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To Avoid an Economic Recession, Consumer Spending Is Key

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It has powered the economic recovery from the pandemic shock. Now wallets are thinner, and some businesses are feeling the difference.The economy’s resurgence from the pandemic shock has had a singular driving force: the consumer. Flush with savings and buoyed by a sizzling labor market, Americans have spent exuberantly, on goods such as furniture and electronics and then on services including air travel and restaurant meals.How long this spending will hold up has become a crucial question.Despite contortions in world markets, many economists are cautioning that there is no reason to panic — at least not yet. In July, there was a notable slowdown in hiring and a jump in the unemployment rate to its highest level since October 2021, but consumer spending has remained relatively robust. Wages are rising, though at a slower rate, and job cuts are still low.“Overall, there isn’t evidence of a retrenchment in consumer spending,” said Gregory Daco, chief economist at the consulting firm EY-Parthenon. The strength of spending helped power greater-than-expected economic growth in the spring.That could change if the labor market’s slowdown accelerates.Already, some consumers, especially those with lower incomes, are feeling the dual pinch of higher prices and elevated interest rates that are weighing on their finances. Credit card delinquencies are rising, and household debt has swelled. Pandemic-era savings have dwindled. In June, Americans saved just 3.4 percent of their after-tax income, compared with 4.8 percent a year earlier.On calls with investors and in boardrooms around the country, corporate executives are acknowledging that customers are no longer spending as freely as they used to. And they are bracing themselves for the slide to continue.“We are seeing cautious consumers,” Brian Olsavsky, Amazon’s chief financial officer, said on a call with reporters last week. “They’re looking for deals.”We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    Heat Is Costing the U.S. Economy Billions in Lost Productivity

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    From meatpackers to home health aides, workers are struggling in sweltering temperatures and productivity is taking a hit.As much of the United States swelters under record heat, Amazon drivers and warehouse workers have gone on strike in part to protest working conditions that can exceed 100 degrees Fahrenheit.On triple-digit days in Orlando, utility crews are postponing checks for gas leaks, since digging outdoors dressed in heavy safety gear could endanger their lives. Even in Michigan, on the nation’s northern border, construction crews are working shortened days because of heat.Now that climate change has raised the Earth’s temperatures to the highest levels in recorded history, with projections showing that they will only climb further, new research shows the impact of heat on workers is spreading across the economy and lowering productivity.Extreme heat is regularly affecting workers beyond expected industries like agriculture and construction. Sizzling temperatures are causing problems for those who work in factories, warehouses and restaurants and also for employees of airlines and telecommunications firms, delivery services and energy companies. Even home health aides are running into trouble.“We’ve known for a very long time that human beings are very sensitive to temperature, and that their performance declines dramatically when exposed to heat, but what we haven’t known until very recently is whether and how those lab responses meaningfully extrapolate to the real-world economy,” said R. Jisung Park, an environmental and labor economist at the University of Pennsylvania. “And what we are learning is that hotter temperatures appear to muck up the gears of the economy in many more ways than we would have expected.”A study published in June on the effects of temperature on productivity concludes that while extreme heat harms agriculture, its impact is greater on industrial and other sectors of the economy, in part because they are more labor-intensive. It finds that heat increases absenteeism and reduces work hours, and concludes that as the planet continues to warm, those losses will increase.The cost is high. In 2021, more than 2.5 billion hours of labor in the U.S. agriculture, construction, manufacturing, and service sectors were lost to heat exposure, according to data compiled by The Lancet. Another report found that in 2020, the loss of labor as a result of heat exposure cost the economy about $100 billion, a figure projected to grow to $500 billion annually by 2050.A U.P.S. delivery in Manhattan on Monday.Spencer Platt/Getty ImagesOther research found that as the mercury reaches 90 degrees Fahrenheit, productivity slumps by about 25 percent and when it goes past 100 degrees, productivity drops off by 70 percent.And the effects are unequally distributed: in poor counties, workers lose up to 5 percent of their pay with each hot day, researchers have found. In wealthy counties, the loss is less than 1 percent.Of the many economic costs of climate change —- dying crops, spiking insurance rates, flooded properties — the loss of productivity caused by heat is emerging as one of the biggest, experts say.“We know that the impacts of climate change are costing the economy,” said Kathy Baughman McLeod, director of the Adrienne Arsht-Rockefeller Foundation Resilience Center, and a former global executive for environmental and social risk at Bank of America. “The losses associated with people being hot at work, and the slowdowns and mistakes people make as a result are a huge part.”Still, there are no national regulations to protect workers from extreme heat. In 2021, the Biden administration announced that the Occupational Safety and Health Administration would propose the first rule designed to protect workers from heat exposure. But two years later, the agency still has not released a draft of the proposed regulation.Seven states have some form of labor protections dealing with heat, but there has been a push to roll them back in some places. In June, Governor Greg Abbott of Texas signed a law that eliminated rules set by municipalities that mandated water breaks for construction workers, even though Texas leads all states in terms of lost productivity linked to heat, according to an analysis of federal data conducted by Vivid Economics.Business groups are opposed to a national standard, saying it would be too expensive because it would likely require rest, water and shade breaks and possibly the installation of air-conditioning.Martin Rosas, the vice president for the United Food and Commercial Workers Union International. “When it’s extremely hot, and their safety glasses fog up, their vision is impaired and they are exhausted, they can’t even see what they’re doing,” he said of the workers he represents.Brett Deering for The New York Times“OSHA should take care not to impose further regulatory burdens that make it more difficult for small businesses to grow their businesses and create jobs,” wrote David S. Addington, vice president of the National Federation of Independent Business, in response to OSHA’s plan to write a regulation.Marc Freedman, vice president of employment policy at the United States Chamber of Commerce, said, “I don’t think anyone is dismissing the hazard of overexposure to heat.” But, he said, “Is an OSHA standard the right way to do it? A lot of employers are already taking measures, and the question will be, what more do they have to do?”The National Beef slaughterhouse in Dodge City, Kan., where temperatures are expected to hover above 100 degrees Fahrenheit for the next week, is cooled by fans, not air-conditioning.Workers wear heavy protective aprons and helmets and use water vats and hoses heated to 180 degrees to sanitize their equipment. It’s always been hot work.But this year is different, said one worker, who asked not to be identified for fear of retribution. The heat inside the slaughterhouse is intense, drenching employees in sweat and making it hard to get through a shift, the worker said.National Beef did not respond to emails or telephone calls requesting comment.Martin Rosas, a union representative for meatpacking and food processing workers in Kansas, Missouri and Oklahoma, said sweltering conditions present a risk for food contamination. After workers skin a hide, they need to ensure that debris doesn’t get on the meat or carcass. “But when it’s extremely hot, and their safety glasses fog up, their vision is impaired and they are exhausted, they can’t even see what they’re doing,” Mr. Rosas said.Almost 200 employees out of roughly 2,500, have quit at the Dodge City National Beef plant since May, Mr. Rosas said. That’s about 10 percent higher than usual for that time period, he said.Maria Rodriguez, who has worked at the same McDonald’s in Los Angeles for 20 years, walked out on July 21.Jessica Pons for The New York TimesBut even some workers in air-conditioned settings are getting too hot. McDonald’s workers in Los Angeles walked off the job this summer as the air-conditioned kitchens were overwhelmed by the sweltering heat outside.“There is an air-conditioner in every part of the store, but the thermostat in the kitchen still showed it was over 100 degrees,” said Maria Rodriguez, who has worked at the same McDonald’s on Crenshaw Boulevard in Los Angeles for 20 years, but walked out on July 21, sacrificing a day of pay. “It’s been hot before, but never like this summer. I felt terrible — like I could pass out or faint at any moment.”Nicole Enearu, the owner of the store, said in a statement, “We understand that there’s an uncomfortable heat wave in LA, which is why we’re even more focused on ensuring the safety of our employees inside our restaurants. Our air-conditioning is functioning properly at this location.”Tony Hedgepeth, a home health aide in Richmond, Va., cares for a client whose home thermostat is typically set at about 82 degrees. Last week, the temperature inside was near 94 degrees.Any heat is a challenge in Mr. Hedgepeth’s job. “Bathing, cooking, lifting and moving him, cleaning him,” he said. “It’s all physical. It’s a lot of sweat.”Warehouse workers across the country are also feeling the heat. Sersie Cobb, a forklift driver who stocks boxes of pasta in a warehouse in Columbia, S.C., said the stifling heat can make it difficult to breathe. “Sometimes I get dizzy and start seeing dots,” Mr. Cobb said. “My vision starts to go black. I stop work immediately when that happens. Two times this summer I’ve had heart palpitations from the heat, and left work early to go to the E.R.”In Southern California, a group of 84 striking Amazon delivery workers say that one of their priorities is getting the company to make it safe to work in extreme heat. Last month, unionized UPS workers won a victory when the company agreed to install air-conditioning in delivery trucks.Amazon delivery drivers striking at the company’s Palmdale, Calif., warehouse and delivery center on Tuesday.Robyn Beck/Agence France-Presse — Getty Images“Heat has played a tremendous role — it was one of the major issues in the negotiations,” said Carthy Boston, a member of the International Brotherhood of Teamsters representing UPS drivers in Washington, D.C. “Those trucks are hotboxes.”Many factories were built decades ago for a different climate and are not air-conditioned. A study on the effects of extreme temperatures on the productivity of auto plants in the United States found that a week with six or more days of heat exceeding 90 degrees Fahrenheit cuts production by an average of 8 percent.In Tulsa, Okla., Navistar is installing a $19 million air-conditioning system at its IC Bus factory, which produces many of America’s school buses. Temperatures on the floor can reach 99 degrees F. Currently, the plant is only cooled by overhead fans that swirl high above the assembly line.Shane Anderson, the company’s interim manager, said air-conditioning is expected to cost about $183 per hour, or between $275,000 and $500,000 per year — but the company believes it will boost worker productivity.Other employers are also adapting.Brad Maurer, who leads a construction contracting business in Michigan, where heat has caused his employees to stop working hours before quitting time at some sites.Emily Elconin for The New York TimesBrad Maurer, vice president of Leidal and Hart, which builds stadiums, hospitals and factories in Michigan, Ohio, Indiana, Kentucky and Tennessee, said managers now bring in pallets of bottled water, which they didn’t used to do, at a cost to the company of a few thousand dollars a month.Rising heat around Detroit recently caused his employees to stop working three hours early on a Ford Motors facility for several days in a row — a pattern emerging throughout his company’s work sites.“It means costs go up, production goes down, we may not meet schedules, and guys and women don’t get paychecks,” Mr. Maurer said. Labor experts say that as employers adapt to the new reality of the changing climate, they will have to pay one way or the other.“The truth is that the changes required probably will be very costly, and they will get passed on to employers and consumers,” said David Michaels, who served as assistant secretary of labor at OSHA during the Obama administration and is now a professor at the George Washington School of Public Health.“But if we don’t want these workers to get killed we will have to pay that cost.”David Gelles 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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    California Voters to Decide on Regulating Fast-Food Industry

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    Pre-empting a law signed last year, business groups forced a ballot initiative on state oversight of wages and working conditions.LOS ANGELES — A California law creating a council with broad authority to set wages and improve the working conditions of fast-food employees has been halted after restaurant and trade groups submitted enough signatures to place the issue before voters next year.Officials from the California secretary of state’s office announced late Tuesday that Save Local Restaurants, a broad coalition of small-business owners, large corporations, restaurateurs and franchisees, had turned in enough valid signatures to stop the law from taking effect.The group, which has raised millions of dollars to oppose the law, had to submit roughly 623,000 valid voter signatures by an early December deadline to place a question on the 2024 ballot asking California voters if the law should take effect.Legislation signed in September by Gov. Gavin Newsom, a Democrat, would set up a 10-member council of union representatives, employers and workers to oversee the fast-food industry’s labor practices in the state.The panel would have the authority to raise the minimum wage of fast-food workers to as much as $22 an hour — well above the statewide minimum of $15.50. In addition, the council would oversee health, safety and anti-discrimination regulations for nearly 550,000 fast-food workers statewide.More on CaliforniaA Wake of Tragedy: California is reeling after back-to-back mass shootings in Monterey Park and Half Moon Bay.Storms and Flooding: A barrage of powerful storms has surprised people in the state with an unrelenting period of extreme weather that has caused extensive damage across the state.New Laws: A new year doesn’t always usher in sweeping change, but in California, at least, it usually means a slate of new laws going into effect.Wildfires: California avoided a third year of catastrophic wildfires because of a combination of well-timed precipitation and favorable wind conditions — or “luck,” as experts put it.Opponents including the International Franchise Association and the National Restaurant Association argued that the measure, Assembly Bill 257, singled out their industry and would in turn burden businesses with higher labor costs that would be passed along to consumers in higher food prices.Matt Haller, president of the International Franchise Association, said the bill “was a solution in search of a problem that didn’t exist.”“Californians have spoken out to prevent this misguided policy from driving food prices higher and destroying local businesses and the jobs they create,” Mr. Haller said.Last year, the Center for Economic Forecasting and Development at the University of California, Riverside, released a study that estimated that employers would pass along one-third of labor compensation increases to consumers.But Mr. Newsom, in signing the measure, said it “gives hardworking fast-food workers a stronger voice and seat at the table to set fair wages and critical health and safety standards across the industry.”Mary Kay Henry, president of the Service Employees International Union, a staunch proponent of the measure, assailed fast-food corporations.“Instead of taking responsibility for ensuring workers who fuel their profits are paid a living wage and work in safe, healthy environments, corporations are continuing to drive a race to the bottom in the fast-food industry,” Ms. Henry said. “It’s morally wrong, and it’s bad business.”The effort to put the issue before voters follows a playbook used by large corporations to circumvent lawmakers in Sacramento. In 2019, state lawmakers passed a measure that required companies like Uber and Lyft to treat gig workers as employees. The companies opposed the measure and helped get a proposition on the 2020 ballot allowing them to treat drivers as independent contractors. The measure passed with nearly 60 percent of the vote.The fast-food law has been closely watched by the industry’s workers across California, including  Angelica Hernandez, 49, who has worked at McDonald’s restaurants in the Los Angeles area for 18 years.“We are undeterred, and we refuse to back down,” Ms. Hernandez said. “We can’t afford to wait to raise pay to keep up with the skyrocketing cost of living and provide for our families.”Alison Morantz, a professor at Stanford Law School who focuses on employment law, said what made the law unusual was “its holistic approach to addressing a wide range of problems in a traditionally nonunionized industry — not just low and stagnating wages, but also employment discrimination and poor safety practices.”“If it takes effect, it will be closely watched and could become a harbinger of similar efforts in other worker-friendly jurisdictions,” Ms. Morantz said. More

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    Labor Board Proposes to Increase Legal Exposure for Franchised Chains

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    Federal labor regulators on Tuesday proposed a rule that would make more companies legally liable for labor law violations committed by their contractors or franchisees.Under the proposal, which governs when a company is considered a so-called joint employer, the National Labor Relations Board could hold a company like McDonald’s liable if one of its franchisees fired workers who tried to unionize, even if the parent company exercised only indirect control over the workers. Indirect control can include requiring the franchisee to use software that locks in certain scheduling practices and setting limits on what the workers can be paid.Under the current approach, adopted in 2020, when the board had a majority of Republican appointees, the parent company could be held liable for such labor law violations only if it exerted direct control over the franchisee’s employees — such as directly determining their schedules and pay.The joint-employer rule also determines whether the parent company must bargain with employees of a contractor or franchisee if those employees unionize.Employees and unions generally prefer to bargain with the parent company and to hold it accountable for labor law violations because the parent typically has more power than the contractor or franchisee to change workplace policies and make concessions.“In an economy where employment relationships are increasingly complex, the board must ensure that its legal rules for deciding which employers should engage in collective bargaining serve the goals of the National Labor Relations Act,” Lauren McFerran, the chairwoman of the board, which has a Democratic majority, said in a statement.The legal threshold for triggering a joint-employer relationship under labor law has changed frequently in recent years, depending on the political composition of the labor board. In 2015, a board led by Democrats changed the standard from “direct and immediate” control to indirect control.As a result of that shift, parent companies could also be considered joint employers of workers hired by a contractor or franchisee if the parent had the right to control certain working conditions — like firing or disciplining workers — even if it didn’t act on that right.Under President Donald J. Trump, the board moved to undo that change. The Republican-led board not only restored the standard of direct and immediate control, it also required that the control exercised by the parent be “substantial,” making it even more difficult to deem a parent company a joint employer.The franchise business model has faced rising pressure. On Monday, Gov. Gavin Newsom of California said he had signed a bill creating a council to regulate labor practices in the fast food industry. The council has the power to raise the minimum wage for the industry in California to $22 an hour next year, compared with a statewide minimum of $15.50, and to issue health and safety standards to protect workers.The fast food industry strongly opposed the measure, arguing that it would raise costs for employers and prices for consumers. More

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    California Senate Passes Bill to Regulate Fast-Food Industry

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    If signed by Gov. Gavin Newsom, the measure would create a state council to establish minimum pay and safety conditions on an industrywide basis.The California State Senate passed a bill on Monday that could transform the way the service sector is regulated by creating a council to set wages and improve working conditions for fast-food workers.The measure, known as A.B. 257, passed by a vote of 21 to 12. The State Assembly had already approved a version of the measure, and it now requires the approval of Gov. Gavin Newsom, who has not indicated whether he will sign it. The bill was vehemently opposed by the fast-food industry.The bill could herald an important step toward sectoral bargaining, in which workers and employers negotiate compensation and working conditions on an industrywide basis, as opposed to enterprise bargaining, in which workers negotiate with individual companies at individual locations.“In my view, it’s one of the most significant pieces of state employment legislation that’s passed in a long time,” said Kate Andrias, a labor law expert at Columbia University. “It gives workers a formal seat at the table with employers to set standards across the industry that’s not limited to setting minimum wages.”While sectoral bargaining is common in Europe, it is rare in the United States, though certain industries, like auto manufacturing, have arrangements that approximate it. The California bill wouldn’t bring true sectoral bargaining — which involves workers negotiating directly with employers, instead of a government entity setting broad standards — but incorporates crucial elements of the model.The bill would set up a 10-member council that would include worker and employer representatives and two state officials, and that would review pay and safety standards across the restaurant industry.The council could issue health, safety and anti-discrimination regulations and set an industrywide minimum wage. The legislation caps the figure at $22 an hour next year, when the statewide minimum wage will be $15.50. The bill also requires annual cost-of-living adjustments for any new wage floor beginning in 2024.Restaurant chains with at least 100 locations nationwide would come under the council’s jurisdiction — including companies like Starbucks that own and operate their stores as well as franchisees of large companies like McDonald’s. Hundreds of thousands of workers in the state would be affected.The council would shut down after six years but could be reconvened by the Legislature.Mary Kay Henry, the president of the nearly two-million-member Service Employees International Union, which pushed for the legislation, said it was critical because of the challenges that workers have faced when trying to change policies by unionizing store by store.“The stores get closed or the franchise owner sells or the multinational pulls the lease for the real estate,” Ms. Henry said. Franchise industry officials say it is extremely rare to close a store in response to a union campaign. Starbucks recently closed several corporate-owned stores across the country where workers had unionized or were trying to unionize, citing safety concerns like crime, though the company also closed a number of nonunion stores for the same stated reasons. Industry officials argue that the bill will raise labor costs, and therefore menu prices, when inflation is already a widespread concern. A recent report by the Center for Economic Forecasting and Development at the University of California, Riverside, estimated that employers would pass along about one-third of any increase in labor compensation to consumers.“We are pulling the fire alarm in all states to wake our members up about what’s going on in California,” said Matthew Haller, the president of the International Franchise Association, an industry group that opposes the bill. “We are concerned about other states — the multiplier effect of something like this.”Ingrid Vilorio, who works at a Jack in the Box franchise near Oakland, Calif., and who pressed legislators to back the bill during several trips to Sacramento, the state capital, said she believed the measure would lead to improvements in safety — for example, through rules that require employers to quickly repair or replace broken equipment like grills and fryers, which can cause burns.Ms. Vilorio said she also hoped the council would crack down on problems like sexual harassment, wage theft and denial of paid sick leave. She said she and her co-workers went on strike last year to demand masks, hand sanitizer and the Covid-19 sick pay they were entitled to receive. Jack in the Box did not respond to a request for comment.Mr. Haller said state agencies were already authorized to crack down on employers who violate laws governing the payment of wages, safety, discrimination and harassment.“The state has the existing tools at its disposal,” Mr. Haller said. “They should be more fully funded rather than put a punitive target on a subsection of a sector.”Mr. Haller and other opponents have cited a critique by the state’s Department of Finance arguing that the bill “could lead to a fragmented regulatory and legal environment for employers” and “exacerbate existing delays” in enforcement by increasing the burden on agencies that oversee existing rules. The bill does not provide additional funding for enforcement agencies.David Weil, who under President Barack Obama oversaw the agency that enforces the federal minimum wage, said that, while funding is critical for labor regulators, the new council could benefit a broad swath of workers even without additional funding. For example, he said, raising the minimum wage for fast-food workers could increase wages for workers in other sectors, like retail, that compete with fast-food restaurants for labor.But Dr. Weil agreed that creating new standards in the fast-food industry could end up drawing resources away from the enforcement of labor and employment laws in other industries where workers may be equally vulnerable.Opponents managed to secure a number of concessions in the State Senate, such as preventing the council from creating sick-leave or paid-time-off benefits, or rules that restrict scheduling.The Senate also eliminated a so-called joint liability provision, which would have allowed regulators to hold parent companies like McDonald’s liable for violations by franchise owners. More

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    Food Companies, Long Symbols of the West in Russia, Pause Operations

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    After years of cultivating the Russian market, McDonald’s, Starbucks, PepsiCo and Coca-Cola said they would temporarily close locations or stop selling products there.When McDonald’s opened its doors in Moscow’s Pushkin Square in 1990, it was welcomed by more than 30,000 Russians who happily waited hours in line, eager to spend a sizable chunk of their daily wages for a taste of America.Through burgers and fries, a food diplomacy was forged, one that flourished over the past three decades as corporations like McDonald’s and PepsiCo, private investment firms, and individuals plunged billions of dollars into building factories and restaurants to bring food, culture and good-old American capitalism to Russia. It was perestroika and glasnost sandwiched between two buns.“McDonald’s was more than the opening of a simple restaurant,” Marc Carena, a former managing director of McDonald’s Russia, told Voice of America in 2020 when the Golden Arches celebrated the 30th anniversary of its first location in what was the Soviet Union. “It came to symbolize the entire opening of the U.S.S.R. to the West.”But Russia’s invasion of Ukraine has changed everything, and food companies and restaurant chains have struggled with how to respond. Amid mounting pressure to act, McDonald’s announced on Tuesday that it was temporarily closing its nearly 850 locations in Russia and halting operations in the country.“In the 30-plus years that McDonald’s has operated in Russia, we’ve become an essential part of the 850 communities in which we operate,” Chris Kempczinski, the company’s chief executive, said in a statement announcing the move. He noted that the company employed 62,000 people in the country.Soon after the McDonald’s announcement, other prominent food companies and restaurants followed. Starbucks said it, too, was closing all of its locations in Russia, where they are owned and operated by the Kuwaiti conglomerate Alshaya Group. Coca-Cola said it was halting sales there.And PepsiCo, whose products have been in Russia since the early 1970s, said it would no longer sell Pepsi and 7-Up there but would continue to produce dairy and baby food products in the country as a “humanitarian” effort and to keep tens of thousands manufacturing and farm workers employed.Investors, as well as social media users, have been applying pressure on businesses to pull out of Russia, especially fast-food chains, which have been criticized for lagging behind other companies with decisions about their Russia operations.For food companies that have spent decades cultivating the Russian market, the act of pausing or ceasing operations in the country is complex. It involves unwinding often byzantine local supply and manufacturing chains, addressing the fates of tens of thousands of Russian employees, and untangling close ties with Russian banks, investors and others that allowed them to flourish all these years.Russian operations make up only 3 percent of McDonald’s operating income but 9 percent of its revenue. Likewise, Russia accounts for $3.4 billion, or 4 percent, of PepsiCo’s annual revenue of $79.4 billion. The company says on its website that it is the largest food and beverage manufacturer in Russia. It owns more than 20 factories in the country.“PepsiCo has been there forever. PepsiCo was there under Nixon,” said Bruce W. Bean, a professor emeritus at Michigan State University’s law school who, as an American lawyer in Russia, worked with companies making investments there.“Obviously, PepsiCo can walk away from the business,” Mr. Bean added. “It will hurt them, but it will hurt the Russians who have picked up the business, the Russians that distribute its product — it hurts them more.”Some companies — like Yum Brands and Papa John’s, which have hundreds of restaurants bearing their names across Russia — most likely have less control over whether those restaurants close because many are owned by individuals or groups of investors through franchise agreements, franchise experts said.“It’s messy,” said Ben Lawrence, a professor of franchise entrepreneurship at Georgia State University. As long as the franchisees are meeting the requirements under their agreement and paying the royalty fees, it’s hard to tell them to shut down, he said.Yum, which owns KFC and Pizza Hut, said on Tuesday that it was suspending operations at 70 company-owned KFCs and all 50 franchise-owned Pizza Huts in Russia. (The vast majority of the 1,000 KFCs in Russia are franchise-owned and, at this time, not part of these suspensions.) Yum also said it would suspend all “investment and restaurant development” in Russia and divert any profits from the region to humanitarian efforts.McDonald’s, which has invested millions of dollars into building restaurants in Russia and is a symbol of American culture, has felt the impact of geopolitics before. In 2014, when the United States and other nations imposed economic sanctions on Russia over its annexation of Crimea, the authorities suddenly closed down a number of McDonald’s locations in Russia, including in Pushkin Square, citing sanitary conditions. The Pushkin Square location reopened 90 days later.The line of customers in Moscow when McDonald’s opened its first location in the Soviet Union in 1990.Vitaly Armand/Agence France-Presse — Getty ImagesFor the better part of the last two decades, Russia has been one of the fastest-growing markets for American brands, particularly fast-food chains. McDonald’s, KFC, Subway and others thrived not only because they were a midday glimpse of Western civilization but also because they were relatively cheap places to grab a meal.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    Inflation Hits the Fast Food Counter

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    On a chilly Tuesday afternoon this month, James Marsh stopped by a Chipotle near his suburban Chicago home to grab something to eat.It had been a while since Mr. Marsh had been to Chipotle — he estimated he goes five times a year — and he stopped cold when he saw the prices.“I had been getting my usual, a steak burrito, which had been maybe in the mid-$8 range,” said Mr. Marsh, who trades stock options at his home in Hinsdale, Ill. “Now it was more than $9.”He walked out.“I figured I’d find something at home,” he said.The pandemic has led to price spikes in everything from pizza slices in Manhattan to sides of beef in Colorado. And it has led to more expensive items on the menus at fast-food chains, traditionally establishments where people are used to grabbing a quick bite that doesn’t hurt their wallet.At a Chipotle in Costa Mesa, Calif., the price of a chicken burrito — nothing fancy, hold the guacamole — about a year ago was $7.25. These days, that same burrito costs around $7.95, according to price data collected by analysts. In Ann Arbor, Mich., a ShackBurger at Shake Shack used to cost $5.69; now it’s $6.09. And in Oklahoma City, an order of 50 bone-in wings from Wingstop that cost $41.99 early last year is now $47.49, a 13 percent increase.Last year, the price of menu items at fast-food restaurants rose 8 percent, its biggest jump in more than 20 years, according to government data. And, in some cases, portions have shrunk.In Ann Arbor, Mich., a ShackBurger at Shake Shack used to cost $5.69; now it’s $6.09.Amy Lombard for The New York Times“In recent years, most fast-food restaurants had, maybe, raised prices in the low single digits each year,” said Matthew Goodman, an analyst at M Science, an alternative data research and analytics firm. “What we’ve seen over the last six-plus months are restaurants being aggressive in pushing through prices.”This comes at a time when the hypercompetitive fast-food market is booming.Chains like McDonald’s, Chipotle and Wingstop were big winners of the pandemic as consumers, stuck at home working and tired of cooking multiple meals for their families, increasingly turned to them for convenient solutions. But in the past year, as the cost of ingredients rose and the average hourly wage increased 16 percent to $16.10 in November from a year earlier, according to government data, restaurants began to quietly bump up prices.But making customers pay more for a burger or a burrito is a tricky art. For many restaurants, it involves complex algorithms and test markets. They need to walk a fine line between raising prices enough to cover expenses while not scaring away customers. Moreover, there isn’t a one-size-fits-all approach. Chains that are operated by franchisees typically allow individual owners to decide pricing. And national chains, like Chipotle and Shake Shack, charge different prices in various parts of the country.When Carrols Restaurant Group, which operates more than 1,000 Burger Kings, raised prices in the second half of last year, the number of customers actually improved from the third to the fourth quarter. “Over time, we generally have not seen a whole lot of pushback from consumers” on the higher prices, Carrols’ chief executive, Daniel T. Accordino, told analysts at a conference in early January.Menu prices are likely to continue to climb this year. Many restaurants say they are still paying higher wages to attract employees and expect food prices to rise.“We expect unprecedented increases in our food basket costs versus 2021,” Ritch Allison, the chief executive of Domino’s Pizza, told Wall Street analysts at a conference this month. While Domino’s hasn’t raised prices, it is altering its promotions — offering the $7.99 pizza deal only to customers ordering online and shrinking the number of chicken wings in certain promotions to eight from 10 — in an effort to maintain profit margins.In Oklahoma City, a bucket of 50 bone-in wings from Wingstop that cost $41.99 early last year is now $47.49.Amy Lombard for The New York TimesDespite the higher food and labor costs, some restaurants are seeing sales and profits rebound past prepandemic levels.When McDonald’s reports earnings this month, Wall Street analysts expect that its revenues will have hit a five-year high of more than $23 billion, a $2 billion increase from 2019. Net income is predicted to top $7 billion, up from $6 billion in 2019. Other chains like Cracker Barrel and Darden Restaurants, which owns Olive Garden and Longhorn Steakhouse, have resumed dividend payments or cash buybacks of stock after suspending those activities early in the pandemic to conserve cash.And next month, when Chipotle reports results for 2021, analysts expect revenues to top $7.5 billion, a 34 percent jump from 2019. Net income is expected to almost double from prepandemic levels. In the third quarter, the company repurchased nearly $100 million of its stock. Chipotle declined to make an executive available for an interview, citing the quiet period ahead of its earnings release.While Chipotle executives blamed higher labor costs for a 4 percent price increase in menu items this summer, the company has been looking for ways to boost its profitability.One way was to charge higher prices for delivery. Delivery orders through vendors like DoorDash and Uber Eats exploded for Chipotle and other fast-food chains during the pandemic. But so did the commission fees that Chipotle paid the vendors. So in the fall of 2020, it began running tests to see what would happen if it raised the prices of burritos and guacamole and chips that customers ordered for delivery, executives told Wall Street analysts in an earnings call. It essentially meant the customer covered Chipotle’s side of the delivery costs.The company discovered customers were willing to pay for the convenience of delivery. Now, customers ordering Chipotle for delivery pay about 21 percent more than if they had ordered and picked the food up in the stores, according to an analysis by Jeff Farmer, an analyst at Gordon Haskett Research Advisors.At a Chipotle in Costa Mesa, Calif., the price of a chicken burrito about a year ago was $7.25. Now it costs $7.95.Amy Lombard for The New York Times“I would say that our ultimate goal, so this would be over the long term, maybe the medium term, is to fully protect our margins,” said Jack Hartung, the chief financial officer of Chipotle, on a call with Wall Street analysts last fall. “When you look at our pricing versus other restaurant companies’ for the quality of the food, the quantity of the food, and the quality and convenience of the experience, we offer great value. So we believe we have room to fully protect the margin.”That doesn’t mean customers are thrilled about the extra costs.This month, Jacob Herlin, a data scientist in Lakewood, Colo., placed an order: a steak-and-guacamole burrito for $11.95, a Coca-Cola for $3, and chips and guacamole, which were free with a birthday coupon. The total was $14.95, before tax.But when he clicked to have the food delivered, the price for the burrito jumped to $14.45 and the soda climbed to $3.65, bringing the total to $18.10 before tax, 21 percent more than if he had picked the food up himself.There was more. Mr. Herlin was charged a delivery fee of $1 and another “service fee” of $2.32, bringing the total for the delivered meal to $23.20. He tipped the driver an additional $3.Mr. Herlin said he did not mind paying for delivery and wanted drivers to be paid a decent wage. But he felt that Chipotle wasn’t being upfront with customers about the added costs.“They’re basically hiding the fees two different ways, through that base price increase and through the hidden ‘service fee,’” Mr. Herlin said in an email. “I would very much prefer if they had the same pricing and were just honest about a $5 delivery fee.” More