that is slowly improving. An estimated 5.9 million households did not have a bank account in 2021, down from 7.1 million households in 2019, according to a survey by the Federal Reserve.Rewards points displayed on a checkout screen at Mothership. Mobile apps allow for cashless payments and can increase customer loyalty.Bridget Bennett for The New York TimesAnother obstacle to adoption is privacy concerns: Some people prefer the anonymity that cash provides. And cash is perceived as a way for consumers to remain aware of expenditures. Complicating the transition to the digital economy, the recent banking turmoil in the United States has made many depositors question the security of financial institutions.But experts agree that cash is unlikely to go away. Consumers in lower income households continue to rely on cash for payments, according to the Fed survey.And small-business owners say that despite the speed and efficiency that cashless payments offer, cash is still a viable option for their customers.“At the end of the day, I know the people I serve,” Ms. Romero said. “I would feel conflicted if I didn’t do the right thing.” More

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    The ‘Great Resignation’ Is Over. Can Workers’ Power Endure?

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    The furious pace of job-switching in recent years has led to big gains for low-wage workers. But the pendulum could be swinging back toward employers.Tens of millions of Americans have changed jobs over the past two years, a tidal wave of quitting that reflected — and helped create — a rare moment of worker power as employees demanded higher pay, and as employers, short on staff, often gave it to them.But the “great resignation,” as it came to be known, appears to be ending. The rate at which workers voluntarily quit their jobs has fallen sharply in recent months — though it edged up in May — and is only modestly above where it was before the pandemic disrupted the U.S. labor market. In some industries where turnover was highest, like hospitality and retail businesses, quitting has fallen back to prepandemic levels.Quits Are High, But Falling

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    Voluntary quits per 100 workers
    Note: Data is seasonally adjustedSource: Labor DepartmentBy The New York TimesNow the question is whether the gains that workers made during the great resignation will outlive the moment — or whether employers will regain leverage, particularly if, as many forecasters expect, the economy slips into a recession sometime in the next year.Already, the pendulum may be swinging back toward employers. Wage growth has slowed, especially in the low-paying service jobs where it surged as turnover peaked in late 2021 and early 2022. Employers, though still complaining of labor shortages, report that it has gotten easier to hire and retain workers. And those who do change jobs are no longer receiving the supersize raises that became the norm in recent years, according to data from the payroll processing firm ADP.“You don’t see the signs saying $1,000 signing bonus anymore,” said Nela Richardson, ADP’s chief economist.Ms. Richardson compared the labor market to a game of musical chairs: When the economy began to recover from pandemic shutdowns, workers were able to move between jobs freely. But with recession warnings in the air, they are becoming nervous about getting caught without a job when fewer are available.“Everyone knows the music is about to stop,” Ms. Richardson said. “That is going to lead people to stay put a bit longer.”Aubrey Moya joined the great resignation about a year and a half ago, when she decided she had had enough of the low wages and backbreaking work of waiting tables. Her husband, a welder, was making good money — he, too, had changed jobs in search of better pay — and they decided it was time for her to start the photography business she had long dreamed of. Ms. Moya, 38, became one of the millions of Americans to start a small business during the pandemic.Today, though, Ms. Moya is questioning whether her dream is sustainable. Her husband is making less money, and living costs have risen. Her customers, stung by inflation, aren’t splurging on the boudoir photo sessions she specializes in. She is nervous about making payments on her Fort Worth studio.“There was a moment of empowerment,” she said. “There was a moment of ‘We’re not going back, and we’re not going to take this anymore,’ but the truth is yes, we are, because how else are we going to pay the bills?”But Ms. Moya isn’t going back to waiting tables just yet. And some economists think workers are likely to hold on to some of the gains they have made in recent years.“There are good reasons to think that at least a chunk of the changes that we’ve seen in the low-wage labor market will prove lasting,” said Arindrajit Dube, a University of Massachusetts professor who has studied the pandemic economy.The great resignation was often portrayed as a phenomenon of people quitting work altogether, but the data tells a different story. Most of them quit to take other, typically better-paying jobs — or, like Ms. Moya, to start businesses. And while turnover increased in virtually all industries, it was concentrated in low-wage services, where workers have generally had little leverage.For those workers, the rapid reopening of the in-person economy in 2021 provided a rare opportunity: Restaurants, hotels and stores needed tens of thousands of employees when many people still shunned jobs requiring face-to-face interaction with the public. And even as concerns about the coronavirus faded, demand for workers continued to outstrip supply, partly because many people who had left the service industry weren’t eager to return.The result was a surge in wages for workers at the bottom of the earnings ladder. Average hourly earnings for rank-and-file restaurant and hotel workers rose 28 percent from the end of 2020 to the end of 2022, far outpacing both inflation and overall wage growth.In a recent paper, Mr. Dube and two co-authors found that the earnings gap between workers at the top of the income scale and those at the bottom, after widening for four decades, began to narrow: In just two years, the economy undid about a quarter of the increase in inequality since 1980. Much of that progress, they found, came from workers’ increased ability — and willingness — to change jobs.Pay is no longer rising faster for low-wage workers than for other groups. But importantly in Mr. Dube’s view, low-wage workers have not lost ground over the past two years, making wage gains that more or less keep up with inflation and higher earners. That suggests that turnover could be declining not only because workers are becoming more cautious but also because employers have had to raise pay and improve conditions enough that their workers aren’t desperate to leave.The strong labor market gave Danny Cron, a restaurant server, the confidence to keep changing jobs until he found one that worked for him.Yasara Gunawardena for The New York TimesDanny Cron, a restaurant server in Los Angeles, has changed jobs twice since going back to work after pandemic restrictions lifted. He initially went to work at a dive bar, where his hours were “brutal” and the most lucrative shifts were reserved for servers who sold the most margaritas. He quit to work at a large chain restaurant, which offered better hours but little scheduling flexibility — a problem for Mr. Cron, an aspiring actor.So last year, Mr. Cron, 28, quit again, for a job at Blue Ribbon, an upscale sushi restaurant, where he makes more money and which is more accommodating of his acting schedule. The strong postpandemic labor market, he said, gave him the confidence to keep changing jobs until he found one that worked for him.“I knew there were a plethora of other jobs to be had, so I felt less attached to any one job out of necessity,” Mr. Cron wrote in an email.But now that he has a job he likes, he said, he feels little urge to keep searching — partly because he senses that the job market has softened, but mostly because he is happy where he is.“Looking for a new job is a lot of work, and training for a new job is a lot of work,” he said. “So when you find a good serving job, you’re not going to give that up.”The labor market remains strong, with unemployment below 4 percent and job growth continuing, albeit more slowly than in 2021 or 2022. But even optimists like Mr. Dube concede that workers like Mr. Cron could lose leverage if companies start cutting jobs en masse.“It’s very tenuous,” said Kathryn Anne Edwards, a labor economist and policy consultant who has studied the role of quitting in wage growth. A recession, she said, could wipe away gains made by hourly workers over the past few years.Still, some workers say one thing has changed in a more lasting way: their behavior. After being lauded as “essential workers” early in the pandemic — and given bonuses, paid sick time and other perks — many people in hospitality, retail and similar jobs say they were disappointed to see companies roll back benefits as the emergency abated. The great resignation, they say, was partly a reaction to that experience: They were no longer willing to work for companies that didn’t value them.Amanda Shealer, who manages a store near Hickory, N.C., said her boss had recently told her that she needed to find more ways to accommodate hourly workers because they would otherwise leave for jobs elsewhere. Her response: “So will I.”“If I don’t feel like I’m being supported and I don’t feel like you’re taking my concerns seriously and you guys just continue to dump more and more to me, I can do the same thing,” Ms. Shealer, 40, said. “You don’t have the loyalty to a company anymore, because the companies don’t have the loyalty to you.” More

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    Student Loan Pause Is Ending, With Consequences for Economy

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    Three years of relief from payments on $1.6 trillion in student debt allowed for other borrowing and spending — and will shift into reverse.A bedrock component of pandemic-era relief for households is coming to an end: The debt-limit deal struck by the White House and congressional Republicans requires that the pause on student loan payments be lifted no later than Aug. 30.By then, after more than three years in force, the forbearance on student debt will amount to about $185 billion that otherwise would have been paid, according to calculations by Goldman Sachs. The effects on borrowers’ lives have been profound. More subtle is how the pause affected the broader economy.Emerging research has found that in addition to freeing up cash, the repayment pause coincided with a marked improvement in borrowers’ credit scores, most likely because of cash infusions from other pandemic relief programs and the removal of student loan delinquencies from credit reports. That let people take on more debt to buy cars, homes and daily needs using credit cards — raising concerns that student debtors will now be hit by another monthly bill just when their budgets are already maxed out.“It’s going to quickly reverse all the progress that was made during the repayment pause,” said Laura Beamer, who researches higher education finance at the Jain Family Institute, “especially for those who took out new debt in mortgages or auto loans where they had the financial room because they weren’t paying their student loans.”The pause on payments, which under the CARES Act in March 2020 covered all borrowers with federally owned loans, is separate from the Biden administration’s proposal to forgive up to $20,000 in student debt. The Supreme Court is expected to rule on a challenge to that plan, which is subject to certain income limits, by the end of the month.The moratorium began as a way to relieve financial pressure on families when unemployment was soaring. To varying degrees, forbearance extended to housing, auto and consumer debt, with some private lenders taking part voluntarily.By May 2021, according to a paper from the Brookings Institution, 72 million borrowers had postponed $86.4 billion in loan payments, primarily on mortgages. The pause, whose users generally had greater financial distress than others, vastly diminished delinquencies and defaults of the sort that wreaked havoc during the recession a decade earlier.But while borrowers mostly started paying again on other debt, for about 42.3 million people the student debt hiatus — which took effect automatically for everyone with a federally owned loan, and stopped all interest from accruing — continued. The Biden administration issued nine extensions as it weighed options for permanent forgiveness, even as aid programs like expanded unemployment insurance, the beefed-up child tax credit and extra nutrition assistance expired.Student Loan Repayment Dropped PrecipitouslyMonthly payments received by the Treasury, annualized

    Source: Goldman Sachs analysis of Treasury Department dataBy The New York TimesTens of millions of borrowers, who, according to the Federal Reserve, paid $200 to $299 on average each month in 2019, will soon face the resumption of a bill that is often one of the largest line items in their household budgets.Jessica Musselwhite took on about $65,000 in loans to finance a master’s degree in arts administration and nonprofit management, which she finished in 2006. When she found a job related to her field, it paid $26,500 annually. Her $650 monthly student loan installments consumed half her take-home pay.She enrolled in an income-driven repayment program that made the payments more manageable. But with interest mounting, she struggled to make progress on the principal. By the time the pandemic started, even with a stable job at the University of Chicago, she owed more than she did when she graduated, along with credit card debt that she accumulated to buy groceries and other basics.Not having those payments allowed a new set of choices. It helped Ms. Musselwhite and her partner buy a little house on the South Side, and they got to work making improvements like better air conditioning. But that led to its own expenses — and even more debt.“The thing about having a lot of student loans, and working in a job that underpays, and then also being a person who is getting older, is that you want the things that your neighbors have and colleagues have,” said Ms. Musselwhite, 45. “I know financially that’s not always been the best decision.”Now the end of the repayment hiatus is looming. Ms. Musselwhite doesn’t know how much her monthly payments will be, but she’s thinking about where she might need to cut back — and her partner’s student loan payments will start coming due, too.As student debt loads have risen and incomes have stagnated in recent decades, Ms. Musselwhite’s experience of seeing her balance rise instead of sink has become common — 52.1 percent of borrowers were in that situation in 2020, according to an analysis by Ms. Beamer, the higher education researcher, and her co-authors at the Jain Family Institute, largely because interest has accumulated while debtors can afford only minimum payments, or even less.The share of borrowers with balances larger than when they started had been steadily growing until the pandemic and was far higher in census tracts where Black people are a plurality. Then it began to shrink, as those who continued loan payments were able to make progress while interest rates were set at zero.A few other outcomes of this extended breather have become clear.It disproportionately helped families with children, according to economists at the Federal Reserve. A greater share of Black families with children were eligible than white and Hispanic families, although their prepandemic monthly payments were smaller. (That reflects Black families’ lower incomes, not loan balances, which were higher; 53 percent of Black families were also not making payments before the pandemic.)What did borrowers do with the extra space in their budgets? Economists at the University of Chicago found that rather than paying down other debts, those eligible for the pause increased their leverage by 3 percent on average, or $1,200, compared with ineligible borrowers. Extra income can be magnified into greater spending by making minimum payments on lines of credit, which many found attractive, especially earlier in the pandemic when interest rates were low.Put another way, the Consumer Financial Protection Bureau found that half of all borrowers whose student loan payments are scheduled to restart have other debts worth at least 10 percent more than they were before the pandemic.The effect may be most problematic for borrowers who were already delinquent on student loans before the pandemic. That population took on 12.3 percent more credit card debt and 4.6 percent more auto loan debt than distressed borrowers who were not eligible for the pause, according to a paper by finance professors at Yale University and Georgia Tech.In recent months, the paper found, those borrowers have started to become delinquent on their loans at higher rates — raising the concern that the resumption of student loan payments could drive more of them into default.“One of the things we’re prepping for is, once those student loan payments are going to come due, folks are going to have to make a choice between what do I pay and what do I not pay,” said David Flores, the director of client services with GreenPath Financial Wellness, a nonprofit counseling service. “And oftentimes, the credit cards are the ones that don’t get paid.”For now, Mr. Flores urges clients to enroll in income-driven repayment plans if they can. The Biden administration has proposed rules that would make such plans more generous.Further, the administration’s proposal for debt forgiveness, if upheld by the Supreme Court, would cut in half what would otherwise be a 0.2-percentage-point hit to growth in personal spending in 2023, according to researchers at Goldman Sachs.Whether or not debt forgiveness wins in court, the transition back to loan repayment might be rocky. Several large student loan servicers have ended their contracts with the Department of Education and transferred their portfolios to others, and the department is running short on funding for student loan processing.Some experts think the extended hiatus wasn’t necessarily a good thing, especially when it was costing the federal government about $5 billion a month by some estimates.“I think it made sense to do it. The real question is, at what point should it have been turned back on?” said Adam Looney, a professor at the University of Utah who testified before Congress on student loan policy in March.Ideally, the administration should have decided on reforms and ended the payment pause earlier in a coordinated way, Dr. Looney said. Regardless, ending the pause is going to constrain spending for millions of families. For Dan and Beth McConnell of Houston, who have $143,000 left to pay in loans for their two daughters’ undergraduate educations, the implications are stark.The pause in their monthly payments was especially helpful when Mr. McConnell, 61, was laid off as a marine geologist in late 2021. He’s doing some consulting work but doubts he’ll replace his prior income. That could mean dropping long-term care insurance, or digging into retirement accounts, when $1,700 monthly payments start up in the fall.“This is the brick through the window that’s breaking the retirement plans,” Mr. McConnell said. More

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    How Engagement Rings Explain What’s Happening in the Economy

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    A major jeweler claims the pandemic may have prevented people from meeting their future fiancés, cutting demand for engagement rings. Inflation and anxiety among shoppers haven’t helped.Aftershocks from the coronavirus pandemic continue to rumble across the U.S. economy, and Signet Jewelers shared a surprising one this week: The company is selling fewer engagement rings this year because, it says, singles who were stuck at home during lockdowns failed to meet their would-be fiancés in 2020.“As we predicted, there were fewer engagements in the quarter resulting from Covid’s disruption of dating three years ago,” Virginia C. Drosos, the chief executive at Signet, which owns Kay Jewelers and Zales, told investors on Thursday. Shares of Signet, the largest jewelry retailer in the United States, tumbled after the company cut its forecasts for sales and profit for the rest of the year.In a way, the engagement ring has become a sparkly microcosm of the American economy. The bridal jewelry business is being buffeted by the delayed effects of the pandemic, rapid inflation that is squeezing consumers and a growing sense of nervousness among shoppers.Some of the volatility is owed purely to the pandemic. Weddings were canceled in droves during 2020 lockdowns, but bounced back starting in late 2021 and throughout 2022, and were expected to level off over the coming years as more typical patterns returned. Wedding-related activity does appear to show some early signs of slowing in 2023, but it is unclear whether that’s the result of a 2020 dating dry spell, per Signet, or simply a return to the longstanding shift toward later and fewer marriages.What is clear? Wedding trends are also tied to broader, and potentially longer-lasting, economic forces. Signet may be selling less because fewer people are getting down on one knee, but also because ring shoppers are becoming more cautious and spending less amid rapid inflation and rising uncertainty about the direction of the economy. Both the volume and value of jewelry sold by Signet last quarter declined.Ms. Drosos said that the company had “expected the low-double-digit decline in engagements that we saw this quarter,” but that other factors were also at play. “Recent consumer confidence, lower tax refunds, economic concerns triggered by regional bank failures and continued inflation led to a weakening trend in spending across the jewelry industry,” she added.Consumers are contending with big challenges this year. Prices have climbed about 15 percent cumulatively over the past three years, as measured by the Personal Consumption Expenditures index. Inflation has slowed in recent months, but many workers are finding that their wages are falling behind.The Federal Reserve has been raising interest rates to try to cool the economy and fight the stubborn price increases. Besides making it more expensive for consumers to shop on credit or take out loans, the rate moves have increased the chance that the economy might tip into a recession. As many households watch their savings dwindle and worry about their job security, they may be less willing to spend on big-ticket items like fancy diamond rings and bespoke wedding dresses.David’s Bridal, the wedding dress retailer, suggested in a bankruptcy filing this year that some brides had become increasingly budget-conscious.An “increasing number of brides are opting for less-traditional wedding attire, including thrift wedding dresses,” James Marcum, the company’s chief executive, said in a court filing.Like much of the economy, the wedding industry has shown signs of a split, as higher earners find that they are able to reach into their savings and keep spending, and lower-income families that spend a bigger share of their earnings on necessities like food begin to crack under the weight of inflation.LVMH, the luxury retail group that owns jewelers including Tiffany, reported continued growth in early 2023, including solid sales of jewelry.“Everybody was expecting 2023 to be a horrendous year for luxury in the U.S.,” Jean-Jacques Guiony, LVMH’s chief financial officer, told investors in April, explaining that a collapse had not materialized. “It’s normalizing, but it’s not bad, either.”But at more mass-market brands like Kay and Zales, shoppers may be starting to pull back.“We began to see softening at higher price points, which previously had been relatively insulated, and lower price points remained under pressure,” Joan Hilson, Signet’s finance chief, said during Thursday’s call.Signet is hoping wedding-ring demand will bounce back: It is predicting 500,000 more engagements from 2024 to 2026 than the prepandemic trend would suggest, as dating delayed by the lockdowns leads to matches. But analysts at Bank of America “worry that some of that rebound will be offset” by a “pinched consumer” spending less on jewelry, they wrote.Shane McMurray, founder of the Wedding Report, is skeptical of a big gap year in engagements. He expects weddings to fall 20 percent in 2023 from 2022 levels as trends return to normal. And Lyman Stone, director of research at the consulting firm Demographic Intelligence, agreed that the current slowdown in weddings might reflect a return to previous trends rather than a one-off weakening.“It does look like 2023 is going to be a low year,” he said. “I do think that placing the blame for that on lockdowns in 2020 is a little bit strained.” More

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    World Bank Projects Weak Global Growth Amid Rising Interest Rates

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    A new report projects that economic growth will slow this year and remain weak in 2024.The World Bank said on Tuesday that the global economy remained in a “precarious state” and warned of sluggish growth this year and next as rising interest rates slow consumer spending and business investment, and threaten the stability of the financial system.The bank’s tepid forecasts in its latest Global Economic Prospects report highlight the predicament that global policymakers face as they try to corral stubborn inflation by raising interest rates while grappling with the aftermath of the pandemic and continuing supply chain disruptions stemming from the war in Ukraine.The World Bank projected that global growth would slow to 2.1 percent this year from 3.1 percent in 2022. That is slightly stronger than its forecast of 1.7 percent in January, but in 2024 output is now expected to rise to 2.4 percent, weaker than the bank’s previous prediction of 2.7 percent.“Rays of sunshine in the global economy we saw earlier in the year have been fading, and gray days likely lie ahead,” said Ayhan Kose, deputy chief economist at the World Bank Group.Mr. Kose said that the world economy was experiencing a “sharp, synchronized global slowdown” and that 65 percent of countries would experience slower growth this year than last. A decade of poor fiscal management in low-income countries that relied on borrowed money is compounding the problem. According to the World Bank, 14 of 28 low-income countries are in debt distress or at a high risk of debt distress.Optimism about an economic rebound this year has been dampened by recent stress in the banking sectors in the United States and Europe, which resulted in the biggest bank failures since the 2008 financial crisis. Concerns about the health of the banking industry have prompted many lenders to pull back on providing credit to businesses and individuals, a phenomenon that the World Bank said was likely to further weigh down growth.The bank also warned that rising borrowing costs in rich countries — including the United States, where overnight interest rates have topped 5 percent for the first time in 15 years — posed an additional headwind for the world’s poorest economies.The most vulnerable economies, the report warned, are facing greater risk of financial crises as a result of rising rates. Higher interest rates make it more expensive for developing countries to service their loan payments and, if their currencies depreciate, to import food.In addition to the risks posed by rising interest rates, the pandemic and the conflict in Ukraine have combined to reverse decades of progress in global poverty reduction. The World Bank estimated on Tuesday that in 2024, incomes in the poorest countries would be 6 percent lower than in 2019.“Emerging market and developing economies today are struggling just to cope — deprived of the wherewithal to create jobs and deliver essential services to their most vulnerable citizens,” the report said.The World Bank sees widespread slowdowns in advanced economies, too. In the United States, it projects 1.1 percent growth this year and 0.8 percent in 2024.China is a notable exception to that trend, and the reopening of its economy after years of strict Covid-19 lockdowns is propping up global growth. The bank projects that the Chinese economy will grow 5.6 percent this year and 4.6 percent next year.Inflation is expected to continue to moderate this year, but the World Bank expects that prices will remain above central bank targets in many countries throughout 2024. More

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    Debt Ceiling Deal Would Reinstate Student Loan Payments

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    The legislation would prevent President Biden from issuing another last-minute extension on the payments beyond the end of the summer.Follow for live updates as the House prepares for a vote on the debt limit deal.For millions of Americans with federal student loan debt, the payment holiday is about to end.Legislation to raise the debt ceiling and cut spending includes a provision that would require borrowers to begin repaying their loans again by the end of the summer after a yearslong pause imposed during the coronavirus pandemic.President Biden had already warned that the pause would end around the same time, but the legislation, if it passes in the coming days, would prevent him from issuing another last-minute extension, as he has already done several times.The end of the pause will affect millions of Americans who have taken out federal student loans to pay for college. Across the United States, 45 million people owe $1.6 trillion for such loans — more than Americans owe for any kind of consumer debt other than mortgages.The economic impact of the pandemic has faded since President Donald J. Trump first paused student loan payments in March 2020. Many Americans lost their jobs at the outset of the public health crisis, undercutting their ability to repay their loans on time. The number of jobs in the United States now exceeds prepandemic levels.Promoting the debt ceiling legislation over the weekend, Speaker Kevin McCarthy said on “Fox News Sunday” that it would end the pause on student loan payments “within 60 days of this being signed.”In fact, the legislation would follow the same timeline that the Biden administration had previously outlined, ending the pause on payments on Aug. 30 at the latest.A spokesman for Mr. McCarthy did not respond to an email seeking comment.Even with the pause ending, some borrowers may still see some relief if the Supreme Court allows Mr. Biden to move forward with a plan to forgive up to $20,000 in debt for some people with outstanding balances.Mr. Biden’s plan would cancel $10,000 of federal student loan debt for those who make under $125,000 a year. People who received Pell grants for low-income families could qualify for an additional $10,000 in debt cancellation.But the plan was challenged in court as an illegal use of executive authority, and during oral arguments in February, several justices appeared skeptical of the program. A ruling from the court could come at any time but is expected next month.White House officials have said repeatedly that they are confident in the legality of the president’s plan. But the debate about the plan, and the broader issue of student loans, has been fierce in Congress.Republicans have vowed to block the president’s plan if the courts do not. But they have so far failed to make good on that promise, despite repeated attempts.Last month, House Republicans passed a bill to raise the debt ceiling that would have blocked the student debt cancellation plan and ended the temporary pause on payments. That bill was shelved after negotiations began with the White House on the debt ceiling and spending cuts.Last week, the House passed a resolution that would use the Congressional Review Act to overturn the president’s debt cancellation plan. But the Senate has not taken up the measure, and Mr. Biden has said he would veto it.Instead, the compromise debt ceiling legislation now under consideration by lawmakers only requires ending the pause on payments — a move that the president had already said he would make. It would not block the debt cancellation plan.In addition, White House officials said the legislation would not deny the Biden administration the ability to pause student loan payments during a future emergency, as Republicans had sought to do.A spokesman for the White House said the president was pleased that Republicans had failed to block his debt cancellation plan in the debt ceiling legislation.“House Republicans weren’t able to take away a single penny of relief for the 40 million eligible borrowers, most of whom make less than $75,000 a year,” the spokesman, Abdullah Hasan, said. “The administration announced back in November that the current student loan payment pause would end this summer — this agreement makes no changes to that plan.” More

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    Companies Push Prices Higher, Protecting Profits but Adding to Inflation

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    Corporate profits have been bolstered by higher prices even as some of the costs of doing business have fallen in recent months.The prices of oil, transportation, food ingredients and other raw materials have fallen in recent months as the shocks stemming from the pandemic and the war in Ukraine have faded. Yet many big businesses have continued raising prices at a rapid clip.Some of the world’s biggest companies have said they do not plan to change course and will continue increasing prices or keep them at elevated levels for the foreseeable future.That strategy has cushioned corporate profits. And it could keep inflation robust, contributing to the very pressures used to justify surging prices.As a result, some economists warn, policymakers at the Federal Reserve may feel compelled to keep raising interest rates, or at least not lower them, increasing the likelihood and severity of an economic downturn.“Companies are not just maintaining margins, not just passing on cost increases, they have used it as a cover to expand margins,” Albert Edwards, a global strategist at Société Générale, said, referring to profit margins, a measure of how much businesses earn from every dollar of sales.PepsiCo, the snacks and beverage maker, has become a prime example of how large corporations have countered increased costs, and then some.Hugh Johnston, the company’s chief financial officer, said in February that PepsiCo had raised its prices by enough to buffer further cost pressures in 2023. At the end of April, the company reported that it had raised the average price across its products by 16 percent in the first three months of the year. That added to a similar size price increase in the fourth quarter of 2022 and increased its profit margin.“I don’t think our margins are going to deteriorate at all,” Mr. Johnston said in a recent interview with Bloomberg TV. “In fact, what we’ve said for the year is we’ll be at least even with 2022, and may in fact increase margins during the course of the year.”The bags of Doritos, cartons of Tropicana orange juice and bottles of Gatorade drinks sold by PepsiCo are now substantially pricier. Customers have grumbled, but they have largely kept buying. Shareholders have cheered. PepsiCo declined to comment.PepsiCo is not alone in continuing to raise prices. Other companies that sell consumer goods have also done well.The average company in the S&P 500 stock index increased its net profit margin from the end of last year, according to FactSet, a data and research firm, countering the expectations of Wall Street analysts that profit margins would decline slightly. And while margins are below their peak in 2021, analysts are forecasting that they will keep expanding in the second half of the year.For much of the past two years, most companies “had a perfectly good excuse to go ahead and raise prices,” said Samuel Rines, an economist and the managing director of Corbu, a research firm that serves hedge funds and other investors. “Everybody knew that the war in Ukraine was inflationary, that grain prices were going up, blah, blah, blah. And they just took advantage of that.”But those go-to rationales for elevating prices, he added, are now receding.The Producer Price Index, which measures the prices businesses pay for goods and services before they are sold to consumers, reached a high of 11.7 percent last spring. That rate has plunged to 2.3 percent for the 12 months through April.The Consumer Price Index, which tracks the prices of household expenditures on everything from eggs to rent, has also been falling, but at a much slower rate. In April, it dropped to 4.93 percent, from a high of 9.06 percent in June 2022. The price of carbonated drinks rose nearly 12 percent in April, over the previous 12 months.“Inflation is going to stay much higher than it needs to be, because companies are being greedy,” Mr. Edwards of Société Générale said.But analysts who distrust that explanation said there were other reasons consumer prices remained high. Since inflation spiked in the spring of 2021, some economists have made the case that as households emerged from the pandemic, demand for goods and services — whether garage doors or cruise trips — was left unsated because of lockdowns and constrained supply chains, driving prices higher.David Beckworth, a senior research fellow at the right-leaning Mercatus Center at George Mason University and a former economist for the Treasury Department, said he was skeptical that the rapid pace of price increases was “profit-led.”Corporations had some degree of cover for raising prices as consumers were peppered with news about imbalances in the economy. Yet Mr. Beckworth and others contend that those higher prices wouldn’t have been possible if people weren’t willing or able to spend more. In this analysis, stimulus payments from the government, investment gains, pay raises and the refinancing of mortgages at very low interest rates play a larger role in higher prices than corporate profit seeking.“It seems to me that many telling the profit story forget that households have to actually spend money for the story to hold,” Mr. Beckworth said. “And once you look at the huge surge in spending, it becomes inescapable to me where the causality lies.”Mr. Edwards acknowledged that government stimulus measures during the pandemic had an effect. In his eyes, this aid meant that average consumers weren’t “beaten up enough” financially to resist higher prices that might otherwise make them flinch. And, he added, this dynamic has also put the weight of inflation on poorer households “while richer ones won’t feel it as much.”The top 20 percent of households by income typically account for about 40 percent of total consumer spending. Overall spending on recreational experiences and luxuries appears to have peaked, according to credit card data from large banks, but remains robust enough for firms to keep charging more. Major cruise lines, including Royal Caribbean, have continued lifting prices as demand for cruises has increased going into the summer.Many people who are not at the top of the income bracket have had to trade down to cheaper products. As a result, several companies that cater to a broad customer base have fared better than expected, as well.McDonald’s reported that its sales increased by an average of 12.6 percent per store for the three months through March, compared with the same period last year. About 4.2 percent of that growth has come from increased traffic and 8.4 percent from higher menu prices.The company attributed the recent menu price increases to higher expenses for labor, transportation and meat. Several consumer groups have responded by pointing out that recent upticks in the cost of transportation and labor have eased.A representative for the company said in an email that the company’s strong results were not just a result of price increases but also “strong consumer demand for McDonald’s around the world.”Other corporations have found that fewer sales at higher prices have still helped them earn bigger profits: a dynamic that Mr. Rines of Corbu has coined “price over volume.”Colgate-Palmolive, which in addition to commanding a roughly 40 percent share of the global toothpaste market, also sells kitchen soap and other goods, had a standout first quarter. Its operating profit for the year through March rose 6 percent from the same period a year earlier — the result of a 12 percent increase in prices even as volume declined by 2 percent.The recent bonanza for corporate profits, however, may soon start to fizzle.Research from Glenmede Investment Management indicates there are signs that more consumers are cutting back on pricier purchases. The financial services firm estimates that households in the bottom fourth by income will exhaust whatever is collectively left of their pandemic-era savings sometime this summer.Some companies are beginning to find resistance from more price-sensitive customers. Dollar Tree reported rising sales but falling margins, as lower-income customers who tend to shop there searched for deals. Shares in the company plunged on Thursday as it cut back its profit expectations for the rest of the year. Even PepsiCo and McDonald’s have recently taken hits to their share prices as traders fear that they may not be able to keep increasing their profits.For now, though, investors appear to be relieved that corporations did as well as they did in the first quarter, which has helped keep stock prices from falling broadly.Before large companies began reporting how they did in the first three months of the year, the consensus among analysts was that earnings at companies in the S&P 500 would fall roughly 7 percent compared with the same period in 2022. Instead, according to data from FactSet, earnings are expected to have fallen around 2 percent once all the results are in.Savita Subramanian, the head of U.S. equity and quantitative strategy at Bank of America, wrote in a note that the latest quarterly reports “once again showed corporate America’s ability to preserve margins.” Her team raised overall earnings growth expectations for the rest of the year, and 2024. More

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    Financial Stability Experts at the Fed Turn a Wary Eye on Commercial Real Estate

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    A financial stability report from the Federal Reserve flagged concerns tied to rising interest rates, including in commercial real estate.Federal Reserve financial stability experts are on the lookout for weaknesses after a year of rising interest rates — and as they survey the potential risks confronting the system, they are increasingly watching office loans and other commercial real estate borrowing.Fed officials have lifted borrowing costs rapidly over the past year — to just above 5 percent from near-zero in early 2022 — to cool rapid inflation by slowing the economy. So far, the fallout from that abrupt change has been most obvious in the banking sector. A series of high-profile banks have collapsed or faced turmoil in recent weeks partly because they were poorly prepared for heftier borrowing costs.But Fed staff members and market experts whom they survey cited commercial real estate as another area worth watching in the central bank’s twice-annual Financial Stability Report, which was released Monday.The jump in interest rates over the past year “increases the risk” that commercial borrowers will not be able to refinance their loans when the loans reach the end of their term, Fed staff wrote in the report, noting that commercial real estate values remain “elevated.”“The magnitude of a correction in property values could be sizable and therefore could lead to credit losses by holders of C.R.E. debt,” the report said — noting that many of those holders are banks, and particularly smaller banks.“The Federal Reserve has increased monitoring of the performance of C.R.E. loans and expanded examination procedures for banks with significant C.R.E. concentration risk,” the report said.The Fed’s comments on commercial real estate amounted to muted watchfulness rather than a full-throated warning — but they come at a time when many investors and economists are closely monitoring the sector. The outlook for office buildings in downtown areas, where workers have not fully returned after a shift to remote work that began during the coronavirus pandemic, has emerged as a particular concern on Wall Street.The report included a survey of 25 professionals at broker-dealers, investment funds, research and advisory organizations, and universities, and those respondents ranked commercial real estate as their fourth-biggest financial stability concern — behind risks from interest rate increases, banking sector stress, and U.S.-China tensions, but ahead of Russia’s war in Ukraine and an impending fight in Congress about raising the debt limit.“Many contacts saw real estate as a possible trigger for systemic risk, particularly in the commercial sector, where respondents highlighted concerns over higher interest rates, valuations and shifts in end-user demand,” the report said.The Fed’s stability report also focused on risks to the economy that might come from the recent banking sector turmoil, which many officials are worried might prompt banks to pull back when it comes to lending. A Fed survey of bank loan officers released on Monday showed that demand for many types of loans has fallen in recent months, and it is becoming gradually harder to borrow.Worries could “lead banks and other financial institutions to further contract the supply of credit to the economy,” the Fed report said. “A sharp contraction in the availability of credit would drive up the cost of funding for businesses and households, potentially resulting in a slowdown in economic activity.”And if banks pull back in a dramatic way, it could have knock-on effects, the Fed report warned.“With a decline in profits of nonfinancial businesses, financial stress and defaults at some firms could increase,” the report said, especially because companies are very indebted — which puts them on dicier footing if business goes badly. More