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    Consumer Spending Fell Again in December

    Fresh data offered more detail on how shoppers retrenched at the end of 2022.For more than a year now, the U.S. economy has faced two fundamental, interwoven challenges: Consumers wouldn’t stop spending, and prices wouldn’t stop rising.Both trends are now showing early signs of reversing.Consumer spending fell in both November and December, the Commerce Department said on Friday, as shoppers pulled back amid rising prices, dwindling savings and warnings of a looming recession.Inflation is also easing: Consumer prices rose 5 percent in the year through December, according to the Federal Reserve’s preferred measure. While still much more rapid than normal, that was the slowest pace in more than a year.Taken together, the figures paint a picture of an economy that is, at long last, coming off the boil. From the Fed’s perspective, that is good news: The central bank has spent the past year aggressively raising interest rates in an effort to force consumers and businesses alike to pull back their spending, which should result in slower price increases. Now there is mounting evidence those efforts are bearing fruit.“The medicine is taking,” said Sarah Watt House, senior economist at Wells Fargo. “The economy is on the right path.”That path is an uncertain and narrow one, however. So far, the Fed has managed to cool down the economy without short-circuiting the recovery and causing a big increase in unemployment. But the full effects of its actions have yet to be felt.Policymakers are expected to raise rates by another quarter point at their meeting next week, a move that would put rates in a range of 4.5 to 4.75 percent. Even once they stop raising rates, the central bank has indicated it expects to keep borrowing costs high for a significant period.Inflation F.A.Q.Card 1 of 5What is inflation? More

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    A Closely Watched Measure of Inflation Slowed in December

    The Personal Consumption Expenditures price index climbed 5 percent from a year earlier, slower than the reading last month.The Federal Reserve’s preferred inflation index climbed 5 percent in the year through December, a notable slowdown from November and a continuation of a six-month downward trend.After stripping out food and fuel, the price index climbed 4.4 percent compared with a year earlier, in line with what economists in a Bloomberg survey had expected and a slowdown from 4.7 percent in November.The overall picture is one of moderating inflation — providing some long-awaited relief for consumers — but which remains unusually rapid at more than twice the 2 percent rate the Fed aims for on average over time.Central bankers are raising interest rates to make it more expensive to borrow money to make a major investment or finance a business expansion, hoping to cool demand enough that it drives price increases lower. Policymakers lifted their main policy rate from near-zero to more than 4.25 percent last year, and they are widely expected to raise it another quarter point in their decision on Feb. 1.The Fed is deciding when to stop its rate increases and how long to leave them high — decisions that it has said will be influenced by incoming data on inflation and the broader economy. That focuses attention on figures like the one released on Friday.“It will take time for supply and demand to come back into proper alignment and balance, so we must keep moving,” John C. Williams, the president of the Federal Reserve Bank of New York, said last week.The Fed is also keeping an eye on measures of economic activity, including consumer spending and the labor market. While layoffs at big technology companies have been grabbing headlines in recent weeks, jobless claims remain very low and the unemployment rate is at the lowest level in half a century.That is expected to change this year. As the Fed’s interest rate increases kick in fully, economists at the central bank and on Wall Street expect the U.S. economy to slow and for unemployment to tick higher. Officials are hoping that they can pull off the slowdown without tipping the economy into an outright recession, but there is no guarantee. More

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    U.S. Economy Grew at 2.9% Annual Rate in Fourth Quarter

    The continued growth in the fourth quarter showed the resilience of consumers and businesses in the face of rising inflation and interest rates.The economy remained resilient last year in the face of inflation, war and a Federal Reserve intent on curbing the pace of growth.A repeat performance in 2023 is far from guaranteed.U.S. gross domestic product, when adjusted for inflation, increased at an annual rate of 2.9 percent in the fourth quarter of 2022, the Commerce Department said on Thursday. That was down from 3.2 percent in the third quarter, but nonetheless a solid end to a topsy-turvy year in which the economy contracted in the first six months, prompting talk of a recession, only to rebound in the second half.Beneath the quarterly ups and downs is a simpler story, economists said: The recovery from the pandemic recession has slowed from the frenetic pace of 2021, but it has retained momentum thanks to a red-hot job market and trillions of dollars in pent-up savings that allowed Americans to weather rapidly rising prices. Over the year as a whole, as measured from the fourth quarter a year earlier, G.D.P. grew 1 percent, down sharply from 5.7 percent growth in 2021.“2020 was the pandemic; 2021 was the bounce-back from the pandemic; 2022 was a transition year,” said Jay Bryson, chief economist for Wells Fargo.The question is, a transition to what? Mr. Bryson, like many economists, expects a recession to begin sometime this year, as the effects of higher interest rates ripple through the economy.The initial rebound from the pandemic recession was much stronger in the United States than it was in much of the rest of the world. The gap widened last year as the war in Ukraine threatened to push Europe into a recession and the strict Covid suppression policies in China constrained growth there.But the U.S. economy faces fresh challenges in 2023. Inflation remains too high by many measures, and the Fed is expected to continue increasing rates in an effort to bring prices under control. A congressional showdown over raising the debt ceiling could cause further turmoil in financial markets — or a crisis if lawmakers fail to reach a deal.Inflation F.A.Q.Card 1 of 5What is inflation? More

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    Walmart Raises Starting Wages for Store Workers

    The retail giant said the minimum wages for those employees would range from $14 to $19 an hour, up from $12 to $18 an hour.Walmart, the nation’s largest private employer, is significantly raising its starting wages for store workers, as it battles to recruit and retain workers in a tight retail labor market.On Tuesday, the retail giant said in a memo to employees that it was increasing its minimum wages for store workers to a range of $14 to $19 an hour, up from $12 to $18 an hour.In the memo, Walmart’s chief executive of U.S. operations, John Furner, said the increase was meant “to ensure we have attractive pay in the markets we operate.” The move would immediately affect about 340,000 of the company’s 1.3 million frontline hourly workers in stores across the United States.For years, Walmart has been under pressure from unions, policymakers and activists to raise its wages for workers in its stores. The raises announced Tuesday would increase the average wage across Walmart stores to roughly $17.50 an hour from about $17, though the company’s average wage still trails some competitors like Costco.“We want to make sure we attract the best associates,” a Walmart spokesperson, Anne Hatfield, said in an interview.The raises, which will take affect in March, come amid still persistently high inflation, which has been particularly difficult to navigate for low-wage workers whose paychecks are being stretched by the costs of food, fuel and other basic necessities.The move by Walmart is also a curiously optimistic sign regarding the broader economy: One of the nation’s largest companies is taking steps to retain workers, even as other large employers have been announcing layoffs.Mark Zandi, the chief economist at Moody’s Analytics, said he was surprised that Walmart had raised wages “so significantly” given the risks of a recession.“It suggests that Walmart doesn’t think the economy will suffer a recession anytime soon, or that if it does, it will be a short-lived and modest downturn,” Mr. Zandi said in an email.The move may also reflect the longer-term challenges that retailers face in retaining workers as baby boomers age out of the work force and the labor pool shrinks, he said.Even though the raises will ease the inflationary strain on Walmart workers, they may inadvertently prolong the problem broadly by boosting wages across other sectors of the economy.“Walmart’s move to hike their minimum wage may also complicate the Fed’s efforts to quell wage pressures and thus inflation,” Mr. Zandi said, “as the decision may impact wage hikes and price increases in other labor-intensive industries such as health care, hospitality and personal services that the Fed is focused on in its fight against inflation.” More

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    Inflation Is Cooling, Leaving America Asking: What Comes Next?

    After six months of declines, inflation seems to be turning a corner. But the road back to normal is an uncertain one.Martin Bate, a 31-year-old transportation planner in Fort Worth, spent the middle of 2022 feeling that he was “treading water” as high gas prices, climbing food costs and the prospect of a big rent increase chipped away at his finances.“I was really starting to feel financially squeezed in a way that I hadn’t felt ever before, since finishing college,” Mr. Bate said. Since then, he has received a promotion and a raise that amounted to 12 percent. Gas prices have fallen, and local housing costs have moderated enough that next month he is moving into a nicer apartment that costs less per square foot than his current place.“My personal situation has improved a good amount,” Mr. Bate said, explaining that he’s feeling cautious but hopeful about the economy. “It’s looking like it might shape out all right.”People across the country are finally experiencing some relief from what had been a relentless rise in living costs. After repeated false dawns in 2021 and early 2022 — when price increases slowed only to accelerate again — signs that inflation is genuinely turning a corner have begun to accumulate.Inflation has slowed on an annual basis for six straight months, dipping to 6.5 percent after peaking at about 9 percent last summer, partly as gas has become cheaper. But the deceleration is true even after volatile food and fuel are stripped out: So-called core consumer prices have climbed 0.3 percent or less for each of the past three months. That’s faster than the 0.2 percent month-to-month changes that were typical before the pandemic but much slower than the 0.9 percent peak in April 2021. More

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    Families Struggle as Pandemic Program Offering Free School Meals Ends

    A federal benefit guaranteeing free school meals to millions more students has expired as food prices have risen. Many families are feeling the pinch.Like other parents, April Vazquez, a school nutrition specialist in Sioux Falls, S.D., is cutting coupons, buying in bulk and forgoing outings and restaurant meals. Still, a hot lunch in the school cafeteria for her three children is now a treat she has to carefully plan in her budget.The expiration of waivers that guaranteed free school meals for nearly 30 million students across the United States during the pandemic has meant that families like Ms. Vazquez’s who earn just over the income threshold no longer qualify for a federal program allowing children to eat at no cost.As pandemic-era assistance programs lapse and inflation reaches record highs, Ms. Vazquez is hardly alone. The number of students receiving free lunches decreased by about a third, to around 18.6 million in October, the latest month with available data. In comparison, about 20.3 million students ate free in October 2019, before the pandemic. That drop can be attributed to several factors, like being on the cusp of eligibility, lack of awareness that the program had ended by the start of the school year and fewer schools participating in the program overall.“It’s just making things a hell of a lot harder at the most difficult moment that I think American families have seen in a generation,” said Keri Rodrigues, co-founder and president of the National Parents Union network.For Ms. Vazquez, returning to a reality where she must pay full price for a school meal — about $3 or $4 for each child — is trying, and most days, her children bring a packed lunch. (Bagels, cream cheese and apples are typical; grapes and strawberries are rare because they are too expensive.)“It’s painful to know that my kids aren’t going to get free or reduced,” she said.The number of students receiving free lunches decreased by about a third, to about 18.6 million last October.Amber Ford for The New York TimesBefore the pandemic, Ms. Vazquez worked part-time as a special education assistant and her children teetered between qualifying for free or reduced-price meals year to year. But when she took a full-time job as a nutritionist in August 2021, her salary was just enough to bump her family above the income threshold for either benefit: about $42,000 annually for free meals for a family of five and $60,000 for reduced-price meals.“That was actually a worry when I applied for this position, because you don’t know what’s going to happen, am I going to get disqualified for this?” she said, adding that she ultimately took the job with a view toward long-term financial stability.Even as some parents have seen their wages increase and the criteria for free and reduced-price meals expand, those boons have done little to blunt the impact of rising food costs.From the 2019-20 school year to this school year, the income eligibility for free and reduced-price meals has increased by about 7.8 percent. Average hourly wage growth in that same period grew by 15.1 percent. Consumer prices, though, have risen by 15.4 percent, and food prices by 20.2 percent, surpassing wage growth.More on U.S. Schools and EducationChatGPT: OpenAI’s new chatbot is raising fears of students cheating on their homework. But its potential as an educational tool outweighs its risks, our columnist writes.Boosting Security: New federal data offers insight into the growing ways that schools have amped up security over the past five years, as gun incidents on school grounds have become more frequent.Teaching Climate Change: Many middle school science standards don’t explicitly mention climate change. But some educators are finding ways to integrate it into lessons. In Florida: The state will not allow a new Advanced Placement course on African American studies to be offered in its high schools, stating that the course is not “historically accurate.”In the Sioux Falls School District — where Ms. Vazquez works and where her children attend school — about 41 percent of children qualified for free or reduced-price lunch this school year, compared with about 49 percent before the pandemic, said its nutrition director, Gay Anderson. Some parents have remarked that they would be “better off missing half a week’s work to get that free meal,” she said.“The income eligibility guidelines are just not keeping pace with inflation, and families are barely making ends meet. So what we’re seeing is a lot of people are saying, ‘I can’t believe I don’t qualify as I always did.’ If they are making a dollar more, or whatever, that will do it,” Ms. Anderson said.At Wellington Exempted Village Schools in northeastern Ohio, Andrea Helton, the nutrition director, described denying the program to nearly 50 families in a school district of about 1,000 students. She recalled a single mother who lamented, “I missed the cutoff for reduced meals by $100 of gross income.”But Ms. Helton said, “There’s nothing I can do, and it’s heartbreaking.”Andrea Helton is the nutrition director at Wellington Exempted Village Schools in northeastern Ohio. Amber Ford for The New York TimesFamilies are also struggling to navigate a maze of new rules or, unaware that the program had ended, contending with having to pay for meals that had once been free.Megan, a mother of three school-aged children in Ms. Helton’s district who asked to be identified only by her first name because of privacy concerns, said that she had grown accustomed to the program. So when the school pressed her for money owed for unpaid lunches, “it was a shocker.”By the end of the fall semester, she had racked up $136 in debt.When Megan learned that holiday donations to the school district had wiped out that sum, “I just melted into a puddle because when you’re down to that last $100, the last thing you want to have to worry about is whether your kids are eating or not,” she said through tears.It is difficult to estimate how many students are now going hungry. But school officials and nutrition advocates point to proxy measurements — debt owed by families who cannot afford a school meal, for example, or the number of applications for free and reduced-price meals — as evidence of unmet need.In a survey released this month by the School Nutrition Association, 96.3 percent of school districts reported that meal debt had increased. Median debt rose to $5,164 per district through November, already higher than the $3,400 median reported for the entire school year in the group’s 2019 survey.The end of universal school meals has led fewer schools to participate in the program overall: 88 percent of public schools are operating a meal program this school year.Alyssa Schukar for The New York TimesAt school, Ms. Vazquez described witnessing children sitting in the cafeteria with packed lunches consisting of only a bag of chips or an apple. Others have inched toward the cash register with a lunch tray, a look of fear and recognition flashing across the “kid’s eyes when they see the computer, like, ‘Yeah, I know I’m negative, but I want to eat,’” she said.“You see other kids struggle and knowing, hey, I’m in the same boat,” she added. “I know exactly what you’re going through.”The end of universal school meals has led fewer schools to participate in the program overall: About 88 percent of public schools are operating a meal program this school year, compared with 94 percent in the previous school year, and 27.4 million children were eating a school lunch in October, compared with about 30 million in May, the last month of the school year with the program in place. That can create a vicious cycle in which lower participation translates to higher costs per meal, forcing schools to raise the price of a meal and squeezing out even more families, said Crystal FitzSimons of the Food Research and Action Center, which routinely talks to schools about their nutrition programs. Schools and families alike face other administrative and financial complications as school officials grapple with soaring wholesale costs and labor shortages, highlighting other challenges in increasing participation. Now officials must process paperwork to verify income eligibility, devote time and personnel for debt collection and plan ahead for expected revenue and reimbursement rates.At Prince William County Schools in Virginia, Adam T. Russo, the nutrition director, said his office has had to dedicate more resources for outreach and education to inform parents of the policy change. Already, he relies on a multilingual staff to serve the 90,000 students in his district, one of the most diverse in the state.Adam T. Russo relies on a multilingual staff to serve the 90,000 students in his district.Alyssa Schukar for The New York TimesFor many parents, he said, the process was new and potentially confusing given that universal free meals had been in place since some of their children had started school.“If your kid was in kindergarten, first grade, second grade, this is a completely foreign process to your family,” he said. “It’s been table stakes, and we’ve pulled the tablecloth out from under our families.”The application process, as well as the stigma associated with receiving a free or reduced-price lunch, can be prohibitive, advocates say. In 2019, even as some 29.6 million students were eligible for free or reduced-price meals, only 22 million received one, according to research. And about 20 percent of eligible households whose children did not receive either benefit reported food insecurity.“The effort it takes to make sure these resources actually hit those kids, for what that costs, it’s a hell of a lot easier to just say, listen, food is free,” Ms. Rodrigues said.The universal free school meal program pushed the federal cost of school nutrition programs from $18.7 billion in the 2019 fiscal year to $28.7 billion in the 2022 fiscal year, according to data from the Agriculture Department, which administers the program. The department does not have an official estimate of the cost of permanently enacting the policy, a spokeswoman said.Such an initiative has drawn widespread support, with polls showing 74 percent of voters and 90 percent of parents favoring the idea, but federal enactment seems unlikely. Republican lawmakers in Congress oppose permanently extending the policy, arguing that free meals should serve only the neediest and that pandemic-era policies must eventually end.Still, some states — and some parents — have been spurred to take action. For Amber Stewart, a mother of five in Duluth, Minn., the program was lifesaving.Before the pandemic, when the family owed money for meals, her daughter would receive a cold cheese sandwich and a carton of milk, signaling to classmates she could not afford the hot meal. Stern letters demanded repayment and warned of consequences.“Then the pandemic rolled around and everybody was eligible for the free meals, and they delivered it or you could go pick it up,” said Ms. Stewart, who asked to be identified by her maiden name. “It was amazing.”Intent on seeing the program enacted permanently, Ms. Stewart is now lobbying the Minnesota legislature to adopt universal free schools meals statewide, a policy that the governor recently endorsed. Under the new income guidelines, Ms. Stewart’s children now qualify for reduced-price meals. And because of a state law that covers the fees normally owed by families in that category, they are not charged the 35 or 50 cents for breakfast or lunch.That has been crucial, she said, because even after weekly trips to the food bank, she does not have nearly enough to get by.“Our money is really tight,” she said. “With the cost of groceries and everything, we’re barely making it.” More

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    Fed Rate Increases Have ‘A Ways to Go,’ Top Official Says

    Christopher Waller, a Federal Reserve governor, said he favored a quarter-point move. Many of his colleagues agree — or haven’t ruled it out.Christopher Waller, a Federal Reserve governor, added his voice on Friday to a chorus of central bank officials who favor slowing rate increases at the central bank’s Feb. 1 meeting. That most likely locks in place market expectations for a return to smaller policy adjustments after a series of jumbo rate moves.Mr. Waller spoke on the eve of the central bank’s quiet period before its meeting, which means investors will not hear any more commentary from Fed officials before they make their rate decision. His comments were in line with what many of his colleagues have said: Several openly support slowing down rate increases at the meeting, and top policymakers who haven’t made up their minds have not ruled it out.Central bankers raised rates rapidly in 2022, lifting borrowing costs in three-quarter-point increments for much of the year, before slowing to a half-point move in December. But they are entering a new phase that is focused more on how high interest rates rise and less on how quickly they get there. The thinking is that rates are now high enough to meaningfully slow the economy, and that adjusting them more gradually will give policymakers time to see how their policy is working.That has nudged policymakers toward a quarter-point increase, also known as 25 basis points, an increment that was common before the pandemic.“After climbing steeply and using monetary policy to significantly raise interest rates throughout the economy, it was apparent to me that it was time to slow, but not halt, the rate of ascent,” Mr. Waller said of the December downshift. “There appears to be little turbulence ahead, so I currently favor a 25-basis-point increase” at the Fed’s next meeting, he said.Inflation F.A.Q.Card 1 of 5What is inflation? More

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    As Fed Nears Next Rate Decision, Its Vice Chair Cites Reasons for Hope

    Lael Brainard, the vice chair of the Federal Reserve, emphasized that non-wage causes had driven inflation in a sweeping speech.The Federal Reserve’s second-in-command offered a hopeful analysis of America’s inflation situation on Thursday, emphasizing that many of the factors that have driven prices higher over recent years may be poised to fade.“It remains possible that a continued moderation in aggregate demand could facilitate continued easing in the labor market and reduction in inflation without a significant loss of employment,” Lael Brainard, the Fed’s vice chair, said in a speech at the University of Chicago Booth School of Business.Ms. Brainard spoke just days before Fed officials are set to begin the quiet period ahead of their Feb. 1 interest rate decision.In some ways, she broke with what her colleagues have been saying about the forces that could keep inflation high. Many central bankers have emphasized the roles that a tight labor market and strong wage growth are likely to play in propping up price increases, but Ms. Brainard focused on other factors that have sped up price increases, particularly when it comes to services.“There are a range of views on what it will take to bring down this component of inflation to prepandemic levels,” Ms. Brainard acknowledged in the remarks. She noted that wages are an important cost for services firms, so “one possible channel is through a weakening in labor demand.”But she added that “to the extent that inputs other than wages may have been responsible in part for important price increases,” a reversal in those factors could help to lower services inflation.In particular, Ms. Brainard noted that supply chain issues and jumps in fuel prices might be passing through to elevate some service costs, and that those could fade away, assuming supply chains continue to heal and gas stays relatively cheap.And Ms. Brainard also cited the reversal of swollen profit margins as something that could help inflation to moderate.Companies have enjoyed an unusual burst of pricing power in the pandemic era as repeated supply chain issues and resilient consumer demand have given them both a reason to try to raise prices and the wherewithal to do so without scaring away shoppers. Many firms have lifted what they are charging more than they needed to cover climbing costs, swelling their profits.“The labor share of income has declined over the past two years and appears to be at or below prepandemic levels, while corporate profits as a share of G.D.P. remain near postwar highs,” Ms. Brainard said.But that might be changing as demand wanes and price sensitivity returns.“The compression of these markups as supply constraints ease, inventories rise and demand cools could contribute to disinflationary pressures,” she said.The Fed is expected to raise interest rates again at its upcoming meeting as it tries to ensure that rapid inflation comes back under control. Officials slowed from a string of three-quarter-point moves in 2022 to a half-point move in December, and several have signaled that they would favor slowing to a quarter-point move at the February gathering.While Ms. Brainard did not speculate on what size rate move would be warranted in her prepared remarks, she did emphasize that borrowing costs will need to remain high to make sure that inflation moderates fully.“Policy will need to be sufficiently restrictive for some time to make sure inflation returns to 2 percent on a sustained basis,” she said. More