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    ‘Morning in America’ Eludes Biden, Despite Economic Gains

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    Seeking re-election in 1984, Ronald Reagan presided over an economy similar in many ways to today’s. But he sold a message of progress and promise.President Ronald Reagan rode a “Morning in America” message to a blowout re-election victory in 1984, based partly on warm feelings about his economic performance. Today’s economy is similar in many ways to Mr. Reagan’s as he entered that campaign, with one big difference: There is widespread voter angst over the incumbent’s economic stewardship.A New York Times/Siena College poll shows President Biden trailing his likely Republican opponent, former President Donald J. Trump, in key battleground states. Poll respondents rate the economy poorly and say they trust Mr. Trump more to fix it. That’s true even though the economy grew faster and added more jobs over the last year than forecasters expected, while inflation fell sharply from what had been a four-decade high.In public and private conversations, and in consultation with outside economists and other experts, Mr. Biden’s economic team has been consumed with that disconnect: Why do Americans remain so down on the economy when economic data are trending up?The answer is almost certainly some combination of how Americans process the economic moment and how Mr. Biden communicates about it.In both cases, the contrast with Mr. Reagan — and with the economic environment of the early 1980s — is instructive.In the fall of 1983, Mr. Reagan’s re-election was not assured. The nation was still emerging from a recession that had marred his first two years in office. Consumer prices had risen more than 15 percent since he took office — nearly as much as they have risen on Mr. Biden’s watch. Translated into today’s dollars, the price of a gallon of gasoline was about $3.80, about 40 cents higher than it is now. The typical American’s wages had not increased at all during Mr. Reagan’s tenure, after adjustment for higher prices, similar to Mr. Biden’s experience.But public faith in the economy, and in Mr. Reagan’s handling of it, was significantly stronger than it is for Mr. Biden.President Ronald Reagan rode a “Morning in America” message to re-election in 1984, partly on the strength of warm feelings about his economic performance.Bettmann/Getty ImagesThe University of Michigan’s Index of Consumer Sentiment was roughly 50 percent higher under Mr. Reagan in the fall of 1983 than it is now. Polls showed his approval rating climbing, including sentiment on the economy, in a reversal from the start of the year.A year later, Mr. Reagan would air “Prouder, Stronger, Better,” a television ad that began with the words “It’s morning again in America.” It highlighted falling inflation and lower interest rates allowing more Americans to buy a home.Mr. Reagan’s appeals worked in part because Americans had just endured more than a decade of persistently high prices and high interest rates. Economists and historians generally agree that voters came to see the progress under Mr. Reagan as relief from a long, difficult period.Voter psychology is very different under Mr. Biden. The 9 percent annual inflation rate that the country experienced last year was more than triple the average rate from the end of Mr. Reagan’s time in the White House to the start of Mr. Biden’s. Those mortgage rates Mr. Reagan trumpeted? They were around 14 percent in 1984. Right now, rates are just below 8 percent. The difference is that under Mr. Reagan, rates fell, and under Mr. Biden, they’ve gone up.For Mr. Biden and his economic team, “the problem is really in the way people think about and process economic information, rather than the economic fundamentals,” said Francesco D’Acunto, an economist at Georgetown University’s McDonough School of Business who recently briefed the White House Council of Economic Advisers.Mr. D’Acunto presented slides at the White House highlighting work he and colleagues have done, drilling down into how consumers process price increases. They find that consumers’ attitudes are shaped most by the products they buy most often — like milk, gasoline, bread and beer — and not by the things they spend the most money on.They also find that unexpected price surges stick in shoppers’ minds, negatively. They linger in a way that slower-building price increases, or even prolonged periods of high prices, do not.That research helps explain why voters did not punish Mr. Reagan for inflation even though the price growth he oversaw never reversed itself: They were accustomed to rapid price growth and grateful for improvement.One overly simplistic explanation for Mr. Biden’s woes is that voters are waiting for prices to fall back to their prepandemic levels. If that were true, Mr. Biden would almost certainly be doomed electorally. On the whole, the path of prices across American history is an upward march.But Mr. D’Acunto says his research suggests that Mr. Biden might be able to brighten voters’ moods by mounting a public persuasion campaign, focusing on prices that have begun to come down from recent highs. That includes consumer electronics like smartphones and computers, which are less expensive today than they were a year ago, on average, and which are often large-dollar purchases.For Mr. Biden and his economic team, “the problem is really in the way people think about and process economic information,” said Francesco D’Acunto, a Georgetown University economist.Desiree Rios for The New York TimesMr. Biden’s campaign recently spent $25 million on television ads to promote “Bidenomics” — a mix of the president’s blue-collar background and policy blueprint that is meant to resonate with the working class. It includes an ad focusing on a provision in the Inflation Reduction Act, which Mr. Biden signed last year, that seeks to reduce the cost of prescription drugs through Medicare. Campaign aides say it is scoring well in surveys with viewers.There is little evidence in polls that those efforts have broken through. Biden aides say they did not expect immediate results. They are testing messages, they say, including how best to talk about Mr. Biden’s economic record, as the president prepares to spend $1 billion or more in advertising before the election.Aides also insist that continued economic improvement will eventually punch through to the public. They contend that continued wage growth will restore some of the buying power Americans lost to recent inflation, and that consumers will gradually acclimate to prices that are higher than what they were used to before the pandemic.“What the president brings to the table is a deep and effective pro-worker agenda that’s maintaining a great job market, putting downward pressure on prices,” Jared Bernstein, the chair of the Council of Economic Advisers, said in an interview. “I understand that hasn’t reached the sentiment indexes yet. But I’m confident it will.”Some Democrats worry that Mr. Biden himself is a barrier to getting that message through, particularly to younger voters who express concerns over his age. Campaign officials say his direct appeals resonate well in tests. The Reagan comparison offers evidence for both sides.Economic surveys have become more politicized in recent years, with Republicans in particular resistant to praising the economy’s performance with a Democrat in office. Still, components of the Michigan survey suggest that Mr. Reagan had far more success than Mr. Biden as an economic cheerleader.Mr. Reagan made a habit of both championing the economy’s performance and critiquing press coverage of its flaws. At this point in his presidency, Americans were far more likely to report hearing positive news about the economy and prices than they do under Mr. Biden. They even reported hearing better news on unemployment, at a time when the rate was near 9 percent. It is under 4 percent today.Mr. Biden has often tried to strike more of a balance between celebrating strong job growth and acknowledging the pain of high prices. He has leaned more into boosterism in recent months — as the share of Americans reporting in the Michigan index that they hear good economic news has grown. More

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    Are Higher Rates Slowing the Economy? A Zoo Offers Clues.

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    Leesburg Animal Park in Northern Virginia has seen strong business at its Pumpkin Village festival this autumn. Even with rainy weekends and a jump in admission prices, families have been coming out to visit the petting zoo, ride on giant slides and zigzag through a hay-bale maze.Shirley Johnson, the park’s owner, had been nervous that demand might recede. Headlines were warning all year about impending recession as the Federal Reserve raised interest rates to cool growth and contain inflation. That downturn hasn’t happened, but the uncertainty and higher borrowing costs have influenced her investment plans.“You can’t stick your neck out quite as far as you could,” she said. The park has held off on an expansion of its gibbon pen, a big project that would have given the playful primates more space, but would have also required taking out a loan.The park’s experience is one example of a story playing out across the country. More than a year and half into the Fed’s campaign to cool the economy, higher borrowing costs are clearly weighing on business investment and some interest-rate-sensitive sectors, but consumers are spending at a much stronger clip than had been expected.To cover rising expenses, the park has raised ticket prices. So far, people are still coming.Erin Schaff/The New York TimesThat resilience has central bankers on watch. For now, they are pleased that the labor market and economic growth have held up even as inflation has come down substantially, and this week Fed officials chose to leave interest rates unchanged as they wait to see whether that can continue. But they are also looking for further evidence that their moves are working to restrain the economy.“Everyone has been very gratified to see that we’ve been able to achieve pretty significant progress on inflation without seeing the kind of increase in unemployment that is very typical” with interest rate increases, Jerome H. Powell, the Fed chair, said on Wednesday. “The same is true of growth.”But he said that economic growth, which is mainly powered by consumer spending, would most likely need to slow for inflation to fully return to a normal pace. It is now running at about 3.4 percent, still well above the Fed’s 2 percent goal.“What we do with demand is still going to be important,” he said.Surveying the economy reveals that the effects of the Fed’s rate moves are clear in some places, are mixed in others and have yet to make much of a dent elsewhere.What has the Fed done with interest rates?Starting in March last year, the Fed has raised its key rate, which is now set to a range of 5.25 to 5.5 percent. That is above the level that central bankers think is necessary to slow the economy over time.Higher Fed rates have also helped to push up longer-term borrowing costs in markets, sending mortgage rates to nearly 8 percent, a more than two-decade high.Despite that, growth remains a lot quicker than economists think is normal. The economy expanded at a 4.9 percent annualized rate from July through September, the Commerce Department reported last week. That has prompted a debate about whether the Fed’s policies are succeeding at cooling things down.While economists think higher borrowing costs are having an effect, policymakers are watching the data to get a sense of whether they are weighing on the economy enough to fully wrangle inflation.“There’s a question of calibration,” William English, a former Fed economist who is now at Yale, said of the higher rates. “But are they working? Sure.”The park has made some medium-size investments this year, like improving its camel enclosure.Erin Schaff/The New York TimesWhere are the effects of higher rates clear?Higher rates tend to dent stock prices: Higher borrowing costs hurt the outlook for corporate profits and prod investment funds toward higher returning interest-bearing securities like bonds. That effect has begun to show up, although markets have been volatile.The S&P 500 fell for three consecutive months, from August through October, which coincided with a rise in longer-term market rates. Stocks are off to a stronger start in November, as long-term yields have dipped in recent days.Higher rates have driven up the value of the dollar, which makes imports cheaper for local buyers and U.S. exports more expensive abroad, among other effects.And steeper borrowing costs slow business investment. For instance, investment in equipment has been negative for three of the past four quarters, which could be a sign of rate increases at work. Caterpillar, the maker of industrial equipment, spooked investors this week when it reported a shrinking order backlog.Where are the effects mixed?While the Fed’s rate moves have made it more expensive to borrow to buy a house or a car, both of those markets have had shortages recently — making it complicated to see the effects.Take cars. They were in painfully short supply for months during the pandemic, as supply chain problems collided with strong demand. Supply has returned, but now there is a hole in the used car market, since far fewer new cars than usual were sold in 2021 and 2022.Car buyers have pulled back in recent months, but pent-up demand means that sales have eased, not plummeted.“It’s been more resilient than we thought this year,” John Lawler, the chief financial officer at Ford Motor, said on a recent earnings call. He noted that vehicles now cost about 14 percent of a consumer’s monthly disposable income, up from 13 percent before the pandemic, and Ford expects a gradual return to normal over the next 12 to 18 months.The housing market is even more complex. Housing supply is limited, partly because people who have locked in low mortgage rates are now hesitant to sell. Given a dearth of older houses on the market, existing home sales are way down, but new home sales have stabilized and home prices are popping.Higher interest rates are weighing on business investment and interest rate-sensitive sectors. And zoos.Erin Schaff/The New York TimesWhere are the effects not showing up?If there’s one place where it’s tough to see higher rates biting, it’s the consumer sector.The job market has held up even as the Fed’s rate moves have weighed on some parts of the economy: Hiring has slowed on average this year compared with last year, but it remains quicker than what was normal before the pandemic. Wage gains have cooled, but are also faster than the pre-2020 pace.That has allowed Americans to keep shopping, even through price increases and fading government pandemic relief. Spending climbed faster in September than economists had expected.Strong consumption could be a concern for the Fed, if it lasts, because it could enable companies to keep raising prices to cover their own costs or protect profits without losing customers — which could keep inflation rising.Take the animal park. It has made some medium-size investments this year, like improving its camel enclosure. But those projects cost money, and day-to-day operations have become more expensive.To keep up, the business raised prices. They scrapped a cheaper child ticket for the Pumpkin Village. Ordinary weekday visits also cost more: $17.95 for adults, per the park’s website, up from $15.95 at the end of 2021.So far, consumers are still coming.“People just want to be outside,” Ms. Johnson said. “It’s good old-fashioned fun.” More

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    Fed Holds Interest Rates Steady and Pledges to Proceed Carefully

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    The Federal Reserve left interest rates at 5.25 to 5.5 percent, but its chair, Jerome Powell, said policymakers could still raise rates again.The Federal Reserve left interest rates unchanged on Wednesday while keeping alive the possibility of a future increase, striking a cautious stance as rapid inflation retreats but is not yet vanquished.Rates have been on hold in a range of 5.25 to 5.5 percent since July, up from near-zero as recently as March 2022. Policymakers think that borrowing costs are high enough to achieve their goal of curbing economic growth if they are kept at this level over time.By cooling demand, the Fed is hoping to prod companies to raise prices less quickly. While the economy has held up so far — growth was unusually strong over the summer — inflation has come down since 2022. Overall price increases decelerated to 3.4 percent as of September, from more than 7 percent at their peak.Fed policymakers are now trying to wrestle inflation the rest of the way back to 2 percent. The combination of economic resilience and moderating inflation has given officials hope that they might be able to slow growth gradually and relatively painlessly in a rare “soft landing.” At the same time, the economy’s surprising endurance is forcing the Fed to question whether it has done enough to tamp down demand and price increases.The major question facing Fed officials is whether they will need to make one final rate increase in the coming months, a possibility they left open on Wednesday.“The full effects of our tightening have yet to be felt,” Jerome H. Powell, the Fed chair, said at a news conference after the decision. “Given how far we have come, along with the uncertainties and risks we face, the committee is proceeding carefully.”Jerome H. Powell, the Fed chair, said Wednesday that policymakers had not determined whether further interest rate increases would be needed to get inflation down to 2 percent.Haiyun Jiang for The New York TimesMr. Powell said officials would base decisions about the possibility and extent of additional policy firming — and how long rates will need to stay high — on economic data and how various risks to the outlook shaped up.Stock prices in the S&P 500 index rose as Mr. Powell spoke, and odds of further rate increases declined, suggesting that investors took his comments as a sign that interest rates were probably at their peak. But Diane Swonk, chief economist at KPMG, said she thought markets were getting ahead of themselves.“They are not declaring victory,” she said, explaining that while she did not expect the Fed to move rates in December, an early-2024 move seemed possible. “They are hesitant to say, ‘We’re done.’”Other analysts suggested that by not pushing back on the market’s expectation that the Fed was done raising interest rates, Mr. Powell was essentially endorsing that view, barring an unexpected surprise.At the Fed’s previous meeting, in September, policymakers had forecast that one more quarter-point increase in rates would probably be appropriate before the end of 2023. But officials did not release updated economic projections on Wednesday — they are scheduled to do so after the Fed’s Dec. 12-13 meeting — and conditions have changed since their last assessment.That is because longer-term interest rates in markets have jumped higher. While the Fed sets short-term borrowing costs, longer-term rates adjust at more of a delay and for a variety of reasons.The recent rise has made everything from mortgages to business loans more expensive, which might help cool the economy. The change may make it less necessary for Fed officials to raise rates further.“Tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring and inflation,” the Fed said in its statement Wednesday, newly pointing to financial conditions as a restraint on growth.“It’s their way of saying that higher interest rates matter,” Gennadiy Goldberg, a rates strategist at TD Securities, said of the line. “Interest rates are doing some of the Fed’s work for them.”Mr. Powell made it clear that the Fed was closely watching higher market interest rates — particularly to see whether the jump was sustained, and to what extent it squeezed consumers and businesses.But Mr. Powell said the Fed’s staff economists were not predicting an imminent recession, which suggests that they do not see the higher borrowing costs hurting the economy too severely.And he said policymakers were still focused on whether interest rates were high enough to ensure that inflation would cool fully, given recent evidence of continued economic strength.“We are not confident yet that we have achieved such a stance,” Mr. Powell said.While the Fed’s moves have held back some parts of the economy, including sales of existing homes, the labor market continues to chug along. Hiring is still quicker than before the pandemic. Wage gains have cooled, but are also faster than pre-2020.As Americans win jobs and raises, they have continued to open their wallets. Spending climbed faster than economists expected in September, and growth overall has been much faster than what most forecasters would have expected a year and half into the Fed’s campaign to cool it.That strength could become a problem for central bankers, should it persist. If consumers remain ravenous for goods and services, companies may continue raising prices, making it more difficult to eliminate what is left of rapid inflation.At the same time, Fed officials do not want to brake too hard, which could unnecessarily cause a recession. Policy changes often act with a lag, and it can take months for the cumulative effects of interest rate increases to fully bite.“Everyone has been very gratified to see that we’ve been able to achieve pretty significant progress on inflation without seeing the kind of increase in unemployment that is very typical” with interest rate increases, Mr. Powell said. “The same is true of growth.”But he also made it clear that the Fed still thought a slowdown in the job market and overall growth were likely to prove necessary. Healing supply chains and a fresh supply of workers have helped to bring the economy into balance so far, but those forces may not be enough to bring inflation fully back to normal, he said.“What we do with demand is still going to be important,” he said, later adding that “slowing down is giving us, I think, a better sense of how much more we need to do, if we need to do more.” More

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    JOLTS Report Shows U.S. Job Openings Steady in September

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    The NewsJob openings changed little in September, the Labor Department announced on Wednesday.There were 9.6 million job openings in September, slightly up from August’s revised total of 9.5 million, according to seasonally adjusted figures from the Job Openings and Labor Turnover Survey. The figure was greater than economists’ expectations of 9.3 million openings. The rate of workers quitting their jobs was flat, at 2.3 percent, for the third straight month.The Federal Reserve closely monitors job openings to understand whether the economy is running too hot.Jim Wilson/The New York TimesWhy It Matters: The Fed looks for signs of a soft landing.The Federal Reserve closely monitors job openings to understand whether the economy is running too hot. Since March 2022, the Fed has tried to fight inflation by raising interest rates to their highest level since 2001.The Fed has remained committed to hitting an annual inflation target of 2 percent without causing a significant spike in unemployment — a combined outcome known as a “soft landing.”Fed officials are expected to maintain a target range of 5.25 to 5.5 percent for interest rates when they meet on Wednesday. The overall trend of slowing job openings is a sign that rate increases have cooled the economy, according to experts.“All of this means the Fed probably doesn’t feel the need to raise rates further, but they’re not going to ease anytime soon,” said Sonu Varghese, global macro strategist at Carson Group, said of the report on job openings.Job openings, which reached a record of more than 12 million in March 2022, have trended down, as has the job-quitting rate, while separations have been flat. As openings rose slightly in September, the number of openings per unemployed worker was flat, at 1.5, the same as August.Less churn in the labor market indicates that rate increases are having an effect, said Julia Pollak, the chief economist at the job search website ZipRecruiter. ZipRecruiter’s latest survey of new employees found that the share of hires who received a pay increase, got a signing bonus or were recruited to their new jobs each fell.Background: ‘More wood to chop’ for the Fed.Job openings remain much higher than they were before the pandemic, and the number of unemployed workers per job opening is much lower. Both are signs of a tight labor market.Inflation also remains above the Fed’s 2 percent target. The Fed’s preferred inflation measure has fallen nearly four percentage points since the summer of 2022, to 3.4 percent.“The Fed’s primary focus remains inflation,” said Sarah House, a senior economist at Wells Fargo. “They’re reading the economy through the lens of ‘What does this mean for the path of inflation ahead?’”According to Stephen Juneau, an economist at Bank of America, the Fed still has “more wood to chop.” His team expects that the Fed will raise rates one more time, in December, to reach a soft landing.Economic growth in the third quarter accelerated, and another measure of wage growth grew faster than expected over the summer. The yield on the 10-year U.S. Treasury bond, a key measure of long-term borrowing costs that undergirds nearly everything in the economy, has reached its highest level since 2007 as the outlook for growth has improved.What’s next: The October jobs report on Friday.The report on Wednesday morning kicked off an important few days in economic news. After Fed officials meet to decide whether to raise rates, October’s jobs report will be released on Friday by the Labor Department.The data is expected to show that hiring slowed, with the addition of 180,000 jobs, according to Bloomberg’s survey of economists, down from September’s 336,000. The unemployment rate is expected to tick up to 3.9 percent, after holding steady at 3.8 percent in September. More

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    A Key Measure of Wages Grew at a Moderate Pace This Summer

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    The Employment Cost Index, which Federal Reserve officials watch closely as a gauge of pay trends, has come down since last year.A measure of pay and benefits that officials at the Federal Reserve have been watching closely as they try to gauge the heat of the labor market grew at a moderate pace over the summer.The Employment Cost Index, a quarterly measure from the Labor Department that tracks changes in wages and benefits, climbed 1.1 percent in the third quarter of 2023 versus the prior three months. That was slightly faster than the 1 percent that economists expected and up from the previous 1 percent reading.That pace of growth does mark a deceleration from a series of rapid quarterly gains in 2022. And on an annual basis, wage gains continue to slow: The employment cost measure rose by 4.3 percent on a yearly basis, down from the 4.5 percent reading in the previous report.Still, the index averaged 2.2 percent yearly gains in the decade leading up to the pandemic, underscoring that today’s pace remains unusually quick. And it is notable that wage gains continue to come in strong at a time when economists had expected them to be returning to a more normal pace. The trend could present a challenge for officials at the Federal Reserve.Rapid wage gains are good news for households, but they can spell trouble for Fed policymakers. Central bankers often worry that it will be hard to fully snuff out inflation if pay gains are climbing quickly. Companies that are paying workers higher wages are likely to try to charge more to cover their costs.Fed officials are meeting this week to discuss what to do next with interest rates, and are widely expected to hold borrowing costs steady at the conclusion of their two-day meeting on Wednesday. Economists did not expect that to change in the wake of Tuesday’s wage data.“It’s more about waiting for the labor market to continue to normalize,” said Oscar Muñoz, chief U.S. macro strategist at TD Securities. “It is taking longer, but I think that the Fed can be patient.”Fed officials have already raised interest rates to a range of 5.25 to 5.5 percent, up from near-zero in March 2022, in their bid to slow inflation.Those higher rates make it more expensive to borrow money to buy a house, purchase a car or expand a business. As companies hire less voraciously and demand wanes, wage growth should slow and companies should find it more difficult to raise prices without losing customers. That chain reaction is expected to put a lid on inflation.But the labor market’s cool-down has been an unexpectedly bumpy one. Job gains have slowed somewhat, but they remain much faster than many economists had expected after so much Fed action.That has left Fed officials closely watching wages.If pay growth continues to calm even as companies hire at a solid clip, it would suggest that the continued job gains are being driven by an improving supply of applicants — and that the labor market is still slowly coming back into balance.The logic is simple: If the job market were running hot, companies would be paying more and more as they tried to poach needed employees from one another. That would keep pay gains climbing swiftly. If it is cooling toward a more normal level of tightness, economists would expect wage gains to pull back.So far, policymakers have been interpreting labor market data to mean that balance is in fact returning. That’s partly because another closely watched measure of wage growth, the average hourly earnings index, has been showing steady moderation.That gauge is useful because it comes out every month, but it is also susceptible to data quirks. It tends to move around as the composition of the work force shifts. If a lot of low-wage workers gain jobs, for instance, the hourly earnings measure can drift lower.Given that, Fed officials closely monitor the Employment Cost Index, which avoids some of the data pitfalls that afflict other wage measures.“Wage growth is slowing down, but not as much as other data sources have suggested,” Cory Stahle, economist at Indeed Hiring Lab, wrote in an analysis after the report. He added that “pay growth will likely keep slowing going forward, but the labor market continues to display notable resilience.” More

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    Halloween Shoppers Not Spooked as Economic Slowdown Remains Elusive

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    Economists spent much of 2023 warning that a recession could be imminent as the Federal Reserve raised interest rates to the highest level in more than two decades. But for companies like Soergel Orchards in western Pennsylvania, a slowdown is nowhere in sight.“People are buying the decorative things,” said Amy Soergel, manager at the company who explained that gourds and cornstalks were in high demand and that customers were coming out to select pumpkins and apples. “People love to pick — people will pick anything.”Sales are up even though a string of rainy weekends have held back attendance at the farm’s annual fall festival. Demand at the hard cider shop has been solid. And the owners are bracing for a strong season in their store selling Christmas decorations.Soergel’s bustling business is a microcosm of a trend playing out nationwide. Consumer demand has unexpectedly boomed in 2023, defying widespread expectations for a slowdown and helping to fuel strong overall growth. The economy expanded at an eye-popping 4.9 percent annual rate in the third quarter, far faster than the roughly 2 percent pace officials at the Fed think of as its standard growth pace.That is great news for American companies. But it is a also a source of confusion. Why is the economy still growing so quickly more than a year and a half into the Fed’s campaign to slow it down, and how long will the upswing last?Fed officials have lifted interest rates above 5.25 percent, making it more expensive to take out a mortgage, borrow to expand a business or carry a credit card balance. Those moves were meant to trickle out through markets to cool the real economy. Some parts of the economy have felt the squeeze — existing home sales have slowed, for instance. Yet employers continue to hire and families keep spending.Customers were coming to Soergel Orchards to select pumpkins and apples.Ross Mantle for The New York Times“People love to pick — people will pick anything,” a manager said.Ross Mantle for The New York TimesCornstalks and gourds are in high demand at Soergel’s.Ross Mantle for The New York TimesIt is difficult to predict what comes next as the all-important holiday shopping season approaches. A solid job market and cooling inflation could combine to give consumers the wherewithal to keep powering the economy forward. But many companies are being careful not to build up too much inventory or predict too strong a sales outlook, worried that higher borrowing costs could collide with smaller savings piles and the accumulated effects of more than two years of rapid inflation to make Americans thriftier.“Sentiment definitely feels down,” Thomas Barkin, president of the Federal Reserve Bank of Richmond, said during an interview on Oct. 19. “The folks I talk to are still clamping down in preparation for 2024.”What happens with holiday shopping could help shape what the Fed does next.The central bank has been trying to slow growth for a reason: Inflation has been above 2 percent for 30 months now. To get prices under control, policymakers think they need to tamp down demand.The logic is fairly simple. If rapid hiring continues and wage gains prove quick, people who are earning more money are likely to feel confident and keep spending. And if shoppers are eager to buy restaurant dinners, new gadgets and updated wardrobes, it will be easier for companies to protect their profits by raising prices.That is why Fed officials are keeping an eye on how strong consumers and the job market remain as they contemplate what to do next with interest rates. Policymakers are almost sure to leave rates unchanged at their meeting on Nov. 1, and a number of them have suggested that they may be done raising borrowing costs altogether.Soergel’s owners are bracing for a strong season in their store selling Christmas decorations.Ross Mantle for The New York TimesBut top officials have kept alive the possibility of one final quarter-point increase, if economic data were to remain buoyant.“We are attentive to recent data showing the resilience of economic growth and demand for labor,” Jerome H. Powell, the Fed chair, said in a recent speech, adding that continued surprises “could put further progress on inflation at risk and could warrant further tightening of monetary policy.”So far, companies offer a mixed picture on the outlook. Many are suggesting that seasonal shopping is off to a strong start. Halloween spending is expected to climb to a record $12.2 billion, up 15 percent from last year’s record of $10.6 billion, according to the National Retail Federation’s annual survey. The group is expected to release its holiday forecast this week.Walmart reported strong sales during its back-to-school season, which its chief executive noted was a good indicator for how spending would look during Halloween and Christmas.“Typically when back-to-school is strong, it bodes well for what happens with Halloween and Christmas,” Doug McMillon, the Walmart chief, said on an earnings call in August.But some companies are uncertain. The Tractor Supply chief executive, Hal Lawton, said during an earnings call last week that the retailer was stocking up on fall and winter décor — selling, for instance, a skeleton cow that was a “TikTok viral sensation.”But “we acknowledge there is a broader range of estimates for holiday, consumer spending than we’ve seen over the last couple of years,” he added.And some analysts think winter shopping could prove weak. Craig Johnson, founder of the retail consultancy Customer Growth Partners, expects holiday sales to grow at 2.1 percent, the slowest since 2012, he said in a report released Oct. 17.“The fact that people had a good Halloween doesn’t necessarily mean that they’re going to have a good holiday,” Mr. Johnson said. “It’s a different buying mentality and there’s not a carryover — you’re not going to see apparel lines from Halloween extend over into Christmas.”Retailers report that they are carefully watching how much inventory they have headed into the holidays, and a Fed survey of business experiences from around the Fed’s 12 districts referenced the word “slow,” “slower” or “slowing” 69 times.Demand at the on-site hard cider shop has been solid.Ross Mantle for The New York TimesPart of the challenge in forecasting is that consumers seem to be splitting into two groups: Wealthier consumers keep spending even as the bottom tier of shoppers either pull back or look for deals.The department store chain Kohl’s says it is seeing this type of bifurcation play out in its customer base and is adjusting its stores accordingly.Shoppers at the Kohl’s in Ramsey, N.J., were greeted with a range of already-discounted Christmas items like miniature snowmen and ornaments at the front of the store. That design was done on purpose — Kohl’s executives want the section to appeal to deal-hungry shoppers.But in a sign that higher earners could fuel growth, it has also started to stock new category items like decanters, wine glasses and electric corkscrews.“We want to make sure we’ve got the right broad breadth of assortment for the breadth of customer base that we’ve got,” said Nick Jones, Kohl’s chief merchandising and digital officer. “And that’s an element of making sure everything’s got to be great value. But great value doesn’t always mean low price.” More

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    Consumers Kept Spending in September, as Inflation Held Steady

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    Overall inflation stayed at 3.4 percent in September, down from a peak of around 7 percent.American consumers spent at a robust clip last month, fresh data showed, as the economy continued to chug along even after more than a year and a half of Federal Reserve interest rates increases.The Fed’s policy moves have been intended to slow demand in order to tamp down inflation. Price increases have been slowing down: Friday’s Personal Consumption Expenditures report also showed that overall inflation held steady at 3.4 percent in September.That was in line with what economists had expected, and is down from a peak of 7.1 percent in the summer of 2022. And after stripping out volatile food and fuel for a clearer sense of the underlying inflation trend, a closely-watched core inflation measure eased slightly on an annual basis.Still, Fed officials aim for 2 percent inflation, so the current pace is still much faster than their goal.The question confronting policymakers now is whether inflation can slow the rest of the way at a time when consumer spending remains so strong. Businesses may find that they can charge more if shoppers remain willing to open their wallets. Friday’s report showed that consumer spending climbed 0.7 percent from the previous month, and 0.4 percent after adjusting for inflation. Both numbers exceeded economist forecasts.The strong spending figures are likely not enough to spur Fed officials to react immediately: Policymakers are widely expected to leave interest rates unchanged at their meeting next week, which wraps up on Nov. 1. But such solid momentum could keep them wary if it persists.“You see inflation still generally trending in the right direction, so I think they’re willing to look past this,” said Carl Riccadonna, chief U.S. economist at BNP Paribas. “If this continues for multiple quarters, then I think that maybe it starts to wear a little bit thin: If you have persistent above-trend growth, then you have to start worrying about what the inflation consequences will be.”Fed policymakers have raised interest rates to 5.25 percent, up from near-zero as recently as March 2022, and many officials have suggested that interest rates are likely either at or near their peak.But policymakers have been careful to avoid entirely ruling out the possibility of another rate increase, given the economy’s staying power.A report yesterday showed that the economy grew at a 4.9 percent annual rate in the third quarter, after adjusting for inflation. That was a rapid pace of expansion, and was even faster than what forecasters had expected.“We are attentive to recent data showing the resilience of economic growth and demand for labor,” Jerome H. Powell, the Fed chair, said in a recent speech, adding that continued surprises “could put further progress on inflation at risk and could warrant further tightening of monetary policy.”Inflation has slowed over the past year for a number of reasons. Supply chains became tangled during the pandemic, causing shortages that pushed up goods prices — but those have eased. Gas and food prices had shot up after Russia’s invasion of Ukraine, but have faded as drivers of inflation this year.Some of those changes have little to do with monetary policy. But in other sectors, the Fed’s higher interest rates could be helping. Pricier mortgages seem to have taken at least some steam out of the housing market, for instance. That could help by spilling over to keep a lid on rent increases, which are a big factor in key measures of inflation.Wrestling inflation down the rest of the way could prove to be more of a challenge. Almost all of the remaining inflation is coming from service industries, which include things like health care, housing costs and haircuts. Such price increases tend to stick around more stubbornly.For now, officials are waiting to see if their substantial rate moves so far will continue to feed through to cool the economy.There are reasons to think that growth could soon slow.“Despite the quarter-to-quarter gyrations in economic data, the Fed feels that it has restrictive policy in place,” said Mr. Riccadonna from BNP. “It’s really just a matter of waiting for the medicine to kick in, to a full degree.”Plus, a recent jump in longer-term interest rates could weigh on the economy. While the Fed sets short term rates directly, those market-based borrowing costs can take time to adjust — and they matter a lot. The jump in long term rates is making it much more expensive to take out a mortgage or for companies to borrow to fund their operations.Plus, consumers have slightly less money to spend: After adjusting for inflation, disposable income declined by 0.1 percent in September, Friday’s report showed. And global instability — including from the war between Israel and Hamas — could add to uncertainty and economic risk.“Despite the quarter-to-quarter gyrations in economic data, the Fed feels that it has restrictive policy in place,” Mr. Riccadonna from BNP. “It’s really just a matter of waiting for the medicine to kick in, to a full degree.” More